Case ID: va_63/html/0268-01.html
Source: Caselaw Access Project
Author: {"author": "ANDERSON, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

*Kendrick & al. v. Forney.
    October Term, 1872,
    Winchester.
    Bond—Confederate Money—Surety, as Purchaser.— In March 1862 K sold personal property at auction, on nine months’ credit, amounting to about $2,000. F purchased some of it, and gave his bond for $501.57, with R as his surety. On the tenth of April 1863 K sold all the bonds to R, including that of F, for Confederate money. After the bond of F fell due, he tendered payment in this money. Held: R can only recover of F the value of th e Confederate money he paid K for the bond, with interest from the date of the purchase.
    
      This was a suit in equity in the Circuit court of Warren county, by James W. Kendrick and James R. Richards against Abraham Rorney, as an absent defendant, to attach the land of Rorney lying in that county, for the payment of a bond for $501.57, dated March 10th, 1852, payable, with interest, at nine months from its date, executed by said Rorney as principal, and James R. Richards as his surety. Rorney answered the bill, and insisted that the bond was to be paid in Confederate treasury notes ; that Richards had paid off the bond to Kendrick in April 1863, in that currency, and that respondent, had tendered the money to both Kendrick and Richards, and they had refused to receive it. The facts seem to be as follows :
    Kendrick, who had boarded with his family at Richards’, in the county of Warren, wishing to leave that county, sold his personal property at auction, on a credit of nine months, and Rorney made purchases at the sale to the amount of $501.57, for which he executed the bond in question, with Richards as his surety. The whole amount of the sale seems to have been about $2,000, for which bonds were taken. Kendrick, whose ^deposition was taken, says the sale was not for Confederate money, and that the property sold for less than the prices before the war or since. In April 1863, Kendrick sold all those bonds, including Rorney’s, to Richards, receiving Confederate money therefor at par, except that what he owed Richards for the board of himself and family was taken in part for the price of the bonds. This account was for three months’ board, at the rate of $375 a year, his family consisting of himself, his wife, and two children and a nurse.
    As to the tender, both Kendrick and Richards denied that Rorney had tendered them the money. A witness, Hite, deposed that Rorney placed in his hands near $600, with direction to pay it to Richards and get the bond, and that he did offer it to Richards, who refused to receive it.
    The cause came on to be heard on the 26th of August 1868, when the court held that Richards, who was the surety of Rorney in the bond to Kendrick, was only entitled to recover of Rorney the value of the Confederate treasury notes paid by him to Kendrick for the bond, with interest thereon. And it appearing that the amount of Confederate States treasury notes so paid by Richards was $534.17, which at the gold value at the date of payment, viz : April 10th, 1863, was $97.12, it was decreed that Richards should recover of Rorney the said sum of $97.12, with interest from the 10th of April 1863, until paid. And unless, &c. Rrom this decree Kendrick and Richards applied to this court for an appeal, which was allowed.
    Conrad, for the appellants.
    Cook, for the appellee.
    
      
      Subrogation of Surety.—In Cromer v. Cromer, 29 Gratt. 280, citing the principal case and Powell v. White, 11 Leigh 309, 324, the court said: “Among his [the surety’s] equitable remedies is that of subrogation to the securities of the creditor, to whom he has paid the debt. These, though extinguished at law by the payment made by the surety, are generally revived in equity for the surety, and may there, by him, be enforced for his indemnity. But it is not every security vvliicE may be thus revived and enforced. A bond on which principal and surety are both bound, once paid by the surety in the lifetime of the principal without assignment by the creditor, or agreement to assign, is forever dead as a security as well in equity as at law. There can be no subrogation in such a case.”
      In Southall v. Farish, 85 Va. 406, 7 S. E. Rep. 534, the court, citing the principal case, said: “The rule is certainly too well settled to be controverted, nor is it disputed that the contract between the principal and the surety is for indemnity only, and therefore if the surety discharges an obligation for a less sum than its full amount, he can only claim against theprincipal the sum so paid. ”
      As to the implied contract between the parties which obliges the principal to reimburse the surety when he, the surety, pays the debt, see Southall v. Farish. 85 Va. 409, 7 S. E. Rep. 534; Feamster v. Withrow, 9 W. Va. 316 et sea.; Conrad v. Buck, 21 W. Va. 410, all citing the principal case as authority.
      Butler v. Butler, 8 W. Va. 676. citing the principal case as authority, said: “Therefore, if the surety pays the debt of his principal in depreciated currency, or depreciated notes of banks or other institutions, the general rule is, that he can recover only the value thereof at the time he paid the debt for his principal; and the criterion is the market value.” , See also, in accord, Feamster v. Withrow, 12 W. Va. 655; and Matthews v. Hall, 21 W. Va. 514. both citing the principal case as authority for the proposition above set out.
    
   ANDERSON, J.,

delivered the opinion of the court.

A surety who pays the debt of his principal, upon the plainest principles of natural reason and justice, has a *'right to be reimbursed by him. And this principle is recognized by both courts of law and equity. There is an implied contract of indemnity between the principal and his surety, which obliges the former to reimburse the latter who has paid his debt; and the courts of equity will substitute him to the remedies and securities of the creditor for his indemnity; and this not upon the ground of contract, but upon a principle of natural equity and justice. In a court of law the surety in a joint bond with his principal, who has paid the debt of the principal to the creditor, can proceed against the principal upon the implied contract of indemnity, to be reimbursed the amount he has paid. He can proceed against him only upon the implied contract, and not as assignee of the bond; for by the payment of the bond to the creditor it is extinguished. And in Copis v. Middleton, 1 Tur. and Russ. R. 224, Eord Eldon held that in such a case, the doctrine of courts of equity, that a surety who has paid the debt of the principal may be subrogated to the remedies and securities of the creditor against the principal does not apply. He says the rule must be qualified by considering it to apply to such securities as are not extinguished, but which continue to exist, and do not go back upon payment, to the person of the principal debtor. As where there was a mortgage in addition to the bond, the surety paying the bond, which is thereby extinguished, would have an equity to be subrogated to the benefit of the mortgage which is still a subsisting security.

This decision is not in accord with the decisions of our courts, as to payments made by the surety, after the death of the prin. cipal debtor. It has been repeatedly held by this court, that where the bond has been paid by the surety, after the death of the principal, he will be subrogated to the rights of the creditor, and will be regarded as a specialty creditor of the decedent in the administration of assets, and as binding the real estate *of the principal debtor, if the heirs are bound. That the bond although extinguished at law by the payment, will be resuscitated by courts of equity for the indemnity of the surety. But if payment had been made by the surety, in the lifetime of the principal debtor, he is considered here, as in Copis v. Middleton and Jones v. Davids, 4 Russ. R. 277, as only a simple contract creditor. Judge Tucker, in the very able opinion he delivered in Powell’s ex’ors v. White & al., 11 Leigh, 309, 324, says : “We do not in our courts, place the surety in the shoes of the bond creditor where he has paid off the bond in his principal’s lifetime. We still consider him as a creditor by simple contract. There is, at that time, no superior dignity in one debt over the other. There is no right, no privilege of the creditor to which the surety can be subrogated. Por though the bond should bind the heirs, yet during the debtor’s life it cannot affect the realty; and as to his personalty as well as realty, all creditors have, during his life, the same privileges. Substitution or assignment is, therefore, useless.” “We apply the principle only where the payment is after the principal’s death.” This equitable practice of subrogation, which is a creature of equity, is applied to sureties, as we have seen, not upon the ground of contract; for where I become the surety of another by jointly with him executing a bond to his creditor, the implied assumption'of the principal debtor to reimburse me if I pay the debt, is not an undertaking under his hand and seal. It is only an implied assumption on his part ; and the surety having an equity to be subrogated to the rights and securities of the creditor, as for instance to the benefit of the mortgage, when the creditor held such security, or to be regarded as a specialty creditor of the debtor, as placed in the shoes of the creditor, when he has made payment after the death of the principal debtor, is not upon the ground of contract, because there *was no contract by mortgage, or by bond between the principal debtor and the surety. But it is upon the ground that the surety having become bound to the creditor upon an implied contract of indemnity with his debtor, has, in the place of the debtor, satisfied the claim of the creditor, done what the debtpr ought to have done; upon principles of natural justice and equity he should be entitled to the benefit of the creditor’s securities for his indemnity. But only for his indemnity. He has no equity to be subrogated to the rights and securities of the creditor against the debtor for what he has not paid for him ; but only for what he has paid for him. So that upon the principle of subrogation, as upon the implied contract of indemnity, the surety is not entitled to recover from the principal a greater amount than he has paid for him. He has an equity to be subrogated only for his indemnity in cases where the doctrine of subrogation will apply. But in this case the payment having been made by the surety in the lifetime of his principal, it has no where been held, in this country or England, that the principle of subrogation is applicable. He must stand alone upon his implied contract of indemnity. As was said by the Bord Chancellor Cottenham in Reed v. Norris, 14 Cond. E. C. R. 362, 375, the contract between him and his principal is, that the principal shall indemnify him from whatever loss he may sustain by reason of incurring an obligation together with the principal. It is on a contract for indemnity that the surety becomes liable for the debt. It is by virtue of that situation, and because he is under an obligation as between himself and the creditor of his principal, that he is enabled to make the arrangement with that creditor. It is his duty to make the best terms he can for the person in whose behalf he is acting. His contract with the principal is indemnity.” He then asks the question, “can the surety, then, settle with the obligee, and instead of treating that settlement as payment *of the debt, treat it as an assignment of the whole debt to himself, and claim the benefit of it as such to the full amount, thus relieving himself from the situation in which he stands with his principal, and keeping alive the whole debt ? This question he answers in the negative, and says he is prepared to make a precedent. But this was unnecessary, as Lord Eldon in Rushforth ex parte, 10 Ves. R. 409, 420, and Butcher v. Churchill, 14 Ves. R. 567, had laid down the rule “that where a surety gets rid of and discharges an obligation at a less sum than its full amount; he cannot, as against his principal, make himself a creditor for the whole amount; but can only claim as against' his principal what he has actually paid in discharge.” The same doctrine is asserted-by eminent text writers and in various decisions, both in England and America ; 1 Stor. Eq. Jur. s. 499 b., and 499 c. ; Pittman on Principal and Surety, Raw Bibr. vol. 40, top p. 98, marg. 134, and cases cited. And it is expressly held by this court in Blow v. Maynard, 2 Leigh, 29.

The court is therefore of opinion that Richards, having paid the debt of Eorney to Kendrick, for which he was bound in a joint and several obligation as surety for Eorney, in the lifetime of his principal, the said obligation was thereby discharged, and the said surety could not take an assignment of it. But that he has a claim on Eorney, his principal, for indemnity ; that is, for the amount he paid the obligee, and for that only.

The court is further of opinion that upon the facts of the record Richards must be deemed to have paid the debt in April 1863, to Kendrick, the obligee, in Confederate money. The evidence shows that he paid him about $2,000 in Confederate money, including a small account he had against him for three months’ board, in consideration of an assignment to him of bonds to the same amount, including the bond in which he was surety for Forney. The account seems to have been received, *in payment of the bonds, for its face amount, just as the Confederate money was received. There appears to have been no discrimination made by the parties in the transaction between the account and the Confederate money; but it seems to have been received in payment as Confederate money. Nor does it appear that Richards had a right to demand specie or other currency than Confederate in payment of it. And it being a contract made in the latter part of 1862 or 1863, for board, it may fairly be inferred that it was solvable in Confederate currency, there having been no stipulation that it was to be paid in specie. Nor does it appear that this account in the transaction was specially applied to the payment of Forney’s bond. Inasmuch, therefore, as Richards, the surety, must be deemed to have paid the debt of his principal in Confederate money, he was bound to have received from his principal reimbursement in the same sort of funds. And it satisfactorily appearing from the preponderance of testimony in the cause, that the same was tendered by the appellee to Richards soon after he had paid the bond to the obligee, and that he refused to receive it, the court is further of opinion that the Circuit court did not err in decreeing in his favor only the value of the Confederate money paid by him to Kendrick for his principal. And it not appearing that the amount allowed by the decree is less than the value thereof, the court is of opinion, for the foregoing reasons, to affirm the decree.

Decree affirmed.