Erie Bank v. Gibson

The opinion of the Court was delivered by Rogers, J. In Cope v. Smith, 8 Serg. & Rawle 110, Chief Justice Tilghman investigated with great care all the authorities which bear upon the present question. In England, the surety must go into chancery, to compel the creditor to sue, or perhaps the principal to pay, but in New York the same result may be produced by a request in pais. This position is sustained by the court of errors, contrary to the opinion of all the law judges, except Chief Justice Spencer. The law was at one time supposed to be otherwise in Pennsylvania. In the Commonwealth v. Wolbert, Justice Yeates says, “a bill will lie in chancery, by a surety to compel a creditor to sue his principal ; and equity will act on the refusal, or neglect to sue, particularly when the condition of the surety is thereby deteriorated. The surety has no such remedy here, he must pay the money on the bond, and take an assignment. Should he demand a suit against the principal, I should hold him bound to tender an indemnification.” But in Cope v. Smith, the court came to a different conclusion, by dispensing with the necessity of an actual payment of the money by the surety. In that case, the attention of the chief justice, who delivered the opinion of the court, was directed to the rule most proper under the peculiar circumstances of the jurisprudence of this state. The result was, that a medium course was adopted, not so lax as the rule finally settled in New York, and that with me, is no slight recommendation. In Cope v. Smith, it was held, that the mere omission by a creditor to bring suit against the principal debtor, does not discharge the surety; but that if a creditor, after being requested to bring suit against the principal debtor, refuse, or neglect to do so, the surety is discharged; but the rule then laid down, has this important qualification, provided the request be proved clearly, and beyond all doubt; and provided, it be accompanied with a positive, explicit declaration, that unless the request be complied with, the surety [147] will be considered discharged. I am reconciled to the rule, by the fact that we have no court of chancery; for if we had one, I would compel the surety to seek his remedy there. No request or demand in pais, however solemn, and accompanied with whatever declaration, should discharge the surety from his responsibility. In laying down the rule for the government of suitors, the court thought proper to guard the exercise of the right with these restrictions and limitations, and these I do not feel inclined to disregard. A clear, distinct declaration, that unless the request of the surety to sue principal is complied with, he will consider himself discharged, seems to put the creditor on his guard. It evinces a determination on his part to exonerate himself from liability. It is then at the peril of the creditor, either to neglect or refuse to comply with the request; nor is this any hardship, as, according to the case of the Commonwealth v. Wolbert, he may require an indemnity; or according to Gardner v. Ferrer, he may offer the surety the right to bring suit in his name. That the court have heretofore been understood as establishing this rule, as I have stated it, appears from Gardner v. Ferrer, 15 Serg. & Rawle 28. It has undergone repeated discussions in this court. The chief justice says, in the case referred to, “ I would be unwilling,” (and in this I agreed with him at the time, and do so yet) “ in cases of this sort, to go beyond the rule, in Cope v. Smith, 8 Serg. & Rawle 110, that the surety shall be exonerated only when the obligee has refused to bring suit, or, (what I take to be the same thing) to suffer the surety to do it in his name, after a positive request, and explicit declaration by the surety that he would otherwise hold himself discharged.” After two such recognitions of the rule, there should be some stronger reason than has been given for a change. It is not sufficient to show that in New York it has been decided differently, in opposition to the opinion of the legal talent of the supreme court of that state, (the chief justice excepted) and also plainly to the rule established in England. The rule, as settled here, carries, with it this powerful recommendation. It is explicit, and of course easily understood, and is eminently calculated to prevent surprise. If any exception can be taken to it, it is that the court did not authoritatively require that the notice should be in writing. The letter of Mr Foster contains a request, sufficiently explicit to come within the meaning of Cope v. Smith, to bring suit against the principal; but there is no intimation, that unless suit was brought, Magaw and he would consider themselves discharged. It is true, they allege that to be the only means of securing themselves; but that is not sufficient. In the answer of the cashier, he declines complying with the request, and says, with great reason, as I think, that the bank did not lend the money with the expectation of bringing suit, and when they, Foster and Magaw’s names, were to the note, the bank felt satisfied, they would not suffer a suit, nor did they dream of such a means of getting rid of paying the money. He adds, I [148] hope you will see this in its proper light, and pay, as fast as possible; say, send us the half now, and the other half in sixty days. It is evident that the bank had no intention to discharge the security, nor idea that this would be the legal effect of their refusal; nor could they suppose so, if they were aware, as they are presumed to be, of the case of Cope v. Smith. To this letter they received no reply. If the sureties intended to insist on a suit, at the risk of the creditor of discharging them from liability, their course was plain. They should then have put the bank on their guard, by demanding it as a right., under the penalty which would result from a refusal. To discharge them, without this, is evidently taking the bank by surprise, and this it is the object of the rule to prevent. In truth, this case is a strong illustration of the wisdom of the rule. The creditor has rights as well as the surety, and this it ought to be the object of all well regulated societies to guard. There is a danger in impairing securities of this kind. At least creditors are entitled to a fair protection, not only as against the principal, but his sureties. It is frequently on the faith of the latter that the creditor relies, without which the loan would not be afforded. As the bank had no idea, neither had Foster and Magaw, that the liability had ceased, and this appears beyond question, in the testimony of Mr Riddle. As late as the 1st of March 1830, Mr Riddle called on Magaw, and told him he had been requested to collect the note, and asked him if he meant to contest it. He replied, he supposed they were bound, and must pay it. He did not wish to go to the additional expense of litigating it. Mr Riddle afterwards spoke to Mr Foster about it. Mr Foster complained of the conduct of Gibson, but added, there was no necessity of any suit about it. It was agreed that Gibson, Foster and Magaw should give a judgment bond for the money. At that time they did not allege that the bank had been guilty of negligence, nor that they considered themselves exonerated. Some days afterwards Foster declined giving a judgment, saying, that the bank should have proceeded earlier. If Magaw and Foster should succeed in the defence, it will be a confirmation of the truth of the observation of Chief Justice Gibson in Gordon v. Ferrer, “ that courts of equity have gone to an extreme in favour of sureties, often granting relief for a constructive equity, the existence of which the surety did not even suspect.” The counsel for the defendant in error say, it is against equity for a creditor to refuse to bring suit against the principal. - However true this may be as a general proposition, I doubt its truth here. It seems to me it would have been against equity, because contrary to their engagement, for the sureties to have insisted on the bank’s bringing suit against Gibson. It is very well known that the bank looks to the payment of money loaned, at the maturity of the bill. That is a course of dealing which is absolutely necessary to their prosperity, and with which their customers are, or are supposed to be, well acquainted. There was, therefore, a propriety in the an [149] swer of the cashier of the bank, which is in conformity to the ordinary course of mercantile dealing. If this had been a note drawn in the ordinary form, there would be no doubt of this, but, in substance, the contract is the same, and was so understood, by at least one of the parties, to which the other did not dissent. The only difference is, that instead of drawing the notes payable to order, and indorsing them in the ordinary form, the sureties sign their names to the note itself, in which they promise to pay. Although this note may not have been strictly negotiable, (and whether it was or not we cannot say, it not being produced) it partakes of that character, so far as regards this question. Judgment reversed, and a venire de novo awarded.