La-Rey, Inc. v. Kowalski, LA-RE

• Decision Date: 23 October 1968
• Docket Number: INC,No. 14713,LA-RE,14713
• Citation: 433 S.W.2d 530
• Parties: , Appellant, v. Fredericka Yates KOWALSKI (Leonard), Appellee. . San Antonio
• Court: Texas Court of Appeals

Page 530

433 S.W.2d 530

LA-REY, INC., Appellant, v. Fredericka Yates KOWALSKI (Leonard), Appellee.

No. 14713.

Court of Civil Appeals of Texas.

San Antonio.

Oct. 23, 1968.

Marcel Notzon, II, Argentina Cronfel, Mann, Cronfel & Mann, Laredo, for appellant.

Hall & Juarez, Laredo, for appellee.

BARROW, Chief Justice.

The primary question presented by this declaratory judgment appeal is whether payment of a secured indebtedness with the proceeds of credit life insurance inured to the benefit of the insured debtor's widow or to the assuming grantee. The trial court determined that said payment inured to the benefit of the appellee widow who had subsequently remarried and entered judgment that she recover from appellant the sum of $4,718.54, with certain interest provisions. Appellant duly appealed from this judgment and appellee has asserted a cross-point urging that she is entitled to judgment for foreclosure of the chattel mortgage lien securing said indebtedness, together with reasonable attorney's fees.

All facts were stipulated to the trial court. On December 15, 1965, Louis Kowalski, Jr., husband of appellee, executed a conditional sales agreement whereby he agreed to purchase certain garage machinery and equipment from Jacobs Distributing Co., and in consideration thereof he executed a note in the amount of $9,436.94, payable in 24 installments at the Brooks Field National Bank of San Antonio. This note was immediately assigned by Jacobs to said Bank. Included in said note was a premium of $165.20 for a credit life insurance policy which was issued by Three Americas Life Insurance Company on the life of Kowalski with the Brooks Field National Bank as credit beneficiary for the amount owed on the note, and with the estate of the insured being named as beneficiary for any excess.

No November 1, 1966, Kowalski entered into a letter agreement to sell his service station, together with all equipment, to three individuals for an estimated price of $29,623.74, pending actual inventory of the equipment. This agreement provided that the three contracting individuals would form a private corporation and, in accordance therewith, appellant, La-Rey, Inc., was created and succeeded to their rights. On November 28, 1966, Louis Kowalski executed a bill of sale to appellant to said station and equipment for the total price of $26,404.53. The note and lien to the Bank were expressly recognized therein and appellant assumed and agreed to pay said outstanding indebtedness in accordance with the terms and conditions of said note. There was no reference to the credit life insurance policy in the agreement. The parties stipulated that the equipment covered by this note was of the appraised value at this time of $7,914.77 after a 15% Discount was given appellant, and appellant assumed, as a part of the agreed purchase price, payment of the remaining balance of $5,933.00 due the Bank on said note.

Although the original agreement between Kowalski and the three individuals provided that the owner of the note would consent to the assumption of the balance by appellant, the Bank never took any action whatsoever so as to relieve Kowalski of his primary obligation to the Bank on said note. Three payments were made on the note by appellant prior to Kowalski's death on February 9, 1967. In March, 1967, Three Americas paid the Bank the remaining indebtedness of $4,718.54 due on said note, and the Bank marked the note paid and returned it to appellee. No further payments were made by appellant, but in June, 1967, it filed this suit for declaratory judgment and in its petition alleged that it was willing to tender any amount that the court might require.

It is clear that as between Kowalski and appellant, the latter was primarily liable on this note with Kowalski liable as surety. Gunst v. Pelham, 74 Tex. 586, 12 S.W. 233 (1889); 9 Tex.Jur.2d Bills and Notes, § 123. Appellant concedes that where a surety is required to discharge an indebtedness or obligation of his principal, he is subrogated to the rights of the creditor. See Fox v. Kroeger, 119 Tex. 511, 35 S.W.2d 679, 77 A.L.R. 663 (1931); Halpenny v. Maldonado, 415 S.W.2d 16 (Tex.Civ.App.--San Antonio 1967, no writ). It urges, however, that appellee was only a mere volunteer in making this payment and therefore not entitled to subrogation. Verschoyle v. Holifield, 132 Tex. 516, 123 S.W.2d 878 (1939); Small v. Brooks, 163 S.W.2d 236 (Tex.Civ.App.--Austin 1942, writ ref'd w.o.m.).

Both parties state there is no Texas case in point on this question and we have found none in our own research. Each party relies, however, on conclusions stated in a review of Betts v. Brown, 219 Ga. 782, 136 S.E.2d 365 (1964) by Mr. William A. Thau, Jr ., in 43 T.L.R. 580. Mr. Thau correctly reasons that as between the creditor and the insured debtor, credit life insurance is treated as collateral security and therefore payment of the debt with credit life insurance is payment by the insured debtor, just as payment with any collateral security is payment by the owner thereof. The presence of an assuming grantee who has no right to change the beneficiary under the policy, and therefore no claim of ownership, should...