Court Opinion

ID: 6574624
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:33:04.851049+00
Date Added: 2024-06-11T15:57:02.459872
License: Public Domain

The opinion of the court'was delivered by
Redeield, J.
This is a bill in equity, brought by the orators, who were joint signers of á .bond,- with the defendants’ ancestor, for the faithful discharge _pf duty, by Calvin C. Waller, as agent and attorney, in regard to certain matters undertaken by him. He failed in that undertaking, and suit being brought on the bond, against the signers, with the exception of Jackson and some others, judgment was obtained, for the default of Waller, and the plaintiffs paid the amount, being some fourteen thousand dollars, (including costs,) besides counsel fees. This bill is brought to compel contribution on the part of Jackson’s heirs, he having deceased, and his estate having been distributed to the defendants, as his heirs. In the course of the trial of the suit for Waller’s alleged defalcations, it became important, and indispensable almost, for the interest of the signers of the bond, to make use of the testimony of Waller, if that could be done. For as he was the only one, who knew any facts, sufficient to reduce the liability below the penalty of the bond, $15,000, it would *591be necessary to suffer judgment for that amount, or else resort to the testimony of Waller, which could only be used, by releasing his interest, — which the plaintiffs did, by executing to him a general release of all liability to them, by reason of the plaintiffs having signed the bond as surety for him. He was admitted as a witness, and the amount of the recovery reduced something like two thousand dollars, and there was a reasonable prospect, at the time, that the recovery would, in that way, be reduced to a considerably lower sum. The other facts necessary to understand, the points decided .by the court, will appear in the course of the opinion.
1. A question is made in regard to the proof, which was introduced to show the loss of the original bond. This is a point not very material to the ultimate determination of the case, as, if the proof, which was offered, is insufficient, it can hereafter be supplied, if the case can be sustained upon other grounds. The general rule upon this subject is familiar, that reasonable search shall be made in the place, where the paper is last known to have been, and if not found there, then its present place of deposikghall be searched out, in the usual mode, by making likely to know its whereabouts, — and that i^^^^^e, m 't^'||fson last known to have had its custody. In me present seems to be somewhat defective, in not pfe¡j;|^g'^M^átiOT&y of Johnson, who, as cashier of the Bank dfWoodstock, a&egps.’jPw last to have had the paper in his custody. '%T^iS^^^^PW^^tock seems to have been the only place of dep^^for^e^gHm during the trial of the former suit, and since, so far as we can now learn. And there does not seem to be any certain legal proof in the case, that the bond is not now in the bank, although it is highly probable, that it is not, as matter of mere conjecture, rather than of legal proof. And if not there, there is nothing to show when, or by whom, it was removed. But we have expended but little time upon this point.
2. Some question is made, whether distinct proof should not have been adduced, in this case, to show the terms of the original indenture, by which the association was constituted. But that is recited, in substance, in the.bond executed by the plaintiffs and Jackson, and this recital, upon general principles of estoppel, will conclude the defendants.
3. How far the record of the recovery against the plaintiffs, upon *592trial and full defence, the testimony of Waller being used, is to be regarded as prima facie evidence of Waller’s default, it is not strictly necessary to determine here, perhaps, as there is some testimony beyoiid this, and the record is clearly competent evidence in the case,-to show the amount of the recovery against the plaintiffs. The general rule undoubtedly is, that in a collateral undertaking by way of guaranty, where a suit is necessary to fix the liability of the guarantor, the first judgment is prima facie evidence of the default. But where the guarantor is liable without suit against the principal, the judgment against him is regarded as strictly matter inter alios. The judgment of eviction, in order to show a breach of the covenants of warranty, is a case of the first class. The judgment of eviction is a necessary step in making out the liability of the warrantor, that is the casus foederis. So, too, generally, I apprehend, when any one undertakes to indemnify against the consequences of a suit, or that a suit brought shall be effectual, the judgment, in either case, being the casus foederis, is prima facie evidence of the liability'-.
And on the other hand, where the suit may, in the first instance, be brought directly against the guarantor, the judgment against the principal, without notice to the guarantor, is not evidence; and so, too, if the guarantor have notice of suit against the principal, he is not obliged to concern himself in its defence, but may await a suit against himself, and then insist upon the right to contest the whole ground. The cases of joint and several obligors, and especially of sureties and co-sureties, as a general rule, we apprehend, have been ranked under the latter class of cases. Bramble v. Poultney, 11 Vt. 208. Hence it has been generally held in this class of cases, that a release of the joint debtor, from his liability to contribute to the costs and expenses of the suit, makes him, when not a party to the suit, a competent witness for the defendants, and that a joint debtor, when not sued, is always a competent witness for the plaintiffs, without a release. Many would therefore regard the release of the plaintiffs to Waller more extensive than it need to have been. But that question may arise hereafter. We think, therefore, that although the record was evidence, like any other fact, to show the amount of the payment made by the plaintiff and the circumstances under which it was made, we could scarcely regard it as evidence beyond *593that. But there being some slight evidence in the case beyond that, we might not deem it necessary to open the case upon this ground. These extracts from the record are not evidence of the particular facts recited therein. The exemplification of the entire record is necessary for any such purpose.
4. The fact, that the case was referred, in the county court, and that judgment was entered by consent, in the supreme court, will not, under the circumstances, affect the judgment, as evidence in this case. The necessity of both those steps is sufficiently explained by the evidence.
5. In regard to the extent of the plaintiffs’ right to contribution, as against the defendant, we think the rule laid down by this court in Marsh, Adm’r, v. Harrington, 18 Vt. 150, is strictly applicable. The right of the co-sureties, in such eases, to compel contribution for costs and expenses incurred in defending a suit, depends altogether upon the question, whether such a defence were made under such circumstances, as to be regarded hopeful and prudent. If so, the expenses of defence may always be recovered. The case of Knights v. Hughes, 3 C. & P. 467, is only a nisi prius case, and not much authority any way; and so far as it impugns the rule above laid down, it is in conflict with the general tenor of the cases upon the subject, and especially with the one last cited from our own reports. The general rule upon this subject is correctly stated in the American note to Deering v. Winchelsea, White & Tudor’s Leading Cases in Equity; — “ In assumpsit the surety may recover of the co-surety what he has paid, with interest and cost;” citing Hayden v. Cabot, 17 Mass. 169, which fully sustains the dictum, except that it is a suit by a surety against his principal; but the principle is the same, I apprehend; — also Wynn, Adm’r, v. Brook, 5 Rawle 106, which I have not seen.
6. We entertain no doubt, upon the proofs in the case, that the plaintiffs paid the judgment against them jointly, and may well sustain this suit in their favor jointly. And we see no objection to the decree in the case being against the defendants severally, for so much as each is liable for. Their obligation is in its nature several and the statute seems to contemplate, that the remedy shall be several. Rev. St., chap. 49, §§ 51, 52.
The only serious difficulty, which we have found in the case, is *594in relation to the effect, which the plaintiffs’ release, given to Waller, the acknowledged principal, shall have in this suit for contribution against co-sureties, in relation to the very money recovered in the suit, in which the release was given. And although we have felt sincerely desirous of affording the plaintiffs that equitable relief, to which upon general principles they are no doubt entitled,' it seems impossible to regard this release as having any less effect, at law certainly, than to cut off all collateral remedies for the principal thing released. This is one of the most obvious and universally recognized principles of the law of contract. It is, upon principle, almost too plain to admit of simplification. To suppose the contrary would be to expect the stream to continue when its fountains were cut off; or a weight to remain suspended, when the power which sustained it was removed, or that the obligation of the sureties is superior to that of the principal, or that it is something different from and independent of it. But all good sense and sound logic, all experience and all learning, teach the reverse.
In form it may not appear so obviously absurd, that the plaintiffs should claim to maintain this action, after having released Waller, as that a creditor, having released his principal debtor, should claim to recover of the surety, without reserving any right to go against the surety; but, in fact, it is the same thing. The plaintiffs and Jackson were sureties, jointly, for Waller to the common creditor, the association who employed Waller. But there was also a subordinate suretyship for Waller, to each other. Upon payment of any sum of money for Waller to the common creditor, by any one of the sureties, a right of action accrued to that one to recover of Waller the whole sum paid, and the other sureties were severally bound, as surety for Waller, and collateral to his primary obligation, in their aliquot proportion of the entire sum. Thus these plaintiffs, by releasing Waller from all liability to refund any sum they should pay, of necessity thereby released all collateral obligations, resting upon the co-sureties, to contribute their proportion of the sum primarily due from Waller, and which had been released to him. So that, had the release been executed by but one of the sureties, and he subsequently compelled to pay the whole debt, he must be content to bear the loss. By releasing Waller he became principal, as to any liability assumed by himself. By contracting not to sue the *595principal debtor, he impliedly bound himself not to do that indirectly, which he had assumed not to do directly.
It seems to us, that this is a matter, which cannot be made more perspicuous by argument, or illustration. The case of Hobart v. Stone, 10 Pick. 215, is fully in point, and the reasons assigned quite sufficient, and as satisfactory as could be given, as it seems to us. The court say, “ A co-surety’s obligation to contribute is collateral “ only, and whatever discharges the principal will of course dis- “ charge the co-surety.” If the obligation of Jackson, to contribute his aliquot proportion of any sum the other sureties should be compelled to pay for "Waller, by virtue of the joint undertaking of all, was really an obligation of suretyship for Waller, and merely collateral to his primary obligation to refund the whole sum paid, — and it seems to us impossible to regard it otherwise, — then it is clear, upon general principles, that when the plaintiffs put it out of their power to sue Waller, they lost all claim upon his sureties. For the law regards any modification of the principal contract, by which the right of action is suspended, for the shortest time, as a release of the surety. But it seems needless to pursue this matter farther. A suretyship is merely, in the language of the statute of frauds, “ an undertaking for the debt of another,” and the defendants’ undertaking was nothing else.
One view of the case has been urged upon our consideration, which has indeed something of plausibility about it, and which we have examined with some care, and with a disposition to adopt it, if found applicable to the case. It is, that the release, being given for one object, shall not, in a court of equity, be permitted to operate beyond its primary purpose, and thus produce an end, not in contemplation at the time of its execution. But there seem to us invincible obstacles in the way of applying any such rule of restraint to the operation of this release.
1. This release was intended to remove all interest of Waller in the then pending litigation, and to effect that object by removing, at once, from him all possible prospective liability for any portion of the judgment recovered in that suit. This surely would not have been effected in the mode contemplated, if Jackson, or his heirs, were still liable to contribution. For if so, they must of course have an action against Waller for the amount. And we learn from the *596testimony, that this view was suggested, as an answer to the release, and the referees held, that it did remove Waller’s interest, upon the ground, doubtless, that the release of Waller from all liability did, by consequence, release the co-sureties from contribution.
2. But if we should regard this release as more extensive than it need be, to accomplish the object of releasing Waller’s interest in that suit, it will be difficult to say, there was any mistake or misapprehension of the parties, in regard to its execution. It is just such a paper, as the parties chose to execute; and if it could be shown, that the parties mistook its operation in this suit, or did not have that in mind, it will not make out a case for the interference of a court of equity, to restrain the operation of the contract. For the parties, if they understood the subject matter of their contract, were bound to know, that it must cut off all contribution from co-sureties, to the extent of the release, in order to produce the immediate end in view. A release of Waller from all liability to refund the expense of the then pending litigation would, as we have already suggested, doubtless have removed all interest in Waller. But to have that effect, it must not only have had the effect to release him from all direct claim for such expense, but from all indirect claim, by means of the co-sureties. And so must any release, to remove Waller’s interest, operate, not only upon the direct claim against Waller, but upon all collateral remedies for the same, thing. And this is the view the referees must have taken of the thing, in order to admit Waller.
And in this view of the subject, it is not that the parties have executed a release operating more extensively, than it needed to have operated, or than it was expected to operate, but that probably, either through mistake of the law, or from over caution, and to save all question, and make the matter secure, they saw fit to give Waller a general release u from all liability," when probably a more restricted release might have answered the end equally well. But was it ever known, that parties, having proceeded upon any such ground, could claim to be set back upon their former standing? We think not. One might almost as well expect to be informed, on application to a court .of equity, in advance, what kind of release they should execute. The truth is, that parties must act, in such cases, and they expect .to act, altogether upon their own responsi*597bility ; and if they release a right of action, in order to get a witness admitted to testify, when no such release was necessary, or give a broader release than was needful, they must abide the consequences; and it would be a novel case for a court of equity, in such case, to restore the party to the rights which he had thus unnecessarily released. If that could be done, the proceeding of releasing a witness would be a safe one !
But those cases, where courts of equity interfere to restrain the operation of releases, are confined within narrow limits and proceed upon principles of well settled law.
1. Courts of equity will restrain a general release to the thing, or things, intended to be released. As, upon a release of all demands, when some particular demand was in view, the court of chancery will not allow the release to take advantage of the general words, to defeat the collection of a demand not then in the minds of the parties. So, too, a court of equity will reform contracts, in all cases, upon the most indubitable evidence, that they were so drawn, as not to express the intention of the parties.
2. Another class of cases, where courts of equity relieve the party from the consequences of his own inadvertence to some extent, is where he is made liable, at law, for a penalty, or where the terms of his contract subject him to loss, in the nature of a forfeiture. In all such cases courts of equity interfere, and, when the damages are clearly subject to estimation, upon the payment of such sum as is full compensation, decree restitution.
3. The case of Claggett v. Salmon, 5 Gill & Johns. 314, cited from 2 Eq. Dig. 417, decides, that when the creditor releases one of .two or more joint and several debtors, not intending to release the debt, a court of equity will restrain the operation of the release. The case, upon examination, I find to be precisely the same case put by Ld. Eldon, in Boultbee v. Stubbs, 18 Ves. 20, — that is, that ■of a composition made with the principal, reserving the right to collect the balance of the surety, — which Ld. Eldon justly says is “ so •very absurd, that it ought to appear plainly," — and it is no precedent for the present. And it seems to us impossible to find any general principle, established by the past history of equity jurisprudence, which would justify our limiting, the operation of this release, in this ■case, which would not equally justify that interference in all cases, *598where we might suppose it more just, if the parties had made a different contract.
4. In form, if any such interference of the court were desired, upon the coming in of the supplemental answer, urging this portion of the defence, the orators should have filed their supplemental bill, stating the grounds upon which they desired to contest the release, so as to have had the matters properly in issue before the court. But that is mere form, and could be reached now, if the merits were in favor of the plaintiffs. Claggett v. Salmon expressly requires, that the cause for giving a contract of release a restricted operation should be alleged in the bill, and issue, joined on that point, in order to justify a decree qualifying its operation. So that in strictness this question did not arise in this case; but as it was important to have it settled, and either now or hereafter it must arise in the case, and it having been fully argued, we have examined it and given the result of that examination. We do not intend to say, that the chancellor will be absolutely precluded from now suffering the question to be raised in form upon the record; but it seems to us, that such a step could not avail the orators.
The result is, that this decree must be reversed, and the case be remanded to the court of chancery, with instructions to that court to dismiss the plaintiffs’ bill.
Note by Redfield, J. Wesley v. Thomas, 6 Har. & Johns. 24, is where a court of equity decreed a mortgage to be surrendered to be cancelled, after the debt was paid, for which the mortgage had been given, as collateral security to some one remotely holden. It has no bearing whatever upon the question involved in the present case. The case of Claggett v. Salmon has been already stated. It was decided upon the authority of the English cases, allowing the creditor to compound with the principal, reserving the right to collect the balance of the surety, and although most absurd, as Ld. Eldon says, is there regarded as law; and it comes nearer the present case, than any other 1 have seen. But it is, in fact, an authority against the plaintiffs. In that case the plaintiffs made an express reservation of the right to go against thfe surety for the balance, — and which Ed. Eldon says must appear very plainly, or it will not be allowed, — while in the present case there is no such reservation, either express, or implied; and if there had been, it would have defeated the very purpose of giving the release, that is, removing the interest of Waller. The case of Kirby et ux. v. Taylor et al., 6 Johns. Ch. R. 242, is the case of settling the guardianship account with one of the guardians, as to his share, expressly excepting the other two guardians; *599and the court held, that the release should not operate in favor of the guardians not intended to be released. Reigal v. Wood, 1 Johns. Ch. R. 402, is where the court set aside securities obtained by fraud. Wiser v. Blachly, 1 Johns. Ch. R. 607, is the common case of reforming a deed, or contract, to correct a mistake. Boyd v. Dunlap, 1 Johns. Ch. R. 482, is the common case of allowing a deed to stand as security for the valid portion of the sum included in the condition, —one portion being clearly against good conscience. In the case of Owen v. Homan, 15 Jurist 339, Am. Ed. vol. 3, p. 112, before the Lord Chancellor so late as February, 1851, it seems to be considered, that any contract between the creditor and principal debtor, by which the contract is substantially varied, although with the express stipulation, that the surety shall remain liable, is wholly inadmissible.