United States Fidelity & Guaranty Co. v. Clifton

The United States Fidelity Guaranty Company filed suit in the district court of Eastland county against J. D. Clifton, E. L. Clifton, and P. A. Clifton, doing business under the firm name of Clifton, Clifton Co. In substance, the plaintiff alleged that theretofore on September 27, 1920, in a suit styled the Dixie Oil Refining Company v. J. D. Clifton et al., the plaintiff here, as surety, executed a replevin bond for the plaintiff in the former suit and payable to the defendants in this suit; that subsequently a judgment was entered in the former suit in favor of Clifton, Clifton Co. against the Dixie Oil Refining Company for $5,354.70, with a stay of execution for four months after the date of said judgment. Plaintiff in this suit alleged that it was not a party to the other litigation, except as a surety on the plaintiff's replevin bond, and was not represented by counsel, and was not a party to any agreement between the plaintiff and the defendants in said suit for the stay of execution; that said stay of execution was granted to the defendants in the judgment on their cross-action without consulting the present plaintiff, the surety, and without the surety's knowledge or consent; that the agreement between the plaintiff and the defendants in said former suit contemplated that the plaintiff would withdraw any defense it had against defendants' plea over, and give judgment for the defendants, if the stay of execution was granted. Plaintiff further alleged that it had reason to believe, and did believe, that if an execution and order of sale had been issued upon the former judgment, in the manner and within the time required by law, that the defendants in said suit would have realized and recovered their said judgment out of the Dixie Oil Refining Company, by virtue of the sale of the property belonging to said plaintiff, but that all of said property belonging to the plaintiff is now in the hands of a receiver, appointed by the court, and that Clifton, Clifton Co. should be required to follow said property into the hands of the receiver, but that, in any event, by virtue of said agreement and said judgment, extending the time of payment for the satisfaction of said judgment, the plaintiff in this suit has been released from any and all liability as surety on said bond. Hence the plaintiff prayed the court to grant a writ of injunction restraining Clifton, Clifton Co. from selling and having sold the securities deposited with the state treasurer at Austin by the plaintiff, under the requirements of the law.

Upon the presentation of the petition to the judge of the Eighty-Eighth judicial district court of Eastland county, a temporary writ of injunction was granted as prayed for, but upon a motion to dissolve, made by the defendant in this suit, said writ was vacated and dissolved, and it was the order of the court that Clifton, Clifton Co. recover from the Dixie Oil Refining Company the sum of $5,354.70, and the court foreclosed the writ of attachment lien in favor of Clifton, Clifton Co. on certain described personal property belonging to the Dixie Oil Refining Company, and which had been replevied by it under a replevin bond, on which the plaintiff in this suit was surety, and gave Clifton, Clifton Co. a judgment against the plaintiff in this suit on said bond.

From the judgment the plaintiff has appealed to this court.

The question for decision in this case is whether or not an agreed judgment rendered against the principal defendant and his surety on a replevin bond providing for a stay of execution is void as to the nonconsenting surety. In Bank v. Bray, the Supreme Court, speaking through Justice Phillips (105 Tex. 312, 148 S.W. 290), later Chief Justice, said:

"The established rule of law is that if, without the consent of the surety, a binding agreement is made between the creditor and the principal debtor for an extension of the maturity of the debt, the surety is released; and the effect is the same as to property that stands in the relation of a surety, as did the property of Mrs. Bray in this case. The reason of the rule demonstrates its justness as a principle as well as its necessity in the business affairs of the people, for at any time after the maturity of the debt, the surety, for his own protection, should possess the right to pay it and proceed against the principal or indemnity, and such right is impaired if the creditor enter into a valid contract with the principal for an extension of the time of payment. The law therefore visits upon the creditor the deserved consequence of his so impairing the right of the surety by releasing the surety from liability. Benson v. Phipps, 87 Tex. 578, 29 S.W. 1061, 47 Am. St. Rep. 128. The true test in every such case accordingly is whether the agreement of extension is such as to deny to the surety the exercise of this right which inheres in his relationship, and which the law places at his disposal and command as a benefit and protection immediately upon the maturing of the debt. If the agreement of extension be a binding one, its effect clearly is to deprive him of his right. But, if the agreement be not a binding one, it remains intact and unprejudiced. What the law speaks of in this sense as ``a binding agreement' is an agreement that is conclusive upon both the creditor and the principal, an agreement that both effectually stays the hand of the creditor, and yields to the principal the full benefit of the indulgence, an agreement that neither can avoid, but which both must respect, and which because of its inviolable character operates to the harm of the surety."

In Turner v. National Cotton Oil Co., 50 Tex. Civ. App. 468,109 S.W. 1112, it is said:

"The undertaking of a surety is to be strictly construed, and his liability will not be extended beyond the precise words of his agreement, either by construction or implication."

The right of a surety to consider himself discharged by an extension of time to the principal is not affected by the fact that the principal was insolvent or a discharged bankrupt, at the time of such extension, nor that the extension benefited or did not injure the surety; his contract being changed. Short v. Shannon (Tex. Civ. App.) 211 S.W. 463; Maier v. Thorman (Tex. Civ. App.) 234 S.W. 239.

In Gerlach Bros. v. Du Bose, 210 S.W. 742, the Court of Civil Appeals at Beaumont held that the sureties on a bond given on appeal from the justice court to the county court are not relieved from liability by the fact that the appealing principal and his adversary agree upon a judgment against the principal with stay of execution, and that such agreement is made without the knowledge or consent of the sureties; the sureties' obligation being presumably assumed with a view to the control by the principal of the litigation on the appeal.

In Corpus Juris, vol 4, § 3393, p. 1285, it is said:

"An agreement for affirmance of a judgment appealed from, made in good faith, does not excuse nor discharge the sureties on the appeal bond. And so an agreement for affirmance, extending the time of payment and staying execution, does not discharge the sureties, although made without their express consent."

In Drake v. Smythe, 44 Iowa 410, the court said:

"The sureties became parties to the record, and were liable to any judgment rendered in the cause within the limit of their obligation. Their relation to the action was not such as gave them any control thereof; they could not dictate to defendant the course he should pursue in the case; he had the full right to do whatever the law authorized in a case where no sureties are concerned. Their position in the case was one of obligation for debts, not of rights in conflict with defendant's rights. They were bound for the judgment which should be rendered against defendant in the progress of the suit. That defendant had the right to stipulate * * * upon the rendition on the judgment cannot be questioned. The sureties, then, are bound by that agreement, and are liable upon the judgment."

In Ammons v. Whitehead, 31 Miss. 99, the court said:

"The necessary legal effect of their execution of the bonds was to confer upon the principal full power to do whatever he might deem necessary and proper in defending or determining the suits. * * * And upon the same reason he was authorized to compromise the suits upon terms advantageous to himself. This was no violation of the obligation of the sureties, nor a variation of the terms of their obligation; for that was entirely contingent and uncertain, except that the parties had, by the necessary legal effect of the act, submitted themselves to whatever might be done in the determination of the suit, by their principal, under the sanction of the court. * * * And whether the sureties be regarded as parties to the judgment, and as such bound by the proceedings in the suit, or as bound by the action of their principal by reason of the power necessarily conferred upon him by the purpose and legal effect of the bonds, it is clear that the sureties are not within the rule which discharges such parties in consequence of indulgence given to their principal."

In Montrose v. Baggott, 161 A.D. 494, 505, 146 N.Y.S. 649, 657, the parties agreed to continue the case until the next term of court, at which time plaintiff was to have judgment for the amount of his demand. The sureties on the appeal bond pleaded that this agreement released them. The New York court held that it did not, and in part said:

"The undertaking we are considering was not to pay the claim in suit, but the judgment that might be recovered. The sureties' obligation did not arise until the judgment was recovered. The indebtedness for which they were sureties had not matured. A judgment might never have been recovered. Until its recovery the sureties would be in no position to pursue the principal debtor. They could not control the creditor's litigation. He could conduct it in accord with his best judgment to accomplish his own purposes. The rule of exoneration did not apply because the reason for it did not exist."

See Howell v. Alma Milling Co., 36 Neb. 80, 54 N.W. 126, 38 Am. St. Rep. 699, and other cases cited upon this point in Gerlach Bros. v. Du Bose, supra.

Article 258, Rev. Statutes, contains the obligation of a surety on a replevin bond "that, should the defendant be condemned in the action, he shall satisfy the judgment which may be rendered therein, or shall pay the estimated value of the property with lawful interest thereon, from the date of the bond."

Article 2393, Vernon's Sayles' Ann.Civ.St. 1914, provides for appeal from the justice court and gives the conditions of the bond "that the appellant shall prosecute his appeal to effect, and shall pay off and satisfy the judgment which may be rendered against him on such appeal."

It will be noticed that the replevin bond and the appeal bond discussed in Gerlach Bros. v. Du Bose, supra, in common, contain conditions that the liability of the surety is dependent upon a judgment having been obtained against his principal, and that the surety agrees and binds himself in the case of a replevin bond that should the defendant be condemned in action, he will satisfy the judgment which may be rendered, and pay the estimated value of the property replevied; and in the case of an appeal bond, the surety binds himself to satisfy the judgment which may be rendered against his principal. We believe that the two bonds are essentially the same, and that the holding in the Gerlach Case is sound, and is pertinent to the case under consideration.

It is insisted by the appellant that the cases of Pilgrim v. Dykes,24 Tex. 384, and Burke v. Cruger, 8 Tex. 66, 58 Am.Dec. 102, assert a contrary ruling from that followed in the Gerlach Case. In both of these cases the Supreme Court laid down the rule that a binding agreement between the plaintiff and the defendant to extend the time of payment made before the judgment released the surety.

But no Texas case has been cited, and we have found none, holding that where the stay of execution is granted in the judgment, that the surety is thereby released from liability. In Siddall v. Goggan Bro.,68 Tex. 708, 5 S.W. 668, the Supreme Court held that where property sequestered has been replevied, the sureties on the replevin bond are bound by a judgment entered on an agreement filed in the cause by their principal, that the debt "is just," and that judgment be entered for the specified value of the property sequestered. Such sureties, not being parties to the suit, cannot, by seeking to make themselves parties defendant, prevent judgment being rendered on such an agreement, unless they allege that the agreement that the debt "is just" was untrue, or that their principal has some legal or equitable defense to the action, a failure to present which will operate injustice to them.

Appellant urges that the case of Reliable Iron Works v. Bank Trust Co., 241 S.W. 592, by this court, sustains its contention. Chief Justice Conner, in his dissent, cites and quotes from this decision. If there be a conflict between the last-cited case and the authorities cited in the instant case, in support of the conclusion of the majority, we are inclined to follow what we deem to be the trend of authority in this and other jurisdictions.

It is urged by the appellee that the judgment of the trial court should be affirmed, also, on the ground that the evidence shows that no consideration passed in the original suit from the plaintiff to the defendant to make the agreement for the stay of execution valid, and cites such cases as Brown v. Chambers, 63 Tex. 131, and Yeary v. Smith,45 Tex. 71, to sustain the contention. But while we recognize the rule laid down by the authorities that an agreement invalid in law to extend the time of payment will not release the sureties, and even though the evidence in this case shows, or tends to show, that the agreement for the stay of execution was not supported by a valid consideration, yet we prefer to rest our judgment of affirmance upon the ground already discussed.

Appellee also urges that in this case the evidence shows that on the day in which the former judgment was entered with the stay of execution, the receiver, theretofore appointed to take charge of the property and affairs of the Dixie Oil Refining Company, qualified, and that had an execution been issued under the judgment forthwith and an attempt been made to sell the property belonging to the Dixie Oil Refining Company, such could not be done within the four months for which the stay of execution was granted, because of a receivership, citing such cases as Bothfeld v. Gordon, 190 Mass. 567, 77 N.E. 639, 5 L.R.A. (N. S.) 764, 112 Am. St. Rep. 341, and the Texas case of McAuley v. McKinney,23 Tex. Civ. App. 500, 57 S.W. 309. We do not express any opinion as to the soundness of this contention.

Appellee also urges that the judgment in this case is not void, inasmuch as the trial court had jurisdiction over the parties and subject-matter, and that if the surety felt itself injured by the judgment, it could have sought its remedy by an appeal or a writ of error, and not by an action in the nature of a bill of review, and in this case, citing such cases as Fisher v. Hemming (Tex. Civ. App.)164 S.W. 913, Ferguson v. Sanders (Tex. Civ. App.) 176 S.W. 782, Wagley v. Wagley (Tex. Civ. App.) 230 S.W. 493, and Jones v. Wootton (Tex.Com.App.) 228 S.W. 142, some of which may support that contention.

For the reasons given, all assignments of error are overruled, and the judgment of the trial court is affirmed.