Williams v. National Bank

McSherry, J., delivered the opinion of the Court. The record now before us brings this case up for the second time. The first appeal is reported in 70 Md., 343 . I. Parker Veazey, by his letter of December 9th, 1881, addressed to the cashier of the National Bank of Baltimore, arranged with the appellee for a loan of twelve thousand dollars to himself, with the note of the appellant for the same amount, payable to his order, as collateral, and with the further security of Gaddess Brothers, either as accommodation drawers or endorsers of his paper.

On December 12th, 1881, the bank discounted for Veazey a note of Gaddess Brothers for twelve thousand dollars endorsed by Veazey, and payable in four months, and took as collateral security the note of the appellant, dated December 13th, 1881, for twelve thousand dollars payable to Veazey in four months, and endorsed by him. This note of the appellant is the one ⁴⁴⁸ now in suit. The Gaddess note matured April 12-15th, 1885, and was taken up by the proceeds of a new note of Gaddess Brothers endorsed by Yeazey, for twelve thousand dollars at four months; the bank still retaining possession of the note of Mrs. Williams of December 13th, 1884, and claiming to hold it as collateral. In August, 1885, another renewal was made in precisely the same way.

In December following Yeazey desiring to renew the loan again, as appears by his letter of November 30th, but being unable to pay the discount in cash, presented a note of Gaddess Brothers payable to himself, and endorsed by him, for twelve thousand two hundred and forty-six dollars, at four months; but the bank declined to accept it in renewal, because of the increase in the amount, caused by the addition of the discount. Thereupon Yeazey drew his own note for twelve thousand dollars pledging the Gaddess Brothers’ note for twelve thousand two hundred and forty-six dollars as collateral, and with the proceeds of the discount of this note of his took up the renewal of August 17th, which was then overdue. The bank still held the note of Mrs. Williams and kept it pinned, along with the Gaddess Brothers’ note, to the note of Yeazey. When Yeazey’s note of December 16th, 1885, matured, it was not paid or renewed.

He was then greatly involved, and in straitened circumstances, though he made some payments to the bank afterwards, aggregating about twenty-two hundred dollars. Gaddess Brothers failed, and subsequently paid thirty per cent, of Yeazey’s note to the bank. The balance remaining due by Yeazey to the bank, the latter now seeks to recover from Mrs. Williams on her note of December 13th, 1884. The appellant rests her defence to the action on two grounds: First, it is insisted that the transaction of December 16th, 1885, or some of the preceding renewals of the note of December 12th, 1884, amounted in law to ⁴⁴⁹ a payment of the note for which the "Williams’ note was held as collateral; and secondly, that the Williams’ note was pledged as collateral only for the Gaddess-Yeazey note of December 12th, 1884, and that it consequently was not held for any renewal thereof.

The first five instructions granted at the instance of the appellant and the fourteenth prayer relate to the defence of payment. The Superior Court, sitting as a jury, found, against the contention of the appellant, that the transactions alluded to were not intended by the Bank and Yeazey to be payments of the original debt. That branch of the case, except as presented by the fourteenth prayer, is, therefore, not now before us. The sixth and seventh instructions require no special mention.

The eighth, ninth and tenth prayers, -which were rejected, were intended to present the second ground of defence; and the remaining three prayers, also rejected, raise other questions which will be considered later on. On the former appeal this Court said, that the question then involved was “whether the note sued on is to be considered and treated as collateral security only for the payment of the first note of Gaddess Brothers, endorsed by Yeazey, or as collateral security for. all the notes given in the subsequent transactions between Veazey and the Bank. This was a question of fact to be determined by the jury from the proof in the cause. It has been decided in a number of cases that it depends on the intention of the parties whether the giving of a new note extinguishes the existing debt and creates another obligation, or is to be considered as a mere renewal of thq, eld note for which it is substituted.

If the old debt is extinguished, the collateral security ceases to operate. If the old debt continues to exist there is no extinguishment of the collateral security.” The proposition announced by the eighth prayer is this: If the note sued on was delivered to the bank by ⁴⁵⁰ Yeazey as collateral for the note of December 12th, 1884, signed hy Gfaddess Brothers and -endorsed by Yeazey and discounted for him by the bank; and if either Yeazey or the bank did not intend that the note sued on was to be held as collateral for any note given in renewal of the Gfaddess-Veazey note of December 12th, 1884, or for any discounts made by the bank for Yeazey subsequent to December, 1884, then the bank could not recover. The ninth and tenth prayers present, in a different form, substantially the same proposition. Obviously these prayers, as framed, could not have been granted.

They do not set forth the proposition which was intended to he relied on. Wherever collateral security is given for the payment of a debt, the collateral will continue as a security until the debt is satisfied, unless both the parties to the original contract agree to its surrender or the pledgee in some other way discharges or releases it. If the debt be evidenced by a promissory note and upon the maturity of that note the parties intend by a renewal merely to extend the time for payment and nothing more, then a simple renewal so made will not extinguish the original debt. Flanagin vs. Hambleton, 54 Md., 222 .

The same debt will still remain. Consequently, the collateral pledged for it in the first instance will not be released where the renewal transaction is, and Avas meant by both parties to be, a mere extension of the time for payment. 3 Rand. Com. Pa., sec. 1571.

It equally folIoAvs that the ex parte unexpressed intention of the pledgor that the collateral shall not apply to and secure a reneAval which is, in fact, a mere extension of the time for payment, and not an extinguishment of the original debt, cannot defeat the fight acquired by the pledgee under the contract made by both of them when the debt Avas created. The right so acquired is the right-of a bona fide holder for value. 1 Danl. Neg. Inst., sec. 824.

And it ⁴⁵¹ is a right to retain the collateral until the debt shall be paid or extinguished. Now, the eighth, ninth, and tenth