Yule v. Bishop ( 1901 )

I concur in the judgment, and in much of the opinion of Mr. Justice Henshaw. I do not, however, assent to that portion of the opinion in which it is held that upon the payment of the note to the bank by Mrs. Blair the obligation of the maker of the note was extinguished, nor to the construction given to section 1473 of the Civil Code. That section is as follows: "Full performance of an obligation, by the party whose duty it is to perform it, or by any other person on his behalf and with his assent, if accepted by the creditor, extinguishes it."

In order that an obligation may be extinguished, under the provisions of this section there must be a full performance of it by the party "whose duty it is to perform it," or such performance, if by any other person, must be "on his behalf and with his assent," and the obligation which is thus extinguished is that of the person whose duty it was to perform it. In the present case it is not shown or claimed that the payment of the note to the bank by Mrs. Blair was either at the request or with the assent of the corporation, and it is equally manifest from the terms of the note and the character of the transaction that the "duty" of paying the note rested upon the corporation, and not upon Mrs. Blair. The note was, by its terms, the obligation of the corporation, and the entire consideration therefor was received by it. As an indorser of the note, Mrs. Blair became liable to the bank for its payment in case the corporation should fail to pay it, and she should be properly and legally charged therefor. This conditional obligation was the only one which it was the duty of Mrs. Blair to perform, and upon her payment to the bank the only obligation which was extinguished was this conditional obligation. As payment of the note has never been made by the corporation, or by any one on its behalf or with its assent, its obligation created by the note has never been extinguished.

The obligation of the corporation was not extinguished by the payment to the bank by Mrs. Blair, but she thereby became subrogated to all the rights for the enforcement against the corporation of its obligation, that had existed in favor of the bank, or, as was said in Waldrip v. Black, 74 Cal. 409, "she became the equitable assignee of the note, and entitled to enforce its payment, according to its tenor and effect, as holder thereof." In Redington v. Cornwell, 90 Cal. 49, it was held that the payment of the corporation's note, by one of its stockholders, did not have the effect to extinguish the indebtedness of the corporation so paid by him, but that such indebtedness could be enforced against the stockholders. The ground upon which it was held in James v. Yaeger, 86 Cal. 184, that the obligation of the note had been extinguished was, that the payment thereof had been made by one of its makers.

Whether an accommodation indorser, upon being compelled to pay the note, becomes entitled to the note, and may maintain an action thereon against the maker according to its tenor, or an action merely in assumpsit for the amount paid by him, has been the subject of much controversy. That he may maintain an action in assumpsit has never been controverted; the principal dispute being whether, in an action upon the note, he can recover the full amount thereof, as was held in Fowler v. Strickland,107 Mass. 552, or only the amount paid by him, as is perhaps the rule, under the weight of authority. In either case the statute of limitations would begin to run from the time of such payment by the indorser. In Burton v. Slaughter, 26 Gratt. 914, the rule is stated to be well settled, "that the holder, when the note has been paid or taken up by an indorser, is not compelled to sue inassumpsit, but may sue directly on the note, as holder, taking care to confine his recovery to the actual value paid by him for the note." (See also Fenn v. Dugdale, 40 Mo. 63; Pinney v.McGregory, 102 Mass. 186; Ellsworth v. Lockwood, 42 N.Y. 89;Wadsworth v. Lyon, 93 N.Y. 214.¹)

The question is not material in the present case, as the right of action against the stockholders is in no case upon the note(Bank of San Luis Obispo v. Pacific Coast S.S. Co., 103 Cal. 594;Winona Wagon Co. v. Bull, 108 Cal. 1), but is for their proportion of the corporate liability, and it is incumbent upon the plaintiff to establish the fact that at the time the liability was incurred by the corporation to Mrs. Blair the defendants were stockholders. (Herman v. Hecht, 116 Cal. 553.) The liability of the corporation in behalf of Mrs. Blair did not arise until she took up the note, and as her payment of the money at that time may be regarded as if it had then been received from her by the corporation, upon the note previously executed by it, only those persons who were stockholders at that time would be liable for the corporate indebtedness. Whether the action be regarded as for the indebtedness then created by virtue of the note, or in assumpsit for money then advanced for the benefit of the corporation, the statute would begin to run from that time.

Van Dyke, J., concurred in the opinion of Harrison, J.

¹ 45 Am. Rep. 190.