Butler v. Ladue

• Decision Date: 05 December 1863
• Citation: 12 Mich. 173
• Court: Michigan Supreme Court
• Parties: William A. Butler and others v. Andrew Ladue and others

12 Mich. 173

William A. Butler and others v. Andrew Ladue and others

Supreme Court of Michigan

December 5, 1863

Heard July 16, 1863; July 17, 1863. [Syllabus Material] [Syllabus Material] [Syllabus Material] [Syllabus Material]

Appeal in chancery from the Wayne Circuit.

On the fifteenth day of December, 1858, Ladue executed to the firm of Marvin & Stevens, a mortgage of lands, with condition and power of sale as follows:

"Provided always, and these presents are upon this express condition, that if the said party of the first part shall and does well and truly indemnify and keep harmless the parties of the second part, and their representatives, of and from all loss, costs or damages of any and every kind, by reason of their having become and intending yet to become indorsers or acceptors of the paper of said party of the first part, to an amount not exceeding $ 10,000 in all, and if said party of the first part shall promptly pay and discharge all notes or other papers of his, upon which said parties of the second part shall or may be or become indorsers or acceptors, together with all interest, costs and charges accruing thereon, so as to save said parties of the second part harmless, by reason of their connection with such paper, it being the intention hereof that this instrument shall inure and operate as a security and indemnity in the hands of the parties of the second part, against any liabilities they may hereafter assume upon the paper of the party of the first part, to an amount not exceeding $ 10,000, and for which engagements this indenture of mortgage shall operate to the said parties of the second part as collateral security, then these presents and the obligation of indemnity hereby assumed by the party of the first part shall cease and be null and void. But in case of non-payment by party of first part of the said papers so to be indorsed by parties of the second part, and of its payment by the latter, or of the interest thereof or any part of said principal or interest, at the time, in the manner and at the place above limited and specified for the payment thereof, then and in such case it shall and may be lawful for the said parties of the second part, their heirs, executors, administrators or assigns, and the said party of the first part does hereby empower and authorize the said parties of the second part, their heirs, executors, administrators or assigns, to grant, bargain, sell, release and convey the said premises, with the appurtenances, at public auction or vendue, and on such sale to make and execute to the purchaser or purchasers, his or their heirs and assigns, forever, good, ample and sufficient deed or deeds of conveyance in law, pursuant to the statute in such case made and provided, rendering the surplus moneys (if any there should be) to the said party of the first part, his heirs, executors or administrators, after deducting the costs and charges of such vendue and sale aforesaid, and also fifty dollars, as an attorney fee, should any proceeding be taken to foreclose this indenture; and said party of the first part hereby covenants with said party of the second part so to indemnify them as is hereinbefore expressed."

In May, June and July, 1860, Ladue executed five several notes, payable to the order of Marvin & Stevens, which were indorsed by them for the accommodation of Ladue, and delivered to the complainants. These notes in the aggregate amounted to less than $ 10,000, and were all payable on short time. They not being paid at maturity, and the liability of Marvin & Stevens as indorsers being fixed, the complainants filed this bill, setting forth these facts, and also that Marvin, Stevens and Ladue were all insolvent, and praying that the mortgaged premises might be decreed to be sold to satisfy the said notes.

Ladue demurred to the bill, and the demurrer being overruled, he afterwards filed an answer, and the case was heard on pleadings and proofs, and decree entered for complainants as prayed.

Decree in Complainants favor affirmed, with costs.

Douglass & Andrews, for complainants:

The mortgage is more than a mere indemnity against actual pecuniary loss. It is conditioned that the mortgagor "shall promptly pay and discharge all notes" which the mortgagees might indorse. The added expression, "so as to save the said parties of the second part harmless," means nothing more nor less than the expression, "and thereby save said parties harmless," would have done. The mortgagor was not only to save the indorsers harmless, but he was to do this by the prompt payment of his notes at their maturity.

The mortgage is declared to be intended as a security, as well as an indemnity; and against any liabilities which the mortgagees might assume; but it is held that a covenant to indemnify against liability, is broken whenever the liability becomes fixed: 8 Cow. 639, 653; 8 Wend. 452; 19 Wend. 423; 10 M. & W., 293; 1 Burr. 574; 2 Stark. 167; 9 Penn. 371.

Referring to liabilities to be assumed by the indorsers, the mortgage provides: "for which engagements this indenture of mortgage shall operate to the said parties of the second part as collateral security;" not as a mere means for obtaining reparation and compensation for possible future losses, but as a collateral security, to be employed in the most efficient manner for the protection of the mortgagees.

So, the condition, though awkwardly and ungrammatically expressed, is evidently intended to provide that the mortgagor shall pay the indorsed notes "at the time, in the manner, and at the place" therein stipulated.

But dismissing these verbal criticisms, it is perfectly evident from the whole tone of the instrument, that the parties intended the mortgage to operate not as a pure indemnity against actual loss--to be made available only by a process of foreclosure, which could not occupy less than a year, and could only be commenced after the mortgagees had themselves advanced the money, or had been ruined by executions--but as a present and continuing security, to be used by the mortgagees, and made available as a protection to them. If the construction of the instrument be doubtful, courts will not be anxious to construe it in a manner which would defeat the end which the parties to it must have had in view.

But even if the construction claimed for the instrument by the defendant were the true one, the complainants are entitled to maintain this suit.

The indorsers, before themselves paying the debt, might have filed their bill against the principal debtor, to enforce specific performance of his covenant to indemnify them, and to have the mortgaged property applied for that purpose: 1 Story Eq. Juris., §§ 327, 639; Rice Ch., 286; 6 Blackf. 491; 2 Head. 549; 36 N.H. 217; 13 Vt. 88; 4 Jones Eq., 212; 2 Rich. Eq., 179; Ibid., 22.

Whatever may be the rule at law, courts of equity consider and treat a security given by the debtor, to either the surety or the creditor, as held in trust for the other--not in virtue of any supposed agreement of the parties to that effect, but because substantial justice and equity require it. It is a fund appropriated by the debtor for the payment of the debt and regardless of, and even in opposition to, the expressed...