Battle v. Hart, 17 N.C. 31, 2 Dev. Eq. 31 (1831)

June 1831 · Supreme Court of North Carolina

17 N.C. 31, 2 Dev. Eq. 31

James S. Battle v. Spencer L. Hart et al.

upon the insolvency of the principal debtor, a surety is considered in equity as a creditor, and may retain, against an assignee for value and without notice, any funds of the principal which he has in his hands.

The bill was filed in Edgecomb. The facts charged and admitted, were, that one Joseph Belt and Robert Joyner, copartners in trade, becoming insolvent, by two deeds, made a general assignment of their effects to a trustee, in trust, to secure their endorsers, among whom was one Barnes. That the plaintiff was a. large creditor of Bell & Joyner, and entirely without security, and by an arrangement between them, Bell & Joyner conveyed all their estate, already assigned as above, to Spencer D. Cotton, in trust, to secure the plaintiff, who gave bond and surety to discharge all the dehts, secured ip the two deeds made before that time — that, the plaintiff got possession of the two deeds, and thinking he had a right to do so, refused to permit them to be- registered. That a sale took place under the deed to Cotton, of all Bell & Joyner’s effects, at which Barnes purchased to a large amount, but refused to pay the sum bid by him, upon the ground that he had a right to retain, until the debts to which he was surety for Bell & Joyner were paid; and that it was then agreed between Barnes and Cotton, that he should retain the property purchased by him, but. the title thereof was not to be changed, and it should remain subject to the claim of the plaintiff. Barnes paid the debts for which he was the surety oí Bell & Joyner, and afterwards made a general assignment of his property to the defendants, for the purpose of securing his en->. dorsers, among whom was the plaintiff, and to an amount much larger than the sum which Barnes owed Cotton, the trustee, for purchases at the sale of Bell and Joyner’s effects — and among the property thus conveyed, were the specific articles bought by Barnes at that sale* Upon the property assigned by Barnes to the defendants being exposed to sale, Cotton, the plaintiff’s trustee, interposed a claim on his behalf to the articles bought by Barnes at the former sale; and it was then agreed be* tween the defendants and Cotton, that the sale should proceed, the defendants binding themselves to hold the avails of it subject to the claims of the plaintiff.

Barnes "was insolvent at the time the plaintiff made the arrangement with Bell 8f Joyner, and at that time the plaintiff was also his surety to a large amount.

The bill prayed that the sum which the defendants received from the sale of the property, bought of Cotton by Barnes, might be paid in exoneration of the plaintiff from his liabilities for the latter. Barnes was made' a defendant.

The case was submitted without argument,

by Badger, for the plaintiffs, and Beverenx, for the defendants.

Rusttn, Judge.

The state of this case is shortly this: the trustees in the deed made by Bell and Joyner for the benefit of the plaintiff made a sale, at which Barnes purchased. He declined paying, upon the ground, that the plaintiff knew of the previous unregistered deeds of trust, in which Bell and Joyner had provided an indemnity for Barnes against the suretyships in which he was involved for them. The bill admits this equity of Barnes ; for altho’ he had not then paid the debts, yet he was liable for them, and the principals were insolvent. But the bill sets up an equity of the same nature, and founded on precisely a similar state of facts, against Barnes himself. The bill alleges, and the answer also admits, that at that time Barnes was also insolvent, and the plaintiff was surety for him. Upon the direct authority of Williams v. Helme, (ante 1 vol. 151,) founded on the clearest principles, the plaintiff had, then ■ the right of getting any funds he could of Barnes, and retaining them for his indemnity ; and he may thus retain against an assignee inequity for value, and without notice. A surety in such a situation is a creditor ; and the subsequent assignee only succeeds to his assignor’s rights, and subject to the equity of the surety, which is prior. If indeed the contest was between the original creditors of Bell and Joyner, to whom Barnep Avas liable as surety, that might make a difference. Had they not been paid, by Barnes, they might have asked for the fund createdfor their satisfaction, both against the plaintiff and Barnes. But they are satisfied, and out of the way. The question is, whether Barnes, who vras bound to pay to Cotton, the trustee, for the effects purchased at the sale, and who did not, under an agreement that the title should remain unchanged, and subject to all the demands of the plaintiff, can claim that property or the price of it for himself — not for the creditors of Bell and Joyner — as against a man who was then his surety for his debts to a larger amount, and afterwards was obliged to pay them. The equity of the plaintiff against Barnes is palpable, and must be felt by every body upon the stating of it. An assignment of the property to the defendants confers on them no better claim. They did not get the legal title thereby; for it is proved by the deposition of Cotton, read by consent, that the title was reserved in him by express agreement between him, James S. Battle and Barnes, founded on the very claim now set up by the plaintiff.

The present defendants admit they disposed of the effects at Barnes' sale, under another agreement that the proceeds should be subject in their hands to the claim which the plaintiff or his trustee, Cotton, had to the specific effects ;' and that they yielded the sum of $1163 62.' This sum belongs to the plaintiff upon the principles assumed by the court; if in point of fact the demand against Barnes, arising out of the debts paid for him, shall amount to as much, after deducting what may be in the hands of Cotton, or the plaintiff, (if there be any thing) arising from Bell and Joyner's sales, applicable to the satisfaction of the debts which Barnes or his assignees have paid. The bill indeed charges 'very large demands of the plaintiff on Barnes, after all those allowances; and the answer admits that a balance is due, on the whole, from Barnes, but does not confess a particular sum. This makes it necessary to have an inquiry; if the parties cannot themselves agree, after this declaration of the principie by the court.

Per Curiam. — ■Decree according r.v