Downing v. Traders' Bank

2 Dill. 136 | U.S. Circuit Court for the District of Eastern Missouri | 1873

DILLON, Circuit Judge.

This is a controversy between the assignee of Downing’s estate and the Traders’ Bank in respect to the bill of exchange for $8,000, of which Saunders Bros. & Co. were the accommodation acceptors for the bankrupt The assignee claims for the estate the benefit of an alleged payment of $4,000 under the agreement of November 8, 1869, set out in the statement of the case. The draft for $8,000 matured, and was protested for non-payment, September 7, 1869. The agreement of November 8, 1869, between the Traders’ Bank and Saunders recites that the bank has received of Saunders two notes of his for $2,000 each, indorsed by Cummings, due respectively in four and six months from maturity of the draft, and in consideration thereof the bank covenants with Saunders not to sue him on the draft; but it is provided that this covenant shall be without prejudice to the rights of the bank against the other parties to the draft or any other person. No indorsement of payment was made on the $8,000 draft, which was retained by the bank, and very shortly after the agreement of November 8th was made, and before the notes for the $4,000 which ■were received from Saunders, fell due, Downing was adjudicated a bankrupt.

It is not expressly admitted in the agreed statement that the notes for the $4,000 were ever paid; but this is perhaps fairly to be implied. The presumption is, that if they were paid, it was not before maturity, and consequently the payments were made after Downing was adjudicated a bankrupt. It is plain that upon the agreed statement there is no ground to hold that the bank received the new notes of Saunders indorsed by Cummings, in absolute extinguishment or satisfaction of one-half of the amount of the draft No indorsement to that effect-was made upon the draft, nor is there any acknowledgment of part payment contained in the agreement executed at the same time. On the contrary, the draft for the full amount was left in the hands of the bank, which agreed with Saunders not to sue him upon the said draft, but it reserved its rights without prejudice against all other parties. Story says that “by the law of England, and of most of the states of America, the receipt of the promissory note of the debtor for a debt is, in the absence of all other proof, treated as a conditional payment only of the debt; that is to say, if or when the note is paid.” Story, Prom. Notes, § 438. “Where the holder receives a promissory note, or bill in payment of a debt, it is not an absolute, but a conditional payment only, unless otherwise agreed by the parties, and it only suspends the right to recover until the credit has expired.” Id. § 389. And he lays down the same rule where the creditor receives from the debtor the note of a third person; presumably, it is a conditional satisfaction, or extinguishment only. Id. § 404. We cannot, therefore, upon the facts appearing in the agreed statement, hold that the bank took the new notes in extin-guishment of $4,000 of the amount due it on the draft, or that the new notes were received by the bank in absolute payment to that extent. The presumption of law is otherwise, and the presumption is fortified by the non-indorsement of payment, and by the language of the agreement, which is a covenant not to sue, and not an acknowledgment of satisfaction or payment.

It will be conceded that from the agreed statement it can be implied that these new notes were subsequently paid; and, nothing appearing to the contrary, the presumption is that they were paid by Saunders at maturity, which, as before stated, was after the bankruptcy of Downing. Conceding also, for the time, that when the bank actually received payment of the new notes for $4,000 it operated to extinguish, or satisfy pro tanto, the amount due on the original draft, we now proceed to inquire to what extent the bank was entitled to make proof in bankruptcy with respect to this draft? Saunders Bros. & Co. having accepted this draft for the accommodation of Downing, the drawer, the latter, as between them, was the principal debtor, they being his sureties, or incurring a liability in that nature. Chit. Bills, 703, 708, 718. Downing was the party principally and ultimately liable for the $8,000; and it is not controverted that in respect to this debt the sum of $8,000 can be proved against his estate. It is admitted on all hands that the bank can prove to the extent of $4,000; and as to the other $4,000, the only question is, whether it shall be established as a claim in favor of the bank or in favor of Saunders. In effect, the substantial controversy seems to be one between the bank and Saunders; and so far as this record shows, it is a matter of indifference to the estate of Downing whether the allowance is to the one claimant or the other; so that the as-signee, in resisting the claim of the bank, apparently occupies the position of waging gratuitously the battle of Saunders.

As the latter is not before the court, his rights as against the bank cannot be investigated or determined. We have only to do with the rights of the assignee and of the bank. And thus the question is narrowed down to this: Had the bank, as against the estate of Downing, the right to prove its claim to the full amount of the draft? Or, in other words, has the assignee the right to insist that the bank must credit the $4,000 and prove for the balance only? This $4,000, it will be borne in mind, was received by the bank, not from the estate of Downing, the principal debtor, but from his surety, and was received by it after the bankruptcy, though in pursuance of an agreement made just before that event, to. which, however, Downing was not a party. The question here presented depends upon the construction of section 19 of the bankrupt act, to the terms of which I will refer in a moment. The bank being a bona fide holder of the draft for value, would be entitled on the supervention of bankruptcy to prove against any and aE parties against whom it could have supported an action on the bill; and unless it had released or parted with its rights, it could have sued concurrently both the ac: ceptors and the drawer. Chit Bills, 721; Id. 703, 708. It could recover against both, though of course it could have but one satisfaction. Its agreement of November 8th, before-mentioned, -would have prevented it from sustaining any action after that time against the accommodation acceptors; or, if they had gone into bankruptcy, from proving against their estate. But this agreement on its face declared that it did not prejudice the rights of the bank against Downing. Before any payment, so far as this record shows, was received by the bank, Downing was adjudicated a bankrupt; and his assignee claims that the bank must now credit the amount which it received after the bankruptcy, not from Downing, nor from anything he had pledged to secure the debt, but from his accommodation acceptor.

This question is settled by the bankrupt act: “All debts due and payable from the bankrupt at the time of the adjudication of the bankruptcy, and all debts then existing but not payable until a future day, a rebate of interest being made, may be proved against the estate of the bankrupt.” This $8,000 draft was due and payable to the bank by Downing, the principal, at the time he was adjudicated a bankrupt. At that time the bank had received nothing from any one, and has received nothing to this day from Downing or his estate or property. If Downing had not been put into bankruptcy, and had been sued on thé draft at law, a plea that the bank had entered into a covenant not to sue his surety would have presented no defence. This was simply a covenant not to sue the accommodation acceptors, and did not, under the authorities, extinguish or satisfy the debt, or any part of it, as against the drawer, who had, in no event, any recourse over against the acceptors. 2 Pars. Notes & B. p. 238; Story, Prom. Notes, §§ 409, 421, 426; Jones v. Broadhurst, 9 Man., G. & S. 173. The statute, by the lan.guage above quoted, requires debts to be due and payable at the time of tbe adjudication ■of bankruptcy, or to be then existing, though not payable until a future day; and at the time of the adjudication of bankruptcy the whole amount of the draft was due to the bank. If it had afterwards received payment by or through Downing or his property, it might have been compelled to credit it. Section 22.

NOTE. In support of the foregoing view, see decision of Hoffman, J., in Be Ellerhorst [Case No. 4,381], and eases there cited; Ex parte De Tastet. 1 Bose. 10; Beid v. Furnival, 1 Cromp. & M. 538. When payment or satisfaction by one party to a bill or note, will enure to the benefit of other parties: See Jones v. Broad-hurst, 9 Man., G. & S. 173, where the BnvU-cases are collected and reviewed in the learned judgment of Creswell, J.

The next portion of section 19 which refers to the question before us, reads as follows: “Any person liable as bail, surety, .guarantor, or otherwise, for the bankrupt, who shall have paid the debt, or any part thereof in discharge of the.whole, shall be ■entitled to prove such debt, or to stand in the place of the creditor, if he shall have proved the same, although such payments shall have been made after the proceedings in bankruptcy were commenced.” The act proceeds: ■“And any person so liable for the bankrupt, who has not paid the whole of said debt, but is still liable for the same or any part thereof, may, if the creditor shall fail or omit to prove such debt, prove the same in the name ■of the creditor or otherwise, as may be provided by the rules,” &c. These provisions apply to the question presented in this case.

Now conceding, for the purposes of this appeal, but not deciding, that when the bank received the $4,000 of Saunders, it operated as a payment or satisfaction pro tanto of the draft, yet, as the whole debt was not paid, nor part in discharge of the whole, the bank could still, under the language of the act, prove the whole amount as against the drawer, and at the most would be liable only to be treated as proving or having proved, for the benefit in part of the party from whom it received, as the surety of the bankrupt, such partial payment. If the bank should refuse or omit to prove for the whole amount, then the party paying could make the proof, in the name of the creditor, or ■otherwise. This view of section 19 will be found to be much strengthened by the course of decision under the English bankrupt acts, both prior to and since the act of 0 Geo. IV. c. 10, § 52, from which this portion of the 19th section of our act is substantially taken. It would too much protract this opinion to .go at length into a review of the English legislation and decisions, and I will content myself by referring to Hr. Chitty’s view of them in his work on Bills. Chit. Bills, 708, 727.

On the agreed statement of facts, the bank, .as against the objection of the assignee, is •entitled to make proof for the whole amount of the draft, and if Saunders claims, as to the $4,000 which he paid after the bankruptcy, that he is entitled to stand in the place •of the bank, he can make application to the bankrupt court to that effect This will bring the two parties interested face to face, -and the courtwill determine their rights upon the case they make. It would be premature to pass upon them now. If Saunders should establish his right to prove against the estate for the $4,000 paid to the bank, or to hold the estate liable therefor, it will follow that the court will make an order that the proof made by the bank shall to that extent stand for his benefit. If he shall fail to establish this right, it will follow that the bank is entitled to receive dividends on the basis that the whole amount of the draft is due to it This disposition of the matter seems preferable to the one made by the district court, since, as we have seen, it is clear that the estate is liable in respect to the whole amount of the draft, either alone to the bank or to it and Saunders. The order appealed from holds that the bank is not entitled to prove as respects the $4,000 paid by Saunders, which is equivalent to holding that Saunders is entitled' to make proof for this sum, a question which it is better to determine on an application by Saunders adverse to the bank, and where both parties can be fully heard. The order of the district court will be modified accordingly, and the cause will be remanded, with directions to overrule the objections of the assignee to the proof of claim of the bank, but with leave to Saunders to apply to the court foí-an order that the proof made by the bank shall stand pro tanto for his benefit of which application the bank shall be entitled to notice. Modified and remanded.