Peay v. Southern Surety Company

• Decision Date: 15 December 1919
• Docket Number: 59
• Citation: 216 S.W. 722,141 Ark. 265
• Parties: PEAY v. SOUTHERN SURETY COMPANY
• Court: Arkansas Supreme Court

216 S.W. 722

141 Ark. 265

PEAY v. SOUTHERN SURETY COMPANY

No. 59

Supreme Court of Arkansas

December 15, 1919

Appeal from Pulaski Chancery Court; John E. Martineau, Chancellor reversed in part.

Decree on direct appeal affirmed, cross-appeal reversed and remanded.

J. A Comer and Mehaffy, Reid, Donham & Mehaffy, for appellants.

Before appellee can recover, it must show that the sums alleged to have been paid out were paid, and that it was legally liable for the sums paid under the bond, and that Peay was legally liable for said sums. The liability of a surety is identical with that of the principal. If Peay was not liable for the sums alleged to have been paid, then appellee was not liable and it can not recover from Peay. The liability of a surety is measured by the strict terms of its contract, and can not be extended by construction or implication. Before the surety can be liable the principal must be, and a surety is discharged when liability of the principal is discharged or extinguished. 119 Ark. 102. A surety who voluntarily pays a debt on which a principal is not liable can not recover; he is a volunteer. 52 N.E. 245; 14 Ky. Law Rel. 267; 85 Mass 524. A surety is discharged by payment of the debt. 96 Ark 268. A release of the principal releases the surety and the property mortgaged as security. 32 Cyc. 155. All the payments made by appellee for which it now sues were made prior to the decree in the city of Eufaula case in the United States District Court. Appellee was a party to that suit but consented to being made a codefendant, and all these sums were concluded by the judgment in that case. Peay was not a party to that suit, and neither Peay nor appellee were liable for the claims in this suit. All these matters have been ad judicated in another suit between the same parties, and appellant Peay, the principal, recovered judgment against the city of Eufaula. If appellee had not voluntarily paid the $ 2,500, it would be released by reason of the judgment recovered by Peay. 32 Cyc. 152; 40 N.E. 169.

A release of the principal releases the surety and property mortgaged. 32 Cyc. 155.

Buzbee, Pugh & Harrison, for appellee.

1. It was not necessary for Peay to be joined as defendant in any of the suits brought against appellee under the laws of Oklahoma. Okla. Rev. Laws 1910, §§ 969 and 4694; 161 P. 793. Nor was it necessary for appellee to notify Peay of the making of claims or bringing of suits against appellee as surety on Peay's bond; but Peay was notified continuously until all these claims were closed up. Peay had ample time to arrange all these matters before the suits were brought and settled by appellee. Peay was duly notified of the Rogers Lumber Company claim, and had a year to adjust same before suit. He paid no attention to it. The Hutchings attorney's fee and the items of costs and fees to witnesses should have been allowed by the court. 93 Ark. 530. Franklin earned his fee, and traveling expenses were incurred in the service of Peay and on his behalf. All these, as well as the amounts paid by Franklin in settlement of Rogers Lumber Company, Eckelcamp and Baker suits, were paid in good faith, and proper charges against Peay under his indemnity agreement with appellee and should be allowed. All these claims were settled with the consent and on the advice of Peay's attorney, Tisdale. Such costs, expenses and attorneys' fees were paid in defending those suits by appellee and it is entitled to recover for all of them. 124 Mass. 67; 127 N.W. 848; 17 Mass. 169. The agreement of Peay was to save it harmless from all liability, damages, loss, costs, charges and expenses, including attorneys' fees, and all should be now allowed on the cross-appeal here. 96 N.W. 782; 134 Ark. 499; 202 F. 483; 30 So. Rep. 758; 136 Ark. 227; 175 P. 701.

2. The $ 2,500 paid in compromise settlement of the city of Eufaula suit was only considered and adjudged in the judgment recovered by Peay, and the decree of the lower court against Peay should be affirmed, and appellee should be given judgment on the cross-appeal for the items claimed, $ 766.79.

3. As to marshaling assets, see 3 Pom. Eq. Jur. (2 Ed.), sec. 1414.

OPINION

HUMPHREYS, J.

This suit was instituted in the Pulaski County Chancery Court by appellee against appellants to recover $ 6,393.26 from Nick Peay, and to foreclose a mortgage given by Nick Peay and R B. Malone, on the 30th day of January, 1913, to secure said indebtedness. Prior to the institution of the suit, R. B. Malone had died, and the administrator of his estate and his minor heirs, through their guardian, were made parties defendant to the suit, and are a part of the appellants herein. The other appellants, in addition to Nick Peay, were made parties defendant in the suit on account of alleged mortgage and judgment liens held by them upon the same property. There is no controversy in this court concerning the respective priorities of the lien claimants. The only issues involved on the appeal grow out of the judgment rendered against Nick Peay and the lien declared upon the land to secure same. It was alleged in the complaint that appellee had expended the amount aforesaid in liquidation of claims against Nick Peay, growing out of an attempted performance of a contract made by him to construct a water and sewer system for the city of Eufaula, Oklahoma; that said amounts were paid pursuant to and within the terms of an application for and an indemnity bond executed by appellee to said city of Eufaula to guarantee the proper construction of said water and sewer system, in accordance with the contract between said city and Nick Peay. The written application for and the indemnity bonds given by appellee to the city of Eufaula and the State of Oklahoma were made parts of the complaint. That portion of the application fixing the liability between appellant, Nick Peay, and appellee, Southern Surety Company, in case of default in the construction of the water and sewer systems, or in case of failure to pay for labor and material used in the construction thereof, reads as follows: "* * * will at all times indemnify and keep indemnified the company and hold and save it harmless from and against any and all liability, damages, loss, costs, charges and expenses of whatsoever kind or nature including counsel and attorney's fee, which the company shall or may at any time sustain or incur by reason or in consequence of having executed the bond herein applied for, or by reason or in consequence of the execution by the company of any and all other bonds executed for us at our instance and request, and that we will pay over, reimburse and make good to the company, its successors and assigns, all sums and amounts of money which the company or its representative shall pay, or cause to be paid, or become liable to pay, on account of the execution of any such instrument, and on account of any liability, damage, costs, charges and expenses of whatsoever kind or nature, including counsel and attorney's fees, which the company may pay, or become liable to pay, by reason of the execution of any such instrument, or in connection with any litigation, investigation, or other matters connected therewith, such payment to be made to the company as soon as it shall have become liable therefor, whether the company shall have paid out said sum or any part thereof or not. That in any accounting which may be had between us and the company, the company shall be entitled to credit for any and all disbursements in and about the matters herein contemplated, made by it in good faith under the belief that it is or was liable for the sums and amounts so disbursed, or it was necessary or expedient to make such disbursements, whether such liability, necessity or expediency existed or not."

The items alleged to have been paid, pursuant to the contract and under the terms of the bond, consisted of $ 2,500 paid to compromise a $ 40,000 suit, which had been brought by the city of Eufaula against Nick Peay, alleging improper construction of the systems and a failure to clean them out, with the costs accruing in the case; a number of payments for labor and materials, alleged to have been used in the construction of the systems; telegraph, railroad fares, special fees for investigating the claims and lawyers' fees in defending suits and adjusting claims.

Appellant Nick Peay filed an answer, denying that he had made default in any particular in the performance of his contract with the city of Eufaula, or that he had failed to pay for any material or labor used in the construction of water and sewer systems for said city.

The cause was submitted to the court, upon the pleadings exhibits thereto, the evidence of the witnesses and documents adduced and identified by them, from which the court found that appellant Nick Peay was indebted to appellee in the sum of $ 4,626.83, on account of amounts paid for him under the terms of the application and bonds it had executed for him to the city of Eufala and the State of Oklahoma; that, to secure due...