Shelton Tuttle, Trustees v. Hurd

7 R.I. 403

• Court: Supreme Court of Rhode Island
• Decided: January 6, 1860
• Status: Published

Opinion

Ames, C. J.

It is quite too late to discuss the question here, whether he who really stands upon a bill or note in the relation of a surety, or quasi surety, to another party to the same, though not in a position on the paper to signify it, so that the true relation be known to the holder of the paper, may not avail himself, both at law and in equity, of every equitable discharge which properly grows out of that relation. In accordance with the weight of decision, the doctrines of equity upon this subject have long been'naturalized, as it were, in our courts of law, and been administered by them as far as legal remedies would permit. Hidden v. Bishop, 5 R. I. Rep. 29, 32.

The bill of exchange, upon which the judgment sued was founded, was received by the defendant as security for the price of a carriage sold by him as agent for L. B. Judson & Co., and was made payable to him, as a mode merely of transferring the security to them, as his principals. With the knowledge of this, either at the time when they received the bill, or about the time when it was protested, the plaintiffs first obtained this judgment upon it against the defendant, and then, without his knowledge or assent, surrendered the bill of exchange to Judson & Co., for the reason, as one of the plaintiffs expresses it, that they had security enough for Judson & Co.’s debts, for which this bill was held as collateral security only, without their liability, or that of the drawer or acceptor, upon it. By this surrender, the plaintiffs’-title to,the bill terminated; and, as the defendant was not liable on the bill to prior parties to it, and Judson & Co. could not have set it up against him, he would, but for this judgment against him, have been discharged from all liability in the matter.

Can the prior judgment against the defendant vary this result, considering that the relation between the defendant and Judson & Co. upon the bill was known to the plaintiffs long before they surrendered it to Judson & Co. ? It is proved by one of them, that they knew of this.relation, either at the time they received the bill, or shortly before it went to protest, — leaving it doubtful whether they knew that the defendant was surety only for Judson & Co. upon the bill when they took it, or acquired that knowledge afterwards, though before the surrender of it to Judson & Co. This doubt does not strike us as material to the equity of the defendant to have his known rights as surety respected by the plaintiffs. The equity does not arise out of any contract with them, but out of a relation subsisting between the defendant and another party to the bill, which, because known to them, involves an equitable duty towards him, which they can disregard only at their peril. Such appears to have been the view of this equity as stated by Lord Cottenham, in Hollier v. Eyre, 9 Cl. & Fin. (House of Lords), 1, 45, and by the Lords Justices, in Davies v. Stainbank, 6 De G. M. & G. 679; Pooley v. Harradine, 7 El. & Blackb. 434-443, where see the doctrine of these cases commented on by Mr. Justice Coleridge; 3 Leading Cases in Equity?, Hare & Wallace’s notes, 570—577; 2 Am. Lead. Cases, Hare & Wall, notes, 412, where see the cases collected and criticised.

If, too, the equity arises not from contract, but from a knowledge by the plaintiffs’ of the defendant’s suretyship on the bill, how can their judgment, recovered against the defendant, affect either this relation, or their equitable duty ? The relation of the defendant to Judson & Co.'is certainly not affected by a judgment to which they are no parties, but is only one step towards the plaintiffs’ recovery of the amount of the _ bill from the defendant, which, when completed by payment,. would entitle the defendant to recover back the amount from Judson & Co. Nor do we see why the judgment should absolve the plaintiffs from their equitable duty to the defendant; since it does not take away the knowledge out of which it arises, nor estop him from proving either the relation, or their knowledge of it, or the matter in discharge, subsequent to the judgment, in breach of the duty which these involve. The, judgment simply merges, by legal fiction, the cause of action upon which it is founded, to prevent the same matter from being again litigated between the same parties. This fiction does not prevent a court of law from looking behind a judgment and taking even oral proof, for the equitable purpose of preventing a double recovery for tlie same cause of action. Why then should it be permitted to shut from the view of a court of equity, and here, therefore, of a court of. law, an equity perfectly consistent with it, and matter subsequent, going to the equitable release of it ? Had the facts now proved occurred before this judgment was rendered, they would have opposed a good defence to the recovery of it, and if not availed of in defence,' the judgment would have concluded them; occurring after the judgment, they.are no more concluded by it than payment, or a release, or any other matter going to discharge it. Carpenter v. King, 9 Metc. 511-517, and notes on same, and cases cited in 2 American Leading Cases, (Hare & Wallace’s notes,) 437-451.

In this view of the case, it is of no importance whether the transfer of this judgment from the plaintiffs to Chapman was authorized by Judson & Co.-, or if not, by his payment of their debt as their surety to the plaintiffs, and consequent right to demand a transfer of this, with other securities of Judson & Co., held by the plaintiffs as collateral to the same debt. In either .case, as the mere equitable assignee of' the judgment, his title could not rise higher than its source; and if, as we have considered, the judgment was extinguished in the hands of Shelton & Tuttle, no title to it existed, and none could be by them conveyed to Chapman.

The facts do not, in our view, support the plea of payment, but should have been pleaded specially as a release ; but as the defendant is a surety, we shall permit him to amend his pleadings so as to avail himself of this defence, upon the condition that he shall recover no costs of this action.