SMITH v. OWENS, 21 Cal. 11

Cope, J. delivered the opinion of the Court Norton, J. concurring. A rehearing was granted in this case for the purpose of considering more fully the matters relied upon by way of defense. After giving these matters the consideration which then importance deserves, we see no reason for a conclusion different from that previously attained. The action is upon four promissory notes, and it is alleged in defense, that before the action was commenced the defendants executed to the plaintiffs certain other notes in satisfaction of the notes in suit.

This is the only defense set up, and the finding of the referee, that the new notes, though given on account of the old, were not received in satisfaction, is undoubtedly correct. We have repeatedly held, that a note given in consideration of an antecedent indebtedness does not per se discharge the debt; and that in the absence of an agreement to the contrary, the only effect is to suspend the remedy until the maturity of the note.

There was no agreement upon the subject in this case, and the only difficulty that suggests itself grows out- of a paper executed in the city of New York, which reads as follows: “ We, the undersigned, hereby agree to extend the time of payment of the indebtedness of Messrs. P. H. & P. A.

Owens, ship-chandlers of San Francisco, to us, so that the aggregate of them outstanding debts, or notes, shall become due in four equal payments of six, twelve, eighteen, and twenty-four months from date, with interest at seven per cent, per annum, and to accept their notes to that effect in exchange for those now held by us.” This paper is signed by various parties, including the plaintiffs, and, except as to the latter, appears to have been substantially carried out by an exchange of notes upon the basis therein mentioned.

In respect to the latter, the proof shows that it was not intended to be acted upon, and the notes subsequently executed were given, not only in disregard of, but in direct repugnance to its terms. This being the case, the paper and the notes are to be regarded as separate transactions, and upon the question of satisfaction the paper has no bearing or relevancy. It is contended that the paper itself operates as a defense, and the counsel for the defendants has placed on file an able argument in support of this view.

The argument is met, however, by the fact that this defense is not pleaded, and the failure in that respect precludes the defendants from taking advantage of it. The case is that of a compromise between debtors in failing circumstances and their creditors, and counsel is correct in saying that in such matters the law requires the utmost good faith. The parties are held to a strict and literal compliance with them agreement, and secret arrangements securing advantages to particular creditors are absolutely void.

And they are not only void as to other creditors, but even as against the assenting debtor, and the Courts have uniformly refused to enforce them. (Story's Eq. sec. 379.) The notes were executed in fraud of the compromise, and tested by the agreement they are void; but whether void or valid the result is the same. In either case the plaintiffs are entitled to recover, for there is no evidence to sustain the answer, and no foundation for a defense upon the agreement. It is true, the agreement was given in evidence without objection, but the case must be determined upon the issue presented in the pleadings.

The only question is whether the notes were received in satisfaction, and there is no doubt that the referee arrived at the proper conclusion. The judgment is affirmed.