Court Opinion

ID: 3598364
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:45:29.657196+00
Date Added: 2024-06-11T13:59:08.830686
License: Public Domain

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The defendants, Hart and Beach, were the endorsers on the note of the defendant Wait, and they therefore occupied the position of his sureties. He was the principal debtor. Their engagement was that he should pay the note if duly presented to him, on the day *Page 488 
it became due, and if he did not then pay it, that they, on receiving notice of its dishonor, would pay it to the holder. The only defense set up in this action is that Halliday, the owner and holder of the note in suit gave time to Wait, the maker, for payment thereof after the same became due, without the knowledge or assent of Hart and Beach, the endorsers, and that consequently they have been discharged from their contract created by such endorsement.
If the holder of a note gives the maker further time for the payment thereof, without the consent of the endorsers, he discharges them from all the liability that they contracted by becoming parties to the note. (Per BEST, Ch. J., Philpot v.Briant, 4 Bing. 721.) A creditor, by giving further time of payment, undertakes that he will not, during the time given, receive the debt from any surety of the debtor, for the instant that a surety paid the debt he would have a right to recover it against his principal. The creditor, therefore, by receiving his debt from the surety, would indirectly deprive the debtor of the advantage that he had stipulated to give him. If the creditor had received from his debtor a consideration for the engagement to give stipulated delay of payment of the debt, it would be injustice to him to force him to pay it to any one, before the day given. If to prevent the surety from suing the principal, the creditor refuses to receive the debt from the surety until the time given to the debtor for payment by the new agreement, the surety must be altogether discharged; otherwise he might be in a situation worse than he was in by his contract of suretyship. If he be allowed to pay the debt at the time when he undertook that it should be paid, the principal debtor might have the means of repaying him. Before the expiration of the extended period of payment, the principal debtor might have become insolvent. A creditor, by giving time to the principal debtor, in equity destroys the obligation of the sureties, and a court of equity will grant an injunction to restrain a creditor, who has given further time to the principal, from *Page 489 
bringing an action against the surety. This equitable doctrine the courts of law have applied to cases arising on promissory notes and bills of exchange. (Per BEST, Ch. J., S.C.)
It was formerly held that any absolute and distinct agreement to give the acceptor time was considered as discharging the drawer and endorsers of a bill of exchange, without any distinction whether or not such agreement was founded on a sufficient consideration to bind the party making it; because, at least, the acceptor relying on the honor of the party making it, and that he would abide by it, would naturally relax in his endeavors to pay the bill before the enlarged time, and in the mean time might pay less accommodating holders. (Chitty on Bills, 9th Am. ed. p. 446, and cases cited.) But the same author observes, that, of late, a distinction has been taken and a new doctrine has sprung up, and been acted upon, namely, that even an express agreement not to sue, made after giving notice of non-payment, but without sufficient consideration, and without taking any new security, being nudum pactum, will not discharge the other parties, and several authorities are cited to maintain this proposition. Among others, the case of Arundel Bank v.Goble, decided in K.B. in 1817, which was an action by the endorsee against the drawer of a bill. The plaintiffs were the holders when the bill became due, and duly presented the same to the acceptor for payment, and wrote a letter to the defendant in due time, informing him of the dishonor, but that from the promise of the acceptor they expected the sum would be shortly paid. Afterwards the acceptor applied to them for indulgence for some months. They, in reply, wrote to the acceptor that they would give him the time, but that they should expect interest. The cause was tried on the home circuit before BURROUGHS, J., where it was contended by Nolan and Comyn for the defendant, that the indulgence to the acceptor discharged the drawer, but the jury found a verdict for the plaintiffs. On motion to the court of K.B. *Page 490 
for a new trial, the court held that, as no fresh security was taken from the acceptor, the agreement of the plaintiffs to wait without consideration did not discharge the drawer, because the acceptor might, notwithstanding such agreement, be sued the next instant, and that the understanding that interest should be paid by the acceptor made no difference.
Philpot v. Briant (supra), was an action by a holder, against the drawer of a bill of exchange. The defense was that time had been given to the acceptor, and that consequently, the drawer had been discharged. The plaintiff applied to the agent of the executrix of the acceptor, who said there was not sufficient personal property to pay the bill then, but that if the plaintiff would let the matter stand, the executrix would engage to pay the bill out of her private income. The plaintiff promised, provided the interest was paid, to give a reasonable time, and in pursuance of this agreement, interest was paid out of the private income of the executrix. On a motion for a non-suit, verdict having been taken for plaintiff, the common pleas discharged the rule, holding that the time of payment must be given by a contract that is binding on the holder of the bill; a contract without consideration is not binding on him; the delay in suing is, under such an agreement, gratuitous; notwithstanding such contract, he may proceed against the acceptor when he pleases, or receive the amount of the bill from the drawer or endorser. The case of Arundel Bank v. Goble, supra, is cited with approbation, and it is said that case was stronger than the present. The court said: "If the promise made by the executrix of the acceptor, be considered to be a promise to pay the debt with interest, out of the assets of the executrix, it gives no claim to the holder beyond what the bill gave him. The executrix was, before that promise was made, bound to pay principal and interest out of her testator's effects. If it is to be taken to be a personal promise of the executrix, it is void under the statute of frauds, not being in *Page 491 
writing." The court in its opinion, takes no notice of the fact that the interest was paid by the executrix out of her private income. The interest paid being due, the court must have regarded such payment as in discharge of a legal liability already existing, and that it formed no consideration for the new agreement to give time. It must also have been regarded by the court as an immaterial circumstance, that such payment was made out of the private income of the executrix.
Both these cases are cited by Judge NELSON, with approbation, in his opinion in the case of Gahn v. Niemcewicz (11 Wend. 312). In that case a party holding a bond and mortgage, over due, received from the principal debtor his promissory note at thirty days for the amount of the bond and the accrued interest thereon. The surety claimed that the receipt of such note was giving time to the principal, and therefore discharged the surety. It was held that the giving of the note therefor was of no benefit to the creditor, for she already had a higher and better security, and for the same reason it was no injury to the principal. He was already liable for the same amount on his bond. There was, therefore, no consideration of benefit on the one side, or harm on the other, to raise or give effect to the implied promise of delay relied on. The case of Pabodie v. King (12 Johns. R. 426), is approvingly cited as containing an apposite illustration of the principle that payment, even, of part of a debt already due, furnishes no good consideration for an agreement to defer a demand of the residue. It was in that case decided that payment of a part of a debt is not a consideration which will support a promise to forbear, because the payment of the surety was doing no more than the party was bound to do.
Upon the facts found by the referee in this case, we see that the debtor, Wait, was indebted upon two separate and distinct notes to his creditor, Halliday. Upon both he had sureties; and no facts are disclosed which show that the endorsers upon the note for $1,000 had any higher equity for the appropriation of the payment made on the 16th June, *Page 492 
1856, of $400, than the endorser upon the note of $500. Both notes were over due, and Wait, the maker, was legally bound to pay both; not one more than the other. He made the payment of $400 to his creditor, holding both securities; and, by the agreement made between them at the time of such payment, which was reduced to writing and signed by Halliday, the person to be bound thereby, the payment was distributed and endorsed, $330 on the note of $500 and $70 on the note of $1,000. From the finding of the referee, we are to assume that there was no other or different agreement in reference to the object of such payment and the appropriation thereof, than what is contained in said paper writing. There is no ambiguity in its terms. In consideration of $70 paid and endorsed upon the $1,000 note, and of $330 paid and endorsed upon the $500 note, Halliday agreed to extend the time of the payment of the $1,000 note until October first, then ensuing.
In making these payments, therefore, Wait but discharged the legal obligations already resting upon him; and neither the fact of such payments, nor the appropriation thereof, upon the two securities, furnished any consideration for the agreement to give time for the payment of the $1,000 note. If the $70 had been paid as interest on the $1,000 note, as is contended for by the counsel for the appellants, another and different question would be presented. That amount of interest was not then due upon the note, and its payment would have been a pre-payment of interest — the discharge of an obligation before its maturity. Such pre-payment of interest would undoubtedly have furnished a good consideration for the agreement to give time. We are not embarrassed, however, by that question. The fact is distinctly found by the referee, that after a discussion between the parties, Wait, expressing a wish that the whole sum paid should be applied on the note of $1,000, it was finally agreed that the sum of $70 should be applied on the note; and it is not found that it was to be applied in payment of interest, and we must therefore assume that it was made as *Page 493 
a payment, generally, on the note. Upon the facts, therefore, as found by the referee, there can be no doubt that his conclusions of law were correct, and that the plaintiff was entitled to recover.
The question remaining to be considered arises upon the offer of the defendants, and the ruling of the referee excluding the same. The offer was in these words. The counsel for the defendants proposed to show by the witness Wait, the maker of the note, that he requested the plaintiff to apply the whole sum paid on the note in suit, and in consideration that the witness would waive his right to have the same applied on the note in suit, and would allow the plaintiff to apply the sum of $330 on the $500 note, and $70 as interest on the note in suit, the plaintiff agreed to extend the time of payment.
The first objection which presents itself to this testimony is that it is an attempt to set up, by parol evidence, a different agreement between the parties than that contained in the writing produced. This showed the application of the whole sum paid, and that the sums paid and endorsed on each note were so paid on account of the amount due thereon generally, and not on account of interest. This could not be done. The written agreement merged all previous conversations and negotiations between the parties, and must be held to express the true agreement made between them, upon the matters therein referred to. (Renard v. Sampson, 2 Kern. 561.)
In Fellows v. Prentiss (3 Denio, 512), it was held that if a principal debtor gives the creditor his note for the debt payable on the day after date, the surety is thereby discharged. It was offered to show that the note was intended as a mere memorandum note, giving no extension of credit, and was intended only to fix the balance of the account. This evidence was excluded. The chancellor, in his opinion, says the written receipt and the notes showed that those notes were received in payment of the original account and interest thereon to that date. The circuit judge *Page 494 
very properly refused to allow evidence to contradict the written statement, and to show that one of the notes was a mere memorandum note, which gave no extension of credit. The referee, therefore, properly excluded the parol evidence offered to show that the $70 was paid as interest on the note of $1,000. Such testimony tended to contradict, vary, and alter the written agreement, and was inadmissible. But it is insisted, on the part of the defendants, that it is competent for them to show, by parol, that the consideration expressed in the written contract for giving time for the payment of the $1,000 note was not the true consideration for such extension, but that the same was the waiver of the right of Wait to have the whole of said payment endorsed upon the note of $1,000, and his consent to have $330 of said amount endorsed upon the note of $500. And it is urged, on behalf of the defendants, that such waiver and consent formed a good consideration for such extension, as such payment was beneficial to the plaintiff; and it is claimed that he had no security therefor. I think it may well be doubted if this would make out a good consideration, upon the facts developed in the referee's report and in the agreement. It would appear that the note for $500 was given on a contract for the sale by Halliday to Wait of a certain lot of land, and the inference is strong that possession of the land sold was retained by Halliday as security for the payment of the balance of the purchase money. It may, also, be inferred from the language used in the agreement of June 16, 1856, that Halliday there agreed to give up the possession of the lot sold to Wait, and that the consideration for such surrender was the payment of the $330 on the $500 note. He would seem to have been paid subsequently thereon the sum of $110 — leaving only due of principal the sum of $60.
The case of McCrea v. Purmort (16 Wend. 460), and the authorities there cited, fully sustain the position that the utmost latitude is permitted to ascertain the true consideration named in a deed, and proof is allowed, to show *Page 495 
the actual consideration, although it be different in its nature and amount, from that named in the instrument. But Judge COWEN says in his opinion in that case, that enquiry is allowed "whenever that shall become material to a personal action between the parties." That this enquiry is restricted to the parties to the instrument is also apparent from the case of Murray v.Smith (1 Duer, 412.) The court in its opinion by BOSWORTH, J. says: "We think the law must be deemed to be well settled in this state, that either party is at liberty to show for any purpose, except to prevent its operating as a valid and effective grant, that its consideration was different, greater or larger than that named in it, and not wholly or at all pecuniary in a suit, by the vendor against the vendee to recover the actual consideration agreed to be paid, or in a suit brought by the vendee against the vendor on the covenants of seizin, or against incumbrances." To the same purport is the case of Bingham v. Weiderwax (1 Coms. 509.) All of the cases referred to, where the consideration has been enquired into, were between the parties to the instrument, and I have not found a case where such an enquiry has been permitted by persons not parties to the instrument or contract. In Greenvault v. Davis (4 Hill, 643), the supreme court held that such enquiry could only be permitted to the parties to the instrument. BRONSON, J. in delivering the opinion of the court, recognizing the rule that the consideration clause is open to explanation by parol proof, observes: "Whatever the rule might be if the question were between the original parties to the deed, the defendant is not at liberty to set up this defense against the plaintiff. The original parties knew of course, what was the true consideration for the grant, but it is not so with third persons. They have no means of knowing what consideration was paid, but from what the parties have said by the conveyance." That was an action on a covenant of warranty contained in a deed executed by the defendant, the plaintiff's grantor. On the trial, the defendant offered to prove that the consideration money, *Page 496 
paid by Price, the plaintiff's grantor, to the defendant, was less than the amount expressed in the deed. The judge excluded the evidence, and such ruling was sustained by the supreme court.
It follows that it was not competent for the appellants, not parties to the written contract between Wait and Halliday, to contradict, vary or alter the consideration expressed therein, and the testimony offered by them for that purpose was properly rejected.
The ruling of the referee upon such offer being correct, the judgment must be affirmed.