Case ID: ohio_9/html/0103-01.html
Source: Caselaw Access Project
Author: {"author": "Lane, 0. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

William Carpenter v. Allen Kelly.
    A surety receiving securities as an indemnity,, is protected from loss if he manage them with prudence, good faith, and integrity.
    
      Such surety receives indemnity in trust for himself and co-security, and no change of the indemnity made in good faith, will discharge his co-security from contribution without he show consequent loss.
    Notice of the payment of the debt by a surety, is necessary to constitute a right of action against a co-security, for contribution.
    Error to the Common Pleas of Delaware. The suit below was by Kelly against Carpenter and his co-security for Thorpe, for a contribution. The plaintiff proved the giving of a note by W. and A. Thorpe, and the defendant and himself as sureties, for fifteen hundred dollars, which the plaintiff had paid, and that the Thorpes were compounding their debts by paying and securing fifty cents on the dollar. In defence it was shown, that soon after the debt was contracted, the Thorpes placed in the hands of Kelly, as security for his liability, certain notes against Leonard and others; that on Kelly’s enquiring of the maker, as to their intention and means of payment, he was assured that payment would soon or ultimately be made ; and payment of the security, notes was, in fact, made soon after. But before the notes were paid, Kelly, at the request of the Thorpes, returned them, receiving as security in lieu of them a bond of indemnity against their responsibility for the debt. At the time of this change, Carpenter lived near, but it was not shown that he was consulted; nor was there any evidence of a demand upon Carpenter by Kelly after payment. The court below thereupon charged the jury, that if Kelly abandoned his right to a contribution against Carpenter, he could not recover, but that the change of security would not of itself discharge him, if Kelly acted in good faith and with common prudence, unless he intended to abandon'his claim : that the omission to consult Carpenter would not affect Kelly’s right to recover, if it arose from a belief in Carpenter’s insolvency : and that no demand was necessary, before suit. The plaintiff had judgment, and these facts appearing in a bill *of exceptions, it is assigned for error that the court erred in charging jury in the above particulars.
    T. W. Powell, for plaintiff in error.
    The principle is, that a co-security, or principal, who has in his hands the means of satisfaction, and suffers it to pass out without the consent of the others interested, can not call for a contribution. Theo. on Prin. & S. 95, 98. He is held as trustee for all the parties interested. The Com’th v. Miller’s ad. 8 Serg. & R. 457; Barber v. Briggs, 8 Pick. 129; Haynes v. Ward, 4 J. Ch. 129; 4 Vesey 829; 2 Cox 86; Lichtenthaler v. Thompson, 13 Serg. & R. 157. A previous demand was necessary. 1 Ch. Pl. 360, 2, 3; 2 Saund. 32 ; 1 Leigh’s N. P. 120 ; 1 Taunt. 571; Cook v. Feval, 13 Wend. 287 ; 5 T. R. 409 ; 2 Stark Ev. 774; 2 Sand. Pl. & Ev. 193 ; 2 Pick. 125; 4 Dane Ab. 406 ; Williams v. Williams, 5 Ohio, 446 ; 20 Johns. 586 ; Wood v. Pugh, 7 Ohio, 162; 2 Barn. & Cres. 682.
    0. Swan & Watson, contra,
    contended that Kelly held no trust. They commented upon the authorities cited by Powel, and sought to •distinguish this case from those. Holding no trust for Carpenter’s separate account, Kelly is not answerable to him, for any loss in the change of securities, ¡nadé in good faith. He is only answerable for what has been actually received. 17 Mass. 464; 6 Mason 188 ; 6 Cranch 268 ; 1 Wash. C. C. 278, 455 ; 3 Caine, 174; 6 Cow. 185. As to the notice, the 5 Ohio, 455, conclusively shows the notice unnecessary, except in case of numerous small payments. Cage v Foster, 5 Yerg. 261.
   By the Court,

Lane, 0. J.

The first question in this caséis, whether a surety, who has received securities from his principal, and who in good faith has exchanged them for others, without the consent of his co-surety, thereby discharges him from contribution ? A surety is not bound by law to seek indemnity; yet if the means of indemnity are placed-in his hands, and he undertakes to. retain them, he becomes a trustee for his co-sureties, because they enure to their common benefit, ■and he is bound by the obligations which attach to a trustee to use honesty, good faith, and due discretion, in their management. He may not abandon them without cause, nor negligently omit the steps necessary to render them available. But if they require the exercise of judgment in their management, he is to be protected like .a trustee, ■who acts with integrity and ordinary prudence.

* Kelly, in the present case, is represented as taking notes, which upon enquiry he was led to believe would be ultimately, but not punctually paid. The manner of collecting debts, under such circum-stances, must be a subject of discretionary power, and involve expenses and risks which he might not willingly undertake. If under these circumstances, he chose to restore them to the principal, on receiving other security which was satisfactory to him, and which no evidence •showed was inferior to the indemnity released, this exchange ought not to preclude him from his remedy. It would have been prudent in -him to have obtained the assent of his co-surety, but he was not bound to seek him, and his acting without it is no release of his co-surety, unless shown to have been to his prejudice.

There is nothing in the charge of the court, not in accordance with these principles. The defendant below assumed to make a defence; he undertook to show, either that Kelly had directly or indirectly discharged him, or that he had negligently or improvidently mismanaged 'the trust. These points are properly placed before the jury in the charge.

The bill of exceptions shows that the court also instructed the jury, that no demand was necessary to give the right of action. I suppose by this it was intended to say, that no notice was necessary. We think, in this, the court committed an error. Carpenter was not originally, and by his own act, a debtor of Kelly, but became so by Kelly’s payment of the debt. No liability so constituted arises, until notice of this payment. It is therefore a material fact to establish a right of action. This point was adjudged in Williams v. Williams, 5 Ohio, 446.

Judgment reversed.