St. Paul-Mercury Indem. Co. v. Donaldson

• Decision Date: 14 July 1954
• Docket Number: No. 16891,PAUL-MERCURY,16891
• Parties: ST.INDEMNITY CO. v. DONALDSON.
• Court: South Carolina Supreme Court

Page 159

83 S.E.2d 159

225 S.C. 476

ST. PAUL-MERCURY INDEMNITY CO. v. DONALDSON.

No. 16891.

Supreme Court of South Carolina.

July 14, 1954.

Lindsay & Lindsay, Bennettsville, for appellant.

Willcox, Hardee, Houck & Palmer, Florence, for respondent.

LEGGE, Justice.

On April 10, 1950, respondent, at the instance and request of appellant, executed as surety for appellant a bond to the State of California in the amount of two thousand ($2,000) dollars, conditioned, as required by the sales and use tax law of that State, for the payment of all amounts, including interest, penalties and costs, which should become due by appellant to said State in connection with appellant's plumbing business then being conducted in the City of Ventura in said State. In his written application to respondent for said bond, appellant agreed to indemnity and save harmless the respondent and on demand to pay to it any and all claims, demands, losses and damages of every nature and kind, together with counsel fees and expenses which respondent should sustain by reason or in consequence of such suretyship. Appellant having failed to pay an amount due by him to the State of California under its sales and use tax law while the bond was in force, respondent was required to and did on October 29, 1951, pay to the State of California the amount of the bond. In connection with the adjustment and payment of said claim, respondent also incurred expenses aggregating thirty-five and 30/100 ($35.30) dollars, which it paid on March 26, 1952. Thereafter, appellant having become a resident of Marlboro County, South Carolina, respondent brought this action in the County Court of that County, praying judgment against appellant for the amount so paid, with interest, and for attorneys' fees. Appellant by his answer admitted all of the allegations of the complaint, in substance as stated above, except those of Paragraph Six, to the effect that respondent had incurred expenses aggregating thirty-five and 30/100 ($35.30) dollars in connection with the adjustment and payment of the tax claim. By way of affirmative defense, it was alleged that the defendant had on March 7, 1952 filed a voluntary petition in bankruptcy in the United States District Court for the Eastern District of South Carolina, had been adjudged bankrupt and had been discharged as such on June 10, 1952; that through oversight respondent had not been listed in the schedule as a creditor of the estate; but that respondent had had actual notice of the bankruptcy proceeding during its pendency as appellant was informed and believed; and that the debt set forth in the complaint was barred and discharged by the bankruptcy.

Respondent moved to strike the answer as sham and frivolous, and for judgment on the pleadings, and submitted, in connection with the motion, the application for the bond, the form of the bond itself, and two drafts showing payment by the respondent to the State Board of Equalization of the State of California, under the bond in question, of two thousand ($2,000) dollars on October 29, 1951, and of thirty-five and 30/100 ($35.30) dollars on March 26, 1952, respectively. No objection was made to consideration of these exhibits as part of the motion.

The County Court held that respondent, having paid the tax liability of appellant, was subrogated to the right of the taxing authority, and that the claim was not affected by appellant's discharge in bankruptcy, and thereupon ordered judgment in favor of respondent for the amount of two thousand ($2,000) dollars, with interest at six (6%) per cent from October 29, 1951; for the amount of thirty-five and 30/100 ($35.30) dollars, with interest at six (6%) per cent from March 2l, 1952; and for the amount of two hundred ($200) dollars, which the court found to be a reasonable fee for respondent's attorneys.

Error is charged under six exceptions, which have been fully considered but need not be separately discussed. Appellant argues that the provision contained in the application for the bond, whereby appellant agreed to indemnify respondent against loss by reason of its suretyship, constituted a contract of indemnity, and not of subrogation. But subrogation does not depend upon contract; it follows as the legal consequence of the acts and relationship of the parties. 50 Am.Jur. Subrogation, Sec. 5. Powers v. Calvert Fire Ins. Co., 216 S.C. 309, 57 S.E.2d 638, 642, 16 A.L.R.2d 1261.

Appellant also contends that in the absence of statute the doctrine of subrogation is not applicable to vest in an individual the rights and powers of the State in respect of a claim for taxes. It is true that in the earlier cases a tax was considered to be not a debt in the ordinary sense of the word, and therefore not subject to assignment by the taxing authority to any individual either by contract or through the equitable doctrine of subrogation. Such was the holding in Hinchman v. Morris, 29 W.Va. 673, 2 S.E. 863, 865, cited in appellant's brief; but this view has been superseded by the present popular conception that a tax is an obligation owed by the taxpayer, and that, where there is personal liability for it, the tax becomes, in a broader sense, a debt. In the later West Virginia case of Camden v. Fink Coal & Coke Co., 106 W.Va. 312, 145 S.E. 575, 576, 61 A.L.R. 584, the court said:

'Hinchman v. Morris was written in 1887. Since then the law of subrogation has been greatly expanded. * * * It is now conceded that there is nothing in the nature of a lien for taxes to prevent the application of the equitable doctrine of subrogation, where that doctrine would otherwise apply.'

Cf. American Tobacco Co. v. South Carolina Nat. Bank, D.C., 15 F.Supp. 215, in which it was held that where a bank had closed before payment of checks which it had certified and which a taxpayer had sent in payment of internal revenue taxes, the taxpayer was subrogated to the statutory right of the United States to lien and priority, and was entitled to preferred claim against the assets of the bank for the amount of such checks.

In Findelity & Casualty Co. v. Whitaker, 1933, 176 Ga. 656, 168 S.E. 607, referred to in the Order of the trial court, where a cigarette dealer, suing to enjoin collection of a Georgia sales tax, was granted a supersedeas upon condition that he file bond for payment of the tax stamps, and thereafter judgment against the dealer was affirmed and his surety paid for the stamps, the surety was held subrogated to the rights of the State and entitled to recover from the dealer notwithstanding the dealer's discharge in bankruptcy. In support of his contention that subrogation to the rights of the State in respect of a tax must be founded on a statute, appellant points out that in the case of Fidelity & Casualty Co. v. Whitaker, supra, the court...