Kennedy v. Atlantic Trust & Banking Co., 180 N.C. 225 (1920)

Oct. 20, 1920 · Supreme Court of North Carolina

180 N.C. 225

ROSA S. KENNEDY v. ATLANTIC TRUST AND BANKING COMPANY.

(Filed 20 October, 1920.)

1. Principal and Surety — Payment—Bills and Notes — Notes—Mortgages —Evidence—Husband and Wife.

When money is loaned to the husband for the prosecution of his business, secured by a chattel mortgage on his own property, and the wife appears on the note as a joint maker, and the note is further secured bjr a mortgage on their lands held in entireties: Held, a payment of the note by the proceeds of an agreed sale of the personal property of the husband, also discharges the mortgage on the realty, and the liability of the wife as surety on the note; and as between the original parties it may be shown that the wife signed as surety and not as a joint maker thereof.

2. Equity — Subrogation—Mortgages.

The attorney of a mortgagee had charge of an arrangement whereby a private sale was effected under agreement that the proceeds, sufficient for the purpose, were to discharge the mortgage debt, and the mortgagee gave a third person authority to collect the money and pay it accordingly. The attorney voluntarily guaranteed the payment of the money, and, Held, the equitable right of subrogation to the mortgagee’s right, if any, was not available to him, he not having an interest to protect, or being in any manner liable for the debt.

S. Principal and Surety — Bills and Notes — Notes—Evidence.

A wife signing a note with her husband for a loan made to him personally by a bank may show, as between the original parties, that she signed as surety, and this principle applies to an attorney or agent of the payee, who, fully aware of the transaction, voluntarily paid the note and claims the equity of subrogation to the rights of the payee.

4. Principal and Surety — Equity—Exoneration—Bills and Notes.

Where the wife is surety on her husband’s note, secured by a chattel mortgage on his property, and also by mortgage on lands held by them both in entireties, evidence of the value of the chattels covered by the mortgage, privately sold, under an agreement with the mortgagee that the proceeds should satisfy his debt, is admissible upon the question of exoneration of the surety, and the mortgagee having received the proceeds of the sale or the benefit thereof.

5. New Trials — Appeal and Error — Substantial Injustice.

Mere errors on the trial that have not worked substantial injustice to the appellant will not entitle him to a new trial.

Appeal by defendant from Allen, J., at October Term, 1919, of New HANOVER.

This is an action brought by plaintiff to restrain defendant from foreclosing a mortgage made by her to defendant. The mortgage was made on 31 October, 1911, to secure two notes, under seal, of $750 each, one payable one year after date, and the other two years after date, both signed by plaintiff and ber busband on 31 October, 1911. After tbe maturity of tbe two notes, tbe defendant, on 29 October, 1915, under tbe power in tbe mortgage, advertised tbe property for sale on 29 November, 1915, when tbe plaintiffs sued out an injunction, wbicb was continued to tbe bearing.

The plaintiffs claimed in their complaint:

1. That tbe plaintiff mortgaged ber interest in tbe land with ber husband, wbicb was an estate by entirety, with tbe understanding and agreement between ber and defendant that defendant would exhaust tbe mortgage on the personalty before selling tbe realty; and,

2. That there was an agreement between plaintiff’s husband and tbe defendant bank that $1,500 of tbe purchase-money of tbe restaurant, wbicb was sold, should be applied to tbe discharge of tbe indebtedness of plaintiff to tbe bank.

This was denied in tbe answer, and thereon issues of fact and law arose.

Defendant’s second assignment of error is tbe failure of tbe court to nonsuit tbe plaintiff at tbe close of plaintiff’s testimony, tbe motion having been renewed at tbe close of all tbe testimony.

Tbe following facts appear to be practically undisputed, though they may not be admitted by tbe pleadings. On 31 October, 1911, J. R. Kennedy, tbe husband of tbe plaintiff, owned and was conducting a restaurant in tbe city of Wilmington, and for reasons satisfactory to Kennedy, be applied to tbe defendant for a loan, offering tbe restaurant business and its fixtures as secuzbty therefor by way of mortgage on tbe restaurant furniture and fixtures, and certain real property described in tbe mortgage. At that time J. R. Kennedy and bis wife owned, as tenants by entireties, tbe real estate covered by tbe mortgage afterwards executed and attempted to be foreclosed under tbe power of sale, which foreclosure was restrained by tbe court.

At tbe time of J. R. Kennedy’s application for tbe loan from tbe bank, tbe real estate owned by him and bis wife was mortgaged to tbe Peoples Savings Bank for $500, as Kennedy wanted money to purchase improvements and equipment for bis restaurant. Tbe result was that tbe bank required tbe payment of tbe People Bank’s prior mortgage for $500, and loaned Kennedy $1,500; $500 was to pay tbe Peoples Bank’s mortgage, and $1,000 was for tbe use of tbe restaurant. Kennedy desired only to mortgage tbe restaurant, but tbe bank insisted upon a mortgage on tbe restaurant and on tbe real estate, and tbe bank took tbe two mortgages to secure tbe loan. A chattel mortgage on tbe restaurant and a mortgage on tbe real estate, both securing tbe same two notes, wbicb tbe bank required to be signed by both Kennedy and bis wife, covering tbe $1,500 loaned, and with tbe money so loaned $500 was paid to tbe Peoples Bank in cancellation of its mortgage, and tbe residue was given to tbe borrower, J. B. Kennedy, to use in bis restaurant.

While tbe notes were signed by botb busband and wife, tbe wife did not borrow tbe money, nor ask for it, and tbe loan was in truth and in fact to J. B. Kennedy, and tbe bank knew this fact and dealt with J. B. Kennedy personally, and Kennedy personally for a while paid tbe interest on this debt.

Mr. Henry Heyer, an attorney of the Wilmington bar, was selected to draw, and did draw, tbe papers and examine tbe title to tbe real estate for the bank, and with part of tbe funds loaned by tbe bank paid tbe Peoples Bank mortgage, though be claimed be was J. B. Kennedy’s attorney in tbe matter and was paid by Kennedy. Mr. Levi Carter, of the Hanover Bealty Company, went with Kennedy to make arrangements with tbe bank for this loan.

Some time afterwards Carter, for himself, tbe Hanover Bealty Company, and one Max Meyers, made a trade with Kennedy for tbe purchase of tbe restaurant mortgaged to tbe bank, whereby Kennedy claims they were to pay him for tbe restaurant $2,500, $1,500 of which was paid to tbe bank in satisfaction of tbe notes secured by tbe chattel mortgage and tbe real estate mortgage, and tbe residue, $1,000, was to go and be applied as a credit toward tbe payment for tbe Lloyd place that Kennedy was to buy from the purchasers of tbe restaurant, and Kennedy was to give a second mortgage to tbe purchasers of tbe restaurant on tbe Lloyd place for an additional $1,000 of tbe purchase price of tbe Lloyd place, Kennedy to take tbe Lloyd place subject to a mortgage which was then on it, aird which bad been given by Carter and Meyers and tbe Hanover Bealty Company. Tbe second mortgage was to be due seven years after its date.

Tbe terms of tbe two trades being agreed upon, Mr. Henry Heyer was called in by tbe parties to prepare tbe papers for tbe consummation of them, and in preparing tbe papers be asked: “Who is to pay tbe mortgage on tbe restaurant?” and was informed that Carter was to pay it. Heyer went to the defendant bank and asked them if they would cancel tbe mortgage upon tbe restaurant (certainly informing them why be asked tbe question), and upon being informed by tbe bank that it would not cancel tbe mortgage on tbe restaurant, be informed tbe bank that tbe restaurant was being sold, and told tbe bank that be would collect tbe money for tbe bank. Thereupon tbe bank agreed to cancel tbe mortgage and let Heyer collect it.

Tbe restaurant was sold in accordance with tbe agreement that Carter was to pay tbe mortgage and Heyer to collect it, and tbe bank gave to Heyer tbe mortgage marked canceled, and Kennedy signed tbe bill of sale conveying tbe restaurant, and delivered it to tbe purchasers, but before that part of tbe trade could be completed, and tbe title to tbe Lloyd place examined, Kennedy was'called from the city to tbe bedside of bis sick father, and tbe mortgages to be given by Kennedy for tbe balance of tbe purchase price for tbe Lloyd place were never executed and delivered, Kennedy claiming that Carter, Meyers, and tbe Hanover Realty Company would not let him have tbe papers, and Carter and Meyers claiming that they could not find Kennedy to deliver him tbe papers for execution.

Tbe purchasers of tbe restaurant took possession of it, ran it for a while, and then sold it to one Sheppard, when Mr. Henry Heyer was again called in and drew tbe papers for its sale to Sheppard, knowing that tbe bank bad not been paid, and that Carter bad agreed to pay tbe bank’s mortgage, and knowing that be bad tbe bank’s mortgage, either canceled or for collection, and that be bad voluntarily promised to pay tbe bank tbe amount due under tbe Kennedy mortgage, and participated in tbe transaction whereby tbe restaurant was sold to Sheppard with a guarantee against encumbrances. Tbe restaurant was tbe individual property of ,J. R. Kennedy, tbe real estate to secure J. R. Kennedy’s debt was tbe property of husband and wife as tenants by entireties, tbe wife borrowing nothing from tbe bank and requesting-nothing of it, but assenting to sign with her husband tbe notes and tbe mortgage on tbe real estate, and being therefore merely a surety.

At tbe second sale of tbe restaurant, which Mr. Heyer aided in making, tbe restaurant was sold for $1,500, tbe amount of tbe bank debt against Kennedy, after removal of part of tbe fixtures.

In tbe meantime, Heyer not having collected from Carter, or any other person, tbe money on tbe bank’s mortgage, and being in no way liable to tbe bank for its debt, not having assumed it, the bank said something to him about collecting the amount of the chattel mortgage. Whereupon Heyer 'voluntarily gave tbe bank bis personal guarantee in writing, with one George H. Hutaff, for tbe payment of tbe Kennedy chattel mortgage. •

Tbe court decided with tbe plaintiff, and granted tbe injunction. Defendant appealed.

A. Q. Bicaud and E. K. Bryan for plaintiff.

John B. Bellamy & Son for defendant.

Walkbb, J.,

after stating tbe case: It appears that, pending this suit, and at the request of tbe defendant bank, Henry Heyer, in pursuance of bis guarantee to do so, paid tbe chattel mortgage, which, of course, discharged tbe debt secured by tbe real estate mortgage given by Kennedy and bis wife to tbe bank. There is no question of an innocent bolder in tbe case, as tbe bank was tbe original payee in tbe Kennedy notes, and it, its agent, or Heyer, participated in all tbe transactions mentioned, Heyer having actual knowledge and .the bank perhaps imputed knowledge' of tbe facts.

The' assignments of error, as to tbe admission of evidence, are without merit.

As between tbe apparent makers and tbe original taker of tbe Kennedy notes, it was competent for tbe plaintiff to prove which of tbe two signing tbe notes to the bank was tbe principal debtor, and which was tbe surety. Welfare v. Thompson, 83 N. C., 276; Lockhart v. Ballard, 113 N. C., 292; Foster v. Davis, 175 N. C., 541; Williams v. Lewis, 158 N. C., 571. Henry Heyer, for whom this suit is defended, and who paid tbe notes signed by Kennedy and bis wife, aided tbe transfer of tbe property to Sheppard, and they being parties to that transaction, tbe evidence objected to, which was tbe subject of tbe third assignment of error, was competent.

Tbe testimony, under tbe fourth assignment of error, was competent .as shedding light on tbe value of tbe personal property upon which tbe bank held a chattel mortgage, and on tbe sale to tbe Hanover Realty Company, to which tbe bank and Heyer both assented. Mrs. Kennedy, and her real estate, were sureties of her husband, and tbe bank and Heyer having appropriated tbe principal debtor’s property, tbe surety, •and her land, were thereby exonerated, as they (the bank and Heyer) virtually assented to tbe disposition of tbe principal’s property securing tbe debt upon which tbe wife was surety, and received tbe proceeds of tbe sale, or tbe benefit thereof.

Tbe evidence of tbe witness Ricaud, tbe subject of tbe fifth assignment of error, was competent as showing tbe bank bad knowledge of tbe sale and transfer of tbe restaurant, and acquiesced in such sale, and, further, as showing tbe bank bad released tbe property covered by tbe ■chattel mortgage.

While we have, in a summary way, considered defendant’s exceptions to testimony, it was only perfunctory, on our part, as we are of tbe ■opinion that none of tbe exceptions were properly taken. It will be ■observed by referring to tbe record that each of those covered by the fifth assignment of error was entered to a mass of evidence, some of which was surely competent. The exception must be good as to all tbe ■evidence embraced by tbe objection. S. v. Ledford, 133 N. C., 714; Nance v. Tel. Co., 177 N. C., 313, where the cases, up to that time, are collected; Harris v. Harris, 178 N. C., 7. The other exceptions are so immaterial and inconsequential as to be utterly insufficient to induce a reversal, if tbe questions were incompetent. We will repeat again that verdicts and judgments should not be lightly set aside upon grounds, or for reasons, which show the alleged error to be harmless, or not injurious, in its results. There should be something like a practical treatment of the motion to reverse, and it should not be granted except to subserve the real ends of substantial justice; it should be meritorious and not frivolous. The foundation of the application for a new trial 'is the allegation of injustice, and the motion is for relief. Unless, therefore, some wrong has been suffered, there is nothing to be relieved against. The injury must be positive and tangible, not theoretical merely. For instance, the simple fact of defeat is, in one sense, injurious, for it wounds the feelings. But this alone is no sufficient ground for a new trial. It does not necessarily involve loss of any kind, and without loss, or the probability of loss, there can be no new trial. The complaining party asks for redress, for the restoration of rights which have first been infringed, and then taken away. There must be, then, a probability of repairing the injury, otherwise the interference of the Court would be but nugatory. There must be a reasonable prospect of placing the party who asks for a new trial in a better position than the one which he occupies by the verdict. If he obtains a new trial, he must incur additional expense, and if there is no corresponding benefit, he is still the sufferer. Besides, courts are instituted to enforce right, and restrain and punish wrong. Their time is too valuable for them to interpose their remedial power idly, and to no purpose. They will only interfere, therefore, where there is a prospect of ultimate benefit. S. v. Smith, 164 N. C., 475, 480, 481, and cases approving it which will be found in the Anno. Edition of that report; Hilliard on New Trials (2 ed.), sections 1 to 7; Graham & Waterman on New Trials, 1235. Tested by this safe and sound rule of the law, there is no reversible error in the exceptions so far considered.

The real pivotal question in this appeal is, whether Henry Heyer was entitled to be subrogated to the rights of the bank, provided the bank had any right to which the doctrine of subrogation applied. We do not think it had any such right, nor do we assent to the proposition that Henry Heyer had acquired such an equitable right by anything that he did, even if he were a party to this suit, and had properly pleaded or set up the same.- Granted that he secured the money for Carter to pay for the personal property he had bought at the sale, that was only a favor or accommodation to Carter, and in no possible aspect could raise an equity in Heyer’s behalf. This seems to be perfectly plain. But there are none of the elements of a subrogation, if Heyer had come in and been made a party, and sufficiently pleaded the same equity. He was a mere volunteer in the transaction, and the written guaranty which he gave to the bank does not change the result. It was still a voluntary and gratuitous payment by bim. It was more than voluntary, it was officious, in a legal sense, and he cannot appeal to equity for relief. This doctrine is well settled. Joyner v. Reflector Co., 176 N. C., 274; Publishing Co. v. Barber, 165 N. C., 478; Liles v. Rogers, 113 N. C., 197. Legal subrogation arises, where one has an interest to protect, or is secondarily liable, and makes a payment. Jones v. Reflector Co., supra.

But another conclusive answer is, that in the beginning there was a written agreement that the money arising from the sale of the restaurant property should be applied in payment of the debt secured by both the chattel and real estate mortgages, which was $1,500, and that is all that has been done. If Mrs. Kennedy, the surety of her husband, must pay over that amount to Heyer, through the bank itself, or the bank as trustee, they will have received nothing for the restaurant property in' the end.

“Conventional subrogation, so named from the covenant or agreement of the civil law, is founded upon the agreement of the parties which really amounts to an equitable assignment.” Joyner v. Reflector Co., supra. Heyer was under no legal liability, nor moral obligation, to pay the debt, and the agreement referred to in the last quotation means an agreement made at the time of contracting liability, or an agreement entered into afterwards at the instance of the party liable. “A volunteer cannot acquire an equitable lien or the right of subrogation.” Publishing Co. v. Barber, 165 N. C., 478, p. 487. On page 484 of the ease last cited, the Court states that one can be subrogated only upon some special circumstance (meaning having some interest or right to protect), or by a payment on request from the debtor, raising an implied contract.

. Mr. Heyer, in his testimony, upon which the defendant relies, states positively that Kennedy and his wife were not to pay the indebtedness to the bank, but that Carter was to pay it, and he in effect means to say that he gave the bank his guarantee because Carter had'assumed the Kennedy debt; and, certainly, there can be no implied contract between Kennedy and his wife and Heyer, for the latter to pay the debt, as there is no express contract, and Heyer at that time had no interest of his own to protect.

The facts of all the transactions show that the bank or its attorney, if he be the bank’s attorney, had knowledge of these sales and aiding in consummating them, and Mrs. Kennedy being a surety, and the plaintiff having proved that the personal property which her husband, the principal debtor, put up as security for the debt, has been sold and brought enough to pay it, and the bank and its attorney or guarantor having assented to the sale of the principal debtor’s property, the sureties’ property must be exonerated to the extent of discharging it from any further liability. Carriage Co. v. Dowd, 155 N. C., 308, as the proceeds of the sale were sufficient to pay the whole debt.

This case is even stronger than the statement above made, for here wo have the guarantor to the bank, Heyer, aiding and actively participating in the sale of the property of the principal debtor, who was primarily liable for the payment of the debt, and also assisting in its conversion, or wrongful disposition, and he now asks a court of equity, and conscience, to help him in this questionable conduct, by fastening the resultant loss upon the surety, who is innocent of all wrong, and to decree to the wrong-doer the property of such surety. If there is a legal or equitable rule justifying such a claim, we have failed to discover that it has found its way into the books.

No error.