Hodges v. Elyton Land Co. , 109 Ala. 617 ( 1895 )

McCLELLAN, J.

Counsel upon either hand are agreed on the proposition that the subvendees became the principals, and the original vendees became the sureties to them, as such principals, in respect of the debt due the Elyton Land Company for purchase money of the lots. This leaves but one question in the case, viz : whether the extension of time granted to these principals. in the way shown by the bill of exceptions operated to release these sureties who are here sued.

• The facts are as follows : Plaintiff sold to the defendants certain lots of land, gave them bonds for title, put them in possession, and took the notes sued on for the párchase money. Then defendants sold the land to Dodson & Co., at a profit, transferred to them said bonds for title, and put them in possession, Dodson & Co. assuming the payment of the original purchase money to plaintiff, the latter, however, having at the time no connection with this arrangement. Dodson & Co. was a partnership composed of Dodson, Brown, and three other persons. These latter subsequently sold, out their interest in the land and transferred the bonds for title to Brown and Dodson, a transaction with which plaintiff was likewise without connection. After this, Dodson & Brown applied to plaintiff for an extension of time for the payment of the notes they had assumed to pay for defendants ; and thereupon plaintiff took a surrender of said bonds for title, executed a deed to Dodson & Brown, took their notes for the original purchase money, payable at a date beyond the maturity of, defendants’ notes, and a mortgage on the land to secure payment of the purchase money. All this was done under and in accordance with an agreement then entered into between plaintiff and Dodson & Brown,. which, after reciting the foregoing facts set forth the following stipulation : “That on the payment in full by the said subvendee (Dodson & Brown) of said promissory notes given by them to the Elyton Land. Company, the Elyton Land Company will cancel and surrender to them said original notes given by said original vendees (the defendants) for said original purchase money. But, until the payment in full by said subvendees of the said notes given by them to the Elyton Land Company, the said notes of original vendees remain in full force, and are not paid ,or discharged, except to-the extent of the cash paid by said subvendees to the Elyton Land Company on account of said purchase money, said original vendees being entitied at their option to the extention granted as aforesaid to said sub vendees.”

'The surety is, of course, entitled to stand upon the terms of his contract; and, if these be altered in any material particular without his consent, he is thereby discharged, and this though the change may have been of benefit to him. Therefore, if the payee, by an agreement, binding on him, with the principal, extends the time of payment of a note, without the consent of the surety thereon, the latter is discharged. The contract of the surety in such case is to pay at original maturity of the paper, and not at the,date fixed by the agreement for an extension; and such extension, without more, takes away the surety’s right to pay at the time origin-; inally fixed. This is a right esteemed material to his protection, because, upon the exercise of it, he may immediately proceed against the principal for indemnity, while his remedy to that end might well be unavailing if he were forced to wait to some future time fixed by the payee and principal, because of the insolvency, which meantime may have overtaken his indemnitor. Then, too, the surety upon maturity of the note may file a bill qvia timet to compel the principal to pay the debt. This right is suspended by such an extension as we-have supposed, and, for this reason also, the surety’s contract is changed, and he is discharged.

But where, in and by the contract of extension between the payee and the principal debtor, all the rights of the surety are expressly preserved, — if notwithstanding the agreement for the extension, he may still pay the note at maturity and go upon the principal for reimbursement, or may proceed by bill quia timet on maturity to compel the principal to pay, — and he has these rights when the agreement for extension expressly reserves all remedies against him, — such contract between the payee and principal does not discharge-the surety. The law on this subject is well stated by Mr. Brandt as follows : “If the creditor extends the time of payment to the principal, but at the same time expressly reserves all remedies against the surety, the surety is not discharged by such extension. With reference to this matter it has been said : ‘The giving of time to the principal debtor, with a reservation of the remedies, has in many cases the. appearance of absurdity, because, when distinctly understood, it seems to be almost a flat contradiction in terms. Such a reservation of remedies, in order to hold tide surety, must amount to this : that the creditor agrees to give time to the debtor, and yet they both agree that the surety may at any time force the creditor to proceed against the principal by a bill quia tvlnet, or, by paying the whole debt, have an assignment of all the securities, and proceed immediately himself against the principal debtor, or in any mode authorized by the assigned securities. Such an agreement, reserving the remedies, might not in many cases be of the least benefit to the principal debtor, since it leaves him entirely at the mercy of his surety ; yet, if the parties do so expressly contract, the surety can have no cause to complain that the implied contract has been altered or impaired in any way to his prejudice, and therefore he cannot be discharged.’ It has also been said that ‘the debtor cannot complain if the instant afterwards the surety enforces these remedies against him, and his consent that the .creditor shall have recourse against the surety is impliedly a consent that the surety shall have recourse against him. It is very obvious that a principal debtor may gain little or nothing by such a composition as this with his creditor, inasmuch as he is left liable to the like proceedings against him by his sureties which his. creditor might have instituted if no composition had been made. But if he pleases to subject himself to that liability by voluntarily executing an agreement which has that effect, there is no legal reason why he should not be held to that agreement.’ Again, it has been said that the reservation of remedies against the surety ‘rebuts the presumption that the surety was meant to be discharged, which is one of the reasons why the surety is ordinarily exonerated by such a transaction ; and, secondly, that it prevents the rights of the surety against the debtor being impaired, the injury to such rights being the other reason ; for the debtor cannot complain if, the instant afterward, the surety enforces those rights against him, and his consent that the creditor shall have recourse against the surely is impliedly a consent that the creditor shall have recourse against him.’ In order that the extension of time -in such a case shall not discharge the surety, the remedies against him must be distinctly and explicitly reserve!. ‘A stipillation of that kind is, in many cases, so very absurd that it must be seen plainly.’ A creditor agreed to give time to the principal, but at the same time reserved the right to sue when requested by the sureties, and it was held the sureties were not discharged. When, at the time an agreement for extension between principal and creditor was made, it was also agreed between them that the surety should not be discharged, but should liave the right at any time to pay the debt, and proceed against the principal, it was held the surety was not discharged.” — 2 Brandt, Suretyship, § 376, citing, among many others, the following cases: Claget v. Salmon, 5 Gill & Johns. 314; Muller v. Dolshuetz, 89 Ill. 176; Sohier v. Loring, 6 Cush. 537; Kearsley v. Cole, 16 Mees. & Wels. 129; Rucker v. Robinson, 38 Mo. 154; Morse v. Huntington, 40 Vt. 488; and to the same effect are the following authorities: Morgan v. Smith, 70 N. Y. 537; 1 Brandt on Suretyship &c., § 147; Calvo v. Davies, 73 N. Y. 211, s. c. 29 Am. Rep. 130; 24 Am. & Eng. Encyc. of Law, p. 830.

Applying this principle to the present case, it is obvious that the agreement for an extension of time for payment between plaintiff and Dodson and Brown did not discharge the defendants, standing in the relation of sureties to said sub-vendees, because all their rights and remedies are preserved intact therein, and it is thereby •expressly provided that the extension shall, not affect them unless they elect to avail themselves df it, or, in other words, consent to it. Notwithstanding the agreement, they had a perfect right to proceed by a bill quia timet on the maturity of their notes to compel, not only Dodson and Brown, but the other persons who were members of the firm of Dodson & Co. when the-sale to that partnership was made, to pay the plaintiff, or to require the principle to sue as authorized by section 3153 of the Code; and they also had the right to pay the notes at maturity, and at once go upon Dodson and Brown and such other persons for idemnification. Either of these courses, both fully open to them, would have protected them from the consequences of Dodson’s subsequent insolvency, of which they now complain.

It is also clear that they lost no security otherwise available to them by the substitution of a deed and mortgage back for the retention of title and bonds for titie involved in the original transaction, for this did not in point of fact affect them, since the land was applied to the debt under the substitutional arrangement as-it would have b9en under the original contract; and, moreover, under the agreement for the extension, they were in ho sense bound by this transaction between plaintiff and Dodson & Brown.

We therefore concur in the conclusion of the judge of the Circuit Court; and the judgment must be affirmed.