Leuning v. Hill

• Decision Date: 17 June 1971
• Docket Number: No. 41234,41234
• Citation: 486 P.2d 87,79 Wn.2d 396
• Parties: Adgie LEUNING, Individually and as personal representative of the Estate of W. C. Leuning, deceased, Respondent, v. Marvin HILL and Noriene Hill, husband and wife, Appellants.
• Court: Washington Supreme Court

Page 396

79 Wn.2d 396

486 P.2d 87

Adgie LEUNING, Individually and as personal representative of the Estate of W. C. Leuning, deceased, Respondent, v. Marvin HILL and Noriene Hill, husband and wife, Appellants.

No. 41234.

Supreme Court of Washington, En Banc.

June 17, 1971.

Perry B. Woodall, Toppenish, Elwood Hutcheson, Yakima, for appellants.

Felthous, Brachtenbach, Peters & Schmalz, Robert A. Felthous, Selah, Joseph C. Murphy, Toppenish, for respondent.

HAMILTON, Chief Justice.

Three issues seek resolution by this appeal. The first presents a question of initial impression in this state, the second a factual dispute, and the third revolves about an evidentiary ruling.

Respondent, Adgie Leuning, individually and as personal representative of the estate of her deceased husband, W. C. Leuning, instituted this action seeking recovery from appellants, Marvin and Noriene Hill, of moneys paid by her husband's insurer, under a group credit life insurance policy, in satisfaction of a debt evidenced by a promissory note signed by Mr. Hill and Mr. and Mrs. Leuning. Additionally, respondent sought accounting for and recovery of rents claimed due under a farm lease previously entered into by the Leunings, as lessors, and the Hills, as lessees.

The cause came on for hearing before the trial court sitting without a jury. From findings of fact, conclusions of law, and judgment in favor of respondent, the Hills appeal.

The evidence adduced at trial reveals the following circumstances as being relevant to the appeal.

The Leunings were longtime owners of farm land, consisting of a fruit orchard and some open ground, located in the Yakima valley. Mr. Leuning farmed the property himself until 1961, when ill health intervened. He then engaged the services of Mr. Hill, an experienced farmer who had suffered financial reverses and gone into bankruptcy. Mr. Hill successfully managed the farm for the Leunings during the crop year of 1961. Following negotiations between the parties, the Leunings agreed to lease their property to the Hills and, accordingly, a lease was executed on February 13, 1962. Insofar as the issues in this appeal be concerned, the pertinent portions of the lease are:

I.

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9--This lease shall commence on the First day of January, 1962, and expire on the 31st day of December, 1962; however, Lessee is hereby granted an option to renew this lease for an additional term of six (6) years, providing he gives written notice to the Lessor by the 30th day of November, of each year. Lessee shall pay all spraying, fertilizing and labor costs, and any other and all costs in connection with the production and harvesting of the fruit crops grown on the herein described real estate. (Italics ours.)

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11--Lessor covenants and agrees to apply with the Lessee and sign with the Lessee all necessary applications to secure financing through the Production Credit Association. * * *

II.

It is expressly understood and agreed that the Lessor shall receive 25% Of the gross receipts from the sale of all products grown on the above described premises and Lessee shall receive 75% Of the gross receipts for all products raised on the above described premises. The term Gross receipts shall mean the total of all funds received from the sale of all fruits and products and fruit products. Said settlement shall be made as the money is received and all checks in payment for said fruit products shall be made in the joint names of the Lessor and the Lessee herein and any financial institution where required.

Financing for appellants' farming operations under the lease was sought and obtained from the Central Washington Production Credit Association (hereafter referred to as PCA). Because of Mr. Hill's prior financial problems and relative insolvency, PCA required the Leunings to cosign the notes Mr. Hill executed annually for crop loans, although the Leunings did not hold the type of PCA stock authorizing them to borrow from that agency. As provided in the lease, all payments received by Mr. Hill from the sale of fruit products were to be made in the joint names of Mr. Leuning, Mr. Hill, and PCA. When such payments were made, Mr. Hill would ordinarily take them to Mr. Leuning, obtain his endorsement, and then deliver them to PCA, who would credit the payment to any loan balances remaining for the particular crop year involved.

On March 15, 1965, a note, payable upon demand or no later than June 5, 1966, was signed by Mr. Hill and the Leunings for $23,031 to obtain funds from PCA for the 1965--1966 crop year. In addition, and because of the amount of the loan commitment, which included a carryover from the preceding year, PCA requested the Leunings to give a mortgage upon their property as added security, which they agreed to do.

During the course of their annual dealings with PCA, Mr. Hill and Mr. Leuning each obtained credit life insurance policies upon their respective lives. Concerning the nature of their respective actions in this regard, the secretary-treasurer of PCA testified on direct examination as follows:

A. Credit life insurance is voluntary. It's an added service to the members. They may take out credit life insurance in case they die to protect their widows and families. It is not mandatory.

The policies obtained were nonreducing term policies, in the form of certificates, issued by the Old Republic Life Insurance Co. under a group insurance arrangement with PCA, and were available solely to PCA borrowers. A physical examination was not required. The term of each policy was coextensive with the term of the loan pursuant to which it was written. When a loan was repaid or refinanced, the policies would terminate and new policies would be issued upon request for any subsequent indebtedness. The policies designated PCA as 'the irrevocable first beneficiary' to the extent of its interest at the time of an insured's death with the balance, if any, payable to the estate of the insured. Because of the state of his health, Mr. Leuning was otherwise uninsurable.

When the note of March 15, 1965, was executed, Mr. Leuning applied for and obtained through PCA a term credit life insurance policy in the face amount of $15,000, the maximum amount available to him in view of his age. The premium for the policy, as with former policies, was charged to the loan account.

On January 20, 1966, Mr. Leuning died. At the time of his death there was a balance of $10,097.04 remaining due on the outstanding indebtedness to PCA. Thereafter, the insurer, in response to a claim filed by PCA, remitted the unpaid balance on the loan to PCA, and paid the remaining sum due under the policy--$4,902.96--to respondent.

Contending that, as between the Leunings and the Hills, the Leunings were sureties and the Hills the principal obligors upon the PCA note, respondent by this suit sought to recover the amount paid by the insurer in discharging the indebtedness.

The trial court, in holding in favor of respondent, on this facet of the case, found and concluded that the Leunings were in fact sureties for the Hills and as such were entitled to reimbursement of the funds advanced through their collateral security--the credit life insurance policy.

Appellants do not seriously contest the trial court's determination regarding the status of the parties in relation to the PCA indebtedness. Nevertheless, it is pertinent to point out that while comakers to a written promissory obligation may sign and appear on the face of the writing as principals, they may in fact, as between themselves, occupy the relation of principal and surety, and, as between themselves, their true relationship may be established by parol or circumstantial evidence. It has, furthermore, been long recognized that when a surety, to protect his interests, discharges an obligation the primary responsibility for which rests with the principal obligor, an implied promise to indemnify or reimburse the surety comes into being on the part of the principal, which implied obligation, as such, is enforceable by the surety against the principal. Austin v. Hamilton, 7 Wash. 382, 34 P. 1097 (1893); Handsaker v. Pedersen, 71 Wash. 218, 128 P. 230 (1912); Pease v. Syler, 78 Wash. 24, 138 P. 310 (1914); Holland v Tjosevig, 109 Wash. 142, 186 P. 317 (1919); Dittmar v. Frye & Co., 200 Wash. 467, 93 P.2d 717 (1939); Eder v. Nelson, 41 Wash.2d 58, 247 P.2d 230 (1952).

In this case there is substantial evidence to support the trial court's determination that the Leunings were sureties to the Hills on the PCA indebtedness.

Appellants in attacking the judgment, however, contend that respondent is not, under the circumstances of this case, entitled to indemnification or reimbursement because (a) the PCA indebtedness was not in default; (b) the debt was extinguished by the insurer and not by respondent; (c) the premium for the insurance policy was charged against the loan account, hence, was paid in part, if not in toto, by the Hills; (d) since the indebtedness was not in default prepayment was voluntary; (e) Mr. Leuning and Mr. Hill, in respectively obtaining credit life insurance policies, did not intend that respondent would be entitled to reimbursement of any payments made to PCA under Mr. Leuning's policy; and (f) respondent, if permitted to recover, would be unjustly enriched.

Appellants' contentions are comprehensive and engaging. Nevertheless, we cannot follow them through to the conclusion appellants would have us reach.

In essence, the question presented is whether payment of a debt with the proceeds of a credit life insurance policy, issued on the life and at the behest of a surety to the obligation,...