Greene v. Bates, 74 N.Y. 333 (1878)
An agreement to suspend the right of action on a promissory note, made without the consent of an indorser, discharges the indorser from liability.
Summary
This case concerns the discharge of an indorser on a promissory note due to an agreement between the holder, the maker, and a third party to suspend the right of action on the note. Hurd, the holder of the note, Greene, the plaintiff, and McIntosh, the maker, agreed that Greene would purchase the note and secure the purchase price with a new note. The original note was to be held in escrow until Greene’s note matured. The court held that this agreement, made without the consent of Bates, the last indorser, effectively suspended Hurd’s right of action against McIntosh, thereby discharging Bates from liability. This is because the agreement altered the original contract’s terms to which Bates was bound as an indorser.
Facts
McIntosh made a promissory note, which was subsequently indorsed by Fischer and then Bates. Hurd became the holder of the note, which was past due. At McIntosh’s request, Greene agreed to purchase the note from Hurd, securing the purchase price with his own note payable at a later date. As part of this arrangement, McIntosh assigned a bond and mortgage to Greene as security. The original note, along with the bond and mortgage, were deposited with Shoecraft, an attorney, until Greene’s note matured. Fischer paid the costs of a foreclosure action that McIntosh had commenced on the mortgage, and the foreclosure was abandoned.
Procedural History
The case originated in a lower court, where Greene, after taking possession of the original note, sued Bates, the indorser, for payment. The lower court’s decision was not specified in the provided text, but the case eventually reached the New York Court of Appeals.
Issue(s)
Whether the agreement between Hurd, Greene, and McIntosh to suspend the right of action on the promissory note until the maturity of Greene’s note, without Bates’s consent, discharged Bates, the indorser, from liability.
Holding
Yes, because the agreement to suspend the right of action on the note, made without the consent of Bates, the indorser, discharged him from liability.
Court’s Reasoning
The court reasoned that the arrangement between Hurd, Greene, and McIntosh effectively suspended Hurd’s right of action against McIntosh until Greene’s note matured. The court emphasized that all parties, including McIntosh and Fischer, were present when the agreement was made. The court stated, “It was clearly a mutual arrangement between all these parties by which the pressure of Hurd was to be removed; he was to get his pay from Greene, and the receipt and negotiation of Greene’s note payable at a future day clearly bound him to suspend proceedings until the maturity of that note.” The court found consideration for the suspension in the additional security of Greene’s note. Since Bates was not consulted and no measures were taken to preserve his liability as an indorser, the court held that Bates was discharged. Had Bates taken up the note as indorser, he would have been bound by Hurd’s agreement. The court highlighted the importance of protecting the indorser’s rights: “In this arrangement the rights of Bates the appellant do not appear to have been at all considered. He was not consulted and no measures were taken to preserve his liability as’ indorser… Under these circumstances he was discharged.”