37 Colo. 1 | Colo. | 1906
delivered the opinion of the court:
The causes of action upon which suit was brought against appellant are three promissory notes for ten thousand dollars each. According to the complaint these notes’ were executed and delivered to The Nevada Bank of San Francisco1 by The Needles Reduction Company, per Isaac E. Blake, its president, and prior to delivery were indorsed by the defendant, and that the bank thereafter ‘sold and indorsed these notes to one D. G-. Schofield, who, in turn, indorsed and sold them to the plaintiff.
The notes were executed by The Needles .Reduction Company as principal, and indorsed by Mr. Crosby, Mr. Blake and others, who were directors of the company. Mr. Blake informed Mr. Crosby at this time that he would protect him against the liability assumed. The proceeds of these notes were deposited in the bank in the name of The Needles Reduction Company, and subsequently checked out in the name of that company under the direction of Mr. Blake. Mr. Crosby owned no stock in this company except a few shares which had been issued to him for the purpose of. qualifying him to act as a director. Neither had he any interest in the loan, nor the purpose for which the money was borrowed by the company. At the time of the negotiation of this loan, and subsequent, Mr. Blake owned practically all of the
The testimony clearly established that Crosby was nothing more than a surety on the notes. Whether or not it also established that Blake was a principal, we shall not attempt to determine, for rea,sons which will be noticed later, but will assume for present purposes that it did. Where a creditor has in his hands or under his control property of the debtor which can be applied to the satisfaction of the debt, the surety for such debt has the right to have the property so applied, and any affirmative act of the creditor which prevents such application releases the surety' to the extent he is injured. This rule of law arises from the equities existing between the surety and the principal debtor. That is to say, when
The action of the court in directing a verdict for the plaintiff on the grounds assigned entirely ignored the rights and equities of the defendant. Prom the testimony the conclusion is irresistible that but for the interference of the plaintiff the defendant would never have been called upon to pay the notes. The value of the stock was ample to discharge the Tevis and Felton notes and those held by the bank. Plaintiff would certainly not have purchased these notes except he believed the stock was worth all he paid for it. He had no interest in either of these notes to protect, but made the purchase solely for the purpose of applying what he might realize from the stock over and above the amount necessary to discharge the Tevis and Felton notes upon other indebtedness of Blake. The latter certainly would not have permitted the stock to have been sacrificed or sold for a sum less than its reasonable value under a foreclosure of the pledge contract or on execution issued by the
In our former opinion we held that he was under no such obligation, because the case had been argued by counsel for appellant solely upon the theory that the relationship between Blake and the defendant was that of principal and surety, and as the testimony received and offered failed to establish that plaintiff, at the time of the purchase and sale of the stock, had notice that Blake was a principal, the rule of law above referred to was not applicable. In other words, we held that as the stock attached belonged to Blake, and not to The Needles Reduction Company, that, in the absence of testimony received or offered which tended to prove that plaintiff had notice 'that the relationship of the parties to the notes was dif
In other words, a party to a noté desiring to interpose a defense based upon the ground that the relationship between another party to the note and himself is different from that exhibited by the note itself, must ordinarily plead and prove this relationship, as well as knowledge on the part of the payee or holder of its existence, for the obvious reason that such defense is affirmative in its character.
The third defense alleged that Blake was a principal and the defendant a surety. In this connection the facts were also pleaded with respect to the disposition of the oil company stock, upon which the defendant relied to establish a diversion which would release him from liability to the plaintiff upon the notes. No special agreement was stated in -this defense from which it could be inferred that Blake had
We are confirmed in our conclusion that the question of want of notice to the plaintiff that Blake was a principal was not raised below, from an examination of the briefs on the part of appellee. From these briefs it would appear that the question of notice, to which the attention of this court was directed, related to the proposition that plaintiff did not have notice of the arrangement between Blake and Crosby, that the former would indemnify him against loss on account of his indorsement of the notes. Notice to the plaintiff of this arrangement at the time he purchased the stock would undoubtedly have required him to malee no disposition thereof to the prejudice of the defendant, but the rights of Crosby under this arrangement would attach by virtue of the special agreement, while those resulting from the relationship of principal and surety would attach by operation of law, so that the liability of plaintiff in the one case would depend upon notice of the special agreement, and in the other upon notice that Blake was a principal. On behalf of appellee it is contended that the testimony was. not sufficient to establish facts from which it cpuld be inferred that Blake was a prin
It was-also alleged in the third defense that in the suit of the bank real and personal property of The Needles Reduction Company was levied upon under writs of attachment issued, the value of which was sufficient.to discharge.the whole, or at least a great part, of the indebtedness evidenced by the notes sued upon, had due diligence been used with respect to such property; that judgment was thereafter rendered in such action in favor of the plaintiff, but that he wholly failed and neglected to issue any execution thereon against the property of the company attached, whereby such property was wasted and lost. The defendant knew this suit was begun, but never requested any steps to be taken by either of the par.ties interested in the judgment for the purpose of applying the property attached upon the judgment. It appears, or at least it is claimed by the defendant, that this property has been wasted and destroyed. At the trial a witness on’the part of defendant was asked to state the value of this property. An objection to this question was sustained. Counsel for defendant contend that plaintiff was bound to exercise diligence in applying the attached property'upon the judgment against The Needles Reduction Company, and for this reason it was error for the court not to allow the value of such property to be shown, because, to the extent of such value, the defendant was released from liability on the notes. It is affirmative acts of the creditor with respect to property holden for the debt of the principal which destroys the security, and not mere inaction of the creditor, which is nothing more than an omission to enforce collection from the property pledged of which the surety may complain.
This general rule, however, is not applicable to exceptional cases, as where the surety has requested the creditor to proceed, • or where the circumstances are such that the law would impose upon the creditor the obligation to take steps to collect the debt out of the property of the debtor.
The reason for the rule applicable to the case at bar, is, that the surety, upon payment of the debt of his principal, shall be subrogated to- the rights of the creditor in all securities pledged by the principal debtor as security for the debt, for the payment of which he is surety, and hence, unless the creditor has done some affirmative act, by which this right is destroyed, the surety has not been injured. Mere omission on the part-of Woodbury to issue execution on the judgment and sell the property of The Needles' Reduction Company which had been attached, in the absence of a request by the defendant to do so, is not an act of which he can complain. It was his duty to discharge the notes, and take over to" himself the rights of the. Needles Company in the property which the plaintiff acquired by virtue of the attachment and judgment. No affirmative act on the part of the plaintiff has deprived him of the exercise of this right. He knew of the suit and the steps taken. It was Ms business to judge of the danger to be apprehended from delay in not subjecting the attached property to the payment of the judgment, and if that property has been lost, it has been caused by his own negligence in failing to protect his rights and not by the omission of any duty which the plaintiff owed him.
It is also urged on behalf of appellant that, because plaintiff held the stock and realized from the sale thereof and dividends thereon sufficient to discharge the notes, after answer in the case was filed, whereby he was fully advised of Crosby’s rights, that, from the time of 'filing such answer, he was charged with notice of such rights. No authority is cited to support this proposition. The liability of the plaintiff must be determined from his knowledge of the rights of the parties at the time he acquired the notes and stock, and was not affected or enlarged'by knowledge subsequently acquired respecting these matters.
On behalf of the plaintiff it is contended that Blake was not the owner of the Pacific Oil Company stock at the time it was acquired by the plaintiff. Both Blake and the plaintiff treated it as belonging to the former. It was through an arrangement entered into bétween them that the plaintiff finally became the owner of, or controlled, this stock. He obtained title thereto through Blake. He has received the dividends thereon, and the proceeds arising from a sale thereof. He credited Blake with these proceeds upon indebtedness due him or others whom he represented. In such circumstances, he is certainly not in a position to raise the question that the stock was the property of some one other than Blake.
The former opinion is withdrawn, the judgment of the district court reversed, and the cause remanded for a new trial. Reversed and remanded.
Mr. Justice Steele dissenting.
[Note. — The original opinion in this case was handed down prior to the reorganization of the supreme court on April 5, 1906, in which opinion Mr. Justice Steele did not participate.]