Morrison v. Citizens National Bank , 65 N.H. 253 ( 1889 )

The case comes up on a demurrer to the plaintiff's bill, with an answer and an agreement that "the allegations of the bill and answer are to be taken as facts, except where it is otherwise specifically agreed." It is considered as if all the undisputed facts were alleged in the bill. Upon the whole case, some of the material facts are left in doubt. The view of them most favorable to the plaintiff is this: April 12, 1881, the defendant bank brought against Dearborn (1) an action to recover a promissory note on which the plaintiff was liable as indorser, and caused Dearborn's property to be attached, (2) several other actions on unsecured demands in which the same property was attached subject to the former attachment, and (3) an action against the plaintiff as indorser. The property attached was sold on the writs by consent of the parties, and the avails held by the officer for application according to law. G. L., c. 224, ss. 19, 38. October 5, 1881, the bank obtained judgment in all the suits. The avails of the attached property were insufficient to satisfy the judgments. The bank placed the executions issued on the judgments founded upon their unsecured demands in the hands of the officer, who within thirty days after the judgments were rendered, and (as the plaintiff says) on the third day of November, 1881, by the bank's direction, applied upon them the avails of the attached property, leaving them partly, and the judgment on the indorsed note wholly, unsatisfied. On the 26th day of March, 1882, the plaintiff, in ignorance of the foregoing facts except of the action against himself, paid the judgment against him, and by his bill seeks to recover of the bank the amount so paid.

It is assumed without inquiry that the plaintiff stands in the position and has all the rights of a surety, though, so far as appears, he indorsed the note and procured it to be discounted by the bank in the ordinary course of business. Duncan v. Bank, 11 Ch. Div. 88 — S.C., 6 App. Ca. 1; Hurd v. Little, 12 Mass. 502; Pitts v. Congdon, 2 N.Y. 352. A surety, upon payment of the debt, may take an assignment of the creditor's judgment and execution, or of his pending action against the principal, and for his own benefit prosecute the action against a defence made by the principal's subsequent attaching creditors, levy the execution upon the property attached, or, by suit in the attaching officer's name, recover it of the receiptor. Edgerly v. Emerson, 23 N.H. 555; Brewer v. Franklin Mills, 42 N.H. 292. In both of these cases the assignment was voluntarily made by the creditor, who in neither case had any interest in or claim upon the property attached, except for the security of the debt paid by the surety. Though the question has never been determined in this state, it may be that equity would compel the creditor to make the assignment, or would subrogate the surety to his rights without an assignment in cases of this character. The subsequent attaching creditors and the receiptor are not injuriously affected by the subrogation; they remain in the same position they would occupy, if, without the intervention of the surety, the creditor pursued the action and made the levy, and no one else has apparently any cause to complain. Whether the surety, on payment of the debt, would be entitled to a like assignment of, or subrogation to, the rights of a creditor who has on the same property subsequent attachments for the security of other demands which it is insufficient to satisfy, so that either he or the surety must suffer loss, is a different question.

The plaintiff has no reason to complain of the agreement between the two banks. As to him, his case stands as if all the sued demands against Dearborn were the property of the defendant bank. Dearborn's property was insufficient to satisfy all of them. As between him and the bank, it was immaterial which of the attachments was first. By them the bank acquired the legal right to apply the attached property on their judgments, not merely in the order of the attachments, but in such order as they pleased. They could apply it on the judgment in the last as well as in the first attachment suit, or pro rata on all the judgments, or in such other manner as their interest required. This right of appropriation was a valuable part of their security. It is as if Dearborn had delivered the property to the bank in pledge, with express authority to sell it and apply the proceeds in satisfaction of such of their claims as they might see fit; or as if he had given the bank a mortgage of the property to secure all their demands, without stipulating for its application on any one of them in preference to another. The plaintiff, by paying the debt on which he was liable, could not deprive the bank of the right to apply the property at their election on the other debts. In order to entitle himself to the benefit of the security, he was bound to pay all the debts for the payment of which it was held by the bank. Gannett v. Blodgett, 39 N.H. 150, 153, 154, and cases cited. The assumption that the plaintiff had a lien on Dearborn's property superior to the bank's second attachment, has no foundation in law or in fact. He had in truth no lien by attachment or otherwise, but merely the equitable right to acquire by subrogation the security obtained by the bank by attaching that property. If this right of acquisition could properly be called a lien, it had no priority over the attachment lien held by the bank. The equitable right of the bank to the application of Dearborn's property to the satisfaction of their unsecured claims against him was at the least equal to that of the plaintiff to have that property appropriated to the payment of the debt for which he was Dearborn's surety. By the attachment the bank acquired in addition the legal right. "When two or more have equal claims in equity and one has the legal title, the legal title shall prevail." Eastman v. Foster, 8 Met. 19, 29. The surety's right of subrogation to securities held by the creditor is subordinate and not superior to the rights of the latter. His right is, to be put in the same position as the creditor, not in a better one. He cannot have the benefit of the security without assuming the burden to which it is subject, — without discharging the indebtedness for the payment of which it is held. His right rests not upon contract, but upon principles of natural justice. Hayes v. Ward, 4 Johns. Ch. 123, 130. It would be unjust to permit him, on payment of part of the debt or one of several debts, to appropriate to the satisfaction of such debt or part of a debt security which the creditor holds for the satisfaction of the entire indebtedness. It would be putting him, not in the same position as the creditor, but in a better one. It would tend to "defeat the object and end of suretyship," and might in some cases place the creditor in a worse position than he would occupy without a surety. Gannett v. Blodgett,39 N.H. 150, 154, 155. To hold that the plaintiff on payment of his debt only was entitled to be subrogated to the attachment, is to hold that he could compel the bank to appropriate the attached property to the satisfaction of that debt, and deprive them of their right to apply it on the other debts. It is to hold that the vigilance of the bank in obtaining the attachment security is to operate, not to their advantage, but to that of the plaintiff. If Dearborn had made to the bank a general payment on their claims against him without appropriating it to any particular debt, or had made it with express authority to the bank to apply it on such of his debts as they chose, the plaintiff could as equitably ask that they be compelled to apply it on the debt for which he was liable. Stamford Bank v. Benedict, 15 Conn. 437, 445. The bank had the legal and equitable right to appropriate the attached property to the satisfaction of any of the claims secured by the attachments. The plaintiff could have acquired the bank's interest in the property by paying what equity would require him to pay. An assignment to him of that interest would not be equitable until he paid the debts for the payment of which the bank had obtained security by their attachment. Brown v. Ray, 18 N.H. 102, 104; Gannett v. Blodgett,39 N.H. 150; Kidder v. Page, 48 N.H. 380, 382, 383; Belcher v. Bank,15 Conn. 381; Bank v. Benedict, 15 Conn. 437, 444, 445; Root v. Stow, 13 Met. 6; Society v. Snow, 1 Cush. 510, 518; Wilcox v. Bank, 7 Allen 270; Farebrother v. Wodehouse, 23 Beav. 18.

But assuming that the law were otherwise — assuming that the plaintiff on payment merely of his own debt at any time during the life of the attachment, might, had he chosen to do so, have availed himself of the attachment lien, and might have levied the execution for his own benefit on the attached funds — the result is the same. The plaintiff did not pay the debt in the lifetime of the attachment, nor until long after it expired by operation of law. He did not refrain from paying, and from asserting a right to the lien by reason of anything done by the bank. It distinctly appears not only that he never acquired the right of subrogation to the attachment lien, but also that he never would have acquired it if the lien had continued in force as long as the law permitted. The question is, whether upon these facts the plaintiff was discharged from liability by the bank's failure to levy the execution founded upon the note indorsed by the plaintiff on the attached property, or by the application of the property on their other executions. If the bank were under no obligation to apply the funds on the indorsed note judgment, the plaintiff cannot complain because they were not so applied. On the other hand, if the bank were bound to apply them on that judgment, the plaintiff, by their neglect to do so, was discharged from liability, and is entitled to recover the money paid on the judgment against him as paid by mistake. In either case, it is not material to him that the funds were applied on other judgments in favor of the bank. His complaint is, not that the bank have got the funds rather than any one else, but that by their action, or by their non-action, he has been deprived of them. His injury if any he has suffered, and the bank's liability, are the same as they would have been if the funds had been lost by the bank's negligence, or if the judgments on which the bank applied them had been in favor of strangers instead of the bank. The bank's application was no wrong to the plaintiff, unless at the time of the application it was his right to have it made elsewhere. As against everybody except him, the bank had an unquestionable right to apply the funds on the indorsed-note judgment, or on the other judgments, at their election. The actual application was merely conclusive proof of their election to abandon the lien on the former and to enforce it on the latter. The only ground on which the plaintiff can justly complain of the bank's action is, that it was his right to have the funds applied on the former judgment. The real question then is, Was the plaintiff discharged by the bank's neglect to apply the avails of the attached property on the indorsed-note execution, or by their failure to levy it upon them?

The creditor may, without prejudice to his rights against the surety, decline to accept additional security offered by the principal. Bank v. Young, 43 N.H. 457, 461. He is under no obligation to pursue any of the remedies which the law gives him against the principal, though the surety requests him to do so. Davis v. Huggins, 3 N.H. 231; Mahurin v. Pearson,8 N.H. 539. He need not prove the debt against him in bankruptcy, exhibit the note to the deceased principal's executor, nor, if his estate is administered as insolvent, present it to the commissioner for allowance. Sibley v. McAllaster, 8 N.H. 389. In short, he is not required to take any active measures to obtain payment either directly from the principal, or out of property which he holds as security. Bank v. Rogers, 16 N.H. 9, 17,18. As between creditor and surety, it is the surety's business to see that the principal pays. Sibley v. McAllaster, 8 N.H. 390. The creditor's chief purpose in requiring a surety is to avoid the necessity of resorting to legal remedies against the principal, — to escape the vexation and expense of litigation, and cast that burden upon another. The surety's contract is, that he will himself pay the note when it falls due, and not that he will pay it in case the payee or holder cannot by due diligence enforce payment by the principal. If he performs his contract, the creditor has neither cause nor opportunity to institute legal proceedings.

A surety paying the debt is entitled to be subrogated to the securities and remedies held by the creditor at the time of payment. If the creditor without the surety's consent surrenders a demand placed in his hands by the principal as security for the payment of the debt, the surety is discharged to the extent of its value. Bank v. Colcord, 15 N.H. 119; Watriss v. Pierce, 32 N.H. 560. It does not, however, follow that he is discharged by the creditor's abandonment of a lien which he has obtained on the principal's property by process of law. The lien acquired by attachment differs from ordinary securities, among other things, in that it cannot be preserved without active diligence and continuous expense. It is dissolved by a failure to enter the action, by its discontinuance after entry, by a judgment for the defendant, and expires by operation of law in thirty days after judgment for the plaintiff. G. L., c. 224, s. 36. In order to maintain and avail himself of the lien, the plaintiff must pursue the suit to judgment in his favor, and make a levy within thirty days thereafter. Both the prosecution of an action and the making of a levy are attended with trouble and expense. By a levy, if the property is in dispute, serious liabilities may be incurred. The creditor is under no obligation to subject himself to the expense or to the liability for the surety's benefit. The latter, by seasonable payment of the debt, may acquire the right to adopt and prosecute the action, and make the levy for his own benefit at his own expense. He is not obliged to exercise the right. He may adopt the action, or not, as he sees fit. If he does not, the creditor has no claim upon him for the expense of the suit. If he does, he must take, with the benefit of the action, the burden of its cost. Low v. C. P. Railroad, 45 N.H. 370,378, 379. It would be unjust to permit him to avail himself of the security without paying what it cost the creditor to procure and preserve it. He must also indemnify the creditor against further costs. Bank v. Rogers,16 N.H. 9, 17. It was (as for the purposes of the present question is assumed) the plaintiff's right, on payment of the debt for which he was liable within thirty days after the judgment was rendered, together with the accrued expense of the bank's action against Dearborn and indemnifying them against further expense, to levy their execution for his own benefit on the attached property. If he thus became entitled to and claimed the right, the bank was bound to permit him to make the levy. This was the full extent of the plaintiff's right and of the bank's obligation. That the plaintiff did not assert the right was not the fault of the bank. He stands no better than he would if, being present at the time of the application made by the bank, he had protested against it, and had done nothing more. His non-acquisition of the attachment lien was due to his own neglect, and not to any fault of the bank. What might have been his remedy if he had acquired and claimed the right to levy, and the bank by reason of a previous application of the funds on other judgments, or for any cause, had refused to permit him to make it, is a question not raised by the case.

A surety is not discharged by the creditor's discontinuance of an action brought by him against the principal, and the consequent dissolution of an attachment of the principal's property. Bank v. Rogers, 16 N.H. 9; Baker v. Davis, 22 N.H. 27, 37; Barney v. Clark, 46 N.H. 514. In the last named case the action was discontinued after the defendants were defaulted. If a reason might be suggested (though none has been, and none is perceived) for giving to the abandonment of an attachment after a default or after judgment a legal effect different from an earlier abandonment, there is no ground for claiming any greater effect for one made after judgment than for one made after a default. A defendant's liability, and a plaintiff's right to the application of the attached property in satisfaction of the debt, are as conclusively fixed by a default as by a judgment. It cannot be held that the plaintiff was discharged from liability by the bank's failure to levy the execution and the consequent dissolution of the attachment by lapse of time, without overruling Barney v. Clark.

A surety has no right, in law or in equity, to require the creditor to satisfy his demand out of the principal's property rather than his own. For the purpose of his remedy for a breach of the contract the creditor is entitled to treat the surety as a principal. He may sue them jointly, or severally if the contract is several, attach the property of each, and levy his execution upon that of either, at his election. The position of the plaintiff cannot be sustained without depriving the creditor of this right. A creditor holds a note for $100 against A with B as surety, and a note for the same sum against A alone. He sues the former note, attaches and sells on the writ the property of each to the value of $100, and also sues the latter note and attaches the same property of A subject to the former attachment. He obtains judgment at the same time in both suits. Apparently both debts are fully secured. But the avails must be applied on one or the other of the judgments within thirty days, or the security is lost. If the avails of A's property are applied on the judgment against A and B, the latter is discharged because the debt is satisfied. If they are applied on the judgment against A alone, B is discharged, says the plaintiff, because thereby the attachment in the suit against A and B is released. It is not material at what time within the thirty days the creditor makes the application: its legal effect is the same whether made on the 29th, or at the last moment of the 30th day after the judgment. The surety's discharge is certain. He has no occasion to pay the debt and assert his right to levy the joint execution on A's property. It is better for him to stand aloof and do nothing. In effect, he is discharged by the attachment, or at all events by the attachment and judgment. If the creditor attaches the principal's property and pursues the action to judgment, the surety is inevitably discharged. If he attaches land, he must take his pay in land at its appraised value, instead of the lawful money which the surety as well as the principal agreed to pay. If such is anywhere the law, it is not the law here.

The lien acquired by attachment is merely the right to levy the execution on the particular property attached. Kittredge v. Warren, 14 N.H. 509, 526. It is a valuable right, but it is of no greater value than the right to levy on property not attached. The creditor has no better right and is under no greater obligation to the surety to levy on the attached property than on any other equally exposed to levy. The surety may be no more injured by his failure to levy in the one case than in the other. If he is not discharged by the creditor's refusal to levy at his request on a failing principal's unincumbered property which other creditors are about to seize, and which is pointed out to him by the surety (Cavis v. Huggins and Mahurin v. Pearson, before cited), no good ground is perceived for holding that he is discharged by a neglect to levy on property attached. In each case alike the surety may pay the debt, and levy the execution for his own benefit.

The doctrine contended for by the plaintiff is not necessary for the surety's protection. So far as it might tend to deter the creditor from bringing suit against and attaching the property of the principal, it would operate to his prejudice. He is chargeable with knowledge that the principal has not performed the contract, if such is the fact. The creditor is not bound to inform him that the debt is not paid. Sibley v. McAllaster, 8 N.H. 389, 390; N.H. Savings Bank v. Downing,16 N.H. 188. The plaintiff might have had the full benefit of the attachment by performing his contract and paying the debt at any time while the lien subsisted. It is no sufficient answer for him to say that he did not know of the suit against Dearborn, or of the attachment. The bank were under no obligation to sue Dearborn, to attach his property, or upon doing so to notify the plaintiff of the fact. Service of the writ upon the plaintiff was notice that the debt had not been paid. He was put upon inquiry touching all the facts relating to his liability. Ordinary care would have informed him of the suit against Dearborn and of the attachment. His loss is caused, not by any act of the bank, but (1) by his own breach of the contract in not paying the note when it fell due, and (2) by his subsequent negligence. The cited and conflicting decisions in other jurisdictions have not been overlooked.

Demurrer sustained.

SMITH, J., did not sit: the others concurred.