Page images
PDF
EPUB

him in any case without his consent, and that therefore, if the continued existence of the right of indemnity justifies the creditor in changing the terms of his contract with the principal, no agreement to give time to the principal should discharge the surety. The fact will always remain that after a covenant with the principal debtor whether or not there is an express reservation of rights against the surety, not only the surety's right of subrogation if he chooses or is compelled to pay the debt is injuriously affected, but also the chance which he is called upon to face is different after the covenant has been made than it was before. After such a covenant the creditor's rights against the principal debtor are different from what they were previously, and that such a change is unjust to the surety is the only reasonable basis for ever holding him discharged by the giving of time.

Though it is not possible to reconcile the general rule forbidding the giving of time with the special rule permitting it without the surety's consent if the creditor's right against the surety is expressly reserved, at least it is possible to show how the inconsistency arose. The general rule forbidding the giving of time is a modern one in equity:39 Its recognition at law is still more modern.40 About a century before such a doctrine was heard of even in equity, it had been laid down that a covenant not to sue one joint debtor did not discharge the others. Before the adoption by courts of law of the rule protecting sureties from agreements between creditor and principal debtor for forbearance a case had presented the question of the effect of a release of one joint debtor with a reservation of rights against another. The court purported merely to construe a release in terms contradictory and held it to amount in effect to a covenant not to sue one joint debtor, and, therefore, under well-recognized law to have no effect on the liability of his co-debtor. The doctrine of this case persisted and was even applied to cases where the joint debtor against whom rights were reserved was a surety, while side by side with this doctrine there flourished the newly arisen doctrine discharging sureties if time was given to the principal debtor. Lord Eldon was thought to recognize the right of the creditor in equity to reserve his rights against the surety.43 Baron Parke added the weight of his authority,44 and the matter must now be considered settled,45 however unsatisfactory may be the attempts to reconcile two conflicting doctrines.

39 “The doctrine that an agreement to give time to the principal discharges the surety in equity seems to be a comparatively modern notion. The editor has not discovered any earlier instances of the application of the doctrine than Lord Thurlow's decision in 1789, in the case of Nisbet v. Smith, 2 Bro. C. C. 579, which was followed by Rees v. Berrington (1795), 2 Ves. Jr. 540; Boultbee v. Stubbs (1810), 18 Ves. 20; Bowmaker v. Moore (1816), 3 Price, 214; Eyre v. Bartrop (1818), 3 Mad. 221. In all of the cases just cited the surety was a specialty obligor.” Ames, Cases on Suretyship, 156, n.

40 In Dean v. Newhall, 8 T. R. 168 (1799), and Hutton v. Eyre, 6 Taunt. 289 (1815), covenants to discharge a joint debtor known to be the principal debtor were held not to bar the creditor from proceeding against the other joint debtors, though they were sureties, and the covenants contained no reservation of rights against the latter.

41 Lacy v. Kinnaston, Holt 178 (1701); s. C. 1 Ld. Raym. 688; S. C. 12 Mod. 548; S. C. 2 Salk. 575; s. C. 3 Salk. 298; Fitzgerald v. Trant, 11 Mod. 254 (1710).

42 Solly v. Forbes, 2 B. & B. 38 (1820).

As a creditor may release one joint debtor and expressly reserve rights against the other, so in the case of joint and several obligations, a creditor may release the several liability of one or more of the debtors with a reservation of the joint right. And the joint liability may be released with a reservation of the several right.47

Importance of the creditor's knowledge of a suretyship relation between joint debtors.

Another principle also besides the form of the covenant or release qualifies the right to be discharged of a joint debtor who in fact is a surety. A creditor who has received the joint obligation of several persons, unless he has actual knowledge of their relation to one another, cannot be justly required to regard the obligation as anything less or different from what it appears to be. On the face of a joint obligation the apparent liability of each obligor is for an aliquot part of the whole debt as a principal debtor, and as a surety of the remaining co-obligors for the rest of the debt. As there can be no question of the discharge of one joint debtor by a covenant not to sue another except in so far as the former is a surety, it follows that a creditor of several joint obligors who is ignorant of any special relation of principal and

43 Ex parte Gifford, 6 Ves. 805 (1802); Boultbee v. Stubbs, 18 Ves. 20 (1810). * Kearsley v. Cole, 16 M. & W. 128 (1846). 45 See cases cited supra, p. 212, n. 38. 46 Thompson v. Lack, 3 C. B. 540, 549 (1846). 47 North v. Wakefield, 13 Q. B. 536 (1849); Stevens o. Stevens, 5 Exch. 306 (1850).

surety between them may reasonably assume that their liability to each other is to pay the debt in equal shares; and an agreement by him to give time, or never to sue, made with one of the joint debtors could not have the effect of discharging the others to a greater extent than from all liability for the payment of the proportionate share of the one debtor with whom the agreement was made. But in fact the law seems to be that a covenant not to sue one of several joint principal debtors does not effect a discharge of the others even to this extent. Though it is sufficiently obvious upon principle that joint debtors who are under equal obligations as between one another to pay the debt are principals for a ratable share, and sureties as to the remainder, and though such joint debtors are recognized to be sureties for one another as to a ratable proportion of the debt in any litigation between them for contribution,48 the rule forbidding the creditor to give time to a principal debtor is held inapplicable in such cases. Thus it is said

“where two or more execute a note for a joint liability they are in some respects sureties for each other, but the principle upon which a surety in the proper sense of the term is exonerated from liability by a contract with the principal, giving date of payment without the assent of the surety, has never been applied in such a case.

" 49

The same point is involved also in decisions which lay down broadly that a covenant not to sue a joint debtor who in fact is in part a principal does not discharge the others, though their liability beyond their ratable shares is that of sureties, even though there is no express reservation of the creditor's rights against them.50

48 See Clark v. Dane, 128 Ala. 122, 28 So. 960 (1900).

49 Neel v. Harding, 2 Met. (Ky.) 247, 250 (1859), quoted and followed in Mullendore v. Wertz, 75 Ind. 431 (1881). To the same effect is Parsons o. Harrold, 46 W. Va. 122, 124, 32 S. E. 1002 (1899). See also Draper v. Weld, 13 Gray (Mass.) 580 (1859).

50 The other obligors were held still bound, though the question of suretyship was not discussed, in Roberts v. Strang, 38 Ala. 566 (1863); Kendrick v. O'Neil, 48 Ga. 631 (1873); Mason v. Jouett's Admr., 2 Dana (Ky.) 107 (1834); McLellan v. Cumberland Bank, 24 Me. 566 (1845); Bradford o. Prescott, 85 Me. 482, 487 (1893); Shed 0. Pierce, 17 Mass. 622, 628 (1822); Durell v. Wendell, 8 N. H. 369 (1836). See also First Nat. Bank v. Cheney, 114 Ala. 536, 21 So. 1002 (1896). In Dean v. Newhall, 8 T. R. 168 (1799); Hutton v. Eyre, 6 Taunt. 289 (1815), and Ward 0. Johnson, 6 Munf. (Va.) 6 (1817), the joint creditor who received a covenant that he should not be sued was a principal debtor, and there also it was held that the other joint obligors were not discharged. The question of suretyship was referred to only in

The doctrine protecting sureties, however, is held applicable to cases where one joint debtor is merely a surety for the whole debt. Though in early cases the parol evidence rule was thought to prevent the proof of such a relation between the parties unless stated in the instrument creating the obligation, at first in equity and now generally at law, if the creditor at the time when he received the obligation knew that one of the joint debtors was as between himself and his co-obligors primarily liable for the whole debt, the creditor will lose his rights against all the joint obligors if he makes any agreement or commits any action with reference to the debtor primarily liable which would impair the rights or increase the risk of those who were sureties,51

A more difficult question arises where the creditor did not know when he received the joint obligation that the obligors bore the relation of principal and surety to each other, and, subsequently, but before covenanting with the principal debtor, received this information. In some decisions it has been held an infringement of the rights for which the creditor bargained to compel him to recognize the relation between the debtors; and under these decisions he still may treat each debtor as if he were liable as a principal for an aliquot part of the whole debt.52 But by the great weight of authority, even in the situation supposed, the creditor is required to recognize the equitable rights of the surety and therefore loses his own right against all the debtors if after learning of the relation of the obligors to each other he makes such an agreement or so acts with reference to a joint debtor who is, in fact, the principal obligor, as to impair the rights of a co-debtor who is a surety.53

the case last cited, in which it was suggested that in equity the surety might be entitled to discharge. Such would now be the surety's recognized right both at law and in equity.

61 Scott v. Scruggs, 60 Fed. 721 (1894); Branch Bank, etc. v. James, 9 Ala. 949 (1846); Lehnert v. Lewey, 142 Ala. 149, 37 So. 921 (1904); Vestal v. Knight, 54 Ark. 97, 15 S. W. 17 (1891); Drescher v. Fulham, 11 Colo. App. 62, 52 Pac. 685 (1898); Stewart v. Parker, 55 Ga. 656 (1876); Trustees of Schools v. Southard, 31 Ill. App. 359 (1889); Sample v. Cochran, 84 Ind. 594 (1882); Lambert v. Shitler, 62 Ia. 72, 17 N. W. 187 (1883); s. C. 71 Ia. 463, 32 N. W. 424 (1887); Roberson o. Blevins, 57 Kan. 50, 45 Pac. 63 (1896); Neel v. Harding, 2 Met. (Ky.) 247 (1859); Jones v. Fleming, 15 La. Ann. 522 (1860); Cummings v. Little, 45 Me. 183 (1858); Guild v. Butler, 122 Mass. 498 (1877); Barron v. Cady, 40 Mich. 259 (1879); Smith v. Clopton, 48 Miss. 66 (1873); O'Howell v. Kirk, 41 Mo. App. 523 (1890); Lee v. Brugmann, 37 Neb. 232, 55 N. W. 1053 (1893); Rochester Savings Bank v. Chick, 64 N. H. 410, 13 Atl. 872 (1887); Hubbard v. Gurney, 64 N. Y. 457 (1876); Welfare v. Thompson, 83 N. C. 276 (1880); McComb v. Kittridge, 14 Oh. 348 (1846); Diffenbacher's Estate, 31 Pa. Super. Ct. 35 (1906); Turrill v. Boynton, 23 Vt. 142 (1851); Glenn o. Morgan, 23 W. Va. 467 (1884); Moulton v. Posten, 52 Wis. 169, 8 N. W. 621 (1881). But the law of California is otherwise. The creditor may treat a joint obligor as a principal debtor though knowing him to be a surety. California, etc. Bank v. Ginty, 108 Cal. 148, 41 Pac. 38 (1895). And see Moriarty v. Bagnetto, 110 La. 598, 34 So. 701 (1903). In Yates v. Donaldson, 5 Md. 389 (1854), and in Anthony v. Fritts, 45 N. J. L. 1 (1883), the defense was held inadmissible at law, although it was suggested that equity would give relief. See Brandt, Suretyship, $ 38. See further Professor Crawford D. Hening, in 59 Univ. Pa. L. Rev. 532.

The principles of suretyship under consideration depend merely on the existence of the relation of principal debtor and surety between persons liable for the same debt. Whether they are liable jointly, jointly or severally, or merely severally, is not material. It is, therefore, pertinent to consider in this connection authorities relating to principal and surety bound severally; and it may be added, therefore, that in the situation supposed the English courts and the Supreme Court of the United States have held that knowledge acquired by the creditor at any time prior to the indulgence given to the principal, excuses the surety:54

It seems very possible, however, that the Uniform Negotiable Instruments Act, which now has been passed in most of the United

62 Drescher v. Fulham, 11 Colo. App. 62, 52 Pac. 685 (1898); Gano v. Heath, 36 Mich. 441 (1877); Heath v. Derry Bank, 44 N. H. 174 (1862); Diffenbacher's Estate, 31 Pa. Super. Ct. 35 (1906). See also Hoge v. Lansing, 35 N. Y. 136 (1866); Delaware County Trust Co. v. Haser, 199 Pa. St. 17, 48 Atl. 694 (1901); Farmers, etc. Bank v. Rathbone, 26 Vt. 19 (1853).

63 Scott v. Scruggs, 60 Fed. 721 (C. C. A.) (1894); Branch Bank v. James, 9 Ala. 949 (1846); Stewart v. Parker, 55 Ga. 656 (1876); Lauman v. Nichols, 15 la. 161 (1863); Neel v. Harding, 2 Met. (Ky.) 247 (1859); Fuller v. Quesnel, 63 Minn. 302, 65 N. W. 634 (1895); Smith v. Clopton, 48 Miss. 66 (1873); O'Howell v. Kirk, 41 Mo. App. 523 (1890); Parsons v. Harrold, 46 W. Va. 122, 32 S. E. 1002 (1899). See also Ewin 0. Lancaster, 6 B. & S. 571 (1865); Wheat v. Kendall, 6 N. H. 504 (1834); Westervelt o. Frech, 33 N. J. Eq. 451 (1881); Shelton v. Hurd, 7 R. I. 403 (1863); Zapalac v. Zapp, 22 Tex. Civ. App. 375, 54 S. W. 938 (1900).

64 Union Mutual Life Ins. Co. v. Hanford, 143 U. S. 187, 191, 12 Sup. Ct. 437 (1892). Mr. Justice Gray said: “The rule applies whenever the creditor gives time to the principal, knowing of the relation of principal and surety, although he did not know of that relation at the time of the original contract; Ewin v. Lancaster, 6 B. & S. 571; Oriental Financial Corporation v. Overend, L. R. 7 Ch. 142, and L. R. 7 H. L. 348; Wheat o. Kendall, 6 N. H. 504; Guild v. Butler, 127 Mass. 386; or even if that relation has been created since that time. Oakeley v. Pasheller, 4 Cl. & Fin. 207, 233; S. C. 10 Bligh n. S. 548, 590; Colgrove v. Tallman, 67 N. Y. 95; Smith v. Sheldon, 35 Mich. 42." Quoted with approval in Scott v. Scruggs, 60 Fed. 721, 725 (C. C. A.) (1894).

« PreviousContinue »