London & Northwest American Mortgage Co. v. Fitzgerald

YaNderburgh, J.

Defendant Fitzgerald executed two notes, for •f1,550 each, to his codefendants, as payees, which notes are secured by mortgage. Before maturity the payees sold and indorsed the notes, and assigned the mortgage to the plaintiff. One of the notes, being the note in suit, was protested for nonpayment, and the in-dorsers duly charged as such. In this action upon that note, the defendants, (indorsers,) in their answer, ask that, as a condition of the payment thereof by them, the plaintiff should be required to transfer to them the note, and assign to them a proportionate interest in the mortgage security, it being admitted that the other note is still outstanding and unpaid. The relief asked by the defendants was denied by the court, except upon the condition that the subrogation in their favor should be subject to and subordinate to the rights of the plaintiff in the mortgage as security for the remaining note.

The mortgage is security for both notes, but the plaintiff, the as-signee thereof, and the owner of the notes, will not be treated as trustee of a proportionate interest therein for the benefit of sureties who may pay part of the debt only. Their indorsement is additional security, but the holder of the mortgage is not obliged to part with his security, or any part of it, until the whole indebtedness secured thereby is paid. Their rights to the security are subordinate to his.

Had the mortgage been given to secure notes held by different parties, or had one note been transferred to a purchaser without reserving any preference in the security, the cases cited by the appellant would be in point. But since the claim of a surety to sub-rogation is purely an equitable one, and does not rest upon any contract, it cannot prevail, unless it is shown to be just and reasonable; that is to say, a surety can only be substituted in the place of the creditor upon equitable conditions. Hence it is obvious that the court will not interfere, as against the principal creditor, to compel him to surrender any part of the property or security pledged for his benefit, until the whole of the indebtedness for which it is so pledged is paid. To do so would be a clear violation of his rights under the contract by virtue of or under which he holds the security. Wilcox v. Bank, 7 Allen, 272, and cases cited. And it is entirely immaterial whether there be one or more separate debts, or whether, where there are several debts, they are secured by the same or different sureties, for the object of the pledge or mortgage is the protection of the holder in respect to each and all of the several debts which it was given to secure. If, then, the answering defendants desire to secure the benefit of the mortgage in question, they must first pay the amount due upon both notes, when they will be entitled to be substituted in the place of the plaintiff, and to enforce the mortgage for their own benefit.

This case is distinguishable from that of Nettleton v. Ramsey Co. L. & L. Co., 54 Minn. 395, (56 N. W. Rep. 128,) for reasons stated in the opinio'n in that case, in which the objection was urged by the principal debtor, whose obligation to pay the whole amount of several debts was absolute, and collateral securities were not involved.

(Opinion published 56 N. W. Rep. 461.)

Order affirmed.