Maryland Casualty Co. v. Walker

• Decision Date: 11 December 1934
• Citation: 257 Ky. 397
• Parties: Maryland Casualty Co. v. Walker et al.
• Court: United States State Supreme Court — District of Kentucky

257 Ky. 397

Maryland Casualty Co. v. Walker et al.

Court of Appeals of Kentucky.

Decided December 11, 1934.

1. Taxation. — Taxes collected by sheriff were trust funds in his custody as bailee.

2. Subrogation. — Subrogation is allowed only where necessary to bring about equitable adjustment between parties, and not to

work manifest injustice or defeat legal right or superior equity or displace intervening rights.

3. Subrogation. — Where bank's loan to sheriff was used to pay taxing units for taxes collected by sheriff and no part of loan was used for sheriff's individual use, surety on bond of sheriff who defaulted in paying over taxes collected to taxing units was not entitled to subrogation against bank whose loan was paid by sheriff from taxes collected, notwithstanding that bank knew that payment was made out of taxes (Ky. Stats., sec. 4130).

Appeal from Crittenden Circuit Court.

WHEELER, WHEELER & SHELBOURNE for appellant.

JNO. A. MOORE and J.W. BLUE, Jr., for appellees.

OPINION OF THE COURT BY JUDGE RICHARDSON.

Affirming.

At the November election, 1929, B.F. Walker, Jr., was elected sheriff of Crittenden county, qualified as of the first Monday in January, 1930, by executing an official bond with the Maryland Casualty Company as surety. He settled with the state of Kentucky, Crittenden county, and various subtaxing districts on May 1, 1931, and, with the same surety, executed the sheriff's revenue bond required by section 4130, Kentucky Statutes. On the same date with the same surety, he executed bond of $20,000 as collector of taxes of the county and a separate bond for his collection of the special levy known as the road bond fund of the county. In July, 1931, the tax books for 1931 were delivered to him and he began to collect the taxes. He failed to account for, and pay to, the county and its subtaxing districts the taxes chargeable to him on or before the 1st day of May, 1932, and for this reason the county court declared his office vacant and appointed a new sheriff.

On the making the settlement for the 1930 revenues collected up to May 1, 1931, he borrowed from the Farmers' Bank & Trust Company, $10,000, executed his note therefor with J.A. Fowler and Robert G. Fowler, sureties, and applied the $10,000 so borrowed to the payment of the amount of the 1930 revenues that was due as per the settlement of May 1, 1931, and thus obtained a quietus.

This action was instituted in the Crittenden circuit court by the fiscal court, for the benefit of the county and subtaxing districts against Walker as sheriff and the Maryland Casualty Company as surety on his revenue bonds to recover the $14,450.28, the alleged balance of the revenues chargeable to Walker for the year 1931. They filed separate answer and counterclaim. That of the Maryland Casualty Company was made a cross-petition against the Farmers' Bank & Trust Company. It alleged that Walker had paid to the Farmers' Bank & Trust Company $10,030.28 out of the proceeds of the taxes collected after the same were collected and deposited in the Farmers' Bank & Trust Company. It charged that Walker had paid this sum in settlement of the $10,000 note which he individually owed the bank. The court decreed the fiscal court was entitled to the relief sought, and dismissed the cross-petition of the Maryland Casualty Company against the Farmers' Bank & Trust Company.

It is here insisting the $10,000 note evidenced Walker's individual indebtedness to the bank and that the revenues collected by him for the county and subtaxing districts were applied by him to the payment of this obligation; that the bank had knowledge the funds which Walker had applied to the payment of his individual obligation were the proceeds of tax collections; that the taxes collected by him were, at the time, trust funds.

It is not disputed that the revenues of the county and subtaxing districts when collected by him were deposited in his individual name with the Farmers' Bank & Trust Company. He carried no account with it in his official name or capacity. It is not doubtful that the bank and its officials had knowledge of the depositing and paying out in his individual name the taxes collected by him. Nor is there room for doubt or reason for debate that, at the time he paid it the $10,030.28, it knew this sum was the proceeds of taxes collected by him. It is equally certain that the proceeds of the $10,000 note were applied by Walker to the discharge or satisfaction of his liability as the collector of taxes to the county and subtaxing districts for taxes due them at the date of the execution and delivery of the note.

It is true that he was at that time a mere bailee and all taxes collected by him were trust funds in his custody as bailee. See Commonwealth, for Use and Benefit of McCreary County Board of Education, v. Walker, 246 Ky. 679, 55 S.W. (2d) 914; Denny v. Thompson, 236 Ky. 714, 33 S.W. (2d) 670; Breckinridge County v. Gannaway, 243 Ky. 49, 47 S.W. (2d) 934; Jordon, County Atty., v. Baker, County Judge, 252 Ky. 240, 66 S.W. (2d) 84, 93 A.L.R. 813.

With this premise stated, it devolves upon us to determine the right of the Maryland Casualty Company to require the Farmers' Bank & Trust Company to restore the $10,030.28 to the trust fund, a portion of the proceeds of the taxes collected by Walker and deposited with it.

Fidelity & Deposit Co. of Maryland v. Commonwealth, 249 Ky. 170, 60 S.W. (2d) 345, involved the right of a surety who had paid the sheriff's indebtedness to the county and other taxing districts to be subrogated to the sum he had deposited to his credit as sheriff, which the bank had received in the payment of his individual debt, and to the bank's right to withhold the same from the surety upon its payment of his indebtedness to the taxing units, it was our conclusion that the bank, having knowledge of the sum deposited to the credit of the sheriff represented taxes collected by him, had no right to apply the fund on...