Meyer v. Blakemore

Sime,all, C. J., delivered the opinion of the court. Upon the issue on the first special plea, that the mortgage was executed by Gallagher and accepted by the plaintiffs in satisfaction and discharge of the liability of Meyer & Kahn, the jury have found for the plaintiffs. . There was evidence tending to prove that it was cumulative, and not in satisfaction of previous liability, and that it was procured to have been given by Meyer & Kahn. There was also an. issue on the second special plea, that the composition with the assignee, though authorized by the Bankrupt Court, was not carried out and completed, and that issue was also found for the plaintiffs. The plaintiff in error has urgently pressed the argument that Maurice Meyer, the defendant, is discharged, because the plaintiffs did not realize all that they might from Gallagher’s mortgage. If Meyer & Kahn had paid what the plaintiffs had expended, by reason of their obligation, assumed for their accommodation, they would have had a right to be subro-gated to all the securities which Blakemore Brothers & Co. had obtained from Gallagher. Independent of the contract of Meyer [582] & Kahn to indemnify, the fact of the execution of the bond by the plaintiffs, as sureties for Gallagher, created the relation of principal and surety between the parties, and imposed on Gallagher the liability and dutjr to save Blakemore Brothers & Co. harmless. The transaction placed the parties in these responsibilities to each other. Meyer & Kahn had become bound to Blakemore Brothers & Co. to indemnify them. Gallagher was also liable to them, as a principal debtor on the bond; and to relieve his sureties as far as possible, and as a means also of indemnity to Meyer & Kahn, who had become guarantors for him, he executed the mortgage. The mortgage, so far as it could be made productive, would discharge the obligation of Gallagher to Blakemore Brothers & Co., incurred by their signing the bond as his sureties, and would also discharge Meyer & Kahn from their liability. It was incumbent on the mortgagees to administer the security for the best interest of all concerned. They assumed towards Meyer & Kahn the place of trustees in respect of the security. The mortgage was a collateral and cumulative security, which they had obtained from the common debtor of both; and they were subjected to the duties of fidelity and fair dealing, so that, if Meyer & Kahn paid the plaintiffs, they might be relegated to the benefits of the security. The mortgagees could not release or acquit the mortgage without serious injury to Meyer & Kahn. If they voluntarily surrendered or abandoned to another any part of the mortgaged property, pro tanto they diminished the Aralue of the security to the defendant. And it would be equitable and just to credit to that extent the party who would be subrogated to the security. Neff’s Appeal, 9 Watts & Serg. 36 ; Holt v. Bodey, 18 Penn. St. 207. Blakemore Brothers & Co. abandoned to O’Reilly, the as-signee of Gallagher the bankrupt, the proceeds of the goods embraced in the mortgage, and which might have been realized if they had pressed their claim. They were bound to use good faith in dealing with the security; and if by non-claim or negligence they have lost part of the fund, shown by the testimony to have been worth from $350 to $450, to that extent' they have lost recourse against the defendant. Wright v. [583] Watt, 52 Miss. 634. The right of the mortgagees to the goods or their proceeds is as clear as their right to the real estate. They suffered the assignee to retain those proceeds, when it was in their power to have forced an application of them to their debt. They permitted the wrongful conversion by the assignee to continue so long, when they alone could make demand or sue, that their right to reclaim the proceeds was barred by the bankrupt law; and all right to them is also cut off as against the defendant. The loss is chargeable solely to the plaintiffs, and the defendant should not suffer by it. But it is urged by the counsel for the plaintiff in error that the plaintiffs have lost remedy against the defendant, because they failed to make proof of their debt against the bankrupt Gallagher, and secure a right to share in the distribution of the estate. Is it true that Blakemore Brothers & Co., in order to preserve their rights against the defendant, were obliged to take any steps to collect from Gallagher or from, his assignee ? The plaintiffs might well stand on the original promise and undertaking of Meyer & Kahn, and look to that to make them whole. The latter have no just ground to complain, when they have voluntarily assumed the position of principal guarantors against loss and damage, that the plaintiffs have not also pursued the bankrupt’s estate. The principle has been frequently declared in this court that a creditor does not discharge the surety by failure to make probóte of the debt against the estate of the principal. Can the plaintiffs recover counsel fees paid in the litigation in New Orleans and in this State ? The indemnity had reference to a bond in a pending suit in New Orleans. It appears that the plaintiffs employed counsel to defend them when sued on the bond; and, through their negotiations, a judgment for over $5,000 was compromised at $3,000, and that this happy result was obtained by counsel. Gallagher got the insurance money, $4,500, at an outlay of $3,519, actually expended by the plaintiffs. It must be recollected that Walker & Son, the counsel, were already employed when the bond was given ; that it was known to Meyer & Kahn. The litigation, it may be presumed, was continued with their con [584] sent as well as Gallagher’s. It was for their benefit, as the result shows. And the legitimate expenses incident to the plaintiffs’ connection with that litigation may fairly be said to have been within the contemplation of the parties to the contract of indemnity. Baggett v. Beard, 43 Miss. 120. We have already observed that the plaintiffs stood towards Meyer & Kahn very much in the attitude of a trustee in respect of the mortgage; that is to say, the latter had an interest in that security which the plaintiffs were bound to' respect. The mortgage was a security given by Gallagher at the suggestion of Meyer & Kahn, and it operated to protect them for payments made by the plaintiffs. A trustee may charge upon the fund all necessary expenses for its maintenance, and for the execution of the trusts charged upon it. The mode of performing the trust was to convert the property into money to discharge the debt. To accomplish that, a suit, decree and sale became necessary; and, to obtain these, costs to officers and fees to solicitors had to be incurred and paid. When, therefore, Blakemore Brothers & Co. have applied the net proceeds of this collateral security to the credit of the defendant’s debt, they-have performed their duty as trustees of the fund for the defendant. We find no error in the second, third, fourth, sixth, seventh and eighth instructions for the plaintiffs. The fourth prayer of instruction for the defendant refused by the court was calculated to mislead the jury. In determining whether it was a proper inference that the defendant was discharged by taking the mortgage, the attention of the jury should have been directed to all the testimony bearing on the subject. It was proper for the witness Clark to refer to papers to aid his memory as to dates. Whether any thing was done under the order of the United States District Court authorizing the assignee to make the composition was a matter in issue, and evidence on that point was relevant. The explanations about the records of the United States District Court were not immaterial, nor irrelevant. There is included in the verdict an item for costs in the attachment suit against Gallagher in New Orleans. It is not made to appear that this was improper. The defendant is, however, entitled to credit for the goods [585] sold by the assignee. These points embrace all the assignments of error except the refusal to grant a new trial. The merits of that motion have been considered in the views here-inbefore expressed. Judgment reversed, but judgment here by a remittitur.