Cooper v. Greenberg

191 Va. 495 (1950)

BECKIE COOPER v. ABE GREENBERG.

Record No. 3702.

Supreme Court of Virginia.

November 27, 1950.

Bertram S. Nusbaum and James G. Martin, for the plaintiff in error.

Bangel, Bangel & Bangel, for the defendant in error.

Present, Hudgins, C.J., and Gregory, Eggleston, Buchanan and Miller, JJ.

1. An accommodation party is one who has signed an instrument as maker, drawer, acceptor or endorser without receiving value therefore and for the purpose of lending his name to some other person.

2. An accommodation bill or note is one to which an accommodating party has put his name, without consideration, for the purpose of accommodating some other party who is to use it and is expected to pay it.

3. The rights and liabilities of comakers of an instrument, as between themselves, depend on the terms of their contract which may be proved by parol evidence.

4. Plaintiff instituted an action at law to recover from defendant the full amount of a note, executed and delivered by a corporation, through one of its officers, of which corporation the defendant and a third party were principal officers and stockholders, which plaintiff had been compelled to pay by virtue of the fact that the corporation had become insolvent and that the note was also signed by herself, defendant and the third party as comakers, all of whom were jointly and severally bound to the holder. Plaintiff contended that since defendant and the third party were the officers and principal stockholders of the corporation, and were interested in its continuation and financial success, they were not accommodation makers of the note, while she, on the other hand, having no interest in the corporation, was a pure accommodation endorser and was therefore entitled to a full exoneration from the two officers of the corporation for whose benefit the note was made and that inasmuch as the third party was insolvent and had left the jurisdiction, she was entitled to recover of defendant the full amount. The evidence disclosed, however, that it was agreed at the time of the execution of the note that the three individuals, plaintiff, defendant and the third party, were to sign as accommodation makers and it followed that since both plaintiff and defendant were accommodation makers of the note, plaintiff could not prevail in her contention that she was entitled to full exoneration from defendant.

5. In the absence of an agreement to the contrary, accommodation makers of a promissory note are presumed to be cosureties, and as such are liable for contribution to the one of their number discharging the obligation.

6. The right of one surety to call upon his cosurety for contribution arises from a principle of equity growing out of the relation which the parties have assumed towards each other; the equity springs up at the time of entering into that relation, and is fully consummated when the surety is compelled to pay the debt.

7. While the jurisdiction to proceed in courts of law to enforce contribution is well recognized in some cases, equity retains its original jurisdiction, especially where the relief in a court of law is inadequate.

8. At law a plaintiff can generally recover but an aliquot share from a cosurety irrespective of the insolvency or nonresidence of the other sureties. In equity, however, insolvent sureties and those residing outside the jurisdiction are not considered in the calculation.

9. The basis of distinction between the measure of contribution recoverable in actions at law and suits in equity is both substantive and procedural.

10. At law a joint action for contribution cannot be maintained against several co-obligors because the claim is several and each must be proceeded against separately, but in a suit for contribution in equity all the other solvent co-obligors within the jurisdiction should be joined.

11. The State of Virginia adheres to the distinction between actions at law and proceedings in equity and recognizes the difference between the two particularly as to the adequacy of the remedy to be afforded.

12. Under the facts of headnote 4, by virtue of the fact that the third party was a nonresident, plaintiff insisted that she was entitled to recover from defendant one-half of the amount which she was compelled to pay. Defendant contended that the trial court correctly held that he could be held to contribute only one-third of what the plaintiff paid. Inasmuch as the plaintiff had invoked the jurisdiction of a law court and followed that course to the end, it followed that the judgment of the trial court was plainly right.

Error to a judgment of the Circuit Court of the city of Norfolk. Hon. Clyde H. Jacob, judge presiding. The opinion states the case.

EGGLESTON

EGGLESTON, J., delivered the opinion of the court.

On February 25, 1948, H. & L. Corporation, trading as Suburban Delicatessen, through David Levin, its president, executed and delivered to L. Greenberg its promissory note *498 in the sum of $3,500, payable in one hundred weekly installments, the first of which was due on the following April 5. The note was also signed by David Levin, Beckie Cooper and Abe Greenberg as comakers, all of whom by its terms, were "jointly and severally" bound to the holder. The makers likewise agreed, upon default, to pay the cost of collection, including an attorney's fee of 10% if incurred.

At the time of the execution of the note David Levin and Abe Greenberg were the principal officers and stockholders of the corporation. All of the interested parties are related or connected by marriage. David Levin is the son of Beckie Cooper, while Abe Greenberg is her son-in-law. L. Greenberg, the holder of the note, is the father of Abe Greenberg. At the time the note came due the corporation had become insolvent and L. Greenberg, the holder, exacted the full payment with interest and costs from Beckie Cooper, one of the comakers.

Shortly thereafter Beckie Cooper instituted the present action at law against Abe Greenberg, alleging that she had signed the note merely as an accommodation maker and as such was entitled to full exoneration at the hands of the comakers, David Levin and Abe Greenberg; and that inasmuch as Levin was insolvent and had left the jurisdiction, she, the plaintiff, was entitled to recover of Abe Greenberg, the full amount of the debt which she had been compelled to pay.

After Abe Greenberg had filed a plea of the general issue the matter was heard by the court without a jury. It adjudged that Beckie Cooper, Abe Greenberg and David Levin were all accommodation makers of the note and that in the present action Beckie Cooper, the plaintiff, was entitled to recover of Abe Greenberg, by way of contribution, one-third of the amount of the debt which the plaintiff had been compelled to pay to the holder thereof, with interest.

To this judgment the plaintiff excepted and upon her petition the present writ of error has been allowed. For *499 convenience the parties will be referred to according to the positions which they occupied in the court below.

The first contention of the plaintiff is that since Abe Greenberg and David Levin were the officers and principal stockholders of the corporation, and were interested in its continuation and financial success, they were not accommodation makers of the note, while she, on the other hand, having no interest in the corporation, was a pure accommodation endorser and was therefore entitled to full exoneration from the two officers of the corporation for whose benefit the note was made.

The Negotiable Instruments Law (Code, sec. 6-381) defines "an accommodation party" as "one who has signed the instrument as maker, drawer, acceptor, or indorser without receiving value therefor and for the purpose of lending his name to some other person."

Daniel on Negotiable Instruments, 7th Ed., Vol. 1, sec. 216, p. 277, defines "an accommodation bill or note" as "one to which the accommodating party has put his name, without consideration, for the purpose of accommodating some other party who is to use it and is expected to pay it."

Whether an officer, or stockholder, who signs as comaker or endorses a corporation's note for the purpose of lending his credit to the corporation, is an accommodation party is a subject on which the authorities are not in accord. See Fletcher Cyclopedia, Corporations, Perm. Ed., Vol. 13, sec. 5745, p. 51; 11 C.J.S., Bills and Notes, sec. 742-a, p. 297.

Some courts take the view that the interest which the officer, director or stockholder has in procuring the loan for corporate purposes is a sufficient consideration to remove him from the status of an accommodation party. See Reed v. First Nat. Bank, 23 Colo. 380, 48 P. 507; Commercial Inv. Co. Graves (Tex. Civ. App.), 132 S.W.(2d) 439, 443.

For the opposite view, see Houser Fayssoux, 168 N.C. 1, 83 S.E. 692, Ann. Cas. 1917B, 835; Rommel Bros. Clark, *500 255 Ky. 554, 74 S.W.(2d) 933; Goldstein Brastone Corp., 254 App.Div. 288, 4 N.Y.S.(2d) 909; Sinkey Steffens, 126 Ohio St. 66, 183 N.E. 866.

But here the determination as to whether Levin and Greenberg were accommodation makers of the note does not depend upon their mere relation to or interest in the corporation. It is well settled that the rights and liabilities of comakers, as between themselves, depend on the terms of their contract which may be proved by parol evidence. Houston Bain, 170 Va. 378, 391, 196 S.E. 657, 662; 10 C.J.S., Bills and Notes, sec. 37-f, p. 465 ff; 11 C.J.S., Bills and Notes, sec. 675, p. 140.

The evidence here clearly shows that it was agreed at the time of the execution of the note that the three individuals, David Levin, Abe Greenberg and Beckie Cooper, were to sign as accommodation makers. Sidney Siegel, the attorney who prepared the note and attended to its execution and the procuring of the loan from L. Greenberg for the benefit of the corporation, so testified. He said that Abe Greenberg did not actually sign the note until after it had become due and then did so because it "carried into effect his promise to be an accommodation maker for the corporation." All three individuals, he said, signed as accommodation makers.

Since both the plaintiff and the defendant were accommodation makers of the note, the plaintiff cannot prevail in her contention that she is entitled to full exoneration from the defendant.

In the absence of an agreement to the contrary, accommodation makers of a promissory note are presumed to be cosureties, and as such they are liable for contribution to the one of their number discharging the obligation. 3 Michie's Jurisprudence, Bills, etc., sec. 172, pp. 359, 360; Stovall Border Grange Bank, 78 Va. 188, 193, 195; Huffman Manley, 83 W.Va. 503, 98 S.E. 613; 11 C.J.S., Bills and Notes, sec. 756, p. 342.

This brings us to the consideration of the measure of contribution which the plaintiff is entitled to exact of the defendant *501 in the present action at law. While the plaintiff alleged that David Levin, one of the comakers, is insolvent, the proof falls far short of this. But inasmuch as the evidence does show that Levin was at the time of the institution of the present action a nonresident, his insolvency, as we shall presently see, is not a determinative factor.

The plaintiff insists that since Levin is a nonresident she is entitled to recover from Abe Greenberg, the other comaker, in this suit, one-half of the amount which she was compelled to pay, with interest. The defendant, Greenberg, insists that the lower court correctly held that in the present action at law he can be compelled to contribute only one-third of what the plaintiff has paid, with interest.

"The right of one surety to call upon his cosurety for contribution arises from a principle of equity growing out of the relation which the parties have assumed towards each other; the equity springs up at the time of entering into that relation, and is fully consummated when the surety is compelled to pay the debt." Houston Bain, supra (170 Va., at page 390, 196 S.E., at page 662). See also, Wayland Tucker, 4 Gratt. (45 Va.) 267, 268, 50 Am.Dec. 76.

The enforcement of contribution originally belonged to courts of equity on general principles of justice. While the jurisdiction to proceed in courts of law to enforce contribution is well recognized in some cases, equity retains its original jurisdiction, especially where the relief in a court of law is inadequate. Wayland Tucker, supra.

But there is a well-recognized difference in the measure of contribution which is applied at law and in equity.

In actions at law, according to the great weight of authority, contribution can be enforced only for the aliquot share of each co-obligor, and the insolvency or nonresidence of a co-obligor does not exclude him from consideration in computing the amount or proportion to be contributed by each of the others. In equity, on the other hand, contribution will be decreed equally among all the solvent co-obligors within the jurisdiction. See Williston on Contracts, Rev. *502 Ed., Vol. 2, sec. 345, pp. 1022, 1023; Id., Vol. 4, sec. 1277, pp. 3644-3646; Restatement of the Law, Restitution, sec. 85, pp. 384, 385; 13 Am. Jur., Contribution, sec. 28, pp. 27, 25; Id., sec. 29, p. 29; 18 C.J.S., Contribution, sec. 6-b, pp. 10, 11; Pomeroy's Equity Jurisprudence, 5th Ed., Vol. 4, sec. 1418, p. 1072.

In Williston on Contracts, Rev. Ed., Vol. 4, sec. 1277, pp. 3644, 3645, the author says: "At law * * * the plaintiff can generally recover but an aliquot share from a cosurety, irrespective of the insolvency or nonresidence of the other sureties, and each cosurety from whom contribution is claimed must be sued separately. In equity, however, insolvent sureties and those residing outside the jurisdiction, are not considered in the calculation."

In Restatement of the Law, Restitution, sec. 85, p. 384, this is said:

"Proportionate share where one is unable to contribute. If one or more of a number of co-obligors or cosureties should become insolvent or leave the jurisdiction, one of the others who makes a payment is entitled by a proceeding in equity to have contribution from the others as if the insolvent or absent persons had originally not participated. * * * In such suit the payor must join all available and solvent persons each of whom is required to pay only his proportionate share * * *."

"In actions at law, the original proportions are preserved in spite of such subsequent change. For this reason the remedy at law is inadequate and equity has jurisdiction." [1]

"12. A, B, C, D, and E are sureties for F upon a debt of $15,000 due G. The debt is not paid at maturity and A pays the entire amount. D becomes insolvent and E leaves the jurisdiction, being unavailable. In an action at law A is entitled to recover only $3,000 each from B and C. A is entitled to maintain a bill in equity by which he can recover $5,000 each from B and C."

The difference in the measure of contribution recoverable in actions at law and suits in equity was recognized by this *503 court in Tarr Ravenscroft, 12 Gratt. (53 Va.) 642, 652, where it was said: "Thus, if one of several sureties be insolvent, and another pays the debt, he can at law recover from the other solvent sureties only their original quotas without regard to the share of the insolvent surety. (Citing cases.) But in equity the share of the insolvent surety will be apportioned amongst those who are solvent." (Citing cases.) See also, Robertson Trigg, 32 Gratt. (73 Va.) 76, 79, 81.

The basis of the distinction between the measure of recovery in the two types of proceedings seems to be both substantive and procedural. An action at law for contribution proceeds upon the implied contract between the sureties, arising at the time of the creation of the original debt, that each will pay his aliquot share thereof. At law, it is reasoned, there is no implied contract for the future effects of insolvency or nonresidence of one or more of the sureties. Trego Cunningham, 267 Ill. 367, 108 N.E. 350.

Contribution in a court of equity proceeds upon the application of the fundamental rule that equality is equity, and that if one of the sureties is insolvent or beyond the jurisdiction, the loss will be apportioned among the solvent and available sureties. Trego Cunningham, supra.

If payments are made individually by several co-obligors they are not entitled to maintain a joint action at law for contribution against other co-obligors. But in equity the payors may join in one proceeding against the others. Restatement of the Law, Restitution, sec. 81, p. 367; 18 C.J.S., Contribution, sec. 13, p. 23.

At law a joint action for contribution cannot be maintained against several co-obligors. The claim is several and each must be proceeded against separately. But in a suit for contribution in equity all the other solvent co-obligors within the jurisdiction should be joined. 18 C.J.S., Contribution, sec. 13-c, p. 23; Restatement of the Law, Restitution, sec. 85, p. 384.

While the soundness of the distinction drawn by the foregoing rules between actions at law and suits in equity has *504 been questioned and denied in a few jurisdictions (13 Am. Jur., Contribution, sec. 28, p. 28), it is recognized by the modern textwriters and is applied in the great majority of the jurisdictions. [2]

[11, 12] In this State we adhere to the distinction between actions at law and proceedings in equity and recognize the difference between the two, particularly as to the adequacy of the remedy to be afforded. Inasmuch as the plaintiff has invoked the former jurisdiction and followed that course to the end, it follows from what has been said that the judgment of the lower court, which limited her recovery of the defendant to one-third of the amount of the debt which she paid, with interest, is plainly right.

Accordingly, the judgment is

Affirmed.

[1] The latter authority (at page 385) uses this illustration of the application of the enunciated principles:

[2] See Annotation, 64 A.L.R. 213, for collection of numerous cases.