Court Opinion

ID: 6501211
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:14:11.553153+00
Date Added: 2024-06-11T15:54:36.960361
License: Public Domain

COLLIER, C. J.
— In the argument of this cause two points have been made for the plaintiff:
1. That the mortgage operates in equity, as a lien upon the property embraced by it for the payment of all the notes made by Schuyler and Roberts — that the notes are entitled to priority of satisfaction from this security in the order in which they fall due. And that, inasmuch as the plaintiff upon payment of either of the notes in which he may be a surety, might resort to the mortgage for indemnification, equity will dispense with this circuity by requiring Emanuel & Gaines to seek a satisfaction from that source in the first instance.
2. That a surety is entitled to all the securities or means of payment to which the creditor was entitled, and if a creditor has destroyed or impaired these, the surety is pro tanto discharged. The defendants, Emanuel & Gaines, having purchased Schuyler’s interest in the equity of redemption, extinguished the mortgage, (which was an ample security for the notes of which the plaintiff was the endorser) and thus released the plaintiff from his liability:
1. It is clearly competent for a creditor to secure himself both *27by a lien on property and the engagement of a third person undertaking for the payment by the debtor. And the creditor is not obliged to proceed in equity upon his mortgage, but has the election either to seek a foreclosure, or to prosecute an action at law upon the promise of the debtor and his surety. (Tice v. Annin, 2 John’s. Ch. Rep. 125: Dunkley v. Van Buren and others, 3 John’. Ch. Rep. 330.) The'mortgage is a mere security for the debt, and is regarded as an incident to the legal contract to pay, which remains in full force, and on this ground rests the principle which permits the mortgagee to elect his remedy.
To sustain the argument for the plaintiff on this point, we have been referred to the case of Gwathmeys v. Ragland. (1 Rand. Rep. 466.) The facts of that case, so far as they need be noticed, are these, a deed of trust was executed by William and Francis Sutton, to trustees to secure the payment of three notes to a certain Anderson Barrett. The first note was paid, the second transferred, by endorsement, to Nathaniel Ragland, without any assignment to him of the deed of trust; the third note was endorsed to Robert and Temple Gwatnmey, who took an assignment of the deed of trust for their security.” The trustees having advertised for sale the property embraced by the deed, to satisfy the note held by Ragland, the Gwathmeys filed a bill to enjoin the sale of the trust property to satisfy Ragland’s claim, insisting that as they had taken an assignment of the deed of trust, and Ragland had not, their lien was to be preferred to his. The Court of Appeals held that the deed of trust was an additional security for the payment of the notes to Barrett or his assigns, in the order in which they fell due, it follows the notes into the hands of their several holders, and it was not competent for Barrett, by an assignment of the deed to the Gwathmeys to deprive Ragland of his priority of right to demand a sale of the trust property, if necessary to the payment of his claim. There was no fraud or misrepresentation imputed to Ragland, and the assignment of the deed to the Gwathmeys gave them full notice of the order in which the notes were to have been paid, and should have pul them upon inquiry^ whether the first and second *28had been paid, when they took an assignmunt of the third note.
This case decides 1st. That where property is conveyed to secure the payment of notes to fall due at different periods, and a controversy arises between the assignees of the notes, the holder of the one first maturing is entitled to a priority of payment from the property conveyed. 2d. That the assignment of the notes carries to their assignees the interest in the security furnished by the deed, without any written declaration to that effect, by the assignor. Neither of these points are applicable to the case at bar: There is no controversy between assignees as to the right of preference; but the argument assumes that the plaintiff cannot be charged upon his undertaking to Emanuel# Gaines, because the mortgaged property is of greater value than the amount of the notes endorsed by himself and Roberts. This argument we have already said cannot be maintained.
2. It is a well ascertained principle, that the surety who has paid the debt of the principal, is entitled to stand in the place of the creditor as to all securities for the debt, held or acquired by the creditor, and to have the same benefit from them as the creditor might have had. This doctrine is very cl early stated by Lord Eldon, in Craythorne v. Swinburne. (14 Ves. Rep. 162.) The Lord Chancellor says, “A surety is entitled to every remedy which the creditor has against the principal debtor, to enforce every security and all means of payment; to stand in the place oi the creditor not only through the medium of contract; but even by means of securities entered into without his knowledge, having a right to have those securities transferred to him, though there was no stipulation for it; and to avail himself of all those securities against the debtor.” And Chancellor Kent in Cheeseborough v. Millard, (1 John’s Ch. Rep. 409.) has shewn that this doctrine of substitution is equally well known to the Civil law and in the English Chancery. See also, Parsons v. Briddock; (2 Veru, Rep. 608): Wright v. Morley; (11 Ves. Rep. 10): Harrison v. Glossop; (3 Ves. & B. Rep. 135), Hayes v. Ward and others; (4 John’s. Ch. Rep. 123: 1 Story’s Eq. 477.)
*29If the creditor parts with or renders unavailable securities, or any fund which he would be entitled to .apply in discharge of his debt, the security becomes exonerated to the extent of the value of such securities; because securities which the creditor is entitled to apply in discharge of his debt, he is bound to apply, or to hold them as a trustee ready to be applied for the benefit of the surety; Maybew v. Cricket, 2. Swants Rep. 185; Law v The East India Com., 4. Ves. Rep. 824; Cheeseborough v. Millard, 1. Johns. Ch. Rep. 409; Capel v. Butler, 2, Simon & Stuart’s Rep. 457; Hoyes v. Ward and others, 4. Johns. Ch. Rep. 123: 1. Story’s Eq. 4S0, ’1.
But as the doctrine of substitution rests on the basis cf mere equity and benevolence, the creditor who has disabled himself, from yielding up to the surety the means of re-imbursement which he had, is not to be injured thereby; provided, he acted without a knowledge of the rights of others, and with good i'a-ilh and just intentions, which is all that equity requires. (Cheeseborough v. Millard, 1. John’s Ch. Rep. 409; 1. Story’s Eq. 471 to 483.)
Ordinarily the purchase of the equity of redemption, does not operate in extinguishment of the mortgage, but the purchaser takes it charged with the lien, having acquired only the right to complete his title, by the payment' of the mortgage debt. Whether the purchase by a mortgagee will have the effect to destroy the equitable right of a surety (situated as the plaintiff) to substitution, we need not determine, as the case may be disposed of on another ground.
The defendants, Emanuel & Gaines, explicitly state, that they considered the equity of redemption of n.o value, inasmuch as the mortgaged property was of less value than the incumbrances upon it — that the purchase of Schuyler’s interest was made for the purpose of avoiding controversy which might have arisen, if another person had purchased. That they were aware of the existence of the mortgage to the Bank, at the time of the Sheriff’s sale, and that it was, and still is their intention to apply the rents and profits as received, to the extinguishment of their debt *30and interest. Here is a direct disavowal of an intention to extinguish the mortgage, and a statement of facts shewing that Emanuel & Gaines in purchasing the equity of redemption of Schuyler, acted in good faith and with just intentions. The plaintiff instead of being prejudiced by that act, is likely to be benefitted, as the respondents declare that it is their intention to appropriate the rents and profits to the payment of the debt and interest due them. Even if it were conceded that the mortgaged property, without reference to the extent of its value, should be disposed of for the payment of the notes in the order in which they fall due, yet it cannot be maintained that the plaintiff is released from his suretyship on the ground that the mortgage is extinguished. The disclaimer and concessions made in the answer of the respondents are sufficient to prevent such a result, whatever might be the conclusion of law apart from these. Without examining further, the arguments on this point, we are of opinion that the case made by the bill and answer, does not show an extinguishment of the mortgage, to the prejudice of the rights of the plaintiff. His interest in equity is unaffected by the purchase of Schuyler’s interest by the respondents.
The result is, that the decree of the Circuit Court is affirmed.