Delaplaine v. Hitchcock , 4 Edw. Ch. 321 ( 1843 )

The Vice-Chancellor :

The plea is sufficiently unobjectionable in point of form ; and the several matters set out in the plea all tend to one point, namely, the making of an agreement by which the complainants gave time to the principal debtor, without the consent of the defendant, a surety. And in order to show that it was a valid agreement and available against the complainants, the plea alleges a part performance or agreement in part executed by payment and acceptance of five thousand dollars on account of the stipulated compromise. This allegation does not, in my opinion, render the plea bad for duplicity.

The question, then, arises, whether the plea contains matter in bar of the relief and, of course, of the discovery as incidental to that relief ? In order to test the goodness of this plea, it is necessary to consider in what position the parties stood towards each other at the time of making the agreement and entering into the covenant set up in the plea. Did Hitchcock, then, stand in the light of a mere surety, as when his liability rested upon his endorsement of the notes or had he become a principal debtor and lost the character of surety or of being a mere accommodation endorser by suffering the demands to pass into judgments against him? The complainants contend that the original liability having merged in the judgments, the relation of principal and surety thereby ceased and the complainants were no longer bound to regard him as a surety, but were entitled to treat him as a principal debtor. It is very true, that the recovery of a judgment against the endorser of a note or bill or against bail has the effect of converting a suretyship into an absolute indebtedness and to make him, who was only contingently liable before, now actually a debtor, so that the creditor party may proceed, at once, to compel payment from him, without waiting to exhaust his remedy against the person or property of the one who was principally liable for the same debt or demand. If he has judgment at the same time against the one who was originally the principal debtor and has the power to pursue him with an execution, still, the court of law will not, nor will this court, as a matter of equity, compel him to that course, but will leave him to enforce payment from that quarter where he can obtain it most easily and speedily. This is about the extent and meaning of the cases of Lenox v. Prout, 3 Wheat. R. 520 ; Findlay's Executors v. Bank of the United States, 2 M’Lean’s Rep. 44 ; Bay v. Tallmadge, 5 J. C. R. 305 ; and of other cases cited on the argument.

All that the courts can do in such cases is to help the man who, thus, has been compelled to pay the debt of a third person, to all the rights and remedies and to the benefit of all the securities which the creditor may happen to hold or be possessed of or be entitled to against such third person. This is done on the principle of substitution or subrogation. The party paying the debt is entitled to take the place of the original creditor, to have an assignment of any judgment and execution against the primary debtor and a transfer of any collateral securities the creditor may hold. All this he is entitled to when he pays the debt. No matter whether before or after a judgment against him. His character of surety is not to be lost sight of from the mere fact that his liability has undergone a change and become merged in a judgment. I am entirely at a loss to perceive how that circumstance can make any difference in regard to this equitable doctrine of substitution. No case has or can be produced where it has been decided that he has lost the right to be regarded and treated as a surety because he happens not to pay the debt until after a judgment has been recovered against him. Whenever he does pay, either voluntarily or by compulsion, he becomes the creditor and is entitled, of course, to sue at once for his reimbursement. This is a right which cannot be denied or withheld from him. And it is equally clear that, superadded to this right of action, is that of subrogation as between him and the original creditor. Under these circumstances, the original creditor can do no act, in the meantime, without his consent, which should have the effect of suspending his right of action or of lessening his chance of reimbursement, except at the peril of discharging him from all liability.

Now, what have the complainants done in this case? According to the plea, they entered into an agreement with John A. Moore, the principal debtor, to accept a compromise of thirty thousand dollars in full of all his indebtedness to them, including the amount of the judgments against Hitchcock as the mere surety or accommodation endorser of Moore’s note, giving time to the extent of upwards of four years within which to make the payments and covenanting not to sue or take any legal measures or proceedings whatever during that time. This was a valid and binding covenant of which Moore could, at any time, have availed himself. It was entered into without Hitchcock’s knowledge or consent. The effect of the agreement and covenant was, at least, to suspend all right of action against Moore, the principal debtor, from the nineteenth day of June one thousand eight hundred and thirty-nine to the first day of October one thousand eight hundred and forty-three ; so that, if Hitchcock had been disposed and had wished, during that period of time, to have cleared himself by paying off the judgments against him, he coúld have had no remedy over against Moore, except in violation of the complainants covenant. They had no right to place such an obstacle or impediment in the way of his choice to have the matter brought to a speedy close and thus to postpone his right of substitution and subrogation for that period or for any length of time without his consent. Perhaps Hitchcock may not have been injured by this delay or forbearance ; still, that is not the question. The point is, have not the complainants done an act calculated to injure him or to increase his risk and to vary the terms and obligations of his contract ? Chief Justice Savage has stated the true principle, as collected from various cases, in Brown v. Williams, 4 Wend. 360. “If the creditor,” he observes, “by agreement with the principal debtor, without the surety’s consent, has disabled himself from suing when he would otherwise be entitled to sue under the original contract or has deprived the surety, on his paying the debt, from having an immediate recourse to his principal, the contract is varied to his prejudice and he is, consequently, discharged.”

I cannot but think that this principle applies, in all its force, to the present case-. I must allow the plea.