Baker v. American Surety Co. of New York

• Decision Date: 17 November 1916
• Docket Number: 31162
• Citation: 159 N.W. 1044,181 Iowa 634
• Parties: JOHN A. BAKER, Appellee, v. AMERICAN SURETY COMPANY OF NEW YORK, Appellant, et al
• Court: Iowa Supreme Court

159 N.W. 1044

181 Iowa 634

JOHN A. BAKER, Appellee, v. AMERICAN SURETY COMPANY OF NEW YORK, Appellant, et al

No. 31162

Supreme Court of Iowa, Des Moines

November 17, 1916

REHEARING DENIED SATURDAY, NOVEMBER 17, 1917.

Appeal from Monroe District Court.--D. M. ANDERSON, Judge.

A defendant and cross-petitioner appeals from an order striking a cross-petition.

Affirmed.

Samson & Steer for appellant.

J. C Mabry and John T. Clarkson, for appellees.

LADD J. GAYNOR, C. J., EVANS and SALINGER, JJ., concur.

OPINION

LADD, J.

This is an action by plaintiff in behalf of an association known as the Buxton Local Union No. 1799, District No. 13, a constituent part of an organization known as the "United Mine Workers of America," against the defendant as surety on the bond of W. H. Brown, financial secretary and treasurer of said union from July 1, 1913, to July 1, 1914. The petition alleges that, during October, 1914, other officers discovered that "said W. H. Brown had misappropriated all or a part of the moneys coming into his hands as such financial secretary and treasurer," and immediately gave notice to defendant that defendant has "failed, omitted and neglected to pay said Local Union No. 1799 the money so lost, although the same has been demanded, " and judgment for $ 800 was prayed. A copy of the bond in the usual form was attached, and also an itemized statement of the several sums alleged to have been embezzled. Thereupon defendant filed a cross-petition, making the Buxton Savings Bank defendant, alleging what plaintiff claims, and further that the "items set out in the said list were paid out by the said Buxton Savings Bank and charged against the checking account of said Local Union with the said bank. The claim of the said Local Union is that the said bank made such payments without authority therefor, upon checks or orders forged or the endorsements upon which were forged by said W. H. Brown, and charged the same to said checking account, and that thus the alleged loss accrued to the said Local Union. This defendant says that, if such claims of said Local Union be true, that then and in that event the primary liability for such loss is that of the said bank, and not of this defendant; and that, if it be true the defendant is under liability herein, then defendant should be allowed to recover herein against the said bank all sums for which this defendant shall be adjudged to be liable to plaintiff, and for costs. The said checks or orders are not in possession nor under the control of this defendant, and this defendant is unable to set out copies of them. Wherefore, this defendant prays that, if judgment should be rendered against this defendant herein, that the defendant have judgment for the same amount against the Buxton Savings Bank and for costs."

The Buxton Savings Bank moved that cross-petition be stricken from the files, for that: (1) The facts recited did not justify the filing of a cross-petition; (2) the savings bank might not be joined as defendant in this manner; (3) the cross-petition is not material to the issue raised by the petition; (4) there is no privity of contract between defendant and the savings bank requiring the bringing in of said bank as a party to the action; and (5) the savings bank is not a necessary party to any adjudication between the original parties to the suit. The motion was sustained. The appeal is from this ruling.

In reviewing the ruling on the motion, the allegations of the cross-petition must be assumed to be true. If so, we have this situation: The American Surety Company bound itself to pay "such pecuniary loss, not exceeding $ 1,000, as said employer shall have sustained of money or other personal property (including that for which employer is responsible) by any act or acts of fraud, dishonesty, forgery, theft, embezzlement, wrongful abstraction or misapplication on the part of said employee, directly or through connivance with others, while in any position or at any location in the employ of said employer." The Local Union deposited its funds in the Buxton Savings Bank, and, as is alleged, Brown forged checks or orders of the Local Union, or endorsements thereon, and the bank paid these from the funds of said Local Union. As we understand it, the orders were properly drawn payable to persons entitled to the amounts named therein; but Brown, as is alleged, forged the payee's name thereon and drew the money, which he appropriated to his own use. If so, this is within the averments of the cross-petition quoted, and the loss therefrom, if any, was occasioned by the dishonesty, of Brown, as much as though he had forged the checks or orders. Because of the dishonesty of Brown, the funds of the Local Union have been paid out by the bank, and the theory of the plaintiff is that said union may look to the Surety Company and Brown, instead of the bank, to recoup the loss. The contention of the surety is that the bank paid the money on the forged checks, orders or endorsements, and, upon paying the Local Union the loss suffered by it through Brown's dishonesty, it is entitled to be subrogated to the claim the Local Union held against the bank because of paying out its money without its authority on the forged instruments. The bank, through its motion to strike, denied that the surety company has the right to subrogation, under the circumstances disclosed, and raised several other questions not necessary to be considered, in view of our conclusion.

Subrogation is defined by Bispham as the equity by which a person who is secondarily liable for a debt, and has paid the same, is put in the place of the creditor, so as to entitle him to make use of all the securities and remedies possessed by the creditor, in order to enforce the right of exoneration as against the principal debtor, or of contribution against others who are liable in the same rank with himself. Bispham's...