Pioneer Savings & Loan Co. v. Bartsch ( 1892 )

Mitchell, J.

It seems to us that the determination of this appeal hinges upon the single question whether the judgment in a previous action by the Minneapolis Glass Company against one Bartsch and the present plaintiff was evidence against the present defendants of anything except the fact of its recovery; for, if it was, we think it would be conclusive evidence against them of every fact necessary to be found in order to recover such a judgment.

Bartsch was negotiating for a loan of money from the present plaintiff, to be secured by mortgage on certain real estate, and, as an inducement to plaintiff to make the loan, agreed to erect and complete on the premises a certain building, the construction of which, it is fairly inferable from the language of the bond hereinafter described, had been already commenced; but, as the real estate and building might be or might become holden and liable for liens and claims of mechanics and others, the plaintiff exacted of Bartsch a bond executed by himself as principal and the other defendants as sureties, conditioned that Bartsch should erect and complete the building within a specified time, and pay or cause to be paid all bills, claims, and demands of laborers, material men, and others for labor performed and materials furnished for such building, and used therein, which were then, or which might become, liens on said real estate or the building thereon, and “should keep and maintain the security or mortgage (to the plaintiff) the first and paramount lien on said real estate, building, and improvements thereon,” and pay and reimburse tbe plaintiff for all moneys paid out in said matter or by reason of said claims, liens, etc., and reimburse it for all expenses incurred, moneys paid out, and for all time, trouble, and work in and about said matters performed by any pf its officers, agents, or employes. Thereupon the plaintiff made the loan secured by mortgage and recorded June 2, 1890, and Bartsch proceeded with the construction of the building. Subsequently the Minneapolis Glass Company commenced an action against Bartsch and the present plaintiff to enforce a lien upon the premises for glass alleged to have been furnished to Bartsch in September and October, 1890, for the construction of the building. The relief sought in that action was for personal judgment against Bartsch, and that such judgment be declared a lien on his interest in the premises, and that such lien be adjudged paramount and prior to the lien of the present plaintiff’s mortgage. Neither Bartsch nor the present plaintiff appeared or answered in that action, which resulted in a judgment on default, in accordance with the allegations and prayer of the complaint. These sureties had no notice of that action, nor, so far as appears, did the present plaintiff ever request Bartsch to defend the action in its behalf. Plaintiff, having paid the amount of the judgment in favor of the glass company, brought this action on the bond, and, as evidence of a breach of its condition, introduced merely the record in the other action. There is perhaps no subject upon which the courts are more at sea than the law in relation to the effect of a judgment against a principal for the purpose of charging a surety.

Of course every one is familiar with the rule that, as against any one except the parties and their privies, a judgment is evidence only of the fact of its recovery. What are sometimes called exceptions to this rule are not exceptions, but do not fall within the rule at all, depending, solely, upon the principle that one may contract to be answerable to another upon such lawful conditions as he pleases. Hence, if a surety stipulates for any particular method by which the liability of his principal or of himself shall be fixed, he is bound by it. If he has undertaken, either expressly or by implication from the position which he has assumed with reference to pending litigation, to be responsible for the result of a suit between others, to which he is not a party, and to which he has not been made privy by notice and an opportunity to defend, then, in the absence of fraud and collusion, the judgment against the principal alone would be conclusive evidence against him of every fact which it was necessary to find to recover such a judgment. This would be because he had so contracted. In the absence of such agreement, express or implied, it would be as to him res acta inter alios, and evidence of nothing except the fact of its recovery. There would seem to be no middle ground, and it is consequently very difficult to sustain on principle that numerous class of cases which hold certain judgments against the principal prima facie, but not conclusive, evidence that the facts in pais against which the surety agreed to indemnify were established in the suit.

In every case the important question is: What are the terms of the surety’s contract? What has he undertaken to indemnify his covenantee against ? On what contingency has he agreed that his liability shall be fixed? But we have no occasion to go into any extended discussion of this subject, for the reason that we are satisfied that, under the facts, the determination in the other suit that the glass company’s lien was prior to that of plaintiff’s mortgage is not re§ adjuclicata, even as to Bartsch. If it is, it must be by virtue of the covenant in the bond, to the effect that Bartsch should keep and maintain plaintiff’s mortgage the first and paramount lien on the premises. It seems plain to us, in view of the general purpose of the bond, as well as of its other provisions, that this must be construed as being a mere general contract of indemnity against paramount liens, and not an undertaking to be bound by the result of any actions brought against plaintiff by third parties claiming paramount liens, or to assume the defense of such actions in the absence of any request by plaintiff for him to do so. Hence, if Bartsch has not created any paramount lien, there has been no breach of the condition of the bond. The mere fact that Bartsch was a party defendant in that suit does not render the determination of that issue between -the glass company and the present plaintiff res adjudicata as to him.

It is well settled that parties to a judgment are not bound by it in a subsequent controversy between each other, unless they were adversary parties in the original action. Freem. Judgm. § 158. Now while the present plaintiff and Bartsch were made defendants in the other suit, they were not adversary parties, and there were no issues between them that could have been tried in that action. The issue tendered to Bartsch by the complaint was that he owed the glass company a certain amount, and that it was a lien on his interest in the premises. The additional issue tendered to the present plaintiff was that this lien was prior to the lien of the mortgage. Bartsch might have had no defense, and yet on the issue of priority of liens the present plaintiffs have had a perfect defense. Bartsch had no issue with either the glass company or the present plaintiff as to which was the prior lien. That issue was entirely between it and the glass company. Neither had Bartsch any right, in the absence of a request on part of the present plaintiff, to assume the control of its defense to the action. It is unquestionably true that, as between the glass company and the present plaintiff, the judgment is conclusive that the lien of the former is prior to the mortgage of the latter; but that was not in controversy between plaintiff and Bartsch. If plaintiff had desired to make the judgment as to that matter binding on Bartsch, it should have notified him to assume the defense of the action in its behalf. This it would have had a right to do by reason of his contract of indemnity against paramount incumbrances. If he had declined to do so, the judgment would have been conclusive against him. Whether it would have been conclusive on his sureties without notice to them also we need not inquire.

Our conclusion is that in this or any other subsequent controversy between plaintiff and Bartsch, whether on this bond of indemnity or upon covenants of title in the mortgage, as to whether the lien of the glass company was prior to that of plaintiff, the judgment in the former action is not only not conclusive, but is not evidence at all; and, if not against Bartsch, of course not against these respondents, his sureties. This renders it unnecessary to consider any oth§r points in the case.

Order affirmed.

(Opinion published 53 N. W. Rep. 701.)