117 Tenn. 1 | Tenn. | 1906
delivered the opinion of the Court.
On the 19th of January, 1900, Prewitt & Oo. executed to the order of J. T. Pushing, E. E. Prewitt, and J. T. Jones, a note in the sum of $2,500, maturing twelve months after date. This note was indorsed by the payees, waiving demand and notice, to the Second National Bank. The indorsers had no beneficial interest in the transaction, the note having been made merely for the accommodation of Prewitt & Oo. When the note was negotiated to the bank, there was a collateral contract entered into between it and Prewitt & Oo. to the effect that the latter should have the right to pay the debt before due, and to have a rebate of interest from the time between the date of payment and maturity.
On the 18th of September, 1900, Prewitt & Oo., through their representative, J. J. Prewitt, claimed of the bank the right to pay off the note, and were permitted to do so; a rebate of $68 being allowed for the difference of time.
Within a few days after this payment, the creditors of Prewitt & Oo. filed a petition in bankruptcy against them, and they were duly adjudged bankrupt. An action was brought by Harris, the trustee in bankruptcy, against the bank, and he recovered in this action the full amount which had been paid to the bank. The aggregate was $3,100, and interest. This included not only the payment on the $2,500 note, but likewise payment of an overdraft of about $600; and part payment of a note of $795, indorsed by J. T. Pushing.
The amount recovered from the hank was paid into the bankruptcy court, and was there prorated among the other creditors of'Prewitt & Co., the bank not having filed any claim.
After the bank had paid the judgment, it brought the present suit against R. E. Prewitt and J. T. Rushing, indorsers on the $2,500 note, to recover two-thirds thereof; the other indorser, J. T. Jones, having already paid one-third without suit. >
The defendants insist that they are not liable and refer for authority to Harris v. Bank, supra. In that case, the court did not have before it the question here presented, and what was said upon the liability of indorsers, appeared only in a quotation from Bartholow v. Bean, 18 Wall. (U. S.), 635, 21 L. Ed., 866. There is nothing in the opinion in Harris v. Bank that in any way bears upon the present controversy, except the observation that the bank was not compelled to accept payment of the amount of the note on penalty of releasing the in-dorsers. In the present case, it appears there was a collateral agreement between the bank and the makers to the effect that the makers would have the right to pay the note before maturity and obtain a rebate. This agreement was in the nature of a security or counter-security for the benefit of the indorsers, and if the bank
The bank was, then, in this position. A valid payment’was offered to it, which it dared not refuse on penalty of losing its indorsers. It is said, however, that Prewitt & Oo. were insolvent, and the bank knew such to be the fact. This is true, but there might never be any proceeding in bankruptcy instituted against them. In that event, the payment would continue good. The indorsers were entitled to this benefit, and if the bank had refused when offered, they would have had just ground of complaint. What was said in Bartholow v. Bean as to the nonliability of the indorser was mere dictum. The case did not call for it. The action there was by the assignee in bankruptcy against a creditor who had received a preference to recover the amount so paid. No question of the liability of an indorser was involved. See, on the general subject, Swarts v. Fourth National Bank, 117 Fed., 1, 9-13, 54 C. C. A., 387; and cases cited; Watson v. Poague, 42 Iowa, 582, 583; Pritchard v. Hitchcock, 6 Man. & G., 151; Petty v. Cooke, L. R., 6 Q. B., 790, 794-796.
The facts in Watson v. Poague et al. were these: Watson held a promissory note for $500 executed jointly by Poague, and Wood and one John W. Griffith. After the note became due, Griffith made a payment of $409.95 on it, and within four months thereafter was adjudged a bankrupt on the petition of creditors other than Watson. After the adjudication in bankruptcy, Poague and
“It is true,” continued the court, “that the receiving of the payment under such circumstances is called, in the bankrupt act, accepting a fraudulent preference, but
In Pritchard v. Hitchcock, it appeared that the plaintiff had lent to William Hitchcock a large sum of money, the payment of which was guaranteed by George Hitchcock. Subsequently William paid the debt, but wag at that time “in a state of complete insolvency.” Within a few days thereafter a “fiat in bankruptcy” issued against William, the assignees under which brought an action against Pritchard to recover the money so paid by the bankrupt, upon the ground that the payment was a fraudulent preference, in which action they succeeded. Thereupon Pritchard brought his action against the guarantor, George Hitchcock. It was held that the payment did not amount to a satisfaction.
Blackburn, J., said: “Is there any case which says that an innocent act, unconsciously done, discharges the surety? . . The creditor accepts the money which he had no right to refuse, and the acceptance of which he had no means of knowing would injure the, surety. He therefore did no act injurious to the surety, and the surety is not discharged.” Lush, J., sajd: “I am of the same opinion. The rule of law and equity with regard to the rights of a surety is the same. I do not entertain the slightest doubt that the act of the creditor which discharges the surety must' be am act involving something inequitable at the time it is done, and which interferes with the rights of a surety; an acceptance of money from the debtor, which the creditor thought at the time he accepted it was a good and valid payment, cannot, therefore, discharge the surety. The creditor, under the presr ent circumstances, could not have refused to accept the
Judge Sanborn, after citing the foregoing opinion, said in Swarts v. Fourth National Bank, supra, a case presenting a similar question:
“Those opinions are well grounded in reason, clear and persuasive. They lead to just and equitable results, and they are exactly applicable to the facts of this case. The bank was guilty of no fraud or wrong when it accepted payment from the insolvent. The indorsers, as well as the bank, knew that any payments made upon the notes by the principal debtor were liable to be recalled as a condition of the allowance of the claim of the-bank against its estate, if the maker of the note was adjudged a bankrupt upon a petition filed within four months of the payments. Their contract was conditioned by this fact, and by the statute which called it into being. The acceptance of such payments was not forbidden by the moral or by the civil law. The bank did not know, and could, not forsee, that the principal debtor on' the note would become a bankrupt within four months from the payments. The holder of a surety’s ob
The duty of the present complaint was, upon the adjudication in bankruptcy of Prewitt & Co., to surrender the preference and file its claim for allowance. 5 Cyc., 330, 331. It was compelled to restore the money, but failed to file its claim against the estate. The extent of the injury suffered by the indorsers through this failure is measured by the amount that would have been realized by the bank if it had filed the claim, and which was lost by not filing it. For this injury the bank must account in the abatement of its demand.
The record shows, without controversy, the amount of the debts filed in this proceeding, the assets, and the pro rata paid. To the debts should be added the $2,500 note, and the pro rata figured on that basis as of the date of the pro rata which was made in the bankruptcy proceeding. The pro rata amount thus ascertained for the $2,500 note will show the sum the bank would have' received had it filed its claim. The amount so found must be deducted from the note.
It is conceded that on the basis above fixed, the pro rata amount applicable to the $2,500 note would have been $837. Deduct this amount, also the sum paid by Jones, the third indorser, and enter judgment for the bank for the balance and interest, against defendants Prewitt and Rushing.
It is insisted that the. settlement should be made on
Judgment as above directed.