National Bank v. Dow , 79 Me. 275 ( 1887 )

Peters, C. J.

The defendant, an accommodation indorser of a note, contends that he is released from liability by an agreement between the maker and holder to extend the time of payment of the note without his assent.

The principle involved in such a defense, while clearly logical, is subtle and refined, so much so that persons unlearned in the law rarely suspect the legal consequences that may follow their giving time for the payment of over-due notes. It is the unseen, sunken rock on which thousands of commercial obligations have been wrecked, to the utter dismay of the losers and sometimes to their ruin. While the situation of a surety must be carefully .scrutinized, so should that of a holder be, who is to lose, if he loses at all, about seven thousand dollars for unwittingly receiving the merest pittance of consideration for extending a note.

Applying to the present case the definition of liability as declared by Virgin, J. in Berry v. Pullen, 69 Maine, 101, we are convinced that the facts, affected as they are by the finding of the judge, fail to prove any contract of extension which can release this indorser from liability on the note. It is in that case said: "But before a surety, whose name was deliberately and understandingly placed upon a note to give it credit, can be thus absolved from liability, the law, as well as justice and equity, requires that there shall be a valid, binding contract — one founded on a sufficient consideration, and the effect of which shall be to give further definite time to the principle, without the consent of the surety.” We think this plaintiff has escaped from the risk of any such contract; the facts fall short of it.

The maker of the note in a letter dated January 24, 1885, offers to renew his then over-due paper, asking that the name of one endorser be omitted from the new note. The plaintiffs do not accept the proposition, they are unwilling to lose an indorser. They answer, on January- 27, 1885, in these words : " We prefer to hold the note we now have to taking a new one, but will carry it for thirty to sixty days as it is, if nothing materially transpires to change the status of the security and the names; this, however, is only on condition that you remit immediately the interest on the note for three months, to January 15.”

All the phrases of this letter are freighted with the idea that the bank was unwilling to lose an indorser from the note. It is the language of caution and self-protection. They were willing to grant indulgence, but at no risk to themselves. They prefer to "hold the note” — "as it is” — "will carry it,” not change it — not for any fixed, definite time — but " for thirty to sixty days.” The very indefiniteness of the indulgence shows merely promise not to press, and not a contract to be bound by.

The maker’s reply indicates that he was craving indulgence merely, and not expecting to make any legal contract for delay. "I trust you will give me sixty days,” he writes. But the bank was not disposed to grant any indulgence, if thereby anything transpires to change materially the status of the security or of the names. What, from their standpoint, can this mean, unless it be that they would be bound to do nothing which would expose to risk any rights then held by them. They were in any event to retain their status both as to the security and the names. And still the defendant assumes the position, that, while the plaintiffs were repelling all idea of a contract, they were really making one. We can have no doubt that the plaintiffs intended to reserve to themselves the right to enforce the note or not at their discretion. The learned counsel for the defendant suggests that the bank and its legal advisers well understood the law of the case, and intended to obtain the consent of the indorsers. We do not believe that they intended to do any act which would require their assent. The paper may not be in all respects worded with exact verbal propriety. But as a whole we think it strongly and impressively expresses a protest against the very misinterpretation now endeavored to be put upon it; — the intention shines through it.

We do not say, of course, that there may not be some force in the ingenious argument submitted in behalf of the defendant’s position. Truth mixes with error in many cases, the alliance making error only the more difficult to contend against. We do say that the plaintiffs’ position is much the most satisfactory.

The plaintiffs asked for nothing as a legal consideration for an extension. Over-due interest, and not all of that, only was required. They did not write for extra interest — it was " interest ” that was wanted. The contention of the defense is that interest at seven per centum per annum was intended,— while there is not evidence in the case to show any such thing. When a settlement was to be made, out of which this note grew, the president of the bank wrote that they would accept notes with interest in advance at " six per cent.” At another time a bank official offered to settle this note, by new notes which they would discount at seven per cent; which would be a legal transaction. The record of the case shows no other instance when interest of any kind was mentioned by the bank.

But interest for three months at seven per cent was remitted by the maker, he supposing, no doubt, that on that account his appeal for lenity would be more likely to prevail. "Which you ask,” writes the maker. The plaintiffs had asked of him "interest,” and no more,— presumptively, legal and not illegal interest.

The whole amount was kept. Why should it not be? More of legal interest was then due than the amount sent. It was a pro tanto protection to the indorser to keep it. The bank indorsed three months interest, not naming the amount of it. But if they did not appropriate the excess over six per cent, the law of Yermont appropriated it, upon the note, at the moment it was received. It could not be retained for an illegal purpose. It was never asked for for any purpose. There is not satisfactory-evidence that the bank designed to use the excess illegally, in view of the finding of the judge, upon both law and fact, in favor of the plaintiffs. The judge ruled as a matter of law that the correspondence and the conduct of the parties did not operate to discharge the defendant. His decision of fact implies that the conduct was not incompatible with such finding. The case is before us on exceptions, and not on report of evidence or an appeal from the whole record. The finding at nisi prius gives all favorable intendments, which the facts can allow, to the plaintiffs. If it be necessary to find as a fact that the extra was not accepted as a consideration for extending the note, the finding below makes it so. And here it may forcibly be asked how the extra interest could be regarded as the consideration for the promise of the bank, when the promise was made without such consideration — before it was received.

The question, a doubtful one, whether the payment of usury would be a valid consideration for such an agreement as the defendant depends upon, never decided either in Vermont or Maine, need not now be entertained by us.

There may be stronger ground, possibly, for contending that the time of payment was not extended to the indorsers than there is that it was not extended to the maker — and this action is against an indorser only. Some distinction of the kind might appear, upon the face of the principal letter, to some persons. It is a well settled principle, recognized by most courts, the doctrine of reservation, that a holder may agree with the maker to extend the contract as to him, and at the same time, as a part of the same agreement, reserve the right of action against all indorsers or sureties — and in such case those parties are not absolved from liability. Such reservation might prevent much of the expected benefit of an extention to the creditor, but that would not lessen the validity of the qualification annexed to it. In Big. on Bills and Notes, 598 to 607, the leading cases on this subject are reviewed and an abundance of authorities cited. See also Bank v. Parsons, 138 Mass. 53; a case bearing upon the point arising in the case at bar.

Exceptions overruled.

Walton, Virgin, Libbey and Emery, JJ., concurred. Haskell, J., concurred in the result.