Niece v. Rogers

7 Ohio Cir. Dec. 676

Opinion

Parker, J.

(Orally.).

On the 17th day of January, 1891, the defendant, James R. Rogers, as principal; and the defendant, Jeff Richcreek, and the plaintiff, as sureties made and gave to the defendant, The First National Bank of North Baltimore, Ohio, their promissory note of that date for three thousand dollars, payable ninety days after date with interest at eight per cent, per annum. The plaintiff says in his amended petition that he signed said note as cosurety with the defendant, Bichcreek, and wholly without consideration. It is not controverted that James B. Eogers was the principal debtor and the plaintiff and Bichcreek were his sureties, and that on the 22d day of February, 1892, said bank obtained judgment- on said note against Bogers, Bichcreek and plaintiff for $2,134.21 and caused execution to issue thereon. Because of the insolvency, of Bogers the plaintiff was compelled to, and did pay upon said judgment one-half thereof, and the other half was paid by said Bichcreek. It is claimed in the petition that the bank held certain property or securities belonging to the principal .debtor upon which it had or should have realized something to be applied in satisfaction of this claim, but the controversy arising upon that is not submitted to us for our consideration. The petition further sets forth that the defendant, Bichcreek, has received from the principal, Bogers, by way of indemnity, on account of his suretyship, certain shares of stock of said bank of the value of about ^bven hundred dollars, and the plaintiff seeks to require Bichcreek to share this indemnity with him as his co-surety. Bichcreek, in his separate answer, denies that he signed as co-surety with the plaintiff and avers that the bank stock referred to was transferred to him alone by Bogers before he, Bichcreek, became surety upon this note, and for his sole indemnification; that he required this indemnity as a condition precedent to his signing said note, and he says that therefore he is not required to share the proceeds of this indemnity with Niece.

It appears that at the time this note was given, Niece was the president of said bank, Bichcreek was its vice president and Bogers was a stockholder therein and a member of the discount committee that had submitted to it questions relating to loans applied for. That Bogers desired to borrow from the bank three thousand dollars; that a rule of the bank with which all the parties were acquainted provided that upon a loan being made upon a note, as in this instance, the borrower should be required to sign and also procure the signatures of two sureties. There is some testimony tending to show that before this loan was made, but after Niece had spoken to the cashier of the bank about it, a conversation was held in the bank between Bichcreek, Niece and the cashier on the subject, in which Niece and Bichcreek agreed that they would become sureties for Bogers upon the note to be given for the proposed loan. Niece testifies to this conversation and agreement, but it is denied by Bichcreek and not remembered by the cashier, so that we do not base any of our conclusions of fact upon this testimony, but base them upon the testimony which is given by Niece, Bichcreek and Bogers, each testifying to a part, but neither controverting or disputing that testified to by the other nor testifying to anything inconsistent therewith. In other words, the following facts are uncontroverted: The note in question was prepared at the bank and signed by Bogers who afterwards applied to Niece to sign as surety, which Niece did. At the time Niece signed he inquired of Eogers who Bogers expeeted to have sign as the other surety and was informed by Bogers that he expected to have Bichcreek sign, though Bogers now testifies that he thought at the time that he might procure his father as a surety instead of Richcreeb. This he does not seem to have communicated to Niece. At all events it appears that Niece understood that the rule of the bank requiring two sureties upon the note would be complied with and that he would share the burden of this obligation with another, either Richcreek or somebody else. Later, on the same day, Rogers applied to Richcreek to sign as surety. Richcreek seemed to have been reluctant about signing, and said something to Rogers to the effect that he did not care to sign so large a note, and Rogers informed him that he expected to pay a thousand dollars upon this note within a few days, which — by the way — he did. Richcreek then said that if Rogers would assign to him his stock in said bank, the value of which was nearly equal to one-half of the amount of the note after being reduced by the payment of the one thousand dollars proposed, he, Rich-creek, would sign as surety. This conversation occurred in the place of business of Richcreek. Rogers thereupon went to a place where he h’d his bank stock deposited and procured it and brought it to Richcreek, signed his name to the blank assignment printed thereon and delivered the stock to Richcreek, who thereupon signed the note under the name of Niece as surety. This stock has ever since been held by Ricbcnrk exclusively. The blanks in the printed assignment were subsequently filled in with the name of Richcreeb and a date, but we find that the ass'gnment was made immediately before Richcreek signed the note, and that it was the intent and purpose of both Rogers and Richcreek that this bank stock should be held by Richcreek as his exclusive indemnity.

Upon this state of facts we conclude that Richcreek and Niece were co-sureties for Rogers upon this note. It does not appear that Rich-creek suggested or thought of going upon the note as surety for Niece. It is doubtful whether under the circumstances he could have thus limited his liability without the knowledge of Niece.

He knew the rule of the bank requiring two sureties upon this class of paper. He Imew that Niece signed with knowledge of this rule of the bank. In the absence of any agreement or understanding between him and Niece to the contrary he must have known, therefore, that Niece expected to share this responsibility with another and that, therefore, that other would be his co-surety with all the rights and obligations arising out of that relation.

In the case of Marlin Oldham v. Daniel Broom, 28 O. S., 41, it is said in the third syllabus: ‘‘As between accommodation makers of a promissory note, the presumption is that they are co-sureties, and as such liable to each other to contribution.” "We find nothing in the facts of this case to overcome this presumption. It is also said in the syllabus in that case in the fourth paragraph: “Where a joint note is signed by the principal and by one as his surety, and- is entrusted by a surety to the principal without’limit on his authority, such surety thereby impliedly authorizes the principal to obtain such additional sureties or guarantors as may be required to make the paper available for the purposes intended by the original makers, and the sureties or guarantors so obtained may stipulate the terms of their liability as between themselves and prior parties. ” This must be understood with the qualification that the rights and just expectations of one who has already signed as a surety that those subsequently signing will be co-sureties with him, shall not be de feated by sueb subsequent signers who sign with the knowledge that the surety first signing expects those subsequently signing to become co-sureties with him. This qualification is implied in the language of Johnson, J., delivering the opinon in the last paragraph thereof, at page 55. But I repeat, that there is nothing in this case to show that Richereek signed as surety for Niece, and the question here is whether a co-surety may secure to himself indemnity and not share it with his co-surety. The general rule upon the subject is well stated in sec. 268, of the second edition of Brant on Suretyship and Guaranty, as follows:

“If one of several sureties after all have signed and before the debt has been paid, and without any agreement to that effect before, he became liable, obtains from the principal anything for his indemnity, such indemnity inures to the benefit of all the sureties, and the surety obtaining it immediately becomes the trustee of it for the benefit of all the sureties, even though he obtained it by his own exertions, and was intended for his sole benefit. In such case as all the sureties are alike liable for a common principal, it will be presumed that the surety taking the indemnity takes it for the benefit of all the sureties, or if he does not, then his taking from the effects of the common principal for his sole benefit is a fraud on the other parties, and he will not be permitted to have the benefit of the indemnity alone, but must share it with the others. Where, after two sureties became bound, one received indemnity from the principal, with which he paid more than one-half of the debt, and the other surety paid the remainder, it was held that the latter might recover from the former one-half the amount which he had paid. It has also been held that the surety who has partial indemnity in his hands, and pays all the debt, can only recover from his co-surety one-half the sum which would remain after applying the amount of the indemnity on the sum paid. ’ ’

Counsel for Richereek lays some stress upon the words “and without any agreement to that effect before he became liable,” appear'ng in the paragraph just quoted, and insists that this states or implies an exception to or qualification of the rule, and that where the indemnity is taken as was done in this ease, before the surety signs, and is required as a condition precedent to his signing, he should not be required to share it with his co-surety. This suggestion of an exception to the rule appears in other sections of Brant on Suretyship, and also appears in vol. 1 of Leading Cases in Equity at page 171, in note to Deering v. Earl of Winchelsea.

We have carefully examined all the authorities cited by Brant and in The Leading Cases in Equity upon this proposition, and a great many others, and we have not found any authority in which it is held that the rule as to sharing the indemnity is different if the indemnity is required before and as a condition precedent to signing, unless it is so done with the knowledge and consent of the other co-surety. In the case of Moore v. Moore, 4 Hawks, 358 (reported in 15 Am. Dec.,523), the law is stated in the syllabus as follows: “If indemnity be taken by a surety to secure him from loss and as a condition precedent to his becoming surety, his co-sureties are not entitled to the benefit of the indemnity until after he, for whose benefit it was given, is fully repaid.”

“Indemnity taken by one surety can not be reached by bis co-sureties, unless it was .taken for tbeir benefit, or in fraud of their rights.’' But in looking into the facts in this case we find that the co-surety Avho took the indemnity did so with the knowledge and in the presence of the complainant, his co-surety, who required none. In fact the complainant was a witness to the contract which gave his co-surety this indemnity, and, it is said by Henderson, J., in the course of his opinion, “the facts negative all idea that the defendant was acting for their joint benefit” and, he continues, “he has therefore no claim, either on the ground of fraud or intention.” We are not advised how the syllabus was made up in the Supreme Court of North Carolina in this case, but assume from the fact that this syllabus does not fairly state the propositions of law enunciated by the court that it was made up by a reporter and not by the judges. The language of Henderson, J., in'this opinion is frequently quoted in support of the general rule that co-sureties may be required to share the indemnity given by the principal, though given for the benefit of one or more and not for all, and a part of it seems to be applicable to the case in hand. Speaking of indemnity taken by one surety for his own benefit the learned judge says:,

“In such cases courts of equity convert him into a trusteg, not permitting him to allege his own‘turpitude or selfishness as a protection;, for they enter into the agreement under a belief of perfect equality, trusting, apparently to the same laws of indemnity, and to the united exertions of each other to avoid harm severally; therefore, to take an indemnity is a fraud upon the rest, .and more especially as it lessens the ability of the principal to indemnify the others, and if taken without such secrecy, it is presumed to be designed for the benefit of all, and an indemnity fairly obtained.”

It will be seen that this opinion is quite as appropriate, applied to one who tabes the indemnity before he signs as to one who takes such indemnity after he signs, provided of course that it is done without the knowledge or consent of one who expects that others signing will become co-sureties with him, and as such share aíl the chances of their undertaking. That the fact that the consent of the co-surety to the taking of the special indemnity by his co-surety with his knowledge and consent was the controlling faet influencing the decision of the court in this case, and that the ease has been so understood by our own Supreme Court, is made apparent by the reference of Chief Justice Johnson to this decision in the course of his opinion in the case of Leggett v. McClelland, 39 O. S., 624, where he says: “In Deering v. Earl of Winchelsea, 1 Lead. Cas. in Equity, 103, Lord Ch. Baron Eyre says: ‘That contribution is bottomed, and fixed on general principles of justice, and does not spring from contract, though contract may qualify it.’ ‘See notes to above case, p 171, 4th edition.’ An instance of such qualification is found in Moore v. Moore, 4 Hawks, (N. C.) 15 Am. Dec., 532, where one co-surety, in consideration of his bécoming such, stipulated for and received, with the consent of his cosureties, separate indemnity from the principal. It was held that the co-sureties could only share in the surplus after such surety had been fully indemnified. Such indemnity was not in fraud of the rights of co-sureties. The general rule, however, is as stated, and the reason on which it rests is, that one who takes indemnity from tbe principal is, in equity, a trustee for all who are equally bound. As the taking of such indemnity from the principal lessens his ability to pay, it would be a fraud on his co-sureties to allow him to convert it to his sole use in the absence of their consent.”

In the case of William H. Titcomb v. John McAlister, 17 Maine, 353, the facts were as follows: Plaintiff being an accommodation- endorser upon a demand note of one thousand dollars, and subsequently becoming co-surety with the defendant upon another note of the same principal for sixteen hundred dollars, at the time of signing the last note secured himself on both notes by taking a mortgage upon certain propr erty of the principal. It was held that the plaintiff might recover from his co-surety one-half of the amount which he might be required to pay in discharge of the obligation upon which they were co-sureties after applying thereto the amount realized from such security and applicable thereto.

It will be readily seen that if the court had been of the opinion and had held that the co-surety receiving this indemnity might apply it all on his own account, it would not have so limited his recovery. The rule required him to share the indemnity with his co-surety, and this notwithstanding the fact that he took this indemnity in the first instance for his own exclusive benefit, and at the time he signed the obligation upon which his co-surety was bound. But a clearer case, and one, in the conclusions of which we fully concur, and which seems to us to be decisive of this case, is that of Cannon v. Connoway et al. & Willen, 5 Del. Ch., 559, decided in 1884. After diligent search, and an examination of many authorities, we find no case in which the law as laid down in this ease is qualified or doubted. In this case Cannon and others were co-sureties with Connoway on the bond of one Kollock, At the time Connoway became surety, Kollock executed to him a bond for his-indemnity. The co-sureties were obliged to pay the debt for which they were so bound as sureties for Kollock. Connoway received the indemnity secured to him by the indemnifying bond given -him by Kollock. His co-sureties sued to compel him to share this indemnity. In the course of his opinion the Chancellor says:

“A co-surety at the time he signs an obligation with his co-sureties, takes an indemnity from the principal which shall inure for his sole benefit.

“If an indemnity be so taken it shall inure to the benefit of all the sureties; and if that benefit be denied and refused, equity will afford relief. * * * One surety may agree that the principal may give a separate indemnty to a co-surety for his individual benefit to irduco such co-surety to become such in a bond or obligation; but without such consent by the surety he will be entitled equally to share the indemnity. * * * The taking of an indemnity security for the benefit of one or a part of the sureties is a violation of good faith.

“All the sureties believe, and have a right to believe, that all who sign as sureties are equally answerable for the burdens and liabilities which the suretyship imposes.

“The very instrument signed warrants the belief of a common obligation; and any act done by a co-surety intended to defeat the just expectations of another, and to impose on that other surely greater liabilities than himself in the suretyship, is a fraud in equity, and, if permitted to be successful, the principle which lies at the very basis of suretyship would be destroyed.

W. M. Mdlwaine, Attorney for Plaintiff, Frank Taylor, Attorney for Defendants,

“It was contended in the argument in this cause that the indemnity which Connoway took was executed and delivered to him before he became surety. The.proof as to the exact moment when he took it does not appear. This fact is manifest, — that he took it with the intention of becoming one of the sureties, if the indemnity should be given. If not taken after the bond was signed by him, it was taken on the same day and immediately before signing the bend; and when he signed with his co-sureties he did not disclose the fact that he then possessed this personal indemnity.

Under such circumstances all the other co-sureties, relying upon the good faith, not only of Robert H. Kollock, but of all his sureties in the bond, trusted, * * * as said by * * * Henderson, J., in Moore v. Moore, 4 Hawks, 358. apparently to the same laws of indemnity and the mutual exertions of each other to avoid harm severally.

“What would have been the consequence of permitting the defendants to take an indemnity, the benefits of which would inure only to themselves, and from the benefits of which their co-sureties would be excluded? If such should be the operation and effect of the indemnities taken by them, then the taking of them lessened the ability of Eobert H. Kollock to indemnify the other sureties.

The same principle I have announced would equally apply if it was distinctly proved that Connoway’s indemnity was taken before he signed the bond. The time of signing the bond is immaterial. The equities of the sureties will not thereby be affected; they all have equal equities which are enforcible in the court. ’ ’

Following and relying upon the doctrine of this case, which seems to us to be reasonable and just, and consistent with the general principles governing the rights and relations of co-sureties, we hold that the defendant Eichcreek is bound to share the bank stock or proceeds thereof by him received from Eogers, as before stated, with his co-surety, the plaintiff, Niece.

It appearing that Eichcreek has, with the consent of Eogers, treated the stock as his own ever since it was so assigned to him, whereby he has received whatever dividends and profits may have accrued thereon, and that the stock now is of much greater value than it was when so assigned to Eichcreek, but that it was of the value of eleven hundred dollars when so assigned, we hold that Eichcreek must account to Niece for five hundred and fifty dollars with interest thereon from the date of such transfer, to-wit: the 17th of January, 1891.

A decree will be entered accordingly and against Eichcreek for the costs.