Appeal from the District Court, Twelfth Judicial District, City and County of San Francisco.
The facts are stated in the opinion of the Court.
Opinion — Sawyer
By the Court, Sawyer, J. John Maguire sued H. M. Lewis, and attached his property. Lewis gave an undertaking in the sum of one thousand three hundred and thirty-four dollars, executed by defendant, Josephi, and one Michael Reese, as sureties, in pursuance of section one hundred and thirty seven of the Practice Act, and thereupon obtained an order releasing the goods from the attachment. On the 10th day of January, 1863, Maguire recovered judgment against Lewis for the sum of one thousand and four dollars and fifty-six cents debt, and one hundred and eight dollars and ninety-five cents costs, and the sureties thereby became liable, on their undertaking, to pay the judgment. The judgment and undertaking were assigned to plaintiff on the 7th of May, 1863. This action is brought upon the undertaking, to recover of Josephi-the amount of the judgment and costs recovered against Lewis.
The answer alleges, as matter of defense, that on the 21st day of January, 1864, the defendant, Josephi, tendered to Maguire, and for him to the plaintiff, who was then Maguire’s attorney, the sum of one thousand one hundred and twenty-one dollars, which was at that time the full amount of the judgment, interest and costs, in payment of said judgment, and that said Maguire then and there refused to receive it; that at the time of said tender said Lewis was solvent, and able to pay said judgment, and was within the jurisdiction of the Court; that if said Maguire had accepted said money, so tendered, the said defendant might have recovered from said Lewis, the amount, so offered to be paid on said judgment; that after the said tender, and before the commencement of [541]this suit, the said Lewis became wholly insolvent, and he has ever since been, and he still is insolvent and unable to pay said sum or any part thereof to said defendant, in case said defendant should now be compelled to pay the same; of all which plaintiff had notice before the.assignment. By reason of the premises, defendant claims that he became discharged from all liability on his undertaking.
The Court refused to permit defendant to introduce evidence in support of said allegations contained in the answer, and, on motion of plaintiff, rendered judgment on the pleadings for one thousand three hundred and twelve dollars and twenty-nine cents, to all of which defendant excepted.
The question is whether the surety was- discharged by the tender of the amount due on the judgment, and the refusal of Maguire to accept it, under the circumstances stated in the answer ?
We think he was. No authority has been cited on either side—and we have not been able to find one—in which the precise point involved in this case was decided, or discussed. There can be no doubt that the contract is essentially one of surety. The defendant undertook, without any valuable consideration moving to himself, to answer upon certain contingencies for .the debt of another. True, he undertook to pay the debt, upon the happening of the contingency, and in this sense it was his own contract—his own debt—and it became his duty to pay it; but so it is in every other case of surety-ship. The rights of the parties must be determined upon the general principles of law applicable to contracts of sureties.
If the creditor enters into a valid agreement to extend the time of payment, without the assent of the surety, the surety is discharged. It varies the contract to the prejudice of the surety, for the reason that it “ deprives the surety of the power of paying the debt, and immediately calling upon his principal.” (Huffman v. Hulbert, 13 Wend. 376.) So, if without the assent of the surety, he makes a valid contract with the principal debtor not to sue, the surety will be discharged ; for although this will not prevent the debtor from [542]at once paying the debt, and then calling upon the principal, or prevent the creditor from suing, yet, in the language of Lord Chancellor Truro, in Owen v. Homan, 3 Eng. L. and Eq. R. 112, the “liability to such action (an action for breach of the agreement not to sue). has a .tendency to operate on, and to fetter the discretion of the creditor in determining whether to sue or not.” Such a contract presents a motive to the creditor to violate his duty to the surety, to proceed 'promptly against the principal, and is itself a breach' of duty, tending to the prejudice of the surety, which the law will not tolerate. (See also Harbert v. Dumont, 3 Ind. 346.)
So where the means of satisfying the debt subsequently come into the hands of the creditor, and he does not avail himself of such means, but parts with them without the knowledge or consent' of the surety, the surety is discharged. (Baker v. Briggs, 8 Pick. 121; Hayes v. Ward, 4 John. Ch. 122; 8 Sergeant & Rawle, 457; 13 Serg. & Rawle, 157.) Under these authorities, certainly a tender by the •principal debtor, and a refusal by the creditor to accept the money, would discharge the surety; but simply because the interests of the surety may be prejudiced by such refusal.
The discharge of the surety in the cases named rests on the principle, that it is the duty of the creditor, so far as he can, consistently with the security of his own rights, to protect the interests of the surety as well as his own. The law requires the creditor to act in the utmost good faith toward the surety, and will not permit him to do anything that will unnecessarily -tend to prejudice his interests. The creditor will certainly not be permitted to place obstacles in the way of the surety, which tend to hinder him in the pursuit of such remedies as are guaranteed to him by the law. The surety is entitled to pay the debt, and thereby at once acquire the right to proceed against the principal. This js a right which the law gives him, and it is on the ground that he has this simple and efficient remedy, that it has been held -in many States, that where the surety has requested the' creditor to proceed against the principal debtor, and the creditor has [543]refused to do so, and afterward the debtor becomes insolvent, the surety is not thereby discharged. (Parson’s Com. Law, 69.) The right of the surety to pay the debt and at once proceed against the principal, was recognized in this State in Humphreys v. Crane, 5 Cal. 173; Hartman v. Burlingame, 9 Cal. 561; Whiting v. Clark, 17 Cal. 410; and Dane v. Corduan, 24 Cal. 157.
If it is the legal right of the surety to pay the debt, and at once proceed against the principal debtor, it necessarily follows, that he is entitled to have the money accepted by the creditor, in order that he may proceed. It is the duty of the creditor to receive it, and a gross violation of duty and good faith on his part to refuse, thereby interposing an insurmountable obstacle in the way of the pursuit by the surety of his most prompt and efficient remedy.
In the language of appellant’s counsel, “ It is as much the right of the surety to pay as of the creditor to receive; it is the duty of the surety to discharge the debt, but it is also the duty of the creditor to suffer it to be discharged.” Upon payment to the creditor, the surety is entitled .immediately to enforce payment from the principal, and the law imposes upon the creditor the obligation not to interpose any obstacle to the immediate exercise of this right. But without payment the surety cannot recover against the principal. If the creditor refuses to receive the money when tendered, he as effectually prevents the surety from promptly pursuing his most efficient remedy, as he -would by entering into a valid contract with the debtor to extend the time of payment. The reason why a valid contract between the creditor and principal to extend the time of payment discharges the surety, is, as we have seen, because the creditor by his further contract places an obstacle in the way of prompt and efficient action on the part of the surety to protect his interest. The principle applies here with equal force. .The obstacle in either case is insurmountable, and the obstruction is placed in the way of the remedy by the act of the creditor, and against the will of the surety.
It is no argument against the views taken, that the defend[544]ant had another remedy under section five hundred and twenty-seven of the Practice Act, which authorizes an action to be brought “against two or more persons, for the purpose of compelling one to satisfy a debt due to the other, for which the plaintiff is bound as security.” This remedy is more complicated, and less prompt and efficient. By paying the debt, the surety could, in a case like the one under consideration, at once take out an attachment, and thus secure himself against a solvent party. The circumstances of the debtor might require prompt action. An hour’s delay might defeat the surety’s purpose, and an attachment might be the only remedy adequate to the occasion. At all events, he is entitled to pursue any remedy which the law affords him without hindrance from the creditor.
In the case of the New Hampshire Manufacturers’ Bank v. Billings, 17 Pick. 89, precisely the same defense was set up by special plea, as is relied on in this case. The counsel for plaintiff did not even -demur to the plea as insufficient, but replied new matter in avoidance, to the effect that at the time of the tender a suit had been commenced against the principal debtor, and costs incurred, for which the surety was liable; and that he did not tender enough to cover the costs, nor offer to indemnify the creditor for costs in that suit; that the-creditor offered to receive the money if the surety would also pay the costs and indemnify him, which the surety refused to do. There was a demurrer to the replication. The Court expressed no intimation that the plea of tender was not good, but assumed it to be so, and held the matter set up in the replication to be a sufficient answer thereto. The implication, so far as any arises out of the case, is, that the plea was regarded as good.
In the case of Perre v. Castro, 14 Cal. 519, cited by respondent to show that no such effect as is claimed follows a tender, the question was, whether a tender after what was formerly, in England, significantly called the law day of the mortgage, discharged the mortgage. The Court, in holding that it did not, after the passage “ it would be very harsh to hold that [545]the debt is lost—the general effect of losing the security,” cited by counsel, add the following: “ by a mere refusal at a particular moment to receive it—that refusal induced, too, as it might be by a variety of circumstances morally excusing it, or at least, not grossly violative of any positive duty, and productive of little or no injury to any one.” In the case we are now considering, taking the answer to be true, the refusal was “ grossly violative of a positive duty,” which will result, in all probability, in the loss of the entire amount, which the surety may be called upon to pay.
But even in Perre v. Castro, the well established rule at common law that a tender, on the law day discharges the mortgage, was not controverted. The reason why a tender after the law day, at common law, did not, in England, also discharge the mortgage, was, because the mortgage was a conveyance upon condition, and by a breach of the condition by non-payment upon the day, the conveyance became absolute, and nothing short of a reconveyance would revest the title in the mortgagor. The Court, in Perre v. Castro, gave another reason why it is inequitable that a tender after the law day should not discharge the mortgage, viz: “ The debtor is as much in default for not paying when the debt is due, as the creditor is in default for not receiving the money afterward when offered.”
In a very late case in New York, (Kortright v. Cady, 21 N. Y. 343,) this question has undergone a thorough re-examination, both upon principle and authority, and the Court there hold that in that State, a tender after, as well as on, the law day discharges the mortgage. And it was put upon the ground that, in New York, a mortgage is merely a security, and passes no title to,the mortgagee, and a payment at any time discharges the znortgage, and no reconveyance is riecessazy to revest the title in the znortgagor; hence the reason for the distinction between payments on, and after the law day adopted in England does not operate in New York.
It is true that a tender by the principal debtor does not discharge the debt, and he is bound to keep his tender good, and [546]be ready to pay over the money which belongs to the creditor whenever the creditor calls for it. But, then, he loses nothing, and is only put to the slight inconvenience of keeping thfe money. But there are substantial reasons why a tender should • operate .as a discharge of a mortgage, or surety, which do not apply to the debtor personally. To continue a mortgage on foot after a tender, might tie up the mortgaged property and greatly embarrass-the mortgagor in its full enjoyment, by preventing a sale or mortgage for other purposes, and thus great damage might result to him. So also in the case of a surety, a refusal to take the money when tendered might obstruct the surety in pursuing his remedy against the principal, and in addition to the small inconvenience of preserving the money for the creditor, result in its entire loss to the surety.
We think the Court erred in rejecting the evidence offered by the defendant, and in entering judgment on the pleadings.
Judgment reversed and cause remanded for further proceedings.
Concurrence — Shafter
Shafter, J., concurring: I concur in-the reversal, without, however, fully accepting that portion of the general reasoning which relates to the effect of a tender to discharge a mortgage.
AI Brief
AI-generated · verify before citing
Holding. A surety is discharged from liability on an undertaking if the creditor refuses a valid tender of the debt by the surety or principal, as such refusal prevents the surety from exercising their legal right to pay the debt and immediately pursue the principal debtor.
Issues
Does a creditor's refusal of a tender of the debt by a surety discharge the surety from liability on the undertaking?
Does a creditor's refusal to accept a tender of the debt, which subsequently leads to the principal debtor's insolvency, prejudice the surety's interests to the extent of discharging the surety?
Disposition. reversed and remanded
Quotations verified verbatim against the opinion
“If it is the legal right of the surety to pay the debt, and at once proceed against the principal debtor, it necessarily follows, that he is entitled to have the money accepted by the creditor, in order that he may proceed.”
“The creditor will certainly not be permitted to place obstacles in the way of the surety, which tend to hinder him in the pursuit of such remedies as are guaranteed to him by the law.”