Court Opinion

ID: 5548012
Source: CourtListenerOpinion
Date Created: 2022-01-10 21:22:42.531714+00
Date Added: 2024-06-11T08:34:58.520285
License: Public Domain

The Chancellor.
Previous to the examination of the . main question in this cause, which is, whether the estate of Mrs. Gahn in the mortgaged premises is exonerated from the payment of the arrears of interest included in the note of April, 1825, it may be proper to dispose of an objection which is made to the decree even on the supposition that the main question might have been rightly decided' in favor of Mrs. Gahn. It is urged by the appellant’s counsel that if the wife is to be considered a surety merely, and if her estate in the mortgaged premises was discharged from the-arrears of interest included in the note, still the decree is erroneous in not permitting the complainant to sell the husband’s life estate in the whole mortgaged premises, in the first place, to satisfy those arrears of interest; leaving her estate to be sold to satisfy the principal and that part of the interest which is declared to be a valid lien thereon. There may be a slight mistake in this part of the decree ; but the error, if any, is not of the kind supposed by the appellant’s counsel. And I am inclined to think such mistake is in favor of, rather than against the complainant. If the lien for the whole mortgage money and interest still remained as a charge upon the wife’s estate in the premises, there would be a plain and manifest equity, in her favor, to have her husband’s estate in the mortgaged premises first sold, and the proceeds thereof applied, towards the payment of the debt, for which the property of the principal debtor is first liable, in equity. And even subsequent incumbrancers upon the estate of the husband, by judgment or decree, could not object to this disposition of the property; as the prior equitable claim of the surety, to have the mortgage satisfied out of the property mortgaged by the principal debtor, would be paramount to the claim of a judgment creditor who had only a general lien upon the estate of his debtor, and which in this court is not permitted to prevail as against a prior equity. (Howe’s case, 1 Paige’s Rep. 125. 1 Atkinson on Conv. 512. 2 Har. & John. Rep. 64.). The application of this equitable rule, of throwing the charge upon the property of the principal debtor and extinguishing that fund in the first place in exoneration of the estate of the surety, is of every day’s occurrence. And the only difficulty in understanding and applying it here, ari*641ses from the fact that the principal and surety have different estates in the same premises, instead of having distinct lots or separate parcels of property included in the same mortgage. If two lots were mortgaged for the security of the debt, one of which lots belonged to the principal debtor and the other to another person who joined with him in his mortgage merely as his surety, no' one could doubt that in equity the lot of the real debtor should be first sold to satisfy the debt, and that the property of the surety ought only to be resorted to in case there was a deficiency. The principle contended for by the appellant’s counsel, however, is, that if the debt was payable in two instalments, and the value of the lot of the principal debtor was only sufficient to pay the first, and the mortgagee discharged his lien against the surety, as to that instalment,by giving lime to the principal debtor, the whole of the proceeds of the lot of the real debtor must nevertheless be applied to pay that instalment; leaving the whole of the second instalment to be satisfied out of the property of-the surety. A principle which in its application would produce such a result, certainly cannot be correct. In the case supposed, the least that the surety would have the right to ask would be that the proceeds of the property of the real debtor might be applied to the "payment of the two instalments rateably; and that only the balance of the last instalment should be charged upon the property of the surety. There is no difficulty in applying such a rule of construction to the case now under consideration. The life estate, or estate by the curtesy initiate of the husband, may be first sold, and the proceeds thereof applied, rateably, to the payment of the two sums directed to be ascertained by the report of the master. And then the wife’s interest in such portion of the property as might be requisite to satisfy the "balance of that part of the debt for which her estate in the premises is holden, could be sold for that purpose. Or if it should be thought most for the interest of all parties that the estates of the husband and wife should be sold together, the whole mortgaged premises might be sold, and the value of the husband’s interest in the proceeds could be ascertained upon the principle of life annuities. As the value of the premises and of the husband’s in*642terest therein have not yet been ascertained, it is impossible to say whether this mode of disposing of the proceeds of the different interests in the mortgaged premises, which is the only correct mode if the decree is right in other respects, would be more or less beneficial to the appellant than that adopted by the vice chancellor. And from the view I have taken of another part of this decree, any further investigation on that subject is unnecessary.
The general principle that a surety is discharged, where the creditor, without the consent of the surety, makes a binding agreement with the principal debtor to extend the time of payment, is not disputed. But it is insisted by the complainant’s counsel that this'principle is only applicable to the case of a surety who becomes personally bound for the payment of the debt; and that it cannot be extended to a person who merely mortgages or pledges his property by way of security for the debt of another person. It is also contended that the wife, who pledges her property for the security of her husband’s debt, is not entitled to the benefit of those equitable rules which are constantly applied for the protection of other sureties ; and that she will not be discharged by an act of the creditor which would be sufficient to bar his remedy against other persons standing in the situation of sureties.
Although I have not been referred to any case where this precise question has arisen, I am unable to discover any reason for the distinction between those cases where the surety pledges his personal responsibility for the payment of the debt, either with or without the additional pledge of his property, and the case of a simple pledge of his property as security, without any remedy over against him, personally, if the property pledged should prove insufficient. The reason of the rule, as laid down in the books, is, that by extending the time" of payment, the risk of the surety is increased; or at least, that the nature of his liability is altered without his consent, and he is deprived of the power of an immediate resort to the principal debtor to compel him to pay the debt, for which the surety is liable to the creditor. And certainly, a person who has pledged his property to the full value of the debt, as security for another, will sustain the same injury by the giving of time to the principal debtor, as if his personal re*643sponsibility was pledged in addition to the mortgage upon his property. I am not prepared to say that the principle of discharging the surety by a mere extension of time, and where it is evident the surety has been actually benefited by the arrangement, has not in some cases been carried too far. And, under such circumstances, I should not be disposed to extend that principle beyond the adjudged cases. But where the surety has been actually injured, by an extension of time granted without his consent, or where the creditor has relinquished a security against the property of the principal debtor, after notice of the equitable rights of the surety, the fact that such surety is not personally liable for the payment of the debt, and therefore can only be injured to the extent of the property which he has pledged to the creditor for that purpose, can make no difference in the application of this equitable principle in his favor.
By the common law, the wife was permitted to mortgage her inheritance for the security of her husband’s debt, by a particular mode of conveyance. And, in this state, she is permitted to do it by the more simple process of joining with her husband in the mortgage, and acknowledging it before the proper officer. If the fact that she executed the mortgage merely as a surety for her husband, and as a guaranty for the payment of his debt in case of his default, was distinctly expressed upon the face of the instrument, no one could doubt that she was in truth a mere surety for the husband, to the extent of her interest in the mortgaged premises. And if the fact of suretyship does not appear upon the face of the instrument, it is always competent for the surety, in this court, to establish it by proof aliunde. It is insisted, however, by the appellant’s counsel that when the wife has joined with the husband in a mortgage upon her inheritance to secure the payment of his debt, she is not entitled to the same protection which is extended to sureties in other cases. And in this position they are sustained by the written opinion of a most distinguished jurist, to whom the complainant submitted her case soon after the commencement of this suit. It is due to that gentleman, however, to say that it was an ex parte opinion, given as counsel, probably without adverting to what
*644might be urged on the other side of the question, and upon a' statement of facts which are not given in the opinion. If the appellant’s counsel are right upon this point, it certainly presents a glaring defect in the equity law of this country and of England, as no surety can stand in greater need of protection, against the inequitable conduct of the creditor, than a feme covert, under such circumstances. By the Senatus Consultum, Velleianum, (Digest, Lib. 16, tit. 1,) all females, both married and unmarried, were prohibited from contracting as sureties for others, so as to bind either their persons or their estates, and the wife could in no case become security for her husband except by operation of law. This was also the law of Normandy, and some other provinces of France, where the Novel of Justinian, permitting the woman to renounce this exception in certain cases, was not followed until the promulgation of the Napoleon code. Since that time, however, the. court of Cassation has decided that this restriction of the civil law is abolished in France, and that a wife may now become a surety for her husband. In Spain, and in our sister state of Louisiana, which has followed the Spanish law, this restriction upon the power of the wife to contract or to bind herself, either in her person or her estate, as a surety for her husband, still remains in full force. (Institutes of the Law of Spain, 216, 244. Pilie v. Patin, 20 Martin’s Rep. 692.) And considering the peculiar situation, in which the wife is placed when the husband is in failing circumstances, perhaps it would be well if our laws had thrown around her the same protection here. Certainly there is nothing in her situation as a married woman which, in reason, should deprive her of any of those rights which belong to other persons standing in the character of sureties. The civil law made no such distinction as is contended for here ; for in those cases in which she became ■ surety for her husband by operation of law, she was subrogated to the rights of the original creditor, as against the husband and his estate. (Pothier on Obl. 324, No. 521, B.)
The first case I have been able to find in the English reports on this subject is Rayson v. Sacheverel, before Lord Nottingham, in 1682, (1 Vernon’s Rep. 41.) In that case, as originally reported by Vernon, it appeared that manifest injus*645tice was done to the heir of the wife ; as the original mortgage money was paid ofij and he was held liable for the payment of a further sum subsequently borrowed by the husband on the credit of the mortgage. It appears, however, on reference to the minutes of the register, as stated in the note in Raiihbfs edition of Vernon, that after the mortgage had become absolute at law the husband paid a part of the debt, and that afterwards, with the written consent of the wife, he borrowed of the mortgagee a similar sum on the credit of this security, but without levying a new fine on the second loan ; and that the wife, with the consent of the husband, afterwards made a will and devised the land to be sold for the payment of her debts, and to pay this mortgage debt in particular. Lord Nottingham, therefore, considering the right of the heir and devisee to redeem as a mere equity, the legal estate being in the mortgagee, said the mortgagee had as much equity to the money as the heir had to the land ; and therefore he would not permit the heir to redeem until the whole mortgage money was paid. (See 2 Ch. Cas. 98, S. C.) In the case of The Earl of Huntingdon v. The Countess of Huntingdon, (1 Bro. P. C. 1,) decided about twenty years afterwards, the wife had joined with the husband in a mortgage of her estate, as a security for his debt; he promising to repay the money for which the estate was mortgaged. The husband afterwards paid off the mortgage and took an assignment thereof to trustees for his ■ own use. He afterwards devised the mortgage, together with his personal estate, in trust for his younger children. Upon a bill filed by the heir at law of the wife, Lord Keeper Wright would not permit him to redeem the estate except upon payment of the balance of the mortgage money, after deducting therefrom the amount of rents and profits of the estate received by the husband after the death of the wife. But upon appeal to the house of lords this decree was reversed ; and the heir was permitted to recover the estate discharged of the mortgage. The case of Tate v. Austin, (1 Peer Wms. 264, 2 Vern. 689, S. C.) came before Lord Cowper in 1714. The wife had mortgaged her inheritance to raise a sum of money for the husband to equip him as an officer in the army; he covenanting to pay the mortgage money. The husband, by his will, *646gave a specific legacy to the defendant Austin; and his personal estate being insufficient to pay both the mortgage money and the legacy, the question was whether the wife could come in upon the personalty for the redemption of the mortgage. The lord chancellor decided that the personal estate must be applied to redeem the mortgage, in preference to the payment of the legacy; but that this claim of the wife must be postponed until all the debts of the husband had been paid out of the estate. This case is relied on by the appellant’s counsel as a direct authority for saying that the wife is not entitled to any of the privileges of a surety, although she may be paid out of the estate of the husband, if there is a surplus. No reason is given for postponing the claim of the wife until after all other debts were paid ; and, as Lord Thurlow says, this was not the real question in controversy in the cause, and consequently “ was not weighed in argument.” Lord Cowper probably considered the claim of the wife as a mere equitable claim against the estate of her husband, for which no suit at law could be brought against his personal representatives ; without adverting to the fact that the covenant of the husband to pay the mortgage money and interest was still an available security in the hands of the mortgagee, which would enable the latter to claim payment out of the real and personal assets of the husband, to the exclusion of the simple contract creditors, and that the wife, standing in the situation of a surety, was entitled to be substituted in the place of the mortgagee. Lord Hardwicke certainly understood the rights of the wife to be the same as those of any other surety, in this respect. For in the case óf Parteriche v. Powlet, which came before him twenty-eight years after this decision of Lord Cowper, (2 Atk. Rep. 382,) he says, if a husband has a mortgage on his estate, and a wife joins with him in charging her own, and she survives him, though her estate is liable to the mortgagee, yet in this court her estate shall be looked upon only as a pledge; and she is entitled to stand in the place of the mortgagee, and to be satisfied out of her husband’s estate. His lordship could not have meant, as it was held in Tate v. Austin, that she was only to come in upon his personal estate after the payment of all the simple contract creditors. For if *647she was entitled to stand in the place of the mortgagee, she was not only entitled to the benefit of her husband’s covenant, as a charge upon his real assets, which the simple contract creditors could not reach, but she was also entitled to an assignment of the mortgage upon the husband’s estate, so as to give her a preference even as to the specialty creditors. And this opinion of Lord Hardwicke is again reiterated by him, seven years afterwards, in the case of Robinson v. Gee, (1 Ves. sen. 252.) He there says, “ It is a common case for a wife to join in a mortgage of her inheritance for a debt of her husband ; and after her husband’s death she is entitled to have her real estate exonerated out of the personal and real assets of the husband, the court considering her estate only-as a surety for his debt; and none of his creditors have a right to stand in place of the mortgagee, to come round upon the wife’s estate.” In the case stated by his lordship, the wife could not be considered a mere equitable creditor of the estate of the husband, and as inferior even to the simple contract creditors ; for it was admitted she had a claim upon the real estate, which estate" they could not reach. Neither could she reach the real assets, except upon the principle of being substituted in the place of the mortgagee, who was a specialty creditor of the husband by virtue of the bond, or of the implied covenant in the mortgage, which the latter executed with the wife. It is evident, therefore, that Lord Hardwicke understood that in such a case the wife had a right to be substituted in the place of the mortgagee as a specialty creditor; and that as such she might exhaust the personal estate of the husband to the exclusion of simple contract creditors, who could have no claim to substitution except upon the principle that the personal estate had been exhausted by a creditor who had a lien upon property which they could not reach. This questionable point in Tate v. Austin does not appear to have been followed in any more recent decisions. On the contrary, it stands opposed in principle to the late decision of Sir John Leach, in Aguilar v. Aguilar and others, (5 Mad. Rep. 414.) And from, the manner in which it was spoken of by Lord Thurlow, in Clinton v. Hooper, (3 Bro. C. C. 211,) it is evident that he considered it as having been decided without due *648consideration. From the very nature of suretyship, whether the personal responsibility of the surety, or his property only, is pledged for the debt of another, if the surety is compelled to pay the debt, either to save his property or to discharge his personal obligation, he has an equitable claim to be subrogated to all the rights which the creditor had, against the principal debtor or his estate. And as the decision in Tate v. Jlustin stands opposed not only to this fundamental principle in the law of suretyship, but also to the deliberate and reiterated opinion of one of the most distinguished equity lawyers-which Great Britain or any other country ever produced, I think it should be considered as a hasty decision, made without due consideration of the question decided; and that it ought not to be followed.
Where the wife does, in fact, mortgage her estate merely as a surety for her husband, with a clear and explicit understanding between them that he is to pay off and satisfy the mortgage money and interest out of his own property, there can be no good reason, especially after the death of the husband, why she should not be entitled to all the rights of a surely in other cases, and be substituted in the place of the creditor, as to all his remedies against the principal debtor for the recovery of his demand. But it is said that if the wife is to be considered as. a surety, as between her and the husband, she has no claim to be considered as such in regard to the creditor ; or, in other words, that she cannot be permitted to object to the creditor’s claim upon her estate, on the ground that he has by his own act incapacitated himself from ceding to the surety his rights and remedies, against the principal debtor and his estate, as they originally existed. Let us see what would be the effect of the adoption of such a principle, in a case like the present. The husband and wife, in the right of the wife, own an estate worth $20,000, in which the husband’s estate for life, as' tenant by the curtesy initiate, is worth $6000. The husband and wife join in a mortgage to a creditor of the former, to secure a debt of $5000, payable in one year ; the wife joining in the mortgage and pledging her estate in the premises merely as a surefy for the husband. If she is entitled to be considered in that character as against him, upon a bill of fore*649closure brought by the creditor, she will be entitled to have his life estate in the premises sold in the first place to satisfy the debt. It is evident, therefore, that if the debt is collected when it becomes due, or within a reasonable time thereafter, . the husband’s life interest in the premises will be sufficient to pay the debt. But if she has not the rights of a surety, as against the creditor, lie may release the estate of the husband from the lien of the mortgage, to enable some other creditor of the husband to reach the same by execution ; or he may consent to wait for the principal sum until after the death of the husband, for the purpose of keeping his money out at a high rate of interest. In either case, it is evident, the whole debt would be eventually thrown upon the estate of the wife, and contrary to equity. And yet, if the principle contended for by the appellant’s counsel is correct, all this injustice might be done to the wife, in such a case, without impairing the lien of the creditor upon her estate in the premises. In the case supposed, if the lien upon the estate of the husband had not been discharged, or a valid agreement to extend the time of credit had not been made, the wife, by her next friend, might have filed a bill against her husband and his creditor, immediately after the debt became due, to have the debt paid out of her husband’s interest in the premises; upon the same principles upon which similar relief would be extended to any other creditor. And if the wife would be entitled to such relief in case of the mere neglect of the mortgagee to proceed and collect his debt when it became due, it would certainly be inequitable for the creditor, who had full notice of that right, to deprive her of it by any voluntary act of his, and without her consent.
The principles upon which the claim of the wife, standing-in the situation of security for her husband, rest being settled, it only remains to apply those principles to the case under consideration. I have already stated that I was not disposed to extend the principle of discharging sureties beyond the adjudged cases upon a mere extension of credit and where the surety has sustained no injury by the delay. By the civil law the ex-ceptwnem cedendamm actionem did not reach such a case. If by *650the voluntary act of the creditor, he had disabled himself from ceding to the surety hia right of action, or other remedy against the principal debtor or his estate, the surety, by virtue of this exception, might obtain a decree of the court declaring the demand of the creditor inadmissible for so much as the surety might have procured by the cession of those actions and remedies which the creditor had disabled himself from making. So by the Napoleon Code, (Art. 2039,) it is declared that the surety is not discharged by the simple prolongation of the term allowed by the creditor to the principal debtor. As the whole of this doctrine depends upon the equitable principle that the creditor shall do no act to the injury of the surety, it is doubtful whether mere extension of time where the surety was not injured thereby, should have been held to discharge his liability ; except in those cases where the rights and duties of the parties are regulated by or form a part of the contract. And there is evidently a very substantial objection to applying the principle to the case of a feme covert who joins with her husband in a mortgage, upon her own estate, or upon the estate of the husband, to cover her contingent right of dower therein. As she can make no valid agreement respecting her real estate except in the particular mode prescribed by the statute, it would frequently be necessary to sacrifice her property because the creditor could not agree with the husband to extend the time of payment, even for a few months, without discharging his lien. In this case there is no pretence that the husband had the means of paying any part of the debt at the time the note was taken. And it could not delay the proceedings, as the whole of the principal was still payable immediately so that the possession of the property could have been recovered in ejectment; and the time of credit as to the arrears of interset would necessarily expire long before a foreclosure of the mortgage could be had.
Without intending, however, to express any definitive opinion upon this question, I am satisfied, upon another ground, that the claim of Mrs. Gahn, to have her estate relieved from any part of the principal or interest due on this mortgage, must be disallowed. As there were no proofs taken in the cause va*651rying the case from that which was made by the answer of Mrs. Neimcewicz to the cross bill, the whole of this defence rests upon that answer aloné. To discharge a surety from his liability, by any act of the creditor in violation of hisequitable rights, it is not only necessary that the fact of suretyship should be established, but that the creditor, at the time of the act complained of, should have known that he stood in the situation of a surety. (I John. Ch. Rep. 414.) In this case it did not appear upon the face of the securities whether the estate belonged to the husband or to the wife, nor whether the money was to be used for the benefit of the wife’s estate, or otherwise. It is true the husband gave his own bond for the debt. But as the wife was incapable of contracting a personal obligation, the securities would have been taken in the same form, although it had been intended and known to all the parties that the money loaned was to be expended, exclusively, in improvements upon the wife’s estate. The appellant, by her answer to the cross bill, admits that the mortgaged premises belonged to Mrs. Gahn, by descent from her mother; and Í presume the appellant also meant to admit she was informed of that fact at or before the execution of the mortgage. But I do not understand her to admit that she knew Mrs. Gahn executed the mortgage as a mere surety for her husband, or that she was aware that the moneys loaned were to be applied to his own use exclusively ; or that she was apprised of any agreement or understanding between the husband and wife that he was to pay off the mortgage monies, and interest, with his own means. On the contrary, I should infer from this answer that the principal dependance of Gahn and wife, for their support, was upon the income or sales of the wife’s property. That Mrs. Neimcewicz at least supposed the monies loaned by her were for the benefit of the wife as well as the, husband ; to prevent the necessity of a sale and sac-rifice of her estate, to keep up and support their family establishment, while that estate was constantly increasing ifi value. If such was the understanding and belief of Mrs. Neimcewicz, although she may have been in an error as to the facts, as they really existed, she was not bound to consider Mrs. Gahn in the light of a mere surety; and the lien of he;: *652mortgage could not be affected by a simple extension of the time of payment, under such circumstances.
The decree of the vice chancellor must therefore be reversed, with costs to be paid out of the proceeds of the mortgaged premises. And there must be a reference to a master, in the usual form, "to ascertain and report the amount due on the mortgage, including the arrears of the interest contained in the note ; and for a sale of the mortgaged premises on the coming in and confirmation of the report; and directing the master who sells, to pay the amount reported due, with interest and costs, out of the proceeds of the sale, and to bring the residue into court to abide the further order of the chancellor in the premises. As it is evident from the pleadings that the wife has a residuary interest in the property mortgaged, and may be entitled to have the whole mortgage money satisfied out of her husband’s interest in the premises, she may elect to have his interest in the premises sold separately, for the purpose of ascertaining its value, and having her equitable ■rights provided for in the distribution of the surplus monies. Or she may have the estates of both, in the whole premises, sold together, by lots or otherwise as will be deemed most for the interest of the parties ; and may have the value of the husband’s estate in the proceeds of the sale estimated upon the principle of life annuities.
Since my opinion in this case was reduced to writing and prepared for delivery, I have seen a recent decision of the late Loid Chancellor Hart, in the case of Lord Harberton v. Bennett and others, (Beatty’s Ch. R. 386,) where it was held that the mortgagor who had mortgaged his property, merely, as a security for the debt of a third person, without pleading his personal responsibility, was entitled to the ordinary rights of a surety ; and that the lien of the mortgage was discharged in consequence of a relinquishment by the creditor of a subsidiary security against the principal debtor, whereby the surety’s right of substitution was at an end.