
    Charles G. Hart v. Henry R. Hudson and John C. Smith.
    "Where the collection of a promissory note is guaranteed, the person to whom it is delivered, if the note is unpaid at its maturity, is bound to proceed with prompt diligence to enforce its payment. This is a duty which he owes to the guarantor.
    If he neglect or violate this duty, he takes upon himself the risk of the collection of the note, and discharges the guarantor.
    He violates this duty if, after commencing a suit against the maker of the note, he discontinues it, and takes from him a new note, or other security for its amount, payable on a future day, without the consent or knowledge of the guarantor.
    If, in such a case, by an agreement between the parties a portion of the original note, when collected, is to be paid over to the guarantor, the latter has an immediate right of action for the recovery of this balance, in the same manner as if it had been in fact collected.
    A surety on a promissory note, whether as a guarantor or an indorser," is, in all eases, discharged where, without his consent or knowledge, a new note, payable on a future day, is taken from the maker.
    Although the taking of such a note may operate, as between the parties, only, as a conditional satisfaction, yet, in all eases, it suspends until maturity the right of collecting the original note, and is, therefore, in all cases, an unwarranted extension of credit, discharging a surety.
    Where the promise of a defendant is stated in the complaint as absolute, but is proved, upon the trial, to have been conditional; if it is also shown that, before the commencement of the action, the condition was fulfilled, the variance, under a reasonable construction of sections 169 and 111 of the Code, may be disregarded.
    At any rate, when the evidence showing the variance has been received upon the trial, without objection, the referee ought to disregard it, leaving to the court, in the exercise of the discretion given by § 173 of the Code, to amend the complaint, by conforming its allegations to the proof.
    Report of a referee, dismissing the complaint, set aside, and new trial granted.
    (Before Duer and Woodruff, J.J.)
    Heard, November,1856;
    decided, January, 1857
    Appeal from a judgment entered upon the report of a referee, dismissing the complaint.
    The pleadings in the case are the following:—
    The complaint in this action of Charles Gr. Hart, plaintiff, against Horace R. Hudson and John C. Smith, defendants, being copartners under the style of Hudson & Smith at the city of New York, shows—
    That on or about the third day of June, 1851, the plaintiff was the holder and owner of a certain promissory note in writing, bearing date September 9th, 1850, made by Bailey & Brothers, payable to Margaret A. Overacre one year from date, for the sum of two_ hundred dollars, with interest thereon from the date aforesaid.
    That the plaintiff was on the same day indebted to the defendants for goods and wares, before that sold and delivered to the plaintiff by the defendants, in the sum of one hundred and fourteen dollars and thirty-one cents.
    That in consideration of the premises, and of what is further hereinafter set forth, the plaintiff, on the said third day of June, 1851, at said city, sold and delivered to the defendants the said promissory note for the sum then due thereon, to wit, for the sum of two hundred and ten dollars and twenty-five cents, which sum, in consideration thereof, the defendants thereupon then and there undertook and promised to pay to the plaintiff as follows, to wit, first by discharging the plaintiff from the said claim which the defendants held against him for the said sum of one hundred and fourteen dollars and thirty-one cents; and secondly, by paying the balance to make said sum of two hundred and ten dollars and twenty-five cents, to wit, the sum of ninety-five dollars and ninety-four cents to the plaintiff within three days from the said third day of June, 1851.
    That the defendants did, on the said third day of June, 1851, discharge the plaintiff from their said claim against him for the said sum of one hundred and fourteen dollars and thirty-one cents, but that they have not paid the plaintiff the said sum of. ninety-five dollars and ninety-four cents, nor any part thereof; and—
    That the plaintiff, on the sixth day of June, 1851, and often at Other times before the commencement of this action, demanded of and from the defendants payment of the said last-mentioned sum, which the defendants refused, and still refuse.
    Wherefore, the plaintiff demands judgment against the defendants for the sum of ninety-five dollars and ninety-four cents, with interest from the sixth day of June, 1851, besides the cost of this action.
    And the said defendants, by Bell & Coe, their attorneys, answer the said complaint in this action, and admit that the plaintiff was the owner and holder of the note therein mentioned on the said 3d of June, 1851. They also admit that the said plaintiff was indebted to the defendants on the said last-mentioned day in the sum of one hundred and fourteen dollars for goods sold and delivered to him, by these defendants in January, 1851.
    And these defendants farther answering, deny that in consideration of the said indebtedness of the plaintiff to these defendants, he sold and delivered the said promissory note for the sum due thereon, to wit, the sum of two hundred and ten dollars and twenty-five cents, or that in consideration thereof these defendants then and there undertook.and promised to pay to the plaintiff the amount thereof by discharging the plaintiff from his indebtedness to them as therein set for.th, the amount of his bill, and also to pay him a balance of ninety-five dollars and ninety-four cents within three days from the said 3d of June, 1851.
    And these defendants deny, that they, on the said 3d of June, 1851, discharged the plaintiff from their claim against the plaintiff for the sum of one hundred and fourteen dollars and thirty-one cents, as therein alleged.
    And they deny that they, promised to pay him ninety-five dollars and ninety-four cents, or any other sum, on the 3d or 6th of June, 1851, or at any other time.
    And these defendants, for further answer, say, that on the 3d of June, 1851, the plaintiff was justly indebted to these defendants, in the sum of one hundred and fourteen dollars and thirty-one cents, for goods previously sold and delivered to the said plaintiff on January 15, 1851, as per schedule hereto annexed, which is a part of this their answer; and being so indebted, he assigned the said promissory note to these defendants, to be applyed to the payment of said indebtedness, which said note is in the words and figures following, to wit:
    “ Utica, Sept. 9, 1850.
    
      “ $200. One year from date, for value received, we promise to pay Margaret A. Overacre, two hundred dollars, with use. Barclay & Brothers. Endorsed, pay to the order of 0. Gr. Hart, Margaret A. Overacre.”
    And these defendants aver, that at the time of assigning said note, as aforesaid, to these defendants, the plaintiff endorsed thereon the following guarantee: “ For value received I guarantee the collection of the within note, to Messrs. Hudson & Smith. New York, June the 3d, 1851. 0. Gr. Hart.”
    And these defendants further show and aver, that when the said note became due and payable according to its tenor and date, to wit, on the 12th September, 1851, it was protested for non-payment, and of such non-payment, the said plaintiff was duly notified, and that the said note still remains in the hands of these defendants, uncollected, due and unpaid, which said note, these defendants produce here into court, ready to- be delivered up, as the court may direct, upon the payment of their said bill, of one hundred and fourteen dollars and thirty-one cents, with interest from 3d June, 1851, which said sum remains undischarged, unpaid and due from the plaintiff to these defendants.
    Wherefore, these defendants demand judgment against the plaintiff, for the sum of one hundred and fourteen dollars and thirty one cents, with interest thereon from the 3d of June, 1851, with costs.
    The schedule referred 'to is not necessary to be stated.
    The plaintiff, Charles Gr. Hart, to the answer of the defendants in this action, replies in the words following:
    He alleges that the promissory note, of which a copy is set'forth in said answer, is the same promissory note mentioned in his complaint in this action.
    He denies that he assigned the said note to the defendants to be applied to the payment of any indebtedness to them, otherwise than he has alleged in his said complaint.
    
      He denies that the said note was protested for non-payment, or that he was duly notified thereof.
    He denies that the said note still remains in the hands of the defendants uncollected, due and unpaid, as alleged in said answer.
    He alleges, according to his knowledge, information and belief that the defendants, on or about the 6th day of October, 1851, settled with and discharged Bailey & Brothers, the makers of the said note, and took in lieu and satisfaction thereof, from the said makers, their two promissory notes for the sum of one hundred and seven dollars and fifty cents each, payable to the order of the said defendants, the one at six months, and the other at eight months from the said 6th day of October, 1851, which said two notes are now held and owned by the defendants.
    And he alleges, that at the time of such settlements between the defendants and the said makers of the said notes, he, the plaintiff, did not consent to, or know of the same.
    The referee, by whom the cause was tried, after stating the evidence before him, made the following report:
    To the Justices of the Superior Court:
    I, Hamilton W. Robinson, the referee appointed in this cause to hear and determine the same, do report that I have been attended by the respective parties, and heard their proofs and allegations, and do find the following facts:
    That on the 4th day of June, 1851, the plaintiff, being indebted to the defendant in the sum of $114.31, for a bill of merchandise, transferred to them a note of Bailey & Brothers, dated September 9, 1850, for $200, payable with interest to Margaret A Overacre, one year after date. This note, although not negotiable, was endorsed with direction, signed by said Margaret A. Overacre, to “pay to the order of C. Gr. Hart,” and also with her written guaranty to him, dated May 27, 1851, of the collection of the note as against Bailey & Brothers, and on its transfer by plaintiff to defendants, was also endorsed with the written guaranty of the plaintiffs, in these words, “For value received, I guarantee the collection of the within note to Hudson & Smith. Hew York, June 3, 1851. Signed C. Gr. Hart.”
    That on such transfer, the defendants executed to the plaintiff a bill and réceipt in the words, “ Mr. C. Gr. Hart, in ac. with Hudson & Smith, Dr., to bill of merchandise,” for which a draft was accepted at 10 days’ sight, payable at Broome County Bank.
    $113 00
    Expenses, . . 15
    ■ $113 15
    $113tW.
    Rec’d, Hew York, June 4th, 1851, of C. Gr. Hart, one hundred and thirteen -nnr dollars, in full for draft sent Stone & DeForest for collection, Hart to pay expenses to Stone & DeForest.
    (Signed) Hudson & Smith.
    That the bill of merchandise mentioned in this receipt was the same first-mentioned, except an item of $1.31 omitted.
    That the defendants thereupon further agreed that they would write to Bailey & Brothers, to ascertain if they would discount said note, or if it could be discounted at the Bank of Utica, and that as soon as the defendants got the money on it, from any source, they would remit the plaintiff the surplus over and above paying the amount of his bill and interest.
    That in the beginning of October, 1851, the defendants commenced a suit on the note against Bailey & Brothers, by issuing a summons to Oneida county, where they resided, and shortly afterwards arranged with Bailey & Brothers, by taking their two notes, to wit: one, dated October 6th, 1851, payable in 6 months, for $107.50; the other, of the same date, payable in six months, for $107.50, but holding the said $200 note as collateral; but these two notes were not paid, and such note of two hundred dollars was produced by defendants on the hearing.
    From these facts, as matter of law, I do find and determine, that the plaintiff has failed to establish by proof the cause of action alleged in his complaint, and that his complaint ought to be dismissed with costs. All of which is respectfully submitted.
    April 2, 1853. H. W. Robinson, Referee.
    This report was duly excepted to, and the exceptions properly raised the questions upon which the cause was finally decided.
    
      jHunt, for the appellant,
    contended that the report of the referee was, in some respects, against evidence, but that, even upon the facts as found by him, the complainant was entitled to judgment, and the dismissal of the complaint, therefore, a manifest error.
    
      Bell, for the respondents,
    insisted that the finding of the referee, upon the questions of fact, was conclusive, and that the variance between the facts, as found by him, and the allegations in the complaint, was manifestly fatal, and the complaint, therefore, properly dismissed.
   By the Court. Duer, J.

This is a case of slight importance in respect to the sum in controversy; but it involves questions that have seemed, to us worthy of our attentive consideration.

The first of the questions is, whether, upon the evidence before the referee, and the facts as found by him, the plaintiff was entitled to recover -the sum demanded in the complaint? The second, whether, upon the supposition that he was so entitled, the variance between the proof and the complaint was such as to create a bar to his recovery in the present aotion ? Each of these questions has been determined by the referee in favor of the defendants. In relation to the first, we have come to the conclusion, for the reasons that I shall proceed to state, that it must now be determined in favor of the plaintiff.

The sum for which judgment is demanded in the complaint is, the difference between the amount of the note of Bailey & Brothers, which was transferred to the defendants, and that of the debt which, at the time of the transfer, was owing to them from the plaintiff; and the question is, whether any breach of the agreement of the parties, as found by the referee, was proved, which entitled the plaintiff to recover the whole, or any part of the sum, he demanded ?

The referee has found that, when the note of Bailey & Brothers, the collection of which was guaranteed by Mrs. Overacre and the plaintiff, was placed in the hands of the defendants, and accepted by them in payment of the debt then due to them from the plaintiff, they agreed, not absolutely to pay him the difference between the amount of their debt and that of the note, but to remit to him the surplus when collected or recovered by them, from any source; and for the purposes of this opinion, it may be admitted that this finding of the referee is justified by the evidence. What, then. are the consequences ? Plainly this, that the defendants, by accepting the note of Bailey & Brothers upon these terms, were bound, in justice to the plaintiff, to use all reasonable and legal diligence in its collection, and had no right, without his consent to extend the time of its payment, and still less to substitute any new security, payable on a future day, in place of that to which the guarantee of the plaintiff, and the prior guarantee of Mrs. Overacre, alone related. The defendants, however, instead of prosecuting to a judgment the suit which they had commenced against Bailey & Brothers, without the consent or knowledge of Mrs. Overacre or the plaintiff, divided the amount of the note they had received, with the interest accrued thereon, into two equal sums, and for each sum took from Bailey & Brothers a new note, payable, with interest, to them or order, the first note at six months, and the second at eight months from the date of the arrangement, and if this arrangement was, in judgment of law, and so far as the rights of the plaintiff are concerned, equivalent to á collection in money of the note which he had transferred, his right to maintain the action was fully established, and the conclusion of the referee, that the complaint ought to be dismissed, unless it was rendered necessary by the state of the pleadings, a manifest error.

We are clearly of opinion that the legal effect of the arrangement thus made with Bailey & Brothers, was precisely that which has been stated. The acceptance of the new notes, so far as the rights of the plaintiff are concerned, necessarily operated as a satisfaction of the old, and the defendants took upon themselves exclusively the risk of the ultimate payment of the notes they had received; they could not cast this risk, or any portion of it, upon Mrs. Overacre or the plaintiff. The effect of the arrangement was, to annul her guarantee as well as that of the plaintiff, as they had no longer any interest in the collection of the original note; in respect to them it was satisfied, and the plaintiff had, therefore, an immediate right to demand the payment of the sum which, in the event of its collection, the defendants had promised to remit. These positions we hold to be correct, both upon principle and upon the authorities.

That the defendants were bound to use all reasonable and legal diligence -in the collection of the note transferred to them cannot be doubted. Their agreement to remit to the plaintiff a portion of the proceeds when collected, implied and imposed the duty of collection. To the extent of the plaintiff’s interest they were his agents for the collection of the note, and, without his authority, could make no arrangement by which his rights as to the mode and time of its collection could be varied or affected. An agent for the collection of a debt can receive its payment only in money. He cannot release nor compound the debt, nor, by parity of reasoning, extend the time of its payment. (Todd v. Reid, 4 B. & Ald. 210; Russell v. Bagley, id. 395; Story on Agency, §§ 9, 161, 215, 413.) Hence, the defendants, in discontinuing the suit which they had commenced against the makers of the note, and in accepting their notes, payable on a future day, for the whole amount of the debt, acted at their own peril, and were guilty of a violation of duty which rendered them immediately liable to the plaintiff; just as a factor who sells upon credit the goods entrusted to his charge, and which he was authorized to sell only for money, is at once liable to his principal for their price or value. (1 Young & Jer. 389; 26 Wend. 192; 2 Will. 259; Story on Agency, § 109.)

In each case, the extension of credit without authority creates the liability. Certainly the plaintiff was not bound to wait for the balance of the original note to which he was entitled, and for which he had received no consideration, until the notes taken by the defendants from Bailey & Brothers should be paid at their maturity or otherwise. As these notes were taken without his authority or consent, he had the right to say that they were taken by the defendants at their own risk, and, therefore, to the extent of his interest in the original note, operated as an actual payment; or to express the proposition in other words, but with the same result, that the defendants, by their departure from their duty as his agents had become his immediate debtors for the sum which, on his behalf; they had undertaken to collect.

There are other views of the subject which lead necessarily to the same conclusion.

The collection of the original note of Bailey & Brothers was guaranteed to the plaintiff by the payee, Mrs. Overacre, and we are bound to presume that he relied upon her guaranty, in giving his own, and looked to her solvency as protecting him from loss, in the event of the insolvency of the makers. Hence, if the effect of the arrangement made by the defendants with the makers was to release Mrs. Overacre from all liability for their default, the character and value of the note, as a security, were so essentially changed that it was no longer the note which .the plaintiff had guaranteed, and he, as well as Mrs. Overacre, was freed from the risk of its future collection. By thus acting the defendants made the note their own sole property, and, taking upon themselves the whole risk of its collection, became at once liable to the plaintiff for his proportion of the debt it had been given to secure. They had included this sum in the notes which, without authority, they had taken, and were thus estopped from saying that it had not been collected.

That the effect of the arrangement made by the defendants with Bailey & Brothers, was to annul the guarantee of Mrs. Over-acre and discharge her from all liability, cannot be doubted. A guarantee of the collection of a promissory note, or other evidence of a debt, does not mean that it shall be paid at its maturity, but that, by a prompt and diligent use of the means which the law affords, its payment may be enforced. Hence, if the debt so guaranteed is unpaid at its maturity, the creditor, if he wishes to retain the liability of the guarantor, must, without delay, commence proceedings for its recovery, and it is only when he can show that all the remedies which the law gave him against the debtor had been exhausted, that he is in a condition to demand payment of the debt from the guarantor. If he delay, without necessity, to commence the necessary proceedings, or, when an action has been commenced, to prosecute it to judgment and execution, the delay is imputed to him as “ laches" and the guarantor is discharged. (Taylor v. Bullen, 6 Cow. 624; Compton v. McNair, 1 Wend. 455; Eddy v. Stanton, 21 Wend. 255; Moakly v. Riggs, 19 John. 69; Loveland v. Shepherd, 2 Hall, 159; Burt v. Horner, 5 Barb. 501.)

It is needless to dwell upon the application of these remarks to the case before us. It is obvious and decisive. According to the authorities to which we have referred, the abandonment by the defendants, without the consent of Mrs. Overacre, of the suit which they had brought against Bailey & Brothers, was alone sufficient to discharge her.

But we shall not stop here. The discharge of Mrs. Overacre, in the present case, does not rest merely upon the “laches" but upon the positive acts of the defendants. Hence, the same consequence would have followed, had she guaranteed the payment and not merely the collection of the original note of Bailey & Brothers, or had the note been payable to her order and she had been duly fixed as an indorser.

It is familiar law, that a surety is discharged in all cases where it appears that, without his assent, the time of payment by an agreement, binding on the creditor, was extended to the debtor, and this even when it is certain that the extension of credit worked no injury whatever to the surety, (Gahn v. Niemcewitz, 11 Wend. 312, Nelson, J.; Hoffman v. Hubbert, 13 Wend.; Hubby v. Bowen, 10 John. 70; Miller v. McCan, 7 Paige, 455; Bangs v. Strong, 10 Paige, 11, S. C. affir.; 7 Hill, 250; Boner v. Tiernan, 3 Denio, 378; Hubbell v. Carpenter, 3 Barb. 520); and it is equally well settled that the taking of a bill or note from the debtor, payable on a future day, suspends, until then, the creditor’s right of action for the original debt, and therefore operates, in all cases, as an extension of credit, by which not merely an ordinary surety, but an indorser, not assenting to the transaction, is discharged. (Putnam v. Lewis, 8 John. 389; Myers v. Wells, 5 Hill, 465; Bank of Orleans v. Barry, 1 Denio, 116; Holmes v. De Camp, 1 John. 34; Burdick v. Green, 15 John. 243; Colemard v. Lamb, id. 349; Jackson v. Hacksley, 16 John. 273; Fellows v. Prentiss, 3 Denio, 512; McLean v. La Fayette Bank, 3 McLean, 589.) In the case last cited, an evidence on a promissory note, which had been unused by all parties except himself, was held, by Mr. Justice McLean and his associate, to be discharged, upon the ground that as to him the renewal operated as a payment. (3 McLean, 620.) The case of Myers v. Welles, although differing in its circumstances, was decided by our Supreme Court in favor of an indorser, upon the same principle, namely, that by taking other notes from the makers for the same debt, credit had been extended to him, without the defendant’s knowledge or assent, and in the case of Fellows v. Prentiss, it was held, by the court of errors, that the' taking from the debtor his promissory note, payable only one day from its date, was an effectual discharge of his surety; and that parol evidence to show that the note was given merely as a memorandum of the sum due, and not as an extension of credit, as contradicting the plain meaning and legal effect of the instrument, was inadmissible.

It is therefore apparent that the cases upon which the referee, in his written opinion, seems to have relied, have no application. The cases which he has cited, only prove what, as a general r'nle, is undoubtedly true, that the taking from the debtor his promissory note for an existing debt, is not, as between the parties an absolute satisfaction of the debt; but they do not prove that in such cases the creditor’s right of action is not suspended until the note he has taken becomes due, nor consequently, that the note is not conclusive proof of an extension of credit, by which a surety or indorser is discharged. There is, in truth, no conflict in the decisions, and those to which I have referred, conclusively show that a negotiable note taken from a debtor, even as between the immediate parties, is a conditional satisfaction of the debt which forms its consideration, and that in respect to a surety, whether a guarantor or indorser, whose assent to the transaction is not proved, the satisfaction which it works and of which it is evidence, is absolute. It may be true that, had the defendants retained the possession of all the notes of Bailey & Bros., they might have had an election to sue the makers upon those last taken, or upon that which the plaintiff had transferred to them; but it is certain, that until the notes last taken were unpaid when due, the defendants had no right to sue at all, and equally so, that by this voluntary suspension of their right of action, the sureties on the note transferred to them, were wholly discharged; and it has already been shown, that this is all that was necessary to be proved to render the defendants liable in the present action.

Speaking for myself, I am convinced that, by the immediate effect of the arrangement made by the defendants with Bailey & Bros., the original note which the defendants then held, as an evidence of debt, was satisfied and extinguished. The notes taken by the defendants under this arrangement, were made payable to their own order, not to that of the payee in the original note; they were taken for the whole sum, including interest then due on the original note, and as they carried interest, they converted into principal, the interest they included. The notes thus taken, it seems to me, in their substance, as well as in their form, were a new contract, by which that then subsisting between the parties was displaced and superseded; and I observe, with gratification, that in Fellows v. Prentiss, where the notes taken from the debtor were of a similar character, Chancellor Walworth expressed an opinion to the same effect.

It is quite unnecessary, however, nor do we mean to place our decision upon this ground, since it is enough to say, that the notes thus taken were an unauthorized extension of credit, by which, as between the defendants and the sureties, the original debt was extinguished.

The referee lays stress upon the fact that the original note was not surrendered or cancelled when the other notes were taken; but as stripped of its guarantee, the original note had lost its value, as it was no longer- evidence of a subsisting debt, and no action could then be maintained upon it, either against the makers or guarantors; the fact that the defendants retained its possession is regarded by us as plainly immaterial. In Fellows v. Prentiss, and in Myers v. Welles, the creditor retained possession of the note from which the indorser was held to be discharged. Nor can we attach any importance to the fact that the defendants in their letter to the plaintiff, stating the terms of the arrangement they had made with Bailey & Bros., declared that they retained the note of Mrs. Overacre, doubtless meaning that which she had guaranteed, as a collateral security. It is manifest, that without her consent, they could not thus retain the note, and certainly, for such a purpose, the rights of the plaintiff cannot be affected by their intention to do what the law forbade them to do, namely, by a valid agreement give time to the principal debtors, and yet retain the liability of their surety.

Again, were it possible for us to hold that the notes taken by the defendants from Bailey & Bros., were taken merely as a collateral security, and had not the effect of suspending at all their right of action upon the original note, there is still another ground disclosed by the evidence upon which we should be compelled to say that the defendants had rendered themselves liable' to the plaintiff to the extent of his demand.

It was proved, and proved without objection, that before the commencement of this action, the defendants-had parted with, for value; one of the notes, which, under the arrangement with Bailey & Bros., they had received. From this time, therefore, their right to maintain an action upon the original note, if not wholly gone, was certainly suspended, and from this time, therefore, there was certainly an extension of credit, by which Mrs. Overacre and the plaintiff were discharged. These additional facts, in the opinion of my brother Woodruff, would be conclusive, if standing alone, and in that opinion, I entirely agree; but we do not mean to intimate any doubt as to the sufficiency of the reasons before given, upon which it must be understood that we rest our judgment.

Lastly, I have said, that a negotiable note taken from a debtor for a precedent debt, as between the parties is a conditional payment. In the language of Chief-Justice Spencer, in one of the cases, it is a payment sub modo. Hence, although the creditor of the note is unpaid at its maturity, and may bring an action for the original debt, yet he cannot recover unless upon the trial he produces and -cancels the note, or proves its loss, or destruction. (Holmes v. O'Camp, 1 John 24; Pintara v. Inchington, 10 John 104; Burdick v. Green, 15 John 247.) We cannot believe that the same facts which, as evidence of payment, would have discharged Bailey & Bros., had they been sued by the defendants on their original note, namely, that the notes which they had given for the same debt were outstanding and not cancelled, were just as conclusive to charge the defendants in the present action. If the original note was satisfied in respect to its makers, a fortiori was it satisfied in respect to the plaintiff?

The result is, that in our opinion, the referee drew a wrong conclusion from the facts which he states to have been proved. The true conclusion was, that the defendants, before the action was brought, in judgment of law, had collected the note of Bailey & Bros., which the plaintiff transferred to them, and the plaintiff was therefore entitled to demand and recover from them the surplus, with interest, which, in that event, they had agreed to remit to him.'

We pass to the second question. It is insisted that the agreement of the defendants, as found by the referee, is not that set forth in the complaint, and that the referee was therefore justified in holding that the plaintiff had failed to establish, by proof, the cause of action alleged in this complaint; and was justified, upon this ground, in dismissing the complaint. Although this Objection to a reversal of the judgment appealed from, has created some hesitation in our minds, we are satisfied upon reflection, that it cannot "be allowed to prevail. We aré satisfied that there was no such failure of proof as could justly be considered a bar to the plaintiff’s recovery. It is true, that the agreement found by the referee varies from that set forth in the complaint, but it does not follow that the variance was such as to render a dismissal of the complaint necessary or proper. The promise of the defendants, as set forth in the complaint, was absolute, as found by the referee, conditional; but it must be remembered, that the "condition was shown to have' been fulfilled, and the liability of the de fendants to be exactly the same as if the allegation in the complaint had been literally proved. It may, therefore, well be doubted, whether this variance, as it could not by possibility have misled the defendants, ought not, under section 169, to have been wholly disregarded. It can hardly be said that the cause of action alleged in the complaint was unproved in “ its entire scope and meaning,” and if not, there was no “ failure of proof” within the meaning of the Code. (Code, § 171.)

It is not necessary, however, to place our decision upon this ground, since there is another, upon which, with entire satisfaction to ourselves, it may be placed. The letter of the defendants, stating the terms of the arrangement which they had made with Bailey & Brothers, was read in evidence without objection, and its contents—the facts it proved—were alone sufficient to establish the right of the plaintiff to recover. It was not at all necessary to prove, in addition, that the notes of Bailey & Brothers, taken under the arrangements, had been in fact negotiated or paid; hence, the referee might, with entire safety, have rendered a decision in favor of the plaintiff upon the evidence before him, leaving it to the court, in the exercise of the discretion given by section 173, and in manifest furtherance of justice to sustain a judgment, upon his report, by so amending the complaint as to conform its allegations to the facts as proved, and such, in our opinion, is the, course that the referee ought to have followed, such the decision he ought to have made.

The judgment appealed from must, therefore, be reversed, and there must be a new trial, with costs to abide the event. If the plaintiff so elect, the order for a reference will be vacated.  