Pace v. Pace's Adm'r

• Decision Date: 07 April 1898
• Citation: 95 Va. 792,30 S.E. 361
• Parties: PACE. v. PACE'S ADM'R.
• Court: Virginia Supreme Court

30 S.E. 361

95 Va. 792

PACE.

v.PACE'S ADM'R.

Supreme Court of Appeals of Virginia.

April 7, 1898.

Notes—Sureties—Subrogation.

Where one of two sureties on a note is obliged to pay the note, he is entitled to put in his claim on the estate of his deceased co-surety for the whole amount which he paid, and to receive dividends upon the basis of the entire debt until reimbursed for his half of the common burden, belonging to both sureties, and in that respect becomes subrogated to the rights and remedies of the creditor.

Appeal from corporation court of Danville.

Action by James B. Pace against the administrator of John R. Pace's estate to determine his claims as co-surety on a note paid by him. From a judgment granting plaintiff leave to prove for half of his claim, plaintiff appeals. Reversed.

Christian & Christian, for appellant.

E. E. Bouldin and Geo. C. Cabell, for appellee.

HARRISON, J. The facts of this case, in brief, are that on April 7, 1893, one T. J. Tal-bott (under the name of Pace, Talbott & Co.), John R. Pace, and James B. Pace made a note for $16,000, payable to William F. Cheek or order, 120 days after date. T. J. Talbott was the principal in the note, and John R. Pace and James B. Pace co-sureties. T. J. Talbott died in the fall of 1894, entirely insolvent. Prior to his death, to wit, on Oc tober 9, 1893, John R. Pace died, leaving an estate not sufficient to pay more than 50 cents on the dollar of his debts. In May, 1894, this suit was brought to administer John R. Pace's estate, and a decree of reference was entered in July, 1894. On the 19th of September, 1895, being pressed by the executors of the creditor, William F. Cheek, James B. Pace took up the note in question by paying $16,551.57, the entire amount, principal and unpaid interest, to that time. Thereupon James B. Pace tendered proof of these facts to the commissioner in this suit, and claimed to rank in the distribution of John R. Pace's estate for the whole of the debt so paid by him, until he had received one-half of the amount paid by him; but the commissioner reported that he could only rank for one-half the debt, and an exception made by James B. Pace on that score was overruled by the court below, to which ruling this appeal was taken.

The contention of the appellee is that J. B. Pace could not rank against the estate of his co-surety for the whole debt when the co-surety only owed him one-half of the debt; in other words, that appellant had no right to prove for the one-half of the debt which he himself was primarily bound to pay.

The question presented is an important one In the administration of insolvent estates, and there is some conflict of opinion in respect thereto. We are, however, satisfied that the view taken by the learned counsel for the appellant is sustained by the best reason and the weight of authority.

In Enders v. Brune, 4 Rand. (Va.) 447, Judge Carr, in discussing the doctrine of substitution, says: "It has nothing of form, nothing of technicality, about it; and he who, in administering it, would stick in the letter, forgets the end of its creation, and perverts the spirit which gave it birth. It is the creature of equity, and real essential justice is its object."

The doctrine is well settled that the surety has the right of substitution against the estate of his principal, where payment of a preferred debt has been made by such surety after the death of the principal; and the rule of substitution for the purpose of enforcing contribution among co-sureties is not different. One surety who pays the common debt is entitled to be subrogated to all the rights and remedies of the creditor, as against his co-sureties, in precisely the same manner as against the principal debtor. Robertson v. Trigg, 32 Grat. 76; Dering v. Earl of Win-chelsea, 1 White & T. Lead. Cas. Eq. (3d Am. Ed.) p. 131, and notes.

In Ex parte Stokes, De Gex, 618, Stokes, the creditor, held a bond executed by a principal and three sureties. Two of the sureties, Clark and Phillips, became bankrupts, and Stokes, the creditor, proved against their estates. Thereafter the principal debtor compounded with his creditors; and the other surety, Thomas Charles Ord, executed an assignment for the benefit of his. Stokes, the creditor, by dividends, received from the principal debtor, from the estate of Clark, one of the sureties, and from Thomas Charles Ord, realized his whole debt, to the payment whereof the remaining surety, Phillips, contributed nothing. The creditor realized from the estate of Thomas Charles Ord 10s. in the pound, whereas the just proportion payable by each surety was only 4s. 10d. in the pound. Thereupon the assignees of Thomas Charles Ord petitioned for leave to stand in the place of the creditor for his entire debt as against the estate of Phillips, which had paid nothing, so as to realize from that estate Its just proportion, viz. 4s. lOd. in the pound. The petition was allowed, Sir J. L. Knight Bruce saying:

"The question then substantially is whether, as between the estates of the two sureties, when (one of them having become bankrupt) the creditor has proved the debt under the fiat, and has afterwards been paid in full, partly by the principal debtor, and part-\y by the surety, not a bankrupt, the latter has the right to use the proof for the purpose of obtaining from the bankrupt's estate that amount of contribution to which the bankrupt is, or but for the bankruptcy would have been, liable, so far as the proof can furnish means for that end; and I think that he has.

"Where several persons are liable, each in solido, to a debt, the creditor may enforce payment in a manner which, as between the debtors themselves, is unjust. This must sometimes happen; but in such cases Is it not the function and the duty of a court of justice, at least of a court of equity, to place them in the same situation, between themselves, as if the creditor had enforced his rights against them in a manner conformable to their rights against each other, so far as it can be done? Generally speaking, the law of this country, as I apprehend, answers that question in the affirmative.

"Now, in the present case, had Mr. Stokes regulated his proceeding in such a manner, a portion of what he has received from Mr. Thomas Charles Ord's estate would have been taken by Mr. Stokes from Mr. Phillips' estate, if available for the purpose. The mere circumstance that it has not until the present time become practically available for the purpose is, I conceive, nothing.

"This has not been done; but justice r8-quires, I apprehend, that the nearest possible approach to that state of things shall take place, which must, I suppose, be effected by allowing the claim intended to be made by the present petition. Mr. Clark's estate, unless I mistake, has paid 5s. in the pound, but not more; while I collect that Mr. Thomas Charles Ord's estate has paid 10s, in the pound, and Mr. Phillips' estate as yet nothing. * * *

"I repeat that it was originally equitable between these sureties or their estates that the benefit of the proof or some portion of it should go in diminution of Mr. T. Charles Ord's burden; that, in my view, it was not competent to Mr. Stokes, by any election upon his part, to deprive Mr. Thomas Charles Ord's estate of that right; that it could not, I think, be defeated by delays and difficulties occurring in the liquidation or collection of Mr. Phillips' assets; and that the right appears to me substantially to have continued and now to exist."

In the case of Morgan v. Hill [1894] 3 Ch. 400, a debt was owing by a principal debtor and five sureties. Nothing could be realized from the principal debtor, or from one of the sureties, and only a very insignificant sum from another of the sureties. So, three of the sureties were left to bear the liability. One of these three made an assignment, which, after...