Smith v. Freyler

• Decision Date: 06 January 1883
• Citation: 4 Mont. 489
• Parties: JAMES M. SMITH v. CHARLES FREYLER and others.
• Court: Montana Supreme Court

4 Mont. 489

JAMES M. SMITH

v.CHARLES FREYLER and others.

Supreme Court of the Territory of Montana.

Filed January 6, 1883.

If, when a debt is due, the surety request the creditor to sue the principal debtor, who is then solvent, and the creditor fail to do so and the principal afterwards becomes insolvent, the surety is not thereby discharged.

A valid contract between the creditor and debtor extending the time or otherwise varying the contract of the surety, without the consent of the surety, will discharge the surety; but an averment that the time was extended, and not stating for any definite period or upon any consideration, is not a sufficient defense to a suit against the surety.

It is perfectly competent for a joint maker of a promissory note to show that he signed it as surety, and that the payee had knowledge of such fact.

Appeal from third district, Lewis and Clarke county.

E. W. & J. K. Toole, for appellants.

John H. Shober, for respondent.

WADE, C. J.

This is an action upon a promissory note, payable to plaintiff and signed by defendants. Freyler, the answering defendant, alleges that he signed the note without consideration and as surety merely, which fact was known to the plaintiff. He further alleges that at the time the note became due and payable the principal debtor was solvent and able to pay the same; and that said surety demanded of the plaintiff, the payee of the note, that he commence his suit and collect the same, which he neglected and refused to do, but, on the contrary, gave to the principal debtor further time in which to pay the note. He further alleges that the plaintiff theretofore agreed to and did release said surety from all liability on the note, and then and there told him to rest easy; that he would not look to him for payment of the note, but that the principal was good enough, and that he would trust him for the payment thereof. There was a motion for a judgment in favor of plaintiff notwithstanding the answer, which was granted, and the defendant Freyler appeals. Two questions are presented for determination, viz: (1) Can a joint maker of a promissory note show by parol that he is surety merely, and that the payee had knowledge of such fact? (2) If, after the note becomes due, the surety requests the creditor to sue the principal, who is then solvent, and the creditor fails to do so and the principal afterwards became insolvent, is the surety thereby discharged?

1. The fact of suretyship may be proved by parol. There never was any dispute that such evidence was admissible in a court of equity, and since, under the Code, equitable defenses are permitted in actions at law, all difficulties in the way of setting up such a defense, or in making proof of the same, are obviated. Such proof does not change the contract or the liability of the party making it. Hubbard v. Gurney, 64 N. Y. 457.

Says SHAW, C. J., in Harris v. Brooks, 21 Pick. 195: “So, when one of two promisors annexes the word ‘principal’ to his signature and the other ‘surety,’ these descriptions do not affect the terms or the legal effect of the contract. They indicate the relation in which parties stand to each other, and notice of such relation to the holder. But the fact of such relation, and notice of it to the holder, may, we think, be proved by extrinsic evidence. It is not to affect the terms of the contract, but to prove a collateral fact and rebut a presumption.”

“When several parties execute a joint or joint and several promissory note, not under seal, and there is nothing in the note to indicate that any of them are sureties, and this is known to the creditor, such sureties may, both at law and in equity, show by parol that they were sureties, and that they were known to be such by the creditor, and they will be entitled to all the rights, privileges, and immunities of sureties, and will be discharged by any act of the creditor, after he had knowledge of the fact of suretyship, which would discharge any other surety. The great weight of authority and of reasonis in favor of the law as above stated.” Brandt, Sur. & Guar. § 17, referring to the following authorities:

Higdon v. Bailey, 26 Ga. 426;Lime Rock Bank v. Mallett, 34 Me. 547;S. C. 42 Me. 349;Grafton Bank v. Kent, 4 N. H. 221;Matheson v. Jones, 30 Ga. 306;Piper v. Newcomer, 25 Iowa, 221;Cummings v. Little, 45 Me. 183;Kelley v. Gillespie, 12 Iowa, 55;Bank of St. Albans v. Smith, 30 Vt. 148;Davis v. Mikell, 1 Freem. Ch. (Miss.) 548; Frazer v. McConnell, 23 Ga. 368;Corielle v. Allen, 13 Iowa, 289;Roberts v. Jenkins, 19 La. 453;Brown v. Haggerty, 26 Ill. 469;Bruce v. Edwards, 1 Stew. (Ala.) 11;Jones v. Fleming, 15 La. Ann. 522;Flynn v. Mudd, 27 Ill. 323;Bank of Mobile v. James, 9 Ala. 949;Kennady v. Evans, 31 Ill. 258;Stewart v. Parker, 55 Ga. 656;Riley v. Gregg, 16 Wis. 666;Bank v. Wright, 53 Mo. 153;Bank v. Abbott, 28 Me. 280. See, also, Bank of Steubenville v. Hoge, 6 Ohio, 17;Davis v. Barrington, 30 N. H. 517.

In Howenstein v. Pacific R. Co. 55 Mo. 33, the supreme court of Missouri, by WAGNER, J., says: “It has frequently been decided and the rule is settled that it is perfectly competent for a surety to show in what capacity or character he signed the note.”

The same doctrine is now held in England since the statute authorizing equitable defenses in actions at law. See Pooley v. Harradine, 7 El. & Bl. 431; Greenough v. McClelland, 2 El. & El. 424; Brandt, Sur. & Guar. 9, note 2.

We do not think that any of the decisions of the supreme court of California, relied on by appellants as stating a contrary doctrine, go to the extent of holding that it is not a good defense, in an action upon a promissory note, for one of the joint makers to allege and prove by parol that he signed the note as surety in fact with the knowledge of the payee, and that the payee, having such knowledge, by his act or omission,-as, for instance, by his contract with the principal,-without the consent of the surety, can extend the time of payment for a definite period for a valuable consideration. See Aud v. Magruder, 10 Cal. 282;Shriver v. Lovejoy, 32 Cal. 575;Damon v. Pardow, 34 Cal. 278;Sichel v. Carrillo, 42 Cal. 493;Harlan v. Ely, 55 Cal. 344.

The decision in the case of Aud v. Magruder, to which the subsequent cases generally refer, was rendered to controvert and to overrule a former decision of the same court in the case of Bryan v. Berry, 6 Cal. 394, in which case it had been assumed that the obligation of a surety was that of a mere guarantor or indorser, and it was held, as it is held everywhere, that the obligation of a surety to the payee or holder is the same as that of the principal, which obligation is to pay the note when it becomes due. No one ever supposed that this obligation could be escaped unless the payee, or holder with full knowledge, by some act or omission released the surety. Mere proof that one of the parties signed as surety is not material, and is no defense, because such proof does not in any manner affect his contract or obligation; but if the payee or holder, knowing that one of the makers of the note was surety merely, enters into a valid contract with the principal, whereby the contract of the surety is varied or changed without his consent, then the surety is discharged. And in order to show that the surety has been so discharged by the act of the payee or holder, it is competent to prove the fact of suretyship by parol, and that the payee or holder had knowledge of such fact when he entered into the new contract whereby the surety was discharged. We do not think any decision in California holds to the contrary.

2. As to the second question, “the great majority of the cases on the subject hold, in the absence of any statutory provision, that if, after the debt is due, the surety request the creditor to sue the principal, who is then solvent, and the creditor fails to do so, and the principal afterwards becomes insolvent, the surety is not thereby discharged. The ground upon which these decisions rest is that the principal and surety are both equally bound to the creditor, who may have taken a surety in order that he might not have to sue the principal.” Brandt, Sur. & Guar. 208, referring to Jenkins v. Clarkson, 7 Ohio, 72; Carr v. Howard, 8 Blackf. 190;Halstead v. Brown, 17 Ind. 202;Ex'rs of Dennis v. Rider, 2 McLean, 451;Davis v. Huggins, 3 N. H. 231;Pickett v. Land, 2 Bailey, (S. C.) 608; Nichols v. McDowell, 14 B. Mon. (Ky.) 5;Frye v. Barker, 4 Pick. 382;Stout v. Ashton, 5 T. B. Mon. (Ky.) 251;Gage v. Bank, 79 Ill. 62;Dillon v. Russell, 5 Neb. 484;Inkster v. Bank, 30 Mich. 143;Langdon v. Markle, 48 Mo. 357;Hartman v. Burlingame, 9 Cal. 557;Dane v. Corduan, 24 Cal. 157;Hickok v. Bank, 35 Vt. 476;Hogaboom v. Herrick, 4 Vt. 131;Caston v. Dunlap, Rich, Eq. Cas. 77; Croughton v. Duval, 3 Call, (Va.) 69;Boutte v. Martin, 16 La. 133;Taylor v. Beck, 13 Ill. 376;Huey v. Pinney, 5 Minn. 310, (Gil. 246;)Bizzell v. Smith, 2 Dev. Eq. (N. C.) 27; Thompson v. Bowne, 39 N. J. Law, 2; Hogshead v. Williams, 55 Ind. 145;Harris v. Newell, 42 Wis. 687;Pintard v. Davis, 1 Spenc. (N. J.) 205; S. C. 1 Fab. (N. J.) 632.

When a surety signs a promissory note his promise is absolute and unconditional to pay the same when it becomes due, and there is no escape from this promise unless the payee or holder releases him. He does not promise that he will pay if the payee or holder fails to collect the note by an action against the principal. The payee or holder does not receive the note with an implied promise that he will exhaust his remedy against the principal before proceeding against the surety. The obligation of the surety is to pay according to the terms of his promise, and he may protect himself by paying and then proceeding against the principal, and that is his remedy.

In the case of Dane v. Corduan, 24 Cal. 164, the court reviews the authorities and holds as follows: “As to the first question, admittingthat a request and failure to...