Post v. Losey

• Decision Date: 23 May 1887
• Citation: 111 Ind. 74,12 N.E. 121
• Parties: Post, Adm'r, v. Losey and others.
• Court: Indiana Supreme Court

111 Ind. 74

12 N.E. 121

Post, Adm'r,

v.Losey and others.

Supreme Court of Indiana.

May 23, 1887.

Appeal from superior court, Marion county.Claypool & Ketcham, for appellant. Byfield & Howland, for appellees.

Zollars, C. J.

On the second day of September, 1875, Robert C. Losey, for his own use and benefit, borrowed of appellant's decedent, Jacob Hubner, a sum of money, to be repaid in three years. As evidence of the debt created by the loan, Robert C. Losey, and his wife, Emma J., appellee herein, executed and delivered to said decedent a promissory note. At the same time, and to secure payment of the note, Emma J., her husband, Robert C., joining, executed and delivered to said decedent a mortgage upon her separate real estate. She executed the note and gave the mortgage as surety for her husband, and in no other capacity; the money neither having been borrowed nor used by her, nor used for her benefit in any way to make her property primarily liable. On the sixth day of August, 1878, Robert C. Losey was discharged in bankruptcy from all of his debts, including said note.

On the twenty-ninth day of September, 1878, he and the decedent, payee of the note, without the consent or knowledge of Emma J., entered into an agreement, which they indorsed upon the back of the note, as follows: “In consideration of the extension of time for three years from September 2, 1878, and the reduction of the rate of interest from ten per cent. to six per cent. per annum, I hereby assume to pay promptly the interest at six per cent. semi-annually, and the principal of the within note on or before September 2, 1881. R. C. Losey.” Subsequent to said agreement, Robert C. paid several installments of interest on the note. At the time the note and mortgage were executed, and at the time the above written agreement was made, the payee and mortgagee knew that Robert C. and Emma J. Losey were husband and wife, that the real estate mortgaged was her separate property, and that she executed the note and mortgage as surety for her husband, and in no other capacity.

The above are substantially the facts specially found by the court below. Upon those facts the court rendered judgment in favor of the plaintiff against Robert C. Losey for the amount of the note, and for Emma J. for costs, having concluded, as a matter of law, that, by reason of the foregoing facts, the mortgage was discharged and satisfied and her real estate released. The question for decision here concerns the rights of the wife, Emma J.

Under the present statutes a wife may not mortgage her separate property to secure her husband's debts. The mortgage in suit was executed in 1875. Under the statutes then in force such a mortgage was valid. Its validity was not affected by the change in the statutes. It is well settled that a wife who has mortgaged her separate property for her husband's debt, when she may do so, is in the position of surety, and entitled to all the rights of a surety, and that her liability and the mortgage lien are discharged by an extension of time of payment without her consent, if the extension be a binding obligation upon the mortgagee. Her rights in this respect are the same as if she were sole. Trentman v. Eldridge, 98 Ind. 525, (534,) and cases there cited; Bank of Albion v. Burns, 46 N. Y. 170;Smith v. Townsend, 25 N. Y. 479. Relying upon this rule of the law, counsel for Emma J. contended that the agreementbetween the husband and the decedent, the payee, indorsed upon the back of the note, operated as an extension of the time of payment, and thus released her property. In response to that contention, counsel for appellant contend, in the first place, that the evidence does not show that the decedent, payee, at any time had notice that Emma J. was surety for her husband, and that hence she cannot avail herself of the rule which releases a surety by an extension of the time of payment; and, in the second place, that she cannot avail herself of that rule for the reason that the husband had been discharged in bankruptcy, and thereby became a stranger to the note. These in their order. In order that an extension of the time of payment may release the surety, it is essential that the payee shall have knowledge of the suretyship. Davenport v. King, 63 Ind. 64;McCloskey v. Indianapolis Manufacturers', etc., Union, 67 Ind. 86;Arms v. Beitman, 73 Ind. 85;Gipson v. Ogden, 100 Ind. 20. When, however, a person accepts a mortgage in his favor upon the separate property of a married woman, knowing her to be a married woman, and that the property is her separate property, he is bound to inquire concerning the consideration, and ascertain, if he may be reasonable inquiry, from her, whether it is for the benefit of another, and, unless misled by the conduct or representations of the wife, he will be held to have acquired knowledge of the facts which prudent inquiry could have discovered. Cupp v. Campbell, 103 Ind. 213.¹ See Smith v. Townsend, supra. Under this rule, and under a less liberal rule, there is evidence sufficient to justify the court below in finding that the payee knew that Emma J. was a married woman, and that she was mortgaging her separate real estate to secure a debt of her husband, notwithstanding she signed the note with him. Being a married woman, she was not personally liable upon the note. There was in the mortgage an agreement to pay the amount thereby secured. That agreement made the mortgage effective, so far as the right to foreclose was concerned, but created no personal liability against her. Trentman v. Eldridge, supra.

Robert C. Losey was discharged in bankruptcy from all his debts, including that for which the mortgage in suit was given. That discharge released him absolutely from all legal and personal liability upon the note, and the agreement to pay contained in the mortgage. Root v. Espy, 93 Ind. 511. Ordinarily, a surety is released when the debt for which he is surety is discharged; and, ordinarily, a mortgage given to secure the payment of a debt, and having in it no promise to pay such debt, becomes ineffectual, and is barred when the debt is barred, or in any way discharged. Lilly v. Dunn, 96 Ind. 220;Bridges v. Blake, 106 Ind. 332, 6 N. E. Rep. 833.

Those general rules apply where the discharge of the principal debt and debtor is by some act or neglect of the creditor, and not to a discharge by operation of law, being, as it is, against the consent, and beyond the power, of the creditor. Phillips v. Solomon, 42 Ga. 192. In speaking of the rights and liabilities of sureties, and the effect of the bankrupt law thereon, the court there said: “We are inclined to think that it was not the intent of congress to do anything more than to declare that the act should not be construed so as to discharge sureties, and that this was done, not so much to fix the law of the case, as by way of caution to prevent the act from being construed to have an effect that, by its terms, it would not have. In other words, the contract of a surety, as it is understood in the commercial world, is always conditioned that the surety shall not be discharged by the bankruptcy of the principal.” It was further said that the sections of the bankrupt law upon the subject of sureties were only in furtherance of, and declaratory of, what would have been true had those sections not been put in the act. The court also quoted, with approval, the following, from Theobald on Principal and Surety: “The obligation of the surety, also, in general, becomes extinct by the extinction of the obligations of the principal debtor. An exception to this rule takes place whenever the extinction of the obligation of the principal arises from causes such as bankruptcy and certificate, which originate with law, and not in the voluntary acts of creditors.” See, also, Gregg v. Wilson, 50 Ind. 490; and, to the same effect, Pars. Notes & B. 249; Pars. Cont. 29; Ward v. Johnson, 13 Mass. 148; Blum. Bankr. 543.

Whatever may have been the purpose or necessity of it, the bankrupt law under which Losey was discharged, provided, in explicit terms, that no discharge under it should release, discharge, or affect any person liable for the same debt, for or with the bankrupt, either as indorser or surety, etc. Bump, Bankr. (9th Ed.) 372, and cases there cited. See, also, King v. Central Bank, 6 Ga. 257;Hall v. Fowler, 6 Hill, 630;Camp v. Gifford, 7 Hill, 169;Knapp v. Anderson, 15 N. B. R. 316;Gregg v. Wilson, 50 Ind. 490. The above-mentioned provision of the bankrupt act, as interpreted by the courts, and the general principles of law, require a holding here that the mortgage in suit was not discharged by the discharge in bankruptcy of Robert C. Losey, the principal debtor. In re Hartel, 7 N. B. R. 559. See, also, Catterlin v. Armstrong, 101 Ind. 258.

Emma J. having mortgaged her property for the debt of Robert C., and thus occupying the position of surety, he was liable to her for whatever might be collected from her property in payment of the debt. In that sense he was her debtor. She was in a position to have caused the debt, to secure which the mortgage was given, to be proved against the bankrupt estate of the debtor, in order that it might be reduced by whatever dividends were made, if any. Such proof was expressly authorized by the bankrupt law, and, because that proof might have been made, the discharge of Robert C. Losey discharged him from all liability to Emma J. by reason of the mortgage. Blum. Bankr. c. 545; Bump. Bankr. 582; Mace v. Wells, 7 How. 272;Baker v. Vasse, 1 Cranch, C. C. 194; Hunt v. Taylor, 4 N. B. R. 683;Kerr v. Hamilton, 1 Cranch, C. C. 546; In re Perkins, 10 N. B. R. 529; Brandt, Sur. § 189.

It results, from what we have said, that, after the discharge of Losey in bankruptcy, he was neither liable upon the note, or otherwise, to the payee, nor was he in any way liable to Emma J., who, by reason of the mortgage upon her separate property,...