People's Bank v. Pearsons

The opinion of the court was delivered by Bennett, J.

We think upon this bill of exceptions the county court erred in directing a verdict for the plaintiffs.

It is too well settled to need authority, that if the creditor extends the time of payment by an agreement with the principal, without the assent of the surety, made upon a good and valid consideration, the surety is thereby discharged, both in a court of equity, and a court of law. We think the payment of interest in advance is a valid consideration to support a promise to give time. This has been fully settled by the courts of New Hampshire, 6 N. H. 504, 508, Wheat v. Kendall; 10 N. H. 164, Bailey v. Adams; 10 N. H. 318, Crosby v. Wyatt.

The sum paid does not extinguish any part of the principal, or interest that may have accrued, but it is specifically to apply to pay interest to accrue in future.

*715 It has been held by this court, that the payment of usurious interest on a debt, was a sufficient consideration to support a promise to give time; 21 Vt. 38 , Austin v. Dorwin; and it is a very common principle, that a payment on a debt before it becomes due will support such a promise.

The payment of interest in advance on a debt, is precisely of the same character in principle. The interest is to accrue to the creditor on the loan made for a future forbearance. When a debt has fallen due, the creditor may be compelled to receive payment at any time, and this he may not wish to do, and the receiving of interest in advance, and an agreement, by which the loan is to be extended, may well be regarded as a benefit to the creditor, and we think the case not only discloses a valid consideration for a promise to give time, but that the promise itself might well have been inferred from the facts in the bill of exceptions. It may be stated as a general proposition, that a party, receiving the consideration, is bound to perform the thing for which the consideration was paid and received. To the question, why was this interest paid in advance ? there can be but one reply. It was to obtain the delay, and for nothing else, and the payment of interest in advance necessarily presupposes that a delay of payment of the principal for the time is to be given, and we think if is a safe proposition to hold, as a general rule, that the reception of interest in advance, upon a note past due, is prima facie evidence of a valid contract to give time of payment, and we see no reason why the rule is not applicable to banks, as well as to individuals.

But in the case at bar, the bill of exceptions finds that it was expected and understood that the delay would be given, although there was no express contract to that effect.

We have been referred by the plaintiffs’ counsel to two cases from the Massachusetts courts, to wit, Oxford Bank v. Lewis, 8 Pick. 458 ; and Blackstone Bank v. Hill, 10 Pick. 129 . In both of these cases the court held, that though the interest on a note past due is paid in advance for a given time, yet, there is thereby no implication of a giving of a new credit created, so as to preclude the right to sue at any time, and of course, no discharge of a surety. We apprehend those cases, standing upon that ground, are not in accordance with our decisions, and however much we may respect the decisions of *716 the Massachusetts court, we can not bring our minds to indorse their soundness. They were not followed by the New Hampshire court in the case of Crosby v. Wyatt, 10 N. H. 322; and, although they were cases where the payment of interest was made in advance to a bank, yet, we see no good reason why a bank should be an exception to the general rule.

When interest is paid in advance, the purpose for vdiich it is paid is the same, whether paid to a bank or an individual. In both cases it is done to procure delay, and the result should be the same. Indeed, I do not understand that the cases in Massachusetts proceed upon the ground that banks form an exception.

In regard to the case of Blackstone Bank v. Hill , in the 10th Pick., it may be said that although the court indorse the case of Oxford Bank v. Lewis , in the 8th Pick., yet, I apprehend the former case might well stand upon the ground, that though the interest was paid in advance, yet, it was the understanding of the par_ ties, that if the bank should want money, they might collect the note, before the expiration of the credit obtained by the payment of interest, and the giving of time, in that case, seemed to be, on the part of the bank, a matter of courtesy rather than of obligation, and was so understood by the bank and the borrower, at the time of the payment of the interest.

In the present case, there is nothing to show the assent of Prentiss to the giving of time in this particular case. The bill of exceptions says, no evidence was given to show that Prentiss had any knowledge as to the usage or custom of this bank, as detailed in the exceptions ; and if it should be said, that the usage of banks to receive payment in this way of one-half of the loan, and give an extension as to the other half, upon the payment of the interest in advance, is so universal and notorious that it should not be deemed to have escaped the knowledge of those who generally deal with the banks ; and that Prentiss, the surety, must be affected by this usage so that his assent to the extension of time should be implied ; yet if we concede the law so to be, for the purposes of this trial, still it can not better the plaintiff’s case. The only usage of the bank which is claimed, is to give an extension of time as to one moiety of a note, when the other half is paid at maturity, which was not done in the case at bar, and the principal *717 debtor could claim nothing under the usage; and of course no assent to an extension of time can be presumed against Prentiss ; and his assent must be made out by other evidence, of which the case is destitute.

The form of the promise in the body of the note should not preclude Prentiss from his defence as a surety.

It is true the blank note, as .furnished by the bank, .reads, “we, the subscribers, jointly and severally, each one for himself, as principal, promise to pay, &c.,” and if Prentiss had not annexed the word surety to his name, under the authority of the case of Claremont Bank v. Wood, 10 Vt. 582 , it would be taken that he had waived any defence growing out of his relation as surety. But in this case the defendant Prentiss had the right to sign the note in the manner he did; and this was notice to the bank of the relation in which he stood, and that he claimed the benefit of that relation, and if the bank did not intend he should have all the rights of a surety, they should have rejected the note. The capacity in which Prentiss signed this noté becomes a part of it; and it is well settled that upon this note all the signers would' be principals as to the bank, without any express promise binding each one as principal; and of course these words can have no effect, unless it be to cut off the defence now set up by Prentiss, by matter of construction of the contract, as was done in the case of Claremont Bank v. Wood. But the manner, in which this note is signed, precludes the idea that such was the intention of Prentiss ; and the plaintiffs and Prentiss were equally bound by the manner in which the note was signed^ so far as his rights as a surety are concerned. The judgment is reversed and the cause remanded.