[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 133
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 134 [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 136 The defendants, by their exception to the conclusion of law, raised the question whether that conclusion was supported by the facts found. If the demand secured by the bond and mortgage was the debt of Mrs. Richardson, as principal debtor, the conclusion was clearly right; but if it was the debt of Mr. Richardson, and his wife, in fact and to the knowledge of Mrs. Callahan, merely became surety for him, the codicil acted upon the debt and by canceling it released both. As the action is in equity, which "regards not the form but the substance and intent of the transaction," the court, led by parol evidence, may look beneath the surface and learn all the facts. (Neimcewicz v. Gahn, 3 Paige, 614; 11 Wend. 312; Hubbard v. Gurney, 64 N.Y. 457.) Such *Page 137 evidence does not affect the terms of the contract, which still binds both parties in the same manner and to the same extent, but it may "prove a collateral fact and rebut a presumption."
When the facts show that two debtors, as between themselves, are principal and surety and this is known to the creditor, he is bound to respect the relation, even if by the terms of the security held by him, the real surety occupies the position of principal. (Grow v. Garlock, 97 N.Y. 81.)
When Mr. Richardson borrowed Mrs. Callahan's stock he impliedly promised to return it to her upon demand, or to pay her its value. He thus became indebted to her, for in a general sense a debt includes not merely money due by contract, but whatever one is bound to render to another, whether money, goods or services. He did not return the stock and more than two years after he had pledged it to secure a loan to himself, she lent him the money to redeem it by paying his debt to the bank. He used the money for that purpose and procured the release of her collateral, yet his debt to her was not extinguished but continued in another form. Solely in consideration of this debt she accepted the bond of Mrs. Richardson, secured by a mortgage on her property. Mrs. Richardson owed her nothing, but Mr. Richardson owed her $6,000, the outcome of a transaction which had its origin more than two years before. His debt to Mrs. Callahan, as she knew, was not paid, but was converted from an obligation to return borrowed stock into one to pay borrowed money. There was no new consideration but it was the same debt all the time. Mrs. Callahan evidently regarded it as a debt in 1895, when she changed her will to provide for it, for the codicil could apply to nothing else. She knew all the facts and was aware that Mrs. Richardson owed her nothing, while Mr. Richardson owed her the debt incurred when he borrowed the stock and which finally culminated in the money lent to redeem it.
As we read the findings, at the moment the bond and mortgage were given, Mr. Richardson owed Mrs. Callahan a precedent debt, which was the sole consideration for the new *Page 138 security. He had the stock at first and then the money and it was for him to repay it, but his wife became responsible for the debt and mortgaged her property to secure it. By operation of law, therefore, and regardless of the form of the transaction, she became surety for him, as the principal debtor. (Bank of Albion v. Burns, 46 N.Y. 170; Erie County Savings Bank v. Roop,80 N.Y. 591; 1 Brandt on Surety-ship [2d ed.], § 35.)
The question remains whether this transaction canceled or extinguished the debt of Mr. Richardson. As there was no agreement that the bond and mortgage should be accepted as payment, the effect thereof upon the debt depends upon presumption. The rule governing the subject is well settled. Where a creditor accepts the obligation of a third party for a debt contracted contemporaneously, the presumption is that it was taken in payment, and the burden of proving the contrary rests upon him who asserts it. Where, however, the obligation is received for a precedent debt, the presumption is that it was not taken in payment and the burden of proof is shifted accordingly. (Noel v. Murray, 13 N.Y. 167, 171; Gibson v. Tobey,46 N.Y. 637, 640; Hall v. Stevens, 116 N.Y. 201, 206; Whitbeck v. Van Ness, 11 Johns. 409.)
As the bond and mortgage were received for a precedent debt, the burden of showing that it was taken in payment rested upon the plaintiff who furnished no evidence upon the subject, and hence, the presumption that it was not taken in payment must prevail. Therefore, upon the facts as they now appear, the old debt of Mr. Richardson was still in existence when Mrs. Callahan died, and this indebtedness of the husband, as principal, being canceled by the provisions of the codicil, his wife, as surety, was released also. According to those facts, the bond and mortgage ceased to be operative upon the probate of the will and codicil, except so far as it might become necessary to enforce them in order to meet any deficiency of assets for the payment of debts, etc.
We think that the conclusion of the learned trial justice is *Page 139 not supported by the facts found by him, and that those facts required the conclusion that the complaint should be dismissed. As further investigation, however, may, by the introduction of new evidence, result in changing the facts, we do not dismiss the complaint, but reverse the judgment and order a new trial, with costs to abide the event.
PARKER, Ch. J., BARTLETT, HAIGHT, MARTIN, CULLEN and WERNER, JJ., concur.
Judgment reversed, etc.