Houston v. Br. Bank at Huntsville

CHILTON, C. J. — William. W. Garrard, having executed a tr-ust deed to T. U. Lassiter, trustee, to save Taylor, Mason & Co. harmless by reason of their acceptance of two bills of exchange, one drawn by him, and sold to the defendant in error, the other by Wm. Arnett, in favor of Henry Garrard, and endorsed by him and Hervey Dillahunty to the Decatur Bank, but solely for Wm. Garrard’s accommodation, which was done on the 14th December, 1836, afterwards, on the 25th June, 1838, availed himself of the law of 1831, authorizing the extension of indebtedness to the Banks; and thereupon Wm. Arnett, the drawer, executed his note, payable in three yearly installments, with Hervey Dillahunty and W. W. Garrard sureties, and took up said bill of exchange held by the Decatur Bank. At the same time, the said Wm. Garrard, who was the real principal, executed another deed in trust to John H. Arnett, embracing a portion of the property included in the — 257 — deed to Lassiter, witli other property not embraced, with provisions varying from those contained in the first deed. Dilla-hunty has paid a portion of these last named notes to the Bank at Decatur, and he now seeks to come in and share in the security which the first deed afforded to that Bank, for the .payment of the bill which was taken up by Arnett, the drawer, on the execution of the notes and deed above named. The question is, shall he be relieved under the equitable doctrine of subrogation ? We have carefully looked into the cases which bear upon the question, and although, from the very general and loose terms in which 'some of them assert the doctrine, they might be considered as supporting the complainant’s case, yet we feel very confident that the current of the modern and more authoritative cases, both in this country and England, is opposed to the claim which is set up. It is not denied, that the general rule is, that the surety; paying off a debt, shall stand in the place of the creditor, and shall have all the rights which he had, for the purpose of being reimbursed the amount he has paid. We may concede, too, that this doctrine should be favored, as it is founded on the principles of natural reason and justice.- Hodgson v. Shaw, 3 My. & K. 190-1-2. But the surety, thus paying, can certainly acquire no greater right than the creditor whose position he is enabled to take by the decree of the court. The cases which have carried this doctrine further than any others, are Parsons v. Briddock, 2 Vern. 608, and Wright v. Morley, 11 Ves. jr. 22; and these establish, that where the creditor sues the principal, and the latter gives bail, and a judgment is likewise obtained against the bail, but the sureties on the original bond are compelled to pay, they may avail themselves of the judgment against the bail for their reimbursement; in short, that the surety, paying the debt, had precisely the same rights which the creditor had. But, speaking of the last of these decisions, Judge Story says, it has been much questioned, and must now be deemed to be much weakened in point of authority. — 1 Story’s Eq. § 499 a. What is meant by subrogation, a term which has been borrowed from the civil law ?■ It is the substitution of a new for an old creditor ; or, in its more general sense, “ the act of putting, by a transfer, a person in the place of another, or a — 258 — thing in the place of another thing.” — Bout'. Inst., vol. 2, p. 69 ; ib., vol. 1, p. 321. By this transfer, the new creditor is subrogated to all the rights of the original creditor. To ascertain, therefore, the rights which complainant may lawfully claim, we must first see what were the rights of the Decatur Bank at the time of the payment of this debt by Dillahunty ; for to these rights alone he can succeed. It cannot be denied, that the giving of the note, by William Arnett, with Dillahunty and William W. Garrard as sureties, and the execution of the trust deed by Garrard to John Arnett, and the surrender of the bill of exchange by the Decatur Bank to the drawer, is an absolute extinguishment of all liability on the part of Taylor, Mason & Co., as acceptors of the bill. This substitution of the notes for the bill was, as to these acceptors, a payment by Garrard ; and he was therefore, according to the very terms of his deed to Lassiter, discharged from all further obligation to them in respect of its payment. The bill being functus officio, and having been delivered up to the drawer, the party primarily liable, and can-celled, what right had Taylor, Mason & Go. to insist upon the security provided in the trust deed to Lassiter, so far as respects it? The deed, as to it, according to its terms, became void and of no effect. Any attempt, therefore, on the part of Taylor, Mason & Co., to set it up as a subsisting security for their indemnity on account of this bill, which was discharged and cancelled, would have been a clear violation of the stipulations of the deed. Having seen that the deed, as to them, with respect to this bill, was satisfied and “ void and of no effect,” let us see whether the Decatur Bank could have pursued the property. There is no privity as between the Bank and the deed, except through the bill. The security taken by the acceptors enured to the benefit of the Bank, upon the principle, that all parties to the bill being liable and equally bound to the Bank for its payment, no arrangement entered into between them could withdraw their property from liability to satisfy the demand, so long as it remained the property of either. Upon breach of the condition of the deed in the non-payment of the bill, the Bank would have been substituted for the acceptors, or, if you please, subrogated to their right to have the trust exe — 259 — cuted, and the proceeds applied to the payment of the bill, thus carrying out its object — -the security and protection of Taylor, Mason & Co. — by satisfying their obligation and discharging them from liability. But the Bank accepted another security, and agreed forever to discharge Taylor, Mason & Co.; at least, such is the effect of this arrangement, and whether the notes taken in virtue of the arrangement are paid or not, the Bank has surrendered all right to proceed on the bill against the acceptors, and consequently all right to avail itself of a security which the acceptors had taken, which security was discharged the moment the acceptors were released. To illustrate my meaning : Suppose the Bank, after delivering up the bill, and after the notes, taken in lieu of it, had fallen due and remained unpaid, had filed a bill to have the trust executed in its favor ; upon what principle could the court have afforded relief ? The trustee, Lassiter, could have replied, “ You seek to enforce a contract, which, by your own act, you have rendered void and of no effect according to its very terms.” He might further add, “ I was authorized to sell this property for the protection of Taylor, Mason & Co., on their acceptance of the bill of Wm. Arnett, having eight months to run. This bill has been discharged. They have been fully protected ; the object of the bill, as to them, has been accomplished. They have exhibited to me the bill, taken up by the drawer and cancelled.” What then? Can the chancellor make a new contract for the parties ? Can he add new stipulations to the satisfied deed, or prescribe new objects to be accomplished by it, wholly foreign from what was in the contemplation of the parties when it was executed ? Clearly he cannot. But it is said, the debt still exists, although the evidence by which its existence is proved has been changed ; and that the Court of Chancery will not sacrifice the justice and substantial merits of the case in deference to mere form. To this we reply, that as to the essential party through whom the equity is to be worked out in favor of the Bank — the acceptors — the proposition is not true : the debt, as to them, does not exist, but is satisfied, paid, and discharged; and this necessarily puts an end to their right to go upon the security which the — 260 — deed till then afforded. Having no such right, it follows as a necessary consequence, that none could be imparted through them to the Bank, much less to a party to the bill who has discharged it, by entering into a new and different agreement with the creditor, upon the faith of a new and different security for his indemnity, executed by the principal debtor. The principle settled in Copis v. Middleton (1 Tur. & Russ. 224-231), by Lord Eldon, which is fully sustained by Lord Brougham in Hodgson v. Shaw (3 Myl. & K. 183), and said by Judge Story to be a masterly exposition of the doctrine upon this subject (Story’s Eq. Juris. § 499 c, note 1, p. 561, 4th éd.), fully sustains the view we take of this case. Lord Eldon said : “Tt is%a general rule, that in equity a surety is entitled to the benefit of all securities which the creditor has against the principal'. But then the nature of these securities must be considered. When there is a bond merely, if an action is brought upon the bond, it would appear, upon oyer of the bond, that the -debt was extinguished. The general rule, therefore, must be qualified, by considering it to apply to such securities as continue to exist, and do not get back, upon payment, to the person of the principal debtor.” The effect of the discharge of Taylor, Mason & Co., we have seen, satisfied the deed, with respect to this bill, as to them, and the property embraced in it went back to the grantor, or, rather, was retained by Lassiter for the satisfaction of a demand with which the Decatur Bank had no connection. As between W. W. Garrard and Taylor, Mason & Co., it was the duty of the latter, at the request of the former, to have entered satisfaction, as to the cancelled bill, on the deed. — See Clay’s Dig., p. 156, § 32. But having satisfied the deed as to this demand, it remained as security for the bill to the Huntsville Bank, and it would be inequitable, in our opinion, to divert the fund from that object; for, if it is to be apportioned between the two demands, by which Taylor, Mason & Co. are left to pay the balance to the Huntsville Bank, it will be, in effect, to make them respond to the payment of the bill, from which they have been discharged, to the extent of the fund, which will be withdrawn from their indemnity, and applied towards refunding money paid out by one of the sureties on the notes — 261 — given to renew or extend it. We think it would not only be unjust to deprive Taylor, Mason & Co., or the Huntsville Bank, of the full benefit of this security, in favor of those who have voluntarily cancelled the original demand, by assuming its payment on the faith of a new and different security ; but to put Dillahunty in the place of Taylor, Mason & Co. would be carrying this doctrine of substitution beyond any case we have seen, and farther than is warranted by principle. It would be to deprive a surety of an advantage fairly obtained— to subrogate to a supposed right of subrogation, which right, as we have shown, was voluntarily yielded up by the Bank at Decatur, in consideration of other securrfyfojj^^i^emand given by the principal debtor, by surren^n^^ij^&OSftnd discharging and displacing the party 1®r«$gn whom aJoife a privity could be established asbetween|heBan]&ipdriiftfTtiVist deed. — Story’s Eq. PL, §§ 262, 514. ILAa» W ' \ The cases cited from our own Report do the view we have taken. In all of them^wfiere the dggtñne of subrogation has been applied and uphel^feei^E^^erights, to which the complainant could be subrogated, existing at the time of the payment. Such is not the case here; but this case is more nearly assimilated to that of Brown v. Lang et al., 4 Ala. Rep. 50-54. In that case, the principal debtor died, and after Ms death his administratrix and sureties on the original demand made from time to time new notes, taking up and cancelling or extinguishing the old. Finally, the sureties were compelled to pay the debt; and the question was, whether they should not be subrogated to the rights of the creditor, and be reimbursed out of the estate of the original debtor. The court say : “ There is nothing in the record from which it can be inferred that the Bank did not intend to discharge the intestate’s estate from all liability to pay the note of which hp was a joint maker ; and we cannot, against the direct allegation pf tjie bill, suppose that there was a continuing liability. The creditor, ihpp, could not, at law, or in equity, have charged the estate of the ipfestatp jn the hands of his admin-istratrix; and the surety, whose clfdfn, is Reduced fh?oy,gh fhe freditor, cannot look to any source of reimbursement of'which thy latter could not have availed himself 'J'hjs principle^ y?§ think, is decisiye of the case before u.s ; — 262 — for it is too clear to admit of argument, that Taylor, Mason & Co. were discharged by giving the new notes and can-celling the bill. There is no error in the decree of the chancellor, and it is consequently affirmed.