Rufus J. PICKETT
v.
A. M. RIGSBEE and Mrs. Lelia R. Rezner.
No. 667.
Supreme Court of North Carolina.
March 23, 1960.*326 Basil M. Watkins and Charles B. Nye, Durham, for plaintiff.
Gay, Midyette & Turner, Jackson, and Spears, Spears & Powe, Durham, for defendants.
RODMAN, Justice.
Plaintiff's appeal
The parties agree their rights and obligations are measured and must be determined by the instrument dated 1 June 1937. Is it, as plaintiff contends, an obligation of defendants to pay R. H. Rigsbee's debt to plaintiff, not as distinct items evidenced by the separate notes but as a single debt for which they and R. H. Rigsbee are jointly liable; or is it, as defendants contend, a contract of guaranty by which defendants guarantee payment of the separate and distinct items evidencing R. H. Rigsbee's indebtedness to plaintiff; or does it make defendants sureties on each of the notes of R. H. Rigsbee?
No act of defendants could make them joint obligors with R. H. Rigsbee for a single debt. R. H. Rigsbee was liable to plaintiff, not for an aggregate debt, but for the several items constituting the debt. When the statute ran against any item of the debt, R. H. Rigsbee had a right to assert it as to that item. The instrument recognizes the debt consists of separate items to which others might be added. Defendants could not, by any contract which they made with plaintiff, affect R. H. Rigsbee's obligations or his rights. The interpretation which plaintiff gives to the instrument is not permissible.
The agreement shows an intent to become a debtor to plaintiff. By express language defendants "do hereby recognize this indebtedness as if it were our own and do assume full responsibility and liability for same." Here is a manifest intent to become primarily liable, to make R. H. Rigsbee's obligations their own. There is no agreement to protect plaintiff if R. H. Rigsbee defaults. Plaintiff could hold defendants, not because of a default of R. H. Rigsbee, but because defendants had become his debtors. They were jointly liable with R. H. Rigsbee, not collaterally liable for his default. They were sureties, not guarantors. Arcady Farms Milling Co. v. Wallace, 242 N.C. 686, 688, 89 S.E.2d 413, 53 A.L.R. 2d 517; New Amsterdam Casualty Co. v. Waller, 233 N.C. 536, 64 S.E.2d 826; Dry v. Reynolds, 205 N.C. 571, 172 S.E. 351; Wachovia Bank & Trust Co. v. Clifton, 203 N.C. 483, 166 S.E. 334, 84 A.L.R. 725; Dillard v. Farmers Mercantile Co., 190 N.C. 225, 129 S.E. 598.
R. H. Rigsbee did not seal the instruments evidencing his indebtedness. Without some binding acknowledgment, the right of action against him was barred at the expiration of three years from the date the instrument became due. G.S. § 1-52. The instrument executed by defendants was sealed, but affixing of a seal did not make the ten-year statute, G.S. § 1-47, applicable. By its express terms, that statute is applicable only to principals. The statute of limitations barring actions against defendants as sureties is G.S. § 1-52, notwithstanding the seal appearing after their names. Davis v. Alexander, 207 N.C. 417, 177 S.E. 417; Barnes v. Crawford, 201 N.C. 434, 160 S.E. 464; Coffey v. Reinhardt, 114 N.C. 509, 19 S.E. 370. The statute begins to run on the date the promise is broken. A new promise to pay fixes a new date from which the statute runs, but such a promise, to be binding, must be in writing. G.S. § 1-26. A payment made before the obligation is barred has the same legal effect as a written promise. Smith v. Davis, 228 N.C. 172, 45 S.E.2d 51, 174 A. L.R. 643; McDonald v. Dickson, 87 N.C. 404. A payment or other valid acknowledgment made by one joint obligor binds his co-obligors. "The decisions of this court adhere to the principle that a part payment by one joint debtor before the * * * statute of limitations has run against the demand will start the statute anew as well against the co-obligor as *327 against him who made the payment." Saieed v. Abeyounis, 217 N.C. 644, 9 S.E.2d 399, 402, and cases there cited.
A principal and surety are joint or co-obligors. A written acknowledgment or payment by one is binding on the other. Wachovia Bank & Trust Co. v. Clifton, supra; Dillard v. Mercantile Co., supra; Barber v. William Absher Co., 175 N.C. 602, 96 S.E. 43; Houser v. Fayssoux, 168 N.C. 1, 83 S.E. 692; Garrett v. Reeves, 125 N.C. 529, 34 S.E. 636.
Were it not for the payments made in 1933 and subsequent thereto, as shown by plaintiff's red memorandum book, the three-year statute of limitations would have barred plaintiff's right prior to 1 June 1937 to collect from R. H. Rigsbee on any of the six notes. But the payments made by R. H. Rigsbee beginning in 1933 and continuing through 1937 kept each of these instruments alive. The debtor did not at the time of making payment direct application to any note. Plaintiff testified that the payments were to be applied to all of the notes. Without specific application by the debtor or creditor, the law would and did apply the payments rateably to prevent any note from being barred by the statute of limitations.
As stated by Walker, J., in French v. Richardson, 167 N.C. 41, 83 S.E. 31, 33: "(T)he doctrine, as to the application of payments is now a familiar one. The debtor, at or before the time of the payment, has the right to direct its application. If he fails to do so, the creditor may apply it at his option to any existing debt, and in case he fails to exercise his right thus acquired, the law will make the application to the most precarious debt, or, as is sometimes said, the court will make the application in such manner, in view of all the circumstances of the case, as is most in accord with the justice and equity, and will best protect and maintain the rights and interest of the parties." Baker v. Sharpe, 205 N.C. 196, 170 S.E. 657; Standard Supply Co. v. Vance Plumbing & Elec. Co., 195 N.C. 629, 143 S.E. 248; Stone Co. v. Rich, 160 N.C. 161, 75 S.E. 1077; Young v. Alford, 118 N.C. 215, 23 S.E. 973; Standard Surety & Casualty Co. v. United States, 10 Cir., 154 F.2d 335, 164 A.L.R. 935.
The unallocated payments made by R. H. Rigsbee in 1938, 1939, 1940, and 1943 were applicable rateably to each of the six notes, starting the statute anew as to each of the joint obligors from the date of each payment.
No specific payments were made on the first five notes nor were any unallocated payments made subsequent to 16 April 1943. The statute therefore began to run on these notes from that date. These notes were barred by the three-year statute of limitations 17 April 1946. Plaintiff, having failed as to these notes to repel defendants' plea of the statute of limitations, cannot complain of the peremptory instruction which was given.
Defendants' appeal.
All of the notes were due and payable on 1 June 1937 when defendants wrote to plaintiff. Plaintiff does not allege nor does the evidence establish an extension of time for payment to a day certain. Plaintiff's right of action against defendants accrued on 1 June 1937, the date they addressed and delivered their letter. If, as defendants assert, the letter was a guaranty of payment, the right of action against them terminated on 1 June 1947 unless they made a payment or did some act which fixed a new date from which the statute would run. There is no suggestion that defendants made any payment between 1 June 1937 and 1 June 1947. Payments made by R. H. Rigsbee, the debtor, on his contract would not suspend the running of the statute of limitations against guarantors for payment. Wachovia Bank & Trust Co. v. Clifton, supra; Davis v. Alexander, supra. There is no evidence of any payment *328 by defendants subsequent to 1 June 1947 unless the payment made on 24 September 1954 from the sale of the bank stock can be treated as such a payment.
But the relationship of defendants to plaintiff by virtue of the letter of 1 June 1937 became that of sureties and not guarantors of payment as held in plaintiff's appeal. A debtor and his sureties are in the same class. Payments made prior to 1 July 1953 by R. H. Rigsbee, the principal, even if made without the knowledge of the defendants, sureties, fixed a new date from which the statute of limitations began to run. Green v. Greensboro Female College, 83 N.C. 449. Each payment made by R. H. Rigsbee between 1937 and 3 January 1953 started the running of the statute from the date of the payment. There was a payment on 3 January 1953. The statute began to run anew from that date. Plaintiff had until 3 January 1956 in which to sue the sureties.
By c. 1076, S.L.1953, effective 1 July, 1953, the Legislature rewrote the statute relating to admissions by partners and joint obligors on promissory notes. G.S. § 1-27. The statute as rewritten in effect reverses Green v. Greensboro Female College, supra, and the cases which have applied the law as there declared. A payment by a joint obligor does not now fix the date of such acknowledgment or payment as a new date from which the statute begins to run unless such payment is authorized or ratified.
We find nothing in the evidence tending to establish any knowledge on Mrs. Rezner's part with respect to the dividend payments made on 7 July 1953, 7 January 1954, and 8 July 1954, nor do we find any evidence that she had any knowledge of or ratified the payment which was made on 24 September 1954 from the sale of the bank stock owned by R. H. Rigsbee. In the absence of such authorization or ratification, the action as to her was barred by the statute of limitations on 4 January 1956.
The payment of principal and interest credited on the note on 24 September 1954 came as a result of the sale of the bank stock belonging to R. H. Rigsbee. The sale of this stock and all other details with respect to the credit entries were handled by A. M. Rigsbee. The evidence is plenary to establish ratification of this payment by A. M. Rigsbee. There is no evidence to the contrary. Plaintiff was entitled to a peremptory instruction on the issue of the statute of limitations pleaded by A. M. Rigsbee. But the court was in error in giving such an instruction as to Mrs. Rezner. As to her there must be a new trial with opportunity to plaintiff to establish, if he can, authorization or ratification of these payments by Mrs. Rezner.
On plaintiff's appeal Affirmed.
On defendant A. M. Rigsbee's appeal Affirmed.
On defendant Lelia Rezner's appeal New Trial.