Joyce v. Cockrill

• Citation: 92 F. 838
• Decision Date: 07 March 1899
• Docket Number: 613.
• Parties: JOYCE v. COCKRILL.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

92 F. 838

JOYCE v. COCKRILL.

No. 613.

United States Court of Appeals, Sixth Circuit.

March 7, 1899

Thomas E. Powell, for plaintiff in error.

T. P Linn, for defendant in error.

Before TAFT and LURTON, Circuit Judges, and SEVERENS, District Judge.

LURTON Circuit Judge.

This is an action upon a promissory note, made by James E. Joyce &amp Co., with the plaintiff in error, John Joyce, as surety. The note is one of several made for the purchase price of the assets of an insolvent trading corporation, sold under order and directions of a chancery court at Little Rock. Ark. All the notes were payable to a receiver appointed by said court and the note in suit was assigned to the First National Bank of Little Rock, which sues through the defendant in error its duly-appointed receiver. The suit was by petition according to the Ohio code practice, and was against John Joyce only. Joyce, by answer, presented two defenses. There was a general demurrer going to both defenses, which the court sustained. The defendant below refused to further plead, whereupon the court rendered judgment for the amount of the note, interest, and costs.

The action of the court in sustaining the demurrer to the answer has been assigned as error. The property sold by the receiver consisted of a stock of goods and merchandise, real estate, and choses in action. It was sold in bulk for the gross price of $38,200. The note in suit is for $9,000, is dated March 20, 1893, and is payable three years after date. The decree of sale directed the receiver to require personal security upon the deferred payments, and to reserve a lien in his deed of conveyance of the real estate included in the sale. The first defense of the answer is that the said John Joyce became the surety of James E. Joyce & Co. upon the agreement and understanding that the lien directed by the court would be reserved. It is then averred that the receiver, negligently and in violation of said order of the court, conveyed said real estate without reserving any lien in his deed, and that said James E. Joyce & Co. have since sold and conveyed said property to third persons, who were ignorant of said order of court made for said sale, 'whereby the lien which ought to have been retained and reserved has been lost. ' It is further averred that the value of the real estate so sold was sufficient to pay the unpaid purchase money, consisting, as alleged, of the note in suit and of another, of like amount, outstanding, upon which one Fitzgerald is sold security. These facts are pleaded in discharge and relief of plaintiff in error as surety upon the note in suit. While it is stated in the answer that the agreement and understanding between the plaintiff in error and the principal debtors was that the receiver should retain or reserve a lien, as provided by the statute law of Arkansas, in his deed conveying to said James E. Joyce & Co. the real estate, which was part of the consideration for which this note was executed, and that the Little Rock Bank, to whom the note was subsequently assigned, took the note with knowledge of the facts stated in the petition, yet it is not averred that the receiver, who was to reserve the lien, was informed, when he accepted the note or before he conveyed the land, that any such conditions were attached by the surety to his liability. It is not stated whether the note was delivered to the receiver by the surety, or by the purchasers of the property; but, whether by the one or the other, plaintiff in error chose to remain silent as to any conditions, or intrusted the note for delivery to the purchasers, and is equally bound by the silence of the latter. A surety is not discharged, even against the payee, by evidence that the obligation upon which he is sued was delivered to the principal obligor upon conditions which have not been performed, if the payee accepted the instrument without notice, and would sustain loss if deprived of the security upon which he relied. This principle has been applied to official bonds, as well as to promissory notes and other negotiable paper. Thus, in Dair v. U.S., 16 Wall, 1, a distiller's bond, perfect upon its face, was signed by a surety, and delivered to one of the principal obligees, upon condition that it should not be delivered unless it was executed by other persons, who did not execute it. The obligee had no notice of this condition, and accepted it. It was held these facts constituted no defense by the surety, who had thus signed the bond upon a condition which had not been performed. To the same effect are the cases of Amis v. Marks, 3 Lea, 568, Buford v. Cox, Id. 518, State v. Potter, 63 Mo. 212, and State v. Peck. 53 Me. 284. Neither will a surety upon a promissory note, or a private bond, in the hands of the payee, be discharged upon evidence that he had signed the note or bond upon conditions not performed, but of which the payee had no notice. Jordan v. Jordan, 10 Lea, 124; Russell v. Freer, 56 N.Y. 67; McCormick v. Bay City, 23 Mich. 457; Davis v. Gray, 61 Tex. 506; Merriam v. Rockwood, 47 N.H. 81.

But it is insisted that by the neglect of the receiver a lien has not been reserved, which would, through subrogation, have inured to the benefit of the surety. Undoubtedly the general principle is that, if a creditor does any act inconsistent with the rights of the surety and injurious to him, or omits to do any act which his duty to the surety obliges him to do, and thereby injures the surety, the latter will be discharged to the extent of such injury. Story, Eq. Jur. Secs. 325, 693. So a surety is entitled to the benefit of all securities which the creditor obtains from the principal debtor, and if the creditor by any affirmative act surrender them to the debtor, or they are lost through the neglect of some duty owing to the surety, the latter will be exonerated to the extent of the loss thus sustained. Evans v. Kister (decided at this term) 92 F. 828. The facts of this case do not bring it within the principles relied upon. The receiver surrendered no lien. He never had a lien. He might have acquired one by an express reservation in his deed to the purchasers, but in no other way. The case would be very different if he had released such a lien after it had arisen. But the complaint is that he might have acquired a lien, and chose not to do so, and to rely alone upon the purchaser and his surety. It may be admitted that he failed in his duty by not reserving a lien as directed by the decree. But to whom was this duty due? To the court, and to the parties interested in the proceeds of sale. It was a duty imposed upon him by the court for the protection of the owners of the property and the creditors interested in its sale. Admit that he failed in the discharge of this official duty; can this surety obtain any benefit therefrom? If so, it will be at the expense of the creditors, who, having lost one security through the negligence of the receiver, will be deprived of the benefit of another which he did take. Yet the negligence of the creditors thus to be punished does not equal that of the surety who seeks to make it available for his own release. If those interested in the proceeds of the sale should have seen to it that the receiver did not neglect to take this lien, quite as much may be said as to the surety. He either delivered the note himself, or suffered his principals to deliver it, to the receiver, without notice that his liability was to depend upon the reservation of this lien. It is incredible that the receiver would have accepted the note subject to such conditions, or, if he did, that he would have conveyed the property without reserving a lien.

Upon the averments of the answer, the assignee of this note stood upon no higher footing than the receiver would, if he, in his official character, were plaintiff. Still, the negligence of the surety in failing to give notice to the receiver of the conditions upon which he was to become liable, and in failing to see that the receiver's deed reserved the lien directed by the court, is greater than that of the owners of the property or the creditors interested in the proceeds of sale. But this loss or injury has come about through the neglect of a public official to execute properly a duty imposed by the decree under which he was acting. That duty was imposed, not for the benefit of the sureties, who might strengthen the notes of the purchaser, but for the benefit of the parties to the cause. He was, therefore, under no active or affirmative duty to the surety. He had no notice of the conditions upon which the surety had signed, nor of his reliance upon the lien of a vendor for his protection. The performance of this official duty might have prevented loss to this surety. But mere laches or negligence, or nonperformance of some act which might have benefited a surety, will not, in the absence of some express covenant or condition, discharge a surety. The neglect must be of some duty owing to the surety. In the case of Board v. Otis, 62 N.Y. 88-92, the sureties upon the official bond of a county treasurer sought to be discharged from liability upon their obligation because of the neglect of other county officials, whose duty it was to make stated examinations of the accounts of the treasurer. The court held that this duty was one owing to the public, and not to the sureties. In that case the court stated the rule, as between sureties and obligees, in a way which meets our approval:

'Mere passive negligence,' said the court, 'laches of an obligee or creditor, mere nonperformance of some affirmative act which if performed might prevent loss to the surety, will not, in the absence of some express covenant or condition to that effect, discharge a surety, and that the neglect of

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