Sherrod v. . Dixon

On 4 February, 1888, J. S. Dixon borrowed $2,000 of the plaintiffs, for which he gave them his note due twelve months after date, which note was signed by the defendant, P. L. Dixon, as well as by her husband, the said J. S. Dixon.

At the same time the defendants, J. S. Dixon and wife, made a mortgage to the plaintiffs upon a tract of land belonging to the feme defendant, as further security for the $2,000 so borrowed of the plaintiffs by her said husband. With this money the defendant, J. S. Dixon, bought of Mayo, Braswell Lyon, three undivided interests in a tract of land, being three-fourths thereof, and caused the deed therefor to be made to P. L. Dixon, his wife, with a declaration of trust to secure and save her harmless against any loss she might sustain on account of the suretyship, towit, the mortgage she had made to plaintiff as a surety for the money he had so borrowed.

Plaintiffs have foreclosed this mortgage by a sale of the feme defendant's land, which they bought at the price of $1,000, and (62) this sum, less expense of sale, has been applied to plaintiff's debt. To this the defendants make no complaint or objection. But plaintiffs say that, after making this application of the money arising from the mortgage sale of the feme defendant's land, there is still due them from J. S. Dixon, the husband, $1,779.53, and that the land purchased from Mayo, Braswell Lyon, was conveyed to the feme defendant in trust to indemnify and save her harmless on account of her suretyship and mortgage, and that, this being so, the law implies a trust to plaintiffs or for their benefit, and that the remainder of their debt must be first paid before the feme defendant can have any benefit from the land. This contention of plaintiffs is denied by defendants. And this brings us to a discussion of the law involved in the case.

The legal title to this land was never in J. S. Dixon, the husband. It was bought by the husband and paid for with his money. But by his direction the deed was made to his wife, P. L. Dixon. So we see that neither 13 nor 27 Elizabeth applies, because they make the conveyance void, and this would put the title back in the grantors, Mayo, Braswell Lyon. Gowing v. Rich,23 N.C. 553; Guthrie v. Bacon, 107 N.C. 337, and many other cases cited in Womack's Digest. Neither was the equitable the in him, as against his wife. But if it was made to the wife without consideration, or for the purpose of defrauding the creditors of the husband, then a court of equity will take hold of it, and appropriate the same to the payment of the husband's debts.

It is not claimed by plaintiffs that they are entitled to have this land subjected to the payment of the balance of their debt, upon the ground of fraud, or for the want of consideration, by reason of which the (63) title in the feme defendant is void. But they allege in their complaint that these lands have been conveyed to her by the said Mayo and others, without any suggestion of fraud, or want of consideration on her part. And the judge below finds as a fact, upon which he bases his judgment in favor of plaintiffs, that these lands were conveyed to the feme defendant "in trust to indemnify her against loss as surety of J. S. Dixon." And in his judgment, ordering the land to be sold for the payment of the balance of plaintiff's debt, the court speaks of it as the land being conveyed to the defendant, P. L. Dixon, in trust as aforesaid. The plaintiffs would not be at liberty to treat it as a conveyance, creating a trust estate in the feme defendant, and at the same time treat it as a void conveyance on account of fraud, or for want of valuable consideration. And we will do the plaintiffs the justice to say that they have not attempted to do so, but that they have all the time treated the deed as a valid conveyance and in trust to the feme defendant; and that this trust enured to the benefit of the plaintiffs, and the residue of their debt must be paid before the feme defendant can be benefited.

This has relieved us from the discussion of some very interesting questions, that, at first, seemed to be presented, such as the parol declaration of the trust which we thought might be sustained under Sheltonv. Shelton, 58 N.C. 292, and that line of cases. Also, from considering the question of consideration, which it seemed to us might have been sustained under Potts v. Blackwell, 56 N.C. 449, and Sutherland v.Fremont, 107 N.C. 565.

It must be admitted that the general rule is that where one is surety for the principal debtor, and the surety takes a security for the principal debtor, such as a mortgage for the purpose of indemnifying and saving harmless the surety, that this security does enure to the benefit of the creditor, whose debt must be paid before the surety (64) can have any benefit therefrom. And if this case falls under this general rule, it must be governed by it.

It is said in Wiswall v. Potts, 58 N.C. 184, that the reason of this rule is, that the debt, due the creditor affords the consideration that supports the mortgage. And another reason that suggests itself to us is, that the surety is bound for the whole debt for which he takes indemnity. And the payment of the debt discharges the surety from his liability, and he is not discharged until the debt is paid in full. In this way he gets the benefit of the security: the surety's liability being coextensive with that of his principal for the whole debt; that when the mortgage is made, it is a dedication of that property to the payment of the debt for which the surety is liable. This being so, the creditor becomes at once thecestui que trust, to the extent of the surety's liability — the entire debt. This being so, the insolvency of the surety does not affect his obligation to pay, nor does it discharge the debt. So it is with the statute of limitations, as to the surety. Because this does not pay the debt, nor does it discharge the surety from his obligation to pay the debt. The law, after the statutory lapse of time, refuses to give the creditor a legal remedy to collect his debt. So, it seems to us that neither of these reasons sustain the plaintiffs' contention that they are the beneficiaries of this trust, held by the feme defendant.

Suppose the surety, who is bound for the whole debt, pays off and satisfies the same in full, does all that he contracted to do. Can it be contended that he would not then be entitled to the benefit of the indemnity? Certainly not. He is one of the objects of the trust. It is made for his benefit as well as for that of the original creditor. But as he was only surety, and his principal would be liable to him if he paid the debt, the law makes the fund which the principal debtor (65) has furnished liable in the first place. If the securities had been given to the creditor, and the surety had paid off the debt, he would have become entitled to the securities given to the creditor, to the extent of indemnifying him.

It is admitted that the feme defendant is under no obligation to the plaintiffs for the payment of this debt, on account of her signing the $2,000 note. Her only liability to plaintiffs is created by the mortgage, which is security, and not a suretyship. And she is not liable to plaintiff for anything on account of this mortgage. She has by her deed dedicated that much of her land to the benefit of plaintiffs as a security for her husband's debt. That much they have. But they have no obligation on her that she will pay one cent of plaintiff's debt.

Therefore, to free this matter from circumstances that are calculated to confuse the mind, and that have no legal bearing upon the question under consideration, we will take Mrs. Dixon out of this consideration for the present. Then, instead of its being Mrs. Dixon who mortgaged $1,000 worth of her land as a security for J. S. Dixon's debt to the plaintiffs, suppose that John Jenkins, a neighbor of J. S. Dixon, had said, "I will not sign your note as surety to the plaintiffs, but I will mortgage a certain tract of land, worth $1,000, to them as a security," and he does so. After this, J. S. Dixon buys a tract of land, and causes the title to be so conveyed to said Jenkins in trust to indemnify him against loss. The plaintiffs' debt is not paid, and Jenkins' land is sold. Can it be that plaintiffs could have this land sold and applied to their debt, and Jenkins get nothing? Where is the connection between Jenkins and the plaintiffs? He owes them nothing. He has not agreed to become their trustee, nor has he agreed to take this and hold it in trust for them. There must be some continuity, something to connect the trustee (66) and the cestui que trust, before there can be a trust.

It being admitted that Mrs. Dixon is the legal owner of this land, and, as we think, the equitable owner to the extent of the price of her land, equity will not declare her a trustee for the plaintiffs who do not claim to have the legal title, and, according to the view we have taken of this case, have no equitable title. Nor have they any specific or equitable lien on this land, as it was not bought with their money, nor was it bought for them. Before a court of equity will declare a party holding the legal title to land a trustee, there must be allegations of fraud, actual or constructive, or some confidential or fiduciary relations existing between the parties, which have been violated.

There is no allegation of fraud in this conveyance, and no proof of any confidential relations between the plaintiffs and the feme defendant, and there can be no trust. The plaintiffs seek to declare Mrs. Dixon their trustee. It cannot be done.

In thus holding, we do not say that plaintiffs are without any remedy. As the land was bought with J. S. Dixon's money, and the deed from said Mayo and others was made to the feme defendant to indemnify her and as it appears that she has been damaged to the amount (we will say of one thousand dollars), the residue, if any, resulted to J. S. Dixon. This estate would only be equitable, as we have seen from what has already been said. But by a proper reformation of the pleadings in this action (by permission of the court), or by a nonsuit in this, as to the lands now sought to be subjected to plaintiff's debt, and a new action, it may be that these lands, so conveyed to Mrs. Dixon, might be sold under an order of the court, and Mrs. Dixon, being first reimbursed, the residue applied to the plaintiffs' debt.

Error.