Oberndorff v. Union Bank

Alvey, J., delivered the opinion of the Court. There is no doubt of the general proposition, that if the creditor release or compound with the principal debtor, without the consent of the surety, although the principal debtor may be in insolvent circumstances, and the arrangement with him be, in truth, to the surety’s advantage, it will, nevertheless, discharge the latter from all responsibility. The question whether the surety has been, in point of fact, actually damnified by such dealing with the principal debtor, is not open to inquiry. It is his right to determine for himself what is, or is not, for his benefit.

He must be left free to consider whether he will ¹³¹ have recourse to his remedy against his principal or not; and if, by any act of the creditor, this right be taken from him, the law allows him to elect to consider himself discharged from the contract altogether. “For it is,” says Lord LouuHBOEOueH, in the leading case of Rees vs. Berrington, 2 Ves., Jr., 540, “the clearest and most evident equity not to carry out any transaction without the privity of him who must necessarily have a concern in every transaction with the principal debtor. You cannot keep him bound, and transact his affairs (for they are as much his as your own), -without consulting him. You must let him judge whether he will give that indulgence contrary to the nature of his engagement.” Rut while such is the rule, before a surety or endorser can be exonerated from his responsibility, upon the ground that there has been an unauthorized indulgence given, or composition made with the principal debtor, it must be shown that such indulgence or composition has been effected by some express agreement, founded upon a valid consideration, and which is legally binding on the creditor. Without sufficient consideration the agreement would be a nullity, and consequently would bind no one.

And the first question in this case is, whether the compromises and settlements made by the bank with Steiner Brothers & Co., and with Heilbrun, whereby fifty cents in the dollar ■were received on the notes discounted for Stettheimer & Affelder, had in them the elements of binding contracts, and such as could be enforced by the parties, either as a defence or as a cause of action; for, if not, Stettheimer & Affelder remained bound as endorsers, notwithstanding the arrangement made by the bank with the makers of the notes. There is no principle better established than that part payment of the amount due, whether by principal or surety, will not discharge the surety, even where it is agreed that such part payment shall have that effect; for ¹³² the surety being equally bound^with the principal for the payment of the whole, neither can be discharged upon payment of less than the whole, except it be by some agreement founded upon a yalid and sufficient consideration. Where a party is bound to pay a certain sum, there is no consideration, in contemplation of law, for a promise that a less sum shall be received in satisfaction. Geiser vs. Kershner, 4 Gill & John, 305; Fitch vs. Sutton, 5 East, 230; Wilkinson vs. Byers, 1 A. & E., 106; Cotton vs.