Farmers' Loan & Trust Co. of New York v. Wilcox County, Ga.

• Decision Date: 09 April 1924
• Citation: 298 F. 772
• Parties: FARMERS' LOAN & TRUST CO. OF NEW YORK v. WILCOX COUNTY, GA.
• Court: U.S. District Court — Southern District of Georgia

298 F. 772

FARMERS' LOAN & TRUST CO. OF NEW YORK v. WILCOX COUNTY, GA.

United States District Court, S.D. Georgia.

April 9, 1924

John R L. Smith and Grady C. Harris, both of Macon, Ga., for plaintiff.

Eldridge Cutts and Harry Hodges, both of Fitzgerald, Ga., for defendant.

BARRETT District Judge.

Wilcox county, Ga., on September 2, 1917, issued its promissory note, payable six months after date, to W. H. Patterson, or bearer, for $20,000, with interest, a copy of which, together with the resolution upon which it was founded, is set forth in 284 F. 856, 857. The Farmers' Loan & Trust Company averring that it was a holder for value, brought suit on said note against Wilcox county. Such suit was dismissed on demurrer by this court on October 31, 1922, as reported in said 284 F. 856, which decision was affirmed by the Circuit Court of Appeals on March 6, 1923 (287 F. 809), and a petition for certiorari from said latter decision was denied by the Supreme Court of the United States on June 4, 1923 (262 U.S. 755, 43 Sup.Ct 703, 67 L.Ed. 1207).

The present petition avers that on or about January 4, 1916, the board of county commissioners and county treasurer of Wilcox county received from Eyer & Co. $20,000, and delivered a promissory note therefor, payable December 31, 1916, together with a resolution, all of the same import, with appropriate change of dates, as the said note and resolution reported in 284 F. 856; that said money was delivered in good faith and in reliance upon the validity of said documents, but the said documents were invalid, because the note was not for 'a temporary loan to supply a casual deficiency of revenue,' and was not authorized by an election; that said money was by the treasurer of said county turned over to holders and owners of certain lawful warrants of the said county, of which a list is attached, said warrants bearing dates from April 6, 1914, through September 6, 1915; that said warrants were marked 'Paid,' but that the money paying therefor was not the money of the defendant, but of Eyer & Co.; that the turning over of said money of Eyer & Co. by the treasurer to the holders of the warrants and the turning over of the warrants to the said treasurer was in equity and good conscience a purchase of said warrants by the treasurer for and on behalf of said Eyer & Co., and the said Eyer & Co. 'became and were subrogated to all the rights of the previous owners and holders of said warrants and stood in their places as lawfully entitled to receive from defendant the amounts represented by said warrants'; that on or about January 5, 1917, petitioner received from said county a note, dated January 2, 1917, payable September 2, 1917, of the same import as that reported in 284 F. 856, with the appropriate change of dates; that said $20,000 advanced by petitioner was turned over to Eyer & Co. in reimbursement of the money of said Eyer & Co., and the said Eyer & Co. delivered up its note to the treasurer, who paid Eyer & Co. with the money thus advanced by petitioner; that the turning over of the said money to Eyer & Co. 'was not in equity and good conscience an extinguishment of the rights of said Eyer & Co. as equitable purchasers and assignees of said warrants, and as subrogated to the rights of the previous holders and owners of said warrants'; that the money turned over to Eyer & Co. was the money of petitioner, and that such transaction made petitioner the equitable purchaser of said warrants as aforesaid, and entitled petitioner to be subrogated to the position of the owners and holders of the said warrants; that on or about September 2, 1917, the said county issued to your petitioner, in exchange for said note maturing September 2, 1917, a note, payable six months after date, for $20,000, of the same import and with the same resolution attached, the dates being changed, as the note maturing September 2, 1917; and the prayer is that petitioner be decreed to be the equitable owner of said warrants and be subrogated to all of the rights of the owners and holders of said warrants.

Defendant's answer sets up that under the facts stated in the petition the relief prayed for is not authorized for the following reasons: (1) The petitioner is not entitled to be subrogated to the rights of the holders and owners of the said warrants and is not the equitable purchaser thereof; (2) the rights asserted in such petition are barred by the statute of limitations; (3) such claim has not been presented to the county to be audited by the ordinary or other county authority; and (4) there has been such laches on the part of petitioner as to debar it from obtaining the relief sought.

Petitioner asserts two rights: (1) That it be declared the equitable owner of the warrants paid originally by money of Eyer & Co., who were reimbursed by the money furnished by petitioner; and (2) that petitioner be subrogated to the rights of the holders or owners of the original warrants.

1. The claim to be the equitable owner is presumably founded upon the principle thus stated in Bispham's Principles of Equity (9th Ed.) Sec. 337:

'A mere volunteer, who pays the debt, cannot claim to be subrogated. If such payment is in fact a purchase of the debt, and is intended to operate as such, the assignee will acquire as an incident to his purchase the right of subrogation.'

It would seem, therefore, that the assertion of the claim to be the equitable owner is, in effect, but another statement of the claim to be subrogated. An essential element to subrogation under this principle is absent, for it not only was not implied that the money furnished by petitioner or by Eyer & Co. was to be used to purchase the warrants, but it affirmatively appeared that 'said money is to be borrowed for the purpose of defraying expenses of said county in anticipation of collection of taxes. ' Not only was this affirmatively declared purpose apparently the real purpose at the time the money was borrowed, but such view seems to have been confirmed by the effort on the part of petitioner to collect the note given for the money.

2. Is petitioner entitled to subrogation to the rights of the owners of the original warrants? The statements of the essentials to this right of subrogation, originating with the court and by adopted quotations, contained in the case of AEtna Life Insurance Co. v. Middleport, 124 U.S. 534, 8 Sup.Ct. 625, 31 L.Ed. 537, stand unmodified by any subsequent decision of such court, and are therefore binding on this court. The Supreme Court of Georgia recognizes the same essential elements, fully stated in Wilkins v. Gibson, 113 Ga. 31, 38 S.E. 374, 84 Am.St.Rep. 204, and manifestly followed in Sackett v. Stone, 115 Ga. 466, 41 S.E. 564, and in Webb v. Harris, 124 Ga. 723, 53 S.E. 247. Such doctrine is stated in the third headnote to the Middleport Case, as follows:

'The doctrine of subrogation in equity requires (1) that the person seeking its benefit must have paid a debt due to a third party before he can be substituted to that party's rights; and (2) that in doing this he must not act as a mere volunteer, but on compulsion, to save himself from loss by reason of a superior lien or claim on the part of the person to whom he pays the debt, as in cases of sureties, prior mortgagees, etc. The right is never accorded * * * to one who is a mere volunteer in paying a debt of one person to another.' It is therefore essential, not only that the claimant for subrogation shall have paid the debt due to a third party, but--

'that in doing this he must not act as a mere volunteer, but on compulsion, to save himself from loss by reason of a superior lien or claim on the part of the person to whom he pays the debt, as in cases of sureties, prior mortgagees, etc. The right is never accorded to one who is a mere volunteer in paying a debt of one person to another.'

Can it be fairly claimed in this case, under the facts as they appear in the petition, that petitioner paid, or intended to pay, any debt then owing by the county; and still less that it paid, or intended to pay, the debt owing to Eyer & Co., the money arising from which had itself in turn been used to pay warrants, some of which were nearly two years old at the time that the debt to Eyer & Co. was created? If such was the intention of petitioner at the time that the money was advanced by it, the conclusion cannot be escaped that it perpetrated a wrong in accepting for such money an obligation of the county in which, by reference at least, it was affirmatively stated that the money was to be used 'for the purpose of defraying expenses of said county in anticipation of collection of taxes. ' 'Expenses' cannot by any fair interpretation be construed as existing indebtedness; and still less can it be construed as having in contemplation the payment of debts represented by warrants, some of which were approximately three years old. But, even if it be construed as the payment of either the debt of Eyer & Co. or the debts represented by the original warrants, the petitioner in this case was wholly a volunteer, and was under no compulsion to save himself from loss by making such loan.

The enforcement by courts of the observance of the principles of 'common honesty' and natural justice, in requiring repayment of money borrowed, is a high privilege; but, if this is to be done at the cost of nullifying important protective provisions of the Constitution, such privilege must yield to the higher duty of maintaining the fundamental provisions of our government. The inhibition contained in paragraph 1, Sec. 7, art. 7, of the Constitution of the state of Georgia that no-- 'county, municipality, or division shall incur any new debt, except for a temporary loan or loans to supply casual...