Bell v. Forrestal , 55 Minn. 431 ( 1893 )

Mitchell, J.

Upon entering into a contract with the city of St. Paul for the construction of a sewer, the defendant Forrestal, the contractor, as principal, and the other defendants as sureties, executed a bond to the city in accordance with' the provisions of Sp. Laws 1889, ch. 360, which inured to the benefit of all who performed work or furnished material in the execution of the contract. Sepp v. McCann, 47 Minn. 364, (50 N. W. 246.) This is an action on the bond to recover for material furnished by plaintiff to the defendant Forrestal in the execution of the contract.

The only matters in issue were — First, how much had been paid on the claim by Forrestal; and, Second, whether certain acts of the plaintiff had not, in part, released the sureties from their liability on the bond.

1. It appeared that, when Forrestal made a certain payment to plaintiff, he was also indebted to the latter for other material furnished in the execution of another contract with the city. The defendants claim that this payment was made generally on all of For-restal’s indebtedness to plaintiff, as one indivisible account, and should be so applied, while plaintiff’s contention is that the payment was made and accepted under an express agreement of tbe parties that it should be first applied to pay in full the amount due for material for the other job, and the remainder only applied on the indebtedness for material for this sewer. All we need say on this branch of the case is that in our opinion, on the evidence, the question was one for the jury, and that their verdict in favor of the plaintiff; is conclusive.

2. The partial release of the sureties is claimed to have been effected by the following facts: After most of the indebtedness now sought to be recovered had become due and payable, plaintiff applied to Forrestal for payment. Forrestal, having no money, requested plaintiff to accept a promissory note. After some negotiations on the subject, plaintiff accepted a negotiable promissory note for $2,500, payable in sixty days, with eight per cent, interest, •executed by Forrestal Bros., a copartnership composed of defendant Forrestal and his brother. Plaintiff immediately indorsed, sold, and transferred it to a bank, and obtained the money on it, which h.e credited on his books to Forrestal’s account, which credit appeared on subsequent monthly statements of account rendered by plaintiff to Forrestal, showing the balance due after deducting the credit of $2,500. The record is entirely silent as to the subsequent history or present condition of this note, except that plaintiff’s books of account show that, at or about the date of the maturity, he charged it back to Forrestal, by debiting his account with the amount. We shall, however, assume what the record does not show, — that plaintiff, as indorser, had to take up the note. The testimony of Forrestal and of plaintiff is conflicting as to the terms .and conditions upon which' the note was given and accepted. For-restal’s testimony was that it was given and received as payment, or conditional payment, of part of the book account, without anything being said as to its effect either upon the account or upon the bond; and certainly all of plaintiff’s subsequent acts tend strongly to corroborate this. On the other hand, plaintiff (corroborated by his brother) testified that he accepted it on the express condition that it should not extend the time of payment of the account, or affect his remedy on the bond against the sureties. Plaintiff and his brother are quite confused in their testimony as to the purpose for which the note was given.. They sometimes speak of it as "baying been given “merely as a matter of accommodation, and not .as payment;” again, as “collateral or as an accommodation;” and, still again, as being accepted merely “as collateral.”

Of course, if it was given and accepted merely as accommodation paper, without any reference to or connection with the account due from Forrestal to plaintiff, it needs no argument to show that it is wholly immaterial what plaintiff did with it, as it could not affect the liability of the sureties on the bond. But it is evident that the witness inaccurately used the word “accommodation” as •synonymous with “collateral,” — a meaning which the court itself adopted from the witnesses, in its charge to the jury. But, when brought down to state the exact terms of the agreement, plaintiff ■testified that Forrestal requested him to accept the note as collateral, and that he accepted it as collateral, and not as payment on the account, but with an express agreement that it should not extend the time of payment of the account, or in any way affect or suspend his remedy against the sureties on the bond. And the tenor ■of the entire evidence, both direct and circumstantial, conclusively negatives the idea that the note was given merely as accommodation paper, without reference to the account. The only two views which the evidence reasonably tends to support are either that it was taken as a conditional payment, with an implied extension of time ■of payment of that much of the account until the maturity of the note, or that it was taken merely as collateral security for the ¡account.

In our opinion the evidence would justify the jury in adopting the latter view, which is the one most favorable to the plaintiff. Accepting this to have been the agreement, as we must, in favor of the •correctness of the verdict, it is very clear that the mere acceptance of the note as collateral would not release the sureties. But we are of opinion that the subsequent act of the plaintiff in parting with the note, and transferring it to the bank, did have that effect, for the reason that it operated, if not as an absolute payment on the account, at least as a conditional one, which suspended all right of action on that much of the account until the maturity of the note, and until plaintiff, if held liable as indorser, had been compelled to take it up. Whether the transfer of this collateral note, without an express agreement that this might be done, amounted to a wrongful conversion, it is not necessary to inquire. It is enough that plaintiff, by doing so, had realized the money on the note, and his only liability on it was as indorser, which was contingent on the maker’s failure to pay at maturity, and on the holder’s taking the steps to charge him as indorser, neither of which contingencies might ever occur. While matters stood thus, the plaintiff had no right of action on the account, except for the remainder after deducting the amount of the note. The effect of this was, on well-recognized principles, to release tbe sureties pro tanto; and, if once released, no subsequent act of plaintiff would revive the liability.

(Opinion published. 57 N. W. Rep. 55.) (Opinion published 57 N. W. Rep. 233.)

Cause remanded, with directions to the district court to reduce the verdict by the amount of the note, on the basis of crediting on the account $2,500 as of the date of the note, — August 18, 1890.