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First National Bank of Albuquerque, a Corporation v. Standard Accident Ins. Co.

Supreme Court of Arizona

April 1, 1931

FIRST NATIONAL BANK OF ALBUQUERQUE, a Corporation, Appellant,
v.
THE STANDARD ACCIDENT INSURANCE COMPANY, a Corporation, Appellee

APPEAL from a judgment of the Superior Court of the County of Coconino. W. S. Norviel, Judge. Judgment reversed.

Messrs. Favour & Baker, for Appellant.

Messrs. Sloan, Holton, McKesson & Scott, for Appellee.

OPINION

Page 865

[38 Ariz. 79] McALISTER, C. J.

This action was brought by the First National Bank of Albuquerque, New Mexico, against Charles Woods, individually and as executor of the estate of Joseph F. Woods, and the Standard Accident Insurance Company, to recover on a bond given to secure the payment of the taxes on a house and lot in Holbrook, Arizona, and the interest on a judgment foreclosing a mortgage lien thereon. The Standard Accident Insurance Company was surety on the bond and from a judgment in its favor the bank has appealed.

Prior to the death of Joseph F. Woods in November, 1923, the bank became the owner of two notes and a mortgage executed by him in December, 1919, on a house and lot in Holbrook, Arizona. Within the proper time following his death its claim against the estate was filed and approved. The bank did not secure payment, however, the executor being unable to sell the property for ninety per cent of its appraised value, so in November, 1925, it brought suit [38 Ariz. 80] against the latter in the federal court at Prescott, Arizona, praying for a foreclosure of the mortgage and, due to the fact that the taxes were not being paid in accordance with the provisions of the mortgage, for the appointment of a receiver.

The court heard the case on February 9th, 1926, and on the same day rendered a decree foreclosing the mortgage and directing that the property be sold, the proceeds disposed of as provided therein and that no deficiency judgment be entered. The executor appealed and, since this would have the effect of delaying final settlement and the rents were not being applied to the taxes and interest, the bank renewed in August thereafter its application for the appointment of a receiver. The attorney for the executor, however, resisted, and to avoid a receivership proposed the giving of a bond to insure the payment of the taxes and the interest on the judgment. This was accepted and a bond in the sum of $1,000

Page 866

was executed August 21st, 1926, by Chauncey Woods, individually and as executor, as principal, and by the Standard Accident Insurance Company, as surety, and delivered to the bank. Its condition was that the obligation it acknowledged would no longer exist if the executor should pay or cause to be paid the taxes, interest and penalties due or to become due pending the final determination of the litigation. The appeal resulted in an order remanding with instruction to the district court to dismiss unless the complaint was amended to show diversity of citizenship. This was done, however, another trial had, and a decree substantially the same as the one dated February 9th, 1926, was rendered in December, 1927. A sale at public auction in accordance with the instructions in this decree was made by the United States marshal in April, 1928, and the property bid in by the bank for the amount of its judgment, $4,788.81.

[38 Ariz. 81] In the meantime the taxes and penalties for 1923, 1924, 1925, 1926 and 1927 had not been taken care of and these, together with those for 1928, totaling for the six years $1,225.59, were paid by the bank in November of that year. In January prior thereto, however, the bank had instituted this action against Woods, individually and as executor, and the insurance company, both having failed to pay the taxes as provided in the bond, but the former did not appear in the suit in either capacity, and on March 29, 1929, more than a year after it was instituted, the plaintiff dismissed without prejudice as to him and thereafter proceeded against the insurance company alone.

The action resulted in the defendant's favor and it is from this judgment and a denial of its motion for a new trial that the plaintiff appeals.

A number of errors are assigned but they are discussed under four propositions of law, the first one being that the dismissal as to the principal on the bond, Chauncey Woods, individually and as executor, did not release the surety thereon, the insurance company. The latter, however, appellee herein, contends that it did have this result and necessarily that there was no error in the court's ruling to that effect. Undoubtedly the general rule is that an unqualified discharge of the principal debtor discharges the surety also. 21 R.C.L. 1065; United States Fidelity & Guaranty Co. v. Alfalfa Seed & Lumber Co., ante, p. 48, 297 P. 862. However, under the statutes of this state there are certain circumstances under which it is not required that the principal obligor be made a party. Paragraph 3732, Revised Code of 1928, which enumerates these, reads as follows:

"3732. Actions against surety, assignor or indorser. The assignor, indorser, guarantor and surety upon a contract, and the drawer of a bill, which [38 Ariz. 82] has been accepted, may be sued without the maker, acceptor or other principal obligor, when the latter reside beyond the limits of the state, or in such part of the same that they cannot be reached by the ordinary process of law, or when their residence ...


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