Selleck v. Griswold

Lyon, J. The case made by the counterclaim under consideration is that, the defendants conveyed to the plaintiffs certain lots, in consideration of which the plaintiffs covenanted and agreed to assume and pay certain existing incum-brances thereon, one of which was a trust deed given to secure the payment of a note made by the defendant Levi M. Griswold to Nichols & Fitch for $2,550; that the plaintiffs have failed to pay the incumbrance, and that the holder of the note has obtained a judgment thereon against the maker. The question to be determined is whether the defendants, or rather the defendant Levi M., has any cause of action against the plaintiffs by reason of their failure to perform their covenant, before he has paid the judgment or some part of it. The question is not a very difficult one. The plaintiffs are not charged with having given an express covenant of indemnity. They assumed and promised to pay the in-cumbrance, which doubtless means the debt which the trust deed was given to secure. That is the extent of their undertaking. As between them and the maker of the note, prob [295] ably they became the principal debtors, and the maker stood in the relation of a surety for the payment by them of the debt. Such is the strong intimation in Gates v. Hughes, 41 Wis., 332. See, also, the cases there referred to. It is elementary doctrine that, in the absence of express stipulations of indemnity, the surety cannot maintain an action against the principal, on account of such suretyship, until he is damaged by the default of the principal ; that is, in this case, until he pays the debt for which he is surety, or some portion of it. 2 Sedg. on Dam. (7th ed.), 3. Counsel have discussed at some length the nature of the contract of indemnity, and the distinction between indemnity against liability and one against loss or damage for liability, and have cited many cases to show that the contract of the plaintiffs to assume and pay the incumbrance is within one or the other of these two classes. It seems to be settled in this state that an action may be maintained for a breach of covenant against liability, without alleging or proving loss or damage resulting from the breach. Not so, however, if the covenant be against damage because of liability. In such case loss or injury must be proved, or there can be no recovery. Smith v. C. & N. W. Railway Co., 18 Wis., 23; Thompson v. Taylor, 30 Wis., 68. Applied to this case, had the plaintiffs covenanted to indemnify the defendant Levi M. against liability on account of his note to Nichols & Eitch, they would have been liable at once to an action by Levi M. for a breach of such covenant, and this as well before as after judgment was obtained against him on the note. In such case the measure of damages would be the amount of the note. Such a covenant would be the equivalent of an express undertaking by the plaintiffs to pay the amount of the note, not to the holders thereof, but to the maker, Levi M. Griswold. Of course the latter might maintain an action against the plaintiff for a [296] breach of such an undertaking and recover the amount so agreed to be paid, without showing that he had paid the note. But if the plaintiffs only undertook to indemnify Levi M. against loss or damage because of his liability on the note, he has no cause of action against them upon their undertaking until he pays the note or some part of it, for until he does so he has sustained no loss. In this case there is no express contract of indemnity. If that element is in the contract, it is implied from the agreement to assume and pay the incumbrance. It would seem that such an agreement could, at most, onty imply a covenant of indemnity against damage resulting to the covenantee for breach of the agreement to pay the incumbrance, and not one against the mere liability for the debt. Mr. Sedg-wick says: “It appears, upon the whole, settled that if the engagement be collateral, or, more properly speaking, indirect, whether only implied in law, or whether it be an undertaking to indemnify and save harmless against the consequences of the default, then damage to be recovered must be proved.” 2 Sedg. on Dam. (7th ed.), 13. See, also, cases cited in note a,. Learned v. Bishop, 42 Wis., 470, asserts the same doctrine. Bishop took a conveyance of land from Learned. The land was-incumbered, and Bishop covenanted to pay the incum-brance and save Learned harmless therefrom. He also executed to Learned a mortgage on other land to secure the performance of the covenant. The covenant was not performed. Without paying the debt which was secured by the incumbrance, Learned brought an action to foreclose such mortgage. It was substantially held that Learned had no covenant against his mere liability for such debt, and his complaint was dismissed. It was left undecided whether the action might not have been maintained in equity, had the holder of the incumbrance been a party to it; but the reasoning of the opinion by the late chief justice is conclu [297] sive that Learned could not have maintained an action at law for the breach of the covenant until he had paid the debt, or some part of it, which the incumbrance was given to secure. The result of the authorities is that no eonvebant to indemnify against liability can be implied from a mere undertaking to pay the debt of a third person. This is fatal to the counterclaim demurred to, and leaves it unnecessary to consider whether the demand in favor of the defendant Lem M. can properly be pleaded as a counterclaim in this action against him and another defendant. The learned counsel for the defendants has made a vigorous assault upon the complaint, and he maintains that the demurrer should have been sustained as a demurrer to the ■complaint. There having been one trial, and this complaint, having passed the scrutiny of this court on the former appeal without challenge, we feel relieved from discussing the question at length. It must suffice to say that we think the complaint states a cause of action. By the Gowrt.— Order affirmed.