Sheppard v. Conley

This is an action upon a bond executed by the defendants and conditioned for the payment of the sum of sixteen hundred dollars.

So far as the instrument itself is concerned, there is nothing to indicate that it was not executed by both the obligors therein named as principals, but parol evidence is furnished by the defendant which shows most satisfactorily that she signed the same, not as a principal, but simply as surety for her husband, who is the principal debtor.

It is now well settled in this state that parol evidence is competent for this purpose, Hubbard v. Gurney, 64 N. Y., 457 ; Easterly v. Barber, 66 id., 483 , and inasmuch as no attempt is made

It further appears, by uncontradicted evidence, that this relationship was known to the plaintiff before issue was joined in this action, and he thereby became bound to respect the same and all the equities growing out thereof. Grow v. Garlock, 97 N. Y., 81 .

Other uncontroverted facts, which are material to the principal question raised upon the trial of this action, may be briefly stated as follows, viz.: At the time of the execution of the bond in suit there was also executed, as collateral thereto, a mortgage upon certain real estate, consisting of about seventy-five acres of land in the town of Potter, Yates county, which mortgage is owned by the plaintiff, who is likewise the owner of a second mortgage upon the same premises, upon which there is now due of principal and interest the sum of about fifteen hundred dollars. The mortgaged premises are a slender security for the payment of both securities, and, the mortgagor being insolvent, there is great danger that the defendant will be left remediless, if compelled to pay the bond in suit, and thus subordinated to the rights of prior incumbrancers.

Upon the commencement of this action plaintiff was requested by the defendant to enforce theonortgage which he held as security for the bond in suit, and was assured at the same time that defendant would pay the costs already incurred in this action, as well as .any deficiency which might arise upon the sale of the mortgaged premises.

This request was denied, and the question is therefore fairly presented as - to whether, in view of the facts of the case, the plaintiff can be compelled to take such action as is required of him for the protection of defendant’s interest.

It may be observed as prefatory to a consideration of this question, that although this is an action at law, the defense interposed is of an equitable nature, and the defendant is therefore entitled to invoke the application of equitable principles in her behalf. Richardson v. Davidson, 24 N. Y. State Rep., 638.

Starting, therefore, with this premise that the relation of principal and surety does exist as between the defendant and her husband, there is scarcely any limit to the extent to which courts of law, as well as of equity, will go in their efforts to protect the interests of the latter, 'where it can be done without prejudice to the creditor’s right to have his debt paid. The very nature of the relationship demands that this should be the rule for, as was remarked by Spencer, Ch. J., in an early case, “ whatever may be the form of the instrument by which the principal and surety become bound, it was never the intention of the parties that the surety should, in the first instance, pay the debt, * * * and it would be a very inconvenient and rigid rule which should require the surety to pay the debt, before he had any remedy against the principal by means of the security which the creditor holds.” King v. Baldwin, 17 Johns., 384 , 395.

Within the principle thus broadly stated, it has been frequently,

It is likewise a well settled rule of law and equity that a surety, hy paying the debt of the principal, may be subrogated to every right which pertained to the creditor, Mathews v. Aikin, 1 Corns., 595, but if that course were adopted by the defendant in this case she would doubtless be obliged to combat the claim that the payment of the principal debt released the land from the lien of the mortgage which was collateral to the debt, and thus plaintiff’s second mortgage would become the first lien thereon.

It is unnecessary to consider whether any such claim as this could be successfully maintained, because within the clearest principle of equity and good conscience, the plaintiff, upon being properly indemnified against all loss and expense, should be required to exhaúst his remedy against the principal property which was primarily pledged to pay this claim, before resorting to his right of action against the surety. This course would result in securing to the creditor the payment of his debt. It would not impair the security of his second mortgage was in existence and when as assignee, he became the owner of the bond in suit he was bound to know that he took it subject to all existing equities, Bush v. Lathrop, 22 N. Y., 535 , and furthermore it would save the defendant from paying a debt which it “ was never the intention of the parties ” she should pay in the first instance. It would seem, therefore, that the defendant’s contention is founded in principle and it likewise appears to be supported by authority. Gary v. Cannon, 3 Iredell’s Eq., 64; Wright v. Austin, 56 Barb., 16 . The case last cited is directly in point and an examination of more recent authorities fails to disclose any modification of the doctrine there advanced save that of First National Bank v. Wood, 71 N. Y., 405 , which was the case of an accommodation endorser of commercial paper, where, of course, a .different rule would obtain although it is there intimated that the surety might have been entitled to the enforcement of the rule contended for if he had offered to pay the expenses which would have attended such a course of procedure.

It follows, if my view of the law of this case is correct, that the plaintiff is not entitled to judgment in this action. But, on the other hand, the defendant is not entitled to a dismissal of the complaint, and in order to protect the rights of both parties, it is directed that further proceedings in the action be suspended until the plaintiff takes measures to collect his claim by a foreclosure of the mortgage which was given to secure the bond in suit. Upon the foreeloure of that mortgage, if the moneys which are realized from the sale of the premises covered thereby are insufficient to pay the mortgage debt, interest and costs, then this action