113 Tenn. 288 | Tenn. | 1904
delivered the opinion of the Court.
This bill was filed for subrogation. The facts were as follows: The complainant, Taylor, and defendants Wade, Walker, and Bell, were the sureties of J. M. & W. A. Skiles upon a'note for $1,500 executed to the Exchange Bank of Trenton, in this State. After the delivery of this note, and before payment, the principal debtors were, upon petition of their creditors, forced into bankruptcy, and their assets passed into the custody of the trustee duly elected under the bankrupt laws of the United States passed in 1898. Pending the proceedings so instituted, the bankrupts, in due form, submitted terms of composition to their creditors, which by them were accepted. To enable the Skileses to carry out the composition, defendants Wade, Walker, and Bell (J. C. McDearmon also joining) agreed Avitli the bankrupts to raise for them the sum of $4,000, which they did, on their OAvn note. These sureties, by withdrawing certain claims they had proven against the •estate of the bankrupts, upon which they would have been entitled to distribution, and paying into the registry of the court the $4,000, enabled the Skileses to pay to the creditors the pro rata of their claims offered in their petition for the composition. This being done, the judge of the United States district court, for the eastern division of the western district of Tennessee duly entered an order of confirmation of this composition, and thereupon the assets theretofore in the hands
In recognition of the assistance thus received by them, immediately upon recovering possession of their property, the Skileses made a conveyance ' of the same to McDearmon, as trustee, Avhich provides as follows: “We, J. M. and W. A. Skiles of Trenton, Tennessee, . . . hereby turn over . . . to J. C. McDear-mon, as trustee, the stock of goods, wares and merchandise • ... in the storehouse . . . near the southwest corner of the public square of Trenton, Tennessee, . . . also all the accounts and notes due the firm ... on various persons. The said McDear-mon, as trustee, is ... to sell the said goods at retail and to replenish the said stock of goods as is necessary to sell the same to the best advantage, and he is to pay out of the said money received by him from such sales, first two notes of five hundred each made by J. M. Skiles and J. A. Bell security . . . and out of the next money received by him, he would pay to J. C. Mc-Dearmon, W. W. Wade, J. R. Walker and J. A. Bell the amounts that they were bound for on certain notes executed by J. M. and W. A. Skiles payable to the Exchange Bank of Trenton, Tennessee. . . .”
Wade, Walker, and Bell each paid one-fourth of the balance on the note held by the Exchange Bank, which
There are two theories upon which complainant rests his right to relief. The first is that the instrument hereinbefore set out, by its terms, secures, among others, the $1,500 note, and that, as surety on-this note, he was entitled to have the trust estate applied to its extinguishment. If wrong in this, then the insistence is that complainant is entitled to a ratable contribution from Wade, Walker, and Bell, under the well-established equitable rule that the surety is entitled to share with the cosurety in any fund furnished to him by the principal debtor for the indemnity of the cosurety against loss on a debt upon which both are bound as sureties. It evidently was upon the assumption that
We do not think the first contention is sound. It is clear from the reading of the instrument that the intention of its makers was to furnish personal indemnity to Wade, Walker, and Bell, and not to secure the debt of which they were sureties. The provision is that the trustee shall pay these parties “the amounts they are respectively bound for on certain notes executed,” etc., “payable to the Exchange Bank.” The name of the bank at which the paper is payable is used simply for the purpose of identification, and not with the view of protecting that bank, if it were the holder. The effect of the terms used is to give protection to the parties named. The makers intended no more, and it would do violence to their intention, as not only clearly indicated in the paper itself, but as gathered from the surroundings, to hold that the bank was named as beneficiary in this trust.
The soundness of the other contention depends upon the legal status of the Skileses at the time of creating this trust, and their relation to the note in question, and the several parties who were bound for its payment.
As has been stated, they had effected in the bankrupt court, under the proceedings instituted against them by their creditors, a composition, which had been' accepted by these creditors, and approved by the court having jurisdiction of the .subject-matter and the parties. This order of confirmation of the composition served hs a
But as to the Exchange Bank accepting, as it did, the benefit of the composition, it was more than a mere discharge of the bankrupts. It was an agreed extinguishment of the debt, so far as it was concerned. It is very generally held that, in the case of a discharge of a debt under insolvent or bankrupt laws, a subsequent promise to pay by the insolvent or bankrupt will revive the original debt and make it enforceable at law. But it is otherwise where the creditor comes to terms with his debtor under a valid composition, and agrees to, and does, accept a part of his debt for the whole. When this is done, the debt is extinguished. The parties having met on common ground, and -agreed on terms of settlement which have been carried out, there is no longer even a moral obligation resting upon the debtor as to the balance of the original liability. So that a new promise after composition is without consideration, and will not afford a cause of action. Warren v. Whitney, 24 Me., 561, 41 Am. Dec., 406; Stafford v. Bacon, 1 Hill (N. Y.), 532, 37 Am. Dec., 366; Evans v. Bell, 15 Lea, 569.
So it is that when the Skileses made the transfer of their property to McDearmon, trustee, the debt due to the Exchange Bank, so far as they were concerned, was as if it had never existed. They were as much strangers to it as any one who had never had connection with it. Being such strangers, and furnishing, at their
We are satisfied that the Exchange Bank could not avail itself of this indemnity. On this subject, Mr. Brandt, in section 327 of his work on Suretyship & Guaranty, says: “While, as a general rule, a security given by a principal to his surety operates eo instanti as a security to the creditor for the payment of the debt, yet it is held that where such security is given by a stranger to the surety, and not for the payment of the debt, a trust does not attach in favor of the creditor, and he cannot be subrogated to the surety’s rights.” Thus, where the security was given by the surety’s wife (Taylor v. Farmers’ Bank of Kentucky, 87 Ky., 398, 9 S. W., 240; Leggett v. McClellan, 39 Ohio St., 624), or by the principal’s daughter (Macklin v. Northern Bank of Ky., 83 Ky., 314), it was held that these several grantors were strangers, within the meaning Of the rule.
The principle which would exclude the Exchange Bank from the benefit of this security would equally exclude the complainant. The right of the creditor and of a cosurety to subject collaterals or other securities pledged or conveyed to one surety by the principal debtor is a natural and necessary equity, which flows from the relations of the parties, and, though not the result of contract is nevertheless the execution of their
This paragraph is talten from the opinion of the court in Hampton v. Phipps, 108 U. S., 260, 2 Sup. Ct., 622, 27 L. Ed., 719, and with great clearness states the reason and fixes the limit of the rule. The party who is primarily bound for the debt is under legal obligation to pay it, and to this end, to devote his entire estate, if necessary, to save his sureties from harm, so that when he turns over a part of the whole of his estate to his creditor, or to one of his sureties, as security for his
We think it clear, in view of .this principle, that complainant is without equity, on tbe facts disclosed in tbis record, and tbat tbe chancellor committed an error in bolding otherwise, and bis decree is reversed and tbe bill is dismissed.