Court Opinion

ID: 6578298
Source: CourtListenerOpinion
Date Created: 2022-07-20 19:36:14.860942+00
Date Added: 2024-06-11T15:57:11.025644
License: Public Domain

Butler, J.
The defence set up in this case can not be sustained.
By a series of decisions adopting the equitable principles of the civil law, there have been annexed to the undertaking of. a surety in a case like this, three conditions, and if either is broken by the creditor that undertaking becomes inoperative, and the surety is discharged.
The first is that the creditor shall present the note to the maker for payment at maturity, and if dishonored use due diligence in giving notice to the surety. The second is that no obligatory extension of the time of payment shall be given which will preclude the surety, if he pay the note to the creditor, from enforcing immediate repayment by compulsory process from the principal debtor. And the third is, that the creditor shall apply in payment of the debt, or hold in trust for the benefit of the surety, all securities which he may receive or procure for that purpose by contract or operation of law, so that if compelled to discharge the debt the surety *399may be subrogated to them. And the surety may waive the benefit of these conditions by assent. But although in some special cases in equity the creditor may be compelled to proceed against the maker, the law annexes no condition requiring the creditor to proceed against the principal debtor, or do any act (whatever his opportunity or however much it may subserve the interest of the surety,) to procure security or enforce payment from that principal; and he may remain entirely passive, and rely on the undertaking of the surety, whether the principal debtor be solvent or insolvent.
In respect to what shall be deemed a security within the meaning of the condition, there has been some contrariety of decision. The better opinion is that it must be a mortgage, pledge or lien—some right to or interest in property which the creditor can hold in tpust for the surety, and to which the surety if he pay the debt can be subrogated, and the right to apply or hold must exist and be absolute.
Mortgages and pledges made or given as security are, as a matter of course, within the condition. But even these may be received under such a qualified or contingent contract that they may be released. Thus in Pearl Street Congregational Society v. Imlay, (23 Conn., 10,) a mortgage was given as security with the understanding that other security when offered should be received and the mortgage released, and this court held that the creditor could safely cany out the agreement and release the mortgage. The right to hold the security in that case was created by the agreement, and was contingent, not absohite, and the interest of the surety in it could be no greater than that of the creditor.
The contrariety of decision spoken of has been chiefly in respect to liens obtained by process or operation of law. Judgment liens made such by the local law, are assignable, and clearly within the condition. But it has been made a question whether a lien obtained by levy of execution on the goods of the principal debtor can be released or abandoned, and the better opinion now is that it can not be. Mayhew v. Crickett, 2 Swanston, 185; Commonwealth v. Miller’s Admrs, 8 Serg. & Rawle, 457; Chichester v. Mason, 7 Leigh, *400244. In the last case the execution was not levied, but the law made it a lien on all the defendant’s goods as soon as issued.
But it is otherwise in respect to liens acquired by attachment on mesne process. As the creditor is “ under no obligation of active diligenceand therefore need not commence a suit whatever his opportunity, so if he commences one he is under no obligation ,to pursue it, for it involves trouble and expense not required of him where goods are taken by the officer in execution. Hurd v. Little, 12 Mass., 502; Bank of Montpelier v. Dixon, 4 Verm., 587; Crane v. Stickles, 15 id., 252; Baker's Exrs v. Marshall, 16 id., 522.
Applying these principles to the case it is clear that the defence is groundless. If it appeared from the finding that the plaintiff was individually indebted to Rogers & Co. for goods purchased of them after the note was given, that indebtedness, in the absence of any agreement to that effect, would not be a security in his hands, within the condition annexed by law to the defendant’s undertaking. The plaintiff would have had no lien upon it, and no right by contract or operation of law to apply it; nor would he hold the debt in trust for the benefit of the surety ; nor if the defendant paid the note could he claim to be subrogated to it.
The plaintiff could have retained it, and if sued could offset it, but that the defendant had no more right to insist he should do, than to insist that he should do any other act to secure or enforce payment. The surety could have paid the note and attached the debt by foreign attachment.
The defendant cites several dicta to the effect that, “ where the creditor has the means of satisfaction actually or potentially in his hands and releases them, the surety is discharged.” The dicta were all made in cases where there was a lien, and the money or property held under a right of application. Thus, in the case in the 8th of Pickering, (Baker v. Briggs,) property had been assigned by the debtor in trust to pay the note, and the money was in the hands of the assignee subject to the call of the creditor, and Judge Parker said it was the same as if in his own hands, and as he had funds with the *401right to apply them, he could not call on the surety. There the right to apply was created by the assignment of the debtor, and the money was strictly a security. In Commonwealth v. Miller's Admrs., (8 Serg. & Rawle, 457,) a lien had been acquired by the levy of execution on goods, and thé dictum cited had reference to such a state of facts. In Law v. East India Co., (4 Vesey, 829,) funds had been left in the hands of the creditor to pay the debt, and there was a right of application. In Lichtenthaler v. Thompson, (13 Serg. & Rawle, 157,) the plaintiff was a lessor, and the defendant surety for the fulfillment of the lease, and the lessor had a lien by statute on the goods of the lessee which had been taken by another creditor in execution and sold, but his lien extended to the money which he fraudulently permitted a prior lessor to claim, and the court held the right to the money a security which the plaintiff was bound to apply to the officer for and obtain. These and ail the other cases from which the defendant cites are cases of lien, with right of application, and would not sustain the defence if the debt to Rogers & Go. was the individual debt of the plaintiff.
But however that might be the debt was in fact the company debt of the firm of Lincoln & Go. of which the plaintiff was a member.
Although the general agent of the company within the scope of the partnership business, he had no right to insist that the debt to Rogers & Go. should be retained, and the company subjected to suit, to enable him to collect his debt of Rogers & Co. by off-set, without the assent of his co-partners. To obtain that assent required active diligence, which the surety had no right to demand of him.
The superior court must be advised to render judgment for the plaintiff.
In this opinion the other judges concurred.