Manufacturers' & Mechanics' Bank v. Bank of Pennsylvania

The opinion of the Court was delivered by Gibson, C. J. The Manufacturers’ and Mechanics’ Bank, the United States Bank, the Bánk of Pennsylvania, the Philadelphia Bank,. J. & R. Elliott, and the West Branch Bank, stand as claimants on the fund in court, in the order of priority in which I have named them; and I shall dispose of the objections to their claims in the same order. The Manufacturers’ and Mechanics’ Bank claim by a deed which is in form an absolute conveyance to a third person, from whom they have acquired the legal title; but which is proved by a written specification of conditions delivered on the part of the Bank, and by parol evidence, to be a mortgage in trust to secure the payment of a note for $30,000 discounted by the Bank. This deed was not recorded till the lien of the United States Bank and that of the Philadelphia Bank had taken effect. The specification of conditions has not been recorded at all; and hence an argument that the whole is inoperative as a lien, on the principle of Friedly v. Hamilton, (17 Serg. & Rawle 70), in which the absolute part — 340 — of a mortgage which had been recorded without the defeasance was postponed, by a strict construction of the recording Acts, to the liens of subsequent creditors. In favour of all but the Bank of Pennsylvania, the objection is decisive, though it has been argued on the other side that a verbal defeasance could not be recorded. What then Í This defeasance was not a verbal one ; and, if it were, let those who choose to lend on a form of security which is incapable of being made record notice, take the consequences. Better they should suffer than that creditors should be kept at bay by a deceptive appearance given to the ownership of their debtor’s property. It might bear an argument, whether a mortgage exhibited to the world as an absolute deed would not be fraudulent even by the 13 Elizabeth. Be that as it may, a mortgage thus imperfectly recorded is void as an unrecorded mortgage against subsequent liens. It was proved, however, that the Bank of Pennsylvania had actual notice of the true state of the case, and the mortgage is consequently good against it, on the principle of Jaques v. Weeks, (7 Watts 261), though it would be inoperative against those who are more remote. Of the influence of this on the result, something will be said in the sequel. Next in oi’der stands the judgment of the United States Bank, which is impugned on the ground that the Bank had discharged it by giving time to Willard, for whom Cowden, the debtor, was liable as a surety. The facts are, that on the 10th May 1841 judgments were obtained respectively against Willard as the maker, and against Cowden as one of the endorsers of a note discounted by the Bank; and that on the 13 th of October following, the West Branch Bank, having become the beneficial owner of the debt, agreed to stay execution on the judgment against Willard for a year, provided he would pay the accruing interest for the whole period on the 3d of November ensuing, and not appeal from a certain award of arbitrators. The interest was not paid, and it is urged that as the agreement was exploded, it is to be considered as if it had not been made. But the Bank had certainly disentitled itself to sue out execution during the three weeks which preceded the default; a short' period, to be sure, but not the less decisive for that. Why then was not Cowden, the endorser, released ? Because, it is said, he had been fixed, and the relation he had borne to the maker was extinguished, by the judgment against him. Pole v. Ford (2 Chitty R. 125) is certainly to that effect, but in Westminster Hall it stands alone. It is imperfectly reported, and the ground of the decision is indistinctly disclosed; but it seems that the holder, having obtained judgments respectively against the drawer and the acceptor, abandoned a fieri facias sued out by him against the latter, and gave him time “ by receiving another security from him to pay at a future time.” Whether this was the acceptor’s own engagement which would operate as an extension of the original credit, or merely a collate — 341 — ral which would not, is riot stated; but the court is said to have “ determined that the withdrawing the fieri facias against the acceptor did not discharge the drawer, and that the rule that giving indulgence without the consent of the drawer discharges such drawer, does not apply after judgment.” There is no such rule; for mere indulgence, without an agreement to tie up the holder’s hands, has no such effect either before or after judgment; but as a distinction was taken as to time, it is fair to infer that the indulgence was such as would have released the drawer, had it been in time to be set up as a defence to the action against him. No reason is given for the settling effect ascribed to the judgment, and it would be hard to find one. The law of principal and surety is doubtless not indiscriminately applicable to drawers or endorsers and acceptors or makers; for an endorser cannot compel the holder to go, in the first instance, against those for whom he is conditionally liable, as has been held in Beebe v. The West Branch Bank at the present term. But where the holder has disabled himself by a binding engagement to give time, it is clear and indisputable law that the endorser is discharged. And the reasons for it show that it is immaterial when the disability was incurred. “ The rule,” says Mr Chitty, “ is founded on thé principle that the holder, by entering into a binding engagement to give time to the acceptor, renders him less active in endeavouring to satisfy the bill than he probably would otherwise be if he continued liable to an immediate action at the suit of the holder; besides, if a holder agree to give indulgence for a certain period of time to any one of the parties to the bill, this takes away his right to call upon that party before the period expires; and not only to call on him, but on all the intermediate parties; for otherwise, if he were to oblige them to pay the bill, they would immediately resort against the very person whom the holder had indulged, which would be inconsistent with the agreement and a fraud on him.” Treatise on Bills 442-3. The latter, which is said to be one of the reasons also, in a note to Maltby v. Carstairs, (1 Man. Ry. 562), is the identical reason that the release of a joint obligor discharges his fellow. The obligee is bound to make his release good, in the only way he can, by protecting the releasee from contribution, and consequently by not exacting payment from one whom it would entitle to demand it. Now to apply Mr Chitty’s reasons. In the first place, to give time to an acceptor after judgment, would certainly render him less active in endeavouring to pay than he would be, did he live in the constant fear of an execution; and, in the second, to let loose an endorser on him would be equally irreconcilable to an agreement to give him time, whether it were before judgment or after it. How would this Bank have performed its engagement to Willard, had it made Cowden take up the note and pounce upon him, as he probably would have done had he been goaded to it by an execution! It — 342 — would have been a palpable breach of faith; and to prevent it, for Willard’s sake, we must hold that the judgment against Cowden was discharged; for to protect the one without releasing the other would be an injury to the latter by suspending his recourse to the principal, for which he must have a remedy somewhere. A judgi ment may perhaps, fix an endorser at law, as a court of equity is a surety’s peculiar forum; but that does not seem to have been the ground of the decision in Pole v.Ford; nor was there a necessity for sending the drawer into equity for an injunction, as a common-law court has'an equitable jurisdiction over its writs of execution, which it exercises, for example, in. sometimes, setting its judgments againsT each other ; and matter of defence subsequent to judgment may be tried on a scire facias. Three years after that decision came the American case of Lenox v. Prout, (3 Wheat. 120), in which the point was ruled in the same way; but whether on the authority of Pole v. Ford is not said; and with what accuracy, let the ground assumed for the decision determine. “ The reason is obvious,” said the Judge who delivered the opinion of the court, “ for by the judgment they have both become principal debtors; and if the endorser suffers injury by the negligence of the judgment creditor, it is clearly his own fault, it being his duty to pay the money, in which case he may take under his own direction the judgment obtained against the maker.” Take it under his direction w’hen it has been crippled by the holder’s agreement! He could no more have sued out execution on it before the expiration of the time given, than could the plaintiff who obtained it. Nor could he proceed by action on the contract of endorsement consistently with that plaintiff’s engagement. The Judge was mistaken, too, in saying that, under the circumstances of the supposed case, it was the duty of the endorser to take up the paper. His engagement to pay is conditional; and it is an indisputable principle that he who waives performance of a condition, waives any right that would otherwise spring from the want of it. The same principle is applicable to a covenant, prevention by the covenantee being equivalent to performance. .An endorser engages to pay if the maker do not; and the holder cannot compel him to pay, having deprived him of the chance on which he relied of being relieved from it. It may be that his engagement ceases to be conditional at the rendition of the judgment, but he is not the legs-a' surety who may be injured by the conduct of his principal. I have called what was said in Lenox v. Prout, a dictum; and an examination of the case will justify the remark, for there was no engagement to give time. There wras no more in it than a request to proceed, which, between endorser and holder, is, we have said,’ of no obligatory force, as well before judgment as after it. It is to be regretted that this case was inadvertently received as authority in Bay v. Tallmadge, (5 Johns. Ch. 315), by a chancellor whose well-earned reputation has given it currency as establishing a — 343 — rule of general equity that judgment against principal and surety extinguishes the relation between them as to every one but themselves. Such a rule has no place in the jurisprudence of Pennsylvania. It was hot recognised in The Commonwealth v. Miller's Administrators, (8 Serg. & Rawle 452); and notwithstanding the doubt expressed by my brother Rogers in The Commonwealth v. Haas, (16 Serg. & Rawle 252), it was expressly rejected in Pott v. Abrahams, (1 Watts & Serg. 158). The root of the error seems to consist in taking for granted that when the engagement of the endorser ceases to be conditional, he necessarily ceases to be a surety. The engagement of a surety in a bond is unconditional from the first, and his right to compel the obligee to sue would be of little avail, were the latter bound to proceed no further than judgment. The surety might-pay the débt, it is true; but it has been gravely doubted whether the judgment would not be ipso facto discharged. He is, however, not bound to pay it before he can at least indirectly originate an action on the security, it being clear, as was held in Wright v. Simpson, (6 Vez. 734), that on depositing a sum sufficient to cover the expense, he may compel the creditor to do the best he can for him by collecting the debt from the principal, (1 Story Eq. § 327); and in that respect, equity even falls behind the civil law, which requires the principal to be sued in the first instance; In the case before us, it is unnecessary to resort to anything else than the ordinary principle, that, if the creditor impairs a security taken from the principal, he discharges him, in order to show that the judgment of the United States Bank is to be laid out of the case; and what is the state of the game between the others 1 The lien of the Bank of Pennsylvania thus becomes the second piece on the board; and the objection made to it is, that the conveyance by which it was created is not a mortgage, but an assignment in trust to pay a particular creditor; and that, as it was not recorded within the period prescribed by the statute, it is consequently void. | But it is clearly a mortgage limited to a trustee in fee with a power to sell; and the statute has regard, not to a conditional conveyance which may revest 'the property in the debtor, but to an absolute assignment to sell and pay at all events. This is too plain for illustration. The succeeding liens stand clear of exception; but though the lien of the Manufacturers’ and Mechanics’ Bank is bad against them, it is good against the Bank of Pennsylvania, which had actual notice, and whose lien is good against all the rest. On the principle of Wilcox v. Wain, (10 Serg. & Rawle 380), the result is that the Manufacturers’ and Mechanics’ Bank is entitled in the first instance. The creditors subsequent to the Bank of Pennsylvania cannot come in till it has been satisfied, which cannot be till the prior lien of the Manufacturers’ and Mechanics’ Bank has also been satisfied; and as they are not in the field, inasmuch as — 344 — they are not to be paid, the fund being insufficient to reach them in any event, the contest which is between that Bank and the Bank of Pennsylvania is settled by what has already been said. In these money cases, we should never have done did we respect technical exceptions. We are bound to settle the law of the whole case without consulting them, and, where we can help it, without sending the case to another jury. Judgment of the court below reversed, and judgment for the plaintiff rendered here, non obstante veredicto.