Bulloch Mortgage Loan Co. v. Jones

1. Acts of a creditor either before or after judgment against the principal, without the consent of the surety, whereby the risk of the surety is increased, or which exposes him to greater liability or which injures the surety or tends to subject him to injury, will operate to discharge the surety.

2. The creditor must not by his action destroy or impair the rights of sureties for contribution among themselves; and where through such action and laches on the part of the creditor a surety has been injured and his risk increased, in that his right to contribution from his cosurety has been lost because the creditor has placed or caused and permitted to be placed the property of a cosurety beyond the reach of the other surety, and such cosurety is deceased and his estate insolvent, the other surety is released from his obligation as a surety.

DECIDED JULY 16, 1940. The Bulloch Mortgage Loan Company filed suit against B. T. Mallard and Cuyler Jones, in which it sought to revive a dormant judgment against the defendants. It is alleged, that on January 28, 1930, a judgment was entered in behalf of the Bank of Statesboro against B. T. Mallard, Cuyler Jones, and Dorsey Nessmith, for $1139.50 principal, $63.57 interest to date of judgment, $120.31 attorney's fees, and $22.85 costs, upon which execution was issued and placed upon the general execution docket of the county; that this execution is now owned by the plaintiff; that more than seven years have elapsed since the execution was issued and placed upon the general execution docket, that the judgment has not been dormant for a period of three years, and the suit is brought within the time prescribed by law for reviving a judgment; that Dorsey Nessmith died several years ago, "leaving no estate and which estate is insolvent" and that on the judgment and execution are certain credits, totaling $682.07.

Mallard made no defense to the revival of the judgment against him. Cuyler Jones filed his answer in which he admitted the allegations of the petition, except that he alleged for lack of information he could neither admit nor deny the allegations as to payments made upon the execution, for the reason that such payments were made by B. T. Mallard; that for lack of information he could neither admit nor deny that Dorsey Nessmith left no estate and that it was insolvent; that he and Dorsey Nessmith signed the note which was the basis of the suit upon which such judgment was entered and execution issued, as sureties for B. T. Mallard; that the First National Bank of Statesboro, payee of the note, had knowledge, at the time of its execution and delivery, that Mallard was the principal maker, and Cuyler Jones and Dorsey Nessmith signed the note as sureties for Mallard; that Cuyler Jones and Dorsey Nessmith received no part of the consideration of the note, and derived no benefit from signing as sureties, but Mallard received all of the consideration and benefit of the note; that after the execution issued, the First National Bank of Statesboro was purchased by the Bank of Statesboro, and all of its assets were transferred to that bank and that bank took over this execution with the knowledge that Mallard was the principal debtor and Cuyler Jones and Dorsey Nessmith were sureties; that the Bank of Statesboro was thereafter taken over by the superintendent of banks for liquidation, and R. E. Gormley, superintendent of banks, on January 15, 1934, released the lien of the execution on a certain tract of land containing 53.34 acres which was the property of Dorsey Nessmith, without the consent or the knowledge of this defendant as a cosurety; and that this defendant has been released and discharged from all liability on the execution because of the facts above set out, "his risk having been materially increased by the release of the holder of the lien of said execution on the 53-acre tract of land of Dorsey Nessmith from this execution."

The case was submitted to the Honorable J. L. Renfroe, as judge pro hac vice, to be tried without a jury. J. O. Johnston testified for the plaintiff, that the credits appearing on the back of the execution were correct; that he is manager for the plaintiff and the execution is now owned by the plaintiff; that the Bank of Statesboro went out of business and was liquidated by the State banking department, and this execution was transferred in writing to the plaintiff; that the balance of the amount of the execution, less the credits appearing thereon, is still due and unpaid; that Dorsey Nessmith has been dead since 1934, and was dead at the time this suit was brought; and that he owned no property at the time of his death. The plaintiff introduced in evidence the original execution, which was as described in the petition.

B. T. Mallard testified for the defendant, that the judgment on which the execution was issued was rendered against him as principal and Cuyler Jones and Dorsey Nessmith "as security;" that he was principal and Jones and Nessmith were "his securities;" that they did not derive any benefit from the note; that he got the money; that the Bank of Statesboro knew at the time the note was given that he was principal and that Jones and Nessmith were signing "as security;" that the bank gave him credit for the amount of the note; that the credits entered on the execution were paid by his property; that Cuyler Jones paid nothing on the execution; that witness is acquainted with a certain tract of land containing 53.34 acres that was owned by Dorsey Nessmith; that most of that tract of land is being cultivated, and it is in front of where Dorsey Nessmith's home is located; that it is about as good land as there is in Bulloch County; and that it is worth as much as any land in the county, and is a clay foundation with pebble soil.

Cuyler Jones testified in his own behalf, that he lives over the hill from Dorsey Nessmith; that he is acquainted with the type of soil of this 53-acre tract of land and that it is just as good as there is in that neighborhood; that in January, 1934, it was worth around $50 an acre; that about 45 acres of it were in cultivation in 1934; that the other was valuable for wood; that he signed the note with B. T. Mallard to the Bank of Statesboro as security, and got no benefit from the loan; that Mallard brought the note to him, and he signed it; that he has never paid anything on the execution; that there was a dwelling-house and a barn and smokehouse on the 53-acre tract of land, which was "right up the road" from Dorsey Nessmith's house; that Pete Brannen at one time lived there; that the dwelling was a six-room house with a dining-room and a kitchen built on to it; and that it was built out of good material and ceiled.

Cuyler Jones recalled, testified, that there was no debt to the Bank of Statesboro in January, 1934, on which he was principal, that was paid by a loan by Dorsey Nessmith. Jesse Johnston, recalled, testified for the plaintiff, that no part of the money referred to in a release by the Bank of Statesboro of a certain fifty-acre tract of land was paid by Dorsey Nessmith on this execution; that that money was paid on a note and security deed given to the Bank of Statesboro by Dorsey Nessmith, which was his individual debt, and the amount of money received by the bank from the loan that Nessmith got from the land-bank commissioner did not pay the amount due on the encumbrance which the bank had on the fifty-three acre tract of land; that Nessmith owed the Bank of Statesboro on that note and security deed $1489.10, due April 1, 1933, and the Bank of Statesboro accepted $801.75, and took a loss of about $600 principal and $100 interest on the debt; that the house on this tract of land, at the time of the release, was small, very old, and in need of repair; that since that time some improvements have been made thereon; and that Cuyler Jones was not on the note held by the Bank of Statesboro against Dorsey Nessmith, which was described in the security deed referred to in the release.

The defendant introduced in evidence, over objection of the plaintiff, a deed record from the office of the clerk of Bulloch superior court. The defendant was allowed to read to the court from the book the following instrument which was signed by R. E. Gormley, superintendent of banks: "For and in consideration of the sum of one and no/100 dollars, and the payment of one loan deed due the Bank of Statesboro, as per compromise agreement approved by the superior court of Bulloch County, Georgia, in the matter of Dorsey Nessmith indebtedness, the Bank of Statesboro, by and through R. E. Gormley superintendent of banks for the State of Georgia, does by these presents release and quitclaim any and all rights of the said Bank of Statesboro in and to any claim, right, or equity it may have by virtue of one certain execution in its favor against B. T. Mallard, Cuyler Jones, and Dorsey Nessmith, being recorded in general execution docket No. 10, folio 204, Bulloch County records, as to the following described lands, to wit: [description of 53-acre tract of land referred to in the evidence]. Said lands being the same as approved for a loan in favor of the Federal Land Bank of Columbia, the said Bank of Statesboro receiving $801.75 of the same, together with other funds from borrower, in satisfaction of the above-mentioned loan deed, the said loan for which this instrument is given as a release of said execution being in the sum of $1000. This release of the above-described land from the execution mentioned above is in order to clear the title to the above lands, and in order that the Bank of Statesboro may receive the benefits of the said loan set forth above, but is not intended to release any other lands of the said Dorsey Nessmith, for whom this release is expressly given." The defendant introduced, over objection of the plaintiff, the record of the clerk of Bulloch superior court of the loan deed hereinbefore referred to, from Dorsey Nessmith to the land-bank commissioner, dated January 6, 1934, and recorded on January 13, 1934, reciting a consideration of $1000. The plaintiff objected to the reading in evidence of the clerk's records of the release, referred to above, and of the foregoing loan deed, upon the following ground: "Because the original release or writing [original loan deed] was the highest and best evidence as to its contents, that said original paper [deed] had not been accounted for, no effort having been made to account for same, and that in the absence of said original writing, unaccounted for, the ``record' introduced in evidence was inadmissible and irrelevant." The judge rendered judgment in favor of Cuyler Jones, and the plaintiff excepted. The defendant Jones contends that the acts of the plaintiff in dealing with the cosurety, Nessmith, operated to increase the risk of Jones as a surety on the obligation, and to expose him to greater liability as a surety thereon, and therefore that under the Code, § 103-203, the plaintiff is not entitled to revive the judgment obtained in the suit against the principal and sureties on such obligation, as against Jones. "Any act of the creditor, either before or after judgment against the principal, which injures the surety or increases his risk, or exposes him to greater liability, shall discharge him." This section was codified from decisions of the Supreme Court in Jones v. Whitehead, 4 Ga. 397, 401, and Brown v. Riggins, 3 Ga. 405, 412, holding that wherever the creditor does an act, whereby injury or loss or liability to loss, or increased risk, accrues to the surety, without his assent, he is entitled to be discharged. In Brown v. Riggins, supra, the Supreme Court held the surety in fi. fa. discharged, because indulgence for a definite time (before the expiration of which he became insolvent) had been granted to one of the principals, and because the property of another principal, which had been taken in execution, was afterwards discharged from levy. See Crawford v.Gaulden, 33 Ga. 173, 186; Toomer v. Dickerson, 37 Ga. 428, 438. In Jones v. Whitehead, 4 Ga. 397, where a mortgage against the principal was released, it was held that this discharged the surety. The court stated: "The established rule in equity is, that if the creditor take any step, or do any act, by which he essentially jeopardizes the safety of the surety, that the latter shall be released."

In Green v. Mann, 76 Ga. 246, was laid down this doctrine: "Joint debtors have a right of contribution which may be enforced like that of cosureties; and if the creditor so acted as to place the property of one of the joint debtors beyond the reach of the other, he would be responsible to the latter for the injury done by such wrongful diversion; and this injury may be set up in a claim case, as a discharge, at least to the extent of the damage done, as well as by an action for damages." In that case it appeared that Green and Johnson were the joint debtors, and Mann was the creditor. The Supreme Court said: "The real point to be settled was, did Mann, by his dealings with Johnson, deprive Green of the right and power of subjecting Johnson's property to the payment of the balance due on this execution. .? Did he, by any of his contracts with Johnson, to which Green was no party, so depress the sale of the land that it failed to bring a sufficient amount to satisfy the demand he held against them? If such are the facts, and they shall be so found by the jury, we think there can be no doubt of Green's discharge from this liability. No reason occurs to us, in that event, why the altered relation growing out of these various transactions, was not in fact, though not technically perhaps, that of principal and surety between Johnson and Green, and why Green would not be entitled to call to his aid any principle of law or equity which would discharge a surety under like circumstances from his obligation to the debt. There can be no doubt of the existence of the right of contribution between joint debtors." (The court then referred to the right of a surety who has paid his debt to the principal, where judgment has been obtained against the principal and sureties, to control the fi. fa. and to levy upon the property of the cosurety, and thus compel contribution.) "Beyond controversy, where the relation of principal and surety exists, either by contract or operation of law, any act of the creditor, either before or after judgment against the principal, which injures the surety or increase his risk, or exposes him to greater liability, will discharge him, . . and why, upon analogous principles, standing upon the same footing of reason and justice, such conduct upon the part of a creditor should not discharge a codebtor under the circumstances said to exist here . . we are unable to understand." In Williams v. Kennedy, 134 Ga. 339,344 (67 S.E. 821), the court said: "There is a difference between a case where the risk or liability of the surety is increased, or he is injured, by a positive act of a creditor, and one where his risk or liability is increased, or he is injured, by the mere failure of the creditor to act."

In Lumsden v. Leonard, 55 Ga. 374, 376, the Supreme Court stated that in order to release the surety "some act must be done by the creditor, either before or after judgment, which injures the surety in some way." Some of the other decisions holding that a positive act of the creditor which tended to increase the risk or liability of the surety, or to injure him, will operate to discharge him, are Lewis v. Armstrong,47 Ga. 289; McCarter v. Turner, 49 Ga. 309; Curran v. Colbert, 3 Ga. 239 (46 Am. D. 427); Griffeth v. Moss, 94 Ga. 199 (21 S.E. 463); Ward v.McLamb, 118 Ga. 811 (45 S.E. 688).

The surety Jones contends that the evidence before the court presented a case where his risk or liability was increased, and he was thereby subjected to injury by a positive act of the plaintiff in releasing its judgment lien against the property of the cosurety, Nessmith. The courts hold that while mere failure or negligence on the part of the creditor to proceed against the principal or other surety does not necessarily release a cosurety, an exception to this general rule is to be found where the creditor omits to do something by which some "collateral security in his hands or within his reach is made unproductive." Lunsden v. Leonard, supra. The surety is generally not bound if the person secured does any act which violates or injures the rights of the surety. 50 C. J. 110. The underlying principle by which a surety may be released upon his contract by dealings or arrangements between the creditor and the cosurety, to which he is not a party, applies where there have been such dealings between the creditor and the cosurety as may tend to enlarge or increase the liability of the other surety, without his consent, or to expose him to greater liability, as where the act of the creditor tends to defeat the operation of subrogation to the rights of the creditor upon payment of the obligation, or to defeat the operation of right, afforded by law, to contribution between sureties. It has been held that the right of sureties to contribution must not be impaired by any affirmative act of the creditor. "It must be borne in mind that, while the creditor has nothing to do with the right of the sureties for contribution among themselves, he must not affirmatively do any act tending to impair it. In other words, he must not by his action destroy or impair the rights of sureties between themselves." Hard v. Mingle, 206 N.Y. 179 (99 N.E. 542, 42 L.R.A. (N.S.) 1131, 1133). It has been held that where, through the laches of the plaintiff creditor the risk and liability of the surety has been increased, in that the principal has become insolvent and any right of lien against the property lost, the surety would be discharged. Hayes v. Little, 52 Ga. 555, 556. To the same effect see Toomer v. Dickerson, supra. Ordinarily it is a question of fact whether stated acts of the creditor in relation to his dealings with the other surety, relative to the obligation on which his cosurety is likewise bound, would operate to expose such cosurety to greater liability and tend to increase his risk and thus injure and damage him as a surety on the obligation.

The judge was authorized to find from the evidence that the plaintiff held an execution issued on a judgment obtained in 1930, in a suit brought against the maker of the note, Mallard, and against Cuyler Jones and Dorsey Nessmith as sureties on this note, a revival of which judgment was sought by the plaintiff in this case against Mallard and the surety Jones, the surety Nessmith being deceased; that the balance due thereon was $664.16; that Nessmith owed the plaintiff bank, separately and apart from his liability to the bank as a cosurety with Jones on the obligation of Mallard, an individual note for $1500, which was secured by a deed to the bank conveying 53 acres of land; that on January 6, 1934, Nessmith conveyed to the Federal Land Bank Commissioner the 53-acre tract of land by security deed, and obtained a loan thereon of $1000; that on January 15, 1934, the holder of the individual indebtedness of Nessmith, who was the creditor and holder of the indebtedness of Mallard on which Nessmith and Jones were sureties, released from the lien of the execution on the Mallard indebtedness the 53-acre tract of land, and also released this land from the operation of the security deed given to the bank by Nessmith to secure his individual $1500 indebtedness to it, in consideration of receiving $801.75 of the amount received by Nessmith from the Federal Land Bank of Columbia, "together with other funds from borrower," such release reciting that it was executed in order to clear the title to the above land and in order that the bank might receive the benefits of such loan, and that it was not intended to "release any other lands of the said Dorsey Nessmith;" that this 53-acre tract of land was worth around $2700, $1200 more than the individual debt of Nessmith to the bank and transferred to the plaintiff creditor, which was more than enough to satisfy the balance due on the execution held by the plaintiff at the time, on which Nessmith was liable to it as a surety, in the same manner as the defendant Jones, likewise a surety, was liable to it; that Nessmith thereafter died and owned no property at the time of his death, thus defeating the right of Jones to enforce contribution by Nessmith out of the latter's estate, and that the risk of the cosurety Jones was therefore "materially increased" by the release, by the holder of the lien of said execution, of the land of Dorsey Nessmith from this execution. In these circumstances a finding was authorized that the acts of the plaintiff creditor in regard to Nessmith and his property tended to increase the risk of Jones, a cosurety with Nessmith on the obligation of Mallard, on which a judgment had been obtained and which was held by the plaintiff, and to expose Jones to greater liability as a surety in that any right that Jones might have had to obtain or enforce contribution from his cosurety, Nessmith, was by the positive acts and conduct of the creditor forever lost.

The judge, over objection of the plaintiff, allowed Jones to introduce in evidence deed records from the office of the clerk of Bulloch superior court, as to the security deed from Nessmith to the Federal Land Bank, and as to the release to Nessmith from R. E. Gormley, superintendent of banks, and to read to the court the record of such instruments as appeared from the record books. It does not appear that after objection was made by the plaintiff to the reading of these records in evidence, on the ground that they were not the highest and best evidence and that the originals had not been accounted for, the foundation was not then made by the defendant for the introduction of secondary evidence, and that the court did not for that reason admit such evidence. Error will not be presumed, and the burden is on the party complaining to affirmatively show error. Therefore, the court having admitted the evidence, and it not appearing that the foundation therefor had not been made, it will be presumed, not that the court acted erroneously and admitted secondary evidence without any foundation therefore, but that a foundation therefor had been made, and that the court did not err in admitting the evidence. Also, presumably the custody of the release and security deed above referred to was with the Federal Land Bank of Columbia, South Carolina, the grantee in the deed and the person at whose instance the release was executed, and not in the custody or control of the defendant. Therefore it does not appear that the defendant had the custody or control of these instruments. It does not appear that the admission of secondary evidence as to the contents of these instruments was error. There is no insistence that certified copies of the deed and of the release would have been better evidence than the original records thereof in the clerk's office. No error appears in these special assignments of error.

The judgment in favor of the defendant Jones was not contrary to law, and was authorized under the evidence.

Judgment affirmed. Sutton, J., concurs. Felton, J., concurs in thejudgment.