Brengle v. Bushey

| Md. | May 1, 1874

Robinson, J.,

delivered the opinion of the Court.

The bill in this case seeks to restrain the appellee from prosecuting to judgment, a suit upon a joint and several promissory note for the sum of one thousand dollars, executed by tlie appellant and Frederick Zumpstein, and payable sixty days after date to tlie appellee.

The appellant as surety founds his claim to relief on the ground that subsequent to the maturity of the note, Zumpstein, the principal, mortgaged certain real estate to the appellee to secure the payment of nineteen hundred and ten dollars and fifty cents, which said sum included the amount due on the promissory note, with a covenant in the mortgage, on the part of Zumpstein, to pay the same on a day therein named.

The amended bill alleges, that the appellee at the time of the execution of the mortgage, agreed to release the appellant as surety, and further agreed to extend the time of payment on the note until the expiration of the time prescribed for its payment in the mortgage.

The appellee in his answer, says the mortgage was voluntarily executed by Zumpstein and accepted by him, as additional or collateral security for Zumpstein’s entire indebtedness ; and denies any agreement, either to release the appellant as surety, or to extend the time of payment on the note.

The case is submitted on bill, answer and proof.

It is contended on the part of the appellant:—

1st. That the mortgage being a security of a higher nature, its acceptance by the appellee operated as an extinguishment or merger of the promissory note.

2ndly. That the covenant in the mortgage to pay the amount due on the note, suspended tlie remedy on the latter until the expiration of the time prescribed therein for its payment.

It is well settled, that the acceptance of a security of a higher nature in lieu of or in satisfaction of one of an inferior nature, operates as an extinguishment of the latter ; but where such security is accepted merely as additional or collateral security of a pre-existing debt, it is equally clear, that the doctrine of extinguishment or merger does not apply. Emes, et al. vs. Widdowson, 4 Carr. & P., 151; Twopenny & Boys vs. Young, 3 Barn. & Cress., 208; Bell vs. Banks, 3 Man. & Grang., 258; Holmes vs. Bell, 3 Man. & Grang., 213.

The question then is, was the mortgage accepted by the appellee in satisfaction of the promissory note or merely as collateral security ? In the first place, it was executed by but one of the parties to the note, and it is obvious from the face of the instrument, that its purpose was to secure the payment of the entire sum of nineteen hundred and ten dollars and fifty cents, of which the note in question formed only a part. Then again, there is no agreement on the part of the appellee to accept it in satisfaction, on the contrary, it refers to said indebtedness as being secured by the promissory notes of Zumpstein. Looking then to the face of the mortgage, we think it is clear upon the authorities, that it is to be regarded merely as additional or collateral security. In Emes vs. Widdowson, 4 Carr. & Payne, 151, suit was brought upon two bills of exchange by the drawer against the acceptor, and the defence set up, was an arrangement between the parties, by which the defendant assigned certain property as security for certain sums then due and to become due, the deed of assignment containing a power of sale to be executed upon six months’ notice. Tindal, O. J., said, “I am of opinion that such an assignment can only be considered as a collateral security, and that the personal remedy is not suspended, as there is no clause to that effect in the deed.”

So in Twopenny and Boys vs. Young, 3 B. & C., 208, where the defendant was surety for one Rummen, on a joint and several promissory note, and the principal executed a bill of sale to secure this debt among others, with a proviso, that it was not to be enlorced until after three days’ notice, it was insisted that the acceptance of the bill of sale extinguished the note, and further that the agreement not to enforce it until after three days’ notice, extended the time of payment on the note and thereby discharged the surety. But the Court held it to be merely as collateral security, and that its acceptance did not merge the note, nor suspend the remedy on the same. To the same effect is the case of the United States vs. Hodge, et al., 6 How., 279, where a suit was brought upon the bond of a defaulting postmaster, and the sureties on the bond set up as a defence, the execution of a mortgage by the postmaster, of certain real estate to secure to the department the payment of sixty-five thousand dollars, or such sum as might be found to be due on a settlement, from and after six months from the date of the mortgage. In that case, as in this, it was contended, first, that the acceptance of the mortgage merged the original indebtedness, and secondly, that the agreement to give the principal six months, in which to pay the amount to be found due, discharged the surety. The Court, however, held the mortgage to be merely as collateral security, and inasmuch as there was provision to that effect, it did not suspend the remedy on the bond.

Assuming then that the mortgage in this case, was accepted by the appellee as collateral security, the next question is, whether the right to sue on the promissory note was stcspended until the expiration of the time prescribed in the mortgage for its payment 1 It has been held, that where a negotiable note is accepted for a pre-existing debt, the remedy upon the old indebtedness will be suspended until the maturity of the note, and for the reason, that in such cases, the law will imply an agreement between the parties to extend the time of payment until such note shall become due. Baker vs. Walker, 14 M. & W., 465 ; Belshaw vs. Bush, 11 C. B., 191-200; 2 C. & P., 405; Walton vs. Mascall, 18 M. & W., 452.

But these decisions seein to be grounded upon the peculiar nature of negotiable paper and the rule adopted in favor of the law merchant. Ford vs. Beech, 63 E. C. L., 873 ; 11 Q. B., 852, 873 ; American Leading Cases, 5 Ed., 277. Where however a mortgage is taken as collateral security for a pre-existing debt, the current of authorities hold that in the absence of an express provision in the mortgage to that effect, or proof aliunde to show that such was the intention of the parties, the mortgage will not suspend the remedy on the old indebtedness. And the reason upon which this rule is founded, applies with greater force to a mortgage executed by but one of the parties to the original debt. United States vs. Hodge, 6 How., 19; 2 American Leading Cases, 5 Ed., 415.

(Decided 1st May, 1874.)

There is no provision in the mortgage before us to suspend the right of action upon the promissory note, and it must follow therefore that the liability of the appellant as surety is not discharged.

In regard to the parol proof, we concur with the Court below, that it is insufficient either to prove an agreement on the part of the appellee to release the appellant as surety, or to extend the time of payment on the note. The burden of proof was upon the appellant, and the testimony of Zumpstein, the mortgagor, in this respect, is flatly contradicted by that of the appellee.

For these reasons the decree below will be affirmed.

Decree affirmed.