claim under him for eitherJhe :lat:ld or timber are to stand. in. ·his shoes. . There is an allegation tagged ,on to this defense, toth'e effect that this Ilgriculture," to timber wa,s cut for the purpose of clearing the land in the case which no attention has been paid. ' There is another: founded on that fact. But this defense admits, in EltI:eet, that the timber was not cut primarily for the of preparing the land for tillage, within the meaning oBhe proviso to section 4 .of the act of 1878, but for the purpose of export and sale; and it is sustaine.d"dn the theory that the subsequent compliance with the law under which the entry was made, and the issue of the :final certificate' to that effect, ,makes Green in legal contemplation the owner of the .land from the date of his entry, with a right to cut and dispose of the timber thereon as:he saw proper. The demurrer is overruled.
UNITED STATES «(Jw-cuit (JOUf't,
e. BALL and another. August 5, 1887.)
DEAD'!, J. This action was brought on the sllme da)f with the foregoing one, to recover $8,250 damages for the conversion by the defendants of 2,750,000 feet of timber cut .and removed by said Green from the premises aforesaid, between January, 1884, and January, 1887. . . The answer of 'the defendants contains a defense similar to the one already conlogs in question. sidered, with the addition that the defendants, in and manufacturing them into lumber, were acting as the dIrectors and agents of ' the Yamhill Lumbering Company. a corporation formed under the laws of OrElgon; and that only 846,000 feet of logs were so obtained by them,-141,000 prior to Janua!}' 11. 1886"when the tinal certificate wae issued to Green, and 701i,OOO afterwards. The demurrer to the defense is sustained, for the reason already given.
S. D. Iowa. June Term, 1887.)
A railway ,corporation was insolvent, and its stock worthless. One G. and his associates, in payment of a debt due them, accepted in good faith by resolution spread on the minutes of the corporation. the'unissued stock of the company at 20 cents on the dollar. Held that the transaction, being for the benefit of.the company, the personal representatives of G. were not liable to a judgment creditor of the insolvent ,company for the 80 cel).ts remaining unpaid on each dollar of the stock. The rule that an issue of stock by the officers of a corporation to a party, with a stipulation exempting the latter from full payment, is void as against creditors, does not apply to such case, and this notwithstanding that the debt upon which the present suit was brought was contracted subsequent to the stock transaction. 1
Bee note at end of case.
2. SAME-CoNSTRUCTION Of! STATUTE.
Where a strict constructiQu of the Iowa statute prohibiting transfers of corporate stock with atte.mpted exemrtions from full payment thereof, enacted for the protection of creditors, wil work a positive injury to creditors, a liberal construction, hi accordance with its SPIrit, will be gi\'en such statnte. 1
This is an action at:law to recover from the personal, 'l.'epresentativesof George Greene 80 per cent. unpaid upon 910 shares of stock issued to him by the Burlington, Cedar Rapids & Minnesota Railway Company. The am'ountc1aimed is the sum of$65,523.20, with interest. It seems that George Greene was a stockholder of said company, and also a member of a construction company by which the work of building had been done. The railway company; was indebted to the construction company in the sum of $70,000, without any means of making payment of the same. The railway company was in fact insolvent. Its earnings were insufficient to pay the interest on its large bonded debt. It had a floating debt of over a half million of dollars which it could not provide for. It is sufficiently evident that· the whole corporate property was insufficient to pay the bonded debt secured upon the property, and that the stock of the company hadno,market value. Under these circumstances, the railway company entered into an arrangement with George Greene and his associates, by which the company issued to them its stock at the rate of 20 cents on the dollar,in full payment and discharge of the debt of $70,000, which they held against the company. The stock was to be received as fuilpaid. The shares of stock were $lQO each, and George Greene received his proportion, amounting to 910 shares. It is to recover the unpaid $80 on each of these shares of stock, to be applied on the plaintiff's judgment, that the plaintiff, a creditor of the company, brings this action. It appears that George Greene and his associates received the stock reluctantly, and with the hope by its means of raising the company from its crippled condition of insolvency. With this view they transferred the stock fora nominal. consideration to John 1. Blair, a large capitalist; by whom.it .was retransferred to his assignors upon finding that the task of getting the railroad company out of its difficulties was hopeless. The plaintiff, -having recovered a jUdgment in a state oourt of Iowa against the railway company, and having caused execution to issue upon the same, which was returned nulla bona, now prosecutes this suit for the purpose stated. A jury was called pro forma, but the case was tried practically before the court upon facts not disputed by the parties, and upon pure questions of law. .The jury were directed by' the court to enter a verdict for the defendant upon the admitted facts. P. Benry Smythe and Joacph Ander8an, for plaintiff. Ohar"le8 A.. Olark, for defendant. . LoVE,J. Whoever, in O1y opinion, takes the stock of a 80lvent corporation, must re(,'eive it cum onere. He p,roposes to become a member of
18ee note at end· of case.
the corporation. and to participate. in its rights; profits', and benefits Qn equal terms with other stockholders. in 'proportion to his stock, and he cannot take these advantages without aSsuming the burdens of the corporation in like prQporti<ln to the amount of his st<lck. This may not be true, indeed, I think it is not true, of the case of an insolvent corporation which is in the oourseof settlement or liquidation. leannot see that the creditors of a solvent corporation, the assets of which are entirely adequate to the satisfaction of their claims, have any interest in compelling a particular stockholder to pay up his stock in full; but it is surely otherwise, as I will presently show, with· the full-paying stockholders themselves. These principles may be best illustrated by considering the relations which the· taking of stock creates. The stockholder assumes a three-fold relation: (1) to the 'corporation itself; (2) to the creditors of the company; (3) to the other stockholders. . , To the creditors he becomes a debtor to the amount of his unpaid stock, when the company becomes insolvent, and fails to pay its debts. To the other stockholders he assumes the relation of a quam, partner, in that hepa1'ticipates in the profits and advantages of :the ,cbrporation, and takes its burdens to the extent of his unpaid stock. To the porationitself he is bound by the contract by which he owns the stock which has been issued to him. He is a debtor to the amount of his unpaid stock. What is the nature of the contract which the taking of stock in a corporatiqn creates? What relations does it establish between the shareholder and the other stockholders, and also to the creditors' !tnd the corporation? The taking and receiving of stock is it contract founded upon certain considerations to the stockholder. It is nota gift to him. By the taking of the stock 'he becomes a member ofthe body corporate. He has a right to vote upon his stock. He entitles himself to his share of the profits, if anYi and to the property of the corporation upon the final distribution in proportion to his holding of stock. Such are the considerations flowing to the stockholder. And what are his undertakings in consideration of the rights and interests thus secured? His undertaking is to pay for the stock. Can a stockholder, by agreement with the corporation issuing the stock, lawfully stipulate that he shall pay less than the face value of the same,-say 10 or 20 cents on the dollar? It is manifest that the law will not permit any party to make a contract which necessarily works a fraud upon the rights olother parties. Now, if all the subscribers and takers of stock should be 'allowed, by contract with the company. to pay less than the face value of the stock, a fraud upon the creditors, in case of insolvency, would be the unavoidable result. Creditors, in dealing with the corporation, look to its means of payment, which is in part its capital stock, and its earnings. The stockholders are mem bel'S of the corporation. They authorize the corporation, which is organized for their benefit and profit, to hold them forth to the world as contributors, to the respective amounts of their stock, ,to the assets and capital of the corporation. They thus give the corporation
CLARK V. BEVER.
credit. They also take its, earnings, in propOrtion to their shares, in the form ;of dividends. They receive these dividends in proportion,to the full amount of their shares, and not upon any reduced basis founded upon their contract topa)" into the corporation less than the face value. These earnings and dividends, if not received by the shareholders, could be applied to the satisfaction of the claims of creditors. To permit stockholders to pay 10 or 20 per cent. on their stock, and receive dividends on it at the rate of 100 per cenL, would work manifest injusticeto creditors. To permit the stockholders and the corporation to hold the stockholders out to the world as responsible for $100 upon each share of stock, and, by a private agreement between th,e corporation and the shareholders, to allow the latter to pay only ten or twenty dollars on each share, would work manifest fraud upon the creditors of the corporation. Hence the law would not permit such a contract between the company and the shareholders. It is equally clellr that it would work wrong and' injury, pro tanto, to creditors, in oase of insolvency,topermit any one'stockholder to receive dividends upon full stock, and pay only a small per cent. upon it into the treasury of the company.. If there is anything fundamental, respecting both porations and private partnerships, it is that creditors have a right' to satisfaction before any member of the firm or corporation is entitled'to appropriate the earnings or profits. But supposing that creditors should have no right to complain, ,118suming that the assets of the corporation should be sufficient·to pay all debts,-we must still consider the relation of stockholders to one another, and the results that would flow from a rule permitting the corporation to issue stock to particular persons kt·less than the face of the stock. Of course, the original subscribers of stock, and an others not exempt by contract with the corporation from full payment, would be compelled to pay dollar for dollar of their stock; for such would be the contract involved in their sUbscription to the capital stock. This might result in the grossest inequality and injustice between different 'classes of stockholders. While one class would be required to pay only perhaps 10 or 20 cents on the dollar, and another dollar for dollar, all would participate equally in the profits and dividends, and in the final distribution of the 'corporate property. In case of insolvency, one set of stockholders might be compelled to pay in, for the benefit of creditors, 100 cents on the dollar, and another favored class only perhaps 10 or 20 cents on the dollar. I am not, therefore, able to see how a solvent corporation could, without the consent of the stockholders, lawfully issue stock to other parties exonerated from the payment of its full face value. The president and directors are but trustees for the creditors and stockholders, and, as such, they must, in the absence of express law, do what justice and equity require; and equity certaInly requires equality of both benefits and burdens among stockholders. But the question before the court in the present case is whether or not the principle in question is of universal application. Does the doctrine that the .president and directors of a corporation cannot lawfully issue v.31F.no.1l-43
sto<;k exonerated from fullpayment,apply to ilU possible easEls? Does it apply at all to a corporation in a state of insolvency, using its. stock, withont other meansof.payment,to satisfy and discharge the debt of a p&l'ticular creditor? The supreme court of I,owa have, in a majority opinion in the case of Jackson v.,Traer,64 Iowa, 469, 20 N. W. Rep. 764, as I understand their judgment, laid down the. broad and sweeping doctrine that it is absolutely illegal for the president and directors of a corporation to issue stock to any party with a stipulation exempting the stockholder from full payment of the stock, so far as creditors are concerned; Such a stipulation is simply void. The stockholder is bound to pay up the full face value of: the stock, notwithstanding the agreement'ofthe corporation with him to the contrary. The general principIes' .laid down; and strongly enforced in the majority opinion, stand, no doubt, upon impregnable ground.. 'They are stated with marked ability and fullness in that opinion. But I incline to think the majority were inarror itLapplying the principle to the case then before them, which ,'.iJndeed, was the very case, now before the court.· I am of opinion that:.there may be some .exceptions in the application of that principle, just and mostsa;lutary as it undoubtedly is; and that the casebefQre us is one ofthose exceptions. , What are the grounds and reasons of the doctrine. that a stockholder cannot, by contract with the corporation, be exempt from the full pay,. ment :of.Qis stock? The sale reason and basis of the principle is that the capital stock,incomnion,with &Ie other. property of a corporation,is a trust fund primarily.fol' the satisfaction of its debts, and subject to the of creditors for the benefit o.f shareholders. Now, suppose it could be' shown,in any given cas!:lj that:.an issue stock by the company, with the Tight to the stockholder;(J)f partial payment,:would prove a benefit rather than an injury to both creditors and shareholders, what reason would there:;be to apply the. principle in question to such a case? Of <lourse, the burden of showing 'the beneficial character ofsuch a transaction to creditors and shareholders would rest upollthe holder·of the stock. 'SuTIPose:a creditor: of an insolvent corporation should see fit, for any reasOn satisfact<ilry'tohimself, to receive the worthless.stock of the corporation ·as plliid up.stock.at ,20 cents on the dollar, in full satisfaction of his debt, what possible injury cotlld accrue to. other cl'editors andstockholders?Would 'such a -transaction not prove an absolute benefit to them? In the first phwe, such stock,in the possession of the company u.nissued, would be ofno value whatever to creditors. It would produce nothing, and pay nothing. It would seem,therefore, that the payment of a debt by the issue of such worthless stocK would be no possible injury to other creditors. "Onthe contrary, it would seem to be a positive advantage to the other creditors to have a particular debtdiscbarged by stock of no value, becaqse:thecreditor so receiving th«;l stockw.ould have no right to claim pro rata payment out of the assets of the insolvent corporation. As to the stockholders of the corporation, how would they be injured by Bucha transaotion? The corporation being insolvent, and its assets, including;;of course, the capital stock, fully paid up, being insufiicient to
CLARK' 'II. BEVER.
pay' the debts, thei'c would' be nothIng left for the stockholders. . i.rh:eir stock be worthless. It could nOt be made .less valuable by the payment oh particular debtvrith stock; They would not be affected, one way or the other, by thetnit1S9.ctiMl, since they would be compelled to pay their stock up fully' for the benefit of the creditors, and nothing more could, in any event, be required of them. The very case before the court presents an example illustrative of what I have just said. The railway company was insolvent. Its stock issued and unissued was worthless, but George Greene and his associates,fot which would have influenced reasons peculiar to the conduct of no one the unissued stOck ofthe company at 20 cents on the dollar, in payment of a debt of &70,000. If there was anything left in the corporation to be paid pro 'rata on its debts,the transaction was a positive benefit to the creditors holding snchdebts. It is safe to say that if Greene and his associates had known or believed the law to be such as to require them to pay 80 cents on the dollar upon the stock ,which they received', they never wotildhave taken it. It would have remained unissued, without value, to creditors, in the possession of thecorporation; and the debt of $70,000 would have remained to be paid pro rata with the other debts; and, as to the other stockholders of the insolvent' corporation, I do not see how they could have been affected one way or .other by the transaction. It seems to be a fair inference, from the facts that George Greene, who a hope that by taking was a memper of both corporations, the stock ih question, and transferring it to John 1. Blair, the corporation could be restored to solvency, and placed once more upon its feet. In this he failed, and the stock was returned to him by John 1. Blair. But, if Greene had succeeded in' this, the result would l1ave proved highly beneficial to both the creditors and As, however, Greene failed in accomplishing his purpose, the stock which he .received must have proved worthless in his hands, while the debt of $70,000 was wiped out. lt is argued, against this view, that the debt upon which the present suit is founded was contracted subsequent to the transaction between Greene and the corporation, and that the reasoning of the court cannot be sound when applied to the plaintiff in this case. This argument has been urged with singular plausibility and force,but I cannot regard it as conc1ul;live. If the transaction between George Greene and the corporation was at the time beneficial to the creditors then existing, and if it was therefore legitimate, I am not able to see how it could be rendered invalid by debts subsequently contracted. The issue of the stock to George Greene and his associates was not a secret transaction. It was open and public. The resolution authorizing it. was spread upon the records of the corporation. The. new creditor, taking the company's bonds, if he opened his eyes, must have seen that the stock issued to George Greene was delivered to him as paid-up stock. If the new creditorlooked beyond the surface of the transaction, we are bound, in our own view, to hold that he discovered that the transaction was entered
into in good faith; that it was b,eneficial to then existing creditors of the insolvent corporation; and that it was therefore legitimate and unimpeachable. We must assume that the new creditor took the obligations of the corpora1J.on with and full view of these facts. Again, it is urged that the !owastatute law positively prohibited the transaction in question, so'far as it was attempted to exempt the stock from full payment. But we answer that the statute must receive a reasonable cOIlBtruction; that its.sole purpose was the protection of corporate creditors; that in the present case it would have worked positive injury to the creditors of the insolvent corporation to have given the Iowa statute the ,strict and rigid construction now claimed for it; that such a construction, to the case in question, would have defeated the very purpose and policy of the statute; and that such could not, therefore, have been the intention of t1;le legislature in passing the law.
NOTE. The aCceptance of a certificate of stock not fully and actually paid tIp, ipso facto obligates the holder to make up its par value, if the duty of the corporation to its creditors requires it, McKim v. Glenn, (Md.) 8 Atl. Rep. 130; Glenn v. Scott, 28 Fed. Rep. 804; Holmes v. Sherwood, 16 Fed. Rep. 725; Flinn v. Bagley, 7 Fed. Rep. 785; Jackson v. Traer, (Iowa,) 20 N. W. Rep. 764; Leev. Granger Mar·' ket Co., (Or;) 11 Pac. Rep. 270; although he originally agreed to take the stock as fully paid up, Flinn v. Bagley, supra; Jackson v. Traer, supra. . No subsequent release of the original contract or subscription, by the corporation, will avail against the claims of creditors. Flinn v. Bagley, 7 Fed. Rep. 785. An assignment to a corporation, by a subscriber to the capital stock, of part of hiB shares, in payment of an assessment, and an acceptance of such transfer by the board of directors, are ultra vires,' and void as against a trUstee of the company under a deed of assip;llment for the benefit of'c orporate creditors. Glenn v. Scott, 28 Fed. Rep. 804. Any secret ar· rallp;ementbetween the corporation and its stockholders, by which the responsibility of the latter is made less than it appears to be, is void as against creditors. Thompson v. Reno 8llv..,Ban-k,(Nev.) 7 Pac. Rep. 68. ' is whether stock was to 'be paid for in money or by conveyance of property, as 'the subscriber is, in any event. liable to the creditors of the corporatioll, under Code 'I6W:a, 1082, to the extent of his subscription. Chisholm v. Forny, (Iowa,) 21 No W. Rep. 6(\4; Singer v. Giveu,(Iowa,) 15 N. W. Rep. 858. Stockholders who pay for tbeir stoc». by the transfer of a worthless patent, remain liable to creditors. Chisholm v. FornY;8ttpra. Under the laws of Wiscomin, prohibiting the issue of stock unless fully paid, either in money, or in labor or property estimated at its true money value, a contraot pursuant to which a party. was to pay for stock at 50 cents on the doUar, and be a'ppointed general manager of the company. at a salary of $2,000 a year, iB void. Clarkev. Lincoln Lumber Co., 18 N. W. Rep. 492. Where of the whole $500,000 of Capital the stockholders paid in $1,000 in cash, and $10,000 in land, a primafacie case is made, leaVing the stockholders'liable for judgments upon indebtedness contracted during their respective holdings, if the proceedings were commenced and the judgment obtained withm tile time limited by the statute. GriDdle 'y. Stone, (Me.) 3 Atl. Rep. 1il3. It has been held that a corporation free from indebtedness has the power to issue fully paid up stock to its stockholders in cqnsideration of partly paid stock, and the surrender of accumulated profits, and that the corporation nor its subsequent creditors with notice can disturb such arrangement. In re State Ins. Co., 14 Fed. Rep. 28; Coit v. 'North Carolina G. A. Co., 14 Fed. Rep'. 12; Kenton Furnace R.,& Manuf'g Co. v. McAlpin, 5 Fed. Rep. 737. But as to debts existing at the time of that arrangellJent, it would bevoidj and would not bar an action at law by the corporation agaip.st tbestockholders to recover the unpaid 50 per cent. of their subscriptions. Kenton Furnace R. & Manuf'g Co. v.McAlpin, 5 Fed. Rep. 737; In re State Ins. Co., 14 Fed. Rep. 28. Where a corporation was embarrassed, and, for the purpose ofraising funds, agreed to sell additional stock at what was then the market value of the original stock, held. that the assignee in bankruptcy could compel the pay.ment of the difference between such market value and the par value. Flinn v. Bagley, 7 Fed. Rep. 785. The Burlington, Cedar Rapids & Minnesota Railway Company,' being indebted to a construction on a contract under which it had constructed the road, as a compromise of the claim,
transferred to the construction company certain shares of stock. at 20 per cent. of its face value, in full settlement of the claim, and the shares were distributed the members of the construction company. Held, that the members of the construction company could be held liable as stockholders of the railroad company for the unpaid balance of the stock so received. Jackson v. Traer, (Iowa,) 20 N. W. Rep. 764; overruling Louisa Co. Nat. Bank v. Traer, 16 N. W. Rep. 120. Although the California constitution provides that no corporation shall issue stock, except fOr money paid, labor done, or property actually received, and all fictitious increase of stock shall be void, an increase of the capital stock of a company, and sale of such stock at the actual market value, for the purpose of enlarging the works and capacity, and supplying an increased quantity of water, is legitimate, authorized, and not a "fictitious" issue. Stein v. Howard. (Cal.) 4 Pac. Rep. 662. In Qzlijomia, a corporation formed for the business of mining, smelting, reducing, refining, and working ores and minerals, etc., may sell, at less than par value, shares of capital stock purporting to be fUlly paid, and, if there be no fraud, the creditors of the corporation have no recourse, against the purchasers or holders of such stock, for the difference hetween the par value, and the price at which they were sold. In re South Mountain Con. Min. Co., 14 Fed. Rep. 347, 5 Fed. Rep. 403. So, also. in Minnesota. Ross v. Silver & Copper L M. Co., 29 N. W. Rep. 5 9 1 . , A creditor who has obtained a judgment against a cOl·lloration. and is unable to realize thereon upon execution, may file a bill in equity agamst stockholders to subject the unpaid balance due on their subscriptions to the stock of the corporation. Patterson v. Lynde, 1 Sup. Ct. Rep. 432; Bell's Appeal, (Pa.) 8 Atl. Rep. 177; Cornell's Appeal, (Pa.) 6 Atl. Rep.258; Holmes v. Sherwood, 16 Fed. Rep. 725; Bissit v. Kentucky River Nav. Co., 15 Fed. Rep. 353; Queenan v. Palmer, (111.) 7 N. E. Rep. 613; Brundage v. Monumental Silver Min. Co., (Or.) 7 Pac. Rep. 314; Thompson v. Reno Sav. Bank, (Nev.) 7 Pac. Rep. 68. It has been held that no on e creditor can sue for himself alone. but, when a stockholder is sued, it must be in a way to p'ut what he pays directly or indirectly into the treasury of the corporation. for distnbution according to law, Patterson v. Lynde, 1 Sup. Ct. Rep. 432; and inasm uch as only so much of the unpaid capital as is necessary for the payment of the debts can be called in, and that can be done only when all the other assets are exhausted, an account should be taken of the amount of debts, assets,and unpaid capital, and a decree be made for an assessment of the amount due by each stockholder, Bell's Apveal, (Pa.) 8 Atl. Rev. 177. But it is not a fatal defect that not all creditors are joined as plaintiffs, nor all stockholders as defendants. Cornell's Appeal, supra. The creditor may sue for himself and such others as may join. Holn,les v. Sherwood, supra; Brundage v. Monumental Silver Min. Co., supra. Where there are stockholders beyond the jurisdiction, the sto,ckholders sued must look to them for contribution. Holmes v. Sherwood, supra. And it is said that, as theobligation of a subscriber to stock of a corporation is several, and not joint, he may be sued by a creditor of the corpuration for the amount of his unpaid subscription, and, if he holds himself aggrieved thereby, he must seek his remedy as against the other stOCkholders in default like himself. Brundagev. Monumental Silver Min. Co., 8upra; Thompson v. Reno Say. Bank, supra. A party who is at once a creditor and a subscriber to the stock of a corporation, must, npon failure of the company, pay up the amount of his unpaid subscription. He can then participate in the fund ratably with the other creditors, Thompson v. Reno Sav. Bank, (Nev.) 7 Pac. Rep. 68; and where it is hisjudgiuent which is sought to be enforced, he must contribute pari pas8u with the defendant stockholders towards the liquidation of the demand against the corporation, Bissit v. Kentucjl:y River Nav. Co., 15 Fed. Rep. 353. But it has also been said that such unpaid subscriptions may be reached by garnishJUent or attachment. In re Glen Iron-Works, 20 Fed. Rep. 674, 17 l!'ed. Rep. 324; Faull v. Alaska Gold & Silver Min. Co., 14 Fed. Rep. 657; McKelvey v. Crockett, (Nev.) 2 Pac. Rep. 386. But until due by the terms of the charter or by-laws, or called in by assessment, or until the insolvency of the corporation, they are only equitable assets, and cannot be reached by an action at law. McKelvey v. Crockett, aupm. Respecting when the statu,te of limitations begins to rnn al'(ainst the liability of stockholders, see Franklin Say. Bank v. Bridges, (Pa.) 8 Atl. Rep. 611; Glenn v. Pries..!? 28 Fed. Rep. 907, 24 Fed. Rep. 536. 23 Fed. Rep. 695; Glenn v. Saxton, (Caf.) 9 Pac. !tep. 420; First Nat. Bank of Garrettsville v. Greene, (Iowa,) 17 N. W. Rep. 86, 20 N. W. Rep. See, also, Glenn v. Clabaugh, (Md.) 3 Atl. Rep. 902; Glenn v. Howard, Id. 895; Stattl v. Timken, (N. J.) 2 At!. Rep. 783; Glenn v. Walker, 27 Fed. Rep. 577.
Massaohus6ttS. July 29, 1887.)
Where the condition of an indemnifyin,g bond is that the .sureties thereon will save harmless A. and B., proposed sureties of the principal on a probate court bond about to be given by him as trustee, the sureties have a right to stand on the very terms of their contract, viz., reimbursement of A. and B. for any damage accruing to them by reason of their sig-ning the probate bond: and the execution of a guaranty by B. to A., without the knowledge of such sureties, which by its terms releases A., so far as B. is concerned; from aIlUability on the probate bond, operates to discharge the sureties on the bond of indemnity. 1
NOTE-IGNORANCE OF RIGHTS.
A surety' on the bond of an insolvent defaulted trustee, who, in ignorance of his right to proceed against a sound surety on an indemnifying bonde,xecuted in his favor, accepts notes of the trustee in payment of the loss entailed upon him by his suretyship on the trust-bond, is estopped thereby to proceed against the surety on the indemnifying bond.
CARPENTER, J. This case has been heard by the court on an agreed statement of facts. It appears that, in 1871, John H. Swasey, of Boston, applied to the probate court for the county of Grafton, in the state of New Hampshire, to be appointed trustee for Benjamin M.Swllsey; that, in order to qualify himself thereto, he was required to file a bond, with two sureties, residents of New Hampshire; that Edmund Burke and Shepard L. Bowers, of Newport, New Hampshire, agreed to become sureties, provided they were secured by a bond of indemnity, with Parker and Jacob Hittinger, of Boston, as sureties; that Harvey thereupon the bond of indemnity now in suit was sent to Burke, signed by Swasey as principal, and by Parker and Hittinger as sureties; that Bowers then declined to sign the probate bond unless Burke would also indemnify him; and that Burke then executed, without the knowledge of Parker, an obligation under seal, whereby he agreed with Bowers to "indemnify and save him harmless from all damage, expense, and cost which may accrue to him .by reason of his signing said bond of said Swasey before mentioned." It further appeal'S that Burke and Bowers thereupon signed the probate bond as sureties with Swasey; that, in 1878, Benjamin M. Swasey died, and it was then found that John H. Swasey was a defaulter in his trust; that he thereupon made an assignment to Parker and Burke of his interest in the estate of Benjamin M. Swasey; thot John H. Swasey' and Hittingerwere then insolvent; that
'Sureties have a right to stand on the strict terms of their obligations. Wier Plow Co. v. Walmsley, (Ind.) 11 N. Eo Rep. 232, and note. Any material variation of the contract between the principals, without the assent of the sureties, will di8charge the latter. Id.