Hoy v. Hansborough

1 Free. Ch. 533 | Miss. Chanc. Ct. | 1844

The Chancellor.

The complainant was a member of a mercantile concern, composed of himself, Calvin Hansborough and Jesse Denson, and upon retiring therefrom took from the other partners a bond with sureties, conditioned to save him harmless, and to indemnify him against “all loss and injury, damages, costs and charges,” that might be incurred by him by reason of his liability on certain enumerated outstanding debts against the firm. He states that the obligors in said bond have not kept and performed the condition thereof, but have failed to pay one of the claims which had matured against the firm, and that a suit had been instituted thereon against him, in the Madison circuit court, and charges that they have made no preparation to pay other claims against said firm as they may become due; that he will consequently be subjected to suits upon them also, and be thus irretrievably ruined. He prays that the defendants majr be compelled to execute specifically their covenant and obligation to save him harmless and indemnify him against his liability on account of the debts of said firm.

The answer of the defendants states, in substance, that they are laboring in good faith to pay off all the debts of the firm; that considerable payments have already been made, and that they have placed nearly all the effects of the late firm, amounting to double the debts due from them, in the hands of a trustee, to be applied in payment and satisfaction of said debts. The answer exhibits a certified record from the circuit court of Madison county, showing that the suit at law against the complainant has been dismissed.

The defendants further insist in their answer, by way of demurrer, that the complainant does not make such a case, by his bill, as entitles him to any relief in this court. Upon this state of the pleadings, the cause is submitted for final hearing. Whether the complainant is entitled to any relief must depend upon the construction to be given to the contract which is set out in his bill. The liability of the defendants to the complainant, in regard to the debts of the partnership, arises exclusively out of that contract. The bond, therefore, which created, must determine the extent of their liability. Courts of equity do not profess to extend or alter the terms of a contract, or to apply different rules of interpretation from those which obtain at law. They can decree nothing more than that to which a party has entitled himself by the terms of his contract. Looking to the language of the bond, I am unable to place any interpretation upon it which entitles the complainant to any remedy, either at law or in equity, until the contingency has arisen upon which his right of action was to accrue — until, according to its terms, he has sustained some injury, incurred some loss, or suffered some damage, or been damnified by the payment of costs and charges resulting from the failure of the defendants to pay off or discharge the debts therein enumerated. The undertaking of the defendants was not to indemnify the complainant against prospective or anticipated liability. He was already liable, in solido, with them, for the payment of the debts of the firm;- but the engagement was to protect him against any injury or damage he might sustain by reason of that liability.

A covenant to indemnify against a debt, is not necessarily a covenant to pay that debt. The terms of the bond do not require that the defendants shall, at all events, pay the debts of the firm, but that they shall guard the complainant against such payment. -This may be done in other modes than actual payment. The defendants may take up and cancel the original evidence of debt by which the complainant is bound, and substitute new and .distinct liabilities; or they may interpose some legal ground of defence to a suit by the creditors and defeat a recovery. In both these instances the condition of the bond would be fully complied with, and the complainant have realized the whole object of the contract.

It is not alleged or even pretended that the complainant has yet sustained any damage or suffered any loss on account of the alleged default of the defendants. On the contrary, it is shown that some of the debts provided against were not even due at the time of filing his bill. To this extent the court is asked to anticipate default in the defendants, and require precautionary payment, to meet a conjectured breach of their bond, and thus substitute a deposite of money, as a security to the complainant, instead of the personal obligation of the defendants, which is all they contracted to give. This would be going beyond any jurisdiction which has been exercised upon bills of quia timet. I regard the bond as a covenant for the mere indemnity of the complainant, and not as an undertaking absolutely for the payment of the debts of the partnership.

The case of Douglass v. Clark, 14 John. R. 177, is every way analogous to the one before me. The court there sustained a plea of non damnificatics to an action on a bond like the present, and recognized the distinction between a covenant to indemnify against a debt and an agreement to pay that debt.

The same distinction is sustained in the case of Chase v. Hinman, 8 Wend. R. 456, where the court say, “there is no doubt as to the general proposition that, in order to recover upon a mere bond of indemnity, actual damage must be shown. If the indemnity be against the payment of money, the plaintiff must, in general, prove actual payment, or that which the law considers equivalent to actual payment. A mere legal liability to pay is not, in such case, sufficient.” The court, in that case, admit that if the indemnity was against a liability to pay, the rule would be different.

The case of Donely v. Rockfeller, 4 Cow. R. 253, is an authority to the same effect. I think it is obvious, in the case before me, that the plaintiff has not shown such a case as would entitle him to an action at law upon the bond, and that it is equally clear that he can have no relief in this court. The rule which requires a plaintiff to show a present subsisting right of action, is equally regarded in equity as at law. A court of equity will supply a remedy where none exists at law, but does not profess to create a right of action where the law gives none.

The complainant has no right, either legal or equitable, to call the defendants to account, until he has been damnified by their failure to hold him harmless against the debts of the firm. But if there had been a breach of the bond, I should much question the power of this court to give the complainant any relief touching it. It is a general rule that a court of equity will not decree a specific performance of a mere personal covenant sounding in damages, nor of a contract relating to personalty, where compensation may be had at law. 11 Conn. R. 121; 5 John. Ch. R. 195. Such contracts will only be enforced where the property has some artificial nature, or where a breach of the personal undertaking would be productive of irreparable injury. Jeremy’s Eq. 424; 1 Jac. & W. 370.

Several cases have been referred to by the counsel for the complainant, in the early books of report, which go to sustain the jurisdiction of a court of equity, to decree performance of a general covenant of indemnity, though it sound only in damages. The cases of Randolph v. Hayes, 1 Vernon 189, and Lee v. Rook, Mosely’s Rep. 318, are authorities for that position. In the first case, the Lord Keeper is reported to have given as a reason for his decree, that the quantum of damages could only be fixed by an examination of complex and intricate accounts relating to the revenue of Ireland, which could not be made before a jury on a trial at law. The want of an adequate remedy at law, would therefore seem to be the reason which influenced the court in that case. I find no late case in the English books, in which the cases referred to have been recognized as authority. On the contrary, their authority seems to be questioned, if not denied, in the case of Antrobus v. Davidson, 3 Merival 596, where the court expressly refused to entertain a bill for the specific performance of a bond of indemnity. The cases of Ranelagh v. Hays, and Lee v. Rook,were referred to in support of the bill; but Sir William Grant said the dicta in the cases cited furnished no authority for the demand made in that case. It is true, that the case of Ranelagh v. Hays seems to be cited with approbation by Chancellor Kent in the case of Champion et al v. Brown & Brown, 6 John. Ch. Rep. 398; but the engagement of the defendants in the last mentioned case was something more than a mere covenant of indemnity. The case was this: John Paddock, by written agreement, purchased a tract of land from Champion & Storrs, to be paid for in six annual instalments, and died, leaving the purchase incomplete. His administrators, finding themselves unable to make the payments, assigned the contract of Champion & Storrs to Brown & Brown, taking from them a written agreement to take up and cancel the .contract with Champion & Storrs, or to indemnify the administrators against it. Here then was an agreement relating to real property, by which the defendants in that case assumed affirmatively to pay off the debt due from Paddock for the land. And this is the light in which Chancellor Kent viewed it, when he declared the good sense and meaning of the covenant was, that the defendants in that case “intended to stand in the place of Paddock, and to assume the payments to Champion & Storrs with which his estate stood charged.” In that case fraud was charged upon the defendants, which the chancellor said was alone sufficient to give jurisdiction and sustain the bill.

All the cases which were cited by the complainant’s counsel, which are supposed to sustain the complainant’s bill, are said to proceed upon the doctrine by which courts are governed on bills quia timet. They are expressly assimilated to the right of a surety to come into equity to compel his principal to discharge him from his liability. If their authority depends upon the assumed analogy to the law governing the relation of principal and surety, their application to the case before me may still be well doubted. The relation between the parties to a bond of indemnity is in no equitable sense analogous to that of principal and surety. The right of a surety to call for precautionary payment, by his principal, does not arise from any contract between thorn, but rests exclusively upon the doctrine and principles of a court of equity; whereas the rights of parties to a bond of indemnity arise from a definite, legal obligation, created by express contract, having no dependence upon abstract principles of equity. In this case the complainant makes no claim upon the defendants to pay the debts of the firm, except through the bond of indemnity. He shows no separate equity against them; on the contrary, so far as the creditors of the partnership are concerned, his obligation to pay them is both equitably and legally as great as that of the defendants. To shield him against ultimate loss and injury on account of that liability, is the scope and purpose of his bond of indemnity.

Upon an ordinary obligation to pay money, the surety has an tmdoubted right to compel his principal to relieve him; but it is otherwise in the case of a bond of indemnity, the legal effect of which is to protect against the consequences of future default, but -not to entitle the party to call for payment in advance, by way of preventing, the risk of his being thereafter damnified. See Antrobus v. Davidson, 3 Merival 578. To sustain such a case would be to destroy the very nature of the contract itself. If a party holding a bond for mere indemnity, may, at his option, convert it into a present obligation to pay money, before the contingency has happened against which it was given as security, written contracts would be a useless ceremony, so far as they seek to limit and define the extent of the obligation intended to be incurred. I do not intend to affirm that a case could not arise under a bond of indemnity which would be proper for specific performance. Where a party covenants affirmatively to do a particular act by way of indemnity to another, although the covenant may sound in damages, yet if a breach of it would be productive of injury, irreparable at law, equity should decree its performance. The case before me is not one of that kind. There is here no affirmative covenant to pay the debts mentioned in the bond; and any breach of the covenant it contains may be readily measured and compensated at law. It is sufficient that the defendants’ contract shows no agreement to do that which the complainant asks me to compel them to perform.

I am accordingly of opinion, that the complainant’s bill be dismissed, but without prejudice to any rights he may have at law.