DeFoe v. Great Southern Nat. Bank

• Decision Date: 29 July 1987
• Docket Number: No. 56728,56728
• Citation: DeFoe v. Great Southern Nat. Bank, 511 So.2d 912 (Miss. 1987)
• Parties: Loretta S. DeFOE v. GREAT SOUTHERN NATIONAL BANK, et al.
• Court: Mississippi Supreme Court

Page 912

511 So.2d 912

Loretta S. DeFOE v.GREAT SOUTHERN NATIONAL BANK, et al.

No. 56728.

Supreme Court of Mississippi.

July 29, 1987.

As Modified on Denial of Rehearing Sept. 16, 1987.

Paul M. Neville, Jackson, for appellant.

Robert S. Murphree, John L. Low, IV, Watkins & Eager, Jackson, for appellees.

Before HAWKINS, P.J., and ROBERTSON and ANDERSON, JJ.

HAWKINS, Presiding Justice, for the Court:

Loretta S. DeFoe has appealed from a summary judgment of the chancery court for the First Judicial District of Hinds County dismissing her complaint against the Great Southern National Bank of Jackson (Great Southern), United Petroleum Corporation and Charles D. Champlin.

DeFoe was beneficiary under a life insurance policy on the life of C. Delbert Hosemann, Sr., assigned by him to Great Southern as collateral security for an indebtedness due it by United Petroleum Corporation.Following Hosemann's death, the bank received the proceeds of the policy which it applied on the debt.Hosemann had also executed a personal guaranty for the debt.DeFoe sought to be subrogated to the bank's position against Champlin, also a guarantor of the debt, United Petroleum Corporation and Hosemann's estate.The chancellor did subrogate DeFoe as against Hosemann's estate (from which there has been no appeal), but dismissed her claim to subrogation against Champlin and United Petroleum Corporation.

We find the chancellor was correct in granting summary judgment in favor of Champlin, but prematurely found in favor of United Petroleum Corporation.DeFoe may very well be entitled to the right of subrogation as against United Petroleum Corporation, the maker of the note.We reverse and remand in part.

FACTS

Charles D. Champlin, a resident of Rankin County, and C. Delbert Hosemann, Sr., a resident of Hinds County, were shareholders in United Petroleum Corporation, an Ohio corporation with principal offices in Jackson.Champlin owned 55% of the outstanding shares, and Hosemann owned 200 shares.The record does not reveal if any other individuals owned stock in the corporation.

On July 30, 1982, United Petroleum borrowed $1,200,000 from the Great Southern National Bank and executed a note in this amount due in six months.United Petroleum also executed a deed of trust covering oil and gas leases and mineral interests in Ohio as security.Champlin and Hosemann each executed a continuing guaranty for $1,200,000 to secure United Petroleum's indebtedness to Great Southern.

Champlin also assigned a $2,000,000 life insurance policy in effect with Transamerican Occidental Life Insurance Company as collateral security for United Petroleum's indebtedness.

On September 23, 1982, the Penn Mutual Life Insurance Company issued a life insurance policy to Hosemann in the face amount of $500,000.The beneficiary was Loretta S. DeFoe, a resident of Jackson, if she survived Hosemann, and if not, a son, William J. DeFoe, and if he failed to survive Hosemann and Loretta S. DeFoe, then to Hosemann's executors and administrators.On January 17, 1983, Hosemann assigned this policy to Great Southern as collateral security for the indebtedness due the bank by United Petroleum.

On July 25, 1983, United Petroleum executed a renewal note to Great Southern in the principal amount of $1,007,455, due January 23, 1984.

Hosemann died September 24, 1983.Great Southern filed a claim as assignee under the insurance policy and on November 17, 1983, Penn Mutual, after making an adjustment because of age discrepancy, paid Great Southern $454,610.83 as payment in full for all sums due under the policy.

On January 13, 1984, Loretta S. DeFoe filed her complaint in the chancery court of the First Judicial District of Hinds County naming as defendants Great Southern, United Petroleum, Champlin and Hosemann's estate.

DeFoe charged Great Southern was required to marshal all the assets of the debtors in seeking payment, but the main thrust of her complaint was that she was entitled to be subrogated to Great Southern's position against United Petroleum, Champlin and Hosemann's estate insofar as the insurance proceeds had reduced United Petroleum's indebtedness.

Following affidavits and pre-trial depositions, all parties filed motions for summary judgment.The chancellor granted a summary judgment in favor of United Petroleum, Champlin and Great Southern, and in favor of DeFoe against Hosemann's estate.

DeFoe appealed.Hosemann's estate filed no appeal.

LAW

I.DOES DeFOE HAVE ANY RIGHT OF SUBROGATION?

Because she was beneficiary under a life insurance policy assigned as collateral security for United Petroleum's debt, the proceeds of which were applied to the debt of that corporation, is DeFoe entitled to any right of subrogation?If so, is the right of subrogation limited to Great Southern's right of recourse against United Petroleum, or may it also be extended to the bank's right against Champlin?

The right of subrogation of a beneficiary under a life insurance policy is not a question frequently encountered by courts, but its infrequency does not diminish its extreme importance to the parties involved when it does arise.

To answer the first question of this case, we must begin with an understanding of the doctrine of subrogation.

In Robinson v. Sullivan, 102 Miss. 581, 596, 59 So. 846, 847(1912), this Court stated:

... "Subrogation is the 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 to its rights, remedies, or securities."Words and Phrases, vol. 7, page 6722."The doctrine is one of equity and benevolence, and, like contribution and other similar equitable rights, was adopted from the civil law, and its basis is the doing of complete, essential, and perfect justice between all the parties, without regard to form, and its object is the prevention of injustice.The right does not necessarily rest on contract or privity, but upon principles of natural equity, and does not depend upon the act of the creditor, but may be independent of him, and also of the debtor."37 Cyc. 363.As was said by Chief Justice Sharkey in Blackwell v. Davis, 2 How. 812, the doctrine of subrogation is "the offspring of natural justice, and courts should rather incline to extend than to restrict the operation of a principle so elevated and pure."It applies in general, "wherever any person, other than a mere volunteer, pays a debt or demand which in equity or in good conscience should have been satisfied by another ..."

In American Fidelity and Casualty Co. v. U.S. Fidelity and Guaranty Co., 305 F.2d 633(5th Cir.1962), the Court of Appeals, interpreting Mississippi law, stated that the doctrine of subrogation is "pure equity, founded on principles of natural justice," and "includes every instance in which one who is not a volunteer pays the debt of another.* * * It is applied only when necessary to bring about equitable adjustment of a claim founded on right and natural justice."

In Box v. Early, 181 Miss. 19, 178 So. 793, 796(1938), this Court stated:

The doctrine of subrogation is one of equity; its object is the prevention of injustice; it rests upon the principle of natural equity; and its basis is the doing of complete and essential justice between the parties without regard to form.Prestridge v. Lazar, 132 Miss. 168, 95 So. 837 ...

See also: Sadler v. Glenn, 190 Miss. 112, 199 So. 305(1940);First National Bank v. Huff, 441 So.2d 1317, 1319(Miss.1983).

II.RIGHT OF BENEFICIARY

Whenever the question has arisen concerning the right of subrogation of a beneficiary under a life insurance policy, the proceeds of which have been used to apply to a debt as a risk, almost invariably it has involved insurance on the life of the debtor himself, not one secondarily liable as in this case.

This Court has addressed the former situation in Seitz v. Seitz, 238 Miss. 296, 118 So.2d 135(1960).In that case, Wiley Nash Seitz was a debtor of a bank.To secure his debt he assigned as collateral security an insurance policy on his life in which his mother was a beneficiary.From time to time he renewed the note evidencing the debt, and expressed the intention of paying the debt from proceeds of his crop harvest.Seitz died intestate; his sole heir at law was his widow.The insurance company paid the proceeds of the policy to the bank, completely extinguishing the debt.The mother sued Seitz's estate claiming a right of subrogation against the estate because the proceeds of the life insurance policy had paid Seitz's debt.The Court found in favor of the mother, and we affirmed.

We held a beneficiary is entitled to subrogation to the claim of a creditor against an insured's estate where nothing appeared from the assignment of the policy indicating an intention on the part of the debtor that the insurance proceeds should be the primary source of payment, and that the determining factor was the intention of the insured debtor.We found that Seitz did not intend to make the policy the primary source of payment for his debt, but only as collateral security for his personal obligation, and that the insurance policy was not primarily liable for the debt, but Seitz's estate was.

We further held that the mother's right as a beneficiary was inchoate while Seitz lived, but it became vested at his death, subject only to the collateral liability for the payment of the debt.

It was the view of the chancellor that Seitz controlled in DeFoe's claim for subrogation against Hosemann's estate, and as noted, no appeal has been taken by the estate, and we are not called upon to decide whether the chancery court erred in granted a judgment against this estate.The chancellor did not consider whether the fact that Hosemann was only secondarily liable may have distinguished this case from Seitz.

Seitz announced the majority rule...