Bank v. Douglass

The opinion of the Court was delivered by Gibson, C. J. —The error below was in treating the bank as if it stood by the assignment of the. judgment confessed by Douglass to Parson, as a surety indemnified against its own debt, and not entitled to proceed on the security till the surety were damnified by being compelled to pay. If such were the law, the surety could not, with any effect, assign such a judgment to the creditor as a collateral security; for the debt would be extinguished by the only act which could give the judgment vitality. Even were payment necessary to impart such vitality, still the bank, being the hand to receive, and standing in the place of the hand to pay, might, perhaps, elect to consider the original debt as paid in contemplation of law, and proceed on the judgment as an independent security. But neither the bank nor the surety was bound to wait till the surety was actually prejudiced by the default of the principal. The principal was bound to keep the surety not only indemnified, but unmolested; and to this end the judgment given the latter was put into his hands, as an instrument to extract payment from the funds of the principal debtor, and thus to compel him to do what he ought to do. Such is the principle of Miller v. Howry, 3 Penns. Rep. 374; and such, too, is the [97] principle of Roesevert v. Mack, 6 Johns. Ch. Rep. 281; in which a counter bond was treated as a debt provable under a commission; and this, too, like the present, in a process of distribution among creditors. The management of the means of indemnity thus put into the hands of the surely, might certainly be delegated to the creditor, to be used in accordance with its original purpose: and why should not the creditor, as well as the surely, have the benefit of it? The difficulty is in the testimony of Parson, who swears, that the relation between him and Douglass was changed to the extent of Wilson’s judgment, in which hewas principal and Douglass but security, in consequence of Parson’s purchase of Hamaoher’s properly on Douglass’s judgment, and his retention of the purchase, money to answer the debt of Douglass to Wilson, for which the judgment to Wilson was subsequently given. Between Wilson and Parson, therefore, the latter could not insist that his judgment against Douglass should be paid before what was his proper debt; and beside, Douglass would have an equity as surety, not to be disregarded. But what was the object of the judgment given by Douglass to Parson ? Parson himself swears it w'as indemnity to the bank. If so, the bank claims paramount to the equities between Parson and Douglass ; which it may well do if that were the original purpose of the judgment. It is customary with banks to take a bond and warrant, to be used not only for its own protection, but that of the indorsers, who usually direct the application of it. If, however, it be taken directly to the indorsers, the form of the transaction cannot affect its fiduciary character, if the security be in fact taken for the common benefit, of all who have reposed on the credit of the drawer. The court erred, therefore, in thinking the bond could not be enforced before the surely was prejudiced, and that the right of the bank might be affected by the equities between him and his principal. Decree, that the money in court be paid in satisfaction of the judgment of the bank as assignee of Parson.