Opinion
No. 26,268.
Filed December 20, 1932.
1. INFANTS — Rescission of Contract — When Liability Extinguished. — Where an infant 19 years old rescinded his contract to purchase an automobile and returned the automobile, in the absence of any evidence that it was a necessary or used in gaining a livelihood, the infant's liability to pay the contract price was thereby extinguished. p. 236.
2. PRINCIPAL AND SURETY — Release of Principal — Releases Surety — Exception to Rule — Infant Principal. — The general rule is that a surety is discharged when the liability of the principal is extinguished, but the rule is different in the case of a surety for a minor or other person incapable of contracting when the principal is discharged by operation of law. p. 236.
3. INFANTS — Rescission of Contract — When Surety's Liability Continues. — Where an infant's liability on contract is extinguished by operation of law because of his legal incapacity to contract, the surety is bound, unless the minor, in disaffirming the contract, restores to the creditor everything received by him under the contract. p. 236.
4. INFANTS — Rescission of Contract — For Purchase of Automobile — Sureties Held Bound. — Where a 19-year-old boy purchased an automobile on a conditional sale contract, kept the automobile 7 months, and then rescinded the contract, returning the automobile, but not offering to pay for his use of the car, the sureties on the infant's note were properly held bound thereon. p. 236.
5. INFANTS — Rescission of Contract — Surety's Right of Subrogation — Upon Payment of Debt. — Where an infant purchaser of an automobile rescinded his contract without making full restoration to the seller, his surety, by his right of subrogation, was entitled to the automobile upon payment of the debt. p. 237.
6. SALES — Conditional Sale — Remedies of Seller — Storage on Repossessed Property. — The seller of an automobile on a conditional sale contract, who repossesses it, is not entitled to charge storage on the automobile prior to the time he parts with title to the same. p. 237.
7. PRINCIPAL AND SURETY — Remedies of Creditor — Judgment — Against Sureties Only — Severance in Pleading. — In an action by a minor to recover money paid on the purchase of an automobile after a rescission of the contract by him, where the seller filed a cross-complaint against his sureties on the purchase note, the infant filing no answer to the cross-complaint, it was held that the allegations in the complaint amounting to a defense were considered as an answer to the cross-complaint and sufficient severance of pleading to permit the seller to take judgment against the sureties alone. p. 238.
From Grant Circuit Court; J.F. Charles, Judge.
Action by Clyde B. McKee against Harwood Automotive Company, which filed a cross-complaint against plaintiff and Clement B. McKee and Laura McKee. From an adverse judgment, Clement B. and Laura McKee appealed. Affirmed.
D.M. Bell and John A. Kersey, for appellant.
Condo Baton, for appellee.
Clyde B. McKee, by next friend, sued the Harwood Automotive Company alleging that he was nineteen years old, that the company induced him to sign a contract for the purchase of a used automobile for the price of $576.00, that he paid $203.00 on such contract, and that he later rescinded said contract, returned the automobile and demanded the return of his money. To this complaint the Harwood Company, appellee herein, filed an answer in general denial.
Appellee also filed a cross-complaint against Clyde B. McKee, Clement B. McKee and Laura McKee, alleging that said cross-defendants were indebted to it in the sum of $450.00 in principal and interest and $100.00 attorneys fees on a $570.00 lease note. No answer was filed to this cross-complaint by Clyde B. McKee, but Clement B. and Laura McKee answered in two paragraphs: (1) That they executed the note as sureties for Clyde B. McKee, who alone received the entire consideration for the note and praying that they be adjudged sureties, etc.; (2) that they executed the lease note on conditional sale, that the title of the automobile was retained by cross-complainant, and that Clyde B. McKee, who was an infant, on February 26, 1926, returned the automobile to cross-complainant and praying that the note be cancelled.
The cause was submitted to the court upon an agreed statement of facts, which, briefly summarized, are:
1. Clyde McKee, on July 15, 1925, purchased of Harwood Automotive Company a 1924 Ford sedan, paid $11.40 in cash, and bound himself to pay $570.00 at $11.40 per week.
2. To evidence the contract and indebtedness, Clyde McKee, together with Clement B. and Laura McKee, executed a lease note. Clyde McKee was under the age of 21 years. The lease note provided for the payments as set out above, for interest at the rate of one per cent per month, that "title, ownership and possession" of the automobile should remain in the seller until the note is paid in full and that if "this note or any portion of the same shall become due and remain unpaid" the seller might "take possession" and consider all payments made as compensation for the "use of said goods."
3. Clyde McKee received the entire consideration for the contract and Clement B. McKee and Laura McKee signed only as sureties.
4. Clyde McKee paid the Harwood Company a total of $197.00, and thereafter, on February 26, 1926, disaffirmed his contract and returned the automobile. That the Harwood Company refused to accept the automobile in discharge of the contract and refused to return the $197.00 to him.
5. On March 1, 1926, the Harwood Company mailed a letter to Clyde McKee telling him that they would hold the automobile until he called for it and that his storage rate would be 50 cents per day.
6. The Harwood Company still has the automobile in storage subject to the order of the cross-defendants.
7. (An agreement concerning the amount of attorney fees.)
The court found for the plaintiff, Clyde B. McKee, and rendered judgment in his favor for $205.86. It found that the cross-complainant, Harwood Automotive Company, was entitled to recover on its note from the cross-defendants, Clement B. McKee and Laura McKee, and rendered judgment against them for $694.20, $90.00 of which was the allowance for attorney fees. Clyde B. McKee is not a party to this appeal and his judgment is not in question here. Clement B. and Laura McKee appealed and assign as error the overruling of their motion for a new trial, wherein they allege that the judgment against them is not sustained by sufficient evidence and is contrary to law.
No evidence was presented of any facts which would serve to make the infant, Clyde B. McKee, liable on his contract of purchase or of lease of an automobile (such as that the 1. automobile was a necessary, or that he used it in gaining a livelihood), and it follows that his rescission of the contract extinguished his liability on the note.
The general rule is that a surety is discharged when the liability of his principal is extinguished. This rule is subject to an exception in the case of a surety for a minor or 2-4. other person incapable of contracting, and the extinction of the contract and discharge of the principal by operation of law, because of the principal's legal incapacity, does not release the surety. 50 C.J. § 311, p. 188; Kirby v. Cannon (1857), 9 Ind. 371; Davis v. Statts (1873), 43 Ind. 103, 13 Am. Rep. 382. In such a case the surety is bound, unless the minor, in disaffirming the contract, restores to the creditor everything received by him under the contract. 50 C.J. § 150, p. 92; Seeley v. Seeley-Howe-LeVan Co. (1905), 128 Iowa 294, 103 N.W. 961; Keokuk Co. State Bank v. Hall (1898), 106 Iowa 540, 76 N.W. 832. Thus appellants are liable as sureties on the note unless the infant principal restored to the creditor, and he accepted in full settlement, everything he received thereunder. The note contained a (lease-sale) provision that the automobile for which it was given should remain the property of the appellee until the note was paid in full. The principal under the contract never received title to the automobile but he did have the use of it for 7 1/3 months, for which he paid nothing (considering that by the judgment noted above he recovered from appellee all that he paid to it). In tendering the automobile back after 7 months use he did not place appellee in statu quo by restoring to it everything he had received under the contract. It follows that appellants were properly held liable as sureties.
The appellee is not entitled to the automobile in addition to the purchase price. The title to the automobile, under the contract, however, remains in the appellee until the 5, 6. note, or the judgment on the note, is paid. At that time the title will pass to the purchaser. The infant purchaser has disaffirmed his contract, but, because he did not make full restoration to the seller, his surety cannot be released, and the surety, by his right of subrogation, will be entitled to receive the automobile. Hubbard v. Security Trust Co. (1906), 38 Ind. App. 156, 178 N.E. 79; Baker v. Kennett (1873), 54 Mo. 82; Jones v. Tincher (1860), 15 Ind. 308, 77 Am. Dec. 92. It might be well to add that appellee is not entitled to charge storage on the automobile prior to the time it parts with title to the same.
The appellants contend that under the rule as stated in Britton v. Wheeler (1846), 8 Blackford 31, appellee, by its cross-complaint, could not proceed against all makers of the note and recover against appellants alone, — 7. the infant, Clyde McKee, not having "severed in pleading and pleaded matter going to his personal discharge." The facts stated in the infant's complaint, so far as they amount to a defense to the cross-complaint, are to be regarded as an answer thereto. Summers v. Hutson (1874), 48 Ind. 228; Fletcher v. Holmes (1865), 25 Ind. 458, 465; Moore, etc., Co. v. Marion, etc., Co. (1913), 52 Ind. App. 548, 101 N.E. 15. This was a sufficient "severance in pleading," etc. Britton v. Wheeler, supra; Kirby v. Cannon, supra.
From the finding and judgment it appears that the court did not compute the interest due on the note at the usurious rate provided for therein, but correctly computed it at the legal rate.
Judgment affirmed.