Everett v. Staton
| Decision Date | 29 September 1926 |
| Docket Number | 51. |
| Citation | 134 S.E. 492,192 N.C. 216 |
| Parties | EVERETT et al. v. STATON. |
| Court | North Carolina Supreme Court |
Appeal from Superior Court, Martin County; Calvert, Judge.
Action by James A. Everett and others against J. G. Staton, receiver of the People's Bank of Williamston. From a judgment of nonsuit, plaintiffs appeal. Affirmed.
See also, 134 S.E. 490.
Directors of bank, who executed guaranty as additional security to 12 of its creditors, held not entitled, by legal subrogation after debtor's insolvency, to unexhausted original security returned by 8 of the creditors, to indemnify them against loss through claims of the other 4, where they had paid nothing to any creditor.
The People's Bank of Williamston was indebted to 12 banks in various amounts, aggregating $389,069.74. This indebtedness of the People's Bank was secured by collateral owned by the bank in the form of the bills receivable, aggregating $624,431.16. These correspondent banks refused to advance any more money until further security or guaranty was assured. Plaintiffs, among others, were directors of the People's Bank. In order to meet the emergency, 21 directors of the People's Bank executed and delivered a written guaranty to each of said correspondent banks, guaranteeing to each of said banks payment of any indebtedness held by such bank against the People's Bank, together with any indebtedness which might thereafter exist or arise by reason of any credit furnished or extended to said People's Bank. These guaranties authorized the creditor banks to, in their discretion "from time to time, at any time surrender exchange, or substitute at its pleasure any collateral that it now holds, or may from time to time hold, as security for such indebtedness or any part thereof." Thereafter, the People's Bank became insolvent and the defendant, Staton was appointed receiver thereof.
Eight of the creditor banks have been paid in full by the receiver of the People's Bank, and the excess collateral which these 8 creditor banks held, belonging to the People's Bank, has been returned to the receiver. The other four creditor banks have not been paid, the amount due them being $38,330.64, and they have brought suit on the guaranties. The plaintiffs contend that it was agreed at the time of signing said guaranties by said directors that all the collateral owned by the People's Bank and in possession of creditor banks should be exhausted before the guarantors should become liable on said guaranties, and that by reason of such agreement the collateral return to the receiver of the People's Bank by the eight creditor banks belongs to the plaintiffs, as directors, and should be held for the purpose of indemnifying them against loss arising upon claims of the four creditor banks still holding unpaid claims against the People's Bank.
The defendant contends that this excess collateral does not belong to the plaintiffs or the directors of said bank personally, but that it belongs to the general fund of the bank with which to pay depositors and other creditors. At the conclusion of plaintiffs' evidence the trial judge nonsuited the plaintiffs, from which judgment plaintiffs appealed.
Stubbs & Stubbs and B. A. Critcher, all of Williamston, and Ward & Grimes, of Washington, N. C., for appellants.
Dunning & Moore, of Williamston, and Stephen C. Bragaw, of Washington, N. C., for appellee.
The question presented by the record is whether or not the plaintiffs are entitled to the excess collateral now in the hands of defendant receiver by virtue of the equity of subrogation.
Subrogation is of two kinds, to wit, legal and conventional. "Legal subrogation is based upon payment and exists where one who has an interest to protect or is secondarily liable makes payment, while conventional subrogation, so named from the convention or agreement of the civil law, is founded upon the agreement of the parties, which really amounts to an equitable assignment." Joyner v. Reflector Co., 176 N.C.
274, 97 S.E. 44; Commercial & Farmers' Bank v. Bank, 158 N.C. 250, 73 S.E. 157; Journal Pub. Co. v. Barber, 165 N.C. 488, 81 S.E. 694.
The basis of legal subrogation is payment either in full or pro tanto to the creditor or otherwise satisfying the creditor so that the creditor has nothing further to demand. Journal Pub. Co. v. Barber, 165 N.C. 488, 81 S.E. 694; Grantham v. Nunn, 187 N.C. 394, 121 S.E. 662; Page Trust Co. v. Godwin, 190 N.C. 517, 130 S.E. 323. Therefore, it appearing that the plaintiffs have paid nothing to any creditor by reason of said guaranty or otherwise, they are not entitled to legal subrogation because they have neither discharged any debt of the People's Bank, in full or pro tanto.
The plaintiffs, however, contend that they are entitled to conventional subrogation by reason of the fact that, at the time of signing said guaranty, they had an agreement with the debtor, to wit, People's Bank, that all collateral placed by said People's Bank with its creditor banks should be exhausted or held for the protection of plaintiffs and other directors so signing said guaranties. It will be observed that the collateral now in controversy was not returned to the receiver of the People's Bank by the four banks now having unpaid claims; or, in other words, the collateral in controversy was never in possession of the four creditor banks now asserting a claim against the plaintiffs on said guaranties.
The decision of the merits of the controversy resolves itself into a determination as to whether or not the plaintiffs had a valid and binding agreement with the People's Bank constituting a lien on collateral, or an assignment thereof. Unquestionably, directors of a bank can make a valid and binding contract with the bank, if such contract is entirely free from any...
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