New Bedford Institution for Savings v. Hathaway

• Decision Date: 09 January 1883
• Citation: 134 Mass. 69
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: New Bedford Institution for Savings & another v. Guilford H. Hathaway

134 Mass. 69

New Bedford Institution for Savings & another v. Guilford H. Hathaway

Supreme Court of Massachusetts

January 9, 1883

Argued October 25, 1882

Bristol. Bill in equity, filed June 17, 1881, by the New Bedford Institution for Savings and Stephen Davol, against the assignee in insolvency of the estate of William C. Davol to reverse an order of the Court of Insolvency expunging the proof made by the first-named plaintiff as holder of a promissory note, signed by the insolvent as surety. The case was heard by Field, J., on the bill and answer and the report of a commissioner; and the following facts were found by him:

On March 8, 1879, William C. Davol was adjudged insolvent, and the defendant was duly elected and appointed assignee of his estate. The plaintiff bank was at this time the holder of a promissory note for $ 9000, dated August 6, 1878, payable on demand, and signed by William C. Davol, Jr. as principal, and by William C. Davol, the insolvent, and the plaintiff Stephen Davol, as sureties.

After William C. Davol was adjudged insolvent, and William C Davol, Jr. was reputed to be insolvent, the plaintiff bank called upon Stephen Davol for payment of the note; and it was agreed between the bank and Stephen Davol that he should give collateral security to secure his liability on the note, and that the bank should prove the note against the estate of William C. Davol, and that, after the same was proved and allowed, the bank should, upon his taking up the note by paying to the bank the amount due thereon, assign and transfer to Stephen Davol, or to such person as he might designate, the proof, dividends and the note. The purpose of this agreement was to assign to Stephen Davol the same, and to subrogate him to all its rights concerning the proof by the bank and the dividends it would be entitled to receive, the bank desiring that the note should be paid, but being ready for the benefit of the surety to make this agreement.

The note was duly proved against the estate of William C. Davol by the bank, for the whole amount of the note. On August 12, 1879, Stephen Davol took up the note by giving to the bank his own note for $ 7000, and paying the balance due on the same, principal and interest, in cash, and thereupon the bank transferred the note to Stephen Davol, and gave him an order on the assignee of the estate of William C. Davol for the dividends which might be declared on said proof; and this was done pursuant to said agreement. The first dividend upon the estate was not made till after the note was taken up by Stephen Davol, and the assignee of the estate of William C. Davol did not know of this transaction between the bank and Stephen Davol till long after; and, as soon as he found it out, he filed his petition in the Court of Insolvency to expunge said proof. That court ordered the proof to be expunged, with leave to Stephen Davol to prove for one half of the same, and no more.

The principal on the note is without visible means, and the bank or Stephen Davol will not receive more than fifty per cent of the amount due on the note from the estate of William C. or from the estate of William C., Jr., or from both, if the proof of the note is allowed to stand for the full amount.

Upon these facts, the judge ruled that the order of the Court of Insolvency was correct, and ordered the bill to be dismissed; and, at the request of the plaintiffs, reported the case for the consideration of the full court, such decree to be entered as justice might require.

Bill dismissed.

J. M. Morton, for the plaintiffs.

H. K. Braley, for the defendant.

Devens, J. C. Allen, Colburn & Holmes, JJ., absent.

OPINION

Devens, J.

Whatever agreement was made between Stephen Davol and the bank, by which Davol sought to enforce against William C. Davol, his co-surety, a claim for the entire debt for which they were jointly responsible as sureties of William C. Davol, Jr., the effect of the transaction was at law a payment of the debt. Stephen Davol gave his own note for a portion of the original note, paid the remainder in cash, and took an assignment of the original note and an order on the assignee of the estate of William C. Davol for the dividends which might be declared on the proof of the original note, which had already been made.

Payment by one of several joint debtors, although it be made by him in the form of a purchase, and be accompanied by an assignment of the debt, is still a discharge of the debt. If the debt be in the form of a judgment, such judgment cannot be enforced by him against his co-debtor, even for his proportion. Hammatt v. Wyman, 9 Mass. 138. Brackett v. Winslow, 17 Mass. 153. Adams v. Drake, 11 Cush. 504. Where the payment thus made is by a surety, as he is entitled in equity to be subrogated to the right which the creditor may have in the securities which have been given him by the principal debtor, so that he may enforce them for his own benefit, the debt is there treated as still existing, so far as it may be required for that purpose. Wall v. Mason, 102 Mass. 313. The doctrine of subrogation is one recognized in equity, and is ordinarily there enforceable only. It implies an equitable exception to the general principle that payment by one joint debtor discharges the debt as against all, and holds it as continuing to exist for the protection of the parties to the note and the enforcement of their rights inter sese. Wall v. Mason, ubi supra. Edgerly v. Emerson, 3 Foster 555. Brewer v. Franklin Mills, 42 N.H. 292.

Collateral securities are, as their name imports, but incidents of the debt, and they would cease to be available, if that were to be deemed absolutely discharged. A mortgage given by the principal debtor to the creditor to secure the debt which it was his duty to pay, and of which the surety actually paying should have the benefit, would itself be destroyed, if, so far as the surety is concerned, the debt were treated as destroyed. The right which the surety has against the principal rests upon the equitable principle that, if such surety pay the debt, he shall be indemnified therefor by the principal, and it is alike equitable that, as between sureties, one paying the debt shall have his remedy against the other, and the benefit of such securities as the latter may have deposited, to the extent of the obligation he has liquidated for him.

It is indeed said in Bowditch v. Green, 3 Met 360, that, by whomsoever the payment of a joint note is made, the collateral security given for the payment thereof is ipso facto discharged. This was a case where a surety, having paid a joint note, brought an action at law against a third person upon a note signed by him, which had been transferred to the creditor as collateral security by his co-surety, and which, on payment of the joint note, had been assigned by the creditor to the plaintiff. It had been subsequently paid to the co-surety, who had thus transferred it, and been discharged by him. An equitable proceeding was necessary in order to adjust the rights of sureties, and to determine to what extent either might pursue his claim, upon payment of the whole debt, against the other, or the securities deposited by him. In a suit at law, it was not thought advisable to consider or discuss what might have been the respective rights of the parties, had a bill in equity been resorted to, upon payment by the plaintiff, and had the creditor, debtor and co-sureties been made parties ther...