Firemen's Insurance v. Wilkinson

The opinion of the court was delivered by Beasley, C. J. The only question in litigation in this case is with respect to the legal position of Wilkinson, the respondent in the controversy. He has filed an answer setting up that by reason of certain circumstances, which are stated, he has been discharged from the obligation of the bond which he executed to the appellant, and by force of which a decree for deficiency is now sought against him. Those circumstances are as follows: That when he sold and conveyed the mortgaged premises, his grantee assumed the payment of the mortgage in question, and that, by such assumption, such grantee became the primary debtor, and that he, the respondent,- stood in equity as his surety, and that the appellant, having knowledge of the situation, made a subsequent arrangement with Stern, whereby the time for the payment of the mortgage debt was extended, and that such extension, upon well-known legal and equitable principles, set him free from the bond of his suretyship. If such an adjustment was consciously made by the appellant, there can be no doubt that it affords this respondent a defence to the claim now preferred against him. The surety has a vested interest in the contract between the primary debtor and the creditor, to the performance of which he has bound himself, and that contract cannot be altered without his consent, so as to affect his equitable or legal position j and if such modification be effected, the consequence is the exoneration of the surety from all liability. This principle is elementary and indisputable. To this position the answer of the appellant is twofold; first, that it, the appellant, when it made the arrangement with Stern, taking his bond for the payment of the mortgage debt, was not — 176 — aware of the stipulations of the respondent’s grantees and their privies, whereby they had assumed the payment of the moneys in question, and that thereby the respondent had been converted into a surety; and, second, that the arrangement so made with Stern, and the acceptance of his bond, had not the effect attributed to such acts, and did not alter the contract as originally made between the appellant and its mortgagor. The first point in this response does not seem to me material. The fact that respondent’s grantee assumed the payment of this mortgage, and the question whether the appellant knew of such fact when it dealt with Stern, are matters that have no legal efficacy whatever in this inquiry, the reason being that, entirely independent of such considerations, it conclusively appears, from the circumstances of the case, that the appellant was aware that the respondent stood in the attitude of a surety in this transaction. In point of fact, the respondent never had any connection with this affair except in that character. He never was primarily liable; he always was, from the outset, secondarily liable. Grant that his, the respondent’s, grantee did not assume the payment of the mortgage debt, still, the respondent stood only as surety for such debt. This was the original position of the respondent: Crosby was the owner of the property, and gave the mortgage in question to the appellant; he then conveyed to Crockett, who assumed payment of the mortgage, and executed a second mortgage, under which the premises were sold, the respondent becoming the purchaser. By such act of purchase the respondent assumed no personal responsibility with respect to the mortgage debt; he then.executed the bond to the appellant, on which a decree against him for deficiency is now demanded. The question then arises, Did this instrument impose on him the obligation of a principal debtor, or that of a surety ? That a status of the latter kind was created is clear from the statements of the bill of complaint. In that pleading this obligation is described as the respondent’s “ collateral bond to secure the same indebtedness secured by the mortgage ” given by Crosby. This bond of the respondent, then, was not to constitute the primary obligation, but was to stand as collateral to — 177 — such primary obligation. Such a secondary responsibility placed the respondent in the position of a surety to the mortgagor, and if he had been obliged, by a suit on this bond, to pay the deficiency that should have arisen on a sale of the mortgáged property, he would have had the right to be subrogated to the claim of the appellant against the mortgagor. Possessed of such a status, there has been no period of time since the creation of this bond when the appellant could have extended the time for the payment of the mortgage debt without, by such act, releasing the respondent from his liability with respect to such moneys. As, therefore, by the original connection of the respondent with this business he was constituted a surety, and there is no pretence that such position was subsequently changed, there is no necessity to look into the effect of the conveyance and the assumptions contained in it, in order to ascertain his legal or equitable relationship to the appellant, emanating from that source. That part of the argument relating to the effect of such conveyance and assumption will be discarded from the discussion as superfluous and nugatory. The simple question, therefore, that the court is at present called upon to settle is the one that touches the effect of the Stern bond. That instrument bears date on the 1st of March, 1875, and was given by Stern to the appellant in the penal sum of $2,000, the condition being for the payment of $1,000 and interest, in one year from date. In its condition it is expressly declared that it is given for. the “same-money mentioned in a bond dated September 2d, 1870, made by Ebenezer M. Crosby to the fire insurance company,” and it is further stated that “ this bond executed by Stern is collateral ” to the Crosby bond just mentioned. The acceptance of this bond is the only circumstance in the case which affects this point of inquiry. The vice-chancellor, in deciding the case in the court of chancery, came to the conclusion that thé taking of this bond by the appellant, ipso facto, incapacitated it from at once proceeding to foreclose its mortgage, and on that account, as it altered the contract between the creditor and the principal debtor, it operated as a discharge of the — 178 — respondent, who was a surety of that debt. It will be observed that this result proceeds from the adoption of the proposition that the mere giving of collateral security, payable in the future, for a debt already matured, by operation of law, and in the absence of any accessory agreement, has the effect of suspending the right to enforce the payment of such matured debt. That doctrine I do not think it possible to maintain, for it stands opposed not only by the great weight, but by all of the authorities. This case, when in the court below, was likened to that of Calvo v. Davies, 73 N. Y. 211, but I can see no similarity between the two, for in the New York case there was an express agreement to extend the time of the payment of the original debt, while in the present case, whether such agreement to postpone such time of payment exists, is the very subject, of inquiry. I have said that I have found all the decisions opposed to the theory on which the decision in the court of chancery was rested, and I also think that theory contrary to a fair interpretation of the act done by these parties. The transaction between them was this: The one party gave, and the other party received, a bond conditioned for the payment of these moneys in one year after date, with the understanding that such bond should be collateral to the original bond and mortgage. Now, in terms, it is declared that this obligation is not to be substitutionary, that is, it is not to take the place of the primary obligation, but is to be collateral to it. From what circumstance, then, is it to be deduced that such primary obligation is not to be enforced until the collateral obligation falls due ? It is, indeed, argued that we cannot suppose that the respondent, unless this effect were to ensue, would have taken upon himself this personal covenant; that he received nothing by it, if the appellant could at once proceed to foreclose the mortgage. But such a line of observation overlooks the fact that although the obligor in the collateral bond would obtain, from the nature of the transaction, no binding obligation against the immediate enforcement of the mortgage, he nevertheless put things .in such a position as to render it extremely unlikely that such a step would be taken, and it is upon such probabilities that human conduct is very commonly founded. — 179 — It was the usual course for this insurance company to take these collateral bonds from the purchasers of property on which it held a mortgage lien, and, under ordinary circumstances, it was a natural inference, the required security being given, that the encumbrance would be unenforced indefinitely; in such a situation, it was therefore not surprising that the respondent would give the bond in question without exacting in return an agreement, on the part of the compány, to postpone the right to enforce the mortgage, an agreement which such company would not have been likely to enter into, as its obvious effect would have been to discharge the respondent from his responsibility, and otherwise to confuse and impair the securities already in its hands. These observations are sufficient, I think, to repel the notion that the act of the respondent in giving the bond in question was an absurd act, unless it was accompanied with a stipulation that the prosecution of the mortgage should be stayed. But even on the assumption that the act of the respondent in this respect was unwise or even foolish, such act must stand, and must be carried by the court to' its legal -results. The sole question is, How have the parties agreed; and all we know upon that subject is, that it was the understanding that a collateral bond would be given. That is the entire agreement. If they saw fit they might have agreed that all proceedings in the original bond and mortgage should be suspended during the running of the new bond. But they did not make any special stipulation to this effect, and I have already said that such astipulation is not to be inferred from the giving of such an instrument. The decisions forbidding such an inference are numerous, and many of them are collected in the briefs of the counsel of the appellant. From these citations I will refer to one or two cases, with a view to show how strongly the doctrine in question is enforced, and how completely it is considered to be established. My first reference is to the case of United States v. Hodge, 6 How. ( U. S.) 279. It was an action on a postmaster’s bond, and the defence of the sureties was, that the postmaster, in consequence of his alleged defalcation, in order to secure the government, had given his own mortgage, payable in six months from date. — 180 — The question was, whether the mere taking of this instrument suspended the remedy on the bond of the postmaster, and the conclusion of the court was that it did not have that effect. Nothing can be clearer than the judicial statement that the simple giving of collateral security will not, per se, have the effect te suspend the right to proceed on the primary security. Thus, Justice McLean, in the opinion read in the case, says: “ Payment under the mortgage could not be enforced until after the lapse of six months from its date. And it appears that the mortgage was designed to cover the whole amount of Ker’s (the postmaster) defalcation. But the important question is, whether this mortgage suspended the legal remedy of the department on the official bond of the postmaster. There is no provision of the mortgage to this effect. And it cannot be successfully contended that talcing collateral security merely can suspend the remedy on the bond. * * * Now, if the post-office department had, by the mortgage, suspended the right of action on the bond for the time limited in the mortgage, it might have released the sureties. But no such condition is expressed and none such can be implied. The mortgage does not purport to be given in lieu of it in discharge of the bond. It is merely a collateral security.” To the same effect, and equally emphatic in its statement of the rule in question, is the decision in the case of Niemcewicz v. Ghan, 3 Paige 613, 11 Wend. 312. The facts were these: Mrs. Ghan, to secure a loan to her husband, had joined with him in giving, a mortgage on her own land to Mrs. Niemcewicz. Interest falling due, the mortgagee took the husband’s note for it, and in a foreclosure Mrs. Gahn set up this extension of time as a defence pro tanto. The court overruled this defence, on the ground that the taking of the note did not of itself raise an implication that it was the contract that the remedy on the mortgage was to be deferred. When the case was in the court of appeals, Chief-Justice Nelson, in the plainest terms, entirely repudiated the theory that the acceptance of collateral security raises up any such implication. He says: The note “was collateral to the bond; and if so, it cannot influence the remedy upon the latter (the original bond) without an express agreement to that effect, — 181 — which cannot be pretended in this case. The time when the new security becomes due does not vary the effect and operation of it upon the old, as abundantly appears from the above cases. All of them became due, or could not be enforced until some time after they were taken; but this circumstance implied no agreement to postpone the remedy upon the old security. Those cases all turned upon the point that no agreement had been made to forbear in consideration of the new security at the time it was received, and that the mere receipt of it did not imply one.” The following authorities, taken from the briefs of counsel, are equally ini point, so far as concerns the legal principle under consideration : Pring v. Clarkson, 1 B. & C. 14; Twopenny v. Young, 3 B. & C. 208; Wyke v. Rogers, 1 De G., McN. & G. 408 ; Cary v. White, 52 N. Y. 138. The cases cited in opposition by the counsel of the respondent have been examined, but none of them are deemed in point, as not a siiigle case is presented in which it was held that an accessory security, admitted to be collateral, operated, by the sheer, intrinsic force of the act of accepting it, to suspend the right of suit on the original obligation. The appellant is entitled to a decree as prayed for. Decree unanimously reversed.