About October 1st, 1877, James M. Smith, partner with F. P. Hull, as Smith & Co., asked the plaintiff to loan $2000 to Crofut & Co.; he agreed to do so if Elias Smith would deliver to him his note for $3500, secured by a mortgage to be held as security. There is no occasion for considering the excess of $1500. On October 8th, 1877, Elias Smith made his note for $3500 and a mortgage to secure it, and soon after delivered both to the plaintiff for the purpose above specified. On October 15th, Crofut & Co. made their note for $2000, payable to the order of Smith & Co., the defendants, three months from date at bank, and delivered it to them; they indorsed and took it to the plaintiff; he indorsed and returned it to them, and they procured it to be discounted at bank and received the avails. Crofut & Co. went into bankruptcy, and Smith & Co. became insolvent in December, 1877; the note was protested and paid at maturity by the plaintiff. Soon afterwards, being advised that there was a defect in the mortgage made by Elias Smith, and that it afforded him no protection, he released it; then Elias Smith and himself became joint and several promisors in a note for $2500 to the New Milford Savings Bank, which was secured by a mortgage by Elias Smith. From the sum thus borrowed the plaintiff kept in his possession $2000; also $25 as interest on the unpaid note of Crofut & Co; and delivered $354.75 to Elias Smith, being the balance remaining after payment of expenses attending the loan. He then instituted this suit upon the defendants’ indorsement.
The finding is that Elias Smith was required to “ execute to him, the plaintiff, his promissory note for $3500, * * together with a mortgage of his farm, * * to be held *410by tbe plaintiff as collateral security for the liability he might incur by indorsing the note in suit.”
Therefore, in legal effect, Elias Smith became and may be spoken of as an indorser after Smith & Co. and before the plaintiff upon the note in suit; for he was not required, and did not intend, to protect the first indorsers from liability ; nor did he do it. The mortgage was demanded by and given to the plaintiff solely; whatever of security it afforded was his individual property, to be retained or surrendered at his pleasure without accountability to any one. Assuming it to have been valid, his release of it is no answer to his claim. Believing it to be useless, he naturally desired to secure himself by another. Elias Smith was willing to make an effective one in pursuance of his agreement to give security, hoping perhaps thus to induce the plaintiff to institute his suit against Smith and Co., the first indorsers, rather than against himself, the second. To that end he was willing to become principal promisor upon a note to the New Milford Savings Bank, to secure that note by a mortgage not to be doubted, and to permit the borrowed money to remain in the keeping of Rowland. Concerning this last point, the finding is that “there was no understanding or agreement that the money received by Rowland from said bank was to be applied by him in payment of the note in suit. The amounts received by the plaintiff are still held by him, and he is still holden to said bank for the payment of said note of $2500.” This is in effect a finding that both purposely abstained from making it a payment of that note, and that the money by their joint agreement remained in the hands of Rowland as a depositary until they should make a final disposition of it; an arrangement possible both in fact and law; and I do not think that the reception of it in this form should bar him from a recovery against the first indorser.
The effect of the advice given by this court is to remove from both the maker and first indorser of an accommodation note, who received and retained the entire avails thereof, all liability, and impose it, with the added burden of a bill of *411costs, upon the second indorser, who has never had any benefit therefrom, and whose hope for relief must rest upon one or more suits against insolvents.
I think that the holder of the note should be allowed to enforce payment upon either the maker or indorser at his pleasure. If he is paid by Smith & Co., first indorsers, he ceases to have any claim upon Elias Smith. He must of course return to Elias Smith the $2000 specially deposited by the latter with him. Elias Smith will then return it to the New Milford Savings Bank and redeem his farm. Crofut & Co. and Smith & Co., who borrowed money, used or kept it, will pay it back, and that without imposing a bill of costs upon Elias Smith; thus from one, and that the present suit, complete justice will result.
In this opinion Loomis, J., concurred.