Case Name: H. P. STONE, Respondent, v. JAMES HAMMELL, Appellant
Court: Supreme Court of California
Jurisdiction: California
Decision Date: 1890-04-02
Citations: 83 Cal. 547
Docket Number: No. 13024
Parties: H. P. STONE, Respondent, v. JAMES HAMMELL, Appellant.
Judges: 
Reporter: California Reports
Volume: 83
Pages: 547–553

Head Matter:
[No. 13024.
In Bank.
April 2, 1890.]
H. P. STONE, Respondent, v. JAMES HAMMELL, Appellant.
Principal and Surety — Reimbursement op Surety. — The general rule is, that a surety can recover of the principal only the amount or value which the surety has actually paid.
Id. — Extinguishment op Debt by Note op Surety.—A surety cannot claim reimbursement from the principal on account merely of a note given by the surety, unless such note has operated to extinguish the debt of the principal to the original creditor.
Id. —Note to Co-surety por Contribution-—Out-lawed Debt. —A note given by one surety, by way of contribution to a co-surety who has satisfied the principal debt, even if accepted as payment by the co-surety, cannot confer a right of action against the principal, if the liability of the principal to reimburse the co-surety for his advances is barred by the statute of limitations.
Id. — Statute op Limitations — Absence op Surety prom State — Payment to Co-surety — Liability op Principal. —The liability of the principal to reimburse a surety for payment of the original debt, not being founded upon an instrument in writing, is barred in two years from the date of such payment; and although the liability of another surety, for contribution to his co-surety who has paid the debt, may be kept alive by the absence of such other surety from the state, such absence does not extend the time within which an action may be brought by him against the principal upon payment to his co-surety of his eontributive share of the principal debt.
Appeal from a judgment of the Superior Court of Santa Barbara County, and from an order denying a new trial.
The facts are stated in the opinion of the court.
S. W. Bouton, and Wells, Guthrie & Lee, for Appellant.
B. F. Thomas, for Respondent.

Opinion:
McFarland, J.
— After further consideration upon argument on rehearing, we are satisfied that the judgment in this case should be reversed.
The plaintiff with three other persons — Newell, Hamilton, and Hay man —were sureties on a promissory note made by defendant, Hammell, to one Byron Stevens for three thousand dollars, dated July 1, 1877, and payable one year after date. Plaintiff claims that one of said sureties, Newell, paid on said note something over two thousand dollars, and that plaintiff paid to Newell, as his pro rata contributive share, one thousand dollars; and this action was brought to recover said one thousand dollars of defendant, the principal on the note.
There are a number of interesting questions in the case, which, under the views which we take of it, need not be determined. For instance, defendant contends that he gave a mortgage to the sureties to secure them, and that the mortgage should have been foreclosed, and that the mortgaged property was sufficient in value to satisfy the note; that defendant was discharged from the liability sued on by a decree in insolvency; and that the one thousand dollars was more than plaintiff's contributive share. We will assume, however, that the property was not held by way of mortgage, and was faithfully applied by Newell, as far as it would go, to the payment of the note; that the decree in insolvency did not include the liability sued on; and that one thousand dollars was the correct amount of plaintiff's contributivo share.
It is not averred in the complaint or found by the court that the plaintiff, Stone, ever paid to his co-surety Newell any money or gave him any property in satisfaction of Newell's claim for contribution. The only averment on the subject is as follows: " That on the 1st of March, 1884, this plaintiff, in full satisfaction of the amount of money which he should contribute to said P. N. Newell for his aforesaid payments on the aforesaid note, made, executed, and delivered to said P. N. Newell his promissory notes in the sum of one thousand dollars, whereupon the said P. N. Newell gave to plaintiff his receipt in full for plaintiff's liability to contribute to him for the aforesaid payments on said promissory note." This is not a very clear averment that Newell took the notes in absolute payment of his former claim; but we will assume it to be sufficient for that purpose. There is no averment that plaintiff ever paid the notes, or any part of either of them. It appears, from the findings, that they were payable two years after date, and would not mature until more than a year after this action was commenced. The court below held that the giving of these notes, and their acceptance as payment by Newell, constitutes a cause of action in favor of plaintiff against defendant. In this holding, under the facts in the case at bar, at least, the court, in our opinion, erred.
The general rule is, undoubtedly, that a surety can recover of the principal only the amount or value which the surety has actually paid. If he has paid in depreciated bank notes taken at par, he can recover only the actual value of the bank notes so paid and received; if he has paid in property, he can recover only the value of the property; if he has compromised, he can recover only what the compromise cost him. The rule is, that he shall not be allowed to "speculate out of his principal." (Brandt on Surety and Guaranty, sec. 182, and cases there cited; Estate of Hill, 67 Cal. 243.)
There is authority, however, and perhaps a preponderance of authority, to the point that if a surety, by giving his negotiable promissory note, satisfies the claim of the creditor, and extinguishes the debt of the principal to the creditor, he may recover from the principal the amount of the debt, without showing that he has paid his promissory note. (Brandt on Surety and Guaranty, sec. 181, and cases cited.) But the authorities are not uniform upon the subject. In Indiana and North Carolina, and some other states, it is held that the surety cannot recover of the principal until he has paid the money, and that the giving of a note is not sufficient. (Brisindine v. Martin, 1 Ired. 286; Nowland v. Martin, 1 Ired. 307; Romine v. Romine, 59 Ind. 351, and cases there cited.) Many of the cases hold that if the surety discharges the debt by a negotiable note he can maintain an action against the principal, while if he does so by means of a bond or any non-negotiable instrument, he cannot, upon the theory that a negotiable note is analogous to money, —a distinction which is founded upon no apparent good reason. (Boulware v. Robinson, 8 Tex. 327; 58 Am. Dec. 117; Peters v. Barnhill, 1 Hill (S. C.), 237.) The rule is founded on the reason that if the surety, by giving his own obligation, discharges the original debt of the principal, the latter is as much benefited as if he had discharged it by actually paying the money; its weakness lies in the possibility of the surety recovering the whole amount of the principal, and never paying his own note, thus violating the cardinal rule that the surety shall not speculate out of the principal. But if we assume the rule to be as first above stated, it is not so clearly com mendable as to deserve pushing further than adjudicated cases have already carried it; and in all cases to which our attention has been called, the rule has been enforced against the principal in favor only of the surety who has extinguished the debt to the original creditor. We have seen no case in which the rule has been applied to a surety who had not satisfied the original debt, but had only given his note to another surety who had satisfied it. Moreover, the reason of the rule — if it be held to be the rule—is, that the principal is benefited to the extent of the original debt or liability which lias been extinguished by the new obligation of the surety; and the reason ceases when there is no such benefit. Now, in the case at bar, defendant was in no manner benefited by the notes given by plaintiff to Newell, nor was any debt or liability of defendant thereby extinguished; because at tlié time the notes were given there was no legal liability from the defendant to Newell, for the reason that any cause of action which the latter might have had against the defendant for moneys which he had paid to Byron Stevens had long been barred by the statute of limitations. The last payment made by Newell on the note to Stevens,- as averred and found, was on January 10, 1881; and as his cause of action for the payments which he had made was not " founded on a written instrument," it was barred in two years,— that is, on January 10, 1883. (Chipman v. Morrill, 20 Cal. 136.) But plaintiff did not give his notes to Newell until March 1, 1884. At that time defendant was under no legal obligation to any one which plaintiff could discharge by giving said notes. The original note given to Stevens had itself been long since outlawed. Therefoie by giving said notes plaintiff acquired no cause of action against the defendant herein.
We think, also, that the cause of action averred in the complaint would have been barred by the statute of limitations, which was pleaded by defendant, even though plaintiff, on March 1, 1884, had actually paid Newell the one thousand dollars in money. Plaintiff seeks to avoid the running of the statute through the fact that within a month after the original note to Stevens matured he left the state, and resided out of the state for several years. His contention is, that as Newell's cause of action against him for contribution would not be barred while he remained out of the state, therefore his cause of action which he had against defendant, or which he proposed at some future time to have by paying his contributive share to Newell, would not be barred during his absence from the state, though such absence should be for fifty years. He contends that by returning at any time, and subjecting himself to Newell's claim and paying it, he could recover his part of it against defendant, although in the hands of Newell it had been outlawed for a quarter of a century. We do not think that the law of limitation of actions contemplates any such an anomaly. When a man leaves the state, the statute of limitations does not run during his absence as to any cause of action against him; but his absence does not prevent the statute from running as to any cause of action in his favor. At any time within two years after Newell had paid the original note plaintiff could have paid his contributivo share to Newell and maintained an action for it against defendant. But he could not wait until the whole of Newell's cause of action against defendant was barred, and then revive one half of the claim by coming back years afterward and making a real or pretended payment of it to Newell. The whole claim was, as to defendant, dead; and the breath of life could not be blown into one half of it by any such legal hocus-pocus.
For the reasons above stated, the judgment and order appealed from are reversed, and the cause remanded for such further proceedings as respondent may be advised to take.
Fox, J., Sharpstein, J., and Paterson, J., concurred.