Dows v. Perrin.

been prepared with care, and no dissent from other members of the court was expressed, it is entitled to great weight, and will, no doubt, be followed in the English courts. That it was intended to be a precedent for future cases is further evident from what was added by the chief justice in conclu"No decision or doctrine," he said, "was cited in the argument which at all conflicts with the view we have taken of this case, and we conceive that it is in entire conformity with various decisions relied upon by the plaintiffs." Lickbarrow v. Mason had been pressed upon the attention of the court by the plaintiffs' counsel, and the chief justice further added, that he approved of the decision in that case, and of the doctrine that when a bill of lading is put into circulation by the authority of the owner of the goods (the shipper or consignee), a bona fide transferree of an absolute title is freed from the equitable right of the unpaid vendor to stoppage in transitu. The same view of the effect of a bill of lading was taken by members of this court in recent eases, where however the precise point was not in judgment. (3 Kern., 628, per COMSTOCK, J.; Farmers and Mechanics' Bank v. Butchers and Drovers' Bank, ante, p. 140, by SELDEN, J.) Without dwelling upon the point, I am clearly of the opinion that when a bill of lading is obtained by fraud from the owner of the goods, a bona fide indorsee or transferree has no better title than the indorser had. / I think, therefore, that the Superior Court fell into an error upon this part of the case. The judgment should be reversed and a new trial ordered, with costs to abide the event.

COMSTOCK, J., did not sit in the case; all the other judges concurring,

Judgment reversed and new trial ordered.

Chester v. The Bank of Kingston.

CHESTER and others v. THE BANK OF KINGSTON.

Parol evidence is admissible to show that a bond for the payment of money, absolute in its terms, was delivered under an agreement by which it was to be held by the obligee as collateral to a debt of third parties, and to be canceled upon his obtaining payment from them.

Where a creditor makes an agreement by which a security is rendered valueless to a surety who is entitled to be subrogated in respect thereto, the surety who has paid the creditor, after a judgment obtained against him in ignorance of such agreement, is entitled to recover from the creditor the amount of the defeated security.

The Bank of Kingston discontinued a suit which it had brought against th makers and indorsers of a promissory note discounted by it, upon th execution of a bond, by three of the parties to the note, conditioned for th. payment of the amount due thereon in eight months, and such bond we delivered under a secret agreement, that the bank would endeavor to colle the amount secured thereby from the plaintiffs in this action, who were i fact only secondarily liable, the primary obligation being upon the obligor in the bond and the other parties to the note for which it was given. Th. plaintiffs being ignorant of this condition, afterwards paid a judgment recovered against them by the bank for the same debt, and the bond was thereupon transferred to them by the bank; Held, that the bond having, by virtue of the condition on which it was delivered, become satisfied when the bank obtained payment from the plaintiffs, the latter were, in equity, entitled to recover back the amount paid upon the judgment.

APPEAL from the Supreme Court. Marcus Wilbur, being indebted to the Kingston Bank, procured the plaintiffs to make for his accommodation, and without any consideration, their promissory notes, one for $1500, payable ninety days from the 11th May, 1837, the other for $1231.15, payable ninety days from April 28, 1837, which he indorsed, and delivered, before their maturity, to the bank, to hold as collateral security for his liabilities to it, whether primarily or as an indorser, informing the bank, at the time, of the character of the notes. Wilbur was then indebted to the bank in the sum of $945, for which it held his promissory note, and was also contingently liable as the indorser of a business note for $1530.34, made by W. & D. Swift, pay

Chester v. The Bank of Kingston.

able to the order of and indorsed by Pierson & Co., and to become due November 25, 1837, which had been discounted for him. This note bore the indorsement of other persons, subsequent to that of Wilbur, and which he had procured for the greater security of the bank. In January, 1838, the bank commenced a suit against the maker and indorsers of the Swift note, to enforce its payment. They having interposed a defence, the bank, in September, 1838, commenced a suit against the plaintiffs in this action upon their accommodation notes. In November, 1838, the defendants in the suit upon the Swift note agreed to withdraw their defence, and three of them executed a bond to the bank, conditioned to pay $1729.35, the amount due upon that note, with the costs of the action, in eight months. This bond was given under a secret parol agreement between the bank and the obligors, that the former would endeavor to collect the amount secured thereby from the makers of the accommodation paper, held by the bank as collateral security for Wilbur's indebtedness, and that if it should be ⚫ successful in so doing, the bond should be returned to the obligors.

In January, 1842, the bank recovered judgment against the plaintiffs in this action for the amount of their notes. with interest and costs, and claimed to hold the judgment for the amount of Wilbur's individual note, before mentioned, with interest, and of the Swift note, with interest and the costs of the suit upon it. On the 25th May, 1842, the plaintiffs satisfied the judgments by paying $3936 (of which $2133 was on account of the Swift note), and thereupon the bank transferred to them the Swift note and the bond given for it, as before mentioned. The plaintiffs commenced suits upon, and attempted to collect, first the bond and then the Swift note; but having become satisfied that they could not recover, by reason of the arrangement entered into by the bank on the taking of the bond, and which, so far as the proofs showed, then first became known SMITH.-VOL. II.

43

Chester v. The Bank of Kingston.

to them, they abandoned the suits, and filed their bill in the late Court of Chancery to recover back from the bank the amount they had paid on acconnt of the Swift note. The cause, on the dissolution of the Court of Chancery, was tried in the Supreme Court, which, at general term in the first district, rendered judgment for the plaintiffs for the amount paid by them on account of the Swift note, with interest. The defendant appealed to this court.

William C. Noyes, for the appellant.

Samuel A. Foot, for the respondent.

COMSTOCK, J. When the bank had discounted the Swift note for Wilbur, the situation of the parties was this: Wilbur still owed the bank $945, and he was liable as indorser on that note. The bank held the respondent's accommodation notes as collateral merely to the remaining debt of Wilbur and to his indorsement of the Swift note. As to the $945, the primary fund was the liability of Wilbur. As to the sum represented in the Swift note, the liability of the makers, and of Wilbur as indorser, were both primary in respect to the respondents. If immediately after the dishonor of the Swift note the respondents had paid the amount of it to the bank, they would have been entitled to subrogation, and to proceed at once against makers and indorsers for their reimbursement. From these relations of the parties it results that the bank had no right so to deal with the Swift note as to postpone the remedies to which the respondents were entitled on being subrogated to that security. If they did so deal without the assent of the plaintiffs, the latter were, to the amount of the note, discharged in equity if not at law. If, however, they assented to the dealing, or have placed themselves in a situation where they cannot object, then their liability still remains. unless they have some other answer to it.

Chester v. The Bank of Kingston.

The transaction between the bank and the parties to the Swift note probably postponed the collection of the money, which that security represented, for eight months. The bank had sued the note, and a defence had been interposed. The suit was compromised by taking a bond for the alleged debt and costs, payable in eight months, made by the same persons who were parties to the note, except D. D. Smith, one of the makers. The proof also tends to show that the bond was intended as an extinguishment of the note. Upon these facts, the bank having put it out of its power to proceed upon the primary liability until the period of extension should expire, the plaintiffs, whose liability was secondary and collateral. might have insisted that they were discharged in equity to that extent. But instead of doing so, they, in May, 1842, paid the bank in full, and took an assignment of the Swift note and the bond. After this, they cannot, in my judgment, complain that the bank thus dealt with parties to that note. I lay out of view the force of the judgments recovered against them, and on which they paid the money. It is extremely doubtful whether the facts stated would have been a defence at law. Be that as it may, it appears that the plaintiffs suffered the judgments in ignorance of the transaction, and therefore I concede that, notwithstanding the judgments, they might insist in equity that they were exonerated. But, instead of taking that ground, they paid up the bank, and took from it the primary fund in the condition it then was, and they still hold it. It is not pretended that this was done in ignorance of their rights; certainly not in ignorance that the bond on time had been substituted in place of the note. So far as appears, everything was known to them except the secret condition on which the bond was given, which I shall presently notice. I am speaking thus far of the bond only as an extinguishment of the note and a postponement of the liability for eight months; and not of the secret condition which was to extinguish the bond also. Knowing, then, that the Swift