Huey v. Brand

Decision Date20 January 1936
Docket NumberNo. 4520.,4520.
Citation92 S.W.2d 505
PartiesHUEY et al. v. BRAND, Banking Com'r, et al.
CourtTexas Court of Appeals

Appeal from District Court, Hutchinson County; E. J. Pickens, Judge.

Suit by Arthur Huey and others against E. C. Brand, Banking Commissioner, and others. From the judgment, all parties appeal.

Reversed and rendered in part, and reversed and remanded in part.

Joseph H. Aynesworth, of Borger, for Arthur Huey.

Hoover, Hoover & Cussen, of Canadian, for Phil Borger and Fritz Thompson, administrators of A. P. Borger's estate.

Ocie Speer, of Austin, for E. C. Brand, Banking Com'r, Borger State Bank, and Leroy Nelson.

MARTIN, Justice.

On and prior to January 3, 1931, Arthur Huey was the duly qualified and acting tax collector of Hutchinson county, Tex. The Panhandle Bank of Panhandle, Carson county, Tex., was the duly selected and acting county depository of Hutchinson county. The Borger State Bank was a state banking corporation, doing business at Borger, with A. P. Borger as its president. On the last-mentioned date Huey deposited with said state bank the sum of $4,777.40, part of which was undeniably public funds, and part of which presumably was his personal funds. $2,236.84 is known and was deposited as "highway account"; the remainder as "fee account." On said last date a bond was executed and delivered by said bank with A. P. Borger and John R. Miller as sureties, conditioned in substance that in consideration of said deposit, the signers thereof would indemnify Huey against all losses, etc., more particularly set out hereafter.

On January 9, 1932, said bank closed its doors and was taken over by the Banking Commissioner of Texas for liquidation. On April 13, 1932, A. P. Borger executed and delivered a trust deed to 80 acres of land as security for the indebtedness described in the said bond. A. P. Borger died. The administrators of his estate are parties hereto. James Shaw was Banking Commissioner, and was later succeeded in office by E. C. Brand, one of the parties to this suit. After the failure of said bank, Huey paid the state of Texas all amounts owing it, which were on deposit in said bank, and filed his claim as a general depositor with the liquidating agent in charge of said bank, and same was allowed.

Thereafter he filed suit, setting up all the above facts. He sought a judgment, declaring his claim a preferential and prior one against all the assets of said bank; he sued on said bond and for foreclosure of his trust deed. The nature of the defenses interposed will be sufficiently disclosed in the discussion and disposition we make of the legal issues involved.

The judgment of the trial court was, in substance: That Huey recover against the estate of A. P. Borger (Miller and the bank being insolvent) on the aforesaid bond in the sum of $4,777.40, the total amount of said deposits; that a foreclosure of the trust deed be denied; that Huey recover against Brand, as Banking Commissioner, the sum of $2,236.64, being the amount of the "highway account," same to constitute a preference and prior claim against all the assets of the bank and against all claims save that of the United States government; and that such claim be paid in due course of administration as a preferred claim.

All parties appealed. The three will be disposed of separately.

First, the Banking Commissioner:

Huey, having paid the state, claims that the prior preference of sovereignty passed by subrogation to him. The Banking Commissioner denies that the law gives any such preference to sovereignty over any other general creditor of an insolvent state bank in process of liquidation, and if it did such could and did not pass to Huey by subrogation under the particular facts of this record. It has recently been pointedly held: "that a state or county has no right to a preference over any other general creditor of the insolvent state bank. Austin, Banking Com'r, v. Lamar County (Tex.Com.App.) 26 S.W.(2d) 1062; Foster v. City of Longview (Tex.Com. App.) 26 S.W.(2d) 1059; Shaw, Banking Com'r, v. U. S. F. & G. Co. (Tex.Com. App.) 48 S.W.(2d) 974, 83 A.L.R. 1113." Denson v. Shaw (Tex.Civ.App.) 62 S.W. (2d) 344, 348 (writ refused). However, we need not and do not rest the disposition of the question presented upon the above holding. It is plainly evident to us that the equitable right of subrogation cannot be claimed by Huey in this case.

The rule of preferential right of sovereignty to be paid ahead of its citizens comes from monarchial Europe. It is held to be transferred therefrom into the law of democratic America by the legislative adoption of the English common law. It was a prerogative that belonged to ancient kings, before justice for the common man was born. If it may be justified as a cold legal formula, now a part of American jurisprudence, we doubt that either its origin, or the result of its application to the average bank failure, is such as to produce enthusiasm or profound respect in the modern judicial mind of this country. This much is said to show that courts should recognize its binding force in any form only in a clear case. Concerning it the Supreme Court of Pennsylvania has held: "The proper rule is that the state's right to a preference over other creditors, being a sovereign right enjoyed for the benefit of all the people, cannot be transferred to individuals except by express legislative sanction." In re South Philadelphia State Bank's Insolvency, 295 Pa. 433, 145 A. 520, 83 A.L.R. 1123, at page 1125. However, we need not announce such as the Texas rule. Upon equitable principles more hoary with age than Anglo Saxon jurisprudence, Huey is not entitled to the right of subrogation, conceding the preferential right of sovereignty, and that same may be transferred to an individual. We quote some of these:

"Subrogation does not owe its origin to statute or custom, nor is it a doctrine of the common law. It originated in equity and is a creature of equity, a doctrine of equity jurisprudence which was adopted by equity from the Roman or the civil law. * * *

"Subrogation is founded upon principles of justice and equity and rests upon the principle that substantial justice should be attained regardless of form. Its basis is the doing of complete, essential and perfect justice between all the parties without regard to form. * * *

"It will not be enforced unless there is some equitable doctrine upon which it can be predicated, and only when the applicant therefor has an equity to invoke and his cause is just and its enforcement is consonant with right and justice, and then only in a clear case. It will not be allowed where it would be contrary to public policy, or where it would accomplish by indirection that which a statute forbids to be done by direction. * * *

"Nor can the doctrine be extended so as to authorize the application of the principle for the relief and benefit of a party who voluntarily surrenders a right or suffers an injury, the consequence of his own willful neglect or wrong, or who has connived at and assisted in the wrong, for one seeking subrogation must come into court with clean hands. * * *

"The person seeking subrogation must act fairly and equitably and be free from fault. It will not be allowed where he has intermeddled with the rights of others, or is guilty of fraud or culpable negligence, or where he would...

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    ...383, 88 A.L.R. 1122. However, such contracts are subject to the limitation that they must not contravene public policy. Huey v. Brand, Tex.Civ.App., 92 S.W.2d 505; St. Regis Candies v. Hovas, 117 Tex. 313, 3 S.W.2d 429; Id., Tex.Civ.App., 8 S.W.2d 574; 12 Am.Jur., §§ 167 and 172, pp. 662 an......
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    ...383, 88 A.L.R. 1122. However, such contracts are subject to the limitation that they must not contravene public policy. Huey v. Brand, Tex.Civ.App., 92 S.W.2d 505; St. Regis Candies v. Hovas, 117 Tex. 313, 3 S.W.2d 429; Id., Tex.Civ.App., 8 S.W.2d 574; 12 Am.Jur., Secs. 167 and 172, pp. 662......
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