Willis v. Davis, 3 Minn. 17

3 Minn. 17 | Minn. | 1859

By the Court

Flandrau, J.

James Y. Caldwell made his promissory note for the sum of $1,150 payable to the order of J. L. Farwell. Farwell endorsed the same as first endorser, and the Plaintiff in Error as second endorser. It was not paid and was duly protested; suit was commenced upon the note by Jonah N. Davis, the Defendant in Error, who was the owner of the note. Caldwell and Farwell suffered default, and the Defendant Willis answered that he was but an accommodation endorser, and only secondarily liable upon the note to the other parties. That after the maturity of the note, Farwell had assigned and delivered to one Yates, as a trustee to said Earwell’s creditors, property “ of a value more tbau sufficient to pay all the claims, provided for and secured by said assignment,” among which claims it is alleged was the note in question. That Yates accepted and entered upon the trust, and took possession of the property. That the property was afterwards, with the full consent of the Defendant in Error, Davis, re-assigned and given up to Earwell. That Willis did not know of, nor consent to the re-assignment, and that Farwell had disposed of the property; and claimed judgment.

The Plaintiff demurred to the answer, and the demurrer was sustained.

Willis stands on the note in the relation of surety to all parties who precede him, and his liability is secondary only to theirs. The relation of principal and surety is one involving the utmost good faith and confidence, and it is the duty of the principal and the creditor, to carefully consider and protect the rights of the surety in all their transactions relating to the debt; for any act which varies the rights or liability of the surety to his prejudice, will operate to discharge him altogether or to the extent of the change made in his original contract, as the circumstances may be.

A surety may at any time pay the debt to the creditor, and sue his principal at once to reimburse himself. Therefore, if the creditor has made any arrangement by which the time of payment has-been extended to the principal debtor, he deprives the surety of his right to sue at once in payment of the debt, which is a material change in the contract of the surety and in the remedy which he possessed at the time he entered into it, and will operate to discharge him altogether. 1 Story Equity Jur., Sec. 326; Boultbee vs. Stubbs, 18 Ves., 20; Ludlow vs. Simond, 2 Cain Cas. Err 1; King vs. Baldwin, 2 John. Ch., 551; 17 John. 381, Hubby vs. Brown, 16 John., 70; Wood vs. Jefferson Co. Bank, 9 Cow., 191; Myers vs. Welles, 5 Hill, 163; Bank of Orleans vs. Barry, 1 Denio, 116.

In discussing the question of the good faith necessary to be observed in the dealings between the creditor and the principal debtor as regards the rights of the surety, Mr. Story vn his work on Equity Jurisprudence, at Seo. 326, of Yol. 1, says: “ It is upon this ground that if a creditor without any communication with the surety and assent on his part, should after-wards enter into any new contract, or should stipulate in a binding manner upon a sufficient consideration, for further delay and postponement of the day of payment- of the debt, that will operate in equity as a discharge of the surety.”

Again in Adams’ Equity, at page 107, in speaking of the discharge of sureties, he says: “ The same effect is produced if the creditor enters into a binding contract to give time for payment to the principal, for it would be a fraud on the contract if he were afterwards to receive his debt from the surety,' and thus confer upon him an immediate right of action against the principal. The position of the surety is therefore waived and he is in consequence discharged altogether from his guarantee.”

In 1 Haddock’s Ohamcery, at page 235, the same doctrinéis laid down, and it is said to be “ because he in fact cannot have the same remedy against the principal as he would have had under the original contract.”

A surety has always the right to pay the debt of the principal, and when he does so, he becomes entitled to be subrogated to all the rights of the creditor, and to receive the benefit of any security which the creditor may hold against the principal debtor. He in fact takes the place of the creditor to all intents and purposes. See Bangs vs. Strong, 10 Paige, 11, on appeal; 7 Hill, 252, Ghan vs. Neimcewicz, 3 Paige, 614; same affirmed, 11 Wend. 312; Rathbone vs. Warner, 10 John. 597.

“ Immediately on making such payment, he may bring assumpsit at law against the principal for indemnity, and he may also sue the creditor in equity for an assignment of any mortgage or collateral security for the debt, so that he may as far as possible be substituted in his place.” Adams’ Equity, 269.

“ A surety is entitled to every remedy which the creditor has against the principal debtor; to enforce every security, and all means of payment; to stand in the place of the creditor, not only through the medium of the contract, but even by means of securities entered into without the knowledge of the surety, having a right to have these securities transferred to him though there was no stipulation for it, and to avail himself of all these securities against the debtor.” MaddocJds Chancery, Yol. 1,235. The same principle may be found in Story’s Equity Jurisprudence, Yol. 1, Sec. 32T.

If a creditor takes a security from the principal debtor sufficient to satisfy the debt, he does not hold it solely for his own benefit, but also for the benefit of the surety, who has just as much interest in the debt being paid as he has. If the security is converted and the debt paid, the security is relieved from all further liability; but if the surety is lost or relinquished, the surety is as much a sufferer as the creditor. It therefore behooves the creditor to see to it, that the utmost good faith is maintained between himself and the surety in the manner in which he deals with the securities he holds, and “ if he parts with it, without communication with the surety, or by his gross negligence it is lost, that will operate, at least to the value of the security, to discharge the surety.” 1 Story Lq. Jur., Sec. 326, Law vs. East India Co., 4 Ves. 833.

The answer shows that after the debt fell due, Harwell, who was primarily liable on the note, assigned to one Tates, property of a value more than sufficient to pay the note, which assignment was made for the benefit of Davis, the holder, among others, and that Tates accepted the assignment, and entered upon the discharge of his trust.

The effect of this was to furnish the creditor with the means of paying the note and relieve the surety from any further liability, and Davis was in duty bound to see that the property was used for that purpose. Willis could at any time have paid the note to Davis, and been subrogated to all the rights which he possessed over this property, and directed its application to the payment of the debt, as it would then have stood between himself, and the maker and first endorser. Instead of availing himself of the property, he relinquished his hold upon it without consulting the surety, and allowed it to pass back into the hands of Harwell, who disposed of it in some other way than the payment of the note. It would be against all conscience to allow Davis by whose act Willis has been deprived of the means of indemnity against his liability, to recover of him. The relinquishment of the property, was, under the principles laid down above, a complete discharge of Willis as surety.

The Judge erred in sustaining the demurrer to the Defendant Willis’ answer, and the judgment is reversed. The Plaintiff, however, should have an opportunity of litigating the facts, and is permitted to reply as stated in the order made at the announcement of the decision at term.