Walker v. Washington Title Insurance

19 App. D.C. 575, 1902 U.S. App. LEXIS 5419

• Court: Court of Appeals for the D.C. Circuit
• Decided: April 1, 1902
• Docket: No. 1160
• Status: Published

Opinion

Mi1. Justice Shepard

delivered the opinion of the Court:

The first assignment of error is that: “ The court erred in sustaining the demurrer to the plea in abatement.”

It was stated on the argument, and so appears in the briefs, that defendants first pleaded in abatement the pend-ency of a suit in equity against the maker of the notes and the trustees and indorsers, to foreclose the lien of the deed of trust; and that a demurrer to said plea had been sustained. The transcript, however, does not show that any such plea was filed, demurred to, or passed upon by the court.

The record does show that, on December 12, 1898, defendants filed four pleas in bar, the first of which is non assumpsit, the second nil debet, the third the pendency of the equity suit before mentioned, and the fourth, the agreement with Gfiesy for an extension of the notes without the consent of the defendants. On January 28, 1899, three additional pleas were filed under leave of the court. The first of these denies notice of nonpayment of the notes; the second avers that the indorsements were made formally and for accommodation of the plaintiff under agreement with the maker of the notes; and the third repeats substantially the extension of time under agreement with Gfiesy.

The record shows a replication by plaintiff joining issue on all of the aforesaid pleas.

The bill of exceptions recites that the defendants introduced in evidence the record in the equity cause referred to. This, in connection with the averments of the third plea, shows that, on December 23, 1897, the appellant, Samuel H. "Walker, filed the bill making the title company, his co-indorser, Thomas W. Smith, and the trustees in the deed of trust, defendants therein. It does not appear what was the purpose of this bill, but on the argument it was said to be to procure contribution, in some form or other not given, but presumably against other members of the “ syndicate.” It appears, however, that the title company filed a cross-bill in the same proceeding against Samuel H. Walker, Thomas W. Smith, George N. Walker, and the trustees, John N. Walker and Clifford IT. Smith, alleging among other things the execution of the notes and the balance due thereon, the refusal of the trustees to make the sale under the trust when requested, the insufficiency of the property to pay the debt, and praying for the appointment of receivers for the custody of the same, the removal of the trustees, the appointment of new trustees with instructions to execute the trust, and for such other and further relief as to the court might seem proper and just, etc.

A receiver was appointed January 10, 1898. On September 11, 1898, a decree was passed appointing substitute trustees, and instructing them to execute the powers of the trust deed, and in the event of any surplus remaining after the discharge of the indebtedness to report the same to the court. This was the last order made in the cause except one confirming the receiver’s report October 1, 1901. It has been further argued under this assignment, that the plea of the depending suit in equity is good in bar and that the court erred in not so instructing the jury. The record does not show that this point was called to the attention of the court at the time of the peremptory instruction to the jury, and it was not made the ground of any special recital in the general bill of exceptions.

The plea of depending suit, whether in abatement or in bar, is founded on section 821, R. S. D. C., which reads as follows:

“ When money is payable by two or more persons jointly or severally, as by joint obligors, covenantors, makers, drawers or indorsers, one action may be sustained and judgment recovered against all or any of the parties by whom the money is payable, at the option of the plaintiff. But an action against one or some of the parties by whom the money is payable may, while the litigation therein continues, be pleaded in bar of another action against another or others of said parties.”

The objection on behalf of the appellee that neither of the questions argued is properly before us for determination, is perhaps well taken. Rule Y, section 5; Stanton v. Embry, 93 U. S. 548, 553, and cases cited. But as in our view of the effect of the depending suit — assuming it to have been properly pleaded, proved, and made a part of the record — no right of the appellee will be impaired, we will pass the objection.

The main object of the statute aforesaid was to give a right of action and judgment against all parties to a contract to pay money, whether joint or several obligors, makers, indorsers, etc. It was also intended “ to avoid a multiplicity of actions to be carried on simultaneously for the recovery of the same debt.” Harris v. Leonhardt, 2 App. D. C. 318, 321.

Whether this section shall be limited strictly to simultaneous actions at law and held not to apply to suits in equity, or whether the plea in bar authorized thereby shall, by virtue of its character and purpose, be interpreted to mean a plea in abatement of the action, are likewise questions that are not now necessary to be determined.

Assuming then, without so deciding, that the section applies to depending suits of the kind in equity, as well as to actions at law, that it could be availed of by plea strictly in bar, and that, proof having been submitted in its support, it was incumbent upon the court to entertain it, we are of the opinion that the particular suit was not within its comprehension.

It is hardly necessary to say that the appellee, as holder of the notes secured by the trust deed, had the option to foreclose through demand for sale under the powers conferred therein, or by means of a bill in equity; and that in case of foreclosure suit it could obtain a decree for the recovery of the money due, with execution thereof as at law. R. S. D. C., Sec. 808. But it does not appear that the appellee instituted any such suit. It was brought into the equity court as one of the defendants to the suit begun by the appellant Walker.

In filing its cross-bill therein, it sought neither judicial foreclosure, nor recovery of the debt.

Not having been able to obtain performance by the trustees named in the deed of their duty to sell the mortgaged property, it sought the substitution of others empowered and directed to perform in their stead. This relief was essential in order to obtain the exercise of the preferred right to the remedy of the contract. This is all that was asked for and all that was obtained, besides the receivership of the rents — an auxiliary remedy made necessary by additional special considerations.

That the cross-bill, with this and no other purpose expressed, concluded with the usual additional and formal prayer for “ such other and further relief as to the court might seem right and proper,” is immaterial.

"Without considering how far additional relief to that specifically sought in a bill might be decreed under such a prayer at the instance of the complainant, it is sufficient here to say that it could not have the effect to convert a bill for the appointment of trustees to execute a power of sale into a suit for judicial foreclosure and recovery of the debt.

The contention under the remaining assignment of error is that the indorsers were discharged by reason of the extension of the time of the payment of the notes without their consent.

The motion to direct a verdict for the plaintiff necessarily eliminated the issue of the consent to the proposed extension of time claimed to have been given on June 21, 1895, for there was a direct conflict of testimony relating to the concurrence of the indorser, Smith, in the consent to the then proposed extension, given by Walker upon condition of that concurrence.

On the other hand, it is not contended that the mere forbearance of action after maturity and protest afford any ground for the discharge of the indorsers.

The sole question, then, is the effect of the agreement for the extension made with, and for the benefit of G-iesy more than a year before the maturity of the notes, and evidenced by the indorsement thereon in the following words: “ This note is extended to June 1, 1897, if semi-annual interest is paid promptly when due.”

That a valid agreement between the holder of a note or bill and the maker thereof to extend-the time of payment for a definite period, without the consent of surety or indorser, will discharge the latter, is an unquestioned principle. But the appellee denies its application to the case at bar upon two distinct grounds, either of which, it is contended, is sufficient foundation for the peremptory instruction to the jury.

The first of these is, that the promise to Giesy — conceding, for the sake of the argument, its binding effect as between him and the appellee ■—■ did not include the maker of the note or inure to his benefit, and was not therefore an extension of time of payment of which the appellants, as indorsers, could complain.

The proposition is, in other words, that the doctrine does not extend to the case of a contract for extension made with a stranger. Treating Giesy, who was not a party to the notes, as such stranger, the proposition seems reasonable, and is the established doctrine in England. Lyon v. Holt, 5 M. & W. 250; Frazer v. Jordan, 8 El. & Bl. 303. The last case cited was an action against the defendant as drawer and indorser of a bill of exchange. The defense was that after the indorsement of the bill to the plaintiff and after it had become dne, he, without the consent and against the will of the defendant, agreed with K. & Co.— strangers to the transaction, that if K. & Co. would bind themselves to see the said bill paid to the plaintiff, he would give time to the acceptor of the bill and would forbear to sue the acceptor for ten days; and that K. & Co. did so bind themselves, and plaintiff then foi’bore as promised, etc. In delivering the. opinion of the court, Lord Coleridge said: “The principal debtor, having given no consideration for the promise, has no ground to complain of the breach of it, and cannot say that faith had been broken with him. There is no privity of contract with him; and we see nothing on which any right, either at law or in equity, for him to insist on such a contract, can be founded. * * * No such doctrine as that there can be a discharge in such a case arising from a contract with a stranger has ever yet been established. In all the text books which were cited the rule is laid down as to a binding contract with the acceptor or principal debtor.”

The appellants reply that Giesy was not such a stranger because of his express assumption of the debt in the purchase of the mortgaged property.

By that contract, unquestionably, Giesy became, as between himself and the maker of the notes, the principal debtor. Being in tbe nature of a second security additional to the mortgage, tbe mortgagee would have tbe right, in equity, to enforce it for bis own benefit. Keller v. Ashford, 133 U. S. 610, 623; Giesy v. Gregory, 15 App. D. C. 49, 55, 56.

It may be conceded that, bad tbe bolder of tbe notes become an actual party to this contract, expressly accepting tbe substitution of Giesy as principal debtor, at tbe same time binding himself to tbe extension of tbe time of payment to two years after maturity without tbe consent of tbe indorsers, their discharge would necessarily have followed.

■ There is no pretense, however, that there was such an actual contract. Tbe most that can be said is that the appellee bad notice of tbe purchase of the property and tbe assumption of tbe debt by Giesy — a transaction to which it bad no right to object under any circumstances. It was willing to accept payment from Giesy, and further, to grant him an extension upon condition of bis prompt payment of tbe semi-annual interest as it should become due. As it did not consent to look to Giesy as either its sole or principal debtor, tbe obligation of tbe maker of tbe notes remained tbe same as before tbe transaction. “ Tbe fact that tbe creditor could enforce tbe promise of tbe purchaser by action in bis own name does not change tbe legal relations between the parties.” Teeters v. Lamborn, 43 Ohio St. 144, 145, 146.

In that case it was held, that as tbe purchaser did not become tbe principal debtor of tbe mortgagee, bis extension of tbe time of payment to tbe purchaser, without tbe consent of tbe mortgagor, did not have tbe effect to discharge tbe latter.

The Supreme Court of Connecticut took tbe same view of tbe effect of an extension where successive purchasers and indorsers were involved. Boardman v. Larrabee, 51 Conn. 39.

Tbe question remains, however, whether Giesy, under tbe special circumstances of tbe case, is such a stranger to the contract between tbe other parties as was tbe intervening contractor for tbe extension in tbe several cases above cited.

For tbe reason tbat be came into tbe transaction witb tbe consent of tbe secured bolder of tbe notes, materially induced thereto by tbe conditional promise of extension, we are not entirely agreed in respect of bis true relation to tbe parties, or tbe legal effect thereof. As we do fully agree on another point tbat is decisive of tbe case, we will leave tbe question unanswered.

Tbe appellee’s second ground is tbat tbe promised extension to G-iesy was upon a condition never performed, tbat was declared void for nonperformance before tbe maturity of tbe notes, and therefore did not affect tbe rights or interests of tbe indorsers.

Tbe question whether tbe benefit tbat would result from beeping money at interest for a definite period is a sufficient consideration for a promise to extend tbe time of payment of tbe principal is not an open one in this court. Reed v. Tierney, 12 App. D. C. 165, 172. In tbat case it was held tbat such an agreement made after maturity prolonged tbe life of tbe instrument so as to prevent tbe bar of tbe statute of limitations. There was no question of release of tbe indorser in tbat case because be bad consented thereto; but tbe principle involved was tbe same. Tbe agreement for extension in consideration of tbe payment of tbe same interest for a definite period was indorsed on tbe note, after its maturity, and signed by maker, indorser and bolder.

In tbe case at bar tbe promise of extension was made more than a year before maturity and two instalments of interest were payable in tbe interval. It was indorsed on tbe note as a promise to extend until June 1, 1897, upon tbe condition tbat tbe semi-annual interest should be paid promptly when due. Tbe evidence does not show tbat Giesy, in turn, entered into a new contract witb tbe appellee to pay said interest. So far as tbe evidence goes, tbe payment of tbe interest was optional witb him. He could pay or not as each instalment became due, and by so doing perform tbe condition upon which tbe extension depended.

If, on the other hand, he had paid the interest promptly until maturity and then tendered payment of the principal, the appellee could not have denied his right to do so. It had no contract with him by which it could have compelled him to retain the money at interest for two more years. Under these conditions, the holder’s promise to extend would hardly be considered as founded upon a sufficient consideration to make it binding. Leavitt v. Savage, 16 Me. 72, 76.

Looking at the agreement from another point of view, Giesy was under a binding obligation to the maker of the notes to pay the interest as well as the principal as they should respectively mature.

This obligation, as we have seen, was one that the holder could, upon equitable principles, enforce for bis own benefit if made important by the exhaustion of the security. Consequently, even an additional express promise to pay the interest accruing before maturity, which he was already under obligation to do, would not amount to an additional valuable consideration sufficient to bind the holder and thereby discharge the indorsers. It may be, however, that as Giesy would not have purchased the incumbered property and assumed the debt, without the agreement for the conditional extension, this fact would operate as a sufficient consideration by way of estoppel against the appellee upon whose representation he took action; and we are inclined to the opinion that it would.

This brings us to the final point of the contention, namely, the legal effect of the agreement for the extension indorsed on the notes.

Conceding the sufficiency of the consideration if performed, the agreement was not absolute but conditional. The condition was the prompt payment of the interest, two instalments of which would become due before the maturity of the principal sums. Giesy made no attempt to perform the condition, whereupon the holder of the notes exercised its unquestioned right to declare the agreement at an end. Before the maturity of the notes it so declared and attested its declaration by attaching to each note a slip containing the following words: “ As the semi-annual interest has not been paid the provisional extension indorsed on these notes is void.” Acting upon this, it presented the notes for. payment at maturity and obtained formal protest. Maker and indorsers had express notice of the failure of the agreement. Giesy recognized the lapse of the agreement and made no objection. Therefore, nobody’s hands were tied; nobody connected with the transaction sustained a legal injury.

We are clearly of the opinion that the conditional agreement for extension, having been recalled and canceled for nonperformance of the condition before the maturity of the notes, did not work the discharge of the indorsers. Harnsberger v. Geiger, 3 Gratt. 144, 147; Verner v. Turley, 1 M. & W. 316, 320.

The contention of the appellants, that the acceptance of partial payments of interest from Giesy, after the maturity of the notes, had the effect to revive the original agreement, is, we think, without merit. Giesy was but performing, and in part only, the obligation that he had assumed in his purchase of the property, actuated, presumably, by the hope of finally realizing something therefrom. There is no pretense in the evidence, that he demanded or expected a revival of the forfeited agreement; and his payment of all the interest even would not have that effect by implication merely.

Receipt of the partial payments of overdue interest when tendered, and the subsequent delay of suit upon the notes, without a contract for forbearance, afford no ground for the discharge of the indorsers. 24 Am. & Eng. Encyc. of Law, p. 826, note 1.

We deem it unnecessary to determine the questions raised in respect of the loss of negotiability of the notes after indorsement by reason of the transactions concerning their payment.

The principle invoked by the appellants is that governing the relations of principal and surety, which, we apprehend, do not depend upon tbe form of tbe contract. Tbe principle is, that in all cases where there is a principal debtor, and others occupy tbe legal relation of sureties for bis performance, a binding contract for tbe extension of tbe time of payment for a definite time, made between tbe creditor and tbe principal debtor, without tbe consent of tbe sureties, will discharge their liability.

.[Mr. Justice IIagner, of tbe Supreme Court of tbe District of Columbia, sat with tbe court in tbe bearing and determination of this case, in tbe place of Mr. Chief Justice Alvey — Rep outer. ]

There is nothing peculiar in the application of tbe principle to tbe case of parties to bills and notes, as far as we have been advised, or have been able to discover.

Finding no error in tbe proceedings on tbe trial, tbe judgment will be affirmed with costs. It is so ordered. Affirmed.