Case Name: Henderson-Achert Lithographic Company v. The John Shillito Company
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1901-03-12
Citations: 64 Ohio St. 236
Docket Number: 
Parties: Henderson-Achert Lithographic Company v. The John Shillito Company.
Judges: Burket, Shauck and Davis, JJ., concur.
Reporter: Ohio State Reports, New Service
Volume: 64
Pages: 236–257

Head Matter:
Henderson-Achert Lithographic Company v. The John Shillito Company.
Sureties on undertaking in replevin — Remedy against indemnitor — Oourt of equity cannot compel performance of covenant of indemnity — Before happening of event indemnified.
1. A court of equity cannot compel the performance of a covenant of indemnity, in advance of the happening of the event or contingency upon which, by its terms, it is to be performed.
2. Sureties on an undertaking in replevin have no remedy at law or in equity upon a contract to indemnify them against . loss on account of their suretyship, until such loss has occurred; nor has the defendant in the replevin suit who recovered a judgment against the plaintiff therein, though the sureties and judgment debtor be insolvent, and the judgment be otherwise uncollectible.
(Decided March 12, 1901.)
Error to the Superior Court of Cincinnati.
The priginal action was brought by the HendersonAchert Lithographic Company, against the John Shillito Company, in the Superior Court of Cincinnati, February 27, 1897, on the following petition:
“Plaintiff says that it, and the defendant, are and were at the times named, corporations by the laws of the state of Ohio; that on the 24th day of September, 1889, Belford, Clarke & Company, an Illinois corporation, was indebted to. it in the sum of $2,988.00, and on that day the plaintiff brought suit against said Belford, Clarke & Company, in cause No. 44,303, of this court, and duly levied an attachment on a large •stock of books and other merchandise belonging to said Belford, Clarke & Company, which were in the possession of the defendant, and the same were thereupon taken possession of by Leo Schott, the then sheriff of Hamilton county, by virtue of the writ of at tachment then issued to him in said cause; that another Illinois corporation, the Book & Stationery Department Supply Company, claimed to be the owner of said attached property, and in order to replevin the same, it requested one George B. Fox to become its surety on a replevin bond and to procure a co-surety for such bond, and to this end the Book & Stationery Department Supply Company, on or about November 1, 1889, authorized the defendant, the John Shillito Company, when the said stock of goods and merchandise which had been attached by the plaintiff as aforesaid should be recovered by replevin, to appropriate the same or so much thereof as would be necessary to protect and indemnify said George B. Fox, and whomsoever he might cause to sign said bond, from any loss by reason of such suretyship; and the said defendant, the John Shillito Company, then agreed and promised the said George B. Fox to hold said stock of books and other merchandise or the proceeds arising from its sale, or so much thereof as would be necessary to indemnify and protect the said Fox and whomsoever he might secure to sign said bond with him, against any loss by reason of his or their said surety-ship ; and thereupon on the 7th day of November, 1889, the said The Book & Stationery Department Supply Company brought an action in replevin in this court No. 44,378, in which action the said Leo Schott, sheriff, with the defendant, the John Shillito Company, and this plaintiff were made defendants, and the said stock of books and other merchandise were duly seized and taken possession of by the coroner of Hamilton county, to whom the writ of replevin was issued in said action, and were by him taken from the possession of the sheriff who held them by the writ of attachment for the use of the plaintiff as aforesaid; that subsequently a replevin bond according to law, was duly given in said cause and executed on behalf of the plaintiff in said cause, by the said George B. Fox, and one George Fox who signed said bond at the instance and request of his nephew the said George B. Fox, who, in signing said bond himself and in procuring the said George Fox so to sign the same, relied upon the agreement of the defendant as aforesaid to hold said stock of books and other merchandise, or sufficient of the proceeds thereof to protect and indemnify him and his co-surety; that upon the execution of said bond by said sureties the said coroner delivered said books and other merchandise to the John Shillito Company, the defendant herein, who took possession of the said property for the said Book & Stationery Department Supply Company, the plaintiff in replevin, and in pursuance of its agreement as aforesaid with the said George B. Fox, the said John Shillito Company held said stock of books and other merchandise and has since sold all or the greater part thereof; that in said attachment suit cause No. 44,303 of this court, on July 12,1890, final judgment was entered sustaining said attachment and rendering judgment in favor of this plaintiff against the said Belford, Clarke & Company for $3,129.02 and the costs of this plaintiff in said cause, taxed at $140.35; that in said replevin suit, cause No. 44,378, a judgment was duly rendered on January 22, 1897, in favor of this plaintiff against the said Book & Stationery Department Supply Company, for $4,365.56, on which judgment there has been paid the sum of $948.92, being the amount in the hands of the garnishee in said cause No. 44,303, which credit was first applied to the payment of $140.35, costs in said cause No. 44,303, and the sum of $808.57 was credited upon the judg ment in cause No. 44,378, leaving a balance due the plaintiff herein on the said judgment, of $3,556.99, with interest thereon from January 4, 1897, and the costs of said suit taxed at $91.14, which judgment for the balance due thereon is in full force and effect.
“And the plaintiff further says'that the defendant, The John Shillito Company, has realized from the sale of said stocji of books and other merchandise, more than sufficient to pay the said judgment and interest and costs in cause No. 44,378, but though duly requested refuses to pay, .to or for the plaintiff the balance due upon said judgment or to satisfy said judgment; that the said George Fox has died intestate ; that his estate and the surviving surety are unable to respond to the obligation arising on said bond, so that the amount due thereon or any par! thereof, cannot be collected from the said surviving surety or from the estate of said George B. Fox by legal process.
“Wherefore the plaintiff prays that the defendant may be decreed to pay to the plaintiff the sum of $3,556.99, with interest thereon from January 4,1897, and the costs of said cause No. 44,378, taxed at $91.14, and for all other and proper relief.”
An amendment to the petition, filed February 8, 1898, added the following allegation:
“And the said Book & Stationery Department Supply Company is a non-resident of Ohio, and is also wholly insolvent and has no property in this state, and the judgment against it cannot, nor can any part of it hereafter be collected by execution or otherwise at law.”
Issue was joined by the following answer:
“The defendant admits that it is a corporation, as alleged; that the plaintiff commenced and prosecuted to final judgment an action against Belford, Clarke & Company, numbered 44,303.on the dockets of this court, and levied an attachment upon a stock of books and other merchandise, at that time located upon the property of this defendant; that the Book & Stationery Department Supply Company instituted an action in replevin, numbered 44,378 upon the dockets of this court, executing a replevin bond with George Fox and George B. Fox as sureties, and that final judgment has been rendered in favor of this plaintiff and against said The Book & Stationery Department Supply Company in said last named action.
“For want of knowledge the defendant denies that said George Fox has died intestate and that his estate and the surviving surety are unable to respond to the obligations on said bond, and it denies each and every other allegation in the petition not herein expressly admitted to be true.
“Defendant prays to be hence dismissed with its costs.”
At the May term, 1898, the cause was tried to a jury, whose verdict was for the plaintiff, for the amount claimed, and judgment followed the verdict. A bill of exceptions duly taken shows that evidence was given by both parties in support of the issues on their respective parts; and, that the court instructed the jury, among other things, in substance, that it was not necessary the sureties on the replevin bond should have sustained any loss, to entitle the plaintiff to the verdict, but that the verdict should be for the plaintiff, for the amount claimed, if the jury should find the defendant, through an authorized agent, entered into the agreement alleged in the petition, and the sureties on the replevin bond relied on that agreement.
The general term reversed the judgment, on the ground that the verdict was contrary to law, and un supported by any evidence, and for error in the foregoing charge of the court. Error is prosecuted here to obtain the reversal of the general term.
Other facts deemed important in the disposition of the case will be found in the opinion.
Gustavus H. Wald and Charles B. Wilby, for plaintiff in error.
Upon the execution of the replevin bond with Fox as security ■ thereon, the lithographing company was the creditor, the supply company the debtor, and Fox the surety. Our adversaries contended below that the lithographing company did not become a creditor until after judgment recovered in 1897 on the replevin bond. But the supply company’s taking of the goods in replevin was wrongful in the beginning, and the judgment in replevin only judicially established its wrongfulness ab initio, and liquidated the damages. The lithographing company was, therefore, the creditor, and the supply company the debtor, and Fox a debtor as surety, from the time of the execution of the bond. Walsh v. Miller, 51 Ohio St., 462; The John Shillito Co. v. Henderson-Achert Lithographing Co., 9 Dec., 7; 6 N. P., 25; 9 Dec., 7; 6 Ohio N. P., 28.
(1.) The lithographing company as creditor is subrogated to the rights of Fox to all securities provided for his indemnity by his principal, (2), one of Fox’s rights is to sue the Shillito company for its failure safely to keep and hold as a fund for his indemnity the property pút into its hands for that purpose by the supply company, the debtor, and wrhich both the sup-' ply company and the Shillito company agreed that it should so hold in consideration of Fox signing the bond. (8.) The principal debtor and the surety being insolvent, the creditor may proceed at once to realize upon the security in the surety’s hand, viz.: the right of action against the Shillito company, without first securing a judgment against the principal and surety.
According as this court adopts one or the other of these views either the general term’s judgment of re versal should be affirmed, or that judgment should itself be reversed, and the judgment at special term affirmed.
Judge Davis’ opinion seems to be based upon two grounds: first, that the security to the surety being for indemnity only is personal to him, and not the subject of subrogation, and second, that the surety not having paid the judgment in replevin, and no judgment having been recovered against him on the replevin bond he has not yet been damnified, and has himself not any right to call on the Shillito company for the fund, and that our right can not rise higher than his. Stump v. Rogers, 1 Ohio, 533; McConnell v. Scott, 15 Ohio, 401.
True, in the case at bar we have not, formally, recovered judgment against the surety, but we have done what is equivalent thereto (were such judgment a condition precedent to our right of action, as we shall hereafter show it is not, when principal and surety are insolvent), for wé have procured judgment against the principal in replevin, a judgment binding on the surety, indisputable by him, and to which he can at any time be made a formal party, without action brought, by summary proceeding. Richardson v. Bank, 57 Ohio St., 299; Coons v. Clifford, 58 Ohio St., 480; Ohio Life Ins. & Trust Co. v. Reeder, 18 Ohio, 35.
That a creditor, upon the insolvency of his debtor and the surety, is entitled by subrogation, or substitution to the benefit of all securities provided by the debtor, not only for the payment of the debt, but for the mere indemnity of the surety, and that too, without obtaining judgment at law against either, is settled by overwhelming authority. Pendery v. Allen, 50 Ohio St., 121; Kelly v. Herrick, 131 Mass., 373; Inst. for Savings v. Bank, 9 Allen, 175; Fickett, In re, 72 Maine, 266; Ijams v. Gaither, 93 N. C., 458; Morris, Ex parte, 16 Bankruptcy Reg., 572; Tompkins Co. v. Catawba Mills, 82 Fed. Rep., 780; Keller v. Ashford, 133 U. S., 610.
A creditor is in equity entitled to the benefit of any collateral securities which the debtor has given to the surety, or person standing in the situation of a surety.
Collateral securities taken by a surety for his indemnity, are regarded as trusts for the better security of the debt, and courts .of equity will compel the execution of the trust.
Where a purchaser of land procured a third person to give his note for the consideration money, and to indemnify the maker executed to him his bond and mortgage on the premises, and before the note became due the maker failed, held that the vendor of the land was entitled to the benefit of the bond and mortgage. Vail v. Foster, 4 N. Y., 312; Moses v. Murgatroyd, 1 Johns. Ch., 129; Meyers v. Campbell, 59 N. J. L., 378; Bank v. Wheeler, 12 Tex. Civ. App., 489; Thornton v. Bank, 71 Mo.,221; Morrill v. Morrill, 53 Vt., 74; Pierce, In re, 2 Lowell, 343; Bank v. Stewart, 4 Dana, 27; Tolle v. Boeckler, 12 Mo. App., 54; Central Trust Co. v. Louisville Trust Co., 87 Fed. Rep., 23; Wolmershausen v. Gulick, 1893, 2 Ch., 514; Outlaw v. Reddick, 11 Ga., 669; Miller v. Aldrich, 31 Mich., 408.
The precise point, the liability of the trustee who has wasted the trust fund, to account to the surety, for its value, was decided by this court, in Gilbert v. Sutliff, 3 Ohio St., 129; State v. Guilford, 15 Ohio, 593.
The promise safely to hold the books or their proceeds and devote them to Fox’s indemnity was a binding promise, and could not be rescinded without his consent. When the defendant without the consent or knowledge of Fox sent the proceeds out of the state and handed them over to a stranger, it broke its promise and Fox instantly had a right of action against it.
It was a promise made not by a stranger, but by a party defendant in the replevin suit. It was a promise to hold as a fund for indemnity of the surety, not Shillito’s property, but the property of the principal debtor.- The only stranger having no interest in the transaction was Fox, the surety, who agreed to assume the liability of a surety on the faith of defendant’s promise to keep the books or their proceeds safely as a security for him against loss, and in the freeing of the books from attachment by means of the replevin, defendant had a direct pecuniary interest. That such a promise is not within the statute of frauds, though at first vigorously and confidently denied, seems to have been finally now admitted. Denial would seem useless in the face of Ferrell v. Maxwell, 28 Ohio St., 383; Stoudt v. Hine, 45 Pa. St., 30; Jack v. Morrison, 48 Pa. St., 113; Justice v. Tollman, 86 Pa. St., 147.
Browne on the Statute of Frauds, 187. And this is put on the express ground that it is not a promise by a stranger to pay out of his own money, but to pay over funds furnished by the principal debtor.
If a mere stranger is liable in advance of payment by the surety to an action for injury to the security, a fortiori is one liable who on valuable consideration moving to him from the surety promises to hold for his security property placed in his hands for that pur pose, and then in fat violation of his promise without the surety’s knowledge or consent hands that property over to a stranger to be carried beyond the borders of the state; and to the Surety’s right to enforce that liability — “to all his rights” — we are entitled by subrogation. Wetzell v. Richcreek, 53 Ohio St., 62; Schweinfurth v. Railway Co., 60 Ohio St., 215; and Riggin v. Creath, 60 Ohio St., 114.
Robert Ramsey, Kramer & Kramer, and Maxwell & Ramsey, for defendant in error.
1. Fox waived his right .to the securities offered by the supply company.
The letter of November 1, 1889, authorized Dawson to withhold from sale enough merchandise to indemnify Fox, so long as Fox desired that indemnity. It did not authorize him to withhold any of the proceeds of such of the merchandise as should be sold. He had no other source of authority than this letter. But Fox consented at once to the sale of these goods, and. they were in fact sold.
While Dawson still held enough of the original stock of goods on hand to indemnify Fox, the latter saw and took a copy of the supply company’s letter, disclosing the fact that the security was to consist of merchandise and not money. Yet he continued to acquiesce in the sale of the merchandise.
2. The transaction was between Fox and Dawson individually.
The letter was in terms addressed to Dawson personally. The John Shillito Company had nothing to do with the matter. It was quite outside the scope of Dawson’s authority as superintendent of a retail store where these goods were exposed for sale, to agree to withhold part of them from sale. It does not ap pear that he communicated with the officers of his company upon the subject. When they remitted the account in September, 1891, they were innocent, both in law and in fact, of any connection with Dawson’s undertaking.
3. The securities were for the protection of Fox alone and not for the better securing of the bond. Therefore the lithographing company had no cause of action when they were disposed of in 1891.
The letter expressly stated that the goods were to be held for the protection of Fox against “any loss by being a party to the bond,” and held only “until such time as said George B. Fox” should release them. It will be conceded that if Fox had notified the Shillito company that he did not “desire any further guarantee,” the remittance of September 5,- 1891, would have been proper, and the lithographing company could not have complained. By this test, the indemnity offered is shown to have been strictly personal to Fox and to him alone. Jones v. Bank, 29 Conn., 25; Chambers v. Prewitt, 71 Ill. App., 119 (Affirmed, 172 Ill., 615); Logan v. Mitchell, 67 Mo., 524.
These propositions seem to be sustained by an unbroken line of decisions. Homer v. Savings Bank, 7 Conn., 478; Poole v. Lowe, 52 Pac. Rep., 741; Constant v. Matteson, 22 Ill., 546; Poole v. Doster, 59 Miss., 258; Osborne v. Noble, 46 Miss., 449; Hopewell v. Bank, 10 Leigh, 206; Bowman v. McElroy, 15 La. Ann., 646; Clay v. Freeman, 20 So., 871; 2 Brandt, Suretyship, Sec. 326; Ohio Life Ins. Co. v. Reeder, 18 Ohio, 35; Leggett v. McClelland 39 Ohio St., 624; Zuelig v. Hemerlie, 7 Circ. Dec., 56, 18 C. C. R., 660.
It follows that in 1891, when these goods were disposed of the lithographing company had no cause of action against the Shillito company. It could not pre vent the solvent debtor (conceding for the sake of argument that the supply company was then its debtor) from selling any of its property, and therefore could not complain of the Shillito company for delivering the goods.
4. When this equity was asserted, nothing remained but a right to sue, which was purely personal to Fox and not the subject of subrogation.
If the lithographing company has any remedy it can only be availed of by persuading Fox to elect to sue. He should have been made defendant below, and have asserted his rights in this action. After the decision of Conley v. Chilcote, 25 Ohio St., 320, the debtor was made defendant and elected to take his exemption out. of the attached funds. Subrogation is an equitable mode of avoiding circuity of action. It is not a doctrine of maintenance, giving the sanction of equity to that which is against the policy of the law. Wald’s Pollock on Contracts, 299.
If Fox has made no objection to this alleged wrong, equity will not permit anyone else to object. That would be to multiply and not to avoid litigation, whereas the avoiding of litigation is the motive for the doctrine of subrogation.
5. The lithographing company has no greater right than Fox; and he has not been damnified.
A derivative right can not rise above its source. Fox might have had a right of action at law for damages. The defense would have been non damnificatus. He was not indemnified against “liability” on the bond, but against “loss.” The liability arose, but the loss has not yet occurred, and will not, since both sureties are insolvent.
The distinction between liability and loss in such a case is stated with exactness by the circuit court, in Pratt v. Walworth, 8 Circ. Dec., 472; 15 C. C. R., 412; Allison v. McCune, 15 Ohio, 726.

Opinion:
Williams, J.
There appears to have been, at the trial, but one substantial controversy of fact, which was, whether Mr. Dawson, the superintendent of the defendant's store, had authority to, and did, enter into the agreement set forth in the petition, in behalf of the defendant. The jury's determination of that controversy adversely to the defendant, though justified by the evidence, is not necessarily decisive of the case, which, as presented here, is reduced to an inquiry into the nature and effect of the agreement so made. The answer admits that the plaintiff, in an action brought by it against Belford, Clarke & Co., levied an attachment on personal property of that company then in the possession of the defendant here, of sufficient value to satisfy the demand which the plaintiff was there seeking to collect; and that, in the due prosecution of .that action the plaintiff recovered judgment for the amount alleged in its petition in this case. It is also admitted that, while the attachment was a subsisting lien on the property it was replevined from the officer at the suit of the Book and Stationery Department Supply Company; and that, the plaintiff here, who was made a defendant in that suit, recovered against the plaintiff therein, a judgment for damages for the wrongful replevin of the property, in an amount equal to the judgment recovered in the attachment case. The evidence shows that, upon the replevin of the property, it was placed by the plaintiff in that suit, in the store of the defendant in this case, for sale on commission by the latter as agent of the former who, in order to obtain sureties on the replevin bond, submitted to Mr. Dawson, then the superintendent of the defendant's store, the following written proposal:
"Jas. W. Dawson, Esq., Cincinnati, O.
"Dear Sir: We hereby authorize you to hold of the stock and mdse, now in the Book & Stat'y Dept, of the John Shillito Company so much in amount as will be necessary to guarantee George B. Fox or whosoever he may have sign bond, against any loss by being a party to, the bond given or to be given in a replevin suit of this company vs. The Henderson-Achert Co., and to hold such stock and mdse, until such time as said Geo. B. Fox may notify you in writing that he does not desire any further guarantee.
"Yours truly,
"Book & Stationery Dept. Supply Co.
"C. Higgins, Pres't."
This proposal was accepted, and in pursuance thereof, George B. Fox and another person became sureties on the bond, which was conditioned tha't the plaintiff in the replevin suit would duly prosecute the same, and pay all costs and damages that should be awarded against it. It was admitted on the trial that the sureties on the replevin bond, and the plaintiff in that suit were, and are, all insolvent; and, that the defendant in this action did not, at the time of its commencement, nor since, have either property or money belonging to the plaintiff in replevin, all having been paid or turned over to the latter, or according to its direction, without the consent of the sureties on the bond.
The , defendant's contract of indemnity so entered into, no doubt inured to the benefit of the sureties who, upon the faith of it, incurred their obligation on the replevin bond, as fully as if made directly with them. And it is the contention of counsel for the plaintiff that, when its action was commenced, it was the right of the sureties to enforce performance of that contract by compelling the defendant to discharge their obligation on the bond, and, as that required the satisfaction of the judgment recovered in the replevin suit, the plaintiff is entitled to the same remedy through the process of subrogation, as here sought.
When not otherwise controlled- by express agreement, there is an implied stipulation in the usual unconditional contract of suretyship, that the principal will pay the debt at-maturity, and thus protect the surety by relieving him from the burden of his obligatipn; and, upon failure to do so, the latter had the right in equity, and now has by statute, to compel payment of the debt out of the principal's estate, though the surety made no payment before the commencement of his suit. Stump v. Rogers, 1 Ohio, 533. Section 5845, Revised Statutes. The creditor is undoubtedly entitled to subject to the payment of a judgment recovered on the debt, any securities placed by the principal in the hands of the surety for its payment, or for his indemnity against its payment. If the securities consists of tangible property that can be reached by execution, process of that nature is the appropriate remedy for their subjection to the satisfaction of the judgment; for the property, though in the hands of the surety, being the propery of the principal debtor, is subject to seizure and sale like other property belonging to him, and its application to the payment of the debt and the consequent discharge of the surety's liability, is in accomplishment of the purpose for which it was placed in his custody. Where the securities are choses in action, counter bonds, or taortgages given by the principal, for the collection of which, and their application to the debt, an action becomes necessary, the surety may resort to that remedy; and the creditor may oftentimes reach property of that nature in the possession of the surety, without the aid of subrogation, through a creditor's bill, or proceedings in aid of execution. But as the money arising from such securities, however reached, properly belongs to the creditor for the security of whose debt they were intended, equity will aid him through subrogation to the remedies of the surety, which may prove the more effectual, because the creditor in that way becomes entitled to whatever priority of right exists in favor of the surety. This doctrine is sometimes said to rest upon the principle that a trust for the benefit of the creditor attaches to the property eo instanti it is placed in the possession of the surety, the execution of which may be enforced at the suit of the creditor, the cestui que trust. This was held in Pendery v. Allen, 50 Ohio St., 121, and has been in many cases, some of which are cited in the brief of counsel for the plaintiff. In other cases the doctrine is said to arise from that principle of natural equity which requires that his property, in whatever form it may be, who is ultimately liable for the payment of the debt, should be primarily applied to . that purpose, in exoneration of the one who is only secondarily liable. Either view presupposes that the securities are placed with the surety, and are -the property of the principal debtor. The doctrine has been applied, however, where a stranger to the debt, for a sufficient consideration, has agreed to assume and discharge the obligation of the surety. The creditor may adopt and enforce the promise, for it is the property of his debtor, and its performance includes the payment of the debt. Such being its purpose, a court of chancery will see that its design is fulfilled. Champion v. Brown, 6 Johns. Ch., 406.
A distinction has been made between cases of that kind, and those where the agreement is personal to the surety, for his individual indemnity only, and not for the discharge of his liability; courts in cases of the latter class holding that the creditor acquires no equity to enforce the covenant. Homer v. Bank, 7 Conn., 478; Taylor v. Bank, 87 Ky., 398; Bank v. Hastings, 1 Doug. (Mich.), 225; Jones v. Bank, 29 Conn., 25. There are many other authorities to the same point, some of which are cited in the brief for the defendant. An attempt to define the precise scope of this distinction is a task that need not be assumed here further than to remark that it must depend, in each case, upon the terlns and conditions of the covenant or contract of indemnity. For, while the right of subrogation is not founded on contract, it is well settled that it may be qualified and controlled by express agreement of the parties; and, in that respect, their rights and obligations may be whatever, by their contract, they choose to make them. Contracts of that nature, like all others, are to be construed and enforced according to the intention of the parties, as derived from the language they have employed.
The contract between the defendant in this action and the plaintiff in the replevin suit, was made by the former's acceptance of the latter's written proposal hereinbefore quoted; and that instrument fixes definitely and conclusively the terms and extent of the defendant's obligation of indemnity to the sureties on the replevin bond. That obligation as there expressed, is "to guarantee" the sureties "against any loss by being a party to the bond," and to hold the property then in custody of the defendant for that purpose, until such time as the sureties should give notice that they did "not desire any further guarantee." The apparent design of this last clause of the agreement was to provide the defendant with the means of fulfilling its obligation of indemnity. At all events, it does not enlarge nor diminish that obligation, which is to protect the sureties on the replevin bond against loss to them from their suretyship; for, until such loss should occur it is entirely immaterial to them whether the property continue in the possession of the defendant or not, and it is not material then, since the defendant is, in either event, bound to make good the loss. The nature and extent of the defendant's obligation to the sureties, was, therefore, unaffected by the surrender of the property, and of the money arising from the sales made, to the owner. If the property or its proceeds had remained in the possession of the defendant when the plaintiff recovered the judgment in the replevin suit, either could, undoubtedly, have been subjected to its payment by legal process or proceedings. But that would have been, not through, nor by virtue of any rights of the sureties, but by independent remedies belonging to the plaintiff as a creditor.
The plaintiff had no contract with the judgment debtor, nor with the defendant here, that the property placed in the possession of the latter should be held for the payment or security of the debt; nor, did the latter bind itself to any one to hold the property for such purpose. The defendant is a stranger to the debt, and its agreement is one strictly of indemnity to the sureties ; so that, its individual liability on the agreement, to enforce which this action was brought, is in no sense a property right of the plaintiff's debtor, and satisfaction of the judgment obtained therefrom would not be payment out of, the debtor's estate, but out of the estate of a stranger. Confessedly, therefore, the liability of the defendant on its covenant to indemnify the sureties against loss, can be reached by the creditor, if at all, only through some right or remedy that belongs to the sureties. And it should be borne in mind that the defendant's obligation does not arise out of any principle of equity, but is created by special agreement of the parties. Except for its express agreement the defendant would have nothing to do with the liability of the sureties. That agreement, therefore, which alone created, must determine the extent of the defendant's liability, both at law and equity; for there is no principle upon which a court of equity, or law, can enlarge the legal effect of the agreement. It seems self-evident that the rights of the creditor through subrogation to the remedies of the sureties can, in no case, exceed those of the latter, and that, until the indemnitor's covenant has been broken, or there has been some failure to perform it, no action can be maintained thereon by either. This was declared in Ohio Life, etc., Co. v. Reeder, 18 Ohio, 35, 47, and there is no diversity of authority on that subject.
There is an essential difference, in legal effect, between covenants of indemnity, strictly, that is, of indemnity against loss, and covenants to pay, or assume, or stand for, the debt, or a surety's liability thereon. A right of action accrues on those of the latter class as soon as the debt matures and is unpaid, because the liability then becomes absolute, and the failure to pay is a breach of. the express terms of the covenant. While those of the former class are not broken, and no right of action accrues, until the indemnitee has suffered a loss against which the covenant runs. This distinction grows out of the. express terms of the contract, and is well established by authority. It is expressed by Mr. Justice Swayne, in Wicker v. Hoppock, 73 U. S. (6 Wall.), 94-99, as follows : "In that class of cases (contracts of indemnity) the obligee cannot recover until he is actually damnified, and he can recover only to the extent of the injury he has sustained up to the time of the institution of the suit. But there is a well settled distinction between an agreement to indemnify, and an agreement to pay. In the latter case a recovery may be had as soon as there is a breach of the contract, and the measure of damages is the full amount agreed to be paid." That the distinction obtains at law, counsel concede. But, it is insisted that a different rule prevails in equity, which, it is claimed, will entertain a suit for the specific performance of indemnifying covenants before a loss has been sustained, by compelling the payment or discharge of the surety's obligation, for his better and more complete exoneration. There is both reason and authority to sustain the proposition that a covenant, though by a stranger, founded upon a sufficient consideration, to pay, or to assume, or to stand for a debt on which a surety is,bound, may be specifically enforced in chancery, after the maturity of the debt, if it be not then paid by the covenantor. The reason is, as has already been stated, that by his failure to pay he has failed to perform his covenant, and the remedy is within its express terms. The courts have many times so held. But on no sound principle can a court of chancery, any more than a court of law, compel an indemnitor to perform his covenant in advance of the happening of the contingency or event upon which, by its terms, it is to be performed. Such a remedy would necessarily involve, not the enforcement of the contract made by the party, but its modification by» the court, and its enforcement in that modified form.
It would not be profitable to enter upon an extended examination of the authorities touching this point. They have been reviewed in Hoy v. Hansborough, 1 Freem. Ch. (Miss.), 533; Bank v. Hastings, 1 Doug. (Mich.), 224-256, et seq., and more recently in the case of Central Trust Co. v. Louisville Trust Co., 100 Fed. Rep., 545, in each of which cases the existence of a remedy like that demanded in this case, on covenants of the same nature, was denied. In the last case above cited, the general character of the contract of indemnity, and of the relief sought, but refused, were practically the same as in the case here under consideration; and, in the opinion of the court it is said of the other two cases, which are there cited, that: "The covenants upon which the indemnitors were sued in each of the cases cited were simple covenants 'to save harmless and indemnify' against loss and damage, and were substantially identical with the covenant upon which this action was brought. In neither had any loss been actually sustained. A mere possible legal liability to pay was in both cases held to be insufficient to satisfy the terms of the bond, and in each case relief was denied upon the ground that the contingency provided by the bond had not arisen. The opinions are well reasoned, and most of the authorities now relied upon by counsel for complainant were considered and distinguished."
So, in the case before us, the defendant's covenant for the benefit of the securities on the replevin undertaking is one strictly of indemnity against loss on account of their suretyship, and nothing more; and, as they have yet suffered no loss, no right of action has accrued to them thereon, either at law or in equity, and consequently none exists in behalf of the plaintiff,
Judgment affirmed.
Burket, Shauck and Davis, JJ., concur.
Minshall, C. J., dissents.