Continental Bank & Trust Co. v. Alabama General Ins. Co.
| Decision Date | 28 February 1963 |
| Docket Number | 3 Div. 4 |
| Citation | 274 Ala. 622,150 So.2d 688 |
| Parties | CONTINENTAL BANK & TRUST CO., Receiver, v. ALABAMA GENERAL INSURANCE CO. et al. |
| Court | Alabama Supreme Court |
Martin, Vogtle, Balch, Bingham & Hawthorne and J. Paul Lowery, Montgomery, for appellant.
Steiner, Crum & Baker and Sam Rice Baker, Montgomery, for appellee.
This appeal arises out of proceedings held in connection with the allowance and payment of claims presented to Louis G. Green, as Receiver of Alabama General Insurance Company. The outcome of this appeal will not affect the interests of appellee, Louis G. Green, except to determine to whom this claim should be paid, either to appellant, Continental Bank & Trust Company, as Receiver, or to appellee, American Guaranty and Liability Insurance Company.
Appellant had obtained a judgment against Leslie L. Gwaltney, individually and as Superintendent of Insurance for the State of Alabama in the sum of $94,890.00 plus costs in the United States District Court (N.D. Alabama) on March 15, 1960. This judgment was for the wrongful release of certain U. S. Government Bonds on deposit with the State Department of Insurance and belonging to Royal American Insurance Company of Huntsville, Alabama.
Subsequently, appellant in a separate suit obtained and collected a judgment for $21,666.67 from appellee, American Guaranty and Liability Insurance Company, based upon Gwaltney's statutory fidelity bond as Superintendent of Insurance.
Appellant (Continental Bank) and appellee (American Guaranty) sought to be subrogated to appellant's rights by virtue of § 101, Title 9, Code of Ala. 1940. Appellant's claim was based on its judgment in the amount of $94,890.00 obtained against Gwaltney. The lower court decreed that appellee (American Guaranty) by virtue of having paid the $21,666.67 to appellant (Continental Bank) had become subrogated to appellant's rights and interest in the judgment against Gwaltney to the amount expended.
It appeared from the evidence that appellant was paid $15,000.00 by one Robert Bell and Carl A. Morring, Jr., as officials of Royal American Insurance Company in consideration of a covenant not to sue them on account of any indebtedness of Royal American to appellant (Continental Bank). This was done under the supervision of a federal court.
The Special Master allowed appellant's claim only to the amount of $50,000.00 against the Receiver, based upon its judgment against Gwaltney. However, appellant reserved the right to proceed against others to collect its judgment, although Louis Green, as Receiver would be released. Gwaltney was not released by this allowance of claim.
Appellant's position is that before appellee (American Guaranty) should be entitled to subrogation on the judgment, the full amount of its judgment against Gwaltney must be paid, and that appellee has failed to prove payment in full of appellant's judgment. Also, that subrogation is not to be enforced where the rights of the creditor will be prejudiced, and the lower court by allowing appellee (American Guaranty) to be subrogated to appellant's rights denied appellant the right to further collect on the unpaid judgment.
Appellee (American Guaranty) takes the position that having paid the full amount of the judgment against it, $21,666.67, and all elements of said $ 101 being apparent, the lower court ruled correctly in allowing subrogation. In the alternative appellee (American Guaranty) asks for pro tanto subrogation in sharing te dividends of Alabama General with appellant.
The basic conflict between the parties is best understood when it is kept in mind that there are two judgments, i. e., one against Gwaltney for $94,890.00 unpaid in part, the other against appellee (American Guaranty) as surety for Gwaltney in the amount of $21,666.67 in favor of appellant which is fully paid. Appellee (American Guaranty) has paid the full amount of its obligation but this is not the full amount due appellant on its judgment against Gwaltney.
The issue may therefore be stated, viz.: Where a surety has paid the full amount of its obligation, being liable for only a part of a larger obligation which remains unsatisfied, can the surety be subrogated by virtue of § 101, supra, to the rights of the creditor to whom it made parment?
Our research has failed to reveal an Alabama decision directly in point. However, a search of other jurisdictions has been more fruitful. The weight of authority and the better reasoned cases respond to the issue in the negative. Analogous cases in Alabama lead us to the same conclusion.
Subrogation is not a common law concept but was adopted from the civil law. Our jurisdiction recognizes two basic types of subrogation: 'Legal subrogation', arising by operation of law where a surety having a legal liability pays a claim primarily owing by his principal, and 'Conventional subrogation', grounded upon a lawful contract between the parties. See City of Birmingham v. Trammel, 267 Ala. 245, 101 So.2d 259. We are here concerned with 'legal subrogation'.
Section 101, supra, provides:
'Whenever a judgment is obtained by a creditor on a demand to which there are one or more sureties, the sureties may pay such demand; and the same shall by operation of law be transferred to the surety or sureties paying or satisfying such demand, who shall have all the liens or equities of such judgment or decree and of the debt or claim on which the same is founded, and the plaintiff in the judgment, his agent, or attorney of record, when the payment is made, must assign such judgment to the surety or sureties paying the money, who may collect the same, with interests and costs, in the name of the plaintiff, for their use, and may assert, in law or in equity, lien or right against the principal debtor, which the plaintiff could have asserted if the debt had not been paid.'
Subrogation is made available in § 101 to co-sureties concurrently liable to suit with the principal, who have been sued and have judgments rendered against them. Peterson v. Drennen Motor Car Co., 256 Ala. 99, 53 So.2d 375. It is available both at law or in equity, but in order to obtain its benefits as to a judgment at law, the statute must be strictly observed. Holder v. Brooks, 261 Ala. 127, 73 So.2d 355.
It has been an oft-stated general rule that before subrogation can be...
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