42 La. 260 | La. | 1890
Lead Opinion
The opinion of the court was delivered by
The plaintiff sued M. C. Randall, its agent, in the City of New Orleans, and Henry Ginder, E. C. Palmer, P. H. Werlein, and C. Mehle, the sureties on his bond, for the sum of $33,233.93, the amount of the defalcation of the agent Randall to said company.
There was judgment against Randall on his written confession, which was made final, and the sureties were released, from which judgment the plaintiff has appealed. The answer of the sureties is substantially as follows: they plead the prescription of one, two, three, five and ten years; they allege that there is no sum of money due said company by Randall; that if any sum is due to the company by him, it arose through the negligence of the company in failing to compel him to make prompt returns of collections; that if plaintiff is entitled to a judgment against defendants, they are entitled to receive from plaintiff the sums of money received from the assets
The only serious defence is that the sureties are discharged by the company’s acts in receiving property from Randall, on qccount of' his defalcation, administering it and converting the same to its own use and benefit without the knowledge or consent of the sureties.
Before and after the institution of this suit the company received from Randall a number of insurance policies, upon which it placed its own valuation, a fee due Randall in the insolvency of Carriére &Co., which it collected, a claim against Joseph Santini for $6315.88, which it compromised, as the evidence shows, at considerable less, than its value, and immovable property in Virginia, which the company in part disposed of and retained an interest, which it has valued in the remainder, and a cash payment from Randall of $740.11, and a transfer from Randall for commissions for policies renewed amounting, it is alleged, to some $9000 (nine thousand dollars). The face value of these assets was more than sufficient to extinguish Randall’s liability. The company admits it realized only $12,098.12 on these assets. The company received from Randall all the property he possessed, and administered it as owner, disposing of it and conveying it without the knowledge or consent of the sureties. It matters not whether the company received the full value of the assets turned over- to them by Randall.
The question is whether the company has changed the obligation of the surety and impaired any of the rights of the surety against the principal.
“ The surety is discharged when by the act of the creditor the subrogation to his rights, mortgages and privileges can no longer be operated in favor of the surety.” R. O. C. 8061.
The duty of the company was, not to appropriate or dispose of the property, whether received before or after the sureties’ liability had accrued by the [defalcation of Randall, without the knowledge and consent of the sureties, but to hold it impartially for its own and the sureties’ benefit. 43 Me. 381; 8 Pie. 121; 4 Golas Oh. R. 129; o N. H. 353.
This the company.has not done. The plaintiff has placed the property beyond the reach of the sureties. They can not demand subrogation to the creditors’ rights against the principal, to which they are entitled under their contract of suretyship.
When the creditor intends to look to the surety for payment, he is compelled to preserve, unimpaired, all his rights against the debtor. If the creditor therefore does any act without the sureties’ consent, which impairs his rights of subrogation or the means of enforcing his claim against the principal in case he should be called upon to pay the debt, the surety will be discharged.
The sureties in the case may have desired to pay their obligation, which was for |2500 each, and take the -assets of their principal to the extent and amount of securing them against loss, and administer* them for their joint benefit. The evidence in the record leaves little-doubt but that they could have realized more from the assets of" Randall, had they received and properly administered them, oi; had; they been consulted about their disposition. In the petition of' plaintiff no mention is made of the transfer of the assets of Randall to the company, nor is there any credit given to the defendants for the sum realized on them.
The plaintiff contends that the acts of the ¡company in taking the property of Randall, operated an advantage to the sureties, and therefore they have no cause to complain. Admitting this to be so, the surety stands on the strict terms of his contract, and even should the act be beneficial to them, if it in any way changes the contract of suretyship, the surety will be discharged. The creditor has no right to make any change in the obligation. McGuire vs. Woolridge, 6 R. 50.
The right of subrogation to the right of the creditor is a part of the
In this case it is clear that the creditor by his own act has changed the contract of the surety and has placed it beyond the power of the company to subrogate the sureties to its rights against the property of Randall.
Judgment affirmed.
Rehearing
On Application for Rehearing.
We have considered appellant’s application for an oral argument on this motion, but deem it unnecessary to depart from the rules of court, as the question on which it rests is one of law, and the mover’s brief is elaborate, and fully presents the authorities relied upon as supporting its theory.
That theory is that, having a final and unqualified judgment against the defendant for $33,000 as their agent, the plaintiff had the right to receive payment, or securities from him, for the deficiency, which was not covered by the obligations of the sureties.
For instance, plaintiff’s judgment being for $33,000, and the several obligations of the sureties aggregating only $10,000, Randall was at liberty to make a payment to the plaintiff in money, or to furnish it securities to the extent of the difference of $23,000, and the plaintiff had the right to appropriate same to the satisfaction of that difference — it not being covered by the sureties’ obligations — and that, only, when this deficiency had been first provided for, could the sureties complain of any after application of rights and securities of the debtor; and then, to the extent only of the injury suffered by the sureties.
As supporting this proposition, counsel cites a number of authorities. The general effect of those decisions is, that a partial release of any of the mortgages, or privileges of the creditor, releases the surety only pro tanto; or, in other words, the discharge of the surety only takes place, to the extent to which the acts of the creditor have prejudiced the recourse of the surety for reimbursement of what he may be obliged to pay, under the contract of suretyship. Or, as the case is put by Judge Story:
“On the other hand, if the creditor has any security from his
A careful study of the question has satisfied us that the contention of the plaintiff’s counsel can not prevail, though the principles of law that are announced in the various authorities cited are well recognized by us.
We held, simply, that the insurance company received from Randall, the defendant, all the values he possessed, and converted them to its own use, without the consent of the sureties, and, in so doing, placed same beyond their reach, and deprived them of their rights of subrogation to the rights of the company, against their principal; on the theory that, when a creditor intends to look to the surety for payment, he is bound to preserve unimpaired all his rights against the debtor.
On this hypothesis our opinion proceeds and declares:
“If the creditor, therefore, does any act,| without the sureties’ consent, which impairs his right of subrogation, or the means of enforcing his claim against the principal, in case he should be called upon to pay the debt, the surety will be discharged.”
Our opinion rests upon an article of the Code, and McGuire vs. Wooldridge, 6 R. 47, and Offut vs. Hendsley, 9 La. 12; but, many other cases of like import and force can be cited. To point the argument in favor of its correctness we make the following quotation from the latter:
“ It being of the nature of the contract of suretyship, that the surety who pays, whether willingly or compulsively, has a right to demand the subrogation of all the creditors’ rights on his debtor, his property, and his sureties. This right of subrogation is the consideration (or a part of it) of the obligation which the surety contracts. There is a privity of contract between the surety and the creditor which compels the latter to preserve his rights for the former. If the preservation of these rights be burdensome to the creditors, they put an end to all trouble when the day of payment arrives by insisting on payment by the surety. No one can become surety against the creditor’s will, though he may against that of the debtor. The assent of the creditor is of the essence of suretyship, and no one can complain of the natural consequences of any contract into which he may enter.”
It follows that the surety has a right to stand upon the very terms of his contract, and the creditor has no right to make any alteration in it.
■ These principles are founded on provisions of the Code. Surety-ship is an accessory promise made to the creditor. R. O. O. 3035, 3045.
“ The surety is discharged when, by any act of the creditor, the subrogation to his rights, mortgages and privileges, can no longer be operated in favor of the surety.” R. O. O. 3061.
His discharge proceeds upon the theory, that the act of the creditor which deprives the surety of the right of subrogation of the former’s securities, violates their privity of contract, and prevents the latter from taking them to himself on paying the debt of the princi - pal, to the extent of suretyship.
Undoubtedly the creditor has a right to receive securities from the debtor, but he has not the right to appropriate them, and thus deprive the surety of the right of subrogation, in case of making payment. The creditor’s first and highest duty is to the surety; and he has nó right to first exhaust the debtor’s resources, and reduce him to a state of bankruptcy, and then call upon the surety to pay the balance that remains due.
We are thoroughly satisfied that our opinion is well grounded in law.
Rehearing refused.
Rehearing
On Application eor Rehearing.
I have given very close attention to the able brief for-rehearing, and to the argument cited in support thereof.
.These authorities certainly place a judicial construction on Art. 3061, Rev. O. O., to the effect that the partial release of any of the-securities of the principal held by the creditor only releases the debtor pro tanto. Barrow vs. Shields, 13 An. 63; 11 An. 179; 29 An. 844; 30 An. 159.
They rest upon the principle that the creditor has the right to take-payment from the debtor without discharging the surety from liabil - ity for any balance that may remain due; and so, if he has released,, or has applied to his debt, securities of fixed and certain value, at
• But I can not convince myself that the principle or the authorities cover such a case as the one before us, in which the creditor, after the defalcation of its employee, takes from him all the assets of every kind which he possesses, consisting of a mass of securities of contingent value, such as policies of life insurance on the lives of the debtor and of third persons, undivided interests in real estate, litigated ■ claims against debtors, unliquidated demands of various kinds, and, without notice to the sureties, proceeds, at its leisure, to reduce them all to cash by settlements, compromises and otherwise, and after crediting such cash on the excess of their claim above the amount of the sureties’ obligation, proceeds against the sureties for the balance.
The securities transferred had an apparent or potential value ■exceeding the total amount of the debtor’s liability. The policies of life insurance alone approximated, in amount, the total liability. Had Randall died the day after the transfer the policies on his life alone, with the amounts actually collected from other sources, would have wiped out the whole debt.
What right had the creditor, without notice to the sureties, to surrender these policies to the insuring companies at a trifling cash valuation? Non constat that the sureties might not have preferred themselves to' take these policies at the cash valuation to keep them alive, and thus secure themselves against eventual loss.
Might not the sureties have preferred to buy in the real estate which was sold in partitiqn, which sale may have been at a sacrifice, ■or which they might have desired to hold for a rise in value?
Might they not have chosen to resist the compromises and settlements of the liquidated and unliquidated claims, which the creditor chose to make, or to have paid him the amounts which he was willing to take for them, and to prosecute the suits?
These rights certainly belonged to the sureties under Art. 3061 of the Code, and the creditors had no right to deprive the sureties of them.
They had the right and the interest to see that the assets surrendered by their principal were so administered as to realize the utmost possible value to be appropriated in reducing the debt for which they were responsible, and to have a voice in such administration.
Such unauthorized dealings with the securities turned over by the debtor, are inconsistent with the intention or with the right to pursue the sureties. He has deprived the latter of valuable rights of subrogation which inhered in their contract, and the penalty is the loss of his right to proceed against them.
It is said, however, that in this case the denial by the sureties of' their liability on this bond in any event deprives them of the right to notice and of the right' to complain of want thereof. They never made such denial until their answer in this suit, which was -not filed until after all the dealings above complained of had been completed. They were left in ignorance of any claim against them until after their principal had been shorn of every vestige of property to which they might have looked for protection under the unauthorized dealings of the creditor, and I think they were justified in settingup every •possible defence to such a suit.
I therefore concur in the refusal of the rehearing.
