Walker, J.,
after stating the case: We need only decide a few questions so as to eliminate the immaterial ones from the case, and thus simplify those really presented, on the merits, and material to the decision of the case.
First. The counterclaim of Benton for breach of contract by plaintiff Hamilton is inadmissible, and cannot be set up against the plaintiff’s cause of .action for the conversion or embezzlement of Benton as plaintiff’s agent. One is a tort, the embezzlement, and the other is a contract, that is, the assumption by plaintiff of the debt due by Benton to Edwards, which is evidenced by note, and the breach of that contract. They were two different and distinct transactions. Both did not “arise out of the transactions set forth in the complaint,” nor was the one in contract “connected with the subject ‘of the action,” but they were foreign to each other, so that one cannot be a counterclaim against the other. Rev., 481;
Street v. Andrews,
115 N. C., 417;
Bazemore v. Bridgers,
105 N. C., 191. It is said in
Smith v. Young,
109 N. C., 224:
‘‘A
party cannot set up a counterclaim to an action for tort, matters which arise out of a contract unconnected with the transaction sued on.”
It is said in 34 Cyc., pp. 662 and 663: “In actions sounding in tort a counterclaim not connected with the subject of the action nor arising out of the transaction forming the basis of- the plaintiff’s cause of action
will not be allowed, and thus counterclaims disconnected with the transaction sued on, or with the subject of the action have been disallowed in actions for conversion.” See, also, the following cases to the same effect:
Scheunert v. Kaehler,
23 Wis., 523;
Schaefer v. Empire Lith. Co.,
28 N. Y. App. Div., 469; 51 N. Y. Suppl., 104;
Chambers v. Lewis,
11 Abbott’s Pr. (N. Y.), 210, Aff.; 28 N. Y., 454 (16 Abbott’s Pr., 433).
Second. It can make little or no difference whether Benton and Hamilton are discharged from liability upon the note and mortgage given by Benton to Edwards, by novation, or, in other words, by the substitution of a new and sole paymaster under the agreement between Edwards and McNeeley, or whether they or either of them is discharged by an extension of time for payment given for the ease and accommodation of the debtor, and to the prejudice of his sureties — so that in the end they are discharged, or either of them is released. Viewing them as sureties, for the sake of argument, when Benton sold to Hamilton he became surety to the latter, who became principal debtor to the creditor, Edwards, if Edwards consented thereto, and when Hamilton sold to McNeeley, he became surety to the latter, and Benton and Hamilton were entitled to the usual rights of sureties. Edwards could not extend the time of. payment to McNeeley without the consent of Benton and Hamilton, or, if he did so, they were discharged.
It could have been, if so agreed, that, by the several transfers or sales, a new paymaster, or principal debtor (McNeeley) was finally substituted with the other two as sureties.
Woodcock v. Bostic,
118 N. C., 822; 32 Cyc., 191 to 195. But if this had been so, extension of time for payment or performance to the debtor, under a binding contract, discharged the surety, unless he consented thereto.
Smith v. Hays,
54 N. C., 321;
Thornton v. Thornton,
63 N. C., 211;
Fitts v. Messick Grocery Co.,
144 N. C., 463. But there was no such consent. The reason of the rule is that, where there are sureties, as soon as a debt is due and payable, if the principal debtor does not pay it, the surety may pay it and immediately sue the principal for money paid to his use. If, therefore, the creditor agrees with the principal debtor in such manner as that he is bound by the agreement to postpone the day of payment, he puts it out of the power of the surety to pay the debt and sue the principal, and he thereby puts the surety in jeopardy; and the surety, being no party to the new contract for. indulgence, is discharged from all liability.
Scott v. Harris,
76 N. C., 205. In regard to this principle, 32 Cyc., at p. 191, says: “The rule is well settled that if a creditor or obligee, by a valid and binding agreement, without the assent of the surety, gives further time for payment or performance to the principal debtor, the surety will be discharged. And where two persons are bound for the same debt, and there is an obligation on the part of one to exonerate the
other, in the event of payment being enforced against such other, and this is known to the creditor, then the creditor cannot extend the time of payment to the party ultimately liable without discharging the other debtor, even though such debtor occujfies the position of a principal debtor to the creditor, as where debtors become sureties by another assuming the indebtedness.” See, also,
Tuchy v. Woods,
122 Calif., 665;
Union Stove, etc., Works v. Caswell,
48 Kansas, 689;
Steele v. Johnson,
96 Mo. App., 147;
Long v. Patton,
43 Texas Civ. App., 11;
Calvo v. Davis,
73 N. Y., 211 (29 Am. Reports, 130), and 8 Hun., 222. The fact is that the mortgagee (Edwards) had full actual notice of the relation of -the parties when he dealt with McNeeley, and, besides, he knew, and could not avoid knowing, that Benton was the original debtor, and he also knew that Hamilton, with whom he dealt in the substitution of McNeeley as debtor, had acquired Benton’s rights. He acted with his eyes open — no man had better knowledge of the facts — and he deliberately and substantially so changed the original contract as to extinguish all claim on both Benton and Hamilton by the novation, or if they had remained as sureties, the extension of time by him to McNeeley would have discharged them as such. There is no way you can look at the case without concluding that Benton and Hamilton are no longer liable for this debt.
But we are of the opinion the judge was right in holding that Mc-Neeley was finally and fully substituted for Benton and Hamilton as sole paymaster and debtor, Benton and Hamilton being retired as sureties and discharged from all obligation whatever. This is the correct view of the 'facts, but whichever way is given
(quacunque'via data),
whether they were still sureties or McNeeley became the sole debtor, they are finally acquitted of all liability.
Third. A contract may be discharged by a change in the parties thereto; as by the substitution of a new party in the place of one of the original parties by the agreement of all, although the terms otherwise remain the same, which is fully discussed in
Redding v. Vogt,
140 N. C., 562. This is a species of novation by assent of the parties thereto, and may exist in more complicated form than the simple form of which the above is an illustration. Such an assent may be implied, and such substitution and discharge may be evidenced by circumstances and by the conduct of the parties, showing an acquiescence in the change. It is not necessary, so long as they all finally consent in time, that they should all' consent at the same moment. Elliott on Contracts, vol. 1, sec. 1867, citing numerous cases to sustain the text. See, also,
Lester v. Bowman,
39 Iowa, 611, citing and approving
Tatlock v. Harris,
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Walker, J.,
after stating the case: We need only decide a few questions so as to eliminate the immaterial ones from the case, and thus simplify those really presented, on the merits, and material to the decision of the case.
First. The counterclaim of Benton for breach of contract by plaintiff Hamilton is inadmissible, and cannot be set up against the plaintiff’s cause of .action for the conversion or embezzlement of Benton as plaintiff’s agent. One is a tort, the embezzlement, and the other is a contract, that is, the assumption by plaintiff of the debt due by Benton to Edwards, which is evidenced by note, and the breach of that contract. They were two different and distinct transactions. Both did not “arise out of the transactions set forth in the complaint,” nor was the one in contract “connected with the subject ‘of the action,” but they were foreign to each other, so that one cannot be a counterclaim against the other. Rev., 481;
Street v. Andrews,
115 N. C., 417;
Bazemore v. Bridgers,
105 N. C., 191. It is said in
Smith v. Young,
109 N. C., 224:
‘‘A
party cannot set up a counterclaim to an action for tort, matters which arise out of a contract unconnected with the transaction sued on.”
It is said in 34 Cyc., pp. 662 and 663: “In actions sounding in tort a counterclaim not connected with the subject of the action nor arising out of the transaction forming the basis of- the plaintiff’s cause of action
will not be allowed, and thus counterclaims disconnected with the transaction sued on, or with the subject of the action have been disallowed in actions for conversion.” See, also, the following cases to the same effect:
Scheunert v. Kaehler,
23 Wis., 523;
Schaefer v. Empire Lith. Co.,
28 N. Y. App. Div., 469; 51 N. Y. Suppl., 104;
Chambers v. Lewis,
11 Abbott’s Pr. (N. Y.), 210, Aff.; 28 N. Y., 454 (16 Abbott’s Pr., 433).
Second. It can make little or no difference whether Benton and Hamilton are discharged from liability upon the note and mortgage given by Benton to Edwards, by novation, or, in other words, by the substitution of a new and sole paymaster under the agreement between Edwards and McNeeley, or whether they or either of them is discharged by an extension of time for payment given for the ease and accommodation of the debtor, and to the prejudice of his sureties — so that in the end they are discharged, or either of them is released. Viewing them as sureties, for the sake of argument, when Benton sold to Hamilton he became surety to the latter, who became principal debtor to the creditor, Edwards, if Edwards consented thereto, and when Hamilton sold to McNeeley, he became surety to the latter, and Benton and Hamilton were entitled to the usual rights of sureties. Edwards could not extend the time of. payment to McNeeley without the consent of Benton and Hamilton, or, if he did so, they were discharged.
It could have been, if so agreed, that, by the several transfers or sales, a new paymaster, or principal debtor (McNeeley) was finally substituted with the other two as sureties.
Woodcock v. Bostic,
118 N. C., 822; 32 Cyc., 191 to 195. But if this had been so, extension of time for payment or performance to the debtor, under a binding contract, discharged the surety, unless he consented thereto.
Smith v. Hays,
54 N. C., 321;
Thornton v. Thornton,
63 N. C., 211;
Fitts v. Messick Grocery Co.,
144 N. C., 463. But there was no such consent. The reason of the rule is that, where there are sureties, as soon as a debt is due and payable, if the principal debtor does not pay it, the surety may pay it and immediately sue the principal for money paid to his use. If, therefore, the creditor agrees with the principal debtor in such manner as that he is bound by the agreement to postpone the day of payment, he puts it out of the power of the surety to pay the debt and sue the principal, and he thereby puts the surety in jeopardy; and the surety, being no party to the new contract for. indulgence, is discharged from all liability.
Scott v. Harris,
76 N. C., 205. In regard to this principle, 32 Cyc., at p. 191, says: “The rule is well settled that if a creditor or obligee, by a valid and binding agreement, without the assent of the surety, gives further time for payment or performance to the principal debtor, the surety will be discharged. And where two persons are bound for the same debt, and there is an obligation on the part of one to exonerate the
other, in the event of payment being enforced against such other, and this is known to the creditor, then the creditor cannot extend the time of payment to the party ultimately liable without discharging the other debtor, even though such debtor occujfies the position of a principal debtor to the creditor, as where debtors become sureties by another assuming the indebtedness.” See, also,
Tuchy v. Woods,
122 Calif., 665;
Union Stove, etc., Works v. Caswell,
48 Kansas, 689;
Steele v. Johnson,
96 Mo. App., 147;
Long v. Patton,
43 Texas Civ. App., 11;
Calvo v. Davis,
73 N. Y., 211 (29 Am. Reports, 130), and 8 Hun., 222. The fact is that the mortgagee (Edwards) had full actual notice of the relation of -the parties when he dealt with McNeeley, and, besides, he knew, and could not avoid knowing, that Benton was the original debtor, and he also knew that Hamilton, with whom he dealt in the substitution of McNeeley as debtor, had acquired Benton’s rights. He acted with his eyes open — no man had better knowledge of the facts — and he deliberately and substantially so changed the original contract as to extinguish all claim on both Benton and Hamilton by the novation, or if they had remained as sureties, the extension of time by him to McNeeley would have discharged them as such. There is no way you can look at the case without concluding that Benton and Hamilton are no longer liable for this debt.
But we are of the opinion the judge was right in holding that Mc-Neeley was finally and fully substituted for Benton and Hamilton as sole paymaster and debtor, Benton and Hamilton being retired as sureties and discharged from all obligation whatever. This is the correct view of the 'facts, but whichever way is given
(quacunque'via data),
whether they were still sureties or McNeeley became the sole debtor, they are finally acquitted of all liability.
Third. A contract may be discharged by a change in the parties thereto; as by the substitution of a new party in the place of one of the original parties by the agreement of all, although the terms otherwise remain the same, which is fully discussed in
Redding v. Vogt,
140 N. C., 562. This is a species of novation by assent of the parties thereto, and may exist in more complicated form than the simple form of which the above is an illustration. Such an assent may be implied, and such substitution and discharge may be evidenced by circumstances and by the conduct of the parties, showing an acquiescence in the change. It is not necessary, so long as they all finally consent in time, that they should all' consent at the same moment. Elliott on Contracts, vol. 1, sec. 1867, citing numerous cases to sustain the text. See, also,
Lester v. Bowman,
39 Iowa, 611, citing and approving
Tatlock v. Harris,
3 T. R., 174, and
Heaton v. Angier,
7 N. H., 387. In the first case it is said: “In neither of those cases was there an express agreement to discharge
tbe first debtor, but in both of them the agreement to accept another paymaster, and the agreement of the other to pay effected such a discharge.” It has been repeatedly held in this jurisdiction that a firm agreement to accept another paymaster, in the place of the former one, based upon a consideration, discharges the original debtor, whether principal or surety, from personal liability.
Barnhardt v. Star Mills,
123 N. C., 428; Clark on Contracts (2 ed.), 420. Tested by these standards, the transaction may have amounted, in our view, to one form of novation. Benton had already agreed in advance, and in writing, with Hamilton that the latter should “become solely responsible for the two claims.” Hamilton procured Edwards to execute with McNeeley a written agreement by which Edwards agreed upon McNeeley as his paymaster. McNeeley expressly promised to pay the debt, and thereby made*himself responsible therefor; and Edwards accepted this promise to pay. One (that is, McNeeley) promised to pay a certain amount in fixed installments; the other accepts this promise- and changes thereby the due date, and postpones the maturity of the debt and mortgage. This discharged Hamilton and Benton, whether by reason of the extension of time for payment) or by the substitution of a new and sole principal.
We
have referred to some of the facts of this case, as now presented, merely to illustrate the principles which controlled the final decision of it. They are admitted, or practically so, at least, and as thus put before us without substantial controversy as to what they are, we conclude that they authorize Judge Connor’s judgment.
As to the questions of law reserved, including those relating to the counterclaim of Benton and the judgment in favor of Hamilton against him, the decision of the judge thereon is approved. The counterclaim will be stricken out, and the judgment in favor of Hamilton against Benton will stand, and process to enforce it will he issued, as ordered by the judge. In all other respects, the judgment is also affirmed.
The ease is remanded with directions to proceed further therein, as ordered by the court below in its final judgment, and as the law requires.
No error.