First National Bank v. Wilbern

Day, 0. The plaintiff brought this action in the district court of Cass county against the defendant to recover upon a promissory note. The note was dated January 31, 1896, and by its terms became due ninety days after date. It was joint and several in form and was signed by L. Russell, T. J. Wilbern and A. L. Yan Doren. The defendant, Wilbern, was the only one of the makers made a party to the action. Upon the issues joined by the answer and the reply a trial was had resulting in a judgment for the defendant, to review which the plaintiff has brought error to this court. It is first urged by the plaintiff that the answer does not state a defense to the plaintiff’s petition. The answer is quite lengthy and no good'purpose would be subserved by [243] setting it out at length. The instructions of the trial court contained a full and fair epitome of the answer, as follows: “To this petition-the defendant answers by admitting that he executed the note set forth in the plaintiff’s petition, but states that he and the said A. L. Yan Doren were both sureties on said note and signed the same at the request of the said L. Russell, who was the real debtor, and that the plaintiff herein knew that both this defendant and the said A. L. Yan Doren signed said note as sureties, and that the note in question was a renewal note given to take up a number of prior notes signed by the same parties, on all of which the said L. Russell was the real debtor and this defendant and said A. L. Van Doren were sureties only; that during all of 1894, 1895 and 1896, both the said L. Russell and the said A. L. Yan Doren were financially responsible and were the owners of property sufficient in law to satisfy said indebtednessJ, that at the time the note in question fell due on or about May 1, 1896, one N. II. Meeker, the president of the plaintiff bank herein, solicited this defendant to sign a renewal note, which the defendant refused to do, and defendant informed the said Meeker that the principal debtor, L. Russell, was then solvent and able to pay the same, but that said Russell was in failing-circumstances and being pressed by his creditors and this defendant considered it unsafe to allow said note to go uncollected, and urged the said N. H. Meeker to take steps to immediately collect the said note from the principal debtor, the said L. Russell, at which time the said Meeker agreed that he would not extend the time of payment of said note but would proceed to collect the same. This defendant further answers and says ■that said N. H. Meeker failed and neglected to collect said note, as he had agreed to do, but that he extended the time thereon to the said Russell, without the knowledge and consent of this defendant and took and received from the said Russell chattel security for said note and extended the time of the payment thereof indefinitely, all of which the defendant states was done [244] without his knowledge or consent. Defendant further states in his answer that shortly after the maturity of said note and at the time he requested the plaintiff to collect the same from the said Russell, the said Russell was also indebted to one A. D. Welton, a stockholder and director in said bank and an employee therein in the sum of twenty-two hundred dollars; that said indebtedness to the said Welton was in fact owned and controlled by the said bank and was evidenced by a real estate mortgage on the farm of the said Russell and that the said farm was then worth seven thousand dollars; that said indebtedness of said Russell to the plaintiff herein was at that time unknown to this defendant, and that the president and manager of said bank purposely and intentionally withheld said facts from this defendant at the time he requested this defendant to renew the note sued on herein; that some time thereafter, between June and November, 1896, the plaintiff herein pretended to purchase said farm from said Russell, took and received from the said Russell a warranty deed for the same for the pretended consideration of sixty-five hundred dollars and took and received from the said Russell certain chattel mortgages upon all the personal property of the said Russell, and from then up to the present time the plaintiff has renewed and kept in force said chattel liens, thereby covering up and incumbering the property of the said Russell, and thereby hindering and delaying his bonafide creditors from collecting their just debts from the said Russell. The defendant further states that, the said Russell is in fact at the present time the equitable owner of the title to said real estate, and that the said pretended deed to the said bank was in fact only given to secure the indebtedness mentioned above; that said indebtedness amounts to only twenty-two hundred dollars with accrued interest thereon. Defendant further states that the plaintiff herein has received from the said Russell sufficient money and property to satisfy and pay off the note sued on herein.” A second defense alleged in the answer was also epito [245] mized in the instruction, but as that defense is no longer urged, it will not be considered. , Many of the facts alleged in the answer might appeal to a jury as a sufficient reason why the defendant should be released from liability on the note, but in law they constitute no defense and the court instructed the jury, very properly, to disregard certain of the alleged defenses.. The court, however, submitted to the jury, as the issue in the case, the question as to whether or not the note had been paid or whether or not the plaintiff, by its actions, had released the defendant. The only reference in the answer to payment is found in paragraph seven of the first defense, and is as follows: “Defendant further charges the truth to be that the said plaintiff bank has received from the said Russell ample and sufficient property and money to satisfy and pay off said promissory notes.” This general statement as to receipts of money and property sufficient to pay the note is far from being an allegation of payment and must be taken to have reference to the specific allegations of receipts of property by the plaintiff mentioned in the answer. It will be noted that the specific allegations of transfer are in every instance alleged to have been given by way of security. With reference to the transfer of the farm to plaintiff by deed, it specially alleged “that the said Russell is the bona-fide owner and possesses the equitable title to said real estate and has the right and authority to sell and dispose of the same”; so, with reference to the chattel property, it is referred to as being held as security. There is no allegation that any of the securities have been released or given up which might have been applied on defendant’s indebtedness, and no claim is made that the securities were received in lieu of defendant’s liability. It is the settled law that where a creditor has the means of satisfying his claim in his hands, or within his control as security, and does not use it for that purpose, but relinquishes it to his debtor, or misapplies it to the payment of unsecured claims, a surety for the debt will pro t<mto be discharged; the reason of the [246] rule being that the surety, upon payment, is entitled to be subrogated to the rights of the creditor in the securities held for the debt. Price County Bank v. McKenzie, 65 N. W. Rep. [Wis.], 507; Hutchinson v. Woodwell, 107 Pa. St., 509, 520; City Bank v. Young, 43 N. H., 457; Burr v. Boyer, 2 Nebr., 265; Guild v. Butler, 127 Mass., 386; Hall v. Hoxsey, 84 Ill., 616. But the law does not require that the creditor shall first exhaust the securities held for the debt before he can pursue his remedy against the surety. Brandt, Suretyship and Guaranty, sec. 237, and cases cited. In Merchants’ Bank v. Rudolf, 5 Nebr., 527, it is said: “The mere fact that a bank holds other security for the payment of a note, to which it might resort, is no ground for the release of a surety.” A surety has the right to pay the obligation for which he is bound with the principal, and thus become subrogated to the rights of the creditor in any securities held for the payment of the debt, but he can not demand as a condition precedent to a suit that the securities be first exhausted. Authorities are found supporting the doctrine that, under certain conditions, an action in equity will lie in behalf of the surety to compel the creditor to first exhaust the securities held for the debt before proceeding against the surety, but this principle can not be invoked as a defense to a suit on the note in a law action. In our opinion, no defense to the note is pleaded in the answer. We therefore recommend that the judgment of the district court be reversed and the cause remanded for further proceedings. On March 4, 1903, the following opinion on rehearing was filed:* Hastings and Kirkpatrick, 00., concur. By the Court: For the reasons stated in the foregoing opinion, the judgment of the district court is reversed and the cause remanded. Reversed and remanded. 1. Principal and Surety: Creditor: Property op Principal Debtor: Release op Surety. The mere fact that a creditor has in his hands property of a principal' debtor sufficient in amount to pay or secure the debt, does not of itself operate to release the surety, because it does not of itself put it out of the power of the surety, after the payment of the debt, to resort to the property for his indemnity. 2. --: -: -: -: Fraudulent Incumbering or Concealing: Indemnity: Release Per se. A creditor, by fraudulently incumbering or concealing the property of an insolvent principal debtor so as to delay or embarrass a surety in obtain- , ing indemnity, releases the latter from liability.