Archibald McCollum v. Ira Hinckley, and Aurelia Williams, Executors of Jesse Williams, and Lyman Williams, 9 Vt. 143

The opinion of the court was delivered by Redfieed, Chancellor. The orator’s claim at law, directly against the estate of Jesse Williams, is most undeniably barred. No principle is better established, than that claims in esse, not presented to commissioners of insolvency, are barred from being ever after asserted against the insolvent or his estate, within that jurisdiction, whether the creditor resided within the jurisdiction or not. Debts, depending upon a contingency, not happening before the close of the commission, are, of necessity, excepted from the operation of this statutory bar.

Indeed, it is necessary for the orator to concede this, as a starting point, in order to get rid of another objection, which he might find formidable: i. e. that he now has a perfect remedy at law. But the orator claims the interference of this court, on the ground that the surety is still liable, and, being so, might bring his bill to compel payment out of the assets in the hands of the executors, in the first instance. If the doctrine in the case of Hunt v. Fay, admr. of Gookin, 7 Vt.

Rep. 170, is to be considered as applicable to this case, and it is difficult to distinguish the cases, then not only is the orator’s remedy gone, but his debt also is extinguished. And if the debt of the orator is to be holdeu so far extinguished, that it could not be any where asserted against the estate of 'the principal, found in another jurisdiction, it is difficult to perceive how the surety can be held any longer liable. • It is well settled, that if the creditor do any act, by which he is prevented from pursuing the principal, for ever so short a time, the surety is thereby released.

In the language of some of the cases, “ if he ties up his own hands,” he thereby releases the surety. And it must be apparent to every one, that, a fortiori, the doing

an act, which releases the principal, will release the surety. And we find no case, when the creditor has, by his own act, even permissively released the principal, where he has been allowed to pursue the surety. It is said this is the case in relation to debts not presented to commissioners and assignees of insolvent and bankrupt estates in England, and it may be so; but I find no case to that effect. If such a rule exists, it is one of policy, and less applicable to the present case, than to the subject, from which it is derived.

Policy here would seem to require, that the creditor should not be permitted to pursue a known surety, after he has lain by, and suffered the estate of the principal to be distributed, without presenting his claim. This would be a practical fraud upon the surety, by which he ought not to suffer. The creditor is legally affected with notice of the commission, and is, in fact, much more likely to have notice* of it, than the surety.

He is bound, in good conscience, and in equity, to exhaust all remedies against the principal, before resorting to the surety; and in law, even, he is bound not to release any of his remedies against the principal, except at the peril of exonerating the surety. And we think it no hardship to require the creditor to present his claim to the commissioners of the the estate of the principal, and obtain whatever the estate may pay. During the last week, in Chittenden county, a case came before the court, which may be considered as having an important bearing upon the present.

As that case will not be reported, elsewhere, I may be permitted, on account of its similarity to the present, to state its details. It was a bill in Chancery, brought by Joseph Clark, against Roderick D. Hill and Warren Hill, praying to be released from a note, which the defendants held against him, under the following circumstances. The note was signed by the orator, as surety for Bascom and Woodman. Bascom was deceased, and Woodman insolvent.

The estate oí Bascom being represented insolvent, and commissioners appointed, the creditors refused to present the claim, and by pretending to have mislaid the note, and refusing atender of the amount due-them in bills, prevented the claim being allowed, either in favor of the orator or the defendants. The estate of Bascom proved, in fact, insolvent, the dividend amounting to little more than half the sum due. It was then urged that the surety was not exonerated, and that if he were, the bill was premature, as the defendants might never attempt to enforce the note against him.

But the court held clearly upon both points for the orator. 1 • That such evasion and subterfuge, on the part of the creditors, as had prevented the debt from being allowed by the comm;ssjonerS) was a substantial fraud upon the orator, by which the creditors had made the debt their own, and, at law, would be prevented from recovering ¿ny part of it, although, in equity, still entitled to so much of the debt as would not, in any event, have been obtained from the principals. 2.

That the surety was not obliged to lie by and trust the will of the creditors, whether they would attempt to enforce the note against him, or, if they did, risk the continuance of the testimony, necessary for his defence, but might resort to a court of equity, to compel the surrender and discharge of the note; but if he elected this course, he could not enforce the forfeiture and compel the creditor to forego his claim upon the orator, until he paid him the amount really his due, (as is required in the case of a bill brought to discover usury) the orator deducting his costs therefrom.

And the court decreed accordingly. The case now under consideration is not the same with that just referred to. In that case, the creditor refused to present the claim, and took active means to prevent its being presented. In this, the creditor merely neglects to present the claim, whereby his debt, as against the estate of the principal, is released or barred. We think sound policy would require, that the surety should be released from his obligation, to the amount which might have been realized out of the estate of the principal, and where there is actual fraud, that at law, he should be wholly released.

But if it be conceded, that the orator may still pursue the surety at law, it is evident that his liability is brought in here as a fulcrum merely, to enable the orator to reach, indirectly, the estate of Jesse Williams, and thus substantially to avoid the operation of the statutory bar. We should always be ready to march directly up to'the object which we would attain, and this is done, in some sense, to avoid circuity of action.

But it was before heard,'that a court of chancery would adopt a cir-cum-gyration in motion, in order to come at that indirectly, which they otherwise could not reach, and thus virtually repeal a positive statute. The attempt to compare this, to the case of a surety, who has a lien upon property, or other collateral security for the debt, is rather ingenious, than ingenuous, as it seems to us. is, in some sense, an analogy, but with such specific differences in some particulars, as not to make the one a rule of decision for the other.

It is a familiar principle of equity jurisprudence, that the creditor may compel the surety to surrender to him any peculiar means, which may have been entrusted to him by the principal, for the purpose of securing the payment of the debt. Hence, he may be compelled to assign a mortgage, upon personal or real property, or any specific lien, given him by the principal, to secure the payment of the debt. And the same is true of any collateral remedy which the surety may hold.

And in like manner, the surety may compel the creditor to assign to him, on payment of the debt, any collateral remedy he may have, to secure the payment. And if the creditor parts with these collateral remedies to the prejudice of the surety, and without his consent, the surety is no longer liable. -But it was never supposed that the surety could be compelled to stand as a mere stepping stone between the creditor and principal, in order to revive a cause of action, which he had lost by his own neglect. This does not seem to be one of those rights, which the creditor can claim of the surety.

This is a right merely dependent upon the recovery of the creditor. But those rights, which the creditor has a claim upon, for the purpose of compelling payment of the debt, are all independent, and distinct from the rights of the creditor. The doctrine of subrogation and substitution, between creditor and surety, is familiar and undeniable, but bearing no just analogy to the remedy here sought A case might be supposed, in which the cause of action might be barred by the statute of limitations, as to the principal, while the surety might not be able to make the defence available.

And if such a case should occur, could it be argued that a bill in chancery would relieve the creditor from the consequences of his own laches 1 The present case is one not very different, in principle, from the one supposed. The case, relied upon by the counsel for the orator, Riddle & Co. v. Mandeville & Jamesson, 2 Peters’, Cond. Rep. 268, is not an authority for the present. That there is some analogy between the principle there decided, and the one here contended for, is doubtless true.

By a statute of the State of Virginia, under which that case arose, the indorser of a promissory note is only liable to his immediate indorsee, and not to a secondary indorsee, as at common law. The policy of such a statute is not very obvious. And the doctrine of the case, referred to, looks, not a little, like an attempt to evade the injustice sometimes unexpectedly following improvident legislation.

The court there permitted a remote indorsee to recover of the first endorser, the maker of the note having avoided payment, and the intermediate indorsers being insolvent, on the ground, as is presumed, that each subsequent indorsee looked to the credit of all the previous indorsers, and was, in equity, entitled to their responsibility, which might be ultimately reached through a succession of suits. That was a bill in equity, and decided upon the ground that equity will make the party, ultimately liable, liable in the first instance.

Aside from the consideration, that the doctrine seems to result from the necessity of the case, it is observable that the orator had been guilty of no laches on his part, from which he sought to be relieved ; that a perfect cause of action did, in fact, exist, against the remote endorser, upon the failure of the maker of the note to make payment, and that the identical money, for which the defendants were liable, was to go into the hands of the orators, through other endorsers, who were mere trustees, for the benefit of the orators.

It became, then, strictly, a case for the interference of a court of equity, to substitute the cestui que trust, in the place of the trustee. But no right of action, in favor of the surety against the principal exists, until after the payment made by him, which, in this case, was not likely soon to be the fact; how then could it be said, that the surety holds a remedy in trust for the creditor, when no such remedy exists, or in the common course of events is likely soon to occur ? What is said of the will in this case, or the law in oldjcases, making the debts a charge upon the property, will not aid the orator.

The debts are a charge upon the property only in a legal mode, and while these debts exist. The debt against the estate, in favor of the orator, was lost, and that in favor of the surety never existed. In either view of the case, wo think the bill must be dismissed, and decree accordingly.