Hampton v. Phipps - 108 U.S. 260 (1883)
U.S. Supreme Court
Hampton v. Phipps, 108 U.S. 260 (1883)
Hampton v. Phipps
Decided April 16, 1883
108 U.S. 260
1. When one of two sureties gives a mortgage of his real estate to his co-surety to protect him against loss by reason of having become security for the principal, a creditor of the principal is not entitled to be subrogated in equity in place of the co-surety, and enjoy the benefit of the mortgage.
2. The distinction in principle between the rights of creditors of the principal debtor in the security where the debtor furnishes it to his sureties, and their rights where such security is furnished by one co-surety to the other, examined and explained.
3. When each of two co-sureties gives security to the other to protect him against liability on account of the principal beyond a fixed sum, no right to resort to the security exists until obligations on the part of the principal have been met by the surety beyond the sum named.
Bill in equity by a creditor to obtain the benefit of securities held by sureties of the principal debtor.
The appellee, who was complainant below, was the holder, and filed his bill in equity, on behalf of himself and the other holders of bonds, executed and delivered by Theodore D. Wagner and William L. Trenholm, to the amount of $710,000, and paid to creditors in settlement of the liabilities of two insolvent firms, in which they were two of the co-partners. These bonds were dated January 1st, 1868. The payment of the principal and interest of each of these bonds was guaranteed, by writing endorsed thereon, by George A. Trenholm and James T. Welsman, who were sureties merely. These sureties entered into a written agreement each with the other, dated May 3, 1869, in which it was recited that, in becoming parties to said guarantee, they had agreed between themselves that the said George A. Trenholm should be liable for the sum of $400,000, and the said Jas. T. Welsman for the sum of $310,000, of the aggregate amount of the bonds, and no more, and that each would be respectively liable to the other for the full discharge of the said sum and proportion by them respectively undertaken, and
that each would take and keep harmless and indemnify the other from all claim, by reason of the said guarantee, beyond the amount or proportion respectively assumed, as stated, and it was thereby further agreed that at any time when either of them should so require, each should, by mortgage of real estate, secure to the other more perfect indemnity, because of the said guarantee. Thereupon and on the same date, each executed to the other a mortgage upon real estate of which they were respectively the owners, the condition of which was that the mortgagor should perform on his part the said agreement of that date. The guarantors, as well as the principal obligors, had become insolvent before the present bill was filed.
It also appears that, of the sum of $573,300 due on account of outstanding bonds, George A. Trenholm, one of the guarantors, had paid $108,454, leaving still due from his estate to make good the proportion assumed by him $214,532, and that the proportion for which the estate of James T. Welsman, the other guarantor, was liable, was $250,314, of which nothing had been paid the appellees claimed that the mortgages interchanged between the guarantors inured to their benefit as securities for the payment of the principal debt, and prayed for a foreclosure and sale for that purpose.
This was resisted by the appellants, one of whom, Hampton's administrator, as a judgment creditor of George A. Trenholm and James T. Welsman, claimed a lien on the mortgaged premises; the others, executrixes of James Welsman, deceased, being subsequent mortgagees of the same property.
A decree was passed in favor of the complainants, according to the prayer of the bill, and is now brought under review by this appeal.