HARTFORD ACC. & I. CO. v. First Nat. B. & T. Co. of Tulsa, Okl.

• Decision Date: 21 January 1961
• Docket Number: No. 6436.,6436.
• Citation: 287 F.2d 69
• Parties: HARTFORD ACCIDENT AND INDEMNITY COMPANY, a corporation, Appellant, v. FIRST NATIONAL BANK AND TRUST COMPANY OF TULSA, OKL., a national banking association, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

287 F.2d 69 (1961)

HARTFORD ACCIDENT AND INDEMNITY COMPANY, a corporation, Appellant, v. FIRST NATIONAL BANK AND TRUST COMPANY OF TULSA, OKL., a national banking association, Appellee.

No. 6436.

United States Court of Appeals Tenth Circuit.

January 21, 1961.

Jack N. Hays, Tulsa, Okl. (Gable, Gotwals & Hays, Tulsa, Okl., was with him on the brief), for appellant.

Hess Crossland, Tulsa, Okl. (Conner, Winters, Randolph & Ballaine, Tulsa, Okl., was with him on the brief), for appellee.

Before BRATTON, PICKETT and BREITENSTEIN, Circuit Judges.

BRATTON, Circuit Judge.

Hartford Accident and Indemnity Company instituted this action against First National Bank in Bartlesville, Oklahoma, and The First National Bank and Trust Company of Tulsa, Oklahoma. The bank in Bartlesville cross-claimed against the bank in Tulsa. On application of Hartford, the action was dismissed without prejudice as to the bank in Bartlesville; and on application of the bank in Bartlesville, the cross claim was dismissed. As between Hartford and the bank in Tulsa, the cause was submitted on admissions, stipulations, and written exhibits. Findings of fact and conclusions of law were made; judgment was entered denying recovery against the bank in Tulsa; and Hartford brought the cause here on appeal.

The action had its origin in these facts and circumstances. Hartford was surety on an employees' fidelity bond in favor of Phillips Petroleum Company. Harrell L. Strimple was an employee of Phillips, and the bond covered fraud or dishonesty on his part. Extending over a period of more than sixty days, Strimple from time to time prepared and placed in the inter-office mail of Phillips ten false and fraudulent pay orders referred to as pink letters on which he had forged the name or initials of persons who would normally issue or approve such letters. These letters resulted in the preparation by other employees of ten drafts drawn on Phillips payable through the bank in Bartlesville. Three of the drafts named A. G. Wallett and Bruce L. Jennings as payees, and seven named Jennings as payee. There were no such persons and Phillips owed no payments to any person named Wallett or Jennings. The drafts were mailed in envelopes addressed to Jennings at the Mayo Hotel in Tulsa. Arvel Montgomery Moser was an outside confederate of Strimple. He obtained the drafts from the hotel, endorsed them using the name or names of the payees, and deposited all of them except one in the name of Jennings in the bank at Tulsa. He cashed one at the bank. The bank in Tulsa endorsed the drafts with the usual banker's endorsement in which previous endorsements were guaranteed and forwarded them to the bank in Bartlesville. The drafts were paid by Phillips through the bank in Bartlesville, and the proceeds were received by the bank in Tulsa. The record fairly lends itself to the inference that while representing himself to be Jennings, Moser gave to the bank in Tulsa the name of a bank in Kentucky as a reference. The bank in Tulsa made two inquiries of the bank in Kentucky concerning Jennings. The response to the first inquiry was a notation "no credit exp."; that to the second inquiry was a notation "no record in checking"; and the matter was seemingly not pursued further. Except for a specified balance, the proceeds of the drafts were withdrawn from the bank in Tulsa on checks with the name Bruce L. Jennings signed thereto. After discovery of the fraud, the specified balance was paid to Phillips upon a check payable to its order with the name Bruce L. Jennings appended thereto. That was done pursuant to a suggestion of the bank in Tulsa that it be handled in that manner. Hartford paid to Phillips its loss, obtained reimbursement for part of the loss, and instituted this action to recover the difference between its outlay and intake.

The primary ground of attack upon the judgment is that the court erroneously applied to the case the doctrine of superior equities; erroneously concluded that Hartford did not have superior equities to those of the bank in Tulsa; and erroneously concluded that in such circumstances, Hartford was not entitled to recover. Subrogation has its genesis in equity and its major objective is to effectuate the ultimate discharge of an obligation by the one who in good conscience should discharge it. Its function is to effectuate complete justice as between the litigating parties. Though based on equity, subrogation is frequently enforced in actions at law. The right does not arise out of contract. It usually arises where one party has the equitable right to step into the shoes of another in respect to rights against a third party. And in such circumstances, the party asserting the right is subject to all legal and equitable defenses which the third party may have against the party into whose shoes the subrogee steps. In other words, the subrogee does not have any better right against the third party than had the party into whose shoes he stepped. The essence of the doctrine...