Hubbard v. Pace, 34 Ark. 80 (1879)

May 1879 · Arkansas Supreme Court

34 Ark. 80

Hubbard, as Adm’r, etc., vs. Pace et al.

1. Surety: Discharged by creditor’s willful loss of collaterals.

Lavender, as administrator, let to Pace a farm for 1870, and took his note for the rent, with Taylor as surety, stipulating in the note that he would “retain a lien upon the crop for the payment of the rent.” He and Pace were then, and many years afterward, partners in a mercant le firm, and they received of the crop more than sufficient to pay the note, and sold it on the firm account. At the date of the note, Taylor was indebted to Pace in a large amount, which, several years afterward, he paid, without notice that the rent note was unpaid. In August, 1875, Lavender sued Taylor on the note. Taylor pleaded the foregoing facts as an equitable discharge, and the cause was transferred to the equity-docket : Held:

1. That the retention of the lien in the note was not additional to the statutory landlord’s lien, but a mere assurance to Taylor that the legal lien should he enforced for his protection, or at least was not waived, nor would he abandoned.

2. The mere passive conduct of Lavender, in allowing the cotton to be shipped, when by ordinary diligence he could have prevented it, was, in the face of the written obligation, rlto retain a lien on the crop for the rent,” a fraud upon the surety.

Ordinarily, a creditor’s mere neglect or forbearance to sue, or his failure to enforce collaterals, will not discharge the surety; but he must not release them, or do any act by which the surety’s right of subrogation, upon payment of the debt, may be fruitless to him.

3. The shipment and sale of the cotton by the firm was Lavender’s act and more than passive acquiescence or neglect.

4. That Lavender’s acting as administrator did not affect the equities of his surety. .

APPEAL from Lincoln Circuit Court in Chancery.

Hon. J. A. 'Williams, Judge.

Carroll ¿> Jones, and J. M. Moore, for appellants.

Carlton McCain, contra.

Eakin, J.

Lavender, as administrator, let to defendant, Pace, a plantation for the year 1870. Taylor became surety for the rent, and this instrument was executed:

“ $3,500 — On the first day of January next,we, or either of us, promise to pay W. 13. Lavender, administrator of the estate of Alfred B. C. DuBose, three thousand five hundred dollars, for rent of fifteenth section of said estate. We agree to put a lawful fence around the place. W. D. L., administrator, agrees to repair gin-house and put the mill in running order, and retain a lien on the crop, to secure the payment of the above sum.

“Jambs S. Pace.

“ C. M. Taylor.

“W. D. Lavender,

“Administrator Estate.

“ South Bend, January 4, 1870.”

Upon this contract, Lavender brought this action at law in August, 1875. Taylor set up his suretyship as an equitable defense, together with charges of such conduct on the part of Lavender as should release the surety. The cause was transferred to the equity docket, and, upon hearing, the chancellor decreed that Taylor was released, and should have costs. From this decree, Lavender, as administrator, appealed.

It appears from the pleadings and proof, that Lavender was a partner with Pace, the tenant, in a mercantile house upon or near the place, principally for the purpose of furnishing supplies to the plantation and the hands engaged upon it. 'Whether he was a partner with Pace in the planting operations, or not, is a question upon which the evidence is conflicting ; but it appears, to this court, to preponderate in favor of such a supposition. It is shown, however, beyond question, that all, or the greater part of the crop made upon the place in 1870, much more than was necessary to satisfy the rent contract, went into the hands of said mercantile firm, and was by it shipped and sold in its name. At the time Taylor signed the contract, he was indebted to Pace in a large amount, and remained so for several years, when he paid. If, during the time of his said indebtedness, he had been called upon to pay the rent note, he might have indemnified himself out of his debt to Pace. Lavender continued to rent the iflace to Pace for several consecutive years afterwards, and. Taylor had no notice that the rent contract of 1870, upon which he was surety, remained unpaid, until shortly before suit. The chancellor found, as a fact, that Lavender and Pace were not partners in the planting operations of 1870, but based his decree upon other equitable considerations.

Under the ruling of this court, in Roberts v. Jacks, 31 Ark., 597, appellant contends that the written instrument gave Lavender no specific lien upon the crops to be raised. This may be conceded, as it does not appear from the instrument itself that the parties intended to create any new lien upon the crop, different fi’om that given the landlord by law, or more specific. The clause concerning the lien could have been inserted for no other rational purpose than to give Taylor, who was merely a surety, an assurance that the legal lien would be made effective for his protection, or, at least, that it was not then waived, nor would it be abandoned. This Taylor contracted for, and had the right to rely upon, independent of the general principles regulating the conduct of creditors towards sureties. The merely passive conduct of Lavender, in allowing the crops to be shipped, when he might have prevented it by reasonable care and diligence, to say nothing of his direct assent, would, in the face of his written obligation “to retain a lien on the crop to secure the payment of the above sum,” be a fraud upon the surety.

Ordinarily, mere neglect or forbearance to sue on the part of the creditor, or failure to resort to collateral securities, will not discharge the surety. The creditor has his option. But he must not trifle with the collaterals, or release them, or do any act by which the surety’s right of subrogation may be fruitless to him, when he is compelled, or voluntarily pays the debt. Collaterals are held not for the protection of the creditor alone. The instinct of property, and a sense of justice, should prevent him from destroying them, if he does not choose, or does not find it necessary, to use them. Others have rights, which the creditor will not be allowed to make the subject of his generosity, or wanton misconduct to their injury.

The cotton and other crops came within the power of Lavender. They were put in the bands of the mercantile firm of which he was a partner. The partners were all agents of each other. It was his duty to require the partnership to satisfy the rent note with the proceeds, or to take it up .before shipping, and if his co-partuers had objected, he had power to prevent the removal. The shipment and sale was his act, and more than passive acquiescence or neglect.

None of the questions made are affected by the consideration that Lavender was administrator. If he failed in his duties, or transcended his powers, or violated his trust as such, it is a matter for the heirs, distributees or creditors of the estate of DuBose. In his dealings with third parties, and as between him aud them, in cases where those interested in the estate are not parties, he must 'be bound by the same rules of equity, which would apply to him as an individual; and can not make the distinction between his acts as administrator, and those done in his own right, the means of perpetrating an injustice against his surety.

Indeed, the distinction between the mere negligence, and positive acts of the creditor, whereby collateral securities are lost, has, by the modern decisions, been almost, if not wholly, obliterated. It differs from mere failure to sue the principal. In the case of collaterals, there are distinct things to be preserved, having a property value, which are in the hands of the creditor in trust, as well for himself as for the sureties, and it is fair that he should be held to take reasonable care of them. See the subject discussed, and the cases collected in Brandt on Suretyship and Guaranty, secs- 385, et seq.

In every view of the case, the decree of the chancellor, below, seems just, and based on sound principle.

Let it be affirmed.