Cross v. Rowe

Eastman, J.

The note on which this suit was instituted, was made by Rowe, Young and Clements, the three defendants, and received by the plaintiff, in payment for a horse, which he had sold to Rowe ; Rowe being the principal on the note, and Young and Clements sureties. Young having died insolvent, and Rowe being defaulted in the action, the defence is made by Clements alone.

On the trial, evidence was introduced subject to exceptions, showing the circumstances under which the note was given, and what was its consideration. • It was not necessary that the consideration should be proved, as that is to be presumed, until it shall, in some way be attacked. Still, being shown, no suggestion is made that it was not good and valuable; but on the contrary, it appears, that so far as the equity of the case is concerned, it is clearly with the plaintiff; since he would not have parted with his property without receiving the note.

Nor is this evidence exceptionable. It neither enlarges, circumscribes, or in any way changes the terms or character of the contract. If it did, it could not be received. As it is, however, it simply tends to throw light upon the transaction, without affecting tlm legal rights or liabilities of the parties, or varying in any manner the existing contract between them. We see no objection therefore to its reception.

The plaintiff, then, seeks to recover a note founded on a good and valid consideration; which was at all times his legal property, and which would probably have been given directly to him, were it not that it was necessary for him to have the money at once. Had the note been made payable to him, instead of the bank, no question could be raised in regard to the liability of the sureties. Rut inasmuch as it was not, and was not discounted, Clements claims that the sureties are not liable, under the circumstances of the case.

There are certain principles by which indorsers and sureties upon promissory notes are held to be discharged from their liability. Without going into a detail of them at this time, it is sufficient to observe, that they proceed upon the general principle, that any change of the original contract, which may be agreed upon, and carried into effect between the holder of the note and the principal or maker, ordinarily discharges the surety and indorser, if the agreement is entered into without the consent of the surety and indorser, and is in any way prejudicial to their interests. They are not hound by any new contract, prejudicial to them, to which they are not parties, and have not given their assent. Story on Bills, §§ 425, 26, and 27 ; Philpot v. Bryant, 4 Bing. 717; McLemon v. Powell, 12 Wheaton’s Rep. 554 ; 3 Kent’s Com. 111; Woodworth v. Bank of America, 19 Johns. Rep. 391; Grafton Bank v. Kent, 4 N. H. Rep. 221 ; Bank v. Woodman, 5 N. H. Rep. 99 ; Woodman v. Eastman, 10 N. H. Rep. 359. If, therefore, there has been any change in the original undertaking of this defendant, which is in any way prejudicial to his interests, and to which he has not given his assent, he must be discharged.

The note is payable to the South Berwick Bank or order. The contract of the signers is, that they will, in sixty days, pay one hundred dollars to said bank, or to any one who may become the indorsee of the bank. This contract was made on the 31st day of July, 1848, and consequently the note fell due about the 1st of October following. From the date of the note, up to the commencement of the suit, the note was either at the bank, or in the hands of the plaintiff, or under his control; and it is not to be presumed, that the principal and sureties were ignorant of its situation. Yet, so far as appears, no attempt was made, either by the principal or the sureties, to pay the note. It was perfectly competent for the sureties to have paid it, and then had their recourse over upon the principal for indemnity. But this was not done; and on the 27th of December, 1848, the bank indorsed the note to the plaintiff, he having given security to save them harmless in the premises. The plaintiff thus became the legal holder and indorsee of the note, and being the party who had furnished a valuable consideration therefor at its inception, he was the equitable holder also.

The defence, as we understand it, is, that the note was diverted from its proper and legitimate purpose; that it was never discounted by the bank, and that the sureties, not long before it was indorsed to the plaintiff, requested the bank not to discount it. But this defence, we apprehend, is more specious than sound. The purpose of making the note, was to raise money to pay the plaintiff for the horse; and it was made payable to the bank, with a view of effecting that object more readily. That it did not answer its end, in raising the money, is very true; but it was certainly in no way prejudicial to the interests of the sureties that it did not. Their liabilities upon it would not have been in any degree lessened, if it had. At least, the facts presented in this case do not show that they would. Even if the sureties were not informed that the note was made to raise money to pay for the horse, still they knew that it was made to raise money, and they signed the note with a full knowledge that it was to pass from their hands. It was a negotiable note, and whether the bank advanced the money upon it, or an individual, or whether it was taken as payment for money, and held till it matured, it could not vary their liability upon it. It has not followed perhaps the precise channel that was anticipated, but it has not been turned from a strictly legal channel. Its design has not been perverted to the injury of any one of the signers, nor has it been put to any purpose that can properly be regarded as a change from its original intent. If the sureties could at any time have invalidated the note, by interdicting its discount— which is doctrine that we are not prepared to affirm — it surely should have been done at an earlier day than nearly three months after it fell due. Their action, after such a lapse of time, looks very much like an after consideration, when the circumstances and responsibility of the parties had perhaps changed.

The view which we have taken of this defence is strongly sustained by a decision of the Court in New York, in the case of the Bank of Chenango v. Hyde et al. 4 Cowen’s Rep. 567. In that case, Hyde, Johnson, and Whitney, the defendants, made a note to be discounted at the Bank of Chenango, and payable to the bank. Hyde took the note to the bank, but they would not discount it. Hyde then applied to one Birdsall, who advanced the money, and the note was lodged with the bank as agent of Birdsall for his security. In a suit in the name of the bank, for the benefit of Birdsall, it was decided that, as the note was made to raise money, it did not change the liability of any of the parties to it, that the money was advanced by Birdsall instead of the bank.

The discussion by Chief Justice Parker, in Elliott v. Abbott, 12 N. H. Rep. 549, also sustains the plaintiff in this action, although the precise questions, in this case, were not raised in that. By the authority of that decision, however, as well as by that of the Bank v. Hyde et al., this action might have been brought in the name of the bank, for the plaintiff’s benefit; He might also have declared upon the note, as payable to himself by the name of the bank. And the question is distinctly settled that the bank could indorse the note, as was done in this case, and then the plaintiff sustain his action.

The opinion of the Court, therefore, is, that there should be

Judgment on the verdict.