Williams v. Helme, 16 N.C. 151, 1 Dev. Eq. 151 (1828)

June 1828 · Supreme Court of North Carolina

16 N.C. 151, 1 Dev. Eq. 151

Isaac Williams, adm'r of John Williams, v. Robert H. Helme John Washington and David Thompson.

From Johnston.

A surety has in respect of his liability, the rights of a creditor, and upon the insolvency of the principal debtor may retain any funds belonging to him in his hands.

Therefore where the surety owed the principal debtor, who became insolvent, and assigned for value the debt due by the surety, it was held that the latter might retain the amount of his subsequent payment against the assignee.

The Plaintiff in his bill alleged, that before the 27th of May, 1826. his intestate was bound as surety for the Defendant Helme, to a largo amount, and was also indebted to him on that day, in the sum of $1491,83, for which suit had been brought by Helme, returnable to the County Court, which sat on the said 27tli of May, 1826. That Helme was very anxious to roPcH: the amount due on the debt of $1491,33, and the Plaintiff to prevent him, as he wished to retain that sum, as an indemnity against the.suretyshipof his intestate for Helme - that it was agreed between them that the Plaintiff .should confess a judgment for the debt, with a stay of execution for three months, which was accordingly done — - that on the 27th of May above mentioned, after the confession of the judgment by the Plaintiff, Helme, whose circumstances had been doubtful, failed, and proclaimed his insolvency — that between that time and the ensuing August Term of the County Court, executions issued against him, and the Plaintiff on a judgment which had before that time been entered up against them, whereon the Plaintiff had paid the sum of $4877,87, for which his intestate was bound, as surety for Helme.

Tile bill then charged that Helme, instead of satisfying the judgment for $1491,33 w hich the Plaintiff had confessed; by applying the amount of it, to the sum thus paid as bis surety, bad assigned the judgment totbe Defend-an*s Washington & Thompson, who were copartners, in payment of a debt due them, and that they, in the name 0f Helme, had issued an execution thereon, and were about to raise its amount, from the assets in the hands of the PiaintifF.

The prayer of the'bill was for an injunction and a discovery.

All the Defendants answered, and proofs were taken, hut the case made by the bill, was not materially varied. It appeared from the answer of the Defendants Washington & Thompson, that the assignment was made by Helme to them, on the 2d of June, 1826, which was before the payment of the $4877,87 by the Plaintiff.

Dodger & Devereux were to have argued for the Plaintiff,

but the Court called on the Counsel on the other side.

Seawell & Gaston, for the Defendants, Washington & Thomson, argued strenuously,

that it was a mistake, to believe that sureties are entitled to any peculiar favor in a Court of Equity. They, having received no equivalent for their undertaking, are bound, or not, by the rules of law, and cannot be made liable to any greater extent, or in any other respect, than was contemplated by them when they entered into their engagements ; but to the extent they did intend, Equity, in case of a mistake or accident, will afford the same assistance against them, that it would against him who hai received a valuable consideration. A lost bond, for instance, will be set up against the surety j and. in short, he will be compelled to do every thing he undertook to do. The surety then, can, by no possibility, be said to have a higher equity than a creditor. Suppose, in this case, the intestate, Williams, had been a creditor of Helms, but that the debt was payable at a date subsequent to the assignment to Washington & Thomson, and that, instead of a judgment the assignment had been of a note, with notice to the assignees of the insolvency of Ilelme, and that lie was in fact debtor to the intestate. Could equity interfere in such a case ? If it be answered, that, in the case stated, the legal title passed to the assignee, which did not by the assignment of the judgment, it can be replied, that if the assignee of (he legal title had notice of the prior equity, he is regarded as precisely in the situation of the assignor. That the matter of equity charged in this bill, would furnish no defence at law, in the case stated, I think, cannot be controverted; and if not, I ask why? The action at law is assumpsit, where every equitable de-fence is let in — the action is but a substitute for abill in Equity, in which the Plaintiff can never recover against conscience; and if it be admitted, that the grounds of this bill would form no defence at law, the consequence must be, its dismissal. In reference to the case supposed, how does this case stand ? Ilelme is indebted, and the intestate is bis surety. There is a judgment obtained against both. The intestate is indebted to Helme, by judgment against his administrator. Helme, the principal, is indebted to the Defendants, and assigns to them this judgment, in satisfaction of the debt — it is charged in the bill, that at this time his insolvency was not only known to himself, but was a fact of general notoriety. If, instead of taking the judgment, and assigning that, the assignment had been of the note, the Defendant M ould have been protected by law and equity both. Not that he has a better conscience, or is fenced with a stronger wall — for his action at law is subject to precisely the same defence, hut it is simply because the administrator could offer no objection to his action, but a possibility of bis intestate’s suffering, in virtue of his suretyship. Now it is important, not to confound the relief which a Court of Equity furnishes, as growing out of the justice and equity of the, actual state of the case, and that interference which it extends to prevent an injury that may possibly happen. The first is founded upon the justice which then exists ; the latter arises entirely from the fears of what may happen. When the assignment was made, the surety had paid nothing, and tlio’ jgfejme was, in fact, insolvent, it was equally known to the Plaintiff, and he ought, instead of confessing judgment, to have insisted upon retaining the debt, as an indemnity, and in case of refusal, enjoined its collection. Yet he voluntarily confesses judgment, and is satisfied with a stay of execution. The Defendants, at this time, are actual creditors, not depending upon any contingency; they have already advanced their money, and receive in payment this judgment. Why should not their debt stand upon as high ground, as the responsibility of a surety, who might, or might not, be compelled to make advances? If the transfer, or collection of this judgment, bad been enjoined, it is admitted, that the Defendants would not be permitted to derive any benefit by a conveyance subsequent to such injunction — not upon the ground of superior equity, but because it would have been in contempt of the order of the Court. By the assignment, they acquire a title in Equity to the money, which is older than that which the Plaintiff has; for his title to the money never existed, till the payment as surety.

Again, a debt is regarded as property, as much as any chattel: it is capable of being transferred, and can pass from hand to hand. If it is evidenced by negotiable paper, the legal title will pass to the assignee, who may sue in his own name; but in Equity, every debt will pass, upon satisfactory evidence of a disposition, whether it be negotiable at law or not, and whether u'ith or without consideration’; and for the very same reason that a chattel in possession would have passed. The judgment then, was to be regarded as so much property belonging to Jlelme, and to place it on the strongest grounds for the Plaintiff, in the possession of the latter, and which could be disposed of by Helme, precisely as any otlio-chattel. Suppose, instead of this debt, it had been a bor.se, is there any tiling which could have hindered Helme from transferring it, in satisfaction of Washington & Thompson’s debt? Could Williams, the administrator, in Equity have resisted the delivery upon the ground of his liability as a surety, and the insolvency of Helme? It is true, that the result shows, that Helme’s estate when afterwards sold by the Sheriff, did not raise money enough to pay all his debts, and that, by this consequence, Williams was obliged to pay the amount of his suretyship; but it cannot, be said, that at that time, Helme owed Williams any thing. If he did not, Helme had nothing in his possession belonging to Williams, which I consider as essential, to entitle Williams to retain what he had belonging to Helme. For the ground upon which Williams must resist payment to Washington & Thompson, is, that he has a right to retain it, in the nature of a set-off; for unless he can do this, he has no title at all. To examine a little further what has been already stated. It must be confessed, that there is no peculiar right which the Plaintiff had to retain this debt, that w’ould not have applied with the same force to any other estate belonging to IJdme, which might have been in his possession. Suppose, that instead of the debt, it had been a horse, and Helme had sold the horse to the Defendants in part payment of their debt, could there have been any defence against the title? But if it should be said, the legal title passed, which would protect the purchaser without notice — then suppose the Defendants to have notice, and how would that affect the case? To entitle the Plaintiff to retain, it is necessary for him to show a title to the thing retained. This is the clear rule in regard to a chattel. If the thing retained be money, as a debt, then there must be a claim against the creditor for money; and as there is no difference between monies of the same amount, that entitles the debtor to retain it, instead of its being paid by the creditor. But examine it, in whatever light either subtlety or ingenuity-can, this right must be bottomed upon a title to the thing retained. Now in the case of factors, their lien depends upon the nature of their employment, and the implied understanding of the parties, by the rules of law, and is founded exclusively upon commercial considerations. Without such a rule, no. man would, or could become a factor, without the greatest peril.

But if it be said, that in a case of actual insolvency, the liability of the surety, against whom there is a judgment, affords him the right to withhold payment, I answer, it is true, that a Court of Equity, whose province it is to prevent mischief, will afford its assistance — but howfar? To enjoin perpetually, before the surety has paid? Or will it not rather say, that he shall not reduce this debt to his possession, until he has released the surety from his thraldom? Th.at interference of the Court does not spring from any right which the surety has to the money, but from the right which he has to be protected, against mischief that may befal him. The conduct of the Court is with a view oí preventing the principal from committing a dishonest act; for it would be the height of dishonesty in a principal to colleet a debt from him, and at the same time, leave him to pay as surety. This rule, it is true, exists, but only between principal and surety. The rule upon which the Court goes, is to prevent a dishonest act; but where is the dishonesty' in paying one creditor, when the effect may be, that another is to go unpaid ? Are not all creditors equally meritorious? And will a Court of Equity', when an application is made to enforce payment of a debt, not recoverable at law, say to the creditor, that all other creditors must be let in pari passu, and yet, if relief be given in this case, it must say further, indemnity shall be retained for him, who in probability may be a creditor? It is true, tiiat where a fund is provided for the payment of debts, and it is necessary to resort to a Court of Equity to have the trust executed, [there all creditors come in ; but for a very different reason — that is, because the fund was provided for all the I debts. The Defendants are bona fide creditors of Helme, and have bis assignment of this judgment, in part satisfaction of their debt, and they have the same equity to retain it, that they would have had they received so much money with notice of the Plaintiff’s liability.

The assignment then was perfectly honest as respects the Defendants, and they are entitled not only to the forbearance of the Court, but to its assistance, if necessary to the full enjoyment of it. The Plaintiff has applied to this Court, to obtain its assistance in prejudice of their right. It is distinctly admitted, that having only obtained the equitable title from Helme, the Defendants can have none other, than be then could convey, and that any equity which the administrator then bad as a lien on the debt which was assigned to them, if it was prior in point of time, must prevail, as the better title; but it is conceived that his responsibility gave him no title when he had paid nothing, against an actual existing creditor. Suppose by way of further illustrating this point, Williams the surety had been sued by the executor of Helme, could he have been entitled to the relief of this Court upon this bill, yet the Court must go the length of saying he would, if he is to be relieved in this case. This is indeed a stronger case against relief, for here there is a specific assignment of this debt to a particular creditor. In the case supposed, the debt from the surety, would, by operation of law, become assigned to the executor for the benefit of all the creditors; the death of Helme, could not give his creditors higher claims upon his assets, than he could by his own act during life, and we think it must be perfectly clear, that if a bill was filed against the executor upon the grounds made in this bill, the Court must say, “that its equity was imperfect, there was no equity attached to the debt, because there was nothing paid by the surety, that the assets were to be distributed amongst those who are creditors.”

To examine this case upon first principles, it seems to me there cannot be a doubt — here is a dispute between ‘ two men respecting a piece of property, it being a debt due from Williams to Helme, and sold by him to the Defendants; does not at all make it, different frhrn any other property. The purchaser is content to take the title he obtained, and is not applying to this Court for its assistance — Williams sets up an opposite claim,and calls upon this Court to hinder the Defendants from using their means — tiie Defendants have paid their money, Williams at the time they bought, had never paid one cent, nor contracted to do so. His claim which he asserts to be superior to the Defendants, is not founded upon any contract express or implied, or any lien which the law, for purposes of policy, has afforded ; nor is it sustained by any want of morality in the purchase of the Defendants; but he rests it upon the fact that he was surety for Helme, and that at the time Helme assigned the judgment, he was insolvent, whereby it was probable he would become a creditor, by being obliged to pay the debt of his principal — now unless it can be shown that a surety cle facto acquires a lien upon the property in his possession belonging to his principal or that a surety has a superior equity to a creditor, it seems to me impossible to sustain this bill.

If Williams really did suspect the solvency of Helme at the time of giving the judgment, as he says was the case, then I ask, who is to bo blamed for what has happened — the remedy for them was a plain one, his intestate had become Helme’s surety for a debt, and by paying that debt immediately, he would then have had an equity to retain it — lie thereby would have obtained a title in equity to it; why did he not pay it? Did not his intestate promise to do so, and shall it be said that it would have been hard to force him to raise the money by a sale of his intestate’s estate, before Helme’s proper-íy was exhausted ? But if Helme was then insolvent, or wiiat is the same as to Williams's duty, if he thought he was, it become then absolutely necessary for Williams to pay the debt, or take a defeasance against the judgment. If the loss therefore, fell upon the estate of the surety, it is through the negligence of the administrator, and the rule seems well established, that those who occasion the loss ought to hear it.

Henderson, Judge

— The equity of the Plaintiff arises from the insolvency of Helme. The right of the latter to assign the judgment, was lost when he became unable to exonerate the Plaintiff from the thraldom in which he was placed on account of the suretyship — when Helme became unable to reciprocate the act which he required Williams to perforin. I do not know a plainer equity ; indeed it was admitted in the argument, that if Williams had, before the assignment, actually suffered, he would be entitled to the relief which he asks. Or if he had, before the assignment, applied to this Court to restrain Helme from transferring, that then the assignment would not avail, as it would have been made in violation of an order of the Court. Williams has other equities besides those arising from actual sufferings. As a surety, he has a right to have his fears and apprehensions quieted, to be made safe from apprehended harm. He need not wait till he has suffered, because his equity arises before that time; and this seems to be admitted in that part of the argument, which rather concedes, that he might have obtained an order that Helme should not assign. And as to the position, that Williams should have applied to a Court of Equity to restrain Helme from transferring, l think that his enmity is higher than any which could arise from the violati >n of orders or rules of Court, it is independent of them — it aris es from the principle first mentioned, that Helme could neither, by himself, nor by another, require of Williams to do, what }ie (ffelme) was unable to do towards him, from the fact of his insolvency. Williams being indebted to him, was also bound for him in a very large sum, from which he sustained a loss of double the amount of the sum which Williams owed. The debt which the Plaintiff owed, should have been left in his hands, as an indemnity in part for his loss. It is true, that if the judgment had been of a negotiable character, it would have been proper to have applied to a Court to restrain its negotiation ; for had it been of that character, Williams might have had a legal owner to contend with, one who stood upon his own right, instead of those of another — and who would not, as these Defendants, represent the original creditor, and be bound by every obligation which was imposed upon him.

The Defendants say, it might possibly be different, if they were suitors to the Court; but they are riot, they ask nothing of this Court. In this they are mistaken ; they are applicants for a favor, in the character of Defendants. The law gives them nothing; their rights are not known at law. They would not be even heard to allege them — there Helme is still the owner of the judgment. Here, the Defendants are made parties by mere courtesy. The Plaintiff might have left them to come into ■this Court as petitioners, asking to be permitted to use the name of Helme. They owe their existence as claimants to the principles of this Court, and they ask to do, in the name of their assignor, what it would be the height of iniquity to permit him to do, because they say, that the latter sold to them — but Helme had nothing that he could sell. I think, therefore, that the injunction should be perpetuated. I have viewed the case, as if Helme intended no actual fraud, when he assigned to the Defendants. He says so, and there is nothing to induce a belief that he did. But the fad is, that he was then insolvent, and therefore could pass nothing in the judgment, as against the Plaintiff.

Taylor, Chief-Justice.

— I am of opinion that the prayer of this bill could not be rejected, without violating very clear principles of natural justice, and subverting that series «Í decisions, by which this Court lias been constantly guided, for the protection of sureties. It is not controverted, that the estate of the I’laintiff’s intestate. who vas surety for llrtme, be,came liable to pay a considerable sum for him, a very short time after the confession of judgment, and that this money was subsequently paid out of the estate. It is very evident, that if Jlelme had attempted to enforce the judgment upon the expiration of the stay, he would have been enjoined, unless lie 'countersecured the estate against his own debts. When the debts of IMme were paid out of the estate, his debt against it was extinguished, according to sucli plain principles of justice, that 1 imagine the law of every ci-vilised nation has adopted them. In the civil law, it was called compensation, and is thus spoken of by a writer on that law: “’When it is .said that compensation is made ipso jure, it means that it is made by the mere operation of law, without being pronounced by the Judge or opposed by the parties. As .soon as a person, who ivas creditor of another, becomes his debtor of a sum of money, or oilier matter susceptible of compensation with that of which he was a creditor; and vice versa, as soon as a person who was debtor to another, becomes his creditor of a sum susceptible of compensation with that of which he was a debtor, a compensation is made, and the respective debts are from thenceforth extinguished, to the extent of their concurrence, by virtue of the law of compensation.*’ (Potior on obligations, 599.) As the civil law exists in Scotland, the principle is there adopted without variation, and it is held that where the same person is both debtor and creditor to another, the mutual obligations, if they are for equal sums, are extinguished by compensation. [Erskine’s Institutes, 325.)

Williams had a well ascertained equitable right against Helme, before payment of money for him, and might have called upon him in this Court to relieve him from his liability by payment of the debt, and would certainly have been allowed to set off the judgment against it. The case of Lee v. Rock, furnishes an instance where a man borrowed money on the mortgage of his estate for another of his being allowed to go into equity, to have his estate disencumbered by him, and the covenant in the mortgage deed was held to bind the Defendant, though no party to it; but the money being borrowed for him, it was his debt, and the surety was only a nominal person. (Moseley 319.) And be may not only come here to be relieved from his liability, but as soon as he becomes liable to the creditor, or is endangered, though he has not paid the debt, he has a right to enforce mortgages, or other counter securities given to indemnify him.(Antrobus v. Davidson 3 Merivalle 579, Tankersly v. Anderson, 4 Dessaus. 44.)

This was the relation in which Williams stood to Helme immediately after the confession of judgment, and when the true state of the latter’s affairs were known. This equity was prior then to any which could be acquired by the assignees of the judgment. But there was in fact no equity to be acquired by them, for it would be against first principles that the assignor should place the assig-nee in a better situation than he stood himself. Policy has introduced an exception with respect to bills of exchange, and notes endorsed before they are due, but in all other respects the rule and law of this Court are on that subject universal. (Cotes v. Jones, 2 Vern. 692— Davis v. Austin. 1 Ves. jun. 247.)

As many of our most valuable principles of equity, as well as law, are derived from the civil law, it is not surprising to meet with almost the very case before us, stated in a work of authority on that law, as administered in Scotland. “Though, says the writer, compensation cannot be pleaded after the decree, either against the creditor or his assignee, yet if the original Creditor should become bankrupt, the debtor, even after decree, may retain against the assignee, till he give security for satis-lying the debtor’s claim against the cedent.” (Erskine’s Institutes, 328.)

Per Curiam.

— Let the Judgment be made perpetual with costs.