Richeson v. National Bank of Mena

• Decision Date: 05 December 1910
• Citation: 132 S.W. 913,96 Ark. 594
• Parties: RICHESON v. NATIONAL BANK OF MENA
• Court: Arkansas Supreme Court

132 S.W. 913

96 Ark. 594

RICHESON v. NATIONAL BANK OF MENA

Supreme Court of Arkansas

December 5, 1910

Appeal from Polk Chancery Court; W. H. Collins, Special Chancellor affirmed.

Decree affirmed.

Willard P. Cave, for appellant.

1. Under the facts in this case, the only valid indebtedness secured by the mortgage was the two five thousand dollar notes upon which appellant was surety. This being true appellant would be subrogated to the entire rights of the mortgagee, and entitled to priority of payment. 1 Jones on Mortgages (2 ed.) P 881; Baylies on Sureties & Guarantors 368, 369, § 5; 27 Cyc. 1070; Id. 1065.

2. The alleged assumption by the loan company of the lumber company's indebtedness was wholly executory, and so remains by reason of the fact that the loan company has paid out nothing under such assumption and guaranty. The contract was ultra vires, the loan company's charter not authorizing the corporation to become surety for others, and either party can plead its want of authority to make the contract. Kirby's Dig. § 839; Green's Brice's Ultra Vires, 252; 1 Clark & Marshall on Priv Corp. P 213; Id. 548, P 208; 139 U.S. 24; 4 Clark & Marshall, Priv. Corp. P 213; Child's Suretyship & Guaranty, 61, P 52; 2 Beach, Priv. Corp. 706, P 426; 2 Cook on Corp. § 774; 4 Thompson on Corp. P 5739; 85 Ark. 185; 107 S.W. 676; 130 S.W. 162; 1 Clark & Marshall, Priv. Corp. P 184; Baylies, Sure. & Guar., §§ 2 and 3, pp. 46-48; Id. § 7, p. 17; 3 Thompson, Corp. P 3990; 4 Id. 5721; 10 Cyc., 1109, § 7; 70 Ia. 541; 7 Wis. 59; 38 N. Y. St. 602; 85 Tenn. 793; 91 Pa.St. 367; 50 Conn. 167.

Wright Prickett and Elmer J. Lundy, for appellee.

1. The appellant can not question the validity of the mortgage, or a part of it, on the ground that it is vague, indefinite or uncertain. The description of the indebtedness sought to be secured was sufficient to put interested parties on inquiry, and that was sufficient. 1 Jones on Mortgages (6 ed.), § 342, p. 279; Id. § 343, p. 280; Id. § 364 et seq.; 46 Ark. 70; 55 Ark. 569; 20 Am & Eng. Enc. of L. (2 ed.) 925; 120 U.S. 765; 27 Cyc. 1059. Neither can he question it as a creditor without notice. He had actual notice of the mortgage when made; moreover, he is charged with notice of it from the time it was recorded. Kirby's Dig. §§ 5395, 5396; 40 Ark. 430; 1 Jones on Mortgages (6 ed.) § 524; Bispham's Eq. (2 ed.) 338, § 270. He is estopped to deny its validity, because he knew it was made at the time he signed the notes, and offered no objection to its terms. 11 Am. & Eng Enc. of L. (2 ed.) 436; 53 Ark. 196.

2. Appellant is in no position to question the validity of the loan company's assumption to the bank's debt. The loan company under some circumstances might plead ultra vires, but it has not; on the contrary, asserts its liability under the assignment. A stranger to the transaction, to whom the corporation owes no duty, can not set up this plea. 29 Am. & Eng. Enc. of L. (2 ed.) 80; 10 Cyc. 1166; 105 U.S. 166. The lumber company can not attack it as ultra vires. 98 U.S. 621; 70 Ark. 232; 81 Mo. 26; 157 Mass. 548. The assumption of the debt, under the circumstances of this case, was not in fact ultra vires. 7 Am. & Eng. Enc. of L. (2 ed.) 701; Id. 755. The president of the lumber company had authority to execute the mortgage; but if he did not, neither appellant nor the company can now question his act as ultra vires. 10 Cyc. 1148-9; 29 Am. & Eng. Enc. of L. (2 ed.) 86; Id. 88.

3. The lumber company having received and expended the $ 5,000 for which the note of S. G. Richeson was given, it could not escape liability by claiming that the note was not signed until the mortgage was given. 70 Ark. 232; 98 U.S. 621.

4. Appellant will not be heard to claim that the loan was a violation of the national banking laws. The loan, though in excess of the amount prescribed by statute, can be recovered in full from a borrower. 96 U.S. 640; Magee on Bank and Banking, 325, § 228.

5. A surety's right of subrogation is limited to the rights arising under the debt he pays. Sheldon on Subrogation, (2 ed.) 166; 27 Am. & Eng. Enc. of L. (2 ed.) 210. A surety for part of a debt can not be subrogated while the other part remains unpaid. Sheldon on Subrogation, 172; Id. 190-191; 27 Am. & Eng. Enc. of L. (2 ed.) 211; 2 Bouvier's Law Dict., Rawle's Revision, 1056; 53 Ark. 303. The right will not be enforced to defeat or interfere with equal equities of others. 1 Jones on Mortg. § 874; Id. § 885-b; 27 Am. & Eng. Enc. of L. (2 ed.) 204; Bispham's Equity, (2 ed.) § 338; 53 Ark. 303; 34 Ark. 113; 40 Ark. 132; 76 Ark. 245. Conventional subrogation has no application in this case. It arises only upon an agreement which must be express and specific. 1 Jones on Mortg., § 874b; Sheldon on Subrog., § 248, p. 372.

OPINION

FRAUENTHAL, J.

This is an appeal from a decree of the Polk Chancery Court determining the priority of liens of certain creditors upon the property of the Howard Lumber Company, a domestic manufacturing and business corporation, of whose assets said chancery court had taken charge under insolvency proceedings instituted against it. In February, 1909, the Howard Lumber Company was largely indebted to various creditors, and, though it had assets ordinarily worth more than its liabilities, it was pressed for money and unable to pay its debts. It was indebted to the National Bank of Mena (hereinafter referred to as the bank) in a sum, as claimed by that bank, amounting to $ 11,650, and to other creditors in various sums aggregating about $ 10,000. It was thought by the president and manager of the Howard Lumber Company (which will hereafter be referred to as the lumber company) that if sufficient money could be borrowed by it to pay the indebtedness of that company to all creditors other than the bank, and if said bank would extend the time of the payment of the debt due to it, the said lumber company could proceed with its business and succeed in paying all its liabilities. The cashier of the bank was also the president of the Hancock Land, Loan & Investment Company, a domestic corporation (which will be hereafter referred to as the loan company), and at a conference had by the officers of said bank and said loan company and the president of said lumber company an arrangement was effected by which the said lumber company could borrow the required $ 10,000 from said loan company. There is a slight conflict in the testimony as to the terms of the agreement that was then made by these parties. We think, however, that the testimony tends to establish the following facts: S. G. Richeson was the president of the lumber company, with its place of business located in Polk County, and S. A. Richeson, the appellant, was his brother, and resided at Rothville, Mo. Practically all the shares of stock of the said lumber company were owned by the brother and other relatives of appellant. At the above conference it was agreed that the said loan company would lend to the lumber company the required $ 10,000 at a rate of interest of 10 per cent. per annum, and that the bank would extend the time of payment of the indebtedness due to it by the lumber company upon the loan company assuming and guarantying to pay said indebtedness. In consideration of the loan of said money and the assumption and guaranty of its said indebtedness to the bank, the lumber company agreed to execute to the loan company two notes for $ 5,000 each, with said appellant as surety thereon, due six months after date and bearing interest at the rate of 10 per cent. per annum, and to execute to the loan company a mortgage upon all its properties in order to secure the payment of said $ 10,000, and also the liability which it incurred by reason of its assumption and guaranty of the payment of said indebtedness due by the lumber company to the bank. In pursuance of the agreement, the board of directors of the lumber company adopted a resolution impowering and authorizing its president to negotiate a loan of $ 22,000 in order to pay the obligations it then owed, and to execute a mortgage upon all the property of said lumber company in order to secure said loan. The total amount of the indebtedness of the lumber company at that time consisted of the alleged debt of $ 11,650 to the bank and of about $ 10,000 to its other creditors, aggregating about the said sum of $ 22,000; and we think that the above resolution was adopted for the purpose of providing for the payment and security of the said above indebtedness. Thereupon the lumber company executed its two notes for $ 5,000 each to the said loan company bearing the above rate of interest and due six months after date, and sent same to appellant at Rothville, Mo., for his execution thereof as surety, which was done, and same were returned on February 23, 1909. On that day the loan company executed to the bank its written obligation by which in consideration of the loan made by it to said lumber company and the agreement on the part of the bank to extend the time of the payment of its indebtedness against the lumber company it did "assume and guaranty the payment of said debt of $ 11,650, with interest," of the lumber company to the said bank; and in said written guaranty it is also stated that "the same shall be held and treated by all parties concerned as covered and secured by the terms and conditions of said mortgage." And on the same day and as a part of the same transaction the lumber company executed to the said loan company a mortgage on certain property therein described (which was substantially all its property) and said mortgage was duly filed for record on March 1, 1909. The indebtedness clause in said mortgage is as follows:

"This sale is on condition: That whereas the said Howard County Lumber...