Court Opinion

ID: 6558471
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:05:19.800465+00
Date Added: 2024-06-11T15:56:25.785389
License: Public Domain

The Chancellor :—
It was frankly admitted by the complainant’s solicitor that, under the law of suretyship, the creditor is not bound to active diligence against the principal and that he does not lose his remedy against the surety even by *258refusing upon request of the latter to pursue the principal although the principal afterwards become insolvent. Such must be taken as settled law although there have been some decisions to the contrary. The decisions here referred to are those which have followed Pain vs. Packard, 13 Johns. 174. In that case the Supreme Court of New York held it to be the duty of the creditor at the surety’s request to sue the principal if then solvent and that the surety would be discharged by the creditor’s refusal in the event that the principal should afterwards become insolvent. This decision proceeded upon the ground more fully explained by C. J. Spencer in the subsequent case of King vs. Baldwin, 17 Johns. 386, that inasmuch as a court of equity will on a bill filed by the surety compel the creditor to proceed against the principal thus recognizing the obligation of the creditor first to exhaust his remedy against the principal and as the relations of principal and surety should be the same in both jurisdictions, a court of law ought to enforce the like obligation by holding the refusal of the creditor a valid defense. But there is not, as this argument assumes, any general equity of the surety, to throw upon the creditor the burthen of enforcing performance of the contract by the principal, or to compel the creditor to incur the expense and vexation of a law suit for the benefit of a party who is himself in default. It is only on special grounds that equity will interfere with the creditor’s election between his double remedy, as where the principal becomes bankrupt the creditor will be compelled to prove the debt under a commission of bankruptcy, and so where the creditor holds a collateral security which is available to him but which he could not make so to the surety by assignment, he may be compelled first to resort to such security ; but even in these special cases the surety will be required first to indemnify the creditor against the risk, delay and expense. Hays vs. Ward 4 John. Ch. R. 130 and cases cited. The equity in question is not to be con*259founded with the unquestionable right of the surety to proceed in equity after the debt is due against the principal for indemnity. Ranelaugh vs. Hayes 1 Vern. 190; Antrobus vs. Davidson, 3 Mer. 568.
. _ Chancellor Kent, in King vs. Baldwin, 2 John. Ch. 562, does affirm broadly the equity of the surety, at any time after the debt is due, to compel the creditor to collect the debt citing as authorities Lord Thurlow in Nisbet vs. Smith, 2 Bro. C. C. (582) and Lord Loughborough, in Rees vs. Berrington, 2 Ves. J. 543. The remark of Lord Thurlow, however, has since been held as alluding only to the surety’s equity under special circumstances. See the note (5) in Perkins Ed’n. of Brown. The remark of Lord Loughborough, which is wholly extra judicial, is the only one in the English cases affirming in general terms, the surety’s equity to compel a collection of the debt out of the principal. Lord Loughborough’s broad statement of it is not, however, reconcilable with the more cautious qualification of it when stated by other judges, who have uniformly rested the equity upon special grounds, as by-Lord Eldon, in Wright vs. Simpson, 6 Ves. 734. In Hays vs. Ward, 4 Johns. Ch. 131, which was subsequent to King vs. Baldwin. Chancellor Kent upon a full examination of the question, concludes that there is not in the English law, as there was under the civil law, any general rule requiring that upon the surety’s request the debtor be first sued and in that case he compelled a creditor to resort first to a collateral security on the special ground that it would not be available to the security by assignment on his paying the debt.
It seems then that Pain vs. Packard is not supported by the ground assumed for it; and it must be considered as obnoxious to the objection that it incorporates a new term in the contract of the surety. The rule of that case was affirmed in the Court of Errors and Appeals of New York in King vs. Baldwin 17 Johns. 386. But this was by *260the casting vote of the President of the Senate, a layman against the opinion of Chancellor Kent in the same case when it was before him, 2 Johns. Ch. R. 554, and also against the opinions of the most distinguished lawyers of that State then sitting as Senators in the Court of Appeals. Ch. J. Spencer who delivered the judgment in the case of Pain vs. Packard adhered to that decision in King vs. Baldwin; but two of the other judges who had concurred with him in the former case and who also sat in the latter case, Yates and Platt, J. J., acknowledged their error. The New York Courts while submitting to King vs. Baldwin as a decision of the Court of last resort, have treated it with marked disfavor and applied its principle with extreme strictness and with the qualification that the refusal of the creditor to proceed against the principal shall discharge the surety only where actual injury has resulted from it, to be shewn by proving that the principal was solvent at the time of the request and has subsequently become insolvent. With this qualification, the rule of Pain vs. Packard has been followed. Warner vs. Beardsley, 8 Wend. 194; Herrick vs. Borst, 4 Hill 650. It has also been followed in some of the other States. Cope vs. Smith, 8 S.& R. 110; Hancock vs. Bryant, 2 Yerger 476; Laing vs. Brevard, 3 Strob. Eq. 59; Bruce vs. Edwards, 1 Stew 11; Goodman vs. Griffith, 3 Ib. 168. The courts of Pennsylvania have imposed the additional qualification 'that the surety must when making the request give notice that he will consider himself discharged if it be not complied with. But in most of the States the whole doctrine is rejected as unsound in principle. Hubbard vs. Davis, 1 Aiken 296; Montpelier Bank vs. Dixon, 4 Vt. 599; Page vs. Webster, 15 Me. 269; Mahurin vs. Pearson, 8 N. H. 539; Bull vs. Allen 19 Conn. 101; Pintard vs. Davis, 1 Spencer 205; Broughton vs. Duval, 3 Call 61; Dennis vs. Rider, 2 McLean 451; Jenkins vs. Clark, 7 Hammond 72. See at large Rees vs. Berrington, 2 Lead. Cas. in Eq. 707. In some States the rule of Pain vs. *261Packard has been ena'cted by the Legislature. The policy of such enactments is not a subject for consideration here.
But the equity to relief in this case is sought to be raised out of the neglect of Attix, the creditor, to fulfill a promise made to the surety on his request, that a judgment should be entered on the bond, by means of which judgment, had it been entered as promised, the surety alleges that he could have protected himself.
Now it is quite clear that this promise by Attix had no force of a contract, such, to shew what I mean, as would have sustained a bill in equity for specific performance or an action at law for damages upon a breach of it. For it was a promise, wholly without consideration. It is therefore clear that this is not a case for relief as for the breach by Attix of any general duty resulting from his relations to the complainant as surety for the debt nor for a breach of a contract. We must then look for some other ground of relief. The complainant’s counsel sought to find it by putting the case as one of constructive fraud, arguing that although the promise of Attix was without consideration, yet, that having led complainant to rely upon that means of protection, without giving himself any further concern and having disappointed him in it the attempt afterwards to hold the surety liable, is a constructive fraud. But in order to make the breach of such promise operate as a constructive fraud it must appear that the surety was induced by it to forego some advantage or remedy which otherwise he would have taken. It is not sufficient for this purpose to suppose that but for the promise he might have resorted to some other mode of, indemnifying himself. It must appear that in consequence of the promise he did in fact alter his line of conduct to his injury.
The class of constructive frauds within which alone a case of this nature could be brought, is that in which one party has been misled to his prejudice by some *262admission, statement, acquiescence, or, as in this case, by a promise of the other party touching the subject-matter in controversy. In such case any claim of that party by whom the other has been so misled, inconsistent with such act, admisssion or acquiescence, is held to be a fraud, and that, too, irrespective of any corrupt purpose to mislead ; it being in the absence of any such purpose termed constructive fraud.
The rule is in the text books sometimes stated as if the intention of the party misleading were material. But upon principle this cannot be. For the doctrine of equitable estoppel proceeds not upon the ground of premising fraud or deceit, but rather, of adjusting between two parties a loss which one or the other must bear, upon the equitable consideration that it should fall upon him through whose act, admission or silence, in a case wherein it was a duty to speak, it has resulted. In such cases, equity acting upon the conscience of the party in default, restrains him from asserting the claim in question, however well founded it may be otherwise. This doctrine of equitable estoppel for the prevention of fraud has been much favored for its wholesome tendency to promote good faith and fair dealing, and it is now applied in courts of law as well as in equity. Nevertheless, in as much as this kind of relief interferes with what is a prima facie legal right or title of the party restrained, it is administered only in favor of one who has been actually misled through the act, admission, silence, or as in this case, by the promise of another, i. e., one who has been induced to alter his line of conduct, with respect to the subject-matter in controversy, so as to have subjected himself to some liability, he would not otherwise have incurred, or to have foregone some right or remedy which he otherwise would have taken. But where the party has not been so misled, and the transaction remains wholly unaffected, leading to the same results as,if the acts or silence complained of had *263not occurred, then no such injury has been sustained as will afford a ground for relief. This qualification of the doctrine of equitable estoppel or, as it is sometimes called, estopped in pais, will be found to be well established. 1 Sto. Eq. Jur. Sec. 386; Dazell vs. Odell, 3 Hill 219; Walters vs. Truesdell, 6 Pick. 457; 2 Smith's Lead. Cas. 466, at large.
Now the complainant’s case is defective in not shewing that, as a consequence of the promise of Attix, he altered his condition, by waiving some protection or remedy through which otherwise he would have secured himself; as if he had been ready to pay the debt and take an assignment or to proceed in equity to compel its immediate collection out of the principal and had been induced by the promise of Attix to forego these or some other means of indemnity.
It is true the bill alleges that but for the omission of Attix to enter the judgment the complainant would have attended the sale of Williams’ farm and bid it up to a figure sufficient to cover his judgment, supposing it to have been made a lien next after the Bailey mortgage. But without stopping to enquire what such an opportunity for indemnifying himself would have been worth, it is enough to. say that the loss of it to this complainant was not a consequence of the promise of Attix or of any reliance of the complainant upon it. It is simply the same result to which the' transaction would have come had no promise been made, that is no judgment would have been entered by Attix against Williams, the subsequent liens would have intervened and the property of Williams would have been sold without paying this debt. To entitle the complainant to relief it is not enough to show that he had suffered loss in consequence of the creditor’s omitting to enter the judgment; but he must connect his loss with the promise of Attix, showing that, but for that promise and his relian'ce upon it, he would have adopted,—not that *264he had it in his power to adopt but he would have adopted, —some other means of protecting himself. As this does not appear from the case made, I cannot declare that the complainant has been misled by the promise of Attix to his injury. It is not therefore a case of constructive fraud upon the surety such as to warrant the Court in interfering with the creditor’s full legal remedy upon the bond.