Huey v. Pinney

By the Court ElaNdkau, J. The complaint in this action is upon two promissory notes, dated July 9th, 1857— one payable on the 27th day of October, and the other on the 27th day of September, then next. The notes are made by the Defendants Woodman and Huey, to the order of the Defendant Murphy, and endorsed by him. The complaint alleges in regard to both the notes that Huey signed them as surety. The Defendant Huey answers and admits that he signed the notes as surety, as alleged in the complaint, but avers that he so signed them upon the express condition, known to the Plaintiff, that the notes should run but a short time only, and that the Plaintiff should proceed promptly to enforce the collection of the said notes when due against the principal, Woodman. And that shortly after the notes fell due the Defendant Huey called upon the Plaintiff personally, and notified and ordered him to proceed and collect the said notes without delay, and that he told the Plaintiff that the notes could be collected at that time of the principal Woodman, but the Plaintiff refused so to do; and at the request of the — 316 — Defendant "Woodman, without the consent of Huey, after the maturity of tbe notes, extended tbe time of payment thereon to Woodman, for a valuable and binding consideration from Woodman. The Defendant Huey also charges that at the time he requested the Plaintiff to proceed against Woodman he was solvent, and the notes were collectable against him by due process of law, and that he has since become insolvent, &c. The reply puts in issue the allegation of the answer as to the extension of the time of payment on the notes to Woodman. „ . On the trial the Plaintiff moved for judgment on the;pleadings, and the Court granted the motion. There are two defences attempted in the answer. Eirst, that the Defendant Huey as surety was discharged from his obligation by reason of the refusal of the Plaintiff to prosecute the principal debtor when requested to do so, he being solvent at the time of the request, and having subsequently become insolvent, thereby cutting off the indemnity which the surety would otherwise have had. Second, that by granting the principal an extension of time upon the notes after they became due, he varied the ■ contract of the surety, and thus worked his discharge. The Plaintiff’s Counsel, in a very able argument, evincing a thorough knowledge of the subject, and containing a most elaborate review of the authorities, insists that the first defence is insufficient in not alleging, in connection with the request to prosecute the principal debtor, that the surety tendered the Plaintiff full indemnity against any loss or expense he might incur by a failure to collect of the principal; and also in not alleging that the principal was solvent within the jurisdiction of the Courts of this State; also, that the request to sue should have been in writing. I will examine these several objections and test their validity. It is a settled and sound principle that the relation of principal and surety involves the utmost good faith and confidence, and makes it the duty of the creditor and the principal debtor to carefully consider and protect the rights of the surety in all their transactions relating to the debt. — 317 — We bad occasion to apply this rule in the case of Willis vs. Davis, 3 Minn. R. 17. The facts of that case, were, however, different from the one at bar. The general principle is well stated in 1 Story’s Eq. Jur., see. 325, as follows: “That, if the creditor does any act injurious to the surety or inconsistent with his rights, or if he omits to do any act, when required by the surety, which his duty enjoins him to do, and the omission proves injurious to the surety, in all such cases the latter will be discharged, and he may set up such conduct as a defence to any suit brought against him, if not at law at all events in equity.” There is one point in this case which may as well be noticed here, while considering the general relation of principal and surety. It will be seen that the language quoted from Story’s Equity, (and which accords with our views folly,) in speaking of omissions on the part of the creditor to act when requested, as operating a discharge of the surety, coniines them to such acts as the “duty of the creditor enjoins him to do.” This must be understood to refer to the duties which are imposed by law, and grow out of the legal relation of principal and surety. In this case the Defendant Huey alleges that he signed the notes as surety upon the express condition, known to the Plaintiff, that the notes should run but a short time only. No such condition appears in the instrument, nor does it appear to have been contained in any. other instrument in writing of equal obligation with the note. We shall, there» fore, entirely overlook the allegation in the discussion of this question, as we do not think, and have on several occasions, in cases not yet reported, held, that parties to written instruments cannot lessen or extend their obligations or-liabilities by any verbal understandings -or conditions they may enter into before or at the time of their execution, but must be tried upon the law applicable to the position they have assumed by the writing. The duties, therefore, which devolved upon the Plaintiff in this case, were such only as the law imposes upon a creditor holding paper against two parties, one ás principal and the other as surety. I think there can be no doubt that the creditor in all such cases is under an equitable obligation, and such is the essence — 318 — of tbe contract, to obtain payment from tbe principal debtor, and not from tbe surety, unless tbe principal is unable to pay the debt. Such is tbe language of Chief Justice Spencer in King vs. Baldwin, 17 John. page 393. Tbe law does not recognize this distinction in allowing tbe creditor to prosecute tbe surety at tbe same time with the principal debtor, or even before suit brought against the principal. Yet equity never loses sight of it as long as tbe debt remains unpaid, and will always protect the surety against any attempt, by either the creditor or tbe principal debtor, to deprive him of any advantage flowing from bis secondary liability and indemnity over against his principal. At law mere delay on the part of the creditor to. prosecute the principal will not discharge tbe surety, even if thereby tbe principal become insolvent and tbe surety is deprived of bis redress ; yet equity will interpose for good cause shown and compel tbe creditor to sue tbe principal before resorting to the surety. This right, however, is always coupled with tbe condition that the surety shall fully indemnify the creditor against loss from a fruitless suit against the principal. I have been unable to find a single case in equity where tbe question has been made, or a reference to the doctrine in any of the cases at law, where the in demnity has not been regarded as necessary. 1 Story's Eq. Sec. 327; Rees vs Berrington, 2 Vesey Jun, 540 ; 6 Vesey, 734 ; Nisbit vs. Smith, 5 Bro. 578 ; 2 John. Ch. R., King vs. Baldwin, 558-9, opinion of the Chancellor. This case was subsequently overruled in tbe Court of Errors but not upon tbe points that we now cite it. Case in error reported, 17 John. R. 384 ; Warner vs. Beardsley, 6 Wend. 610, affirmed ; 8 Wend. 194; Hayes vs. Ward, 4 John Ch. R. 123 ; Adams Doctrine of Eguity, 269, marginal note. The first case in which it was attempted by an act in pais to compel a creditor to sue tbe principal debtor before resorting to tbe surety, arose in New York and is reported in 13 John, R. 173, Pain vs. Packard. In that case the plea was almost identical with the answer in this case and was sustained by the Court. The case was decided without argument in the Supreme Court but not without ample consideration. — 319 — Shortly after the decision in Pain vs. Packard, the case of King vs. Baldwin arose, 2 John. Ch. 554, where the Plaintiff filed his bill for relief against a judgment at law, which had been -recovered against him, and in which he had set up the same defence that is made here, and had been overruled. The Chancellor denied the relief sought on the ground that the only way a surety could compel suit to be brought against his principal was by application to equity, and that it could not be done by a mere request. The Chancellor, at page 562, says that since the case was argued he has met with the case of Pain vs. Packard, and he thinks that a surety was never before discharged by such means. This case was taken to the Court of last resort in New York, 17 John. 384, and was there reversed by the casting vote of the President, the members of the Court being equally divided upon the question. Chief Justice Spencer gives the opinion of the Court, in which he holds that the matter of the bill was not res judicata by having been overruled as a plea, in the trial at law, and that it is both a good plea at law, and also foundation for a bill in equity. He says: “ There is but a minute shade of difference between the opinion expressed by the Chancellor and that of the Supreme Court in Pain vs. Packard, and it is simply this ; the Chancellor holds that a Court of Equity must be first appealed to, to compel the creditor to sue at law, whereas the Supreme Court maintain that he can be required by the surety to sue without the aid of a Court of Equity; and if I am right in supposing that there does exist a moral and equitable duty on the part of the creditor to collect his debt from the principal in the first instance (and this must be so, or a Court of Equity could not interfere at all,) then I maintain that a Court of law may without overleaping its just jurisdiction, and in analogy to several other cases in which they take notice of existing equities, not only take cognizance of the equity which requires a' creditor to collect his debt of the real debtor, but they may apply the consequence of the refusal of the creditor to sue the principal, without which the principle itself would be of no value, by holding that the surety is discharged, if the creditor will not do his duty and collect his debt, if he can, from the principal.” — 320 — This case has been frequently commented upon in the courts of New York with severity, sometimes upon the point that, the defence was res judAeata, having been set up and overruled in the case at law, and upon which point it is impossible to reconcile it with itself, because it will be observed that the Chief Justice holds that the defence was a good one at. law and yet allows it to be again interposed by way of a bill in equity against the very judgment in which it was overruled. Schroeppell vs. Shaw, 3 Comstock, 454-5—and sometimes because it was decided, upon a tie vote, and against the opinions of many distinguished judges and lawyers. Warner vs. Beardsley, 8 Wend., 198. Yet I believe it is law in New York to this day, having been adhered to rather than depart from the ruling of the highest court in the State. The courts of New York, while they have assented to the case of King vs. Baldwin, have endeavored to restrict its operation as authority. Thus in the case of Warner vs. Beardsley, the Court held that to bring a case within the decision of King vs. Baldwin, it must appear that the principal debtor was solvent withm the jurisdñcüon of the State, at the time the request to sue was made. We think however that so far as the allegation of solvency was made in the answer at bar, it was sufficient. It is alleged in connection with a request to sue the debtor upon the note, and accompanied by the allegation that Woodman had at the time, sufficient property of which both the notes could have been collected by due process, of law. It would be a rather strained construction to put upon this language, that it did not show the debtor solvent within the process of the Court. We have referred to these New York cases at such length because we accept some of the principles found in them while we reject others. It is well settled that Courts of law do recognize and enforce certain equities between principal and‘ surety, and discharge the latter when his rights have been violated. And it cannotbe doubted that in New York, while their Court of Chancery was a distinct tribunal, that the facts contained in the answer in this case, with the addition of solvency within — 321 — the jurisdiction, would bare sustained a bill in equity to restrain tbe Plaintiff from proceeding at law against tbe surety Huey, under tbe authority of tbe case of King vs. Baldwin, even if sucb facts could not have been pleaded in defence at law, under tbe authority of Pain vs. Packard. We think that tbe jurisdiction in the the two Courts was concurrent. In either event, however, under our practice, where equitable defences may be pleaded at law, there can be no doiibt that a surety who has taken the steps that would have entitled him to restrain the creditor from proceeding against him at law under tbe old system, may now avail himself of his acts as a defence when he is sued upon his contract. But as a Court of Equity would not interpose in his behalf, unless he accompanied bis request to sue tbe principal with an indemnity against loss by so doing, we do not think a defence can be sustained upon a request without atender ofindemnity. In Pennsylvania it has been held that where the principal is solvent, the surety will be discharged, if the creditor does not proceed to collect on request or permit the surety to proceed in his name. Dehuff vs. Turbitt's Exrs. 3 Yeates 157; Cope vs. Smith’s Exrs. 8 Serg. & Rawle, 110 ; Gardners Admr’s vs. Ferree 15 Id. 28. Chancellor Walworth, in Warner vs. Beardsley, 8 Wend. 198, says, that this is because they have no Court of Chancery in that State to enable the surety to proceed in his own name to compel payment by the creditor. I have not now access to the Pennsylvania cases, although we examined them at term, and I think such is the fact. The Chancellor in King vs. Baldwin, 2 John, Ch. R. 557, objects that the request should be in writing as it would be dangerous to allow parol declarations to impair the force of written contracts, and the Plaintiff makes this one of his points of objection to the Defendant’s answer ; but we think this objection is sufficiently answered by Chief Justice Spencer, in his review of the case in the Court of Errors, where he shows that the same objection might be urged against all acts in pais, such as demand of goods in trover, demands of payment on promissory notes, and all similar cases. It would always relieve a case of uncertainty to make such demands — 322 — in writing, but verbal demands bave never yet been questioned, and it would be introducing a new principle in tbe law to bold tbem insufficient now. Tbe parties seem to bave overlooked a statutory provision of this State, that in my judgment, puts an end to this branch of tbe Defendant’s answer. It is as follows: “An action may be brought by one person against * * * two or more persons for tbe purpose of compelling one to satisfy a debt due to tbe other, for which tbe Plaintiff is bound as surety.” Comp. Stat. 620, Sec. 35. Now if tbe Defendant, Huey, bad tbe power in bis own bands to sue tbe maker and the bolder of tbe notes, to compel tbe maker to pay tbe bolder, which is clearly tbe authority granted by this section, then be should bave exercised bis right and not demanded that tbe bolder should do so for him. He could hardly put tbe risk and expense of tbe suit on a party much less interested than himself. The remaining question to be considered, is tbe sufficiency of tbe answer in alleging an extension of time to tbe principal debtor. It is unnecessary to cite authorities to the general principle, that an extension of time upon a binding consideration to tbe principal debtor, will discharge the surety. Tbe question was considered by this Court in the case of Willis vs. Davis, 3 Minn. R. 26, above cited, and we are satisfied with that bolding. Tbe allegation in tbe answer in this case is: “That tbe Plaintiff, at tbe request of the said Woodman, and without tbe consent of this Defendant, after tbe maturity of each of said notes, extended tbe time of payment thereon to said Woodman, for a valuable and binding consideration from said Woodman.” Tbe object of pleading in an answer is to advise the party Plaintiff of the defence that wTill be interposed to bis recovery. Tbe allegation in-this instance is of a fact peculiarly within tbe knowledge of tbe Plaintiff and although tbe general fact that an extension may bave been granted upon a valuable consideration, may be known to tbe Defendant, be may rest entirely upon tbe tbe testimony of tbe Plaintiff to prove tbe particulars of it upon tbe trial, and be unable to ascertain them pn any other way. There can be no surprise to tbe Plaintiff by such an allegation. He is — 323 — apprised of tbe nature of tbe defence, and can prepare to meet it quite as well as if it was stated witb more particularity. Tbe strictest rule contended for by tbe Plaintiff could only require that tbe particular time for which tbe extension was granted should be stated; not by whom it was to be proven or tbe precise consideration paid, and this while it would not aid tbe Plaintiff to prepare against it, or protect him against surprise, might deprive tbe Defendant of tbe advantage of a defence, which be is certainly entitled to, if tbe fact which be alleges is true. "We think under our sytem of pleading this defence is well stated. See Allen vs. Patterson 3 Seld., 476; Comp. Stat. 542 sec. 79. Tbe Judge erred in holding that tbe Plaintiff was entitled to judgment on tbe pleadings. Tbe judgment is reversed and a new trial awarded.