Griffin v. Long

• Decision Date: 24 October 1910
• Citation: 131 S.W. 672,96 Ark. 268
• Parties: GRIFFIN v. LONG
• Court: Arkansas Supreme Court

131 S.W. 672

96 Ark. 268

GRIFFIN v. LONG

Supreme Court of Arkansas

October 24, 1910

Appeal from Pulaski Circuit Court, Second Division; F. Guy Fulk Judge; affirmed.

Judgment affirmed.

Marshall & Coffman, for appellant; R. L. Rogers, of counsel.

"The liability of the principal to indemnify his surety is a debt contracted within the meaning of the statute, and arises at the time when the surety signs the note," etc. 10 Cyc 858. A surety may secure the same debt several times in succession when it is renewed by the debtor, but it is not his debt nor his renewal, and each time he secures it he enters into a new contract with his principal.

Rose Hemingway, Cantrell & Loughborough, for appellee.

Where an indebtedness has been extended from time to time by the execution of several renewal notes, the date of the contracting of the debt relates back to the date when the first note was executed. If the first note was executed before any annual report became due, or while the corporation was not in default, then no cause of action against the officers accrued to the payee of the note or to the surety thereon. Thompson, Com. Corp., par. 4222; 101 U.S. 188; 10 Cyc. 858; 106 Mass. 131; 16 Gray 142. The giving of a note in renewal of a previous note is not a payment of the first note, and does not create a new indebtedness, in the absence of an agreement to that effect. 5 Ark. 569; 48 Ark. 267; 51 Ark. 300; 68 Ark. 233; 84 Ark. 220.

OPINION

FRAUENTHAL, J.

This was an action instituted by a creditor of a domestic corporation to recover judgment against its president and secretary for his debt which he alleged was contracted during the period when the president and secretary neglected to file the annual statement showing the condition of said corporation. In his complaint the plaintiff alleged that the Argenta Wholesale Cigar & Tobacco Company was duly organized as a corporation under the laws of the State of Arkansas on September 12, 1907, and that on December 17, 1907, the appellant and others as sureties for said corporation executed a note to the Twin City Bank for $ 500; that on April 4, 1908, the said note was taken up and renewed for the same amount by the corporation executing a note as principal with the appellant and the other said parties as sureties to the same payee with the date of maturity extended; that this note was taken up and renewed from time to time in the same manner until December 1, 1908, when the said corporation as principal and the appellant and the said other parties as sureties executed the last renewal note therefor to said payee due ninety days after its date. This note was not paid when due, and the payee instituted suit and recovered judgment thereon against said sureties on June 28, 1909, and on July 22, 1909, appellant paid thereon the sum of $ 183.85, for which sum he seeks by this suit a recovery against the president and secretary of said corporation. He alleged that by virtue of section 848 of Kirby's Digest it was the duty of said president and secretary of said corporation to file a report of the financial condition of said corporation on July 1, 1908, and not later than August 15, 1908, and that the said officials of said corporation wholly failed to file said report, thereby rendering themselves liable for said debt of said corporation to appellant under section 859 of Kirby's Digest. The court sustained a demurrer to this complaint, and rendered judgment accordingly.

This was a suit to recover a debt of the principal due to his surety for what he had paid for such principal. The principal in this case was a corporation, and the action was brought to recover the debt from certain officers of said corporation. The action is founded upon the statutes of this State which provide that said officers of a corporation shall at stated times file reports of the financial condition of the corporation, and upon a failure or refusal to do so said officers shall jointly and severally be liable "for all debts of such corporation contracted during the period of such neglect or refusal." Kirby's Digest, §§ 848, 859. The material question involved in this case is: When, under the allegations of the complaint, was the debt due by the corporation to appellant, its surety, contracted? When one becomes surety for a principal, a liability arises upon the part of the principal to indemnify his surety for any payment which he may be compelled to make for the principal. Hill v. Wright, 23 Ark. 530; Rice v. Dorrian, 57 Ark. 541, 22 S.W. 213. The principal thus becomes indebted to the surety for the payments he is compelled to make for the former, and the question which arises is, does such indebtedness have its inception from the time the party became surety or from the time payment is made by the surety? The true rule seems to be that the surety becomes a creditor of the principal at the time be signs the note as surety, and not at the time he pays the same. In the case of Wiggin v. Flower, 5 Rob. 406, it is said: "Though the obligation of a surety cannot be enforced till after the event on which it becomes absolute, it exists from the time it was contracted, so the rights of the surety against his principal exist before the obligation of the former becomes absolute."

In the case In re Stout, 109 F. 794, it is said: "The payment of a note by a surety relates back to the signing of the note for the purpose of fixing the date when the indebtedness of the principal to him on account of such payment had its inception." In Rice v. Southgate, 82 Mass. 142, it was decided that "the liability of a principal to indemnify his surety for any payment that the latter may be compelled to make for the former takes effect from the time when the surety became responsible for the debt of his principal, and that upon payment by the surety his debt is a debt contracted at the time he became responsible and not at the time of such payment." See also Byers v. Franklin Coal Co., 106 Mass. 131; Loughridge v. Bowland, 52 Miss. 546; Berry v. Ewing, 91 Mo. 395.

But it is urged by counsel for appellant that, while the liability of the corporation to appellant as his surety did not take effect on July 22, 1909, when he paid the surety debt, it did take effect on December 1, 1908, when said last renewal note was executed, and not on December 17, 1907, when the original note was given. As to the principal debtor, the rule of law is well settled that the execution of a note in renewal of a previous note or debt is not a payment of such prior note or debt, nor the creation of a new indebtedness unless there is an...