Valley Savings Bank v. Mercer

Fowler, J., delivered the opinion of the Court. This is a suit by the Valley Savings Bank of Middletown on a promissory note for $600. The makers of this note are the thirteen defendants and J. W. Downey. The note is joint ⁴⁷⁴ and several dated April i ith, 1901, and payable one year after date to order of R. S. Delauder & Co. The following endorsements appear on it: “Received of J. W. Downey thirty-three 33-100 dollars on within note, and he is hereby released from any further payment on the same;” and “Received of E. D. Hobbs thirty-three 33-100 dollars on within note.” Neither of these was signed, but it appears by the evidence that Downey wrote the first, but there is nothing to show who wrote the second.

Following these appeared the endorsement written on the note at the time it was delivered to the plaintiff It appears from the testimony that one Hanan, acting or pretending to act as agent for Delauder & Co., the payee of the note, undertook to sell a Spanish Jack to certain residents of Frederick County for breeding purposes. The 'price of the animal was agreed to be fixed at $1,800. The evidence shows, and indeed it is conceded, the whole transaction was'a fraud on the part of the agent of the vendors, whose plan was to get subscriptions from eighteen persons of $100 each to purchase the animal. He persuaded Dr. Downey to subscribe in order that others might be induced to' follow his example and secretly gave him the money to pay his subscription.

It is not necessary however to narrate all the facts relating to this fraudulent transaction. It is sufficient. to say that the defendants with Downey' signed and delivered to Hanan, the agent or alleged agent of the vendors, three notes each for $600 for the purchase-money agreed to be paid for the jack—the note sued on in this case being the first of the series. It also appears that Hobbs never did sign the notes, because he agreed to pay his subscription in cash. Having thus secured the execution of the three notes, Hanan applied to Mr. Coblentz, one of the directors of the plaintiff bank, to get his assistance in borrowing money on them.

After some negotiation and examination into the financial standing of the makers of the note, the plaintiff decided to make a loan of $1,600 to R. S. Delauder & Co. and take the three $600 notes as collateral security. The proceeds of this ⁴⁷⁵ loan were placed to the credit of Delauder & Co. and were subsequently checked out and used by them. The defendants have all pleaded the general issue. During the trial the plaintiff took two and the defendants five exceptions—some of them relating to the rulings of the Court upon objection to testimony and some to the granting or refusal of their respective prayers.

The precise points of the various exceptions will appear further on when we consider them. The verdict and judgment were in favor of the defendants, and although we have before us in this record only the appeal of the plaintiff we will, in accordance with the provisibns of sec. 76, Art. 11 of the Public Local Laws (Frederick County), pass upon all the exceptions of all the parties inasmuch as our conclusion is that the judgment must be reversed. 1. In the first place we will consider the question presented by the release of Downey, one of the joint makers of the note sued on. The defendants contend that the legal effect of this release was to discharge all the other joint makers.

The general rule has often been said to be that where one or two or more joint, or joint and several, makers of an instrument are validly released all are discharged. But this general statement has frequently been somewhat restricted, and it is said, and we think the rule is supported by reason as well as authority, such a result will not necessarily follow, unless the release is a technical one under seal. Thus in the case of State v. Gott, 44 Md. 346 , &c., the rule as applicable to contracts is said to be, quoting from Story on Contracts, “A release under seal, if given to one of several debtors jointly liable, enures to the benefit of all. But a release by parol to one debtor will not operate as a discharge to other debtors jointly liable, and can only be pleaded by the debtor to whom it was given.” The reason of this rule is said to be that an agreement not under seal to discharge a particular person or not sue him does not extinguish the debt, and therefore cannot bar the suit to recover it.

Line v. Nelson, 38 N. J. L. 358. But whatever the reason may be, the rule itself, as announced in State v. Gott, supra, is firmly established; and as was said in that case in 1875 we can say ⁴⁷⁶ now, we have not been referred to any satisfactory authority in which this doctrine has been overruled. Several Maryland cases were relied on by the defendants to support their views as to the effect of the release of Dr. Downey, but we do not think they do so. Thus Claggett v. Salmon, 5 G. & J. 351 , was a case of principal and surety and it was in considering the rights of a surety that the Court used the general language relied on by the defendants.

There was in .that case no question before the Court requiring any consideration of the effect of a parol release on the liability oí joint debtors when, as here, they are all principals. The same may be said in regard to Oberndof v. Union Bunk, 31 Md. 126 , and Blackburn v. Beall, 21 Md. 208 . In Yates v. Donaldson, 5 Md. 389 , the joint debtors purchased certain property from their creditor for $1,700, which they agreed in writing to pay at a stipulated time. Subsequently the creditor agreed to accept from one -of them notes for two-thirds, and from the other notes for one-third, of the joint indebtedness.

One of the 'joint debtors complied with his-part of the agreement and paid his notes at maturity, but the other failed to fully do so. The creditor sued both of them to recover the balance. It was held that while, if the parties had been principal and surety, such a contract would have released the one who was surety, -yet being both principals it did not have that effect. It is .true the Court used the language relied on by the defendants and used it in regard to principals, namely, that “ if one be .released both will be, except in a case where the remedy against the other is expressly reserved.” But the question still remains, how released.

Of course if the release is under seal and shows, as in State v. Gott , that the indebtedness is satisfied, all the joint debtors would be released; but if the -release is only by parol such release can be pleaded as a discharge only by the debtor so released. State v. Gott, stipra. And in the very case relied on by the defendants (Yates v. Donaldson, supra), it was held that the matters relied on by one of- the joint debtors was not a good defense, and that in a case like that and the one we are considering, where all are ⁴⁷⁷ principals, it would be impossible to adjust the equities in a suit at law by the creditor. It would be impossible, said the Court, to render a judgment upon any adjustment of these equities, because the only judgment in such a case must be for the same amount against all the defendants.

Another Maryland case cited by the defendants is Booth v. Campbell, 15 Md. 569 , in which it was said that a release or discharge of one of several defendants in a judgment, jointly liable thereon, operates as a discharge of all. Undoubtedly an effective and valid release must have that effect, but the question again arises what kind of a release or contract did the Court in that case hold would operate as a discharge. There was a parol agreement on the part of the judgment creditor and one of the judgment debtors that if the latter would pay twenty per cent on the amount of the judgment, and secure a certain contract from another party (which latter condition was held to be a good collateral consideration), the judgment creditor would “ release the judgment.” The sum agreed upon was paid and a receipt of the creditor therefor was filed in the cause with an entry on the record of its being in full of said judgment. This, together with the additional collateral consideration, was held to be a good accord and satisfaction.

In other words, the judgment having been satisfied all liability therein was discharged. The very record which showed the existence of the judgment evidenced its satisfaction, and being satisfied the judgment of course cannot be made the basis of a suit against anybody. The case now before us presents a very different state of facts. We do not think, therefore, that there was error in the various rulings of the Court below refusing to recognize the release of Downey as a discharge of the defendants and a bar to this suit.

What we have said above disposes oí the defendants’ first and second bills of exceptions relating to testimony and to their fifth so far as it is based on the rejection of their third, sixth and seventh prayers. The most important of the remaining questions is presented by the plaintiff’s second bill of exception, which relates to ⁴⁷⁸ the granting of defendants’ fourth and the rejection of plaintiff’s second, third, fourth, fifth and sixth prayers. First, then, in regard to the granting of the defendants’ fourth prayer. In order to consider the question presented by this exception, we will have to refer to plaintiff's first prayer which, as we have seen, was granted.

By this prayer the jury was instructed that if they find from the evidence that the defendants signed the note sued on and that said note was endorsed by the payee and delivered to the plaintiff for a valuable consideration, before said note became due and payable, and shall find that said plaintiff at the time it acquired said note had no notice of any fraud in the obtention of said note, or of any failure of consideration therein, then the plaintiff is entitled to recover the full amount of said note, less •certain credits. The prayer thus concluded—“and there is no evidence in this case legally sufficient from which they can find that the plaintiff had any knowledge or notice of fraud, or want or failure of consideration in the making of said note.” The fourth prayer of the defendants, which was also granted, ■embodies in it the general and well settled doctrine applicable to negotiable paper, that if there is fraud in the origin of the note the burden of proof is upon the holder to show that it ■qame to him before maturity in good faith for value and without notice of any infirmity or defect in- the title of the persons who transferred it to him. But in addition to the assertion of this general proposition the jury are informed that, “unless they believe from the evidence that said note was thus acquired by the plaintiff their verdict