Aiken v. Nance

28 Haw. 275, 1925 Haw. LEXIS 36

• Court: Hawaii Supreme Court
• Decided: April 13, 1925
• Docket: No. 1592.
• Status: Published

Opinions

OPINION OF THE COURT BY

LINDSAY, J.

(Peters, C. J., concurring.)

On June 22, 1910, the defendant Nance made, executed and delivered to the predecessor in interest of the plaintiff a promissory note for the sum of $60 payable six months from date, with interest thereon at the rate of ten per cent, per annum. At the same time and place, and before delivery of the note, the defendant Tavares signed on the back thereof an indorsement reading “For value received I hereby guarantee the payment of the Avithin note, waiving notice, demand, and protest.” For several years after the maturity of the note, the maker made annual payments of interest, the last of which was on May 7, 1917. Although the evidence tended to show that the guarantor had made a payment of interest on the note on January 31, 1913, it seems to be undisputed that he had made no further payments since that date, and that the last four payments of interest were made by the maker without the knowledge or authorization of the guarantor. This action was commenced on December 22, 1922, less than six years from the last payment of interest by the maker. At the trial the guarantor relied on the statute of limitations but the trial court held that, by reason of the payment of interest by the maker of the note, the statute had not run in favor of either of the defendants, and gave judgment against them both, from which judgment the guarantor, Tavares, has brought the case here on writ of error.

The sole question for our determination is whether the running of the statute of limitations in favor of a guarantor of a promissory note is interrupted by a new promise made by the maker without the knowledge or authorization of the guarantor. In the instant case the statute commenced to run in favor of the guarantor on January 3, 1913, and, unless interrupted, the period of limitation would expire in January, 1919, several years before suit was commenced. The precise question involved has never' been raised in this jurisdiction. In Macaulay v. Schurmann, 22 Haw. 140, this court held that the payment of interest by one of two joint and several makers of a promissory note within the period of limitation will start the statute of limitations to run afresh as to the other, as well as against the one who made the payment, though the payment was made without the knowledge or authorization of the other. This court in reaching this conclusion held itself hound by section 1 of the Revised Laws providing that, except in certain cases, the common law of England, as ascertained by English and American decisions, is the common law of this Territory, and that the rule enunciated was that of the common law. As stated by the court, the leading case in which this rule is declared is that of Whitcomb v. Whiting, 2 Dougl. 652, 99 Eng. Bepr. 413, decided in 1781. The opinion in that case is by the learned Lord Mansfield, .who based his ruling upon the doctrine of agency saying, “Payment by one, is payment for all, the one acting, virtually, as agent for the rest; and, in the same manner, an admission by one, is an admission by all; and the law raises the promise to pay, when the debt is admitted to be due.”

The theory that joint obligors of a debt are agents, one of the other, and as such able to hind each other, seems also to have prevailed under the civil law. As stated in Jacobs v. Williams, 12 Rob. (La.) 183, 184, “We understand that solidarity exists in the meaning of the Code, when several persons bind themselves towards another for the same sum, at the same time, and in the same contract; and so obligate themselves, that each may he compelled to pay the whole debt, and that payment made by one of them exonerates the others towards the creditor; and the obligation thus contracted is one, in solido, although one of the debtors be obliged differently from the others to the payment of one and .the same thing; as, if the one be but conditionally hound, while the engagement of the others is pure and simple, or if the one is allowed a term which is not granted to the others. * * * Such were, also, the requisites of the Boman law to create among debtors a perfect solidarity. 6 Toullier, No. 723. 2 Duranton on Obligations, No. 547. Pothier on Oblig. No. 263. In giving his views as to. the reason why the Boman law gave to the acknowledgment of one of several debtors in solido, the effect of interrupting prescription as to the others, Toullier says, that it is to he found in the very nature of the obligation, and is clearly dedncible from the law itself of Justinian, which declares, that it is just, humanum, that the acknowledgment of a debt created by one and the same contract, uno eodemqne contractu, should bind equally all the debtors to pay such debt. When, says this author, several debtors bind themselves for the same debt, in the same contract, they create among themselves a ldnd of partnership as regards that debt; they mutually charge each other by a tacit, yet real proxy to pay it. The debtor, then, who alone pays the whole debt, acts, not only for himself, but also for those whose share he pays; and, in like manner, if he alone acknowledge the debt, he does so, not only in his own name, but also in that of his codebtors, by virtue of their tacit proxy; and the interruption of prescription which results from such acknowledgment must exist and have its effect as to all of them.” Having thus shown that payment by one joint debtor started the statute of limitations to run afresh as to all of the other joint debtors, the court goes on to say that, this was not so in the case of the indorser of a promissory note, between whom and the maker no relationship resembling that of agency exists. “From these remarks of the learned jurist, it is easy to perceive how different is the solidarity which exists between the drawer, and indorsers of a promissory note, and how inapplicable to them are the provisions of our Code in relation to debtors in solido. Instead of being bound in the same contract and at the same time, the obligation of each of them arises from different and successive contracts, without any privity or reciprocity between them. It is true, that when the note is protested, and the several indorsers are duly notified of such protest, they become each bound for the whole amount of the note towards the holder. This indebtedness of each of them for the whole debt creates, to be sure, a kind of imperfect solidarity between them, but it is not that contemplated by the Code. The obligation contracted in solido, says art. 2099, is, of right, divided amongst the debtors, who, between themselves, are liable each only for his part and portion. If one of the codebtors, in solido, pay the Avhole debt, he can claim from the others no more than the part and portion of each. If one of them he insolvent, the loss occasioned by his insolvency must be equally shared amongst all the other solvent codebtors, and him who has made the payment. Art. 2100. From these, and other provisions of the Code, it is apparent that the rights and relative position of debtors, in solido, therein spoken of, are widely different from those of the maker and indorsers of a promissory note or bill of exchange. Each indorsement is a distinct contract; it is a transfer of the amount due by the maker, for which each indorser or transferror becomes successively bound towards the holder, if duly notified of the maker’s default. If payment is made by the maker, or the first indorser, they have nothing to claim of the subsequent parties on the note. If it is the last indorser who pays he can claim the whole amount from any of the indorsers before him, or from the maker; and each indorser who pays, has the same right against every previous indorser, and so on to the maker. It is in view of these striking differences between the debtors, in solido, as known to the civil law, and the drawer and indorsers of notes and bills of exchange, that Duranton expresses the opinion, that the rights and obligations of the latter are not to be governed wholly by the principles relative to obligations in solido, properly speaking. 2 Duranton, No. 563. We, therefore, conclude, that the provisions of the Code, in relation to the interruption of prescription, as regards debtors in solido do not apply to the drawer and indorsers of notes, and other negotiable instruments used in commerce.”

While the rule that payment of interest by one joint and several maker starts the statute of limitations to run afresh as to the other joint and several makers has been recognized and followed in this jurisdiction, it does not follow that the rule should he extended to include others than such joint and several makers. The court in Georgia, where the common-law rule as to joint and several makers is followed, has, in Hunter v. Robertson, 30 Ga. 479, refused to extend the rule to include indorsers of promissory notes, the court at page 480 saying: “Is it true that a payment by a maker, and before the statutory bar has attached to the debt, is .sufficient to take the case out of the statute, as to the indorser, and constitute a new starting point for the statute, as to him? That it is true as to a joint obligor, has been well settled by this court. Cox vs. Bailey, 9 Ga. 467. In the latter case, the correctness of the principle, even as to joint contractors and partners, was gravely doubted by this court; but as the question was no longer open, but an adjudicated one, the principle was adhered to, although a contrary holding would have been the better policy. The reason for the principle is, that, as between joint contractors or obligors and partners, there is a community of interest in that particular business, that what affects one affects the whole; that the act of one is the act of all; that is, he is, in that matter, considered as the agent of the other partners. But can that be true as to indorsers? We think not. The contract of the indorser is a new and independent one of that of the maker: Story on Promissory Rotes, see. 135. While there is, to- a certain extent, a privity between them, there is not a community of interest, in all respects. The indorser is bound to the extent of his contract, and according to its terms; that which will discharge an indorser will not always discharge a joint obligor. The contract of the indorser, under our statute, is as surety for the maker; is accessory to his con tract, and coextensive, with it, hut that is the contract simply to which the indorser accedes, if there he a new contract, a new undertaking, or any change in the old one, the liability of the security, or, as in this case, the indorser is gone; not so with the joint obligor, his liability continues until the debt is paid. If there be a change in the contract, he is supposed to assent to it, because of his common interest in the consideration and advantages of the contract. The security or indorser, on, the other hand, stands on his contract as such. Any modification of it, whether to his interest or against it, works his complete discharge, unless he agrees to it. The theory of the principle, as decided by Lord Mansfield, in Whitcomb vs. Whiting, Doug. 652, and which case the courts in Georgia and elsewhere, recognizing this principle, have but followed, goes, according to my understanding, not only on the idea that the debt is a subsisting one, but that he, the obligor, making the payment, will pay the whole debt, and the statute runs no longer against the old promise, but only against this new promise. If I am right in this, how can the indorser be affected by such new promise, to which he was no party and did not assent thereto? How can his original promise or contract be extended without his concurrence? It can not be on principle. But again: If the principle is wrong when applied to joint makers — and there is no doubt in my mind but that it is — shall we extend it to an indorser on the same fallacious reasons? We think not; because, when it is attempted to be applied to an indorser or surety, another and more important principle will be violated; that is, the strict right of such indorser or surety to stand upon, and be bound by, his contract, to the extent, and in the manner only as he made it. For these reasons, the judgment of the court below must be reversed, it being the opinion of this court that a payment by the principal or maker of a promissory note does not constitute a new starting point for the statute of limitations as against the indorser or surety, unless the surety or indorser is a party to such payment, and that the plea of the statute of limitations constituted a complete bar to the cause of action as against the indorser.” See also Dean v. Munroe, 32 Ga. 28. Mr. Angelí, in his work on Limitations of Actions, after discussing the rule that joint obligors, under the common law as laid down in Whitcomb v. Whiting, may bind each other to the extent of making a fresh promise which will remove the bar of the statute of limitations, says (Sec. 250) : “But it is evident that a payment-made by one of several liable alieno jure, cannot raise an implied promise by them all, and that where the relationship of the parties to a contract is collateral, and there is no aggregatio mentium, neither can vary or affect the liability of the other. Where the maker of a promissory note of more than six years’ standing died insolvent, he and a guarantor of the note, it was held, Avere never jointly liable; and the undertaking of the guarantor being independent of, and collateral to, that of the maker, the allowance by him as a commissioner, of the maker’s note after his decease as a valid claim against the estate, implied no promise to pay the debt. Both maker and guarantor stand equally independent to each other. If A guarantees to B the performance of any contract he may make with C, and six years elapse after the contract between B and 0, and before the bringing of suit against A upon his guaranty, no acknowledgment by C subsequent to the contract can take the case out of the statute as to A. A made an engagement by himself, and was in no kind of partnership. There can be no question that a party attempted to be charged as the indorser of a negotiable note may be protected by the statute, notwithstanding the maker may have made even a direct and positive promise, within six years, to pay the same. And it has been held expressly, that where ■ an acknoAvledgment was made by an accommodation acceptor, within six years, of his liability to the payee, it was insufficient to deprive the drawer from the protection of the statute. It has been considered an extravagant extension of the general rule to make a mere payment of a sum of money to the indorsee of a note, by one of tAvo joint makers, sufficient to render the other liable, as the money might have been paid on some other account. The other party must expressly acknowledge the payment on account of the note.”

One of the cases cited by Angelí in support of the text quoted from is that of Gardiner v. Nutting, 5 Greenl. (Me.) 117. The indorsement in that case read: “We hereby guarantee the payment of the within.” On suit brought against the indorser Avho pleaded the statute of limitations it was insisted that by reason of payments made by the principal makers the operation of the statute of limitations had been interrupted as to all of the defendants. The court, however, repudiated this theory, saying (p. 119) : “Several authorities have been cited to show that it has this effect as it respects the makers; and it is contended that an admission and promise by one of several persons jointly and severally liable, defeats the operation of the statute as it respects the whole. But in this case, the makers and the defendants were never jointly liable to the plaintiff. The undertaking of the defendants was independent of, and collateral to, that of the makers. Neither of these collateral parties has a right to affect or vary the liability of the other. Each may rest upon any legal ground of defence, which no admission of the other can defeat. There can be no question that a party, attempted to be charged as the indorser of a negotiable note, may be protected by the statute of limitations, notwithstanding the maker may have made a direct and positive promise to pay the same within six years.”

M. T. Furtado (also on the briefs) for plaintiff in error. F. R. Bevins (also on the brief) for defendant in error.

Whatever may be said as to the relationship of agency that is said to exist between joint obligors or joint contractors, it cannot, on principle, be asserted that such relationship exists between the maker and guarantor of a promissory note, or that because A has guaranteed the performance of the contract of B, A has, by such guaranty, created B his agent, authorized, as such, to make other contracts binding upon A. We are of the opinion that the payment of interest by the defendant Nance did. not start the statute of limitations to run afresh as to the defendant Tavares.

The judgment as against the defendant Nance will stand; as against the defendant Tavares it is set aside. A judgment to that effect will be entered herein upon presentation.