Clagett v. Salmon

Stephen, J. delivered the opinion of the court. The decision of this case involves the consideration of several important principles of equitable jurisprudence, relative to the doctrine of substitution, and the rights, duties, and obligations resulting from the relation of principal and surety. (And here the judge referred to the statement of the cause as set forth in the commencement of this report.) The defendants appealed from this decree, and contended that it should be reversed, because the complainant has no equitable right or claim to any part of the personal property mentioned in the aforesaid mortgage, the said property being in the hands of the appellant, Elizabeth, as administratrix of William Clagett, deceased, and liable to the demands of the creditors, and next of kin of the deceased: They further contend, that by the terms of the mortgage, the appellee stipulated to limit his advances to Thomas Clagett, to the sum of $10,000, and by giving credit beyond that sum, he released the other appellants, who were only sureties. That those sureties are released by the agreement between the appellee and the trustees of Thomas Clagett, which was intended materially to vary the original contract for guarantee, and to impair, and destroy the remedies to which the sureties in the absence of the agreement would have been entitled. They also contend, that the appellee has failed to show by his bill or proofs, any ground for the interference of the court of Chancery by injunction; and that the court of Chancery erred in decreeing a perpetual injunction, and declaring such injunction to be subject to — 344 — any order to be passed in another cause. And that costs ought not to have been decreed to the appellee. They finally contend, that the decree dismissing the bill as against Richard H. Clagett, ought also to have declared, that the ■aforesaid mortgage is void, and inoperative against him, and ■that the injunction should be subject to his rights. As to the first objection raised by the appellants, that the deed of mortgage conveyed no right or title to the personal property therein specified; it may be remarked, that the deed only professes to convey all their right and title to the property, which of course was subject to the claims of creditors, if any such there were, but from the lapse of time which had taken place between the death of William Clagett, and the date of the letters of administration granted to his widow, Elizabeth Clagett, and the date of the mortgage, it is fair to presume that the debts were all paid and satisfied prior to that time, and consequently that the mortgage did not in any degree operate to their prejudice. It appears by the proof in the cause, that an inventory of his estate was returned in the year 1816, and that his administratrix settled with the Orphans Court an account which she termed a final account in the year 1828. The deed of mortgage was not executed till the year 1827. It appears then, that a period of about eleven years had expired from the time letters of administration were taken out upon his estate before the mortgage was executed; and this court have said in the case of Allender vs. Riston, 2 Gill and Johns. 99, “in the case now before this court it no where appears that there were any debts remaining due and unpaid at the time of the mortgage; or if there were, that the defendants knew of them;” and to use the language of Mr. Justice Ashhurst, in 4 Term. Rep. 645; “if the creditors will lie by and not assert their rights, it is reasonable for a third' person to suppose that all the debts are satisfied.” In the case now before this court, the presumption of payment arising from lapse of time is strongly fortified and corroborated by the fact, that the administratrix passed her — 345 — final account with the Orphans Court, several years prior to the execution of the deed of mortgage. In the case above referred to, this court held the following language, which is strikingly applicable to the case under consideration. “ It does not appear that the administratrix acted in her representative character at the time she executed the deed of mortgage. She does not in terms assume that character, and has associated herself in making the disposition of the property with three of the children, and representatives of her intestate. From this fact, connected with the strong circumstances existing in the case to induce a presumption that the debts were all satisfied, it is fair to infer, that she had made a distribution of the remaining assets, and acted in her character of distributee.” But it is contended on the part of the appellants in this case, that the bill of the complainant shows that no distribution was ever made prior to the execution of the deed of mortgage in this cause; but so far from this being the fact, upon recurring to the bill it will be found that it expressly charges that distribution was made by the Orphans Court, but that the property never had been actually delivered to the representatives, but remained in the possession of the administratrix, and Edmund Clagett, one of the distributees, who used and employed the same for the common benefit of themselves, and the other heirs and legal representatives. If this view of the case be correct, and there was sufficient ground to infer that the debts were all paid and satisfied, the next question which arises is, whether or not the deed is binding and obligatory on the mortgagors who executed it; and the question as to the power or right of an executor to appropriate the assets of the deceased, in any manner not conformable to the duties of his trust, is not necessarily involved in the consideration of this case. We do not consider that the act of 1763 has any operation or bearing upon the merits of this controversy, as it relates wholly to gifts of negroes and slaves, and has nothing to do with mortgages or other assurances for valuable considera — 346 — don. By the provisions of the act of 1729, ch. 8, a mortgage of personal property, of which the mortgagor retained possession is void, unless acknowledged and recorded as therein prescribed, so far as the rights of creditors are concerned; hut although not recorded at all, or not recorded in time, it is still legally operative and effectual against the mortgagor, and all claiming under him. This court have accordingly in Dorsey vs. Smithson, 6 Harr. and Johns. 63, decided, that a deed not recorded as the act of Assembly directs, is void as to creditors if made to their injury, but it is binding on the donor, and all claiming under him, both at common law, and under said act. This case also shows that the deed being binding and obligatory on the parties thereto, they are estopped to allege that the same is in iraud of creditors. In Hudson vs. Warner and Vance, 2 Harr. and Gill, 427, this court sanction the same principle, and held the following language in reference to the case then before them. “The bill of sale made in 1820 to Warner and Vance was made upon a good consideration. It was made to indemnify them against suretyships entered into, and to be entered into by them for J. and T. Vance, and it cannot be questioned but that it was perfectly available, as between the immediate parties to the instrument, although it was not recorded. It might be void against creditors who were injured by it, yet nevertheless binding on them.” We are therefore of opinion, that the deed of mortgage was legally binding, and obligatory upon all the parties who were of full age at the time it was executed. As to the objection that the sureties are discharged, because Salmon did not limit his advances to the sum of $10,000, we think that no such result legitimately flows from the contract, according to its true and proper construction. The same- objection was made and overruled in a case strikingly analogous, reported in Sturges et al. vs. Robbins, 7 Mass. Rep. 301, 304. That case was as follows : “A subscribed a memorandum of the following tenor, viz: the subscriber hereby engages to Messrs. B — 347 — and C, that if they will credit D, a sum not exceeding $500, in case he shall not pay the same in twelve months from this date, I will pay the same myself. In consequence whereof, B and C sold goods to D, to the value of $500, taking his promissory note for that sum. Immediately after B and C sold D other goods, for which he gave another note for $375. Within the year D paid $200, which was endorsed on the last mentioned note, and in three months after the year expired, he paid the balance of that note, and it was cancelled. Soon afterwards B and O sold other goods to D, taking his promissory note for $379 for the same, without any guarantee; $200 were paid on this last note, the balance thereof, and the whole of the note for $500 remaining unpaid. In an action by B and C against A, upon the memorandum aforesaid, it was held, that A was answerable for the $500 and interest, from the expiration of the year; due notice having been given him, that the debt which he had guarantied was unpaid, and the same having been demanded of him.—Parker, J.—on the facts agreed in the case; the question submitted to us is, whether the defendant is liable for the whole, or any part of the sum mentioned in the writing on which the action is founded. The counsel for the defendant has contended, that the writing signed by the defendant contained a conditional engagement only, and that the condition is of a nature to avoid the contract, if not strictly complied with by the plaintiffs, the true construction of the writing being, that the defendant would be answerable, if the plaintiffs did not trust Davis more than $500, but that if they exceeded that sum, he was not to be liable. We cannot adopt this construction, being satisfied, that the words which are supposed to amount to a condition, were intended by the defendant, only to limit his responsibility to the sum of $500; there being no reason why he should be unwilling that Davis should obtain further credit on his own responsibility, a circumstance which would diminish, rather than increase the defendant’s eventual liability to pay the money.” — 348 — We think, under the allegations contained in the bill, and the circumstances of this case, the chancellor did right in granting the injunction, for the purpose of holding the property responsible for the satisfaction of the mortgage. The language of the complainant’s bill is, “ that he has reason to. believe, and therefore charges, that the defendants contemplate and design to sell and dispose of part or the whole of said property, with a view of defeating your orator’s lien, and that he is apprehensive, the defendants will sell, dispose of, conceal or remove the whole, or a part of the personal property, before the same can be made responsible to him, for the satisfaction of his claim.” In the case of personal property, held by one for life, remainder to another, where danger of loss, or injury is apprehended. Chancellor Kent, in 2 Com. 286, 287, speaks in the following terms. “The interest of the party in remainder in chattels, is precarious, because another has an interest in possession, and chattels by their very nature, are exposed to abuse, loss, and destruction. It was understood to be the old rule in Chancery, that the person entitled in remainder, could call for security from the tenant for life, that the property should be forth-coming at his decease ; but that practice has been overruled. Ld. Thurlow said, that the party entitled in remainder, could call for the exhibition of an inventory of the property, and which must be signed by the legatee for life, and deposited in court, and that is all he is ordinarily entitled to. But it is admitted, that the security may still be required in a case of real danger, that the property may be wasted, secreted, or removed.” To the same effect is 2 Fearne on Remainders, 35, where he says, “we may recollect its having been said, that in case of a bequest of goods, to one for life, with remainder over, the legatee for life was compellable in equity, to give security for the goods being forth-coming at his decease, and accordingly, in the above cited cases of Vachel vs. Vachel, and Hyde vs. Parratt, the bills appear to have prayed such security, and this it seems was the old rule of — 349 — the court. But the latter practice is, for an inventory to be signed by the devisee for life, and to be deposited with the master for the benefit of all the parties, which Ld. Thurlow, in a late case observed, was more equal justice, as there ought to be danger in order to require security.” As establishing the same principle, we have the following ing case in 4 Hen. and Mun. 503. “The defendants had recovered a judgment at law, against the plaintiff for some negroes, the use of whom was devised to the defendant’s wife for life, and then to the plaintiff, and the bill was filed for an injunction, which was granted, to inhibit the defendants from getting possession of the negroes until they gave security for their forth-coming at the death of the wife, upon this ground, that her husband having failed as a merchant, might put the negroes beyond the plaintiff’s control. Upon the coming in of the answer, although it denied that allegation, and of which there was no proof, the court refused to dissolve the injunction, as both parties had become interested in the continuance thereof; and directed an account of the profits since the verdict, which account was reported, and the cause now came up for a final hearing. By the chancellor, though it is a matter of course for one in remainder of chattels, to file a hill for an account, and an inventory of the property, that it may be certainly known; yet, the court will not rule the tenant for life to give security, unless there appears to be some danger of wasting, or putting the property out of the way. In this case, that danger does not appear. The report however, which contains an account of the property, may be confirmed as a beneficial one to both sides, since the plaintiff was properly admitted into court.” The principles recognized in these cases fully justify the granting of the injunction to preserve the property, and prevent it from being removed before it could be made responsible to the complainant’s claim, according to the terms of the contract entered into between the parties. The only effect and operation of it, was to put it out of the power of the respondents, to commit an act of fraud and in — 350 — justice, of which they must complain with very ill grace in a court of conscience. Neither do we think that the chancellor erred in decreeing costs to the appellee, even if an appeal would lie for costs. In Eastburn and Downes vs. Kirk, 2 Johns. Ch. Rep. 318, Chancellor Kent says, “costs in chancery do not depend upon any statute, nor do they absolutely depend upon the event of a cause. They depend upon conscience and upon a full and satisfactory view and determination of the whole merits of a case. They rest in sound discretion, to be exercised under a consideration of all the circumstances. A litigation for costs only, is never favored in a court of equity. A party cannot have a re-hearing for costs only, except in special eases, and it is understood that an appeal will not lie merely for costs. Selw. Wyatt, Prac. Reg. 34, says, “a party cannot appeal for costs only, but in particular cases the rule may, and has been dispensed with. He then adds a quere, whether it can be dispensed with, only in cases, where it appears on the face of the decree, that costs are improperly given, or where the merits must be gone into ? ” So in Doe ex dem. vs. Winch et al. 5 Barn. and Ald. 393. Abbott, Oh. J., says, “the costs at law, are the legal consequences of the suit. The costs in chancery, are in the discretion of the chancellor, and entirely depend upon circumstances.” Without in-', tending to decide whether an appeal will lie on account of costs or not, we do not think that the circumstances of this case would warrant an exception to the general rule. If the general rule be as above stated, that a party cannot appeal for costs only, it sufficiently appearing from the pleadings and facts of the case, that the party complainant had good grounds, and was well warranted in applying to the Court of Chancery for its aid and assistance in preserving the property until it could be applied to his indemnity, and consequently that costs were properly awarded to him. With respect to the effect of the agreement between Thos. Clagelt, the trustees of Thomas Clagett and the appellee, and — 351 — how far it operates to discharge his sureties, it maybe remarked that though the rule of law is well known to be, that if two persons be bound jointly and severally, and the obligee releases one of them, both are discharged, yet, equity will not give a release an operation beyond the intention of the parties, and the justice of the case. The release is to be construed according to the intent and object of it, and that intent will control and limit its operation. Fonb. Eq. 511. So in 6 Johns. Ch. Rep. 242, the principle was adjudged to be, that “where two or more persons are jointly, and severally bound in one obligation, a release of one obligor entirely discharges the rest at law, but not strictly so in equity. For equity will not extend the operation of a release beyond the clear intention of the parties, and the justice of the case, but will construe it to relate to the particular matter intended to be released. Thus, where A, B, and C, guardians, executed a bond, jointly and severally with T, as their surety, for the faithful performance of their guardianship, and the ward, after coming at full age, executed a release to A, adding, “but this release is not to apply to, or affect my claim against B, my acting guardian, and whose account remains unsettled,” Held, that the release as to A was good, and was also a good defence to T, so far as he was surety for A; but that he remained bound for B and C, the other two obligors.” It is true, that where time is given by contract, to the principal for the payment of the debt, without the consent of the surety, he will be discharged, because he is only bound by the terms of his contract, and any variation of those terms without his consent, will operate to discharge him. Thus, in King vs. Baldwin, 2 Johns. Ch. Rep. 559, Chancellor Kent says, “all the cases of relief of surety have gone upon the ground, that time was given to the principal by contract, without consent of the surety. The doctrine is, that the surety is bound by the terms of his contract; and if the creditor, by agreement with the principal debtor, without the concurrence of the surety, va — 352 — ries those terms by enlarging the time of performance, the surety is discharged, for he is injured, and his risk is increased. The surety is entitled to pay the debt when it becomes due, or he may call upon the creditor by the aid of this court, to enforce his demand against the principal debtor. On paying the debt, he is entitled to the creditor’s place by substitution, and if the creditor by agreement with the principal debtor, without the surety’s consent, has disabled himself from suing, when he would otherwise have been entitled to sue under the original contract, or has deprived the surety, on his paying thé debt, from having immediate recourse to his principal, the contract is varied to his prejudice, and he is consequently discharged. This is the true principle to be extracted from the cases.” It is then upon the principle, that the contract of the surety is changed, or varied to his prejudice, and without his consent, that the surety is discharged. It is because the creditor has disabled himself from fulfilling the duties and obligations which he owes to the surety, that he is released from his responsibility. By giving time to the principal debtor, he disables himself from suing him so soon as the debt becomes due, when called on by the surety, through the intervention of the court of equity to do so. By extending the time of payment, he moreover deprives the surety of the benefit of substitution, according to the original terms of the contract'; because upon paying the debt, the surety would have been clothed or invested with the creditor’s rights against the principal debtor; and but for the change of contract, would have been entitled to have immediate recourse to him for reimbursement and indemnity. In the agreement entered into between Salmon, Clagett, and his trustees in this case, we find the following stipulation. “ It is expressly understood, that nothing contained in this agreement shall in any manner affect the mortgage heretofore given by Thomas Clagett and his family, to indemnify said Salmon against certain risks or losses, except — 353 — ing so far as to delay foreclosing the said mortgage from two years from the date hereof.” The said agreement also contained the following stipulation. “After this agreement has been executed by the respective parties to it, it is understood, that all responsibilities to and from Thomas Clagett shall be annulled, so far as the persons we severally represent be concerned. Also to exonerate the family of Thomas Clagett from the payment of such notes as may, be signed or endorsed by them, and held by said Salmon, not interfering with, or invalidating their liability in the mortgage held by said Salmon.” Here then, we find an express reservation by Salmon of all his rights under the. deed of mortgage, and an express contract, that the liability of the sureties of Thomas Clagett should not be in any degree lessened or impaired by the terms of said agreement. What is the legal effect and operation of such a reservation upon the relative rights of Salmon, and the sureties of Clagett, and how far they are absolved from all responsibility to Salmon, in virtue of said agreement, remains now to be considered? In Boultbee vs. Stubbs, 18 Ves. 26, the Ld. Chancellor, after stating the general principle, that if time is given to the principal the surety is discharged, holds the following language. “The objection to the reserve of remedy against the surety consists, in the interest the principal has, that the surety shall not be applied to. It is said, that the principal cannot by contract deprive himself of the benefit derived from that forbearance; and there certainly have been decisions, that if time is given to the principal reserving the right to go against the surety, the principal cannot raise the objection upon his right to time, as against the surety, as there is the contract of the principal arising out of the contract for reserve against the surety, that the latter, if the creditor goes against him, shall not be deprived of the benefit of the contract as against the principal. That was Burke’s case. If the contract for reserve against the surety prevents his remedy ‘ — 354 — against the principal, that contract for reserve will not do. But the question is, whether it does in law deprive the surety of that benefit. It may in many cases be a very rational provision that the principal shall have time, provided he can have it without prejudice to the benefit of the remedy against the surety; which, though worth nothing at present, may in a year’s time be very valuable, and the creditor may very reasonably mean to secure the benefit of that contingency.” So also, it is said in Chitty on Bills, 203, that a composition with the acceptor, or other party to a bill, reserving the remedy for the remainder against the other parties, has been recognized in courts of law and equity, as not discharging such other parties. And in 1 Saund. Pl. and Ev. 378, the same principle is stated, where he says a composition with the acceptor, or other party to a bill, reserving the remedy for the remainder against the other parties, will not discharge such other parties. There are two grounds upon which a creditor is held to discharge the surety by giving time to the principal. “According to one, the creditor by agreeing to give time, is regarded as having disentitled himself to proceed against the debtor, until the time agreed to be given is expired. But an agreement which has such an effect, is inconsistent with the obligation of the creditor to sue the principal debtor at any moment when called upon to do so by the surety; as the creditor’s voluntary disablement of himself for the performance of this, or of any obligation which he is under towards the surety, discharges the surety. According to the other, he is regarded as having in point of good faith towards the debtor, obliged himself not to proceed against the surety; because, supposing him to proceed against the surety, and the surety to pay, the surety would be entitled instantly to proceed against the debtor; and so, through the medium of the surety, he would deprive the debtor of the time which he agreed to give him; and therefore, to preserve good faith, he shall not proceed against the surety.” 1 Law Library, 107. So also, “the — 355 — surety who has paid the debt of his principal, is entitled to stand in the place of the creditor, as to all securities for the debt held or acquired by the creditor, and to have the same benefit from them as the creditor.” lb. 150. But if the creditor reserves his remedy against the sureties, in the contract he makes with the principal debtor, the debtor thereby tacitly consents to forego, or waive the benefit of such contract, in ease the creditor should afterwards find it necessary to resort to the sureties for the full and complete extinguishment of his debt. The contract therefore between the creditor and principal debtor, is not absolute, but conditional and contingent. In the case before this court, Salmon had taken an assignment of property, for the satisfaction of his claim against Clagett. He did not know at the time, to what extent it might be available for that purpose; and therefore his object evidently was, not to lose the benefit of the surety he had obtained for its payment, by the arrangement he made with Clagett and his trustees. After stating that Clagett should be discharged, and his family released from certain notes signed and endorsed by them, upon the execution or fulfilment of the agreement entered into between the parties, such release, not to interfere with, or invalidate their liability in the mortgage held by Salmon, the parties to the contract insert the following stipulations. “It is expressly understood, that nothing contained in this agreement shall in any manner affect the mortgage heretofore given by Thomas Clagett and his family, to indemnify said Salmon against certain risks or losses, excepting so far as to delay foreclosing said mortgage for two years from the date hereof. ” Here then, we find an express contract on the part of Thomas Clagett, that notwithstanding this agreement for his discharge, the remedy of Salmon upon the mortgage, should not in the slightest manner be affected by it, but that his rights should remain the same as they were before such agreement, with the exception only of the delay of foreclosure, as therein stated. This reservation of his rights to — 356 — proceed against the sureties, contained in the same instrument stipulating for the discharge of the principal, amounted to an agreement on the part of the principal, to waive the benefit of that discharge, and to hold himself responsible to his sureties, in case Salmon should find it necessary to resort to them for payment or indemnity. As therefore in such an event, their rights and remedies against Clagett remained wholly unimpaired and unaffected, we do not perceive that they have any cause to complain, or that there is any ground, either in law, justice or reason, upon which they can claim to be discharged. By coercing payment from the sureties under this express agreement, no fraud "would be practiced upon the principal, or injustice done to him, in case they should resort to him for reimbursement or indemnity; because the assent of the principal to continue liable to them, was implied in the reservation of the rights of the creditor to proceed against the sureties. We do not think that there is any error in the chancellor’s decree, so far as the interest of Richard H. Clagett was concerned. As to him the injunction was dissolved, and the bill dismissed with costs. Farther than this, we do not think the chancellor was bound to go, so far as his interest was involved in the controversy. Nor do we think that the decree passed by the chancellor in this case, was improper or objectionable. It merely provided for the security of the mortgaged property, until it was made to answer the pux-poses for which it was pledged under the deed of mortgage, and was well adapted to the exigency and justice of the case. In Wyatt’s Practical Register in Chancery, p. 154, he says, “A decree is a final sentence or order of court, determining the rights of matters in question, according to •equity, and ordering the parties accordingly, pronounced on hearing and understanding the cause.” Thinking the decree in this case perfectly conformable ■to the substantial principles of equity, and well adapted to secure the purposes of justice, we think the same ought to be affirmed. DECREE AFFIRMED WITH COSTS.