Adgelion K. Hall v. Windsor Savings Bank

• Decision Date: 02 June 1923
• Citation: 121 A. 582,97 Vt. 125
• Parties: ADGELION K. HALL v. WINDSOR SAVINGS BANK
• Court: Vermont Supreme Court

121 A. 582

97 Vt. 125

ADGELION K. HALL v. WINDSOR SAVINGS BANK

Supreme Court of Vermont

June 2, 1923

February Term, 1923.

APPEAL IN CHANCERY. Heard on bill, demurrer, answer, and facts found by the chancellor, at the June Term, 1922, Windsor County Fish, Chancellor. Demurrer overruled and decree for plaintiff. The defendant appealed. The opinion states the case.

Decree affirmed, and cause remanded.

Marvelle C. Webber for the defendant.

Present WATSON, C. J., POWERS, TAYLOR, SLACK, and BUTLER, JJ.

OPINION

POWERS

On August 1, 1900, Joseph C. Enright qualified as executor of the will of Henry L. Story, deceased, by filing a bond on which the plaintiff was surety. By the terms of the will, Sarah W. Story, widow of the testator, was the residuary legatee. She died before her husband's estate was settled, leaving a will of which Enright was the executor. On November 30, 1903, the probate court for the district of Windsor, in which both estates were in process of settlement, passed upon and approved the final account of Enright as executor of the Henry L. Story estate, found in his hands in cash, notes, and deposits, the sum of $ 8,473.72, and made a decree ordering him to pay that sum to himself as executor of Sarah W. Story's estate, according to the terms of Mr. Story's will. This order was never complied with.

At the time this decree was made, the assets of the Henry L. Story estate included a deposit in the defendant bank of $ 1,587.72, another in the Springfield Savings Bank of $ 1,346.12, and a third in the Bellows Falls Savings Institution of $ 21.12. The first-named deposit stood in the name of Henry L. Story; and on January 1, 1904, amounted with interest, to $ 1,607.31. On that day, Enright withdrew it, receipting for it as executor, and the avails were then applied by the defendant on its note for $ 3,500.00 dated October 20, 1903, and signed by Enright, F. S. Hale, and E. R. Buck. The deposit in the Springfield Savings Bank stood in the name of J. C. Enright, executor of Henry L. Story's estate, and on January 1, 1904, amounted to $ 1,368.87. On that day, Enright withdrew the deposit by giving the treasurer of the bank an order signed by the former as executor of Henry L. Story's estate, and receiving a treasurer's check for the amount stated drawn to himself, as executor. On the following day, Enright indorsed this check as drawn, delivered it to the defendant, and its treasurer applied it on the $ 3,500 note above referred to.

The Bellows Falls deposit also stood in the name of J. C. Enright, executor of H. L. Story's estate. On July 1, 1904, it amounted to $ 828.25, and was withdrawn by an order made out by the defendant's treasurer, A. W. Harris, and signed "J. C. Enright, executor of H. L. Story's Est.," and indorsed "For remittance to Windsor Savings Bank, A. W. Harris, Treasurer." Thereupon, a cashier's check for the amount named was issued by the Bellows Falls Institution and sent to the defendant. This was applied by the defendant on its note against Enright for the sum of $ 2,800, as security for which the deposit had been hypothecated by Enright.

On April 8, 1910, Gilbert A. Davis, having been appointed administrator de bonis non of the estate of Sarah W. Story, and having qualified as such, by the leave and in the name of the probate court aforesaid, brought an action against the plaintiff on the bond above referred to, and therein recovered a judgment amounting to $ 4,884.49, which the plaintiff paid on May 25, 1912. This suit is in equity and is predicated on the theory that by such payment the plaintiff became subrogated to such rights against the defendant Savings Bank as will enable him here to recover of it so much of these misappropriated deposits as may be required for his reimbursement.

The defendant filed an answer and embodied therein a demurrer, which was brought on for hearing before the trial before the chancellor began; it was overruled, and the benefit of the exception saved was reserved.

The demurrer was properly overruled. The doctrine of subrogation is much broader in its scope and application than the defendant admits. It is highly equitable in character, and is regarded as one of the "benevolences of the law," created, fostered, and applied in the interests and for the promotion of natural justice. It may arise independent of any contract between the parties to be affected by it, and in such cases does not depend upon privity between them. Sands' v. Durham, 99 Va. 263, 38 S.E. 145, 54 L. R. A. 614, 86 A. S. R. 884; National Bank v. Cushing, 53 Vt. 321; Amory v. Lowell, 83 Mass. 504, 1 Allen 504; Huffmond v. Bence, 128 Ind. 131, 27 N.E. 347; Memphis & Little Rock R. R. Co. v. Dow, 120 U.S. 287, 30 L.Ed. 595, 7 S.Ct. 482. The right is a favorite of the law, and the tendency is to extend rather than restrict its application. It is not confined to the ordinary relation of principal and surety, but arises whenever, in the complex relations of business affairs, one man is compelled to pay a debt for which another is primarily liable and which, in equity and good conscience, should have been discharged by the latter. National Bank v. Cushing, supra.

The bond signed by the plaintiff was in the usual form and among other things secured the payment of the legacy to Mrs. Story. Had she survived the decree of distribution of her husband's estate, she could have prosecuted the bond and recovered the amount to which she was entitled under the decree. Probate Court v. Kimball, 42 Vt. 320. This right of hers passed to her executor and then to her administrator de bonis non, and is equally available to him. G. L. 3509. The plaintiff's liability and its amount were established in the proceedings instituted by Davis, and the plaintiff was compelled to pay the award therein. The defendant admits that Hall was liable to the administrator of Sarah W. Story's estate, but denies that the latter had any remedy against the defendant; therefore, it argues, there is nothing for the plaintiff to be subrogated to. This claim is unfounded. By suing on the bond, the administrator did not waive the right to sue the defendant. Allen v. Puritan Trust Company, 211 Mass. 409, 97 N.E. 916, L. R. A. 1915C, 518. Whenever an estate has been decreed to the person entitled to it, that person may demand and recover the same, not only from the executor or administrator, but from "any other person having the same in his possession." This is a statutory right. G. L. 3424. It is not necessary, however, to appeal to the statute in order to escape so gross an injustice as would result if it were to be held that this surety, who has lawfully been required to pay, was without remedy against one who has wrongfully and knowingly misappropriated the estate. Subrogation operates to save him. It operates without regard to form or technicalities, and when the plaintiff was compelled to pay what Enright ought to have paid, he was subrogated, not only to Enright's rights against the defendant, but also to the rights which his cestui que trust, the Story estate, had against it. Whenever the surety of a fiduciary is compelled to answer for the latter's breach of trust, he succeeds to the rights of both the fiduciary and the cestui. Blake v. Traders' Nat. Bank, 145 Mass. 13, 12 N.E. 414; American Bonding Company v. National Mechanics' Bank, 97 Md. 598, 55 A. 395, 99 A. S. R. 466; Fox v. Alexander, 36 N.C. 340; Kennedy v. Pickens, 38 N.C. 147; United States Fidelity & Guaranty Co. v. Citizens State Bank, 36 N.D. 16, 161 N.W. 562, L. R. A. 1918E, 327; Pierce v. Holzer, 65 Mich. 263, 32 N.W. 431; Farmers' and Traders' Bank v. Fidelity & Deposit Co., 108 Ky. 384, 56 S.W. 671, 22 Ky. Law. Rep. 22; Pinckard v. Woods, 49 Va. 140, 8 Gratt. 140; Fidelity & Guaranty Co. v. People's Bank, 127 Tenn. 720, 157 S.W. 414. The fact that the plaintiff did not pay the debt to the principal's immediate creditor, Mr. Story's estate, does not affect his situation. He paid it to one who succeeded to it by the orderly processes of the law, and who could and did lawfully compel its payment.

What we have said regarding the defendant's liability presupposes, of course, that the defendant took the deposits with notice, actual or constructive, that they represented trust funds,--of which we shall speak further herein.

That equity has jurisdiction in such cases is too well established to require discussion. Wilder's Exrx. v. Wilder, 75 Vt. 178, 53 A. 1072, 25 R. C. L. 1391. Nor is there anything in Hale v. Windsor Savings Bank, 90 Vt. 487, 98 A. 993, when rightly understood, to the contrary. And whenever a trustee refuses to take measures to protect or recover the trust property or is implicated in the wrong to be redressed, the cestui may sue in equity to protect his rights. Zimmerman v. Makepeace, 152 Ind. 199, 52 N.E. 992; Weetjen v. Vibbard, 5 Hun 265; Neal v. Bleckley, 51 S.C. 506, 29 S.E. 249.

But it is said that the surety must exhaust his remedy against the principal before he is entitled to subrogation, and that the bill in hand does not show that this plaintiff has proceeded against Enright's estate. It is alleged that Enright was insolvent when he died, and that of the amount misappropriated by him only about $ 3,300 could be and was recovered of his estate. From this it appears, inferentially at least, that the plaintiff or Davis had exhausted the remedies against Enright's estate when the bill was brought. Moreover, the law is not as the defendant claims. Speaking generally, the surety is not bound to exhaust his remedies against the principal before seeking the benefits of subrogation. His right accrues upon his payment. Being equitable, it is subject to the rules of equity. If one would have equity, he must do it; and if the...