Court Opinion

ID: 6311190
Source: CourtListenerOpinion
Date Created: 2022-02-18 20:15:39.062014+00
Date Added: 2024-06-11T08:59:04.789055
License: Public Domain

The opinion of the Court was delivered by
Gibson, C. J.
The principle, that a surety is entitled to the benefit of all the creditor’s securities, is of such universal application, that it would require strong evidence of legislative intention to make the present case an exception to it. The argument against its application is, that the lien, unlike that of the judgment sometimes given to the bank, and necessarily attached to the particular debt to protect indorsers, is created for the exclusive protection of the bank itself, *138which may therefore apply it at pleasure while it has an interest of its own to subserve, without regard to the interest of a surety or any one else. As .regards a single transaction, the lien is undoubtedly for the benefit of the bank in the first place, for the surety is entitled but to the resulting benefit of it after the bank has been satisfied ; and this can on no principle be denied him where there are no conflicting interests in the bank, or in subsequent indorsers. But can the lien be applied to subsequent and distinct transactions at the expense of a surety who became bound on the faith of it? The bank could certainly not apply it to his prejudice with a view to favour a subsequent surety, between whom and the earlier one the maxim prior in tempore potior in jure would prevail; and if not in favour of a subsequent surety standing in the place of the bank, and clothed with its rights, it is not easy to understand how the bank may do it to favour itself. There is nothing special in the clause creating .the lien, which merely declares, that “ no stockholder indebted to the bank shall make a transfer or receive a dividend until such debt is discharged, or security to the satisfaction of the directors is given for the same.” The language of it is indeed applicable to the bank and its directors specifically, but whether in a fiduciary'character ora beneficiary one, is not said; and it is worthy of remark, that the letter is applicable but to a single transaction. It would be unconscionable to shift a security on the credit of which a surety had consented to be bound. It may be said, that the right to shift it to a new demand being established and known at the first transaction, the surety would become bound with his eyes open ; at least he could not complain if it were an implied condition that a fresh loan might be made on the credit of the same security. That may be so ; yet it would make the situation of the surety much more precarious than it will be under the construction now to be established, and consequently decrease the facilities of the bank itself in the extension of its business. Let the first loan create a fixed resulting interest in the lien of the bank, and no man will fail of an indorser to the amount of his stock, because the loan will be essentially on the credit of the stock; but let the lien once be made a movable security, to be shifted, at the pleasure of the bank, fo such of its debts as may be thought to need it, and even stockholders may be unable to obtain an accommodation by reason of inability to comply with the ordinary requisitions. The bank itself will be a gainer by the rule, because there will be an increase of its business without a correspondent increase of risk; for, like the indorser, it will know what it has to trust to, and reject all propositions for further loans which are not backed by names of indisputable credit. To say the least, it will not be prejudiced ; for it will have the benefit of the stock to the amount of its value, and it was never intended to cover more ; so that it will be better for all parties, that the indorser know exactly the footing on which he stands at the moment of pledging his responsibility, Ilian that the means of his eventual reimbursement be left the sport of contingencies. Indeed, (he in*139ducement which a fresh loan on a fresh pledge of the same securityj would hold out to the drawer to violate his faith to the original indorser, could scarce be reconciled to honesty or good morals; it would implicate the bank in at least a connivance at fraud. In the cáse at bar then, the bank had at one time the means of satisfaction in its hands, or rather it yet has a fund in its hands, which in equity belongs to the defendants, who are but sureties ; and- they therefore cannot be called upon.
Judgment reversed.