Bangs v. Strong, 10 Paige Ch. 11

Bangs v. Strong

10 Paige Ch. 11 | New York Court of Chancery | 1842

The Chancellor.

The general rules upon which courts of equity proceed in decreeing a surety discharged by a new contract, changing the rights and liabilities of the principal debtor without the consent of the surety, are correctly stated in the opinion of the vice chancellor. The principal question to be considered therefore is whether those rules have been correctly applied by him to the facts of this case.

Any valid and binding agreement between the creditor and the principal debtor, or other active interference of the creditor, whereby the surety may be injured, or subjected to increased risk, or be deprived of or delayed for a time in the assertion of his equitable claim to pay the debt and become subrogated to the rights and remedies of the creditor against such principal debtor, if it is made or done without the assent of such surety, will in equity discharge him from his liability. But mere delay, or a promise of delay not founded upon a new consideration, or the taking of a collateral security from the principal debtor without any stipulation to extend the time of payment of the original debt, will not discharge the surety. (Neimcewicz v. Gahn, 3 Paige’s Rep. 614; 11 Wend. Rep. 312, S. C. Rathbone v. Warren, 10 Johns. Rep. 597. Offut v. Hindsley, 9 Louis. Rep. 12. Sneed’s Ex’r v. White, 3 J. J. Marsh. 525. Clark v. Patton, 4 Idem, 33. Alcock v. Hill, 4 Leigh’s Rep. 622. Steele v. Boyd, 5 Idem, 547.)

In the case under consideration, considering the agreement as having been made between Alcott and J. Strong only, and without any reason on the part of the former to suppose that the latter was authorized to contract for his co-defendant in the judgment as well as himself, this was unquestionably a valid and binding contract by which the rights of the parties to the judgment were materially changed. Although no time was given for the conveyance of the lands, the contract necessarily implied that all pro*17ceedings upon the judgment should be stayed for a reasonable time for the appraisal of the property and the execution of the necessary conveyances. And if the complainants, after the making of that agreement, had taken out execution upon their judgment and proceeded to collect the whole amount out of the property of J. Strong, or his surety, it would have been a palpable violation of the spirit and intent of both parties to the contract of August, 1839. Besides; the agreement, in terms, provided for an extension of credit for the balance due on the judgment beyond the appraised value of the lands after deducting the ten per cent from the amount of such appraisal. And there was also a necessary extension of credit on so much of the judgment as was to remain as a security for the payment of incumbrances upon the lands until the monies secured by those incumbrances should become due; as that was the time specified in the agreement when J. Strong was to pay off and discharge the incumbrances. What then would have been the rights of the surety, after that agreement was executed, if he had thought proper to pay the complainants’ debt and to become substituted in their place as to their rights and remedies against the principal debtor 1 Certainly he would have been compelled to wait until the lands could be appraised. And then if J. Strong thought proper to fulfil the agreement on his part, by conveying the real estate at such appraisal less the ten per cent, and subject only to the in-° cumbrances specified in the agreement as payable by the complainants or for which the judgment was to remain as an indemnity, the surety would be compelled to take his pay in the land instead of money ; and subject, for a time at least, to the lien of the incumbrances of which J. Strong had assumed the payment. Nor could he have taken out execution to enforce the payment of the residue of the judgment until the expiration of the ten months mentioned in the agreement.

The fact that the agreement was only executed by one of the complainants, even if it was made without consulting the other, would not prevent its operating as a discharge *18of the surety, where it had the effect to prejudice his right to substitution, without his assent. (Clark v. Patton, 4 J. J. Marsh. Rep. 33.) Whether the agreement of August 1839, therefore, was valid and binding upon the complainants, so as to discharge the surety who afterwards refused to assent to the same, depends upon the question whether it was entered into by Alcott without his having any good reason to suppose that J. Strong was acting without authority from his co-defendant in the judgment, if he was so in fact, and whether, as alleged in the bill, it was procured by the fraudulent professions and representations of J. Strong, which induced Alcott to believe he had such authority. In the latter case, as the surety refused to assent to the new arrangement, the complainants would be authorized to repudiate the same. And in that case the surety would not be_ discharged unless the complainants had acted under the agreement after they were aware of the fact that it had been entered into without authority, and that the surety refused to assent to the same. For the creditor may always stipulate with the principal debtor to give him time of payment upon condition that the surety assents to the agreement, so that the right of the creditor as against the surety shall not be impaired. And in such case if the surety refuses to assent to the new arrangement, the agreement is void. (Claggett v. Salmon, 5 Gill & John. Rep. 314.) This plea, however, traverses all the allegations in the bill as to the assent of the surety to the agreement, and as to the fraudulent professions and representations on the part of the principal debtor that he was authorized to act for him. In the present stage of the suit, therefore, I must presume the plea is true and that the surety is discharged.

But the objection is well taken that the answer covers some parts of the relief and discovery embraced by the plea and therefore overrules the same, (Story’s Eq. Pl. 532, § 688.) Here the bill denies that the agreement of August 1839 had been performed by J. Strong, but says nothing about a part performance. And the answer admits it hanot been fully performed. No discovery of a part perform*19anee was therefore called for by the bill, or necessary to be stated in support of the plea. And yet, the answer not only sets out a part performance of the agreement, but also the payment of money which was not required to be paid to the complainants by the agreement; and which money the appellant, by his answer, insists should be applied towards the payment of the judgment. This part of the answer, as well as that which sets up the fact that certain lands had been conveyed to the complainants after appraisal and in pursuance of the agreement, is clearly an answer to the relief prayed by the bill, to that extent. And it is inconsistent with the plea, in which the appellant declines to answer at all as to any part of the relief sought by the bill. The plea, therefore, must be overruled as such. But as it may, in connection with that part of the answer which sets up a part performance of the agreement, amount to a defence to the suit either wholly or in part, it should be permitted to stand for an answer ; with liberty to the complainants to except, and thus to obtain a full and perfect answer to the whole bill. u

The order of the vice chancellor must be modified accordingly, without costs to either party on this appeal. The complainants, however, are entitled to their costs upon the argument of the plea and of entering the order overruling the plea and allowing it to stand for an answer. And if they except to the answer, the defendant Maltby Strong must answer those exceptions within twenty days, or within such further time as the vice chancellor, by an ex parte order or otherwise, may allow for that purpose.

Order modified accordingly.