Schroeppell v. Shaw

Courts of law and of equity are governed by the same principles in determining whether a surety has been discharged by any thing done by his creditor. Defences of this character, Avhatever they once may have been, are no longer the subject of exclusive equity jurisdiction. Now, the same facts which will exonerate the surety from liability in equity, will constitute a sufficient defence at law.

It is also a familiar principle, that Avhere a party has had' an opportunity to avail himself of a defence at law, and has omitted to do so, he can not afterwards resort to a court of equity to obtain the benefit of such defence. Before a court of equity Avill interfere to deprive a party of the benefit of a judgment he has recovered at law, it must not only appear that it Avould be against good conscience to enforce the judgment, but also, that the party complaining could not have defended himself at larv. (2 Story’s Eq. § 887; Marine Ins. Co. v. Hodgson, 7 Cranch, 332 ; Norton v. Woods, 5 Paige, 249.)

In view of these principles I have been unable to see how a court of equity could obtain jurisdiction of this case. The facts, upon Avhich the plaintiff relies, were, I think, equally available as a defence at larv, as in equity. He omitted to make that defence at larv. To permit him now to escape from the consequences of his neglect, by the interference of a court of equity,

It was said by the learned judge who delivered the opinion of the supreme court, that “ a dealing by the creditor with the principal, in respect to a second or-collateral security,'will not, at law, discharge the surety from the payment of the principal debt, although he might have been discharged, had the creditor-dealt with the principal, in the same manner, with respect to the original security.” The authorities cited in support of this distinction are Pitman's Pr. and Surety, 203; Twopenny v. Young, (3 Barn, & Cress. 208 ;) and Taggard v. Curtenius, ( 15 Wend. 155 .) It is indeed said, by Pitman, that a dealing by the creditor with the principal, in respect to the second security, will not, at law, have the effect of discharging the surety on the original security. The only authority upon which he re-, lies to sustain this position, is Twopenny v. Young. No such doctrine, however, will be found in that case. The facts were, that Young, the defendant, had signed a note to the plaintiff as surety with one Rummen. Subsequently Rummen had assigned to the plaintiff, as a further security, his household.goods. The assignment contained a stipulation that Rummen should have the possession of the goods, until after three days’ notice. The grounds of defence were, that the note was merged in the assignment, that being a security of a higher nature; and, secondly, that the agreement to give three days’ notice was giving time to the principal, and therefore discharged the surety. It was held, very properly, that, the deed did not extinguish or suspend the remedy on the note. But it is nowhere said in the case, that if the effect of the second security had been to extinguish or suspend the remedy upon the first, it would not have been available as a defence to the surety in the action upon the note. Taggard v. Curtenius has quit.e as little to do with the question. Indeed, the relation of principal and surety is not to be found in that case. The action was against the makers of two promissory notes. The defendants had deposited with the payees of the notes certain stock. They agreed to use due diligence in disposing of the stock, and to apply a portion of the

Nor do I think there is any thing in the nature of the defence itself, which should make it peculiarly the subject of equity jurisdiction. But it may be that the case of King v. Baldwin, ( 17 John. 384 ,) should be considered as authority for the interference of a court of equity to relieve a surety after judgment. In that case, the principal debtor being in embarrassed circumstances, the surety had repeatedly urged the creditor to collect his debt, but he refused to do so. The principal debtor was discharged under the insolvent act, and after this a suit was brought against the surety. Upon the trial of the action at law, the surety offered to prove these facts as a defence, but the judge, at the circuit, held that they did not make out a defence. No motion was made for a new trial. Judgment was entered up against the surety, and then he filed his bill in chancery, to obtain a perpetual injunction, to restrain the plaintiff from enforcing his judgment. The chancellor dismissed the bill, but upon appeal the decision of the chancellor was reversed. The circumstances under which this decision was made were somewhat peculiar, and such as, in my judgment, materially detract from the, weight of its authority-. The case was determined by the casting vote of Lieut. Gov. Taylor. The only opinion in favor of reversing the chancellor’s decree, was delivered by Chief Justice Spencer. Justices Van Ness, Platt and Yates, were in favor of sustaining the chancellor’s decision. Among other distinguished lawyers, then members of the court, Senators Van Burén and Van Vechten voted for affirmance. The latter senator delivered a very able opinion, showing conclusively, as I think, that the plaintiff was concluded by the recovery against him at law. Chief Justice Spencer himself admits, that it was then settled that the defence might have been set up at law; but he says that “ un

But let it be assumed that the plaintiff is not concluded by the recovery against him at law from obtaining relief in equity, then the question arises, whether, upon the case presented, he is entitled to the relief sought.

The ground upon which the plaintiff claims that he is, in equity, entitled to be discharged from his liability, is the alledged gross negligence of the defendant in the collection of the bond and mortgage assigned to him as collateral security for his debt. In the consideration of this question, I shall, at least for the present, assume it to be true, as the plaintiff alledges, that by the exercise of promptness and vigilance, the defendant might have secured the payment of the bond and mortgage, and thus have relieved the plaintiff from his liability.

In considering the obligations of the parties to each other, as creditor and sdrely, it is to be borne in mind, that the plaintiff had, by signing the note, guarantied that his principals should,

But let us consider more attentively what constitutes such gross negligence as will operate to discharge a surety, when he is not himself in default. A surety has an undoubted right, upon the payment of the debt, to have the full benefit of all the collateral securities which the creditor has taken as an additional pledge for his debt. “ It is hardly possible,” said Lord Brougham in Hodgson v. Shaw, (3 M. & Keen, 190,) “ to put this right of substitution too high.” “ The surety,” says chancellor Kent, “ by his very character, and relation of surety, has

Thus, it will be seen, that, in reference to collateral securities, the rule is the same as in reference to the collection of the debt of the principal debtor. The creditor is under no obligation of active diligence for the protection of. the surety, so long as the surety himself remains inactive. Until the surety moves in the matter, it is enough that the creditor holds himself in readiness to transfer to him, when he applies, all the securities he holds, that he may have the benefit of such securities in aid of his own responsibility.

The authorities upon which the plaintiff relies, will, upon examination, be found to harmonize with these general principles. The first case cited is that of Mayhew v. Crickett, (2 Swanst. 185.) In that case, the defendants held a warrant of attorney to confess judgment, executed by one Batteley, to secure the balance of his account to them, as bankers. Mayhew and one Gent, had also, each of them, signed a promissory note with Batteley, to secure the same indebtedness. The defendants had entered up judgment on the warrant of attorney, and had taken the goods of the principal debtor in execution, and had, afterwards, withdrawn their execution. They then sued Mayhew upon the note signed by him as surety. He filed his bill in chancery to stay the proceedings at law, and to be relieved from his liability as surety. Upon a motion to dissolve the injunction which had been granted, Lord Eldon said he had always understood, that if a creditor takes out execution

The case of Capel v. Butler, (2 Sim. & S. 457,) I think, within the same principle. There one White had agreed to sell to Butler an annuity. To secure the payment of the annuity various securities were given, and among other things, White executed an assignment of two vessels to one Pruen, in trust for that purpose. The payment of the annuity was further secured by the bond of White and the plaintiff, as his surety. It was one of the conditions of the bond, that, after the expiration of two years White should be at liberty, upon certain terms, to repurchase the annuity. The transfer of the vessels was not perfected according to the forms prescribed by the registry acts, and, taking advantage of this omission, White had sold the vessels and applied the proceeds to his own use. The annuity being in arrear, Butler brought an action upon the bond. Capel, the surety, filed his bill to restrain the action, and claimed the right to repurchase the annuity according to the terms stipulated in the condition of the bond, and to have the value of the vessels deducted from the amount which he would otherwise have been required to pay upon such repurchase. The vice chancellor was of opinion that the plaintiff, as surety, was entitled to take advantage of the proviso for re

In the latter case Law had signed a bond with one Tierney, who had been appointed to the office of military paymaster to the East India Company. The penalty of the bond was sicca rupees 100,000, conditioned for his duly accounting. Upon the death of Tierney, his accounts were stated, and a balance of sicca rupees 50,548 was found in his favor, which was paid to his administrator. Subsequently it was ascertained that Tierney -was in fact indebted to the company to an amount exceeding the penalty of the bond. It was held that to the extent of the amount paid to the estate of Tierney, the surety was discharged. The mere statement of the case is sufficient to show that it is not an authority for granting the relief sought in this case.

Two other cases were relied upon by the plaintiff’s counsel,to sustain the position that the defendant was bound to diligence in the collection of the bond and mortgage. These cases are Ex parte Mure, (2 Cox, 63,) and Williams v. Price, (1 Sim. & Stuart, 581.) Neither of these cases involved the relation of principal and surety. In Ex parte Mure, a debtor, holding a bond and warrant of attorney from his debtor, assigned them absolutely to his creditor towards satisfaction of his debt, making his creditor his attorney, and granting him all necessary powers to collect the debt. The creditor omitted to enter up judgment on the warrant of attorney for five months, in consequence of which the debt was lost. The lord chancellor said, “I am of opinion that whoever takes a bond in the manner this was taken, makes it his own to the effect of binding himself to make it available as far as he can by ordinary diligence. Generally speaking, that which would be negligence in one employed to make the bond available, must be so in one who has taken upon himself to make it applicable in payment of the debt of the assignor, and who is invested with complete authority for that purpose.” Again he says, “ The case of sureties,

Williams v. Price, is very similar, in its principal features, to that of Ex parte Mure, and was decided upon the authority of that case. There, a judgment was assigned by a debtor to his creditor as security for his demand. The vice chancellor said, “ In referring it to the master to take an account of what the defendant has received, or might have received, without his wilful default or neglect, in respect of the judgment assigned to him, I am, in truth, following the authority of Ex parte Mure, without thinking it necessary, for the purposes of this case, to adopt all the principles which are there stated.” The plaintiff’s counsel, in arguing that case, relied upon distinguishing it from the case of a surety. “ In a case like the present,” said Mr. Sugden, “ where a debtor assigns to his creditor a debt due to him from a third person, it is not necessary, in order to discharge the assignor, to prove such a giving of time by the assignee to the debtor, as is required for the purpose of discharging a surety in a suit between him and the creditor. There, it is necessary to show that the creditor has actually tied himself up from suing. Here, it is only necessary to prove a general course of forbearance on the part of the assignee, during which the circumstances of the debtor have been failing, and the debt is ultimately lost.”

I have thus noticed, in detail, all the cases cited by the plaintiff’s counsel to show that upon the facts presented in this case, the plaintiff should he relieved from the payment of the judgment against him, and have examined the principles upon which those cases were decided, that it might be apparent that, in no single instance, has it ever been held that the mere passiveness of the creditor, in the collection of his debt, either of the principal debtor or from collateral securities held by him, is sufficient ground for discharging the surety from his liability. No rule is more uniformly recognized than that mere indulgence, at the

The other members of the court, without passing upon the question whether the defence was available in the action at law, if any where, concurred in the opinion that the facts did not constitute a ground of relief in equity.

Decree affirmed.