Case ID: ky_20/html/0491-01.html
Source: Caselaw Access Project
Author: {"author": "Chief Justice Bibb J. J. CRITTENDEN Chief Justice Bibb,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Norton & Williams vs. Roberts & Latham.
    Chancery.
    Error to the Loran Circuit; Henry P. Broadnax Judge.
    
      Principal and surety — and creditor. Bill quia timet. Equity jurisdiction.
    
    April 27.
    Statement of the facts.
    Morehead, and Latham and Roberts, his sureties, gave their note to Norton and Williams.
    Morehead pays part and gives his own notes, at farther time, for the balance, to be in full if paid.
   Chief Justice Bibb

delivered the Opinion of the Court.

Tub facts upon which the decree, in favor of Roberts and Latham, (the complainants in chancery) is based, are clear by confession and proof.

In 1818, Norton and Williams, partners in trade, sold to Armstead Morehead, a lot of ground in Russelville, and obtained in payment the note of Morehead, with John Roberts and John Latham his securities, jointly bound with him, for two thousand five hundred dollars, payable and negotiable at Russelville Branca Bank, at nine months from the 18th of August.

On the first of May, 1819, Norton and Williams caused tins note to be presented and protested at Bank for non payment. On the twenty seventh of July, 1819. Norton and Williams, without the knowledge or consent of the sureties, came to an agreement with Morehead, by which they gave him. the farther time of sixty days. In pursuance of the agreement, the sum remaining due of principal and interest, accrued and accruing for sixty days, after deducting the payment then made by More-Lead, was divided between Norton and Williams, according to their desire to seperate and close their partnership transactions. Morehead executed his own seperate notes, the one payable at sixty days to Jacob Norton, for $628 50, negotiable at Bank, and to Williams, a like note for §789 43 — amounting together, to the sum of jg 1,417 93, the balance a for deducting the payment made, by Morehead; or the joint note of himself and sureties,

Principal becomes insolvent—Norton and Williams recover at law on the original note, and the surety bring their bill.

Decree of the circuit court, for the sureties.

Where the creditor indulees the principal debtor without suspending for a moment his right of action, the surety remains bound.

Where the creditor gives time, or otherwise increases the hazard of the surety, he, the surety, is discharged.

Surety may have his hill quia timet, against principal and creditor, to compel surety to pas the creditor.

Norton and Williams endorsed upon the joint note, so under protest. a receipt for those two notes, expressing the respective amounts and time of payment, and that those notes, when paid, would be in full of that note. and that the balance had been paid by Morehead; which endorsement and receipt was subscribed by the partner who transacted the business. Before, these two notes fell due, Morehead, who at their date was embarrassed, (but able to have secured the amount,) entirely failed.

Norton and Williams, having retained the joint note, sued at law, and Roberts and Latham exhibited their bill for injunction and relief, claiming to be discharged by the act of Norton and Williams, in thus giving day to Morehead. without the privity or assent of the securities. The circuit judge decreed, a perpetual injunction in favor of the sureties.

The adjudged cases upon the subject of granting, or denying relief to sureties, because of indulgence to the principal, may be. divided info two classes. 1st, Where the indulgence is merely voluntary—where the creditor forbears to sue or to act; not committing himself by any agreement with the principal, not to sue or to act; not giving to the principal any right to claim a farther credit or indulgence, and in no way impairing the right of the surety to act upon the principal, nor in any manner increasing the risque of the surety, by varying use terms of the original contract.—In this class, the surety has no cause of discharge by indulgence or lapse of time.

2ndly, Whore the creditor, by virtue of some agreement, or act done, (not by mere passive induldence or forbearance to act or sue.) gives time to the principal, or increases the risk of the surety, without his assent to be bound by this agreement of act. In this class, the surety will be discharged.

Generally speaking, the surety has his election, to pay the money and take the remedy against the principal, into, his own hands, or to come into a court of equity to compel the principal to pay, and the creditor to receiver and deliver him from his obliga tion. Croughton vs Duvall, 3 Call. 72; Nisbett vs Smith and others. 2 Brown’s Ch. ca. 58; 1 Equity cas. Bills quia timet, case 5, 79.

Credi or shall by no new arrangement with surety increase his risk.

If creditor give surety further time, he, the surety, could not have his bill quia timet, and is therefore discharged.

If the creditor does nut art, nor enter into any agreement with the principal to impair the right of the surety to demand a speedy and prompt satisfaction by the principal, the creditor may remain inactive, and drive the surety to seek his safety, in advancing the money and making himself the creditor, or in applying to a court of equity to compel the principal to pay, and the creditor to receive the money.

The surety is considered in equity, in nature of a guarantee of the solvency of the principal, engaging to make good the deficiency. The creditor must not vary the terms of the credit and contract by any agreement or arrangement with the principal, nor let slip any lien, without the concurrence of the surety, and his assent to continue bound, fie must not enlarge the time, nor increase the risk of the surety without his assent. The surety is bound by the terms of Ins contract, he has aright to insist upon them. The creditor can not, by agreement with the principal, alter the terms and risk of the guaranty, in which the surety is so materially interested. The creditor can not transact the affairs of the surety without consulting him, nor bind him in new agreement with the. principal, to which the surety is not a party in assent and concurrence. The surety has a right to judge whether he will give the proposed indulgence, or easement to the principal, and incur the risk beyond the time and terms of his original undertaking.

If the creditor, by agreement, (not by merely remaining passive) gives time to the principal, without the assent of the surety, he thereby discharges the surety. And the question is not, whether the surety has sustained actual damage, or not, by such new agreement. It is sufficient that his right to force the principal to an immediate payment or satisfaction, has been suspended by the act of the creditor. This has been settled by a great number of adjudged cases, ancient and modern. See Rees vs Berrington. 2 Vez. Jun. 512; Nisbit vs Smith and other, 2 Brown's Chan ca. 582-3. and the rasas referred to in note a. Skip vs Huey, Wilcox and Edawards. 3 Atk. 94; Boid vs Rice. 1 Call. 18; Bullitt’s executors vs Winston, 1 Munf 283; Craig vs Cox. 2 Bibb, 309; Jones vs Bullock, 3 Bibb, 467.

After the not we due, principal paid the creditors part and for balance gave his own notes at 60 days, and took a receipt on the original, stating that when they were paid, they would be in full of that: the surety is discharged.

In this case, the endorsement upon the joint note of forehead. Brown and Latham, of the 27th July, 1819, fop Morehead’s two notes at sixty days, for part, and a receipt for the residue, stipulating that those two notes, when paid, shall he in full of the joint note, bears infernal evidence of the agreement to give Morehead farther time. With that endorsement neither Norton and Williams, nor the sureties, Brown or Latham, if they had taken up that note, could have sued Morehead within the sixty days, without a direct violation of the meaning of that agreement, so endorsed. The depositions also establish the agreement for time; and there is no pretence that either of the sureties were consulted.

Decree affirmed, with costs.

PETITION FOR REHEARING BY

J. J. CRITTENDEN

The counsel of the plaintiffs in error, begs leave to recal the attention of the court for a moment, to the consideration of this case.

The doctrines which it involves, embracer, a delicate and important branch of equitable jurisdiction.

Latham and Roberts as sureties for Morehead, together with him, executed their joint promissory note to Norton and Williams, for $2,500, negotiable and payable at the Russellsville branch bank, nine momlis after date, and dated the 18th of August 18S 8. On the day of May, 1819, the note was protested for- non-payment. On the, day of the following July, according to agreement between the plaintiffs in error, and Morchead, the latter made them a partial payment on said note. and for the balance remaining due, he executed his two notes, one to Norton for S623 50, the other to Williams for $789 43; both dated 27th July. 1819, and payable, sixty days after date, at the branch bank aforesaid. Norton retained the original note, and made at the time, an indorsement upon it, acknowledging the receipt of the two smaller and that “when paid.” they were to be in full of the original note: and Norton was to wait and giro time upon tlm original note, until the other notes became due. Of this arrangement Latham and Roberts were ignorant.

Morehead failed to pay the notes for $628 50, and for $789 43, and Norton, as surviving partner &c. brought suit and recovered judgment at law? against all the obligors in the first mentioned note. And upon a bill for relief against that judgment, by the sureties, Latham and Roberts, the inferior court decreed a perpetual injunction, and this court has affirmend that decree, upon the ground that the sureties were discharged, by the arrangement made as aforesaid between Morehead, and Norton and Williams, without the privity or consent of the sureties

The law, and the reason of the. law, on this subject, are clearly laid down by chancellor Kent, in the case of King vs. Baldwin, 2 Johns. chy. rep. 559 and 560. He there says that, “mere delay in calling on the principal, will not discharge the. surety- provided that delay he unaccompanied with any settled or binding contract for that purpose.” He further states that, “on paying the debt, the surety is entitled to the creditors 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 the 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.”

The case of Fulton vs. Matthews and Wedge, 15 Johns, rep. 433, is to the same effect. It is there decided that the surety is not discharged by the creditors giving time to the principal debtor, without the privity or consent of the surety, unless the creditor has, by some contract or agreement with the principal debtor, precluded himself from suing him.

From these eases it is evident, neither mere delay. nor giving time to the principal debtor, will discharge the surety, unless that time be given in consequence of some “settled or binding contrast for the purpose;” a contract, which would preclude the creditor from suing for the. time given, and which would in like manner preclude the surety from suing upon his paving the debt of his principal. Such a contract must undoubtedly be founded upon same consideration. It must be a contract valid in law, and not a mere nudum pactum. A mere nudum pactum, or gratuitous promise to give time, creates neither right nor obligation, nor would it preclude the premisor, a single instant, from suing.

In Chitty on bills, (American edition.) page 379 and note (c) it is laid down, that “even an express agreement not to sue, (an acceptor,) but without: sufficient consideration, and without taking any new security, being nudum pactum, will not discharge the other parties.”

The new security here alluded to, must he either in lieu and satisfaction of the original security, or it must be some cumulative security, and which of course, would form a sufficient consideration for art agreement to give time, it is only in the one or other of these senses, that the taking a new security tan have any sensible or intelligible application to the subject of discussion. That the mere unconnected fact of a creditor’s obtaining additional security, can not discharge sureties previously bound to him, but that it is a benefit to them, is a proposition too plain for controversy. To cite authorities in support of it, would be mere parade.

If these doctrines be correct, it is respectfully Contended, that the application of them to the present case, ought to have produced a reversal, instead of an affirmance of the decree of the circuit court.

If Norton and Williams did promise Morehead to give time &c. it was a promise without consideration. If can not he argued that the two smaller notes given by Morehead, were any consideration. Morehead was already bound by his note with sureties for the whole amount, and it was due; and bow his engagement to pay at a future time, what he then owed, can form any valuable consideration to support an undertaking of Norton and Williams, is more than I can comprehend.

To discharge the surety, it is not necessary that the new notes given by the principal, should be accepted in satisfaction of the original, or that there should be any new consideration or security.

It is not necessary the new arrangement with the surety be such as to bar an action at law on the original note.

The receipt given by Norton, shews that it was not his intention, or the understanding of the parties, that the two smaller notes were given in lieu or satisfaction of the first, that ho retained; and his agreement to give time upon it, if without sufficient consideration, did not bind him; did not "disable” him from suing on the original note at any time; nor would it have precluded the sureties from suing, had they paid the debt; and it ought not therefore to discharge the sureties, or prevent Norton from enforcing against them, his judgment at law. All which is respectfully submitted to the court, and if deemed worthy of further consideration, a reargument of the case is solicited.

Opinion of the court by

Chief Justice Bibb,

overruling the petition.

July 6th.

The court have examined Use petition for a rehearing, and find nothing to change the decision rendered. The petition has taken detached sentences in the opinion delivered' in the cases of King vs. Baldwin, 2 John. ch. ca. 560, and Fulton vs. Matthews and Wedger, 15 John. 433, and from Chitty, and thence argues, that the agreement between the creditor and the principal, which is to discharge, by its effect and consequence, the surety, must he either accepted in satisfaction of the original contract by which the surety is bound, or that some cumulative security upon a new and sufficient consideration, must he taken from the principal, whereby the old contract is so far done away, that the creditor has precluded himself from suit upon it.

This is not the correct understanding of the cases of King vs. Baldwin, and of Fulton vs. Matthews and Wedger, nor of Mr Chitty. The cases cited show that the agreement with the principal without the assent of the surety, in order to discharge the surety, must not necessarily be such as could be pleaded at law, in bar of the remedy on the original contract, as amounting to accord and satisfaction, extinguishment or release. If such was the meaning of the rule, then the surety would have no need to come into a Court of equity; unless the discovery of the new agreement was not made until it was too late to use it at law, as a protection and bar to the proceedings there.

Case of a surety in a bond ,with condition to pay the instalment, discharged in equity by the creditor taking promissory notes for the instalments, allowing time.

The cases rited by chancellor Kent in his opinion delivered in King vs. Baldwin, lays down the rule have done; the cases cited by him, are in direct hostility to the position assumed in the petition In the case of Rees vs. Barrington, Rees the surety was bound in a joint and several bond with his, principals, Daniel and Richard Blackford, to Robert Pope Blackford, conditioned to pay several sums on the 31st Dec and on the 31st Dec. 1790. Upon the 27th September, 1790, the instalments unpaid, the creditor, took from Daniel and Richard Blackford the principals, by arrangement. (without the assent of the surety Rees to stand bound for this new agreement.) for the first instalment due on the bond, promissory Holes of said principals, payable on the 21st of April, July and October 179 , and 2ist of January and April, 792¿ and for the second instalment, due. on the, bond, took three other promissory notes from said Daniel and Richard, the principals, payable on the 21st of July, and October 1792, and 2¡st January 1793. Daniel and Richard, the principals, paid the first three of the set of promissory notes, and about tnc 20th Oct. 1792, by a new arrangement, ail the remaining notes were exchanged for others payable on the 25th of May. June, September and December 1793. D. and R. Blackford became bankrupt, and after their bankruptcy, Rees the surety was sued upon the bond. This arrangement with the principals, by which they got longer time, upon their simple promissory notes, executed for the sums due on the bond, was decreed in equity as a discharge of Rees the surety. And this is one of the cases quoted and relied oh by chancellor Kent, in King vs. Baldwin.

Arrangement by the holder of a bill of exchange with the person first bound, discharges all the other parties not concuring.

If the taking of promissory notes from the principal, for the money due by bond, and giving longer day in those notes for payment, than that expressed in the bond, did discharge the surety, although the bond was retained and afterwards put insuit against him, there is no reason for saying that, the promissory notes taken by Morton and Williams, upon an arrangement to give the principal farther day for payment, than that expressed in the promissory note by which the sureties Roberts and Latham were bound, shall not discharge the sureties in this case.

The like principle has been applied to the holder of a bill of exchange. He cannot give time to, or discharge the drawer or acceptor, and afterwards proceed against the indorser; the rule is so stated both as to bills, notes and bonds, by Chitty, 371 to 379 The holder has the sole dominion of the bill, and may make what arrangements he will, with any of the parties; but he does it at bis peril; for if lie thereby alter the situation of any other party to the bill, to the prejudice of that person, he cart not afterwards proceed against him. He can not give time to or discharge a previous party in the order of responsibility amongst the parties, and after proceed against a subsequent party who, in respect of his indemnity, stands as surety, having a right to look to. as a principal, the previous party so favoured. He says “ this is a rule of law, not confined to bills of exchange, for if the obligee of a bond with surety, without communication with the surety, takes notes from the principal and gives farther time, the surety is discharged.” For this rule as to bills, notes and bonds, he cites numerous decisions in England and in the United States.

The petition is overruled.