Commercial Casualty Ins. Co. v. Boise City National Bank

• Decision Date: 19 January 1940
• Docket Number: 6684
• Citation: 61 Idaho 124,98 P.2d 637
• Parties: COMMERCIAL CASUALTY INSURANCE COMPANY, Appellant, v. BOISE CITY NATIONAL BANK and ROSCOE S. MADDEN, as Receiver of Said Bank, Respondents
• Court: Idaho Supreme Court

98 P.2d 637

61 Idaho 124

COMMERCIAL CASUALTY INSURANCE COMPANY, Appellant, v. BOISE CITY NATIONAL BANK and ROSCOE S. MADDEN, as Receiver of Said Bank, Respondents

No. 6684

Supreme Court of Idaho

January 19, 1940

BANKS AND BANKING-DEPOSIT OF PUBLIC FUNDS-SECURITY FOR REPAYMENT-APPORTIONMENT OF LIABILITY-DUTIES OF AUDITOR AND SUPERVISING BOARD-PUBLIC POLICY-SUBROGATION-LIMITATION OF ACTION-COSTS.

1. Under statute providing for sale of bonds pledged by bank to secure repayment of public money deposited therein, and making surplus, after payment of amount due depositing unit and expenses of sale, payable to bank, where city was paid full amount of its deposits in bank which failed, through sale of bonds pledged by bank, and through payment by surety of bank, and assigned to surety its right to any moneys from claim filed with receiver of bank, surety could not recover from receiver surplus from sale of bonds. (I. C. A., sec 55-121.)

2. A city treasurer had no authority to execute "endorsement" reducing penal sum of bond for repayment of deposits of city funds in bank, and "endorsement" was void for violation of public policy where it was not attached to bond and neither county auditor nor mayor and council of city had any knowledge thereof until after bank failed. (I. C. A., sec. 55-101 et seq.)

3. Under statute providing that where both securities and bonds are given to secure repayment of public funds deposited in bank, each class must contribute its ratable proportion of any loss, where bank failed, but city was repaid for its deposits through sale of pledged securities and through payment by surety of bank, surety was not entitled to subrogation to rights and priorities as against receiver of bank which city would have been entitled to if its deposits had not been repaid. (I. C. A., sec. 55-112.)

4. In action by surety on bond of bank securing repayment of city's deposits of public funds, for amount allegedly paid in excess of surety's pro rata share of amount due city, three-year limitation on action on liability created by statute, other than penalty or forfeiture, was inapplicable to cross-complaint for amount allegedly paid by receiver of bank in excess of pro rata share chargeable to bonds pledged by bank to secure repayment of deposits. (I. C. A., sec 5-214; sec. 5-218, subd. 1, sec. 55-101 et seq.)

5. In action by surety on bonds of bank securing repayment of city's deposits of public funds, for amount allegedly paid in excess of surety's pro rata share of amount due city, cross-complaint alleging that, through mistaken belief that penal sum of bond had been validly reduced, receiver of bank made payment in excess of pro rata share chargeable to bonds pledged by bank to secure repayment of deposits, was barred by three-year limitation on actions for relief on ground of mistake, where cross-complaint was filed September 17, 1937, last payment by receiver was made June 4, 1934, and receiver's letter of December 12, 1932, showed that he was familiar with facts constituting invalid effort to reduce penal sum of bond. (I. C. A., sec. 5-214; sec. 5-218, subd 4; sec. 55-101 et seq.)

6. A judgment awarding costs to defendants on denial of recovery on complaint and cross-complaint could not be held erroneous in absence of showing in record that plaintiff incurred costs in defending against cross-complaint. (I. C. A., sec. 12-102, subd. 3; sec. 12-104.)

The foregoing syllabus is by West Publishing Company, that following is by author of opinion.

I. In case of sale of securities pledged by bank to secure the payment of deposits of public funds, any surplus remaining after paying the amount due the depositing unit, and expenses of sale, shall be paid to the bank pledging the securities.

II. When both securities and bonds are given as security for repayment of deposited funds, each class shall be held to contribute its ratable proportion of any loss which the depositing unit may suffer, or of any recovery to which it may become entitled.

III. It is the duty of the county auditor to require a bank before receiving deposits of public money of a depositing unit within his county, to deposit securities or give bonds, or both, to secure its repayment; to fix the maximum sum which may be deposited, and to notify the treasurer of the depositing unit thereof.

IV. It is the duty of the supervising board of a depositing unit to designate the bank in which its funds shall be deposited; to investigate the security given for the deposits, and the acts of the auditor in relation thereto; to require new or additional security, when found necessary, and to direct the withdrawal of the funds if it be not given.

V. Where a $50,000 bond was given to secure repayment of bank deposits of public funds of a depositing unit and, without knowledge or consent of the auditor, or of the supervising board, an attempt was made by the bank, the surety on the bond and the treasurer of the depositing unit to reduce the bond to $25,000, such attempt was without authority of law, was violative of the public policy of Idaho with respect to deposit and safekeeping of public funds and is void.

VI. Where securities are deposited and a bond is given to secure the repayment of a deposit in a bank of public funds, one paying the deposit, in whole or in part, is not entitled to be subrogated to the priority rights of payment of the insured.

VII. Subsection 4, I. C. A., sec. 5-218, fixes three years as the period of limitation within which an action may be commenced for relief on the ground of fraud or mistake, and provides: "The cause of action in such case not to be deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake." Held, the cross-complaint was filed more than three years after discovery, by cross-complainants, of the facts constituting the alleged mistake on which the cross-complaint was based, and the cause of action therein stated is barred.

VIII. In absence of showing that costs were incurred in litigating the issues presented by cross-complaint we cannot say it was error to decline to award judgment for costs to prevailing party.

APPEAL from the District Court of the Third Judicial District for Ada County. Hon. Charles E. Winstead, Judge.

Action by surety on bond of bank, given to secure repayment of city's deposits of public funds, against bank and its receiver to recover moneys alleged to have been paid by it in excess of its pro rata share of amount due to city. Defendants cross-complained seeking to recover moneys alleged to have been paid by receiver in excess of pro rata share chargeable to bonds pledged by bank to secure repayment of deposit. Judgment that plaintiff recover nothing on complaint and defendants recover nothing on cross-complaint. Affirmed.

Judgment affirmed. Costs on appeal awarded to respondents.

Martin & Martin and T. D. Jones, for Appellant.

Subrogation is a substitution of one person in place of another, whether as a creditor or as the possessor of any rightful claim, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim and its rights, remedies, or securities. (Wilson v. Wilson, 6 Idaho 597 (see bottom p. 607), 57 P. 708; Robertson v. Sullivan, 102 Miss. 581, 59 So. 846, 847.)

A subrogee is placed in the precise position of the one to whose right he is subrogated, and is entitled to all the rights and securities and the benefit of all the remedies which were available to such person. (25 R. C. L., sec. 60, p. 1377; Schiska v. Schramm, 151 Ore. 647, 51 P.2d 668; see cases cited in 68 L. R. A. 528, note, par. VII; Prairie State Nat. Bank v. United States, 164 U.S. 227, 17 S.Ct. 142, 41 L.Ed. 412.)

In this country the generally accepted doctrine is that the surety is subrogated not only to the collateral securities, but also to the primary and original security, that is, the identical security, the judgment, note, bill, bond, or other contractural instrument upon which the surety is bound with his principal. He is substituted to the very debt itself, which equity, notwithstanding its payment and discharge, keeps alive for his benefit and protection. (25 R. C. L., sec. 63, pp. 1380, 1381; Nelson v. Webster, 72 Neb. 332, 100 N.W. 411 (see 1st col., p. 413), 117 Am. St. 799; Hill v. King, 48 Ohio St. 75, 26 N.E. 988; State v. Kilgore State Bank, 112 Neb. 856, 201 N.W. 901.)

J. R. Smead and Karl Paine, for Respondents.

Independently of the statute, appellant's contention that it is a secured creditor of the bank is without merit.

"The general and uniform rule is that a person cannot be subrogated to the rights or securities of a creditor until the claim of the creditor against the debtor has been paid in full." (Houghtelin v. Diehl, 47 Idaho 636, 277 P. 699; 25 R. C. L. 1318; 60 C. J. 719-722; Mellette Farmers' Elevator Co. v. H. Poehler Co., 18 F.2d 430.)

The city exhausted all its rights under the depository law. Appellant is now asserting those very rights which were resorted to and exercised by the city before subrogation did or could occur. One does not obtain a preferred claim by subrogation. (Caldwell v. King, 84 Iowa 228, 50 N.W. 975; United States F. & G. Co. v. Anderson, 38 Wyo. 88, 264 P. 1030.)

MORGAN, J. Ailshie, C. J., Givens and Holden, JJ., concur. Budge, J., took no part in the decision.

OPINION

MORGAN, J.

The record discloses the following facts: Boise City National Bank, hereinafter called the bank, is and, at all times mentioned in the evidence, was a national banking association and, until August 1, 1932, was engaged in the banking business in Boise City, Idaho. Boise City, hereinafter called the city, is and, during all times mentioned in the record has been a...