Case ID: sc-eq_6/html/0443-01.html
Source: Caselaw Access Project
Author: {"author": "Johnson, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Mrs Charlotte W. Smith, Executrix of W.L. Smith v. Adam Tunno, and the Survivor of Simpson and Davidson.
    1826.
    
      Charleston.
    
    
      Campbell was the purchaser at the Master’s sale of certain lands and mills at Edisto, and the bonds set forth in the bill were signed by him and the complainant, and given to Gibbes, the Master, for the purchase. Campbell was the principal in the bonds, and on the face of them Smith was a principal also, but it appeared that Campbell was the purchaser, that personal security was one of the conditions of the sale — that the titles of the property were made to him only, and that he had the exclusive benefit of it. * Smith never pretended to any interest in the-purchase, but the bill stated that he signed merely as a surety. Standing in that relation he sought to be released from his contract, stating that he was applied to by Campbell to become his surety to the Master in these bonds, who represented that his signing them as surety was merely matter of form; as the whole of the property purchased, which was very valuable, was, pursuant to the conditions of the sale, to be mortgaged to the Master in Equity, to secure the payment of the bonds. Smith stated further, that he declined joining in the bonds until fully satisfied that the terms and conditions of the sale were, that the whole of the property so purchased was to be mortgaged to secure the payment of the bonds, and that titles could not, pursuant to such conditions, be given until the mortgage was executed. The bill was filed against Adam Tunno and Crawford Davidson, survivor of Simpson and Davidson, who held the bonds by assignment. Smith and Campbell were both dead. Smith's statement, in -a material part, was supported by the fact, that the property purcha-ge(j wag tQ ¡-Je mortgage(j, The Master, in the conditions of the sale of the 12th of April 1792, stated, “ good personal security, or other adequate securities, with mortgages 0f the property purchased, will be required.”
    
      Sureties, charged by ““*¿¡°orthe in giving principal.6
    
      15 Noy. 1824.
    Gaillard, Chancellor.
    
      Smith, who never pretended to any interest in the purchase, must be considered merely as a surety. Standing in this relation he seeks to be released from his contract. The mortgage of the property was not given by Campbell; probably it was not required; certainly it was not insisted on; for, according to the conditions, unless the terms were complied with in one month from the day of sale, the lands were to be resold, and the former purchaser made liable for any deficiency in the second sale. Smith, being the surety in the bond, was interested that the mortgage should be taken, and so far as he was concerned Gibbes could not dispense with this security, for on his part the conditions of the sale must be considered in the nature of a stipulation. A co-obligor in a bond, who becomes so confiding in the express assurance of the other obligor, the real debtor, confirmed by the conditions of the sale imposed by the obligee, must be considered as a surety when called upon to perform his obligation; and if the obligor, who is the real debtor, and the obligee afterwards dispense with a mortgage, which was to have been taken by the terms of sale, without the surety’s knowledge, he may say, non heec in fcederá veni, this is not the contract I entered into.
    Another objection is to be taken to these bonds. It is, that James Smith, who held them as assignee in 1794, then made a new contract with Campbell, without the privity of Smith the surety, consolidating the principal and interest, and extending the time of payment beyond the period at which they were payable by the original contract. Two of the bonds — there were five in all-— came afterwards into the hands of Blacklock, who is dead; but in a statement of them rendered by him it appears, that the principal and interest were consolidated on the 2d of August 1794, and he adds, “as by written agreement between D. Campbell and James Smith from whom I received it.” The answer admits that “an agreement was entered into between Messrs Campbell and James Smith, in substance such as is set forth in the bill; but whether it was executed with or without the knowledge of the complainant it says the defendant is altogether ignorant.” This admission lets in the application of the principle upon which sureties are relieved. It is by no means necessary that it should be made to appear, as was contended, that the time was extended contrary to the consent of the surety, for the new contracting parties to be bound by it. The agreement between Campbell and James Smith incapacitated Smith from sueing Campbell on the bonds till the expiration of the time mentioned in it, which was considerably beyond that when payment was required by the original contract. There is no evidence that Smith, the surety, acceded to this agreement ; and without his consent it was not competent to the obligee or his assignee to5 extend his liability, and alter the definite character of his engagement.
    
      Smith is released from the bonds. And it is ordered and decreed that the defendants be perpetually enjoined from proceeding to recover them, and that the parties do each pay their own costs.
    The defendants now appealed. The brief made these. points, viz.
    
      First. That parol testimony ought not to have been received to prove an obligor of a bond in the hands of an innocent purchaser without notice to be a mere surety.
    
      Second. That if such proof was admissible, that which was adduced in this case was insufficient to establish that Smith was merely a surety on these bonds.
    
      
      Third. That if the proof was sufficient the mere forbearance to sue could not entitle him to his discharge.
    
      Fourth. That there was no proof that the mortgage had been dispensed with after Smith had signed the bond, as the decree asserted; nor was the mortgage to have been taken at all events, but only if required by the master, who in this case was not proved to have required it.
    
      Fifth. And that extension of time, to discharge a surety in a bond, must be in writing, and made against the surety’s consent.
    
      Dawson, for the appellants.
    The first ground on which the bill rests for relief is, that Smith was a surety, and that a mortgage was not taken according to the terms of sale. The doctrine of subrogation does not arise from contract, but is derived from the civil law. 1 Poth. 258, 259. 4 Johns. Cha. Rep. 130, and is purely of equity cognizance, and arises out of the doctrine of contribution by co-sureties. 4 Ves. 824. 2 Bos. & Pul. 270. The question then arises, whether, in this case, the complainant is under all the circumstances entitled to this equitable . relief1? Smith was absent from the country from 1797 to 1804 : during the whole of this time Campbell was his sole and absolute agent. Defendant was ignorant that Smith stood in the relation of surety: the circumstances of Campbell were unknown to him : and Smith acquiesced up to 1812. Defendant was a purchaser, without notice of the facts, that a mortgage was required by the terms of the sale, or that Smith was only surety. If equities are equal, law prevails. The doctrine of tacking mortgages is a part of the same jurisdiction. 2 Fonbl. 300. 306. When the loss is the consequence of an act done by the surety, Poth. 360. 821, or when it arises from any other cause than an act done by any other than the creditor, the Court will not relieve. The omission to take the mortgage was the act of Gibbes; and, in some measure, the neglect of Smith, who might have insisted on it. 1 Johns'. Cha. Rep. 414. 430. 4 Johns. Cha. Rep. 128. 1 Poth. 360. 821. ’
    The second and third grounds are, that time was given for payment. Rees v. Berrington, 2 Ves. Jun. 540. , It is admitted that the rule in equity is, that if the contract be altered without the privity of the surety, he will be discharged. In that case notes were given, in pursuance of the contract. In this there is no such evidence : at most, it was an agreement merely verbal and not obligatory ; and the Court will not be disposed to extend the doctrine. 2 Desaus. Rep. 230.
    But again, the surety has a right .to call on the creditor to proceed in the collection of his debt. 2 Johns. Rep. 562. Smith did not do so. He was then in fault. 3 Meriv. Rep. 579. If such a demand had been made, there was nothing in the parol contract which would have precluded Turnio from proceeding against him, 1 Phil. 444. 498, as no parol contract can be admitted to vary a written contract. 17 Ves. 364. Admitting the agreement proved, it could not have been available; for the consideration, if any, was usurious and void. 1 Johns. Cha. Rep. 16. Mere neglect to sue will not discharge the security; there must be something more. 1 Bos. & Pul. 419.
    
      Toomer, contra.
    Proof of the fact that Smith was only surety consists, 1st. In the terms of sale, which were that the purchaser was to give personal security, 2d. In Campbell’s own written acknowledgment, and the report of the master that he was the purchaser. 3d. In the sale of the lands to satisfy judgments against Campbell. 4th. In James Smith’s treating with Smith alone for further time to pay the bond. The mode of distinguishing between a principal and surety is to inquire whether he who claims to be the surety did or did not derive benefit from the enterprize. 4 Ves. 833. 14 Ves. 168.170. If he did not, he can only be regarded as surety. 2 Desaus. Rep. 546. When payments are made by one 0f several obligors, and all the arrangements are made with.him, it is an evidence that he is principal. 7 Johns. 337. 2 Caines’ C. C. 29.
    Testing this case by all or any of these rules, William Loughton Smith must be regarded as standing in the relation of surety. But the report of Gibbes the Master, who was the obligee, puts the matter beyond doubt. He states the fact expressly in his report. The facts were all known to Gibbes, the obligee; his report and evidence both go to establish the fact; and Tunno, the assignee, cannot stand in a better situation. The assignee of a chose in action, not negotiable under the law merchant, takes it subject to all the equities to which it would have been subject in the hands of the assignor. 2 Johns. Rep. 595. 602. 2 Johns. Ca. 438.
    By the terms of the sale the purchaser was to give a mortgage, which Gibbes neglected to take. The surety had a right to look to it as an indemnity. And if the creditor relinquish a security, he must lose the amount. It is a settled principle, that a surety is entitled to stand in the same situation as the creditor, and to be subrogated in his stead. 1 Johns. Cha. Rep. 409. 2 Johns. Cha. Rep. 554. 560. 4 Johns. Cha. Rep. 123. The title to the lands, in the hands of Gibbes, was a security, with which he had no right to part, unless a mortgage had been given as a substitute, according to the terms of the sale. James Smith, who held the bonds, did enter into an agreement with Campbell for further time to pay them : and that for a consideration of £100 then paid ; and that interest should also be paid on the interest which had previously accrued. It was objected that this contract was not in writing, and therefore not obligatory. Admit for the present, that the contract was not in writing : here was a new contract founded upon an adequate consideration, and was to all intents and purposes obligatory, on which an action might have been sustained. 1 Chit. Plead. 95. The agreement would have been a bar to any action brought on the bonds before the time limited by the agreement had expired. To this contract Smith was no party; and could not Ije bound by it. “ That changing the contract will discharge the surety” will not be denied. It is a rule which runs through all the authorities. But the bill sets out a written agreement. The answer admits it; and further, that he did give the indulgence pursuant to that agreement. Whether the agreement was or was not in writing was immaterial, if the act done was calculated, in any manner, to jeopardize the rights of the surety. 3 Desaus. Rep. 609. It is admitted that mere forbearance would not discharge the surety; but it will not be seriously denied that a new contract will. So that the whole case is resolved into the question, whether there was a new contract or not ?
    
      Grimke, same side,
    stopped by the Court.
    
      Petigru, in reply.
    1. Was complainant a surety? It does not appear from the pleadings that he was. Defendant’s answer denies it. It is only to be inferred from the fact, that the lands were bid off by Campbell, and the titles were made to him. By'the terms of the bond he is put on the footing of a principal; and a presumption so slight as must arise from that circumstance ought not to be admitted to control it. It does not follow that because Campbell only was seen in the transaction, that Smith was not greatly interested in the purchase. The act of the legislature, which makes bonds assignable, reserves to the obligor the right to defend himself against the holder of the bond on the same g,-ounc|s that he might have done in the hands of the original obligee : but there is no provision in the act ^at he shall have the same defence as to any thing that transpired in the hands of an intermediate holder.
    It would be inexpedient to extend the rule beyond the letter of the act. For in proportion to the number of hands through which it had passed would be the danger, that something had been done which discharged the obligation. Thus reversing the effect of negotiable paper, where every endorsement is an additional security.
    2. Does the contract for time discharge the surety1?
    The rule is, that any modification or alteration in the original contract, by another settled and binding contract, will discharge the surety. 2 Johns. Cha. Rep. 559. A contract by specialty cannot be extinguished by a parol contract; neither does one contract extinguish another of the same character. Thus a note will not extinguish another note or book account. 12 Mod. 548. 2 Salk. 442. 5 Johns. 58.
    The bonds in this case make the interest payable annually, and by the law of the Court the interest carried interest without the aid of the new contract. It was therefore without consideration, and for that reason not binding. The payment of the £100 was pro tanto a payment of the bond, and formed no part of the consideration for the new contract.
    3. Did the neglect to take the mortgage discharge the surety?
    The allegation is, that Gibbes deceived Smith, holding out that a mortgage was to be taken, seduced him to become surety, and that in consequence an injury has accrued to Smith. The injury proceeded from the act of Gibbes, and he ought to be responsible. The loss ought not to be visited on Tunno, who was an innocent purchaser without notice. Again, when the personal surety was so ample it rendered the mortgage unnecessary as a security, and if the security thought it necessary for his own safety he might have required it to be taken. To let off sureties, on the ground that their principal had not been compelled to comply literally with the terms of sale, would, especially as applied to sales made by public officers, be extremely mischievous. They have varied, and do vary them, by the consent and for the convenience of parties, and there would be no end to the mischief of setting them aside.
    Parol evi-mlsslbie to'" íhat a bond signed as surety in all cases involving the cf!ai\ndPim'
   Curia,per

Johnson, J.

The grounds of this motion may be resolved into the following propositions :

■' l. Whether parol evidence is admissible to that W. L. Smith was or was not a surety and not the principal debtor1? r A

2. Whether the evidence proved the fact ?

3. Whether the neglect on the part of Gibbes to take the mortgage, according to the terms of the sale, did discharge the surety %

4. Whether the contract entered into between James Smith, the holder of the bond, in 1794, and Campbell, for further time of payment, did not discharge the surety í

It is a matter of common notoriety, that contracts of this nature do not usually distinguish between the principal and the surety; and that it may and must be proved by parol is a conclusion which necessarily arises out of the numerous cases growing out of them, especially those where a recovery over is sought by the surety against the principal, and by the numerous rules of law which regulate their respective rights. And I take the principle to be, that the relationship which subsists between the joint obligors is a matter wholly extrinsic of the written contract, and may therefore be proved by parol, without any violation of the rule which prohibits the introduction of parol evidence to contradict or vary a written agreement. /

Whether a party signed as surety or not may be inferred from the circumstances of the transaction.

The surety will be dis- 4 charged if the creditor releases any of the securities he may otherwise have for the payment of the debt. But when by the terms of a public sale a mortgage and personal security were required, the surety is not discharged if the vendor chose not to require the mortgage, at the consummation of the contract.

oTaitering'the t^ftD without the consent of discharges^ surety-A new con-

This rule h™cls of an weífas6*8 of^a^obii gee.

Mere for-not tochaTge pe surety.

A contract to surety, must bfndingonIS the creditor.

At common law the assignee of a bond could not sue jn jjjg own name. jje waS; therefore, compelled to sue in the name of the original obligee, and as a necessary consequence the defendant could have availed himself of all the equity which he had against the obligee. And the act of 1795, which makes these instruments assignable, expressly reserves that right to the obligor. The transfer of the bond to James Smith by Gibbes constituted him the unlimited agent of Gibbes in relation to them. He would therefore have been bound by any act which he might have done: so that the first of these arguments can not prevail.

The argument founded on a want of consideration to support the agreement assumes, on the authority of the case of Gibbes v. Chisolm, 2 Nott & M’Cord, 38, that without that agreement the interest which had accrued would be consolidated into principal, and carry interest; and that the payment of £20 could only be regarded as a payment pro tanto. In the case of King v. Baldwin, 2 Johns. Cha. Rep. 554, all the cases on this subject are collated by the masterly hand of Chancellor Kent, and from them it is clearly deducible, that if a creditor vary the terms of the agreement with the principal without the consent of the surety, the latter will be discharged. They proceed on the principle that the surety is entitled, on the payment of the debts himself, to be substituted to all the rights of the creditor by the terms of the original contract, which becomes impossible when they have been changed. And in the application of this rule numerous cases prove, that mere forbearance to call on the princi-pa] debtor for payment will not discharge the surety, for the obvious reason that the contract still remains the same. It follows then as a necessary consequence, that discharge the surety the agreement to vary the terms of the original contract must be such as to be binding on the creditor. Such an agreement must therefore possess all the ingredients of a substantive independent original contract. But for the purposes of this case, it will not be necessary to enter upon the nature and extent of the consideration that would be required to support such an agreement. The prompt payment of £20 on each of the bonds, some of which were not then due, the agreement to consolidate the interest with the principal, and the reduction of the agreement to writing, constituted in any view of it a binding contract on James Smith, upon which both himself and defendant acted, and which both kept with good faith.

a deed can such chai'ge the surety,

It has been further insisted, that a contract by specialty can not be extinguished or abrogated by parol, and hence it is concluded that whatever might have been the terms of the new contract, Campbell’s lity on the bond was unimpaired, and that the transac-J 1 . tion only amounted to a forbearance to sue. This application of the rule appears to me to be too refined for practical purposes. When there are several contracts having the same object in view, that which furnishes the highest evidence of it is to be preferred for the most obvious reasons; and as no contract is obligatory which has not some consideration for its basis, such new contract without it would be void. But that the parties may, upon any new consideration, make any modification of an existing contract, and thereby extinguish it, is a legal conclusion which admits of no doubt. For these reasons the decree of the Circuit Court is affirmed, and the appeal dismissed.

Decree affirmed . 
      
       See on this subject many authorities and most of the views, stated in the text and notes to Chitty on Bills, 371, last American Edition.