Smith v. Owens

         I. The agreement of December, 1856, is notset up in the answer, and no defense can be predicated upon it. The appellants had their option to rely upon this agreement as a composition, or upon the new notes, and they elected to plead, as a bar to this action, the new notes.

         II. It is everywhere admitted that the extinguishment of one cause of action by the substitution of another of the same degree, can only be by way of accord and satisfaction which requires a distinct and executed agreement between the parties, and cannot be implied by the law in the absence of such an agreement.

         In Clark v. Mundol (1 Salk. 124) it was held, " that a bill should never go in discharge of a precedent debt, except it be a part of the contract that it should be so."

         The rule thus laid down, which has never been disputed in England, is well illustrated by the case of Tobey v. Barber (9 Johns. 310) and is followed in most of the States of this country, where it is generally admitted that taking a negotiable instrument made by a debtor, or by a third person, on account of a preexisting debt, does not imply a discharge or extinguishment of the demand for which it is taken, nor confine the creditor to proceeding in the new causeof action, unless such was the understanding of the parties. The existence of such an agreement is, in general, a question for the jury, although it would seem to be the duty of the Court to instruct them, that the mere fact of accepting such an instrument as payment, without more, will not sustain a finding, that it was accepted as satisfaction. But for a full discussion of this whole matter see 2 Ames' Leading Cases, 3d ed., title, Note or Bill taken for Debt, 162-179, and cases there cited; also 12 Cal. 317.

         III. The agreement of December, 1856, even if it could be considered under the pleadings, constitutes no defense, for the reason that it was not carried out, but was ignored and abandoned. The new notes were not given in pursuance of the agreement, but in direct opposition to its terms.

         JUDGES: Cope, J. delivered the opinion of the Court. Norton, J. concurring.

         OPINION

          COPE, Judge

         A rehearing was granted in this case for the purpose of considering more fully the matters relied upon by way of defense. After giving these matters the consideration which their importance deserves, we see no reason for a conclusion different from that previously attained. The action is upon four promissory notes, and it is alleged in defense, that before the action was commenced the defendants executed to the plaintiffs certain other notes in satisfaction of the notes in suit. This is the only defense set up, and the finding of the referee, that the new notes, though given on account of the old, were not received in satisfaction, is undoubtedly correct.

         We have repeatedly held, that a note given in consideration of an antecedent indebtedness does not per se discharge the debt; and that in the absence of an agreement to the contrary, the only effect is to suspend the remedy until the maturity of the note. There was no agreement upon the subject in this case, and the only difficulty that suggests itself grows out of a paper executed in the city of New York, which reads as follows: " We, the undersigned, hereby agree to extend the time of payment of the indebtedness of Messrs. P. H. & P. A. Owens, ship-chandlers of San Francisco, to us, so that the aggregate of their outstanding debts, or notes, shall become due in four equal payments of six, twelve, eighteen, and twenty-four months from date, with interest at seven per cent. per annum, and to accept their notes to that effect in exchange for those now held by us." This paper is signed by various parties, including the plaintiffs, and, except as to the latter, appears to have been substantially carried out by an exchange of notes upon the basis therein mentioned. In respect to the latter, the proof shows that it was not intended to be acted upon, and the notes subsequently executed were given, not only in disregard of, but in direct repugnance to its terms. This being the case, the paper and the notes are to be regarded as separate transactions, and upon the question of satisfaction the paper has no bearing or relevancy. It is contended that the paper itself operates as a defense, and the counsel for the defendants has placed on file an able argument in support of this view. The argument is met, however, by the fact that this defense is not pleaded, and the failure in that respect precludes the defendants from taking advantage of it. The case is that of a compromise between debtors in failing circumstances and their creditors, and counsel is correct in saying that in such matters the law requires the utmost good faith. The parties are held to a strict and literal compliance with their agreement, and secret arrangements securing advantages to particular creditors are absolutely void. And they are not only void as to other creditors, but even as against the assenting debtor, and the Courts have uniformly refused to enforce them. (Story's Eq. sec. 379.) The notes were executed in fraud of the compromise, and tested by the agreement they are void; but whether void or valid the result is the same. In either case the plaintiffs are entitled to recover, for there is no evidence to sustain the answer, and no foundation for a defense upon the agreement. It is true, the agreement was given in evidence without objection, but the case must be determined upon the issue presented in the pleadings. The only question is whether the notes were received in satisfaction, and there is no doubt that the referee arrived at the proper conclusion.

         The judgment is affirmed.