Surety. Bills and Notes. Pleading, Civil, Answer. Practice, Civil, Amendment.
One of five sureties, who with their principal signed a promissory note as joint makers, if he pays the whole balance due on the note can maintain an action at law against one of his co-sureties to enforce contribution, and in such action can recover from the defendant one fifth of the amount paid by him.
Where in such action it appears that one of the co-sureties had died before the plaintiff paid the balance due on the note, this does not change the proportion that he can recover from the defendant.
A surety thus sued for contribution can set up the defence that he was discharged from his liability as surety, at least to the extent that he was injured thereby, by an arrangement made by the payee of the note with the principal maker without the consent or knowledge of the sureties whereby the payee gave up a part of the collateral security.
In the same case it was held that this defence was not open to the defendant in the present case because it was not pleaded by him.
In the same case it was held that, after a verdict had been ordered and had been entered for the plaintiff, the question whether the defendant should be allowed to amend his answer by setting up the defence of such a discharge from his liability as surety, which would require a new trial, was wholly within the discretion of the presiding judge, and that his refusal to allow such an amendment was final.
Where the shares in a corporation held as collateral security for the payment of a promissory note signed by sureties as well as by the principal debtor have declined in value, the failure of the payee of the note to sell the shares before the decline does not discharge the sureties, if no wrongful conduct on the part of the payee appears and the sureties have stood by and let the decline in value proceed when they might have paid the note and have received and sold the collateral security.
BRALEY, J.
The plaintiff's assignors having paid the promissory note on which the defendant with themselves and two other persons had become bound jointly and severally to the payee as sureties, the right accrued to enforce contribution in an action at law. And, notwithstanding the decease of one of the co-sureties, the plaintiff is entitled to recover, not one quarter, but one fifth of the amount which he has paid. Griffin v. Kelleher, 132 Mass. 82, 83, and cases cited.
By the tenor of the note the payee was charged with notice of the relations between the principal debtor and the sureties. Guild v. Butler, 127 Mass. 386, 389. And the payee, as the jury could find, having voluntarily relinquished without the consent or knowledge of the sureties a part of the security, the defendant, even if not thereby entirely discharged, would be exonerated to the extent to which he had been injured.
While this defence may be made at law as well as in equity by a surety sued for contribution, yet it is unavailable because not pleaded. Guild v. Butler, ubi supra. Friedenwald Co. v. Warren, 195 Mass. 432,434. And whether after a verdict for the plaintiff the defendant should have been permitted to amend his answer setting up exoneration, where unless the motion was denied a new trial would be necessary, as the jury had not passed upon the issue, was a question within the discretion of the presiding judge, whose refusal to allow the amendment shows no error of law. Darrow v. Braman, 201 Mass. 469, 472.
The remaining defences of the statute of limitations, the extension of the time of payment of principal and interest by the acceptance of instalments, and that upon demand the assignors voluntarily paid the amount remaining due on the note, and that the payee lost its rights against the sureties because it failed to sell, but remained inactive while the security depreciated and finally became worthless, are unsupported by the record.
The note expressly provides, "And it is part of the undertaking of the sureties hereon that their liability shall continue as long as this note or any part of the same or any renewals thereon or part of said renewals remain unpaid notwithstanding any extension or extensions of the time of payment at the same or any other rate of interest and without notice to them." Nor is it shown that the assignors knew of the partial surrender of the pledged shares. And a surety, being bound to pay the debt, is not obliged to incur the costs of defending an action. Warner v. Morrison, 3 Allen, 566.
If the value of the collateral which the payee held not merely for its own security but in trust for the indemnity of the sureties has been lost through forbearance or delay, no wrongful conduct of the payee appears. The sureties did not move. They could have discharged the debt at any time before depreciation set in and received the security. But having remained inactive, and there being no evidence of any affirmative act of negligence by the payee which resulted in their injury, the defendant has not been discharged either wholly or partially. American Surety Co. v. Vinton, 224 Mass. 337, 339, 340. Gray v. Farmers' National Bank, 81 Md. 631. Benedict v. Olson, 37 Minn. 431. Newark v. Stout, 23 Vroom, 35. Schroeppell v. Shaw, 3 Comst. 446. Hayes v. Ward, 4 Johns. Ch. 123, 130. Otis v. Von Storch, 15 R.I. 41. Uniontown Bank v. Mackey, 140 U.S. 220.
We have considered all the questions argued and by the terms of the report the plaintiff is to have judgment on the verdict.
So ordered.