The opinion
Decided 23 July, 1907.
On Motion for Rehearing.
Opinion by
Mr. Commissioner Slater.
A very earnest motion for a rehearing has been filed by plaintiff’s counsel in this case, in which connection all the issues involved have been reargued; but, after a painstaking and careful re-examination of the whole case, we are constrained to recommend an adherence to- the opinion.
5. Plaintiff’s main contention is that, in order to sustain the defendants’ claim of a release by an extension agreement, it is necessary that the court must first find that the Guarantee Company was the principal obligor and debtor on this note at the time of its execution, for, he argues, if it was not so bound at that time, it would be a stranger to the transaction, and the makers would not be discharged as a result of an extension agreement made by' the payee with the Company. In Manley v. Boycot, 2 El. & Bl. 46, decided by the Queen’s Bench in 1853, it was held that the defense was not available, unless the holder when he took the note knew of the suretyship and agreed to treat the surety as such. But in Pooley v. Harradine, 7 El. & Bl. 431, decided in 1857, and in Greenough v. McClelland, 2 El. & Bl. 424, decided in 1860 by the same court, it was held that the *394 defense might be made when the creditor knew of the fact of suretj'ship, but did not agree to hold the surety as such; and it has been generally held in this country that such sureties may, both at law and in equity, show by parol that they were sureties and were known to be such by the creditor, and they will be entitled to all the rights, privileges and immunities of sureties, and will be discharged by any act of the creditor, after he has knowledge of the fact of suretyship, which discharges any other surety. But it must appear that the creditor at the time the act complained of was done knew of the fact of suretyship. The great weight.of authority and of reason is in favor of the law as above stated: 1 Brandt, Suretyship, § 38. The equity of the surety to be discharged when he is prejudiced by the act of the creditor “does not depend upon any contract with the creditor, but upon its being inequitable in him knowingly to prejudice the rights of the surety against the principal”: Coleridge, J., in Pooley v. Harradine, 7 El. & Bl. 431; 1 Brandt, Surety-ship (3 ed.), §38. The relation of principal and surety “is a fact collateral to the contract, and no part of it”: Valentine, J., in Rose v. Williams, 5 Kan. 483 .
While the Company may be a stranger to the transaction, so far as disclosed by the paper evidence of it, yet it was not a stranger to the real transaction as disclosed by all the facts giving origin to the paper. It may be conceded, for the purpose of argument, that the defendants, in fact, as well as by the terms of the note, were the real borrowers from Mrs. Wertheimer of $15,000, and were her principal debtors at the time of the signing of the note, .yet back of their contract with her, there is 'another contract between the defendants and the Company, to the effect that if defendants would sign the note in question, and permit the Company to obtain from Mrs. Wertheimer, for its own use and benefit, the ju’oeeeds thereof, it would become paymaster of the note, and upon which the later transaction was based. Mrs. Wertheimer, through her agent, Selling, had notice of this collateral contract at the time of the execution of the note, as well as at the time of the execution of the extension *395 agreement. Doubtless she was not bound to treat the Company as her debtor, nor to have any dealing with it, in respect to the note. She might do so or not, as it would appear to be to her advantage. But, having knowledge of the contractual relation between the makers of the note and the Company, if she ever dealt with it as her debtor in respect to the debt which was the consideration of the note, she was bound at her peril to observe the rights of the defendants against the Company arising out of their collateral contract. Counsel for plaintiff relies upon 2 Daniel, Neg. Inst. § 1324, who says: “The agreement for indulgence, in order to discharge the drawer or the indorser, must be made with the maker or acceptor, who is the principal debtor; and, if it be made with a third party, it will not affect the drawer’s or indorser’s rights or remedies, although such third party may have his appropriate remedy for breach of the contract with him.” This text is apparently based upon the English case of Frazier v. Jordan, 8 El. & Bl. 302, cited in the footnote to said section. There Coleridge rules that the doctrine of an agreement for indulgence or extension ought not to be extended in case of a contract with a stranger; that the principal debtor, having given no consideration for the promise, has no ground to complain of the breach. But this principal cannot apply to a case where the alleged stranger has, by previous valid contract with the original principal debtor, and based upon a valuable consideration, viz., the proceeds of the note in question, agreed to assume and pay the debt. These 15 makers were, in fact, the sureties or accommodation makers ás to the Guarantee Company, and were entitled to the resulting legal rights and equities arising out of that relationship, and when Mrs. Wertheimer knew, or had notice, of such relationship she was bound to do nothing to endanger or destroy any of such rights, and from that time the Guarantee Company as to her was no longer a stranger in respect to such debt. It was legally bound by contract to the makers of the note to pay it in the first instance, and as between them and itself it was the duty of the Company to either pay it, or in some manner protect the makers from legal process to *396 collect the note. The Company sought to perform this duty by contracting with Mrs. Wertheimer through Selling, and when doing so was not acting as a volunteer or a stranger to the legal relation existing between Mrs. Wertheimer and defendants.
In Arnold v. Green, 116 N. Y. 566 ( 23 N. E. 1 ), it is said that the terms “stranger” and “volunteer,” as used with reference to the subject of “Subrogation,” mean one who in no event resulting from the existing state of affairs can become liable for the debt, and whose property is not charged for the payment thereof, and cannot be sold therefor. The payment by one who is liable to be compelled to make it or lose his property will not be regarded as made by a stranger. When the person paying has an interest to protect, he is not a stranger: Suppiger v. Garrels, 20 Ill. App. 625 ; Bennett v. Chandler, 199 111. 97 ( 64 N. E. 1052 ) ; Mavity v. Stover, 68 Neb. 602 ( 94 N. W. 834 ). If, during the period of leniency granted in the extension agreement, defendants had tendered payment of the note, and it was accepted, and then they had sued the Guarantee Company upon its contract of indemnity with them, it, no doubt, could successfully plead in abatement its extension agreement with the payee; but, if defendants had been sued by Mrs. Wertheimer upon this note prior to the expiration of the time given in the extension agreement, they not only could have successfully pleaded the agreement as a defense, but they would have been bound to do so to preserve their right of immediate indemnity as against the Guarantee Company. Not to do so would be in effect confessing judgment upon a demand, the maturity of which had been extended for a valuable consideration paid by one in privity with the defendants.
No distinction whatever has been suggested by counsel for plaintiff, and we think none can be found, between the case at bar. and the case of Union Life Ins. Co. v. Hanford, 143 U. S. 187 (12 Sup. Ct. 437: 36 L. Ed. 118 ), cited and quoted in the opinion, and other eases cited there in the same connection, to which may be added the following, to the same effect: Herd v. Tuohy, 133 Cal. 55 ( 65 Pac. 139 ); Wyatt v. Dufrene, 106 Ill. *397 App. 214 ; Stove Works v. Caswell, 48 Kan. 689 ( 29 Pac. 1072 ) ; Franklin Sav. Bank v. Cochrane, 182 Mass. 586 ( 66 N. E. 200 : 61 L. R. A. 760); Pratt v. Conway, 148 Mo. 291 ( 49 S. W. 1028 : 71 Am. St. Rep. 602 ); Regan v. Williams, 185 Mo. 620 ( 84 S. W. 959 : 105 Am. St. Rep. 600 ); Miller v. Kennedy, 12 S. D. 478 ( 81 N. W. 906 ); Iowa Loan, & T. Co. v. Schnose, 19 S. Dak. 248 ( 103 N. W. 22 ); Merriam, v. Miles, 54 Neb. 566 ( 74 N. W. 861 : 69 Am. St. Rep. 731 ); Travers v. Dorr, 60 Minn. 173 ( 62 N. W. 269 ); George v. Andrews, 60 Md. 26 ( 45 Am. Rep. 706 ).
For these' reasons the motion should be disallowed.
Beversed: Bei-iearing Denied.