Long v. Barnett, 38 N.C. 631, 3 Ired. Eq. 631 (1845)

June 1845 · Supreme Court of North Carolina

38 N.C. 631, 3 Ired. Eq. 631

OSMOND F. LONG & AL. vs. JOHN BARNETT & AL.

As one, when he is about becoming a surety with others, may stipulate ior a separate indemnity frohr the principal :o himself, and the Co-sureties only be entitled to a surplus aftdr his reimbursement; so, after two persons have become sureties for a cordinon principal, they may, by agreement between themselves, renounce the'xr right to take benefit from any securities they may respectively obtain, and each undertake to look out for himself, exclusively, for an iixdemnity from the principal, or for contribution fro m another co-surety.

"When a surety files his bill against a co-surety for contribution, and the latter sets up an agreement, which is a bar to the former’s claim, that agreement muát be proved at the hearing. It cannot be the subject of reierence to the master.

The cases of Moore v. Moore, 4 Dev. 358. Moddy v. Siiton, 2 Ired. Eq. 382.— Winborn v. GorreU, 3 Ired. Eq. 117, and Williams v. Helme, 1 Dev. Eq. 151, cited and approved.

danse removed from the Court of Equity of Orange county, at the Spring Term, 1845, by consent of the parties.

The following appeared to be the facts of the case, as presented by the pleadings and proofs:

John McMurray became indebted to the Bank of the State of North Carolina, in the sum of $12,900, and, in July, 1837, gave a promissory note therefor, with William McMurray, one of the plaintiffs, John Barnett, the defendant, and one Samuel Mitchell, as his surelies. The principal, John McMurray, then died ; and his executors gave a new note to the Bank for' the debt with the same sureties. Samuel Mitchell removed to Mississippi; and, after certain payments had been made by John McMurray's executors, and a payment by the defendant of $500, the Bank sued William McMurray and Barnett, and between them the debt was paid. The bill is filed by William McMürray, O. F- Long, J. Webb, and J. W. Norwood, and states that the estate of the principal debtor is insolvent and that all the assets were exhausted in the payments made on the debt by the executors, and tiiat Samuel Mitchell, after his removal to Mississippi, became insolvent and died there,- and that there has been no administration on his effects in this State ; and further, that the payments made by the plaintiff,McMurray, exceeded those made by the defendant on the debt, and therefore, that the defendant is bound to contribute towards the satisfaction of the same, so as to make their loss equal, as co-sureties.

The bill then states, and the answer admits, that the piainMcMiutrray has assigned by deed to the plaintiff Long, all his-demand on and against the defendant in the premises, in trust to secure and satisfy certain debtsf which said William McMurray owed the other plaintiffs, Webb and Norwood. The prayer is, that the defendant may be declared liable to contribute, and decreed to come to an account in the premises and to pay to the plaintiff, Long, such sum as may be found due.

The answer states that the defendant, before July 29th, 1839, paid in part of the debt out of his own fund's the sum of $500, aiid that there remained a. balance of $10,604, for which the Bank then took a judgment: That of that sum the plaintiff McMurray paid, on the 15th of June, 1840, the sum of $4,--878 50 only; and that the residue of the debt was paid by the defendant: That the payments made by the defendant before' that day, and interest thereon up to that day, and the sum paid on the 15th of June,- 1840, together, amounted to the sum of $6,332 ; which is an excess of $1,453 50, above the sum so-paid by William McMurray. The answer states, that soon after John McMurray’s death, it was apprehended that his es-tate would not be able to pay the debt, and that the loss vvoulcf fall on the sureties ; and that at his own expense, the defendant went twice to Mississippi to see Mitchell, (who also had funds of J. McMurray"s in his hands) and obtain from him the means of paying the debt;' and that he received from him the funds that reduced the principal, after discharging the interest, to $11,104, on the 29th of July, 1839, which were applied accordingly for the benefit of Williarn McMurray and himself; that in December, 1839', the bank pressed the payment of the judgment; and that upon the communication thereof to these two parties, they, William McMurray and the defendant, came to an agreement that they should divide the debt and 'each one be liable íot his half, and that if the defendant would immediate!y satisfy to the'Bank the sum of #5,000, part of the debt, and supposed to be about his half,’and endeavor to obtain indulgence to William McMurray for his half, the said William McMurray would undertake to pay that half; and that they came to the further agreement, that, in case such arrangement should be made, the defendant should be at liberty to obtain from Mitchell or from John McMurray’s estate in his hands, or otherwise, such sums as he could, and apply them to his, the defendant’s, own use, until he should be indemnified, and that, if there should be a surplus after reimbursing the defendant, then, and in that case only, was William McMurray to claim anjr part thereof.' The answer then states, that the defendant immediately obtained a discount at the Bank for #5,000, and applied the proceeds, and other cash, to discharge that much of the debt, and thereby procured indulgence to William McMurray, until June following; and that before the expiration of 90 days, he paid his said note for #5,000.

The answer then admits, that at different periods from the 13th of March to the 25th of December, 1840, the defendant received from Mitchell various sums, amounting altogether to #3,482, and from John McMurray’s effects in Mississippi, #2,500; and the defendant claims to retain them by way of reimbursing the monies so paid by him, either under the agreement before mentioned, or because in law he had, after the payments made by him, a separate demand in respect thereof, against the estate of the principal, and also against the co-surety, Mitchell, and the plaintiff, William McMurray, had no just claim to participate therein.

The answer denies that Mitchell died insolvent, according to the defendant’s information and belief, and .says that the assets are sufficient to pay thirty or forty per cent, of his debts, including his debt to the estate of John McMurray. The answer also denies, that John McMurray’s estate is insolvent; as it has a claim against the estate of said Mitchell for a sum between $8,000, and $12,000 ; of which the proportion thereof above mentioned, may be recovered by due diligence. answer states, that Mitchell was indebted to the defendant upon other transactions, to the amount of $19,000, and insists that he hath a right to apply to the satisfaction of that demand in the first place, so much of the money received from Mitchell.

The answer also states, that William McMurray, at the time he made the assignment to the plaintiff Long, and before, was indebted to the defendant for money paid for him as his surety; and insists that he could not make the assignment, unless subject to the deduction oí the defendant’s said demand for money paid, or which the defendant was liable for as his surety. The answer also states, that by a prior deed, W. McMurray assigned all his demands against the estate of John McMurry and Mitchell, or accounts of the sums paid by him in the premises, to a trustee to secure certain debts to the defendant and others; and insists that those claims must be satisfied before the plaintiffs can claim any thing under the assignment to Long.

The answer was replied to, and the cause set down for hearing and transferred to this court.

Venable and J. H. Bryan for the plaintiff.

E. G. Reade and Iredell for the defendant.

Ruffin, C. J.

As one, when he is about becoming a surety with others, may stipulate for a separate indemnity from the principal to him, and the co-sureties would be only entitled to a surplus after his reimbursement, Moore v. Moore, 4 Dev. 358; so, there can be no doubt, that, after two persons have become sureties for a common principal, they may by agreement between themselves renounce their right to take benefit from-any securities they may respectively obtain, and each undertake to look out for himself exclusively for an indemnity from the principal, or for contribution from another co-surety. But the defence fails in this ease, because the defendant has not established the alleged agreement between W. Me-Murray and himself. It behooved him to establish it on the hearing, and he cannot ask, that it should be made, in part, the subject of the inquiry before the Master) which, otherwise, is a matter of course in cases of this nature. For the alleged agreement is, in its nature, a bar to the right of contribution, and, therefore, to a reference in order to take the accounts, that may be necessary to exhibit the advances by each of the co-sureties, the sums reimbursed to them, and every other mátter, that is requisite to the ascertainment of the sum to be contributed by the one surety to the other. Consequently, the existence of the agreement cannot be made a point of the reference, but must be disposed of before a reference can be directed. As the defendant has given no evidence of the agreement, it must be declared that he has failed to establish it.

It follows, that the usual inquiries must be directed, including all the dealings as mentioned above and in the pleadings, and the sums received by the defendant as mentioned in the answer, or that may be established by the plaintiffs; so that it may appear, how much one of these parties is in advance more than the other. The points made in the answer, as to the defendants’ right to seek satisfaction,'after he had paid one-half of the debt from the principal or from Mitchell, as for a separate demand, or as to the application of the payments received from Mitchell to other debts due to the defendant, or as to hid right, if any thing should be found due from him to William McMurray, to retain the same in satisfaction of other demands the defendant has against William McMurry in the first place: Those points, we say, will more properly come up when the report shall be made, ascertaining all the facts involved in those positions. At present it would be premature to give any precise instructions to the Master, seeing that those are all proper points of fact for an inquiry, and they do not distinctly appear in the pleadings or evidence. ' But without making any specific declaration thereon, but merely in aid of the Master, we may properly state, that there can be no doubt, that the. .assignment to the plaintiff Long can operate only to transfer the balance due to the assignor from the defendant. If William McMurray were to sue the defendant for this demand, the defendant would be entitled to a deduction or set off for sums as william McMurray owed to him; and he cannot give to his assignee a right for more than he could, himself, recover. Winborn v. Gorrell, 3 Ired. Eq. 117. Moody v. Sitton, 2 Ired. Eq. 382. Nay, even if the defendant had not actually paid the debts for which he was the surety of William McMurray, yet upon the insolvency of William McMurray, the defendant was, in respect of his liability as his surety, entitled to retain for his indemnity any ¡debt he owed William McMurray, and the latter could not assign to another creditor, nor even to one for value then paid, his demand on the defendant. Williams v. Helme, 1 Dev. Eq. 151. So, a prior assignment of this demand to a trustee for the defendant, and others will be entitled to the preference, .as far as the debts thereby secured remain unsatisfied.

As to the application of the money received from Mitchell, ¡the rule is, that it is to be made according to the direction .given by Mitchell at. the time of payment, if any were given by him, either expressly or to be collected from circumstances. But if none such were given, then the defendant hath the right to apply those payments.

It must not be supposed, that the court has passed over, unobserved, the circumstance, that after the death of John McMurray., his executors gave a note for the debt, with the same ¡sureties ; and that they are not parties to this suit, nor charged and admitted to be insolvent. Prima facie, by giving such a note, the persons who were the executors made the •debt their own ; but, clearly, both the sureties now before the .court considered it otherwise, and treat the executors in the pleadings in'this cause, as not binding themselves, but only giving a note as executors for the purpose of keeping the debt .afloat, apparently for the benefit of delay to the sureties. For ■the answer admits, that notwithstanding the new note, it was ¡understood, that the sureties would be obliged to pay the debt, .and that-it would be mostly their loss. Hence, neither the bill nor the answer so much as mention who were John Murray’s executors, but merely state, that the executors gave the note after the death of the testator, on which the judgment was taken; and no objection taken on this point, at the bar.— As to the insolvency of John McMurray’s estate, though not distinctly admitted to be absolute, it is sufficiently admitted to send the case before the Master. The answer states, that the estate is partially insolvent; and the only thing suggested against entire insolvency, is the supposition, that it has a demand of $10,000 or $12,000 on Mitchell’s estate, and that the latter estate is further supposed able to pay some dividend on its debts, according to the laws of Mississippi. From the nature of these admissions, the question of the solvency of John McMurray’s estate can only be ascertained, if the parties insist on it, by taking accounts of the estates of John McMurray and Mitchell, in order to ascertain the extent of their insolvency, which to some extent is admitted. Therefore, there must be a reference to the master to take all the accounts involved in the cause, with directions to state such special matters as the parties may require.

Per Curiam, - Decree accordingly.