Oberndorff v. Union Bank

31 Md. 126, 1869 Md. LEXIS 86

• Court: Court of Appeals of Maryland
• Decided: June 25, 1869
• Status: Published

Opinion

Alvey, J.,

delivered the opinion of the Court.

There is no doubt of the general proposition, that if the creditor release or compound with the principal debtor, without the consent of the surety, although the principal debtor may be in insolvent circumstances, and the arrangement with him be, in truth, to the surety’s advantage, it will, nevertheless, discharge the latter from all responsibility. The question whether the surety has been, in point of fact, actually damnified by such dealing with the principal debtor, is not open to inquiry. It is his right to determine for himself what is, or is not, for his benefit. He must be left free to consider whether he will have recourse to his remedy against his principal or not; and if, by any act of the creditor, this right be taken from him, the law allows him to elect to consider himself discharged from the contract altogether. “For it is,” says Lord LouuHBOEOueH, in the leading case of Rees vs. Berrington, 2 Ves., Jr., 540, “the clearest and most evident equity not to carry out any transaction without the privity of him who must necessarily have a concern in every transaction with the principal debtor. You cannot keep him bound, and transact his affairs (for they are as much his as your own), -without consulting him. You must let him judge whether he will give that indulgence contrary to the nature of his engagement.”

Rut while such is the rule, before a surety or endorser can be exonerated from his responsibility, upon the ground that there has been an unauthorized indulgence given, or composition made with the principal debtor, it must be shown that such indulgence or composition has been effected by some express agreement, founded upon a valid consideration, and which is legally binding on the creditor. Without sufficient consideration the agreement would be a nullity, and consequently would bind no one. And the first question in this case is, whether the compromises and settlements made by the bank with Steiner Brothers & Co., and with Heilbrun, whereby fifty cents in the dollar ■were received on the notes discounted for Stettheimer & Affelder, had in them the elements of binding contracts, and such as could be enforced by the parties, either as a defence or as a cause of action; for, if not, Stettheimer & Affelder remained bound as endorsers, notwithstanding the arrangement made by the bank with the makers of the notes.

There is no principle better established than that part payment of the amount due, whether by principal or surety, will not discharge the surety, even where it is agreed that such part payment shall have that effect; for the surety being equally bound^with the principal for the payment of the whole, neither can be discharged upon payment of less than the whole, except it be by some agreement founded upon a yalid and sufficient consideration. Where a party is bound to pay a certain sum, there is no consideration, in contemplation of law, for a promise that a less sum shall be received in satisfaction. Geiser vs. Kershner, 4 Gill & John, 305; Fitch vs. Sutton, 5 East, 230; Wilkinson vs. Byers, 1 A. & E., 106; Cotton vs. Godwin, 7 M. & Wels., 147; Lincoln vs. Bassett, 23 Lick., 154.

In this case the notes, at the time when the compromises were made, were overdue, and it does not appear that there was any legal consideration whatever for the relinquishment, on the part of the bank, of the balance due on them, after the receipt of the one-half of their face value. There was no deed of composition with creditors, nor any release undér seal given by the bank, which would have imported consideration. And in the absence of some sufficient consideration, such an agreement as that proved on the part of the appellant, and set out in his prayers, made merely by parol, is wholly inoperative, and cannot be set up or relied on by the makers of the notes, either as against the bank or the endorsers. The notes have never in fact been surrendered to the makers, and the bank was not bound to any active diligence in their collection, in order to give it the benefit of the collaterals deposited with it by the endorsers.

This view of the case disposes of the first, second and third prayers of the appellant.

His fourth prayer we understand to be abandoned. It might well be so, because the note therein referred to was clearly within the terms of the contract of the 16th of May, 1860, and the bank was well warranted in applying the proceeds of the collateral securities to its payment.

As to the fifth and sixth prayers of the appellant, relating to the bank’s holding and dealing with the collateral securities, after full payment of its claim on account of discounts, they were properly granted. Eor any loss or injury sustained by reason of misapplication of the col-laterals by the bank, or its failure to account, after applying in good faith a sufficient amount of such collaterals to pay its claim against Stettheimer & Affelder, the appellant was certainly entitled to recover. And while these prayers secured to the appellant the full benefit of that inquiry before the jury, it is no objection to them, that can be taken by the appellant, that they were granted in connection with objectionable prayers offered by the appellant, and modified by the Court, and which opened a wider scope of inquiry for the appellant’s benefit.

(Decided 25th June, 1869.)

The Court below was right in granting the appellee’s first prayer, as being the converse of the appellant’s fourth, which was not maintainable, as we have seen.

The appellee’s second prayer, however, should have been refused, though, in the view we have of this case, the granting of it was by no means prejudicial to the appellant ; but, on the contrary, was a concession to him of ground of recovery, which he was not entitled to occupy before the jury. The action of the Court, therefore, in granting this prayer, is no cause for reversal.

And as to the third and fourth prayers of the appellee, we think it clear that the Court was right in granting them both. The appellee had express authority to compromise with parties indebted on the collateral securities, and we have said that agreements, such as that stated in the fourth prayer, were inoperative for want of sufficient legal consideration.

Judgment affirmed.