bond? It may be a circumstance to be considered in connection with other evidence, showing that the obligee had actual knowledge of the agreement, but of itself it is not sufficient to put him upon inquiry, or even to create a suspicion of, the existence of such an agreement. The scrolls may indicate that at the time the instrument was prepared, the obligee required that number of securities, or that the principal obligor expected or intended to procure them. Sometimes the bond is prepared by the obligee himself, and sometimes by the principal obligor. Upon a contemplated loan of money or sale of property, quite as often as otherwise, the number of seals is purely accidental, attached to the writing simply with the view of procuring a sufficient number of obligors to make the security satisfactory to the obligee. That object is effected not infrequently with fewer signatures than there are scrolls, and the obligee being content with the security, accepts the bond without a suspicion that the principal obligor in delivering it is violating any agreement or transcending any authority. In the case of personal representatives and other fiduciaries as also commissioners for the sale of lands and the investments of funds under decrees of court, this sort of transactions is of frequent occurrence. Indeed throughout Virginia the practice is very common among business men of accepting such securities without a suspicion of any informality in them. It is impossible to foresee the inconvenience and mischief that will ensue if the courts should establish the doctrine, that the mere existence of one or more seals upon a bond, without names opens the door to proof of parol agreements or alleged agreements between the several obligorsprincipal and sureties which will invalidate the bond as to such sureties in the hands of an innocent holder, and it is worthy of observation, that the researches of counsel have not produced a single case sustaining this doctrine. For the reason already stated, I think the bond in controversy is apparently a complete and perfect obligation, with nothing on its face to indicate that other persons were to sign it to make it effectual as to those who sign it.”

Virginia has carried the doctrine that the surety is bound where he signs on condition to the farthest verge. In Miller v. Fletcher, 27 Gratt. 405, the court held that delivery to the obligee on condition that another person should sign the bond, rendered the surety liable. Here the obligee knew of the condition. Nay, he assented to it. There could of course under these circumstances be no estoppel. The court predicated its ruling on the doctrine, that the delivery of a deed to the grantee cannot be in escrow, and that all conditions attending the delivery are abrogated by the delivery. That this rule does not apply to bonds has been held in Stuart v. Livesay, 4 W. Va. 45-50; Newlin v. Beard, 6 id. 110; People v. Bostwick, 32 N. Y. 445; Jordan v. Jordan, 10 Lea, 124; 43 Am. Rep. 294.

But the burden of authority is the other way. In the New York case the opinion of the court was obiter; and in the Tennessee case the bond was negotiable. On the other hand it was held in Ordinary of New Jersey v. Thatcher, 12 Vroom, 403; S. C., 32 Am. Rep. 225, that delivery to the obligee extinguished all conditions though he had notice of them. In this case the bond was delivered to the representative of the obligee, with instructions to have a third surety whose name appeared in the bond sign it. The signature not having been obtained, the other two sureties who had delivered the bond on condition sought to defend on that ground. The defense was overruled on the ground that the condition could not prevail against the delivery to the obligee. The court said: "Nor is it easy to understand why the grantee in a deed cannot receive such deed in escrow if he can

hold a bond under such circumstances, because granting the capacity to become a depository of an escrow it seems clear that by the conditional delivery of a conveyance to him the estate would not vest until the performance of the condition, any more than it would if such delivery were to a third person."

64

Sustaining the Virginia case is Moss v. Riddle Co., 5 Cranch, 351. The defense in this case was that defeudant did not deliver the bond to the obligees unconditionally, but that he delivered it to one of the obligees as an escrow, to be his act, and on condition that the same should afterward be signed, sealed and delivered by some other friend of Welsh, the principal in the bond, and that this was not done, and that therefore the bond was void as to defendant. The court, Marshall, C. J., writing the opinion, say: It is admitted by the counsel in this case that a bond cannot be delivered to the obligee as an escrow. But it is contended that where there are several obligees constituting a copartnership, it may be delivered as an escrow to one of the firm. The court however is of opinion that a delivery to one is a delivery to all. It can never be necessary to the validity of a bond, that all the obligees should be convened together at the delivery." To same effect Blume r. Burrows, 2 lred. N. C. 338.

says:

The mere fact that another name was written in the bond at the time the surety signed, will not be sufficient to warrant the implication that he signed on condition that the other would sign also. Towns v. Kellett, 11 Ga. 286; Elliott v. Mayfield, 4 Ala. 417. But the civil law makes the failure to sign evidence of a condition that such party was to execute the bond. Wells v. Dill, 1 Martin, 592, where the court "The law presumes that the other parties signing did so upon the condition that the other obligors named in the instrument should sign it, and their failure to comply with their agreement gives him a right to retract." To same effect, Sharp v. U. S., 4 Watts, 21; S. C., 28 Am. Dec. 676; Russell v. Annable, 109 Mass. 72; S. C., 12 Am. Rep. 665; City of Sacramento v. Dunlap, 14 Cal. 424, and Johnston v. Kimball Township, 39 Mich. 187, and this seems to be the better doctrine. But the United States Supreme Court holds that the delivery of the bond unsigned by one of the sureties named in it is sufficient to rebut the presumption that there was any such condition arising from the existence of a name in the body and as signed at the end of the instrument. The court remarks: "The acknowledgment of the bond by Abner L. Duncan and afterward by John Carson unconditionally, and its delivery to the government, would seem to rebut the inference drawn by the plaintiffs against its validity from the simple fact of its not having been signed by Thomas Duncan. There is therefore nothing upon the face of the record which would go to destroy the validity of this bond." Duncan v. U. S., 7 Pet. 435. There is nothing to show that the delivery was made by the surety. If that had been the fact, the surety would have been bound even if there had been an express condition, and the obligee had had notice of it, for the reason that there can be no delivery in escrow to the obligee, as we have already

seen.

Suppose the signature of some one of the sureties is forged, is the surety who signs, assuming that the other signature is genuine, bound? There is conflict on this subject. Holding that the sure ty is not liable in such a case is Seeley v. People, 27 Ill. 173; 81 Am. Dec. 224; Chamberlain v. Brewer, 3 Bush, 561. But see Stone v. Millikin, 85 Ill. 218, holding practically the contrary. And in Hall v. Smith, 14 Bush, 604, the court said that if the signature of one surety bad been forged, the genuine signature of another surety is a guaranty to the obligee that the forged signature

is genuine. The obligee has a right to presume that the maker of the genuine signature would not sign the paper if the name of the other surety had been forged, and therefore the maker of the genuine signature is Lound notwithstanding the forgery of the signature of his co-surety. To same effect is Loew v. Stocker, 68 Penn. St. 226, where the name of the principal was signed without authority.

In Stern v. People, 102 Ill. 540, the principal obligor forged the name of a surety after the other sureties had signed. They were held bound for the reason that they had intrusted the instrument to the principal to procure additional names.

cally rest upon the principle that the name of the surety being signed, the bond on its face was complete, and there was therefore nothing to create suspicion in the mind of the obligee, that other signatures were to be obtained. Under similar circumstances the sureties were held exonerated in Biglow v. Comegys, 5 Ohio St. 256. In Howe v. Peabody, 2 Gray, 556, two sureties had signed, and the bond was then altered. Subsequently two other signatures were obtained. It was held that all the sureties were discharged, the two who signed last, being exonerated for the reason that they signed, assuming that the other two were bound.

Where the law requires two or more sureties, the obligee is bound to take notice of a condition that another surety is to sign, even though there is nothing on the face of the bond to apprise him of that fact. Cutler v. Roberts, 7 Neb. 4; S. C., 29 Am. Rep. 371, where the court say: "The law in such a case enters into and forms a part of the contract, and the surety may insist as a defense in an action on a bond signed by but one surety, that he is not liable thereon, the statute being notice to all parties concerned that two sureties were required, unless the surety waived the condition prescribed by statute." To same effect is Sharp v. U. S., 4 Watts, 21; S. C., 28 Am. Dec. 676. Probably the signing of a bond in such a case by one surety with knowledge, that there was to be no other surety, would constitute a sufficient waiver; although the language of the court in the Nebraska case would seem to indicate that this would not suffice.

"A waiver is defined to be an intentional relinquishment of a known right, and there must be both knowledge of the existence of the right, and an intention to relinquish it." According to this language the surety would not be bound unless he actually knew that the law required at least two sureties. Imputed knowledge of the law would not be sufficient. But what was said was obiter, for there was an express condition that another surety should be procured.

If the surety himself makes the delivery to the obligee and fails to make it conditional, he cannot insist upon the condition even though the bond contains in the body of it the name of another surety. State v. Barnes, 73 N. C. 138; S. C., 21 Am. Rep. 461. The decision in this case might have been founded upon the doctrine that there can be no conditional delivery by a party to the obligee; so that express notice of the condition and assent thereto by the obligee would not have altered the ruling of the court in this case. This was held in Ordinary of N. J. v. Thatcher, 12 Vroom, 403; S. C., 32 Am. Rep. 225, and other cases, as we have seen.

Is the surety bound if the obligation is not signed by the principal? The following cases hold that he is not. Hall v. Parker, 37 Mich. 590; S. C., 26 Am. Rep. 540; Russell v. Annable, 109 Mass. 72: S. C., 12 Am. Rep. 665; Bean v. Parker, 17 Mass. 591; Wood v. Washburn, 2 Pick. 24; Johnston v. Kimball Township, 39 Mich. 187; Ferry v. Burchard, 21 Conn. 602; Bunn v. Jetmore, 70 Mo. 228; City of Sacramento v. Dunlap, 14 Cal. 421.

struction of particular statutes, for it is manifest that it is not necessary to the validity of a bond that the principal should sign it, unless some statutory enactment requires it expressly or by necessary implication, or unless the sureties sign on that condition.

In Hall v. Parker, there was an express understanding that the principal should sign, and in Russell v. Annable, the court inferred the condition from the fact that the principal's name was written in the body of the bond when the surety signed. In Johnston v. Kimball Township, the condition was presumed by the court in part from the fact that the statute contemplated that the principal was to sign the bond. But the court laid down the broad rule that the burden is on the obligee to show that it was not the understanding that the principal should sign; or that that condition was waived before the bond was delivered. The language of the court deserves attention: "Cau statutes plainly contemplate that the treasurer shall himself be a party to his own official bond, and while we are not prepared to hold that bond knowingly and intentionally given without his concurrent liability will not bind the obligors, we are of opinion that where he purports to be obligor and does not sign the bond, there must be positive evidence that the sureties intended to be bound without requiring his signature before they can be held responsible. * * Where several names are written as co-obligors and one of them is called upon to sign it, he does so upon an implied understanding that he can in case of being held responsible, not only have his right of contribution, but a further right to have it capable of proof and enforcement according to the terms of the contract as is purports to be drawn up, and he has a right to insist that he will not be bound except upon his own terms, reasonable or unreasonable. It is for himself and not for others to determine those terms. And if it is claimed that he has waived them or become estopped from relying on them, the burden of proof ought not to be upon him to show that there has been no variance, but upon the plaintiff to show what is substantially a new contract. "Although we do not base our decision upon the ground that in this case there are substantial and legal reasons for requiring the treasurer to sign his own bond, yet such reasons are not without force."

*

But the case of Trustees, etc., v. Scheick, appears to hold exactly the reverse; but the court really decided the case upon the distinction between a promise on the part of the principal to sign the bond and an express condition to that effect. The principal's name appeared in the bond. He promised to sign it but did not. The sureties were held bound; but the court declared that if there had been an express condition that the bond should not be delivered the decision would have been different. The court say: "Upon an examination of the finding of the Circuit Court, it will be seen that the court found from the evidence that Reitz (the principal), promised the sureties that he would sign the bond before it was delivered. however does not constitute the execution of a bond upon condition that it should not be delivered unless executed

This

by the principal." *

*

"If the bond had been signed by the sureties upon condition that it should not be delivered to the trustees until executed by the treasurer, and if the trustees had received notice of such condition or notice of such facts pointing to such a condition, as might put a prudent person on inquiry before the bond was approved, then they would not be regarded as innocent holders of the instrument, and entitled to maintain an action upon it. But the sureties, as appears, did not sign the bond on such a condition, but executed the instrument, and relied merely upon the promise of the treasurer, that he would before delivery of the bond sign it. This was no more than a secret promise made by Reitz the treasurer, to those who signed as sureties which could not be binding upon the trustees." This case, after all, cannot be considered as opposed to the Michigan case, as there was no room left for presumption, the court having expressly made a finding which the Appellate Court, construed as negativing the fact of any condition. In support of the views of the court on this point, i. e., that there must be something more than an expectation or belief on the part of the surety, or a promise on the principal that the principal would sign, the case of Russell v. Freer, 56 N. Y. 67, may be referred to. It is on this proposition only that this decision can be sustained. The court it this case remarked, that the only inference for the facts found was that the sureties expected that before delivery the bond should be signed by others; and then declared that the bond was therefore binding upon those who signed it, and finally distinguished the case from People v. Bostwick, 32 N. Y. 445, on the sole ground that in People v. Bostwick, the sureties who signed directed the principal not to deliver it until another surety had signed it. Is this not the correct rule? Not a single case can be found where the court has held that a mere expectation is sufficient, unless we consider as holding such a doctrine, those cases in which the condition is implied from the fact, that a name is in the body of the bond, which is not signed at the end. In all the cases cited where the court has decided that the obligee was protected, or that he would have been protected, had he not known of the condition, there was an express condition that the bond should not be delivered unless others signed it. It has been held, where the bond contained the name of one who did not sign it, that the sureties were bound nevertheless, there being no condition attached to the delivery of the bond. City of Los Angeles v. Mellus, 59 Cal. 444; Cutter v. Whittemore, 10 Mass. 444. The California cases make a distinction between joint bonds and joint and several bonds. In the case of a joint bond the surety is not bound in that State, although there was no express condition to that effect, if the instrument is not signed by one whose name appears in the bond. Sacramento v. Dunlap, 14 Cal. 424. Otherwise where the bond is joint and several. City of Los Angeles v. Mellus, 59 Cal. 444; People v. Stacy (Cal.), 16 P. Rep. 196.

GRAND FORKS, DAKOTA.

GUY C. H. CORLISS.

USURY-defense OF, BY SECOND MORTGAGEE.

SUPREME COURT OF ILLINOIS, JAN. 19, 1888.

UNION NAT. BANK OF CHICAGO V. INTERNATIONAL BANK OF CHICAGO.

A second mortgagee, whose mortgage had not been foreclosed, and who has not been let into possession under his mortgage, cannot set up the defense of usury to a bill to foreclose a first mortgage.

Melville W. Fuller, Williams & Thompson, Herrick & Martin, W. T. Burgess and Walter C. Larned, for appellants.

Rosenthal & Pence and Smith & Pence, for appellees. SCHOFIELD, J. The question is presented upon this record whether a second mortgagee, whose mortgage has not been foreclosed, and who has not been let into possession under his mortgage, may interpose the defense of usury in the indebtedness secured by a first mortgage to a bill in chancery for the foreclosure of that mortgage. It has been several times said in opinions of this court that it may; but the question has never before been before us for adjudication, and the remarks in that respect were unnecessary to a decision of the questions under consideration, and are therefore not conclusive upon us now. In Valentine v. Fish, 45 Ill., at page 468, the late Mr. Justice Breese, in delivering the opinion of the court, said: "The doctrine is well established that the owner of land who has given a usurious mortgage upon it, may sell or mortgage the land to another, generally, and give to such purchaser or mortgagee, by express agreement, the same right to contest the validity of the first mortgage as he has himself. But he may affirm the validity of the usurious mortgage by selling only the equity of redemption in the mortgaged premises, or by selling or mortgaging the land, subject in express terms to the previous mortgage; in which case the purchaser or subsequent mortgagee will be entitled to the equity of redemption merely, and cannot question the validity of the prior mortgage." And for authority he referred to Shufelt v. Shufelt, 9 Paige, 137; Green v. Kemp, 13 Mass. 515; Spengler v. Snapp, 5 Leigh, 478; Ferris v. Crawford, 2 Denio, 595, and Henderson v. Bellew, 45 Ill. 322. But the bill in that case was by the mortgagors and the owner, by subsequent purchase and grant of the equity of redemption, to redeem. In Henderson v. Bellew, the bill was also by the owner, by subsequent purchase and grant, of the equity of redemption and to redeem. In that case the only ruling pertinent here is thus stated: "We hold the better rule to be that in a sale of land subject to a mortgage tainted with usury, if the purchaser is informed of the fact of usury by the vendor, and authorized by him to set it up as against the mortgage, the abatement to which the mortgage would be subject on account of usury thus constituting an element in the price of the land, the purchaser in such circumstances would be at liberty to raise the question." In Pike v. Crist, 62 II. 462, the owner, by purchase and grant, of the equity of redemption, sought to interpose usury as a defense to a bill to foreclose a mortgage, and it was held admissible because he accepted the title expressly subject to the prior mortgages, "except as to usurious interest in the same." In Maher v. Lanfrom, 86 Ill. 513, the purchaser and grantee of real estate incumbered by a prior mortgage was allowed to interpose the defense of usury to a bill to foreclose that mortgage, and in the opinion then filed the language we have quoted from the opinion in Valentine v. Fish, supra, is referred to in the argument, and assumed to be authoritative. There are also other cases, to which it is needless to make reference, in which there are rulings recognizing the right of the purchaser of the equity of redemption to set up the defense of usury to the foreclosure of a prior mortgage. But neither in the cases to which we have referred, nor in any others which we are able to call to mind, was it necessary to consider, nor was it in fact considered, whether a second and junior mortgagee occupies precisely the same position with reference to a prior and senior mortgage as that occupied by the subsequent purchaser and grantee, by an absolute deed of the title to the property or the equity of

redemption. It is therefore fairly to be assumed that the use of the word "remortgage," and other kindred expressions, in Valentine v. Fish, and their repetition in subsequent cases, were simply because of a too literal following of the language in some of the opinions in the cases cited and relied upon to support the decision then made, and not because it was found, after due consideration, indispensable to the argument that they should be used; and a slight investigation will demonstrate that it cannot follow, that because those words were accurate in the cases cited by Justice Breese, they must also be accurate under the materially different phraseology of our statute in relation to usury.

Under the statute controlling in those cases, it will be seen, by examination, that a mortgage securing a debt in which usurious interest was charged, was at the election of the mortgagor and his privies absolutely void. He and they were in such case authorized to treat the mortgage as a nullity, and wholly disregard it, and consequently might subsequently sell and convey or remortgage just as if it had never been executed. This is shown by the chancellor in his opinion in Shufelt v. Shufelt, 9 Paige, 145, where he says: "In the ordinary case of the giving of a usurious mortgage by the owner of the mortgaged premises, the statute having declared the usurious security void, the owner of the premises, of course, has the right to sell his property, or to mortgage the same, as though such void mortgage had never existed." Necessarily then in this view the second mortgage, at the election of the mortgagor, is to be treated as a first or original mortgage, and creating a privity of estate between the mortgagor and mortgagee. But this line of reasoning is not possible under our statute in relation to usury. It does not declare the mortgage securing indebtedness on which usurious interest is charged void; it merely declares the interest contracted to be received, void. Rev. Stat., 1874, chap. 74, § 6. The mortgage in such case therefore is valid, and must be enforced to secure the payment of the money actually loaned. The usury only affects the accounting. See Snyder v. Griswold, 37 Ill. 216. The second and junior mortgage conveys no interest vested by the first and prior mortgage; and so, even in cases of usury, under our statute, in the first and prior mortgage, the second and junior mortgage can only confer a lien upon the mortgagor's equity of redemption; that is, right to redeem from the prior mortgage if the mortgagor shall not pay the debt secured by the junior mortgage on or before maturity. See Dodds v. Snyder, 44 Ill. 53.

The right to set up usury as a defense is personal to the debtor. If any one is injured by the usury, it is he; and it is for him to say whether he has been injured or not. If he chooses to perform the contract, or to waive the defense of usury, no one else has a right to say that he shall not so do; it is for him to elect. Safford v. Vail, 22 Ill. 327; Maher v. Lanfrom, supra; Tyler Usury, chap. 21, and authorities cited. Those however who are in privity with the borrower, it is held, may also set up the defense. The term 'privity,'" says Greenleaf in his work on Evidence, vol. 1, § 189, denotes mutual or successive relation. ship to the same rights of property." There can be no ground for pretending that there is privity between the mortgagor of the usurious mortgage and the mortgagee of a subsequent and junior mortgage, other than by contract or in estate; and we think it quite clear that there is no privity in either of these respects. It is enough to say, on the question of privity by contract, that the junior mortgagee was neither directly nor indirectly a party to the usurious contract, and he derives and makes claim to no right through or resulting from it. With regard to the

question of privity in estate, it is to be observed that the equity of redemption of the mortgagor, under our statute, may be levied upon and sold by virtue of an execution, and the purchaser, obtaining a sheriff's deed, thereafter will take all the interest he had in the land. Walter v. Defenbaugh, 90 Ill. 241. And on the same principle, manifestly the mortgagor may at private sale sell the equity of redemption, and convey it by deed to the purchaser, and the purchaser will then be in privity of the estate with him in the mortgaged premises, that is, he will then occupy the same relation toward them that the mortgagor did; and necessarily thereafter the mortgagor will have no interest, in the absence of covenant or agreement affecting the question, in the usurious mortgage. Whether it shall be enforced or defeated will be to him alike immaterial.

But it would seem to be self-evident that the same right to elect to plead usury to a mortgage, or to waive the usury, and affirm the entire validity of the mortgage, cannot be in different and distinct parties in interest at the same time; for if this were not so, one party might elect to do one thing, and the other party might elect to do directly the opposite, and thus one election would nullify the other. The equity of redemption of the mortgagor is the right to redeem from the first and senior mortgage, either by paying the amount of the principal debt only, or by paying that amount and the amount of interest usuriously contracted to be paid, as he shall elect. The junior mortgage conveying a lien only on that right, does not cut it off, but leaves it still to be exercised by the mortgagor until he shall terminate it by grant or it shall be terminated by foreclosure. The junior mortgagee does not therefore occupy the same relation toward the property that the mortgagor did before he executed that mortgage; and since the mortgagor has not parted with his right of election to plead or to waive the defense of usury, it is impossible that the junior mortgagee can have acquired it.

We have expressly held that the mere fact that a creditor has a lien on land by virtue of a mortgage gives him no right to set up usury as against the claim of a co-creditor secured by the same mortgage. Adams v. Robertson, 37 Ill. 45. And this would seem to necessarily follow from the legal proposition that no one can demand the execution of a particular mortgage because alone of his being a creditor. Whether a debtor shall execute any or what mortgages to secure his creditors depends upon his sense of justice to his creditors; and although the creditor may decline to accept a given mortgage, if he shall elect to accept it, he must, in the absence of fraud, accept it as it is written. The effect of allowing usury in Adams v. Robertson, would have been to have increased the amount that might be resorted to in satisfaction of the one debt by decreasing the amount of the other debt secured by the mortgage. And this is precisely the effect of a junior mortgagee pleading usury to a prior mortgage. The principle is the same, though the result would, in the amount of benefit to the pleader, be slightly different. It is not perceived that the circumstance that the party in Adams v. Robertson voluntarily took his mortgage is one to vary the principle from that applicable where usury in the prior mortgage is pleaded by the second and junior mortgagee. The junior mortgagee takes his mortgage quite as voluntarily as does the co-mortgagee. No principle of estoppel was applied in that case, and none is now believed to have been applicable. The decision rests alone on the ground that a creditor secured by a mortgage lien, as such only, has no right to diminish the amount of another mortgage lien by the defense of usury, for the enlargement of his own lien; and this was ruled in Darst v. Bates, 95 Ill. 493.