The principles decided in the case of
Sprigg v.
The Bank of Mount Pleasant, reported in 10 Pet.
257, examined and affirmed.
It is equally well settled in courts of equity as well as in
courts of law as a rule of evidence, that parol evidence is
inadmissible to contradict or substantially vary the legal import
of a written agreement. And this is founded on the soundest
principles of reason and policy, as well as authority. The case of
Hunt v.
Rousmanier, 8 Wheat. 211, cited.
Extending the time of payment of a bond and a mere delay in
enforcing it will not discharge a surety unless some agreement has
been made injurious to the interest of the surety.
It is a sound and well settled principle of law that sureties
are not to be made liable beyond their contract, and any agreement
with the creditor which varies essentially the terms of the
contract without the assent of the surety will discharge him from
responsibility. But this principle cannot apply where the surety
has by his own act exchanged his character of surety for that of
principal and then applies to a court of equity to reinstate him to
his character of surety in violation of his own express
contract.
Courts of equity will permit independent agreements which go to
show a deed on its face absolute was intended only as a mortgage to
be set up against the express terms of the deed only on the ground
of fraud. Considering it a fraudulent attempt in the mortgagee,
contrary to his own express agreement, to convert a mortgage into
an absolute deed. And it is equally a fraud on the part of a debtor
to attempt to convert his contract as principal into that of a
surety only.
This case was brought before the Court at January term, 1836, on
a writ of error prosecuted by the present appellant, seeking to
reverse the judgment of the circuit court in an action instituted
against him on a joint and several bond, under seal, made by him
and others to the Bank of Mount Pleasant for the payment of a sum
of money stated in the bond, to the bank, upon which obligation the
bank had loaned the sum of twenty-one hundred dollars and had paid
the same to Peter Yarnall & Company, one of the co-joint and
several obligors. The bank, after the loan, had continued to renew
it for some years, the discount and interest on the same having
been paid to the bank every sixty days until, when Peter Yarnall
& Company, having been insolvent, suit was brought on the
obligation, against Samuel Sprigg, and a judgment obtained against
him for the amount of the obligation.
The object of the writ of error was to have the judgment of the
circuit court reversed on the ground that the indulgence for the
payment of the debt had been given to Peter Yarnall & Company,
without the privity or knowledge of the plaintiff in error; that he
was only a surety in the obligation, which was, he alleged, known
to the bank, and he was discharged from the liability
Page 39 U. S. 202
for the debt to the bank. These allegations were denied by the
Bank of Mount Pleasant.
The court in that case held that all were principals in the
obligation, and were equally and fully bound to the payment of the
debt, and the continuation of the loan on the bond, whether the
same was to one or all the obligors did not impair the claim of the
bank to recover from all and each of them. The judgment of the
Circuit Court of Ohio was affirmed.
35 U. S. 10 Pet.
257.
In December, 1838, the appellant in this case, Samuel Sprigg,
filed a bill in the Circuit Court of Ohio, praying to have the
judgment which had been affirmed in the Supreme Court, perpetually
enjoined on the ground that all the parties to the bond held by the
bank, except Peter Yarnall & Company, were sureties for the
loan made on the bond, and that the bank, on the maturity of the
bond, having re-discounted it from time to time, at the request of
Yarnall & Company without the consent of the sureties, they,
the complainant being one, were discharged.
The circuit court, after the testimony of many witnesses had
been taken and a full hearing, refused the injunction and ordered
the bill to be dismissed, and from this decree the complainant
prosecuted this appeal.
The counsel for the appellant contended that his case is made
out as stated in the bill, and referred the court to the
depositions, and particularly to the letters of Yarnall to the
bank, and the account of the bank with Yarnall & Company, taken
from the bank books. He contended that there is no estoppel in
equity, especially as a rule of evidence, though there may be some
cases in its popular sense, as a broad rule of right.
He contended that though the sureties made themselves principals
to pay in sixty days, yet they are not principals without their
consent, as long as the bank might choose to renew the loan.
He contended that if he has made a case which would entitle him
to relief, supposing the words "as principals" were not in the
obligation, that then he is entitled to the relief he seeks,
notwithstanding the insertion of these words, "as principals." He
contended that the existence of the words "as principals" in the
bond does not deprive him of that equity which the like conduct of
the bank would give him in the common case of a joint and several
obligation. The plaintiff also contended that to so give time and
enter into new agreements without the surety's assent is, though
none may have been intended, a fraud upon him notwithstanding the
insertion of the words "as principals," when the bank knew that the
discount was for the sole benefit of Yarnall & Company.
He further insisted that the insertion of the words "as
principals," when the bank knew the true relations of the parties,
did not give the bank the right to renew the loan, to make new
agreements, or to give further day of payment at its pleasure
without the assent of the sureties. That if the defendants intended
to gain such a
Page 39 U. S. 203
power or advantage, fair dealing required them to ask or demand
it from the sureties in a plain way, as by a direct insertion of
such a power in the obligation, a practice which this same bank has
long since adopted. And that the decree of the court below ought to
be reversed and one entered perpetuating the injunction with
costs.
The counsel for the appellee contended that the appellant,
having acknowledged himself in the bond to be a principal debtor,
is estopped from alleging that he is only a surety, as between him
and the appellee. Also that the testimony excepted to is entirely
inadmissible, so far as it is sought by the same to contradict,
&c., the bond, there being no allegation in the bill, or proof,
that there was any fraud, surprise, or mistake, in the making or
executing the same. Also that the appellant, upon his own showing,
admitting all in his bill stated to be true, is not entitled to the
relief prayed for. And that as the appellant was accustomed to
transact business with the bank, and as the payment of the bond was
deferred according to her usages, he is bound by those usages, such
usages, under such circumstances, forming a part of the bond or
contract.
Also that the appellant has legally and equitably waived all his
rights as surety, if he were such, by acknowledging himself to be a
principal debtor, and so contracting with the bank, and has thereby
at least authorized the bank to treat him according to the
character voluntarily assumed by him, until such time as he might
give notice that he was but a surety, and require the bank to
prosecute the collection of the bond. And that the court ought not
to permit the appellant to disclaim the character of a principal
debtor, and thereby violate his contract and good faith, and thus
perpetrate a fraud upon the appellee. And that the appellant has
failed, even if the testimony is admissible, to sustain by proof
the material allegations of his bill.
The appellee also contended that the bank is entitled to a
decree, and that decree should include, if the injunction in this
case should be dissolved, damages according to the statutes of Ohio
which may be recognized as rules &c., by this Court, and which
require the courts of that state, on the dissolution of an
injunction to stay the collection of money, to render a decree for
ten percent damages on the amount due, in favor of the defendants,
and if an appeal should be taken to a superior court, and the
injunction there dissolved, that court is required to render a
decree for fifteen percent damages.
MR. JUSTICE THOMPSON delivered the opinion of the Court.
The appellant filed his bill on the
Page 39 U. S. 204
equity side of the court for an injunction to enjoin all further
proceedings on a judgment recovered against him by the appellees on
the law side of the court. The judgment was founded upon the same
single bill now in question, and is as follows:
"$2,100: Know all men by these presents, we Peter Yarnall &
Co., Samuel Sprigg, Richard Simms, Alexander Mitchell, and Z.
Jacobs, as principals, are jointly and severally held and firmly
bound to the President, Directors, and Company of the Bank of Mount
Pleasant, for the use of the Bank of Mount Pleasant in the just and
full sum of twenty-one hundred dollars, lawful money of the United
States, to the payment of which said sum, well and truly to be
made, to the said President, Directors, and Company, for the use
aforesaid, within sixty days from the date hereof, we jointly and
severally bind ourselves, our heirs, &c., firmly by these
presents, signed with our hands and sealed with our seals, this
twentieth day of February, A.D. 1826."
"PETER YARNALL & Co. [SEAL]"
"SAM. SPRIGG [SEAL]"
"RICHD. SIMMS [SEAL]"
"ALEX. MITCHELL [SEAL]"
"Z. JACOBS [SEAL]"
"Signed and delivered in presence of ___."
The judgment at law came before this Court on a writ of error,
and is reported in
35 U. S. 10 Pet.
257. There were in that case various pleas interposed setting forth
substantially that this bill was executed by the obligors, to be
discounted at the bank, and that the defendant, Samuel Sprigg, was
surety only for Peter Yarnall & Company, who had executed the
bill with him, and that the bank had, by renewing or continuing the
discount, after the time first limited for the payment of the same,
discharged the sureties.
The pleadings in the suit were very voluminous, and terminated
in demurrers. The judgment of the circuit court was affirmed in
this Court, and the decision turned upon the point that the
defendant and all the other obligors had, by the express terms of
the obligation, bound themselves as principals, and were thereby
estopped from setting themselves up as sureties for Yarnall &
Company, and claiming to be discharged by reason of the extended
credit given to Yarnall & Company, and the present bill was
filed on the equity side of the court, and relying substantially on
the same ground for relief against that judgment. The bill states
that Peter Yarnall and Samuel Mitchell were doing business as
partners, under the firm of Peter Yarnall & Company, and that
the appellees were a banking company doing business as a bank in
the Town of Mount Pleasant. That about 20 February in the year
1826, the said Peter Yarnall & Company borrowed from the bank
two thousand one hundred dollars, and the single bill now in
question was executed and discounted at the bank in the usual
course
Page 39 U. S. 205
of business. That at the time of the loan, the bank knew what
Peter Yarnall & Company were the principals, and so received
and accepted and treated them, and that the other obligors were
their sureties, notwithstanding the form of the obligation. That
when the said obligation became due, to-wit, on 21 April, 1826, the
bank, on receiving twenty-two dollars and forty cents, paid by
Peter Yarnall & Company, for the discount for sixty days,
without the knowledge or consent of the sureties, gave a further
credit and time of payment for sixty days. That the bank, at each
consecutive day of discount and payment of interest in advance,
extended the payment of said bill in like manner, until September
or October, 1828, until after the failure and insolvency of the
said Peter Yarnall & Company, which happened about that time.
That between the time the said obligation first became due, and the
day when Yarnall & Company failed, the bank, or the said
appellant and his co-sureties, could have collected and realized
the money secured by the said obligation. And that if the bank had
not renewed said loan, and given new and further time of payment,
the obligation could have been collected from the said Peter
Yarnall & Company. And the bill then charges that the bank,
contriving and intending to impose upon the appellant a loss which
has occurred to him in consequence of a confidence and bargain made
by themselves with the said Yarnall & Company, and in fraud of
the said appellant and his co-sureties; if at the time of bestowing
such confidence and making such bargains, it was intended to hold
the appellant and his co-sureties liable, and more particularly in
fraud of the appellant and his co-sureties, if such confidence and
contract with the said Yarnall & Company was, at the time of
making the same, a mere personal confidence and contract with the
said Yarnall & Company. The bill then sets out the proceedings
at law, upon which a judgment has been recovered, and praying a
perpetual injunction against further proceedings upon the judgment
and execution.
The bank in their answer admit the discount of the single bill,
and allege that it was so discounted at the request of the
obligors, and the proceeds paid to Alexander Mitchel, one of the
obligors. They positively deny having any knowledge of any
transaction in relation to said obligation, until it was presented
to them for discount, or that they had any knowledge of the
relation in which said obligors stood to one another, or that they
knew that the proceeds of the obligation was obtained for the
exclusive benefit of the said Peter Yarnall & Company, or that
they were the principal debtors in said obligations. They deny that
they received, accepted, and treated them as the principal debtors,
and they aver that the appellant and all the other obligors were
principal debtors, and so contracted with and bound themselves to
the bank, as will appear by reference to the said single bill. And
they further aver that it was on the faith of this agreement alone,
that they discounted the obligation, and that, had not the obligors
contracted and bound themselves as principals, let the
relations
Page 39 U. S. 206
among themselves be what it might, they would not have
discounted the single bill, and that this agreement was made with
full knowledge and fair understanding of the fact and of the
purport of the provision in said obligation. And they aver that the
appellant having bound himself as a principal debtor to the
defendants, he is estopped from now alleging that he is only a
surety. They deny that they ever gave the said Yarnall &
Company the further credit and time of payment as claimed in the
bill or otherwise. They admit they used great lenity towards the
obligors in not requiring payment promptly when due, but aver that
they did so because they had confidence in the honesty, integrity,
and solvency of the obligors, and considering them all as principal
debtors. They admit the proceedings at law as set forth in the
bill, and deny all manner of unlawful confederacy, and claim the
same benefit of this defense as though they had demurred to the
bill. To this answer there is a general replication, and the cause
having been heard upon the bill, answer, replication, exhibits, and
testimony, it was adjudged and decreed that the complainant in the
court below was not entitled to the relief prayed in the bill.
Whereupon the injunction which had been allowed was dissolved and
the bill dismissed.
When this case was before the court on the writ of error, the
effect and operation of the words "as principals," contained in the
single bill discounted at the bank, were fully considered, and it
was decided that they operated as an estoppel and precluded the
defendants from going into evidence to show that he was only surety
in the single bill. And unless it shall be found that a different
principle prevails in a court of equity, the same result must
follow upon the present appeal.
It is said, however, on the part of the appellant that there are
no technical estoppels in a court of equity. This may be admitted,
but it will not affect the present question. For it is equally well
settled as a rule of evidence in courts of equity as well as in
courts of law that parol evidence is inadmissible to contradict or
substantially vary the legal import of a written agreement. And
this rule is founded on the soundest principles of reason and
policy as well as on authority. This doctrine is fully recognized
by this Court in the case of
Hunt v.
Rousmanier, 8 Wheat. 211. The Court said:
"It is a general rule that an agreement in writing, or an
instrument carrying an agreement into execution, shall not be
varied by parol testimony stating conversations or circumstances
anterior to the written instrument; that this rule is recognized in
courts of equity as well as in courts of Law. But courts of equity
grant relief in cases of fraud and mistake which cannot be obtained
in courts of law. In such cases, a court of equity may carry the
intention of the parties into execution where the written agreement
fails to express that intention."
This authority is so directly in point that it cannot be
necessary to refer to any other. But the principle will be found in
accordance with the highest authority both in this country
Page 39 U. S. 207
and in the English chancery. 1 Johns. 429. 6 Vesey 328, and
note.
The bill does not charge that the words "as principals" were
inserted in the obligation by mistake or under any misapprehension
on the part of the appellant of their import and effect. But on the
contrary, the bill states that the loan was made by the bank to
Peter Yarnall & Company, in the usual way of making loans at
that bank. From which it is fairly to be inferred that this
obligation was, in form, according to the usage of the bank, with
which usage the obligors must be presumed to have been conusant.
Nor is there any direct charge of fraud on the part of the bank,
but it seems to be stated as matter of inference from the
allegation that the loan was for the sole benefit of Yarnall &
Company, and that known to the bank. But whatever the charge may
be, it is denied in the answer, and is entirely unsupported by the
testimony. The charge of fraud rests altogether upon the
allegations that the appellant was only a surety in the single
bill, and that was known to the bank. All the parol evidence on
these points seems to have been admitted, although objected to on
the part of the bank as inadmissible on the ground that it
contradicted the written instrument. The ruling of the court on
this objection does not appear upon the record. But if the evidence
was admitted, the appellant has no ground of complaint. It was his
own evidence. And all that this evidence established was the simple
fact that the appellant was only surety for Yarnall & Company.
But that can have no influence against his direct admission in the
obligation, that he was a principal, and there being no pretense of
mistake or surprise, there can be but one meaning attached to this
admission, which is that as between the obligors and the bank, all
were principals, whatever might be their relation between
themselves. They had undoubtedly a right to waive their character
and legal protection as sureties and assume the character of
principals. This admission in the obligation must have been for
some purpose; and none can be reasonably assigned except that it
was intended to place all the obligors upon the same footing with
respect to their liability to the bank.
The evidence did not support the allegation that the bank had
made any agreement to extend the loan or time of payment, other
than continuing the discount, in the ordinary course of business at
the bank. The form of the obligation dispensed with the necessity
of giving any notice to the appellant, even considering him in the
character of a surety, and extending the time of payment, and a
mere delay in enforcing it will not discharge a surety, unless some
agreement has been made injurious to the interest of the surety,
nothing of which appears to have been done in this case.
22 U. S. 9 Wheat.
720;
25 U. S. 12 Wheat.
554. The cashier of the bank denies that he ever made any contract
with Yarnall & Company, for the extension of the payment of the
obligation discounted at the bank, on 20 February, 1826, for Peter
Yarnall & Company, and others
Page 39 U. S. 208
(referring to the single bill in question), after the same
became due, for sixty days, or any other period, but discounted the
same according to the custom of the bank, but the time or
indulgence given was merely at the will of the bank. That he could
not make any contract for the extension of payment, according to
the rules of the bank, without an order from the board of
directors, and that, on an examination of the minute book, he found
no such order, where, if it had been made, it would appear, and the
inference attempted to be drawn, that Yarnall & Company were
considered and accepted by the bank as the principal debtors,
because the account kept at the bank of this loan was in his name
alone, was done away, and fully explained by the testimony of the
cashier as to the custom of the bank, that the account is always
kept with the first signer, unless otherwise especially authorized
and directed. But admitting that the bank knew that Yarnall &
Company were the principal debtors, this would not exonerate the
other obligors from their responsibility as principals, in
violation of their express contract. If Yarnall & Company were
of doubtful credit, it might have been the very reason why the bank
required all the obligors to bind themselves as principals.
It is no doubt a sound and well settled principle that sureties
are not to be made responsible beyond their contract, and any
agreement with the creditor, which varies essentially the terms of
the contract, without the assent of the surety, will discharge him
from his responsibility. But this principle cannot apply where the
surety has, by his own act, exchanged his character of surety for
that of principal, and then applies to a court of equity to
reinstate him to his character of surety, in violation of his own
express contract. This would be sanctioning a fraud upon the
creditor. This case has been likened at the bar to that of a deed,
absolute in its face, but which, by an independent agreement
between the parties, was intended only as a mortgage. Courts of
equity will permit such agreements to be set up against the express
terms of the deed, only on the ground of fraud, considering it a
fraudulent attempt in the mortgagee, contrary to his own express
agreement, to convert a mortgage into an absolute deed. And it is
equally a fraud on the part of a debtor to attempt to convert his
contract as principal into that of surety only.
No attempt has been made in the present case to show that the
bank had made any agreement with the appellant that he should be
considered and treated as a surety only, contrary to the express
terms of his contract to be bound as a principal. If any such
agreement had been shown, the analogy to the case put of a
mortgage, might hold.
The allegation that the neglect of the bank to prosecute Yarnall
& Company has, by their insolvency, thrown the loss of the debt
upon the sureties, might be of some weight if any measures had been
taken by them to expedite the collection of the debt from Yarnall
& Company, or no longer to continue the discount of the
Page 39 U. S. 209
obligation. But no such measures appear to have been taken, and
their solvency must be at the risk of the sureties, who have, by
their express contract, assumed the character of principals.
The decree of the circuit court is accordingly
Affirmed.
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Ohio, and was argued by counsel. On consideration whereof, it is
ordered and decreed by this Court, that the decree of the said
circuit court in this cause be, and the same is hereby affirmed
with costs.
