Court Opinion

ID: 3630819
Source: CourtListenerOpinion
Date Created: 2016-07-06 00:10:25.778464+00
Date Added: 2024-06-11T14:07:40.437645
License: Public Domain

The question as to the effect of the agreement between J. Strong and the plaintiff upon the liability of Maltby *Page 323 
Strong was adjudicated by the chancellor in this case, (10Paige, 16,) and by the court for the correction of errors, in 7Hill, 250. Although no question was then made upon any supposed distinction in relation to the effect, upon the liability of a surety, of an agreement to extend the time of payment before or after judgment, yet the precise question in this case was necessarily passed upon by the courts in that case; and the question is therefore res adjudicata as between the parties to this suit. But if it may be considered an open question, the decision was clearly right. The recovery of a judgment against the surety does not merge or destroy his character as such, or the relation which he sustains to his principal. Its only effect is to change the form of the security as between him and the debtor. Merging the contract between the creditor and the principal debtor or surety can not affect the relation between the principal and surety. This relation is not necessarily created by the contract to which the creditor is a party, but may be created even without his knowledge. Joint debtors may, by an independent arrangement between themselves, change their relations to each other as such, and create the relation of principal and surety to each other without the knowledge of the principal. So long as he is ignorant of the change he would not be affected by it, but as soon as he receives notice of the relation, the rights of the surety are the same, as against him, as they would have been if the relation had been created by the original contract.
That the character of the surety, as such, is not merged or destroyed by the recovery of a judgment against him, is evident from the numerous cases where both courts of law and equity admit testimony dehors the record to establish his character of surety. If he should pay the judgment, courts of law would sustain the action of assumpsit to recover back the money from his principal, or contribution from his co-surety. No embarrassment would be felt in admitting parol evidence to establish the fact of suretiship. So if the creditor has in his possession collateral securities belonging to the principal debtor, the surety, on paying the judgment, may apply to a court of equity for an *Page 324 
assignment to him of those securities. Has it ever been doubted that parol testimony, in such cases, is admissible to establish the relation of principal and surety? This right of subrogation is one of the clearest and most well established principles of equity jurisdiction. It has been said "that it is scarcely possible to place this right of substitution too high;" (Hodgson v. Shaw, 3 Myl.  Keene, 183;) and that "it does not rest upon contract, but upon the broader and deeper foundations of natural justice and moral obligation." (Aiken v.Matthews, 1 Comst. 600.) If the right of subrogation does not rest upon contract, it is clear that the recovery of a judgment can not affect this right.
But if the right of subrogation is so high and so sacred, resting upon the sacred principles of natural justice and moral obligation, is it possible that the creditor would be allowed, in a court of equity, to interfere with or destroy this right with impunity? That for the purpose of enforcing it where it had not been impaired, a court of equity would recognize the relation of principal and surety even after judgment, but would refuse to recognize the relation when the complaint was against the creditor that he had impaired the right? If the court will trace the relation, notwithstanding the judgment, for the purpose of enabling the surety to sustain his action for money paid against his principal, or for contribution against his co-surety, or for subrogation against the creditor, why should its powers be paralyzed in this solitary case, especially a case so intimately connected with this right of subrogation? I insist that no satisfactory answer has been given, in any case where the distinction has been recognized. The plaintiff's counsel insisted upon the argument that the discharge of the surety was based upon a change of the contract without his consent — that when the time of payment was extended, or any other stipulation entered into between the creditor and principal debtor, changing the conditions of the contract, the surety had a right to say nonveni in foedera, and he cited several authorities to support that position. (Burge on Suretiship, 214 to 217; 4 Wash.C.C.R. 28; 9 Wheat. 703.) Doubtless there are cases where the discharge of the surety might well be put upon this ground, but generally his liability *Page 325 
is discharged upon entirely different principles. It no more changes a contract as to a surety than it does as to a joint debtor; and yet it is clear that an extension of the time of payment to one joint debtor without the consent of his co-debtor, would not discharge the latter. The true ground upon which the liability of the surety is discharged, is that his rights against his principal are impaired or at least affected. It was upon this ground that Chief Justice Bronson placed his discharge when this case was before the court for the correction of errors. He said there that it interfered with his right of subrogation; that upon payment of the debt he was entitled to be "substituted in the creditor's place as to all securities and means of enforcing payment which appertained to such creditor."
In this case, previous to the arrangement between the plaintiffs and J. Strong, Maltby Strong had the right to pay up the judgment, and to be substituted in the place of the plaintiffs as to all the means of enforcing payment against the principal debtor. But by the arrangement his condition was materially changed. Upon payment of the judgment he would not only have found himself delayed in enforcing payment as to time, but the debtor had the right by that arrangement to pay in land. His rights against his principal were thus materially changed without his consent. The court therefore will not stop to inquire into the extent of the injury which he may have sustained, but will hold him entirely discharged from his liability. In the language of the civilians, they will hold such agreements between the creditor and principal debtor conclusive evidence of an intention to vacate the debt and discharge the surety. (Story'sEq. Juris. 325, 833.)
Whether courts of law will follow the same rule as courts of equity, it is not necessary to inquire. All the remedies to which sureties are now entitled, either against their principals, the creditor or co-sureties, originated in courts of equity, and whenever courts of law have taken cognizance of the same matter, they have simply extended their jurisdiction to matters over which courts of equity had already undoubted jurisdiction. I see no reason why courts of law, within the principles upon which they *Page 326 
have long acted, would not hold an agreement of this kind a defence to an action, on the judgment especially, as it is now well settled that an arrangement of the same character would discharge the surety upon precisely the same principles before judgment; but whether they would or not, it can not affect the question in a court of equity, where the whole doctrine in relation to rights and privileges of sureties originated. The judgment of the supreme court should be affirmed. (Samuel v.Hawarth, 3 Meriv. 271; Spiner, Eq. Jur. 637; C.C. CooperApp. 515, all the cases collected.)
Decree affirmed.