Court Opinion

ID: 5502658
Source: CourtListenerOpinion
Date Created: 2022-01-10 03:03:04.863734+00
Date Added: 2024-06-11T08:33:58.674161
License: Public Domain

Mayham, P. J.,
(dissenting.) This action was brought against Peter Ferris and Bodney Sargent upon a bond executed by them and Gilletta Low, as sureties for Edwin B. Low, upon his appointment as the general guardian of the plaintiff, William O. Douglass, by the surrogate of Essex county. The bond was dated on the 28th of March, 1872, and letters of guardianship were issued to the guardian on the 29th day of March, 1872. The plaintiff . arrived at the age of 21 years on the 26th day of March, 1879. On the 14th of May, 1879, after becoming 21 years of age, the plaintiff and his guardian had a voluntary settlement or accounting, and settled and fixed the amount of the guardian’s liability to the plaintiff on account of such guardianship at the sum of $4,363.10, and the guardian thereupon paid to the plaintiff the sum of $1,163.10, leaving a balance due from the guardian to the plaintiff of the sum of $3,200, and in settlement or payment of that balance the guardian turned out to the plaintiff the promissory note of his insolvent *691brother, Charles W. Low, payable to the order of the plaintiff March 1, 1881, with semiannual interest, and a mortgage on real estate in the state of Illinois, executed by Charles W. Low to the plaintiff to secure the payment of the same, which mortgage was falsely and fraudulently represented by the guardian to be good security for the same. At the time of the consummation of the settlement, plaintiff gave to his attorney written authority to appear for him before the surrogate of Essex county, and discharge the guardian from all liability on account of such guardianship. Pursuant to such settlement and authority the guardian and attorney for the plaintiff so authorized and empowered by him, without personal notice to the plaintiff, on the 12th day of January, 1880, appeared before such surrogate, and such proceedings were thereupon had by and before him that a decree of final judicial settlement and accounting of such guardian’s accounts were had, and the surrogate then and there, among other things, “ordered, adjudged, and decreed that said account be, and the.same hereby is, finally settled, as filed and adjusted, and it is further adjudged and decreed that nothing remains in the hands of said guardian, as such, or due from him to said ward.” The decree was duly entered of record on that day in the office of the surrogate. The case shows that the real-estate mortgage given as collateral to the note taken by plaintiff on the settlement was not adequate security for the note, and that the plaintiff discovered that he had been defrauded in the settlement with his guardian, and that the mortgage and note were not security for the amount found due the plaintiff on that settlement, and the plaintiff in November, 1880, discovered that fact, and in February, 1882, the guardian seems to have conceded that fact, and then paid the plaintiff $800 on account of the $3,200, but failed to pay the balance," and in October of that year the plaintiff commenced an action in the supreme court for the same against the guardian, alleging the guardianship; the settlement between the plaintiff and guardian after plaintiff became of age; the amount found due from the guardian; the giving of the note and mortgage in satisfaction of the same; the decree of the surrogate thereon, discharging the guardian; alleging that the settlement was procured by fraud; and asking that the decree of the surrogate be vacated for fraud, and that the guardian be adjudged to pay the balance found due on the settlement. The defendant demurred to the complaint, and judgment was given for the plaintiff on the demurrer, which was affirmed on appeal, and judgment ordered against the guardian for the balance and costs. To recover that balance and the cost of that litigation the plaintiff brought this action against the sureties on the guardian’s bond, and on the trial the plaintiff recovered judgment for the amount, the $3,200 and interest from date of settlement, less the $800 paid by the guardian after that date, and also the plaintiff’s expense in the action against the guardian, and the cost of this action,—in all, $5,555.22.
The first and perhaps most important question raised by the appellants on ■this appeal is whether the sureties upon this bond are not discharged by the settlement of the plaintiff with the guardian after arriving at his majority, and accepting of the guardian, in satisfaction of his claim, the note and mortgage of Charles W. Low, payable nearly two years after the date of such settlement, upon which a decree discharging the guardian was entered by the surrogate. If the plaintiff by this settlement deprived the sureties of any of their legal advantages in protecting themselves from the obligation they assumed as sureties on this bond, to their prejudice, it is difficult to see how he can in this action enforce its obligation against them, for his own protection, and to the prejudice of the sureties. The capacity of the plaintiff to make a settlement with his guardian after becoming of age cannot be doubted, and it can hardly be claimed that the defendants by their bond undertook to protect the plaintiff from the consequences of his improvident dealings with his guardian after he is clothed by law with authority to act for himself, in the *692absence of any collusion between the sureties and the principal in the bond, unless by its terms the sureties contracted to protect the obligee against the consequences of his acts after arriving at his majority. The condition of this bond was: “That if the above-bound Edwin B. Low do and shall well' and faithfully, in all things, discharge the duty of guardian to the above-named minor, according to law, and render a just and true account of all moneys and property received by him, and of the application thereof, and if such guardian, in all respects, account to and before any court having cognizance thereof, when thereunto required, then the obligation to be void, otherwise to be and remain in full force and virtue.” The obligation of the guardian was to account for all money and property, to and before any court having cognizance thereof; and that course would have afforded a complete protection to the ward, and to the sureties as well, and could at the time of making this voluntary settlement have been compelled by the plaintiff, or the sureties on this bond. The making of this voluntary settlement by the plaintiff with his guardian, and the entering of a decree thereunder and in purs fiance thereof, while the same was voidable for fraud, bound all the parties until re-, seinded, and thus suspended the right of the plaintiff and these sureties from any proceeding in court to compel an accounting by the guardian before the surrogate, as the decree entered in the matter was in that court, until vacated or reversed, a complete bar to any other proceeding in that court for an accounting. Sanders v. Soutter, 126 N. Y. 198, 27 N. E. Rep. 263. This settlement between plaintiff and his guardian was in May, 1879. In November, 1880, plaintiff knew of the alleged fraud, and waited until October, 1882, before he commenced his action against the guardian to set aside the accounting; and it does not appear that the defendants were apprised of any alleged1 fraud in the accounting, or in the manner in which the balance found due-the plaintiff was paid or secured, until September, 1885. During all that time the defendants, so Ear as this case discloses, had a right to rely upon the-recorded decree of this surrogate that the guardian had performed his whole duty, and was discharged from all liability to the plaintiff on account of such guardianship. The plaintiff having the power to make this settlement with his guardian, he, and he alone, had the power to rescind it for fraud; and the defendants in this action were powerless, and unable to take any steps against their principal in this bond, so long as this settlement remained unrevoked. During the interval between the making of this settlement and the rescission or revocation of the same the guardian, who was the principal in this bond, became insolvent.
I am inclined to the opinion that this voluntary settlement with the guardian by the plaintiff so far affected the rights, powers, and privileges of the defendants as sureties on this bond as to, release them from all obligations te the plaintiff thereunder. By this settlement the right of the sureties to pay this balance to the plaintiff, and sue the principal, was clearly suspended during the period that this settlement and decree remained unrescinded and in force. This was such an interference with the rights of the defendants, as sureties on this bond, without- their knowledge or notice to them, as to release them from liability to the plaintiff. In Paine v. Jones, 76 N. Y. 278, Danforth, J., in discussing this subject, says: “The holder of the security had notice of the deed and its covenants, and was bound by this relation to do nothing to affect or alter the right of the surety.” In Calvo v. Davies, 8 Hun, 222, the court says: “The rule is absolute that there shall be no transaction with the principal debtor without acquainting the person who has a part interest in it.” In Kane v. Cortesy, 100 N. Y. 132, 2 N. E. Rep. 874, it was held that the defendants, sued upon a guaranty, upon a bond and mortgage, were released from their obligation upon their guaranty by plaintiff’s acceptancé of a chattel mortgage as additional security, and agreeing with the mortgagor, without the consent of the guarantors, to extend the *693time o£ payment of the bond and mortgage, and although the chattel mortgage contained the usual danger clause, and authorized the mortgagee to foreclose it in case he deemed himself insecure, yet that did not defeat the operation of the extension of the real-estate mortgage; and Earl, J., says: “It gave no right to the defendants as sureties for the debt, and they could not, by virtue of that clause, pay the real-estate mortgage, and take an assignment thereof, and enforce the same before the extended time of payment had arrived; and, as the extension of time was thus effected against the sureties, it discharged them, notwithstanding the clause mentioned.” Kane v. Cortesy, 100 N. Y. 137, 2 N. E. Rep. 874. In Calvo v. Davies, 73 N. Y. 218, Andrews, J., says: “And the doctrine that a surety is discharged by dealings with the creditor and principal debtor, inconsistent with the rights off the surety, has been applied, although the creditor did not know, in the origin of the transaction, that one of the parties was a surety. ” In Brinagar's Adm'r v. Phillips, 1 B. Mon. 283, Marshall, J., states the rule as follows: “Theplain principle to be deduced from the decisions is that the surety is released when by an agreement between the creditors and principal debtor, without his consent, his right to. compel the creditor to the immediate coercion of the debt from the principal, or, what is the same thing in effect, his right to make immediate payment to the creditor, and in his name and right to coerce payment from the principal, is impaired.” The rule seems universal that when the •surety is deprived by the act of the creditors and principal debtor, without his consent, of any right or remedy which he might otherwise have to protect himself from loss, he is thereby discharged from his liability to the creditor; and I find no case where that rule is relaxed by reason of fraud practiced upon the creditor by the principal debtor, when the creditor has .voluntarily, and without the consent or connivance of the surety, entered into contracts or speculations with the principal debtor not expressly provided for in the bond, and against which the surety has made no express guaranty. The contract of a surety being strictissimi juris, it cannot be enlarged or changed without his consent. McCluskey v. Cromwell, 11 N. Y. 598. In Insurance Co. v. Lowenberg, 120 N. Y. 44, 23 N. E. Rep. 978, the court says: “The rule is that a surety is entitled to a strict construction of the bond under which it is sought to make him liable, and that it cannot be enlarged by implication to cover anything which was not in contemplation of the parties at the time the bond was executed.” Bigelow v. Benton, 14 Barb. 123; Barns v. Barrows, 61 N. Y. 39; Schwartz v. Hyman, 107 N. Y. 562, 14 N. E. Rep. 447. Applying this rule to the case at bar, I do not see how the sureties on this bond can be held as liable for fraud practiced upon the plaintiff in transactions voluntarily entered into by him, not embraced in the provisions of the bond, and against which the bond furnishes no express guaranty.
The appellant also insists that the sureties on this bond are discharged by reason of the loches of the plaintiff in disaffirming and repudiating this settlement, for fraud, after the discovery by him of its existence. If this settlement had not delayed the defendants in enforcing their remedy against the principal, then the defendants could not urge the plaintiff’s loches as an excuse for their failure to respond after the default of their principal. The-bond would then be a continuous obligation, and the sureties would at any time be liable for default of the principal, until barred by some statute of limitation. But when, by the act of the creditor and principal debtor, the sureties are delayed or hindered in their ability to protect themselves from loss, then the loches of the creditors to restore them to their original rights would furnish good grounds for their discharge. In McMurray v. Noyes, 72 N. Y. 523, the guarantor of the mortgage was held to be released by the loches of the holder of the same, in delaying foreclosure for 14 months after the same became due, when at the time of its maturity the property was good security, but before foreclosure it became worthless, by destruction by fire. *694Craig v. Parkis, 40 N. Y. 181; Hancock v. Wilson, 46 Iowa, 352; Toles v. Adee, 91 N. Y. 562. And it has been held that long acquiescence by a ward in a settlement which was procured by the fraud of his guardian, practiced upon him, would relieve the sureties from liability. Aaton v. Mendel, 78 Ky. 427.
If we are right in the above conclusion, then there was no breach of the bond as to the sureties. They had not covenanted to protect the plaintiff against the fraud practiced by Edwin B. Low upon the plaintiff in a transaction between him and Low after he had arrived at full age; and while such fraud might and did restore the liability of Low to the plaintiff, growing out of that fraud, it did not, it seems to us, re-establish the liability of the sureties on his bond, as guardian, under the circumstances of this case', when, as we have seen, the plaintiff, by his own act and loches, had deprived the defendants of rights which they had and could have maintained against their principal but for the obstruction put in their way by the acts of the plaintiff, without their knowledge or consent. They assumed no such obligation in their bond, and cannot be held liable in this action unless, as is insisted by the plaintiff, their liability is established in the action by the plaintiff against the guardian, to which they were not parties, and in which they were in no way before the court, or called upon to defend. In People v. Chalmers, 60 N. Y. 158, Church, C. J., says: “It is a familiar rule that sureties can only be charged when the case is brought within the very lines of the contract, (Birckhead v. Brown, 5 Hill, 635,) and the obligation of sureties is not to be extended by construction to embrace purposes and objects not contemplated by the parties.” It would be going too far, I think, to hold that the sureties, when they signed this bond, had in contemplation the protection of the plaintiff against fraud practiced upon him when he voluntarily undertook to deal with his former guardian after he became of age, and in the eye of the law stood upon an equality with him, especially when for years he carried on a contract with him without their knowledge and authority.
But it is insisted that the defendants cannot now be heard to contest their liability in this action, as the judgment against their principal fixes their liability as sureties on this bond. The general doctrine is that a decree against the principal liquidates and fixes the amount of his liability, and affords prima facie evidence of the correctness of that amount in an action against the sureties; but I find no case which goes to the length of holding that the liability of the surety is so fixed that he cannot defend, where he has a good and valid defense to his liability upon the bond, especially where he is not a party to the action or proceeding in which the amount of the liability of the principal is settled. In Annett v. Terry, 35 N. Y. 256, the court says: “It is true that the decree is prima facie evidence of the' amount due from Ken,- and its recovery on his admission, arising from his default, binds the sureties, in the absence of fraud or collusion.” But this case does not hold that the sureties are bound as to their liability on the bond, and concluded from making a defense to the same, if they have a valid defense thereto. In Harrison v. Clark, 87 N. Y. 575, the court says: “The sureties are bound because by their contract they are privy to the proceedings against the principal; and, when the principal is concluded, they in the absence of fraud or collusion, are concluded also. ” But that case did not arise when the sureties interposed an independent defense to the bond upon the merits. It can hardly be claimed that the defense of forgery of the names of the sureties, or their release by their principal, could not be set up by the persons sued as sureties on the bond, when the liability of the principal to the bond had been established in a separate action against him. In the interlocutory judgment in the action by the plaintiff against his guardian, these defendants were not before the court, and none of the questions raised by them on this trial were,- or could have been, raised on the trial of that demurreri The effect of over-' *695ruling the demurrer in that case was that the allegations of the complaint as to that defendant were true; and judgment, therefore,- went against him, establishing as to him the truth of the allegations of the complaint. In Girvin v. Hickman, 21 Hun, 318, cited by the respondent, the court held that the guardian and ward may settle the account as between themselves, and in that way dispense with an accounting in court; and upon that subject the court uses this language: “An accounting by the guardian serves to show the extent of his liability, but is not conclusive as to the sureties. If there is anything wrong about it, they can show it in their own defense.” It is true that, where nothing has occurred that can operate as a release or discharge of the sureties, they may be deemed bound by a judgment against the principal, because by their contract they are deemed privies to the principal» Harrison v. Clark, 87 N. Y. 576. But this rule does not extend to cases where the same would operate as a fraud upon the sureties, or subject them, to liabilities from which they have been exonerated by the acts of the obligee in the bond, to which they have not assented. In this respect I think this case clearly distinguishable from the case of Harrison v. Clark, supra*
I am therefore clearly of the opinion that the judgment in the action against the guardian in this case does not conclude the defendants in this action, if* as we have seen, they were discharged from their liability to the plaintiff by his voluntary acts or omissions after he arrived at his majority. That action* does not assume, in terms, to adjudicate the liability of these defendants as sureties, and while, as we have seen, it could, under certain circumstances* be prima facie evidence of the extent of the liability of the sureties on the bond, I do not think that it is binding upon them in this case. There are other questions in the case, raised by the appellant, one of which is as to the extent of the liability of the defendant Ferris, and of Prouty as the personal representative of Sargent, if the defendants are liable in this action. But, from the view I have taken, these questions need not be discussed here.
For the reason above stated, I think there should a new trial.