Smith v. Pitts

• Decision Date: 21 April 1910
• Citation: 167 Ala. 461,52 So. 402
• Parties: SMITH ET AL. v. PITTS.
• Court: Alabama Supreme Court

52 So. 402

167 Ala. 461

SMITH ET AL. v. PITTS.

Supreme Court of Alabama

April 21, 1910

Appeal from Chancery Court, Tallapoosa County; W. W. Whiteside Chancellor.

Bill by C. A. M. Pitts against G. A. Smith and others to declare certain deeds from J. M. Smith and wife to M. M. Smith and Rosa H. Smith fraudulent and void as against complainant unless J. M. and G. A. Smith paid to complainant certain sums of money paid by him as surety for said Smiths. From a decree for complainant, respondents appeal. Reversed and dismissed without prejudice.

James W. Strother, for appellants.

Lackey & Bridges, for appellee.

McCLELLAN J.

Bill by surety to set aside alleged fraudulent conveyances by an alleged principal debtor and to subject the realty purported to be conveyed therein to the reimbursement of the surety for the sum paid by him in the discharge of the alleged principal's debt to the creditor.

The theory of the bill would invoke a well-recognized phase of equity jurisdiction. 4 Pom. Eq. § 1417 et seq.; Bragg v Patterson, 85 Ala. 233, 4 So. 716. To sustain a bill for relief on that theory, it is essential that the original obligation was paid by the surety. 1 Brandt on Suretyship (3d Ed.) §§ 232, 331, 332; Pinkston v. Taliaferro, 9 Ala. 547; Owen v. McGehee, 61 Ala. 440, 447; Knighton v. Curry, 62 Ala. 404, 413; Washington v. Norwood, 128 Ala. 382, 30 So. 405; Lane v Westmoreland, 79 Ala. 372; 27 Am. & Eng. Ency. Law, pp. 470-472.

Since the surety's cause of action, against his principal, comes into existence only upon the payment by the surety of the original obligation, he cannot prevail if his suit be commenced before requisite payment. Dennison v. Soper, 33 Iowa, 183; Newell v. Morrow, 9 Wyo. 1, 59 P. 429; Washington v. Norwood, supra; 27 Am. & Eng. Ency. Law, p. 272. That payment need not necessarily be made in money. It may be effected by the delivery to and acceptance by the creditor of any value, if the same is taken in satisfaction and discharge of the debt. The note of the surety, payable to the creditor, though never actually paid, will, if accepted as payment, avail to clothe the surety with his right of action against his principal for reimbursement and, if otherwise available, to invest him with all the rights, against his principal, that may flow from subrogation. Owen v. McGehee, supra; 1 Brandt on Suretyship, § 232, and note 23 thereto, collating numerous decisions in support of the propositions stated; Pinkston v. Taliaferro, supra; Knighton v. Curry, supra; Lane v. Westmoreland, supra. And the surety's right is limited to the value, with interest and costs, he parts with in satisfaction of the debt, and not always to the sum demandable under the contract wherein he was surety. Owen v. McGehee, supra; 1 Brandt, §§ 232, 233.

Since the surety's cause of action, in such cases, does not accrue until he has paid the debt of his principal, neither the statute of limitations nor adverse possession will begin to run until such payment. Washington v. Norwood, supra; Bragg v. Patterson, supra; 27 Am. & Eng. Ency. Law, pp. 481, 482.

The surety is a creditor, from the inception of his, even contingent, liability, and will be protected, in an action for reimbursement, from fraudulent conveyances by his principal pending that liability. Bragg v. Patterson, supra; Keel v. Larkin, 72 Ala. 493, 500.

As to subsequent creditors, a conveyance, not infected with actual fraud, is valid and operative, and the burden to show the fraud rests on the assailant of the conveyance. Elyton Land Co. v. Iron City Bottling Works, 109 Ala. 602, 20 So. 51; Rike v. Ryan, 147 Ala. 497, 41 So. 959; among others.

Where two names are signed to a note, the prima facie presumption is that the signers are co-makers and are equally bound. Jackson v. Wood, 108 Ala. 209, 19 So. 312. The presumption is, of course, evidential only, and is rebuttable. Jackson v. Wood, supra.

If the conveyance assailed by a surety as fraudulent was executed before the original engagement by which the surety became bound, the surety's relation is necessarily that of a subsequent creditor, who, to avoid the assailed conveyance, must allege and prove actual fraud, as before stated. Keel v. Larkin, 72 Ala. 493.

We think the evidence establishes that complainant became, in January, 1897, the surety, indorser, of two notes, given by G. A. and J. M. Smith as principals, to the Tallapoosa County Bank for a loan thereby, which notes were repeatedly renewed, the complainant reindorsing each time, until the indebtedness was evidenced by the three notes maturing in the fall of the year 1903; and that these last notes were paid by the complainant after maturity and after just reason existed to anticipate that compulsory steps would be taken to enforce payment by complainant, the two Smiths being insolvent at that time, if the conveyances to M. M. and Rosa Smith were valid and operative. It is not necessary, we think, to discuss the evidence leading to these conclusions. It is circumstantial as well as positive, and points with requisite certainty, to the conclusions stated.

As said before, on the theory of this bill, it is essential, to clothe complainant with a right of action, that payment of the debt to the bank should have been made before this bill was filed; and, if paid after the bill was filed, the complainant's attitude is that of one who sues without a right of action to enforce. This presents the first issue of fact that must be decided.

From Cyc. vol. 30, p. 1181, we appropriate this as correctly stating the several elements necessary to constitute payment: "There must be (1) a delivery, (2) by the debtor or his representative, (3) to the creditor or his representative, (4) of money or something accepted by the creditor as the equivalent thereof, (5) with the intention on the part of the debtor to pay the debt in whole or in part, and (6) accepted as payment by the creditor."

For practical purposes here, we treat complainant as occupying, in order to effect the payment asserted, the position of a debtor. Another well-sustained rule, serviceable in this instance, is that, "where one security is accepted by the creditor in satisfaction of another, the debt evidenced by the latter is discharged." 30 Cyc. p. 1191. Still another is "that a debt is not extinguished by the acceptance of an obligation of equal dignity," as said in Lee v. Fontaine, 10 Ala. 755, 765. Of course, if the obligation of equal or lower dignity is expressly accepted in satisfaction, a discharge necessarily results. Lee v. Fontaine, supra. See 30 Cyc. pp. 1192, 1193.

Bearing in mind the essential elements of payment, it is too evident for doubt that on complainant's own testimony, omitting that given by Corprew, payment of the notes was not made until the issuance of the check which, Corprew said, was taken as money. Complainant's evidence, in this connection, was: First, that he paid the notes "after the suit was brought"; second, that he "assumed" the debt to the bank before the suit was begun. These statements are not necessarily in conflict. But assumption of the indebtedness, under the circumstances, was not, as is obvious, payment thereof. There was nothing to assume beyond or different from that his written obligation as surety for two insolvent co-makers then imposed on him. His original obligation was to pay the debt evidenced by the notes he had indorsed, and the justness and economy (to him) of the demand of the cashier was recognized by the complainant when he chose to avoid suit and added costs. The asserted assumption of the indebtedness, as stated by complainant, was but an echo. It was at most no more than a promise to pay that which he had already promised to pay. It is payment, satisfaction, in whole or in part, that is the condition precedent to the existence of a cause of action in favor of a surety against his principal debtor, and a promise is not payment. Newell v. Morrow, 9 Wyo. 1, 59 P. 429; 27 Am. & Eng. Ency. Law, p. 472.

Complainant being asked when, before or after suit was begun, the bank first turned the notes over to him, responded, "Before suit was begun I took them down to the office of Lackey & Bridges." It will be noted that the witness did not answer the question categorically. He was an officer of the bank payee at the time. Whether or not he so took them as a representative of the bank does not appear. Whether the notes were delivered to him as paid, the debt discharged, does not appear from any evidence of the witness (complainant). As thus viewed, complainant's testimony does not show payment before suit; but, on the contrary, tends strongly to refute, rather than support, the insistence of payment before suit--to refer the payment to the date of the check. The ordinary presumption attending possession of his obligation (30 Cyc. p. 1268) is not important here, since the facts and circumstances surrounding the possession, in this instance, are shown in the evidence.

Does the testimony of Corprew alter the matter, alone or when taken in connection with that of complainant himself? The substance of Corprew's testimony, both on original examination and on the reference before the register, is that, before suit, he having made a futile attempt to collect the money from the Smiths, he told complainant that it was up to him to pay the notes; that to sue would but add cost; that complainant came, the next day, to the bank, asked for the notes, the witness, cashier, gave them to him, and complainant told witness to charge them to him (complainant) that, thereupon, witness made a debit slip (i. e., charged the amount of the notes, we assume, to complainant); that the following May (1908), months after the suit was begun, he called complainant's...