[sureties – bonds – equity and good conscience – equity]

Hughes v. Quin

Supreme Court of New South Wales

Dowling C.J., 19 February 1841

Source: Sydney Herald, 22 February 1841[1]

SUPREME COURT. – EQUITY SIDE

FRIDAY. Before His Honor the Chief Justice.

Hughes v. Quin and others. – His Honor delivered judgment in this case to the following effect:- This was a bill filed by a surety against a co-surety of one Edward Fagan, in a joint and several bond, dated 20th May, 1834, for securing to the Crown the payment, by three instalments with interest at 8 per cent, of a debt of £324, due by Fagan to the Government as rent of a military canteen, in Sydney Barracks, praying that the defendant might be decreed to to pay a moiety in contribution of the sum which the complainant had paid to Her Majesty’s Government by force of the bond, in consequence of default of Fagan the principal. All necessary parties are now before the Court: the representatives of Fagan, of Henry, and his infant heir. The question is, whether the defendant Quinn is bound, in equity and good conscience, to contribute under the circumstances which now appear upon the bill, answer and proofs: the principal parties to the suit have been in a court of law, but this court not being fettered by the strict rules of law it must look to the well settled principles applicable to this class of cases. The facts I take to be these: Fagan being indebted to the Crown in the sum of £324, gave bond for the payment in three equal yearly instalments, with interest at 8 per cent, and Hughes, Quinn, and Henry, became jointly and severally bound as Fagan’s sureties; the bond was dated 20th May, 1831, and the last instalment would be due on the 20th May, 1837. It remained in the hands of the Deputy Commissary-General until April, 1837, when, in consequence of its not having been satisfied, it was handed over to the subordinate officer of the department, with a view to his obtaining payment from John Terry Hughes, the complainant, out of a sum then payable to Hughes and Hosking, from the Commissariat, in respect of some contracts which they had with that department. Accordingly, on the 3rd April, 1837, the Commissariat received from Hughes £268 11s. 3d., for two instalments, with interest then due; and on the 1st June, 1837, the officer received from Hughes £134 5s. 5d. as the balance, including interest up to that date. Both those items were retained out of the money due from the Commissariat to Hughes and Hosking, and credit was given to the Government as money received from Hughes in discharge of the bond, which was then given up to him as a finally settled transaction. Henry died in September, 1835, intestate and, as alleged, insolvent; and Fagan died in June, 1837, also intestate and insolvent, in which state his affairs were alleged to be for some time before his death. It appears, that on the 29th April, 1837, Fagan, shortly before his death, executed a conveyance to the defendant of certain ground and premises, his property, in Clarence-street, on certain trusts. The deed recited that the premises had been before mortgaged to Hughes for £400 or thereabouts, and that he had been in the receipt of the rents and profits thereof, by which the principal sum had been reduced, but the exact balance was not ascertained; and further recited, that “whereas Hughes and Quinn are jointly bound to the Crown as sureties for Fagan, and Hughes has paid to the Crown £268 13s. 4d. on account of Fagan in respect of that suretyship;” and it further recited that Hughes had requested the said Quinn to pay a moiety of that sum, and that in order to secure “the said Hughes and Quinn respectively, the sums of money they may respectively pay on account of the said suretyship,” it goes on to convey the premises to Quinn upon trust, to sell the premises, and out of the proceeds, first, to pay all expenses of the trial; secondly, to pay Hughes the sum due upon his mortgage; thirdly, to pay and satisfy Hughes any sum of money he may have properly paid on account of his said securetyship for Fagan; fourthly, to retain, unto himself, Quinn, any sum he may have paid on account of the said suretyship, or in defending himself against any claim made on him by Hughes for contribution in respect of his, Hughes’s, payments on account of the suretyship; and lastly, to pay the residue to Fagan, his executors, administrators, or assigns. This conveyance was prepared in the office of an attorney of the court, by the direction of Quinn; it was executed by Fagan and delivered as a deed, but not executed by Quinn. Under these circumstances the question is, whether complainant has properly paid the money which is the subject of this suit, on account of his suretyship for Fagan, so as to entitle Hughes to contribution. Whatever may be the effect of that deed of 29th April, 1837, as respects Hughes, I think as against Quinn (under whose instructions it was prepared for Fagan’s execution), it is pregnant evidence, affording him notice that Fagan had not paid the instalments due on the bond to the Commissariat, and that Hughes had then paid in respect of his suretyship the sum of £268 14s. 3d.; and further, that he was anxious to indemnify himself out of Fagan’s estate for his own share of liability to contribution. The question then is, whether, in equity, Hughes having paid the money for which (as a co-obliger he was bound to pay in default of Fagan the principal) he is entitled to contribution – Fagan was in fault?  I think the fact of two of the instalments remaining unpaid at the time stipulated for, and the bond being handed over by the Deputy Commissary-General, with a view to obtain payment of Hughes in consequence of the default of the principal, is decisive on that point; even if the acknowledgement by the deed of conveyance from Fagan to Quinn, that Hughes had paid the money, were not conclusive. Then, can it be said that this was a voluntary payment to the prejudice of the sureties? The sureties were liable instanter on the failure of the principal. It may be true that the crown did not immediately enforce the bond, which they might have done, but I do not think that mere forbearance towards the principal, unless by express contract in writing and without the knowledge of the two sureties, will discharge the latter. The sureties were, severally and personally, liable on their obligation to the crown; at all events, Hughes had notice from the crown on the 3rd of April that the instalments on his surety bond was unsatisfied, and payment was required of him. It was true, that the bond was not put in suit, and he was not compelled by process of law to pay it, but for any thing that appears to the contrary, he was absolutely bound, and would have had no defence had the bond been put in suit. The crown was then in a condition to enforce payment by another process. The crown owed Hughes and his partner money, and in case of Hughes’s liability on the bond, it was agreed that the partnerships’ demand should be set off against Hughes’s personal liability. Hughes as partner had a control over the partnership credits, and if he appropriated the partnership funds to liquidate his own personal debt, that was a matter between him and his partner, but how could this damnify Quinn the co-surety? What does it matter to him with what funds Hughes discharged his liability? In substance, it is the same thing as if Hughes had paid the bond with his own individual hard cash. I see nothing in this transaction which militates against the principle recognised in Craythorvee v. Swinburne, 14 Ves. j. 161, “That the right of contribution results from the maxim that equality is equity.” These co-obligers were equally liable upon this bond, and so long as one obliger does nothing to prejudice his co-obliger, the latter must contribute in the same case. It is said by the Lord Chancellor, “It has long been settled, that if there are co-sureties by the same instrument, and the creditor calls upon either of them to pay the principal debt, or any part of it, the surety has a right in this court either upon a principle of equity or upon contract, to call upon his co-surety for contribution, and I think that right is properly enough stated as depending rather upon a principle of equity than upon contract, unless in this sense that the principle of equity being in its operation established, a contract may be inferred upon the implied knowledge of that principle by all persons.” Conceding the fact – which I think cannot now be disputed that the principal was in the fault, and that Hughes was called upon as a surety to pay, and did in fact pay, (no matter how), by reason of his own immediate liability, he has a right in equity to resort to his co-surety for contribution. I think that Hughes was not bound to wait and give Quinn notice before he paid. Hughes was himself absolutely bound to discharge his own liabilities at once, and resort to his co-surety for contribution, unless there was any thing in his conduct which could prejudice the latter. This is not like a voluntary payment without any legal designation to pay, and in a party’s own wrong; at the utmost it is only a payment by Hughes, to avoid that which the law would enforce – he was bound by his bond to pay on failure of the principal. And why was he to run the risk of legal proceedings, which would only enhance the liability of himself and his co-sureties? Suppose Quinn had had notice, what difference could it have made to him? By his answer he admits that he had something like a parole notice, but in the face of the deed which he got Fagan to execute on the 29th April, 1837, within less than a month after Hughes had paid the instalments in arrear, can it be said that he was ignorant of Fagan’s default, and of the payment which Hughes had made to the Commissariat by force of the bond? After a careful consideration of the case and having diligently examined all the authorities cited, I can have no hesitation in determining under the circumstances, that the complainant would be entitled to a decree for re-arbitration from Henry and Quinn respectively. The representatives of Fagan and Henry, are parties to this suit, and as there is pregnant evidence of their having died insolvent, in default of their assets they would go against Quinn for a moiety of the sums paid by Hughes, together with interest at 8 per cent, of that moiety from the time of the payment of the last instalment. With respect to the deed of the 29th April, 1837, I cannot discover how that can affect Hughes; that deed, according to the evidence of Mr. D. Chambers, has never been acted upon, nor does it appear before me satisfactorily that Hughes has been in the receipt of any rents and profits of the estate of Fagan, to discharge Quinn’s liabilities to contribution. If Quinn can derive any profit from Fagan’s estate, he will hereafter be enabled so to do. There is no relief prayed by this bill against Fagan, but solely against Quinn, although Fagan’s representatives are made parties. On the whole of this case, I decree that it be referred to the master, to take an account of all sums of money paid by John Terry Hughes, on the bond in the pleadings mentioned, and that the master do compute interest on such sums of money, at the rate of 8 per cent, from the times the several payments were made, and to tax the plaintiff his costs of suit against Fagan; and further order, that the said defendant (James Quinn) do pay unto the plaintiff one moiety of what shall be found to be due, of principal and interest as aforesaid, together with the costs of this suit; and it is further ordered that the bill, as to John Hosking, Jane Henry, and John Betts, be dismissed with costs, to be taxed by the master, and when so taxed, one moiety thereof be paid by the said John Terry Hughes, and the other moiety by the said James Quinn; and it is further ordered that the estate of the said Edward Fagan stand charged with the principal and interest, hereby directed to be paid by the said James Quinn to the complainant, together with the costs of the said James Quinn, and also the costs which he shall pay to the complainant.

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