Williams v. Washington, 16 N.C. 137, 1 Dev. Eq. 137 (1828)

June 1828 · Supreme Court of North Carolina

16 N.C. 137, 1 Dev. Eq. 137

Isaac Williams, adm'r of John Williams, v. John Washington, David Thompson & others,

From Johnston.

Vhcro there oro two creditors, one of whom can obtain satisfaction only from the visible properly of the debtor, and the other can •julijcci not only that, but a special fund created for his indemnity ; although a Court of ihjitify will compel the latter to resort to the special fund, or will subrogate the first to his right to that fund, yet the ¿iísfc creditor must demand this, before the latter lias received sjí.hího/aou from the visible properly. If he waits, he has no ecubv against a third creditor who obtains an assignment of the special fund.

In Mrpúíy, a surely, in respect -of his liability, is regarded as a creditor, and has a right to all the privileges of one.

The bill alleged, that the Plaintiffs intestate, John Eleváis, Robert £L JIdrne & May Eelme, entered into co-partnership in the year 1816. That upon the death of Blerair,. and iho Plaintiff's intestate, the copartnership was dissolved, and a bill was filed in the Court of Equity for the County of Johnston, for a settlement of the partnership accounts. That the Master reported in that suit, i\i X ihe copartnership was indebted to Jt. H. llelme to the amount of S6473, 76 cents; and that it was also is;debts: J to Use State Sank of Nortli-Carolina to the amount of $10139, 25 cents, and to the Bank of New-hern in the sum of §9000. That both of the debts due the Banks were, at the time of making the decree m cause, in judgments, and that executions thereon were then levied upon the separate property of the Plaintiff’s intestate, and of Robert H. Helme — as the business of the copartnership had resulted in a heavy loss, and Stevens and Ray Ilelme were unable to bear any part of that loss.

It was theli charged, that in the progress of the above spit, the Plaintiff distrusting the solvency ofP. II. Ilelme, an agreement had been made between them,whereby it was settled that the latter should take an assignment of certain debts due the copartnership, in satisfaction of the above sum of $6473, 76, due him, and among others, of a debt due the copartnership by Stevens, one of the partners, amounting to §1800. That the amount of the property so assigned, and certain property of the partnership, should be sequestered, and the amount of the debts when collected, and the proceeds of the property when sold, should be paid into tiie oflicc of the Master, (í and by him immediately paid to the satisfaction of said executions, as so much advanced and paid by the said Robert II. Helme,” and that this agreement was incorporated into an interlocutory order made in the cause.

The bill then alleged, that the Plaintiff’s intestate was bound as surety for R. II. Ilelme to the State Bank, in an individual debt, for the sum of §5819, upon which there was also a judgment at the time of making the above-recited agreement, and execution thereon was then levied upon the real and personal property of R. II. Ilelme.

The bill then charged, that the two Banks had refused to receive satisfaction of the above-mentioned debt, due them by the copartnership, from the fund thus created,hut had elected to enforce satisfaction out of the separate and pri vate property of R. 11. Ilelme, and out of the assets in the Plaintiff ’s hands ,• and that the amount thereof had been discharged by an execution sale of the assets in the hands of the Plaintiff, and of the visible property of 11. II. IMme, in the proportions for which they were respectively liable, viz: one lialf by each. But that in consequence of the satisfaction of IIII. llelme’s portion of the copartnership debts, from his visible property, and from the fact, that the executions thereon liad a priority over that upon the individual debt of 11. II. IMme for §5819, above-mentioned, the Plaintiff had been forced to pay, as surety for the last mentioned debt, the sum of $4877, and he insisted, that had the Banks elected to receive satisfaction for the debts due by the partnership, pro tanto, from the fund created by the agreement, and the decree above set forth, that the visible property of 22. H. llelme, aided by the fund thus created, would have been amply sufficient to indemnify the Plaintiff against loss, by reason of the above stated suretyship of his intestate.

The Plaintiff insisted, that he had a right to the use of the fund created by his agreement with 11. II. IMme, to indemnify him against the loss he had sustained as surety, and charged that llelme, instead of assigning it to him, had assigned it to the Defendants, to secure a debt which he owed them ; and that the Defendants had full notice of the equity which the Plaintiff had to the property thus assigned them.

Tiie prayer of the bill was, that the Defendants might be decreed to be trustees of the property assigned them, for the Plaintiff, and directed to account with him, for the sum which they had received under their assignment.

The State Bank, and It. II. IMme, were also made Defendants; but no decree was prayed against them, the Plaintiff only praying permission to use the name of the President and Directors of the Slate Bank, in collecting the fund created by the decree.

A demurrer for want of equity, was filed by Washington & Thompson.

The cause was argued at June term, 1827, and retained under advisement until the present term.

Seawell & Gaston, for the Defendants:

The surety in this case cannot assert a right to the fund assigned to the Defendants, on the principles of substitution, because the creditor never had a right to that fund.

It is admitted that the surety, on paying the debt, has a right to be subrogated to his creditor, to use tiie means, to have the assurances, and to avail himself of the remedies which the creditor possessed, to enforce payment from the principal debtor. But the creditors of the Plaintiff iiad no fund, no special assurance, no peculiar remedy, to which the Plaintiff can be .substituted. The creditor had a judgment against Helms, which entitled him to receive satisfaction out of Helms's property, and so far as that property extended, not being embarrassed by older executions, the surety has a right to claim that it he used for his indemnity. Certain debts due from the partnership tnllelme individually, and also certain debts due to John Williams & Company, of which firm IZelme was a large creditor, which had been assigned to Ilelme, to pay his debt, were set apart as a fund in aid of the property of Helme and the Plaintiff, to meet demands which the Banks had against the partnership. The sequestration of this property was a guarantee for the benefit of the Plaintiff, to secure him from paying more than his share of the copartnership debts. Had the Plaintiff paid more than his share of those debts, he might have been admitted, provided his admission did not interioro, with the rights of third persons, to claim indemnity from that fund.- (Mdrich v. Cooper, 8 Ves. 391.) The Plaintiff has paid of the copartnership debts only his proportion, and has no cau.se of complaint on that score. He asks however, to go a step further, beyond any that has hitherto been allowed, and demands not to have the benefit of a fund bound to pay the debt of his principal, to which his creditor had a right to resort in the first instance, hut, to be subrogated to Ihe rights of another ere-ditor, ansi lane recourse í;> a fund ogL of winch this last creditor hat) a right to receive satisfaction, because his, the Plaintiff creditor, might ¿save obtained, ou a proper {¡¡ICS, KUC-h a Hubsttiulicui. ’

The principle »;s v.lneti sureties arc subrogated is, that the fund sought baa been actually pledged for iho pays::ent of the identical debt which the cnvty has paid, and that it ir. ma'cvolent in the creditor to throw aw ay that fund to his injury, if lids principle of substitution is extended furJLor than if has heretofore bren carried, the Chmit will bo involved in complicated and perplexed en-quiries, to whirls judicial tribunals aro utterly incompetent. The surety asks to be substituted in the place of a creditor against 0:1c rot his principal, because hiss creditor Eiaight have claimed to be ■ so substituted. It will be tut another .step, to be substituted to the rights which his creditor’s creditor might have claimed.

All cases of «abr-íiiuíif'5i g*> upon the ground that the debt paid Lad bol!» a legal and equitable claim upon the fund out of which satisfaction is sought — thus where legatees or simple contract créditos1?, come against the heir, where Use personal estafe has been exhausted in payment of deli Is which bound him — the Court gives the benefit of the fund to those who have paid the charge, which the lw peculiarly laid upon that fund, and the decree carries into effect what was iho result of the law, upon the iransaeticu bet,ween '¿he creditor and original debtor.

This fund novo;* was liable to pay the debt which the surety hr.spuiJ. The ComplainiustT creditor never had any iieanud or recourse against h1, cither in law or equity, as it consists of debts which were chases in ¡Íc-tica, and not íisJ.T t- owciToís. f t coni;! not be readied oven by a bilí in equity, as e. creditor, excepting in a case of csüusiwi, cc.ueol ST t: hill against bis debtor, stud his debtor’s dtódsr. The probable reason being the diídcTíy of exawiaurí fret the densend of Use I’íaintiíT, and üícíí iho uccoiroi:: ’.¡Tvere; the /iefondents. (Ehislie v. TiTstry, 3 Bra, Cíi. tí:í’;v!

II. The Plaintiff claims, because he alleges that his creditor had a right to be subrogated to the claim,which the copartnership creditors had against this fund. But the principle of substitution is that, where there are two creditors of the same debtor, the one having a demand against one estate only of the debtor, and the other against two estates of the debtor, the former has a right to confine the latter, to make good his claim against that estate which is not liable to the former, or if disappointed, may ask to succeed to the claim of the second creditor against the estate subject to him only. (Lanoy v. Butch-ess of Athol, 2 Atk. 444 — Attorney-General v. Tyndall, Ambler 614 — Ex parte Kendall, 17 Ves. 520.) But in this case the creditors are the same, and the debtors are not the same persons, but different. The equity of substitution lies between other creditors of the copartnership, and the judgment creditors for whom this fund was provided. There is no instance, no decision, and even no dictum to support this claim, when the debtors are different. (Dorr v. Shaw, 4 Johns. Ch. Bep. 17.) To ascertain this equity, enquiries of various kinds are to be resorted to, many equities investigated, which the form of the present bill will not admit of.

III. It appears upon the bill that the payment made by the Plaintiff, was after the assignment to the Defendants. The equity of the Plaintiff is neither prior, nor better than that of the Defendants. It is the payment to the creditor, that constitutes the surety the equitable as-signee of the creditor, and therefore subrogates him to the rights of the latter. It is not the engagement which gives him the right, but the fact that he has become a creditor, by actual payments. (Per Kent Chancellor in Campbell v. Macomb, 4 John. Ch. Bep. 538.)

If the sequestered debts be a fund which this Court can make liable, the Plaintiff is not entitled to relief against those who are purchasers before his equiiy accrued.— The maxim qui prior est tempore, potior est jure, being the rule.

The payment by a surely makes him only quasi as-signee of the fund, but before his payment, it was assigned to the Defendants ; Ilelme was its owner, and bad every dominion over it,except where the decree restricted him, and it restricted him only as to the partnership creditors. Ilis assignment is, of course, good against all who then had no lien upon it.

IV. The Plaintiff ought first to have established his claim against Ilelme at law, by a judgment. The demurrer admits, that the Plaintiff has paid part of the debt as surety; hut this alone, does not make him a creditor. It may be that Ilelme has larger claims against him — for this reason, Equity only lends its aid to judgment creditors, otherwise the examination of legal claims is drawn from their proper forum. (Eambaut v. May-Jield, 1 Hawks 85. Hendricks v. liobinson, % John. Ch. Hep. 283. Brinkerhoff v. Brown, 4 do. 671.)

Devereux, for the Plaintiff.

— It being admitted, on the other side, that the surety has a right to be subro-gated to all the rights of his principal creditor, it only remains to ascertain w hat rights existed in the State Bank, as to the debt for which the Plaintiff was surety. From the facts of the case, it seems, that before the decree of sequestration was entered, the principal creditor had two judgments against Ilelme; one in which the Plaintiff's intestate was a co-obligor, and one in which he was a mere surety. For satisfaction of these two debts, the creditor could, as to Ilelme, and for the purposes of this discussion, look only to the visible property of Ilelme, which was then under execution. By the order of sequestration, an additional security was created as to the first mentioned debt, and which, in the language of the Counsel on the other side, guarantied the Plaintiff. from the payment of more than his proportion of that debt. It is obvious, notwithstanding the ingenuity with which the facts are stated, from the very statement of the case, that there were two funds’, and two debts, both of which funds could be subjected io the satisfaction of one debt, and only one to that of the other. The question then arises, what equity erdsted as to the second debt— for it is admitted we have a right to all that equity.

It is conceded by the argument on the other side, that as a general rule, in the case stated, the creditor who lms recourse only to one fund, may either compel him having two, to resort to that which is not subjected to the debt of the former, or that he may be substituted in the place of the latter, as to that fund to which he 1ms no recourse. This being the clear raid conceded law of this Court, it is difficult to conceive what reason can be, assigned, why the Plaintiff has no equity of this kind. The fact, that both debts are primarily due to the same person, can make no difference; for in this Court, the surety is the person owing the second. Neither can the fact, that the surety in the second deist, is a co-obligor in the first, affect his rights as surety ; for as to <lie two debts, bis situation, and of course his right, is essentially different. As to his proportion of the first, he is hound by all events ¿ but as to the lust, he is, saving his liability for it, which cannot affect him as to his present claim, entirely a disinterested person.

But it is said, that the principle on which the surety is substituted, is, that the fund sought, has been actually pledged for the payment of the identical debt which the surety has paid, and that it is malevolent in the creditor to throw away that fund. Now, ¡¡remising that a surety has no greater privileges than a creditor — that is, that his liability gives him no greater privileges than actual payment gives another — we contend that this is not the case — that no lieu, legal or cquitabie, is necessary to entitle any creditor to this right. T/imess the case of a freehold and copyhold estate morlgsged to A, and the freehold only to A. Copyholds aro not subject to the payment of debts, yet it In the. clear law of this Court, to marshal the estates, so as to give B. the freehold unincumbered. Suppose still further, that the freehold estate is sufficient to satisfy both the mortgages, and that the personal property lias been exhausted in the pay-meat of specialty debts. The Court will give to the sim-pie contract creditors, the right the specialty creditors had, of marshalling tiie debts upon the copyhold, alt ho’ it is clear, that the specialty creditors had no lien, legal or equitable, on the copyhold. Witness also the case of the legacy not charged upon land, hut the assets being exhausted in payment of bond debts, is let in pro tanto, upon the land. (Aldrich v. Cooper, 8 Ves. 382.) The principle upon which the Court acts, is entirely free from any idea of a lien, but results solely from principles of natural equity, which forbid that the rights of one creditor should be sacrificed to the whim or caprice oí another. What, but whim or caprice, or a sense of their own convenience, could induce the Banks, in this case, to follow the visible property of Helme? That they liad a right to an election, is conceded, but we claim the benefit of that election. Wo claim what they refuse. But independent of these reasons, which are not waived — by the terras of the order of sequestration, the fund now sought to be subjected, was pledged to the satisfaction of the copartnership debts. The money arising from it, is directed to be paid to the Clerk, and that “it shall by him, be immediately paid to the satisfaction of the said executions.” An express assignment of them, as collateral security', could not make the fund more applicable to the debí — could not give the creditor abetter right to say, “we will take the fund pro tanto, in satisfaction of our execution.” To prove this, let us suppose that the Banks held a third debt against Helme, with the security for which they were dissatisfied — that they took the fund, and attempted to apply it to the payment of the third debí. Can it be contended that they could do so? Yet who could restrain them? Helme could not; for ho cannot complain that his own property goes to pay his own debts. The Plaintiff’s intestate could not, in regard to * * the first debt, for which he was a co-obligor, for he pays n°th>ngbut his due proportion of it. Nobody is left then to complain of this wrong, except the Plaintiff, or some creditor situated precisely as he is. (Ex parte, Rush-forth, 10 Ves. 412. Faley v. Feild, 12 do. 4S5.)

I repeat, that it is difficult to show any reason, why thé decree of sequestration created no equity as to the second debt. If if had been used in payment of the first debt, it would have left the property liable to execution, free to the second debt. The Banks had a right so to use it, and we only seek to be put in the situation, in which we should have stood, if it bad been so used.— But it is said, that the fund now sought to be subjected, never was liable to pay the debt which the surety has paid — that the Plaintiffs’ creditors, viz. the Banks, never had any recourse against it, as it consisted of debts, which are not the subject of an execution, and that it cannot be reached, even by a bill in Equity, as a bill cannot be filed against a debtor’s debtor; for which is cited Emslie v. McJlulay (3 Bro. Ch. 624.) To the first, we reply, that the very terms of the. order of sequestration, give our creditor the right to the fund, and that we have a right to be substituted to him. It is, being the property of Helme, liable to pay all his debts, mid it has been shown, that no specific lien is necessary to enable us to resort to- it. It is true, that it is not such property as is liable to an execution ; but it never was before contended, that this characteristic was necessary to enable a Court to marshal — on the contrary, if it was so liable, there would be a complete remedy at law. As todhe proposition, that a bill cannot be filed against a debtor’s debtor, it is denied — and the case cited will be found not to support it.

Again, it is said, that in all cases of substitution, there must be different creditors of the same debtor but that this case is that of the same creditor of two debtors.— This objection has its origin in an incorrect view of the subject. By the established rules of the Court, the Plaintiff was a creditor in respect of his liability, so there are two creditors — in Equity, and looking at the substance of the transaction, Helme was the real debtor, quoad his half of the debt due the Banks, and not the co-partnership. The cases ex parte Kendall, and Dorr v. Shaw, fully prove, what is conceded — that if there is no equity to affect the fund sought to be subjected, it shall not be so subjected.

Again, it is said, that if applications of this kind are allowed, the accounts will be so complex, as to render it a matter of policy to decline sustaining such bills.— I submit, that it is one of the peculiar features of a Court of Equity to give relief, when at law, the complexity of accounts renders relief impossible; and I think, that I am supported by the following cases, most of them connected with the subject now under consideration, and which proves that no accounts, which can be solved by human calculations, are considered as too difficult for the Master to act on. {Ex parte Marshall, 1 Mk. 129 — Ex parte fVildman, Do. 109 — Ex parte Turner, 3 Ves.jun. 243.)

But it is argued, that if the Plaintiff ever had any equity, it has been defeated by the assignment to the Defendants — that the Plaintiff had no equity until the money was paid, and that, not being paid until after the assignment to the Defendants, the equity of the latter is better. As to the first, it is submitted that if any equity ever existed in the Plaintiff, it cannot be defeated by matter ex post facto between Helme and the Defendants,, especially as the bill charges and the demurrer admits the Defendants had notice, the maxim being quiprior est tem-pore, potior est jure.

But wo contend that the equity of a surety arises from his liability , that in respect to this he is cons¡(]ere(] as a creditor — all Jhe cases go upon this principle — for this reason he can compel the principal creditor to prove, under a commission of bankruptcy, and hold the dividends for his benefit before be has paid any tiling — for this reason, after a default by the principal debtor, he can, upon indemnifying the creditor, urge him to diligence in getting security, and many other cases might be cited which go upon this principle. The dictum cited as.from Chancellor Kent, in Campbell v. McComb, docs not support the position, and if it did, is entirely opposed to his express decisions in Hays v. Ward, (4 John. Ch. Rep. \%$) — Kmg v. Baldwin, (2 Ditto 554) — Cheesebo-rough v. Millard, (1 Do. 409) — Stevens v. Cooper, (L Do. 425.)

But it is said again, that we have no right to come into equity, until, we have established our claim at law.— This is unquestionably true as to mere legal demands ; but the rule is different when the demand sought to be recovered is one which a Court of Equity is in the habit of ascertaining, and which may as well be done here as at law. (Lawson v. White, 1 Cox 276 — Bering v. Earl of Winchelsea, Ditto 818.)

Henderson, Judge

— This certainly was once a case proper for a subrogation ; two creditors — two funds— both funds accessible to the preferable creditor, and one only accessible to the of her. And liad an application been made at any time during this state of things, I think that there cannot be a doubt, but that the creditor disappointed of his only fund, by the creditor who had the choice of two, might take the rejected fundas his means of satisfaction, in lieu of the one thus taken from him; upon a principle of natural equity, that ho who in the exercise of his own just rights, injures another,is hound to make satisfaction, if he can do it without loss to himself. But the application should have been made during tbe time that the power of the Bank over the fund created by the decree, existed, as all that the Plaintiff can ask for is, to be subrogated to rights which they had when the bill was tiled. No principle of equity recognized in this Court was violated by the Bank, in resorting to the fund most convenient in their estimation, for the satisfaction of their debt, and on this point, they were the sole judges. It is sufficient if the object was to secure themselves, and not to injure another. This case is also somewhat weakende from the circumstance that the property was not withdrawn from the operation of the Plaintiff’s execution by means of the sequestration ; but was, from its nature, never subject to it, being debts and dioses in action. There was nothing therefore personal in the equity which the Plaintiff had ; it consisted simply in this, to have from the Bank an assignment of this sequestered fund, upon its being ascertained that the Bank did not want it. But fhe Bank lost all its power over the fund when their debt was satisfied, and Helme was then remitted to his original rights, and most certainly,I think, had full power to transfer it t,o any one, bona jide. This it seems he has done to the Defendants Washington and Thompson. - If it is argued that the Bank could not know whether they would want the fund, until it was ascertained whether the, other property of Helme would pay their debt, and therefore such application to them would he premature, it is answered that they might be required to make a provisional assignment. As to the equity against the Defendants Washington & Thompson, the Plaintiff has nono; they are purchasers or incum-brances for value, and in that respect equal at least in equity to a creditor, and have by the transfer acquired a specific equity to hold the proper:}'. As to the ground of subrogation an the score of the Plaintiff’s having paid the debt to the. Bank as the surety of Helme, he can, on that ground, only obtain the securities and facilities which the Bank had, in securing and collecting the debt thus paid by the surdv, and not those which the Rank jia(] against the debtor or any other person, or fund for securing and paying another debt.

Hall, Judge.

— I am at a loss to perceive the equity that entitles the PiaintifF to a priority in interest, over Washington and Thompson. His intestate was surety for Robert H. Helme, for a debt upon which there was a judgment and execution against him, but there was no lien created thereby on the fund in question, neither had the creditor a lien on that fund. If they had, and could thereby have had their debts discharged, but had elected to proceed against Hetme’s property, which only was liable for the Plaintiff’s debt, and which would have been applied to the Plaintiff’s debt, had not the execution of the Bank been the oldest,'! think in that case the Plaintiff might claim to stand in the place of the Bank, as to that fund. But it does not appear that the Bank creditors had any option. Neither they, nor the Plaintiff’s intestate had any lien upon it. And if Washingon and Thompson are bona fide creditors of Helme, and have got a conveyance of it in discharge of their debt, I see no reason why it should be wrested from them. For aught that appears, their claim is as well founded as that of the Plaintiff.

Per Curiam.

— Let the demurrer be sustained and the bill dismissed.