In re Thompson

• Decision Date: 05 July 1924
• Docket Number: 8726.
• Parties: In re THOMPSON.
• Court: U.S. District Court — Western District of Pennsylvania

300 F. 215

In re THOMPSON.

No. 8726.

United States District Court, W.D. Pennsylvania.

July 5, 1924

Sterling Higbee & Matthews, of Uniontown, Pa., for petitioner.

THOMSON District Judge.

This case raises the legal question whether a surety, who has paid the whole debt, has the right to dividends from the estate of an insolvent cosurety on the whole debt, or only on the proportionate part for which the cosurety is liable. The material facts of the case are these:

Anderson was the holder of 15 promissory notes, drawn by J. V Thompson or J. R. Barnes, to the order of Semans, Hogsett William M. Thompson, the bankrupt, Rosboro, and Hess, who indorsed the notes. Anderson recovered judgment against Thompson, the bankrupt, for the full amount of the notes obtaining a lien against all his real estate in Pennsylvania. Afterwards Anderson compelled Hess, one of the coindorsers, by proceedings against his property in West Virginia, to pay the entire indebtedness. Hess realized from certain bonds pledged with him by J. V. thompson, one of the makers of the notes, a certain sum which reduced the claim to $34,558.29, for which proof was made and allowed, the amount of which is not in dispute. Thompson and Barnes, the makers, are insolvent. Hogsett, one of the indorsers, is insolvent, and can pay nothing. Semans, Hess, and Rosboro, the other cosureties, are solvent. Hess assigned his claim, for value, to the Federal Security Company; it being conceded, however, that the rights of the assignee are in no way superior to those of Hess. Certain real estate of Thompson, the bankrupt surety, on which the judgment in question was a lien, has been sold and two distributions of the proceeds made; each amounting to 6 per cent. In each distribution the Federal Security Company claimed 6 per cent. on the full amount of the claim as proved; but the learned referee held that it was entitled only to such dividends on the one-fourth of such claim as proved and allowed. Since the question was raised, it has been determined that the real estate on which the judgment was a lien would pay 20 per cent. of the liens against it, thus reducing the claim as proved to $29,646.63.

The court must determine, therefore, whether dividends out of the common fund are payable on this amount, or on the one-fourth part thereof. The several indorsers, being joint payees, are joint indorsers, subject to joint action, and, as between themselves, are ratably liable to each other. Therefore the paying surety has a right of action against each of the solvent cosureties for one-fourth of the amount paid by him, and entitled to dividends on his claim, not exceeding in amount the one-fourth of the debt paid for which the bankrupt was legally liable.

Concisely, therefore, the question is: Does the paying surety stand precisely in the shoes of the creditor whose claim he paid, thus entitling him to dividends as such creditor would have been, on the whole claim, as against the bankrupt surety, or only on the one-fourth part thereof? This is a legal question of long standing, which we seem to have inherited from the mother country, and courts of high authority have reached opposite conclusions in well-reasoned opinions. But I am satisfied that, while forceful arguments are present to sustain the contrary view (and these are well set forth by the learned referee in his opinion), the great weight of authority, supported by satisfactory reasoning, allows the paying surety to make proof against the estate of his cosurety exactly as the creditor could whose debt he paid, being limited only to the ratable part for which the surety is liable.

While it is argued with much force that neither in his own name nor in the name of the creditor should the paying surety be permitted to enforce any claim against his cosurety, except for the actual amount paid by him for his cosurety, and that if the latter's insolvency occasions loss, it is one to which the necessities of the...