Third National Bank v. Hastings

| NY | Oct 1, 1892

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] In case two persons are liable for a debt, one as principal and one as surety, a voluntary release by the creditor of the principal with knowledge of the relation existing between the debtors discharges the surety. As between the Hurlbut Paper Co. and the defendant, the former was principal and the latter surety, of which fact the plaintiff was told September 30, 1887. The question presented by the record is, did the plaintiff after that date voluntarily discharge the principal debtor, or in any way impair the surety's rights or remedies against the principal. If this question is answered in the affirmative the judgment must be reversed, but if in the negative it must be affirmed. The discharge alleged and attempted to be established arises out of the insolvency proceedings and the acceptance by the plaintiff of the percentage paid in those proceedings.

Among other provisions in the statutes of Massachusetts, regulating insolvencies and proceedings by and against insolvents, are the following:

§ 81. "The debtor shall thereupon, except as provided in section 84, be absolutely and wholly discharged from debts proved against his estate, and from all debts provable under this chapter and founded on any contract made by him * * * while an inhabitant of this state, if made within this state, to be performed within the same, or due to any person resident therein at the time of the first publication of the notice of the issuing of the warrant." (Chap. 157, p. 892, Public Stat. of Mass. of 1882.)

The debt sought to be recovered is not within the exception mentioned in section 84.

The Hurlbut Paper Co. was a firm engaged in business in Massachusetts, and both of the partners were resident citizens of that state, in which they made the indorsement by which the debt was incurred which they promised to pay in the city of New York, but it was due to a resident of the state of Massachusetts.

The insolvents and the plaintiff being resident citizens of that state were bound by its statutes and subject to the decisions of its courts, in all matters of which they had jurisdiction, provided jurisdiction over their persons was acquired. The Insolvency Court had jurisdiction of the subject-matter and acquired jurisdiction over the insolvents by their petition, and of the plaintiff by issuing a warrant against the estate of the debtors and serving notice thereof on the plaintiff. Having jurisdiction, the court was authorized to make a decree discharging the insolvents from all liability on their indorsement of the note held by the plaintiff, no matter whether it appeared in the proceedings or not. Had the plaintiff voluntarily procured the discharge of the Hurlbut Paper Co. from its liability on the note, the defendant would have been released. (Gardner v. Oliver Lee Co.'s Bank, 11 Barb. 558" court="N.Y. Sup. Ct." date_filed="1852-02-09" href="https://app.midpage.ai/document/gardner-v-lee-5458118?utm_source=webapp" opinion_id="5458118">11 Barb. 558;Phelps v. Borland, 103 N.Y. 406" court="NY" date_filed="1886-11-23" href="https://app.midpage.ai/document/phelps-v--borland-3578733?utm_source=webapp" opinion_id="3578733">103 N.Y. 406.) In the cases cited, the creditors were not within the jurisdiction of the insolvency courts, but voluntarily appeared, thus giving the court jurisdiction over them and authority to discharge the debtors from all liabilities to them. But such is not the case at bar. The plaintiff did not institute the proceedings against the insolvents nor did it consent to the compromise approved by the court, and nothing that it did or omitted to do, procured or contributed to the discharge of the insolvents. The bank being within the jurisdiction of the court, its claim would have been discharged, though it had refrained from proving it. Had the plaintiff refused to prove its debt, it would have had no effect upon the proceedings, nor upon the rights of the defendant, except it would have deprived him of the benefit of the percentage paid on the compromise, of which he would have had just cause for complaint.

The judgment should be affirmed, with costs.

All concur.

Judgment affirmed.