Smith v. Smith, 16 N.C. 173, 1 Dev. Eq. 173 (1828)

June 1828 · Supreme Court of North Carolina

16 N.C. 173, 1 Dev. Eq. 173

James H. Smith, adm’r of Edwin Smith v. Bryan Smith.

From Johnston.

The order in which parties to a security are Hable at law, is the order in which, independently of contract, they will be held bound in equity.

In equity, however, by contract, the endorser may be made accountable to the maker and the acceptor to the drawer, &c.

Where A, as surety, signed the note of 15, payable to 0, and it was endorsed by C at the request "and for'*thT“accommodation of B, there being no contract between A and C whereby they agreed to become cosureties ofB, it was held that A had no right to contribution from C.

The bill charged that the Plaintiff’s intestate in March 1825, signed a note with one Robert II. Helme, payable to the Defendant for S8,9S1. That after signing the note, it, was delivered to Helme, who procured the Defendant to endorse it — that the signature of the Plaintiff’s intestate, and the endorsement of the Defendant, were both voluntary and for the accommodation of Helme. who procured the note to be discounted at the Slate Bank, solely for his own benefit — that Helme became insolvent, and the Plaintiff’s intestate had paid the whoj^amount of the debt. It was insisted that the Defendant was a co-surety with the Plaintiff’s intestate and liable to contribution, which was the prayer of the bill.

The Defendant, in his answer, admitted that he endorsed the note at the request of Helme — lie averred, that at the time of his endorsement, he had no knowledge that the Plaintiff's intestate was a surety — but that he then believed the Plaintiff's intestate had a joint interest with Helme, in having, the note discounted. He denied that he would have endorsed the note for the accommodation of Helme, had he known that the latter was solely interested in the discount, and stated that when tiie note was handed to him, and his endorsement asked for, he hesitated, as the amount was large, but that Helme removed those doubts by informing him, that he, the Defendant, could not suffer until the Plaintiff’s intestate and himself had both failed, and upon this assurance, having confidence in the solvency of the former, he endorsed the note and handed it back to Helme.

The deposition of Helme, was read upon the hearing —he swore that at the time when the Defendant endorsed the note, no communication was made to the Defendant, of the relation in which the Plaintiff’s intestate s tood to the note — that he had stated to the Defendant, that the Plaintiff’s intestate was bound to indemnify him, in case he, Helme, failed, but that this was given as the witness’s opinion upon the point of law, not as a fact touching the Plaintiff’s intestate’s connexion with the note. He further proved, that the Plaintiff’s intestate had no interest in the note, except as a surety, and that in his opinion, the Defendant would not have lent his name, unless that of the Plaintiff’s intestate, or some other as good, had been upon the face of the note.

Badger & Devereux, for the Plaintiff.

— The only difference between this case and that of Daniel v. McRae, (2, Hawks 590,) is that there, the obligation of the parties in law, rested upon the same event, viz. tij^ default of the maker — here the Defendant has undertaken to pay the debt of Helme, if both Helme and the Plaintiff’s intestate failed to do it, and if he had notice of their default If the legal effect of the contract is to govern, it must he admitted, that the bill should be dismissed ; in other words, if by law, the Defendant is a supplemental surety to the Plaintiff, and the contrary cannot be shown, the latter has no claim against the former.

Sureties are made supplemental either by act of law, or by express contract. The relation of these parties to each other is of the first kind, th^ffi is no express contract between them, and that uiu^Hphich the Defendant seeks to protect himself is one i^rerred by law. It is therefore admitted, that at law, the Defendant is a supplemental surety to the Plaintiff’s intestate, and that the latter has, by the forms of law, no redress against the former. But the same thing occurred between Daniel and McRae ; there McRae had the legal title to sue, he was an endorser subsequent to Daniel, and at law had a fall redress against him — the forms of law therefore, made him supplemental to Daniel — but equity regarding the substance of the transaction, and seeing that in fact lie lent his name for the accommodation of the maker, took from him the legal advantage which made him supplemental, and held him to be a co-surety. The legal priority then which exists between a prior and subsequent endorser, was of no avail to McRae. To bold therefore, that the legal advantage existing in favor of the Defendant in the present case, makes him supplemental, is to hold that in one case the court is not bound by the forms of law, but that it is in another — for in what do the cases differ — in both the object was the accommodation of the principal debtor — the liability in both was incurred at his request — no benefit resulted to the litigant parties. The Plaintiff’s intestate in the present case, is in equity, as fully a surety, as the Defendant, or as Daniel or Mellas were. The only difference between the cases, is that pointed out above, viz. that McRae and Daniel were endorser?, the Plaintiff was as surety on the face, whereas the Defendant was an endorser. But a Court of Equity, in all cases, looks at the substance of the transaction, and universally, the only enquiry is, whether in point of fact the party against whom contribution is sought, is a co-surety, or whether he is supplemental; if he is in fact a co-surety, he is held to contribution, notwithstanding all forms, whether created by law, or by express contract.

In Craythorn v. Swinburn (14 Ves. 160) John Swinburn gave a bond, c^Bfóoned to pay a Bank £1200, if Henry Swinburn debtor, and Craythorn, the Plaintiff, his surety, in a joint and several bond, did not do so — and upon a payment by either of them,then the bond was to be void. No rule of law, applicable to the present case, would more strongly put the Defendant's liability, upon the fact of a default by the Plaintiff’s intestate, than the express engagement of John Swinburn, in that case, put his, upon the default of Craythorn. The words are clear and explicit. At law, the bond was discharged, the condition being performed by the payment of the debt by Craythorn. Craythorn having paid the money, filed his bill for a contribution. At law, he was clearly without remedy — his suretyship being distinct from that of Swin-burn, and Swinburn clearly discharged by his payment. Lord Eldon does not decide the case upon the writing— upon the bond, nor dismiss the bill, because Swinburn was only bound upon the default of Craythorn ; but he hears testimony, and enquires whether, in point of fact, Swinburn was a supplemental, or a co-surety j and it is expressly proved, that by Swinburn’s contract with the Bank, he was a supplemental surety. Upon that en-quiry had, it turned out that he had made no communication to the Bank- — that ho lent his name for the use, and at the request of the principal debtor, the result would have been different. We must infer, that his Lordship’s object in hearing testimony was, to ascertain these facts, or others, which in his mind would make the Defendant a co-surety, notwithstanding the form of his obligation, and that this, if proved to his satisfaction, would have produced a decree for contribution, notwithstanding the form of the contract. To this we are driven, or to the absurd conclusion, that Lord Eldon did not understand the legal effect of the bond given by the Defendant. In dismissing the bill, he uses the words “ my opinion is wrong, if Sir John Swinburn is a co-surety.” Tills case then, as far as Lord Eldon is an authority, proves, beyond a doubt, that if ^ express contract, the liability of the Defendant was postponed to that of the Plaintiff’s intestate; in oilier words, if he wrote himself out of the character of a co-surety, and made himself expressly supplemental, yet, if in point of fact, he was a co-surety, he shall be held to contribution.

The cases of Love v. Wall (1 Hawks 313) and oí Daniel v. MacRae, (2 do. 590) are express to prove, that a contract implied by law, may be varied by testimony; to these may be added, the case of Wright v. Latham, (3 Mur. 298.) In Daniel v. MacRae, Judge IIektjoek-soN says, “ I am at a loss to discover how the admission (of such testimony) could ever have been doubted — its admission contradicts no express written agreement, but repels an implication only.”

If then, the form of the security does not prevent the prima facie supplemental character of the Defendant from being explained, but his relation to the Plaintiff may be shown by testimony, what is the character of that testimony ? Who w as the principal debtor ? At whose request, ami forwhose accommodationwere the liabilities ofthePlaintiff and Defendant incurred ? Who was accommodated by the discount? Was there any communication from either of the sureties to the Bank? If it he said, that the Defendant doubtless thought he made himself supplemental, it is answered so did McRae — so did Swinburn. But the rights of parties are not io he decided by their suppositions of the legal effects of their acts; if so, no person would ever think lie exposed himself to a loss by his own act. The same observation may be made, as to tbe argument Helms used to obtain tbe endorsement of the Defendant. Tbe law is to decide between the parties to this suit. The thoughts of Helms are not the rule for ascertaining* them.

If it be objected that the Dank might have discharged the Defendant by not giving him notice, and thus have destroyed the Plaintiff’s right; it is answered 1st, that the same tiling might have been done in Daniel & McRae, the Bank might not baj^s notified McRae — but notwith' standing this incident to the form of the contract in that case, he was held to contribution. 2d, If the Defendant was discharged as to tbe Bank, it would not affect tbe Plaintiff’s right against him, as being res inter alios acta. But if it would, then clearly the Bank would have been bound to indemnify the Plaintiff’s intestate, flic being as to them a surety,) precisely as if they liad discharged a mortgage made by Helms for their security. (Hayes v. Ward, 2 Johns. Ch. Rep. 129.)

Henderson, Judge.

— The cases of Love & Wall and of Craythorn & Swinburn, decide not only that the order of liability arising upon the face of the transaction is the rule of this Court, as well as at law, in fixing the relation of principal and surety, and that of co-surety and supplemental surety; but that this relation may be varied by contract, whatever may be the form of the security ; for that is made diversa intuito, and that the prayer of the note may be the surety of the maker, the endorsee of the endorser, drawer or acceptor. But until this relationship is varied by evidence of such contract, the order of liability is the same here as at law, that is, such as it appears to be upon the face of the security. This seems to be admitted in argument by the Counsel for the Plaintiff, but it is insisted that the very* circumstance of its being known to the Defendant that the Plaintiff’s intestate, one of the makers, was not a principal in the note, but only a surety for Tlelme, created of itself this agreement of mutual liability between the maker and endorser, without any actual communication between them, and in fact that this was so strongly the case, that no understanding of the Defendant to the contrary, in the absence of the Plaintiff’s intestate, and without his knowledge, could control or vary it. This is certainly extending the doctrine farther than the principle will warrant. It is binding a person not only without his consent, but in opposition to it, and where no fraud is imputed to him; it is placing him in agrade and order of liability, which is in accordance with neither his act nor his intent, and this without tiie least imputation of fraud. This case certainly is distinguishable from the case of Craythorn & Swinburn. There the surety became hound, or was willing to become bound with his principal. He did not, and could not understand that any other person was to be bound as co-surety with him. In this case it is probable that Smith the maker, might have understood and believed, that the Defendant would be equally bound with him, as the note could not be discounted without his agency; but if he did, this could not create an obligation on the endorser without his assent, and without fraud. His (the intestate’s) understanding alone, would not change the operation of law upon the transaction. It required also the assent of the endorser, or that he should be guilty of some fraud, to subject him. To do so in this case, would be to subject him in opposition to the manner in which he bound himself, viz. the form of the security, and also in opposition to wdiat he intended to do, according to his declarations at the time of endorsing.

Per Curiam.

— Dismiss the Bill with costs.