Howard v. Brown , 3 Ga. 523 ( 1847 )

By the Court.

Warner, J.,

delivering the opinion.

The first exception taken to the decision of the Court below is, to the admission of the testimony of John H. Morgan, who was offered as a witness on the part of the defendant.

The true test of the interest of the witness is, that he will [1.] either gain or lose by the direct and legal operation and effect of the judgment, or that the record will be legal evidence for or against him in some other action. It must be a present, certain, and vested interest, ,and not an interest uncertain, remote, or contingent. And if the interest be of a doubtful nature, the objection goes [2.] to the credit of the witness, and not to his competency. 1 Greenl. Ev. 458, sec. 390. From the facts disclosed by the record, we do not think the witness had such a direct and vested interest in the suit as would render him incompetent. The promise made by his brother-in-law to him was a mere nude pact, which the law would not enforce, and therefore vested no interest in the witness; the objection was properly to the credit of the witness, and not to his competency ; and the Couzt below did not err in admitting his testimony.

The second exception appearing on the record is, that the [3.] Court below erred in charging the jury as to the right of an indorser to give notice to sue a dormant partner of the makers, not generally known as such. By the Act of 26th December, 1831, which was amendatory of the Act of 1826, it is declared, “ That every case which may hereafter arise, where the security or indorser of any promissory note or other instrument, after the same has or shall become due, has required, or shall hereafter require, the holder thereof to proceed to collect the same, and the said holder has not proceeded, or shall not proceed to do so within three months after such notice or requisition, the indorser or security shall be no longer liable.” Prince 471. The act does not in express terms declare that the holder must proceed to collect the note by suit, out of the maker, within three months after notice, but such,' it is believed, has been the uniform and contemporaneous construction given to the act by our courts ; and the question now presented is, whether the holder, after notice, was bound to have sued a dormant partner as one of the makers, whose name did not appear on the face of the paper.

The note was drawn by Story & Pratt, and indorsed by the . defendant’s intestate. Addison Pratt and Story were the ostensible partners ; but the jury have found by their verdict that Frederick Pratt was also a partner ; and the holder was notified to sue him as one of the makers of the note.

It is contended by the plaintiff in error, that the right of the holder of the note to sue the dormant partner is merely elective, and not compulsory. This may be true as a general rule when the rights of third persons are not to be affected by his election ; but the Grights of the indorser are involved in this case; the statute gives him the right to require the holder of the note to proceed to collect the same by suit against the makers thereof, within three months, and if he fails to do so, the indorser is no longer liable. In Pitts vs. Waugh et al., 4 Mass. R. 426, Chief Justice Parsons says: “ By the law merchant, a man may be answerable as a .dormant partner on a contract made by the partnership, of which he is in fact a member.” A dormant partner is suable as a defendant, because he participated in the profits of the contract. Lloyd vs. Archbowle, 2 Taunt. R. 324.

The jury having found by their verdict the fact that Frederick Pratt was a partner, it follows as a necessary legal consequence, that he was one of the makers of the note, and as such was liable to be proceeded against by suit, at the instance of the holder, when required to do so by the indorser; and there was no error in the charge of the Court below on this branch of the case.

[4.] The third exception is, that the Court erred in charging the jury, that the plaintiff became the legal holder of the note so ' soon as he run a new note in the Central Bank, and before he had complied with the condition of paying the commissions of the attorneys, and while the judgment was still held open against him as a lien for said commissions. It appears, from the testimony of the cashier of the Central Bank, that the judgment was paid at the bank by Howard’s giving a new note, he agreeing to pay the attorneys who obtained the judgment their commissions for obtaining the same. The moment the debt was paid by Howard, who was a subsequent indorser, he had the legal right to control the paper as against his prior indorser, and the makei’s thereof. The new note was accepted by the bank in satisfaction of the judgment obtained against Howard, as the second indorser thereon. The .payment of the commissions was an act to be done by Howard according to his agreement, and was a matter of his own, and did not alter or change his rights as holder of the paper. According to the view taken by the plaintiff, if Howard never paid the attorneys’ commissions, he never would become legally the holder of the paper, and notice to proceed to collect out of the makers, by the indorser, would never be effective, and would thus defeat the indorser’s right to give him notice under the statute, by his own omission to perform his agreement. We do not think it is in the power of the plaintiff in error to avail himself of any lien which the attorneys might have had on the papers in their hands for the payment of the commissions which, by his own agreement he was bound to discharge; we therefore affirm the judgment of the Court below upon this point, as made by the bill of exceptions.

The fourth exception taken by the plaintiff in error is, that [5.] the Court below erred in charging the jury, that when notice was given, if the makers removed without the limits of the State before the three months expired, it was the risk of the holder, and the indorser was discharged if in the exercise of ordinary diligence the holder could have sued before the maker went away.

The Act of 1831 was intended accurately to define the duties and rights of both the holder and indorser. Before the enactment of this statute, the security would have been compelled either to have taken up the note from the holder, and pursued his legal remedies against the principal, or to have made application to a court of equity for relief. We are aware that a different doctrine was maintained in Pain vs. Packard, 13 Johns. R. 174. In that case it was decided, that where the holder of a note who was requested by the surety to proceed without delay to collect the money out of the principal, who was then solvent, neglected to do so until the principal became insolvent, the surety was exonerated.

This doctrine was full discussed and denied, both upon principle and authority, by Chancellor Kent, in King vs. Baldwin, 2 Johns. Ch. R. 554.

The decree of the chancellor was, however, reversed on appeal, by the Court of Errors, by the casting vote of the presiding officer of the court — two of the judges of the Supreme Court expressly overruling their own decision in Pain vs. Packard, saying that, upon more full and deliberate investigation, they were convinced that their judgment in that case was erroneous.

In Warner vs. Beardsley, 8 Wend. R. 194, the court felt itselfbound by the previous adjudication of the Court of Errors sustaining the case of Pain vs. Packard, yet, the chancellor who delivered the opinion of the court, takes occasion to repudiate the principles of that decision, and declares that it stands in opposition to the decisions of most, if not all of the States in the Union, where the question has arisen. In Beardsley vs. Warner, 6 Wend.R.610, the court held, that the doctrine ruled in Pain vs. Packard, did not apply to the case of an indorser of a promissory note; taking a distinction between one who is a mere surety for another and an indorser of negotiable paper. The court say, “ An indorser, though in the nature of a surety, is answerable upon an independent contract, and it is his duty to take up the bill when dishonoured. The moment the note is dishonoured, and notice of that fact duly given to the indorser, the holder’s right to sue him is perfect, and this right is not impaired as long as he remains passive.” The case of Pain vs. Packard, has not been followed by the courts of New York because it was originally based upon the true principles of the law, but for the reason that it has been sustained by the court of dernier resort in that State, and therefore considered as binding authority there, in all cases coming directly within that decision.

Before the passage of our statute, we do not understand the rule of law to have been that the security or indorser had the right to request the holder to proceed to collect the paper, and if he failed to do so within a reasonable time, and the principal became insolvent, or removed beyond the jurisdiction of the court, that the security or indorser was discharged from liability. In King vs. Baldwin, Chancellor Kent emphatically declares, “there is no case in the English law, in which the personal application of the surety to the creditor, was held to be compulsory on the creditor, at the hazard of discharging the surety.’ See Pickett vs. Laud, 2 Bailey R. 608.

The surety to the note, whether a joint promissor or indorser, by the law governing the contract, stands in the same relation to the creditor in regard to the payment of it as the principal debtor, so long as the contract remains unaltered by the act of the creditor, with the acknowledged right in the security or indorser at any time after the money becomes due, to pay the debt and sue the principal, at his own risk, for indemnification. When the liability of the indorser becomes fixed by demand and notice, the holder has a perfect right to sue and collect his money out of either the maker or indorser, unless the holder has made a new contract with the maker prejudicial to the rights of the indorser, whereby he would be entitled to be discharged. McLemore vs. Powell, 12 Wheat. R. 554.

We think it is clearly established, both upon principle and authority, that before the enactment of our statute, the holder of the note could not have been compelled to have sued the makers at the request of the indorser; and if such a requisition had been made on the holder by the indorser, and the holder had neglected or refused to have instituted suit against the makers until they had removed beyond the jurisdiction of the State, or become insolvent, the indorser would not have been discharged, notwithstanding the holder could have instituted the suit against the makers by the exercise of ordinary diligence. If the indorser had not the right in law to require the holder to sue the makers, then the exercise of ordinary or extraordinary diligence had nothing to do with the question.

We have endeavoured to show what were the rights of the holder of the paper to collect his money out of the indorser or security, prior to the enactment of our statute. We have shown that tlmjndorser was not discharged by the mere passive indulgence of the holder to the makers, although requested by the indorser to sue them; that the indorser by his own mere reguest could not defeat his own legal liability for the payment of the paper. The statute, however, was made in derogation of the common law rule upon this subject, and introduced a new principle of commercial law. This statute is not only in derogation of the common law rule, but it operates as a restriction upon the rights of the holder, and in our judgment ought to be strictly construed. The indorser now has the right to require the holder to proceed to collect the paper, and if he shall not proceed to do so within three months after such requisition, the indorser is no longer liable. The holders’ rights during the three months are precisely the same as they were under the old law; during the three months, the indorser is bound to the holder in the same manner and just to the same extent as he was before the statute. The release of the indorser depends entirely on the action of the holder, who has the whole three months given him to sue the makers. The indorser derives his right to be released from the statute, and that gives him no relief until after the expiration of three months.

The legislature did not think proper to leave it to judicial discretion, as to what should be considered a reasonable time for the holder to sue, after notice, but have, with commendable wisdom expressly declared within what time the holder shall proceed to collect, or lose his right.

The charge of the Court below to the jury was, “ that if the makers removed without the limits of the State before the three months expired, it was the risk of the holder, and the indorser was discharged if in the exercise of ordinary diligence the holder could have sued before the maker went away.” Suppose the makers had become insolvent after the notice, and before the expiration of the three months, and the holder sued them on the last day of the time allowed by the statute, at whose risk was the solvency or insolvency of the makers, during the three months t If the indorser was bound for the debt to the holder until after the expiratiop of the time prescribed by the statute, then the solvency of the makers was at the risk of the indorser, although the holder might, perhaps, by the exercise of ordinary diligence in instituting suit at an earlier period, have collected the debt out of the makers.

But the record declares, that in this case the holder did not sue within the three months, for the reason that, before the expiration of the time, the makers removed beyond the jurisdiction of the State, so that the holder could not sue them ; and the Court below ruled that such removal was at the risk of the holder. This is an important question to the holders of commercial paper.

The indorser was, in our judgment, bound to the holder for the payment of the money until the expiration of the three months, and the holder had the full time allowed him by the statute to institute the suit; and if, in the mean time, the makers removed beyond the limits of the State so that they could not be sued, it was at the risk of the indorser or security who was bound for them, and not at the risk of the holder, who refused to trust the makers without the security. If, before the statute, the removal of the makers would have been at the risk of the indorser or security, and not at the risk of the holder, upon what principle is it that, during the three months while the holder’s rights are as perfect as under the old law, the risk of the removal of the maker beyond the jurisdiction of the court, is shifted from the indorser or security to the holder of the note Í where is the authority for declaring that the risk is so shifted I The statute does not so declare, nor do the principles of the commercial law, to which reference has been already made. The indorser, or security, derives no assistance from the statute for the purpose of restricting his liability to the holder, until after the expiration of the three months; the statute does not take from the holder any -of his rights during the three months, which he had under the old law, nor does it diminish in the least degree during that period, the responsibility of the security or indorser to the holder of the note. Nor does this view of the question impose any additional burden or hardship on the security or indorser, for he has the same right, if he wishes the makers sued at an earlier period, during the three months than the holder is willing to institute suit to take up the paper from the holder, and institute the suit himself against the makers, as he had before the passage of the statute.

If the indorser is unwilling to wait the time which the statute gives the holder to sue the makers, it is not only his right to take up the note from the holder and institute the suit himself against them, but his duty also, if he wishes to protect himself against the consequences of the removal of the makers beyond the jurisdiction of the Court within the three months ; for it is the security who trusts the principal debtor ; the holder, by requiring security, clearly manifests that he is unwilling to trust the maker, and “ he who trusts most shall lose most,” is stated by Lord Hardwicke to be the rule, in Skip vs. Huey, 3 Atk. R. 93. Besides, there exists a practical difficulty in enforcing the rule, as stated by the Court below, that “ the indorser is discharged, if, in the exercise of ordinary diligence, the holder could have sued before the maker went away.” What is to be considered “ ordinary diligence ” on the part of the holder % Shall he be required to sue in one, three, or six weeks after the notice 1 The rights of the holders of commercial paper would, in our judgment, be subjected to great inconvenience and uncertainty with regard to their rights, when made to depend on judicial discretion and caprice as to what should be considered ordinary diligence in commencing suit against the maker, instead of the definite and fixed period prescribed by the statute. The statute regulates the time within which the suit shall be instituted, after the notice to proceed to collect is given by the security or indorser, and we have no desire to introduce any exceptions to the uniform operation of that rule, which must necessarily be made to depend upon judicial discretion as to what shall constitute “ ordinary diligence;” when the legislature have definitely declared the rule as to what shall constitute ordinary diligence, in commencing suit against the maker by the holder of the note, in order to discharge the security or indorser. We are therefore of the opinion, for the reasons already stated, that the security or indorser is bound'to the holder for the payment of the debt, until the expiration of the three months from the time of the notice; and if the makers remove without the jurisdiction of the court within that time, so as to prevent the holder from suing them, such removal is at the risk of the security or indorser who became bound for the mahers, and not at the risk of the holder.

Let the judgment of the Court below be reversed, and a new-trial granted.

Judgment reversed.