A guarantor of a promissory note is not entitled to have the proceeds of a sale of collateral applied primarily to the payment of that note, if the terms of the instrument permit the creditor to apply it to other indebtedness at his option, and he elects to do so; under such circumstances the guarantor can avail himself of the security, by way of subrogation, only by paying the entire indebtedness for which the collateral was deposited.
RORABACK, J.
The principal contention of the defendant, as shown by her reasons of appeal, is that the Superior Court erred in holding that the money which the plaintiff received from the sale of these collaterals should not be applied to the payment of the note which she had guaranteed. The terms of the note gave the Trust Company the right to apply the proceeds of this collateral to the payment of liabilities to it incurred by the defendant other than this immediate note, and such an agreement is recognized and supported by the case of Stamford Bank v. Benedict, 15 Conn. 437, 444, in which this court said: "The debtor and creditor had the sole right of controlling these payments; and if neither of these have done this, the court must do it, as the rights, equities, and intention of these parties seem to demand. The defendant is an indorser, or at most a surety; and this constitutes his only relationship to these debts. It has been said, that sureties are to be favored in the construction and enforcement of contracts. But we cannot extend such considerations to cases like the present. To do this, would be to defeat the object and end of suretyship; it would be to hold, that the surety might have the money paid by his principal, so applied, as to leave the creditor a loser, notwithstanding his care and vigilance; and in truth, to discharge an indorser, who has been duly charged as such, without the fault or negligence of the creditor. And such would be the effect, in the present case. This would be inequitable; and we cannot direct the application of this money, upon this principle. Indeed, this is a case, in which, if the creditor had made no application of the payment, the court, upon equitable principles, would apply it upon the precarious debts." See also 21 R. C. L. p. 108, and cases referred to in note 5 at bottom of page.
We cannot, under the facts here disclosed, extend the doctrine of subrogation to the defendant. She has done nothing to furnish a basis for such a right. Under the plain terms of the note, the plaintiff company had the right to sell the collateral and apply the proceeds as it did. In Sandford v. McLean, 3 Paige Ch. (N. Y.) 117, 122, 23 Amer. Dec. 773, 776, this statement is made of the controlling principle: "It is only in cases where the person advancing money, to pay the debt of a third party, stands in the situation of a surety, or is compelled to pay it to protect his own rights, that a court of equity substitutes him in the place of the creditor, as a matter of course, without any agreement to that effect. In other cases the demand of a creditor which is paid with money of a third person, and without any agreement that the security shall be assigned or kept on foot for the benefit of such third person, is absolutely extinguished."
If the principles of law to which we have just referred are correct, it necessarily follows that, upon the facts found in the present case, there is no error in the conclusion of the court below that "the plaintiff had the right to sell the collateral and apply said proceeds as it did, and the defendant, the guarantor, is not entitled to have the avails of such sale applied primarily to the payment of the note in question, nor is she entitled in equity to said collateral security or its equivalent until and unless she pays the whole of the indebtedness, viz: the $14,000 in addition to said note for which said collateral was given."
The conclusions of the court referred to in paragraphs one, two and three of the reasons of appeal were fully justified by the evidence now before us.
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