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In my opinion the report of the referee was substantially right. The question is, was the note for $4,400 given to and received by the bank in payment of the two drafts, etc., so as to enable the plaintiffs to call upon the defendant for the security he held against his liability on that claim? In the first place no payment is found by the referee and every presumption is in favor of the report for affirmance, not for reversal. In the next place the defendant after this alleged payment and extinction of these drafts by this indorsed note, advised and urged their prosecution against the acceptor. He knew all the facts in regard to the alleged payment, and certainly he would never have advised the prosecution of extinguished securities. They were prosecuted accordingly, but the suit failed because brought in the wrong name. The only evidence on the subject of payment, is that the bank received this indorsed note for these drafts and a note, and sent them to the plaintiffs with the bank mark of cancellation thereon, without any other evidence of agreement or authority to cancel them than is implied in the receipt of said indorsed note, and that evidence the referee did not seem to hold sufficient to satisfy him that it was received in
payment. The case of House v. Buf. N.Y. and E.R.R. (37 N.Y., 297) is an authority that where the note of a surety is received by the creditor in payment, the surety may sue his principal for indemnity as for money paid. That case does not aid the defence. The true question is, was this note a payment as between the plaintiffs and Cook the defendant? If it were, then of course they had a cause of action against the defendant at that time, and as more than ten years have elapsed prior to the commencement of this suit, all claim for subrogation must be barred. But it must be a payment as between these parties. The plaintiffs, to enable them to call upon the defendant to turn out to them the securities he holds for his own indemnity against these debts, must show that they have paid them and discharged the defendant from liability. Have they done so? If this could be called a payment they might as well have demanded the security from Cook before as after these drafts were taken up, as Cook's position is in no degree improved. He was liable on the drafts after the plaintiffs; such is his position on the note. He is even worse off. If the drafts were thus paid and extinguished, he thereby loses all claim upon the acceptor of the drafts. Thus he not only is discharged from no liability, but he loses some security, and the plaintiffs might demand that he surrender up the rest. It is quite clear that this transaction did not cancel those drafts as against the acceptor, though it might as against the bank. It was plainly contrary to the interest and intention of the parties to the $4,400 note. It seems to me equally clear that the relations of the securities as to each other remained unchanged. The defendant was not discharged from liability as security for that draft. He might be, and in fact was, called upon to pay the new note. Authorities are cited, if authority be needed for such a proposition, that before a surety can demand subrogation, the party who holds the securities must be discharged from all liability for the debt on account of which he holds them. (Kyner v. Kyner, 6 Watts, 221; Bank of Penn. v. Potius,
10 id., 148; Cotrell's Appeal, 25 Penn. (11 Harris), 294; Stamford Bank v. Benedict, 15 Conn., 437, and many others.) If the plaintiffs could demand this security from the defendant before they had paid the new note, then the defendant would be left as surety thereon; as surety for the plaintiffs without any security whatever. There is no equity in that. In fact, it is not denied by the defendant that the debt should be paid before any claim could be made for subrogation. But it is insisted that the defendant became indorser upon this new note without any reference to his liability upon the demands for which they were given, a mere accommodation indorser thereon for the plaintiffs without any security. There is no such proof, and the presumption is the other way, under all the facts of this case. The right to demand this security from the defendant, then, or in other words, the cause of action, arose only when this $4,400 note was paid. That was paid by satisfying the judgment recovered thereon in 1854, and hence this action is barred by no statute. The judgment upon this $4,400 note was no bar to this action. If the defendant had then received the money upon the securities he held for this demand, it would have been different; as the case stood, it was no bar. At most, the court might have ordered that the defendants then, upon payment of the judgment, might be subrogated in the place of Cook, as to his securities for that demand. The Supreme Court, I think, was right as to the claim of the plaintiffs as assignees, that it was barred by the statute. That provision applies, or there is no statute bar. (Code, § 97.)
The judgment of the General Term of the Supreme Court is reversed, and judgment absolute is given for the plaintiffs, according to the report of the referee, with costs.
All concur except ALLEN and ANDREWS, JJ., who, not having heard the argument, did not vote.
Judgment absolute for the plaintiffs.