Scott v. McGriff , 222 Ala. 344 ( 1930 )

BROWN, J.

This is an action by one indorser on a promissory note against another to enforce contribution. The trial was before the court without the intervention of a jury, resulting in a judgment in favor of the plaintiff.

The material facts, to state them briefly, are that the plaintiff McGriff, C. F. Rhodes, one Boone, and the defendant formed and incorporated the “Alabama Rink Corporation,” with an authorized capital of $3,000, divided into shares of $100 each. Each of the corporators subscribed 7% shares, paying cash therefor. The purpose of the corporation was to construct, equip, and operate a skating rink in the fairgrounds in or near the city of Birmingham.

The capital of the corporation was not sufficient for the construction and equipment of the necessary buildings, and the corporation borrowed from the Ensley National Bank, the sum of $6,500, for which it executed its promissory waiver note, indorsed by McGriff, Scott, and Rhodes; McGriff in the meantime having acquired the shares of the capital stock originally subscribed for by Boone.

The corporation failed to pay the note at maturity; the interest was paid from time to time and renewal notes given, which were indorsed by the same parties.

Finally the plaintiff, McGriff, who was the president of the corporation, paid the indebtedness in full, and the last note was indorsed to the plaintiff by the bank “without recourse.”

This action is to recover one-half of the sum so paid with interest; it being alleged that Rhodes, the other indorser, 'is insolvent.

The money paid in as the capital stock of the corporation, and the money borrowed was used in acquiring a ten-year lease on the rink site and in constructing and equipping the building, approximating in cost $10,000.

After this suit was filed, the plaintiff acquired from the defendant and Rhodes the capital stock held by them, and traded the entire capital stock, carrying all the rights of the corporation, to one Harvey, for 400 acres of land which Harvey conveyed to plaintiff.

In the trade, the land was valued at $40 per acre, and was incumbered by a mortgage for $4,000, which was assumed by the plaintiff, leaving an equity of $13,600, which plaintiff’s testimony goes to show was worth 50 per cent, of that amount.

The plaintiff testified that nothing was said by him in the trade with Harvey about releasing the corporation from the debt then due him, but he testified that he paid other obligations of the corporation due on some of the equipment, after the sale to Harvey; and his evidence further tends to show that he made the trade to reimburse himself for the losses which he had sustained by having to pay the note. He paid nothing to the defendant or Rhodes for their stock.

It is well settled that at law1, as well as in equity, the question of contribution between sureties is to be settled on principles of equity and natural justice; the law courts administering the relief as upon implied contract arising out of the equitable obligation. Douglass v. Orman et al., 218 Ala. 563, 119 So. 605; Couch v. Terry’s Adm’rs, 12 Ala. 225; Broughton v. Wimberly, 65 Ala. 549; Washington, Adm’r, v. Norwood, 128 Ala. 383, 30 So. 405.

This principle is applicable to indorsers who are jointly and severally liable on the obligation of their principal. 13 C. J. 832, § 26.

It follows, therefore, that contribution will not be enforced at law or in equity, if the party seeking to enforce contribution is not equitably entitled thereto. White v. Banks, 21 Ala. 705, 56 Am. Dec. 283; Tyus et al. v. De Jarnette et al., 26 Ala. 280; Pegram v. Riley, 88 Ala. 399, 6 So. 753.

Harvey, so far as appears, had no knowledge of the indebtedness due from the corporation to the plaintiff, and the conclusion is irresistible that it was plaintiff’s intention to transfer the corporation to Harvey unincumbered by the liability on the note, effecting a release of the defendant from the secondary liability. 21 R. C. L. 1065, § 107; Scott v. Scruggs, 95 Ala. 383, 11 So. 215.

In trading the entire capital stock of the corporation, carrying as it did the right to control the corporation in the management of its property and business, it would clearly be inequitable for the plaintiff to retain the land acquired by him in the transaction, and at the same time compel the defendant to pay to him any part of the original debt due from the corporation to the plaintiff on account of the payment by him of its debt. Owen v. McGehee et al., 61 Ala. 440.

The judgment of the circuit court is reversed, and one here rendered in favor of the appellant, the defendant in the circuit court.

Reversed and rendered.