#### Mary G. Keeler, Plaintiff, *v.*Victor Hollweg et al., Defendants.

(Supreme Court, Kings Trial Term,

April, 1898.)

Principal and surety — A change in collateral security, not prejudicial to indorsers, made' without their knowledge or consent.

The act ,of the assignee of án indorsed note in releasing, before the note became due, chattel mortgage security given to her assignor by the makers of the note and assigned to her, and in taking, in lieu thereof, a new chattel mortgage upon the Isame property and upon the same terms, can afford no defense to the same indorsers of a renewal note who, when they Indorsed it, were ignorant of the change which had been made in .the chattel mortgages as, in the absence of proof of any damage to them, the ¡court cannot assume that tney have been prejudiced by the change.

Action upon a promissory .note, against the two makers, and the two payees as indorsers. The two indorsers answer, setting np as a defense that the plaintiff released a certain security given by the makers for the payment 'of the note, and thereby released the defendants as indorsers.' The facts proved are as follows: The plaintiff’s husband sold his business and chattels therein to the said makers of the note. He ¡agreed to ¡take their note for part of the purchase price, payable in ten months,, but exacted that they get indorsers of it, and also give hack ¡a chattel mortgage on the said chattels to secure its payment. They made a note payable to the answering defendants, and procuring their indorsement thereof, gave it to the said seller, and ¡at the same time executed and delivered to him the said chattel mortgage, which by its terms was to secure the payment of the said note, and which was ample to pay the said note if foreclosed. Before the Said note came due, viz., after it had run 42 days, the said seller transferred it and the said mortgage to the plaintiff, his wife, whereupon she cancelled and surrendered the said mortgage to the" makers, and at the same time took from them a new mortgage to her on the said chattels, in terms exactly the same as the first one. When the said note came due, the makers being unable to pay it made a renewal note therefor to the -order of the answering defendants, and having procured their indorsement to it as before, gave it to the plaintiff, and took np the *416first note. The said defendants so indorsed the second note without being informed or having any knowledge that the said chattel mortgage had been surrendered upland the new one substituted."

Eugene Frayer, for plaintiff.

J. T. Marean, for defendants.

Gaynor J.:

These answering defendants stood in the relation of sureties to the plaintiff’s husband for the payment of the note, and he held the chattel mortgage as security for its payment, not only in his own interest, but also as trustee for them. TTis duty under such trust was toi preserve the said security, and, I suppose, to do whatever was necessary to keep.it in life, and a prior lien, (to file it, for instance), and to turn it over to the defendants 'intact upon their paying the note. . It must also be that it was permissible to him under the trust to do anything to strengthen the security, or make it better, such, for instance, as extending it to new or sub"stituted chattels, for those worn out or destroyed, or exchanging it for an adequate mortgage on real property, or for a pledge of government bonds. I do not see how we may avoid this conclusion, having allowed that the relation is one of trust. His own interest required this, and it was equally for the interest of the sureties. He was not permitted to release the- security, ;or ‘diminish it, and to do so would discharge the sureties *pro tmto.*Such a total release in this case would discharge the sureties entirely, for the security was equal to the debt (Hayes v. Ward, 4 Johns. Ch. 123; Vose v. Railroad Co., 50 N. Y. 369; Murray v. Marshall, 94 N. Y. 611). When the said note and mortgage were transferred to the plaintiff by her said husband, whether for value or not, she succeeded to his position in relation to these defendants. She released the said mortgage, but simultaneously took a new one of the same parties, on the same chattels, and of the very same words and tenor, but payable tó herself. The security was therefore in no wise diminished or affected, unless some priority slipped In by the change. I doubt .if the burden is on the plaintiff to prove that such was not the case. It is not to be presumed that her act was-in breach of her trust, or negligent, .and detrimental to the sureties; but to the contrary, as is the general rule with trustees. She acted for her own interest, -and for that of the sureties, and from the facts proved the security is the very same. It is not to be presumed that there *417were other mortgagees or creditors with liens, and that they got priority. This case does not fall within the principle that where the contract which fixes the surety’s liability is changed, he is *ipso facto*discharged, as is the case when the contract time for the principal to pay is extended. There the surety is discharged, because the contract holding him no longer exists and cannot be sued upon, and the new contract is not his contract (Merrill v. Reiners, 14 Misc. Rep. 583). The question here involved depends upon equitable principles. If, as custodian of the security for herself and the sureties, she had violated her trust duty to the sureties, not to release or impair the security, equity would deprive her of her recourse against the sureties, *pro tanto.*It may not be easy to cite authority to that precise effect, but it seems to me that this principle of trust is the one which governs, and upon which the authorities may be harmonized and placed (Brandt on Suretyship, ch. 17; Underhill v. Palmer, 10 Daly, 478),

Judgment for the plaintiff.