
    THE JAGGER IRON COMPANY, Plaintiff and Respondent, v. HENRY H. WALKER, Defendant and Appellant.
    
      Decided January 14, 1878.
    I. Corporations.
    1. Manufacturing, organized under chap. 40, Laws of 1848.
    
      {a) Stockholders ; liability of for debts of under section 24.
    1. Not liable (among other events) unless suit for the collection of the debt shall be brought against the company within one year after it shall become due.
    
      (d) Promissory note made and given by corporation
    TO ITS CREDITOR FOR A DEBT OWING HIM; EFFECT qF ON RIGHT AND LIABILITY OF STOCKHOLDER.
    1. So long as the debt for which the note was given remains unextinguished, the liability of the stockholders is in respect thereof only; consequently, to hold stockholders, suit must be brought against the company within one year after that debt became due.
    
    1. Extinguishment ; what does not operate
    AS WITHIN THE PURVIEW OF THE STATUTE.
    
      (a) Corporation’s own promissory note in hands of its creditor does not.
    This although
    the creditor may have procured the note to be discounted and had taken it up on its protest.
    
      (b) Judgment. One obtained upon the debt, or one obtained by the creditor upon the corporation’s own note given him for the debt, does not.
    Before Curtis, Ch. J., Sanford and Freedman, JJ.
    Appeal from a judgment in favor of a trial before the court without a jury. the plaintiff:
    
      The defendant is sued to enforce a liability against him, as a stockholder of the Hudson River Iron Company, for a debt owing by the company. The company omitted to file a certificate of the payment in of its capital stock, as required by statute.
    It appeared that the original debt was contracted in July, 1872, for iron sold by the plaintiff to the company, and that a note for $634.33 was given for it, payable in five months, which the plaintiff procured to be discounted. That at maturity, the company gave a new note for $645.19, dated December 4, 1874, payable in three months, which the plaintiff procured to be discountéd, and with the proceeds took up and paid the prior note, which was thereupon canceled and surrendered.
    Before the maturity of this note, on March 4, 1875, the company gave a new note for $645.79, payable three months after date, which was used as before, and the former note canceled and surrendered.
    Again, on June 5, 1875, a new note for $657.69, dated that day, and payable in three months, was given, which was also used as before, and the former note canceled and surrendered.
    Suit was brought on this last note for $657.69, March 17, 1876, and judgment obtained against the company in March, 1876, and upon the return of the execution wholly unsatisfied, this action was commenced in April, 1876.
    The cause was tried before Judge Sedgavick, without a jury, who decided in favor of plaintiff. Upon his findings of fact and law, judgment was entered against defendant in favor of plaintiff, from which defendant appealed to the general term.
    Judge Sedgwick, upon deciding the case, delivered the following opinion.
    Sedgwick, J. —If there were not authority to guide me, I would take the following view of this case.
    Unless the original indebtedness was extinguished when the amount of the first note was paid to the bank out of the proceeds of the discount of the next note, the defendant is not liable.
    Upon the original indebtedness being secured to be paid by the first promissory note, the contract was in effect that the first note was a security, out of which the plaintiff was to be paid.
    If he sold the security without becoming liable as indorser, the proceeds would be applicable to the original indebtedness, and would pay it. But if he indorsed and transferred it, and on maturity the original debtor failed to pay, and he had to take it up, although he had once received money on the note, he could sue upon the original indebtedness by returning the note he had taken up. If, however, instead of suing while he held the note, the original debtor, by his consent, instead of paying, gave a new note to the creditor, there is room, I think, to believe that, although that would pay the first note, it would not pay the original indebtedness, unless the creditor obtained money on it, without becoming liable upon it. That is, the original indebtedness would remain unpaid through all successive notes, until the creditor ceased to be liable thereon.
    I do not see that the case is altered by the first note being taken up with money raised on a, second note, if the creditor be liable on such second note. The money is raised on his credit as much as upon the credit of the debtor.
    The money so raised is not the money of the debtor. He has not such an interest in it that a use of it satisfies his obligation that the creditor shall obtain from the first note the money to pay the original indebtedness. .
    
      This, however, is mere speculation; for as I reaFisher v. Marvin (47 Barb. 161), it is an authority that controls. The learned counsel for defendant supposes that in that case the first note was given for the purpose of raising money thereon. If that be so, still the person who advanced the money could have an action for it, although a note were given, provided it was returned to the original debtor on the trial.
    There should be judgment for plaintiff.
    
      Marsh & Wallis, attorneys, and Wm. F. Shepard, of counsel, for appellant, among other things, urged :
    —I. This case is directly within Parrott v. Colby (6 Hun, 55).
    
    II. Fisher «. Marvin was not well decided. At any rate, it is not a binding authority on this court, if its reasoning is not approved. It was made by a divided court—two-judges for reversal, one for affirmance—the judges thus standing two and two. The opinion is given without much argument or reasoning—a sort of ipse dixit. It certainly seems a novel doctrine, that when a s,eries of notes is made and delivered between the same parties, each latter one in renewal or payment of the preceding, and the form of a discount is gone through with, every new note constitutes a new and independent indebtedness, shutting off all defenses that might exist to the prior notes. The chief argument of the court in that case seems to be that on the substitution of the new note, the former note is canceled, and no action can be maintained on that. Of course not; because the new note is the renewal and extension of payment. The question as to whether an action could be maintained on the original indebtedness, is one that the court does not consider.
    
      Wm. M. Goodrich, attorney, and of counsel, for respondent, urged :
    —I. The debt on which the plaintiff obtained the judgment on which he bases the present action accrued within a year before the commencement of that action. The last note, which is the debt referred to, was an entirely new and distinct obligation, the consideration for which was the promise of the plaintiff that with the proceeds realized from its sale, he would take up and pay a former note, held by a bank, on which the Hudson Company were liable as makers, and which was then about to become due. This is a perfectly valid consideration (Brown v. Burrail, 31 N. Y. 114). This doctrine is clearly held in the case of Fisher v. Marvin (47 Barb. 159). The court, in giving its opinion, clearly distinguishes between the renewal of a note and the payment of a note by the proceeds of a new one. The payment of an old note by the proceeds of the discount of a new note cancels and extinguishes the old note (Bank of Salina v. Babcock, 21 Wend. 501; Bank of Sandusky v. Scoville, 24 Id. 115 ; Pratt v. Foote, 9 N. Y. 483).
    II. The defendant also claims that the original debt for iron sold has never been extinguished—that hence the action upon the present note is barred. This, however, cannot be true. The original debt was incorporated into the first note, and was paid and discharged when this first note was absolutely paid and canceled, and all remedy on it gone.
    III. Hor does it alter the case, that the plaintiff was an indorser upon this last note, as well as upon all the previous ones. The money raised upon this note was raised at least in part upon the faith of the promise of the Hudson Iron Co. to pay the note at maturity. The fact that the bank chose to further secure itself against loss by securing an indorser thereon, does not affect the truth of either of the following propositions : 1st. That the Hudson Company became primarily liable to pay the note to the bank discounting it, and that a new relation of debtor and creditor was created by novation. 2nd. That the bank, had they seen fit so to do, could have entirely released the plaintiff as indorser on this note, and found their sole remedy against the Hudson Iron Company, or failing there, against the stockholders. The defendant’s counsel has cited the case of Parrott v. Colby (6 Hun, 55), but that is an entirely different case. In that case, the debt matured March 8, 1867. On January 8, 1868, an agreement was made by which the debt was reduced to $25,000, of which $15,000 was paid in cash, and for $10,000 of which a note was given, payable in one year. The note was not paid, and a suit was brought on that note. But in the present case, a note was given for the original debt, payable in five months. When .that note was due it was paid, and the note canceled and surrendered. That payment extinguished the original debt and all action thereon.
    IV. But the bank being a holder for value and in good faith of the last note, the plaintiff, being compelled to pay the same as surety, is subrogated to the position of the bank, and has its rights and remedies against the maker (Hayes v. Ward, 4 Johns. Ch. 122 ; 1 Parsons on B. 162).
   By the Court.—Curtis, Ch. J.

—The facts are conceded, and the case presents a single question of law. The' defendant is liable in this action if suit was brought against the company within one year after the debt became due by the company (3 R. S. Edm. Ed. 738, § 24).

The question raised here is in respect to the time when the debt of the company by law became due.

It is apparent from the facts in the case that the same question is to be asked here, that was asked in respect to an analogous state of- facts by the learned judge rendering the opinion of the general term of the supreme court in Parrott v. Colby (6 Hun, 57). "Which was the indebtedness of the company to which the liability of the . . . stockholder attached,— the note, or the debt for which . . . the note was given ? ’ ’ The question was there answered, by holding that the giving of the note did not merge or extinguish the original indebtedness, but only operated to extend the time of payment, and that if the corporation was not sued within a year from the time the original debt became due, the liability of the stockholder ceased, and that it could not be renewed or extended, by any renewal or extension of the indebtedness, which the creditor might make with the corporation.

That the taking of the debtor’s note does not merge' or extinguish the demand for which it was taken, is sustained by a series of decisions in this State, which are cited in the opinion in Parrott v. Colby (Tobey v. Barber, 5 Johns. 68; Gregory v. Thomas, 20 Wend. 17; Cole v. Sackett, 1 Hill, 516; Waydell v. Luer, 5 Id. 448).

The general manufacturing law of this State has furnished so many pitfalls for inexperienced or unwary stockholders, and has operated so disadvantageously, in forcing capital out of the State, to be employed where these dangers do not exist, that courts may well hesitate before giving it such an interpretation as places the stockholder in a position where no lapse of time can protect him from liability, if the corporation and the creditor chose to change the original debt on which liability has lapsed into a note to be afterwards put in judgment against the corporation.

The respondent relies upon Fisher v. Marvin (47 Barb. 161), to sustain the decision appealed from. It appears from the opinion of the learned judge who rendered the decision now under review, that his views were similar to those presented in the recent case of Parrott v. Colby (supra), to which his attention was not called, but that he felt constrained to regard Fisher v. Marvin as a controlling authority. But this latter case, which was decided by a divided court, may now be considered as overruled by Parrott v. Colby, where the question received a careful consideration, and was determined by an undivided court.

The judgment appealed from should be reversed ; and as the facts are all conceded, judgment should be rendered in favor of the appellant dismissing the complaint.

Sanford and Freedman, JJ., concurred.  