Rosborough v. McAliley

The opinion of the Court was delivered by McIver, A. J. The sole question in this case is whether the respondents were discharged from their liability as sureties on a certain sealed note by reason of the conduct of one of the payees, James Hemphill, who was at the time the holder, towards the principal debtor. The question arises on a demurrer to the answer, upon the ground that it does not state facts sufficient to constitute a defense to the action. Every allegation of fact, therefore, which is well pleaded in the answer must be taken as admitted. For a full statement of these facts reference must be had to the decision of the Court below. [245] The rule “that if a 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,” (1 Story Eq., § 825,) is well established and fully recognized in this State.—Lang vs. Brevard, 3 Strob. Eq., 64. The only inquiry, then, in this case is, whether the creditor has done any act injurious to the sureties or inconsistent with their rights. It is alleged in the answer that the administrator of the principal debtor placed in the hands of the said James Hemphill for collection choses in action to an amount much more than sufficient to pay this debt, and that he realized large sums of money therefrom, out of which he was repeatedly requested and urged by the administrator to pay the sealed note upon which this action was brought, but that, instead of doing so, he applied the money to the payment of simple contract debts, over which this sealed note had priority. If these allegations be true, and, for the purposes of this case,'they must be so taken, it is difficult to conceive how there can be a doubt that the creditor has done an act injurious to the sureties and inconsistent with their rights; for here the administrator of the principal debtor had not only placed in the hands of the creditor securities which would furnish the means of paying the debt, but those means had been actually realized, and the creditor, contrary to the request and directions of the ad-: ministrator, had diverted those means to other and illegal purposes. So that it is very clear that the creditor has done a positive act by misapplying — not simply neglecting to apply — the means furnished him by the principal debtor for the payment of the debt, and that this act was “legally injurious to the sureties and inconsistent with their legal rights;” because the creditor having the right to require the assets of the insolvent estate of his intestate debtor to be applied to this sealed note in preference to simple contract debts, and the sureties being entitled to be subrogated to all the rights which the creditor had to secure the payment of the debt, it necessarily follows that the act of the creditor in misapplying the assets was an act prejudicial to the legal rights of the sureties and that they are thereby discharged. The fact that the sureties made no request to or demand upon the creditor cannot affect the ease as it is now presented. The rule, as above stated, presents two distinct grounds upon which sureties may claim a discharge: 1st. Where [246] tlie creditor does some positive act injurious to the rights of the sureties. 2d. Where, after request or demand from the sureties, he omits to perform some duty enjoined upon him. Such a demand or request would, therefore, have been essential if the ground upon which the discharge of these sureties was claimed had been simply an omission of duty on the part of the creditor; hut where, as we have seen, the true ground upon which the sureties claim their discharge is that the creditor has done a positive act which proved injurious to the legal rights of the sureties, no such request or demand is necessary. The fact that the sealed note in question was made payable to the two Hemphills, as executors, and that only one of them participated in the transactions which it is claimed amounted to a discharge of the sureties, cannot affect the conclusion which we have reached. For, aside from the fact that it is alleged in the answer that “James Hemphill, as executor of the estate of Wm. Moffatt, controlled the business of said estate exclusively, the said Robert Hemphill taking no part in its administration,” which allegation is by the demurrer admitted to be true, the rule of law is too well settled to admit of controversy that “ co-executors, however numerous, are" regarded in law as an individual person, and, by consequence, the acts of any one of them, in respect to the administration of the effects, are deemed to be the acts of all, for .they have all a joint and entire authority over the whole property. Hence a release by one of several executors is valid and shall bind the rest.” — 2 Wms. on Ex., 683, 2d* Am. ed. Nor does the fact that the sealed note in question was not payable to the testator, but was a note taken subsequent to his death, payable to James Hemphill and Robert Hemphill, as executors of William Moffatt, and, therefore, presumably given to secure the payment of the purchase money of property of the testator sold by such executors, alter the case. For it is conclusively shown by the case of Míame vs. Lewis (13 Rich. Eq., 269,) that notes so taken are as much assets of the testator as those made payable to him, and hence, it would seem to follow, would be subject to the same rules as govern the latter in respect to the control which one of two co-executors has over them. The judgment of the Circuit Court is affirmed. Willard, C. J., and Hashell, A. J., concurred.