Bonham v. Galloway

Trumbull, J. This was a proceeding in chancery to foreclose a mortgage executed to the complainant by the defendant Galloway in May, 1840. The bill is in the usual form as against Galloway, and malees Mahon, Bell, and Harris defendants, as claiming some rights under a mortgage of the same premises executed by Galloway to Mahon prior to the one executed to the complainant, which mortgage was subsequently assigned by Mahon to Bell and Harris, but which complainant insists is discharged as to him. The bill was taken for confessed against Galloway and Mahon. Bell filed an answer, which, by agreement, was taken as the answer of Harris also. Without denying complainant’s rights under his mortgage, the answer sets up as valid the mortgage to Mahon, the condition of which is, “ that if the said Galloway do well and truly, without defalcation, content, pay, satisfy, and discharge a promissory note of hand given by him and the said James Mahon, on the 26th day of February, A. D. 1840, to the president, directors, and company of the State Bank of Illinois, at their branch in Mount Carmel; that is to say for the sum of four hundred dollars, payable seven months after date, either by renewals or otherwise," so as to save the said Mahon harmless from paying said note or any part thereof, or any interest or cost accruing thereon, it being understood and agreed by and between the parties, that if the said Andrew J. QaM°way shall well and truly discharge said note agreeable to the true intent and meaning of the same, that then this indenture and every part thereof is to be null and void, otherwise to remain in full force and virtue.” The answer further alleges that Galloway did not pay the note to the bank; that Mahon, being desirous of being relieved from his liability as security for Galloway, the latter applied to the defendants Bell, Harris, and one Armstrong to become his securities, in the place of said Mahon, and renew his note to the bank, which they agreed to do on being made safe by a transfer of the mortgage to Mahon, to them; that they did accordingly become his securities, and renewed said note to the bank in the place of Mahon, who, in consideration thereof, on the 3d day of October, 1840, assigned said mortgage to them, the said Harris, Bell, and Armstrong ; that said Galloway had not discharged his debt to the bank, but that a large sum still remained due, for which judgment had been obtained against the said Harris and Bell; wherefore it was insisted that the court should respect the prior lien of the mortgage to Mahon in any disposition to be made of the mortgaged premises, and that the debt due the bank should first be paid out of the same. The case was heard upon bill, answer, and exhibits, and a decree entered requiring the said Galloway to pay the amount found to be due upon said mortgages in twenty days, or, in default thereof, directing a sale of the mortgaged premises, and the application of the proceeds, first to the payment of the debt due the bank, and then in satisfaction of complainant’s claim. That part of the decree foreclosing the mortgage to Mahon, and ascertaining the amount due the bank and directing its payment, is clearly erroneous. The bank was not a party to the proceeding, and would not be bound by the decree entered; and the defendants Bell and Harris had no right to proceed against Galloway till they had paid or discharged the debt for which they were his sureties. The cause of action against the principal debtor in favor of the surety, accrues when the surety pays the debt, not before. Shepard v. Ogden, 2 Scam. 257. The proper decree upon the assumption that the mortgage to Mahon was still in force, would have been to direct a sale of the premises subject to the lien of that mortgage. These, however, are questions of minor importance, not affecting the real merits of the case, and which could be avoided in subsequent proceedings; but the great point in controversy is, whether the mortgage to Mahon was not discharged, when the note for which he was security was taken up, and he released from further liability. The mortgage was not given to the bank as a security for the debt owed by Galloway, but to Mahon, to indemnify him in case he should have to .pay any part of that debt as Galloway’s security. The language of the mortgage is peculiar ; it was to be void in case Galloway should pay and satisfy his note to the bank, either by renewals or otherwise, so as to save the said Mahon harmless from having to pay the same. By the terms of the mortgage, it was clearly discharged the moment Mahon was released from his liability as a security on the note to the bank, and a new note given with different securities. When the old note was taken up, and the renewed one substituted in its place, the mortgage ceased to be operative. Mahon had then been saved harmless, and discharged from all further liability, and the object for which the mortgage was given had been fully accomplished. It was not competent for him, at that time, after the rights of the complainant had intervened, to continue the mortgage in force by transferring it to other persons who had become sureties in his stead. It was Galloway, not Mahon, who applied to Bell, Harris, and Armstrong, to go his security upon the renewed note; and it was between these parties that the agreement was made for the transfer of the mortgage by Mahon. Galloway could not at that time have executed a new mortgage which would have had precedence over the previous one to the complainant; and if he could not thus directly give his new securities a preference over the complainant, could he accomplish the same thing by getting Mahon to transfer to them a mortgage which had ceased to be operative, by the very fact of Galloway renewing his note to the bank, so as to discharge Mahon from further liability ? That Galloway and Mahon, at the time the mortgage was executed, did not contemplate its subsequent transfer as an indemnity to such persons as might afterwards become Galloway’s security upon a renewal of his note to the bank, is manifest from the language of the condition of the mortgage; and it was too late, after the rights of a third person had intervened, to change the original intent, design, and meaning of the mortgage to his prejudice. We are aware of decisions to the effect that a surety on a note having a mortgage of indemnity, does not lose the benefit of his mortgage by renewing the note with his principal. Pond v. Clark, 14 Conn. 335; Brinkerhoof v. Lansing, 4 Johns. Ch. R. 73; Pomeroy v. Rice, 16 Pick. 22. Though a contrary doctrine was formerly held in Connecticut. Peters v. Goodrich, 3 Conn. 146. We know of no case, however, where a mortgage of this character has been held to be operative in favor of third persons who have been substituted as securities upon the renewed note, in the place of the original indorser and mortgagee, so as to overreach the rights of intervening creditors and purchasers of the mortgagor. In the case of Pond v. Clark, overruling the decision in the third of Connecticut, the Court say in then: opinion, that had the indorser on the substituted note made his indorsement, at the request and upon the credit of new parties, the damage he finally sustained would not have been the consequence of his original indorsement, and would not entitle him to look to the mortgage for indemnity. Mahon had no assignable interest in the mortgage at the time of the transfer, certainly no such interest, as against an intervening incumbrancer upon the same premises, and consequently the assignees took nothing by the assignment. As the case will have to be remanded, it is proper to remark, that the transfer of the mortgage is to Harris, BeH, and one Armstrong, the last of whom, without any reason therefor appearing on the record, is omitted to be made a party. The same reason exists for making him a party as the other assignees, and the decree of the Circuit Court will be reversed, and the cause remanded, with leave to the complainant to amend his bill in this respect, if he shall be so advised, and with directions to the Circuit Court to take such further proceedings in the case, as to law and justice appertain ; and as are not inconsistent with this opinion. Decree reversed.