Opinion
No. 30284.
December 5, 1932.
1. BANKS AND BANKING.
Statute authorizing national bank to act as guardian makes national bank so acting subject to state laws (12 U.S.C.A., section 248 (k)).
2. BANKS AND BANKING.
National bank acting as guardian treating ward's funds as ordinary deposit held liable for eight per cent. interest up to time bank closed (Code 1930, section 1885; 12 U.S.C.A., section 248 (k)).
3. PRINCIPAL AND SURETY.
Where principal becomes insolvent before debt is paid, surety may compel payment of debt from principal's assets.
4. PRINCIPAL AND SURETY.
Where bank, guardian, became insolvent, but receiver paid principal to new guardian, surety held entitled to compel bank or legal representative to pay interest on guardianship funds (Code 1930, section 1885).
5. BANKS AND BANKING.
Claim against insolvent bank as guardian for interest on guardianship funds should be paid pro rata with other unsecured creditors and depositors (Code 1930, section 1885; 12 U.S.C.A., section 194).
6. BANKS AND BANKING.
In suit by new guardian to recover from insolvent bank, former guardian, interest upon guardianship funds, bank was unnecessary party; receiver being representative of all parties (Code 1930, section 1885; 12 U.S.C.A., section 194).
APPEAL from chancery court of Hinds county. HON. V.J. STRICKER, Chancellor.
Watkins, Watkins Eager, of Jackson, for appellant.
Under the Mississippi statute, when the surety paid over to the guardian the sum due under the decree it thereby became, under the Mississippi statute, Sections 2959 and 2961, Code of 1930, subrogated to the rights of each of said minors, and their guardian as against the First National Bank of Jackson, Mississippi.
When the First National Bank qualified as guardian of said minors it became automatically liable for interest on such funds as should thereafter come into its hands, at the rate of eight (8%) per centum per annum, in the absence of an order of the chancery court authorizing such funds to be invested at a lesser rate of interest.
Section 1885, Code of 1930.
The distribution of the assets of the First National Bank is governed by the Federal statute. R.S. 5236, sec. 194, Title 12, U.S.C.A.
The assets of a national bank are to be ratably divided and appropriated to the payment of all its legal liabilities, whether such liabilities are debts, technically so called, or result from the nonfeasance or malfeasance of the association in respect of its binding obligations and duties.
Turner v. Keokuk National Bank, 26 Iowa, 562.
Where the insolvency and suspension of a bank put it out of its power to perform a contract, no further fact is necessary to fix its liability for a breach of such contract.
Chemical National Bank v. World's Columbian Exposition, 170 Ill. 82, 48 N.E. 331.
The receiver is liable for interest up to the date of the suspension of the bank, but not after.
White v. Knox, 111 U.S. 784, 28 L.Ed. 603; American National Bank v. Williams, 101 Fed. 943.
A surety against whom judgment has been obtained is entitled, even before paying the debt, to bring a bill asking that a mortgage given by the principal to the creditor be applied in payment of the debt, and that upon payment of the debt he shall have the benefit of the mortgage security, and although the surety on a note given for purchase money due for land cannot be subrogated to the lien on the land until he has paid the debts to the creditor, equity will enforce the lien in an action on the note, to save a multiplicity of suits, especially when the creditor asks that it should be done.
37 Cyc. 407.
Where by mutual mistake, or by reason of representation of a creditor part payment is believed to be full payment, the person making it is entitled to subrogation, the creditor being estopped to deny his right thereof.
Carson v. Conner, 83 Tex. 26, 18 S.W. 668.
Subrogation is granted to prevent a multiplicity of suits, or a circuity of action where no detriment would result to the creditor from allowing the same.
State ex rel. Lux v. Atkins, 53 Ariz. 1303, 13 S.W. 1097; Lusk v. Hopper, 3 Busk. 179.
The relationship of debtor and creditor exists between the principal and surety from the time the contract of indemnity was entered into.
21 R.C.L., sec. 156, page 1120.
If a principal becomes insolvent after the debt is due and before it is paid, his surety has an immediate equity against him and actual payment need not be made by the surety to enable him to sustain an action to compel payment of the debt out of his principal's assets.
21 R.C.L., page 1115, sec. 151.
Before maturity of the debt or accrual of liability the surety has no right of action in equity to be indemnified against apprehended danger of loss by reason of his undertaking. After maturity, however, although he has not been troubled by the creditor, he has the right, before payment, to go into a court of equity, at any time to compel payment of the debt by the principal, or from the estate of the principal, or to be secured against loss. The doctrine in such case rests upon the simple right, as between the principal and surety, that the surety has to be protected by the principal.
50 C.J., page 244.
The right acquired by a surety company to a fund retained by a county until completion of a contract, arose under equitable subrogation, which originated on the day of execution of the bond of the contractor.
Canton Exchange Bank v. Yazoo County, 144 Miss. 579, 109 So. 1.
Fulton Thompson, and R.H. and J.H. Thompson, of Jackson, for appellee.
The right of subrogation can exist only where the surety has actually paid, or has secured the payment of the debt due by his principal.
Bank of England v. Tarleton, 23 Miss. 173.
The right of a surety on a bond to be subrogated for the obligee in a right of action against one wrongfully causing the liability is founded on payment by the surety to the obligee, and does not come into existence except on full payment of the loss indemnified against, since the cause of action cannot be split.
United States Fidelity Guaranty Company v. Union Bank Trust Company, 228 Fed. 448; Magee v. Leggett, 48 Miss. 139.
The receiver of the First National Bank is an officer of the Federal Government and as such, is not amenable to the Mississippi statute requiring the investment by a guardian of the ward's funds.
The receiver was not the guardian of the wards and could not act as such and of this fact he advised the chancery court and asked to be relieved and a successor fiduciary appointed.
A creditor of an insolvent national bank, who establishes his debt by suit and judgment after the refusal by the Comptroller of the Currency to allow it, is entitled to share in dividends upon the debt and interest so established as of the day of the failure of the bank; and not upon the basis of the judgment if it includes interest subsequent to that date.
White v. Knox, Comptroller, 111 U.S. 784, 28 L.Ed. 603.
The right of subrogation does not arise in favor of a surety until he has actually paid the debt for which he is liable as surety; the right does not accrue upon a partial payment by the surety, until the creditor is wholly satisfied. Even if a surety is liable only for a part of the debt, and pays that part for which he is liable, he cannot be subrogated to the securities held by the creditor until the whole demand of the creditor is satisfied. Where the surety is allowed by bill in equity after the debt has become due to compel the creditor to enforce his demand against the principal debtor, yet he cannot be subrogated to the creditor's liens, securities, and equities for the debt until he has actually paid it.
Sheldon on Subrogation (2 Ed.), par. 127.
Subrogation rests upon purely equitable grounds, and cannot be enforced against superior equities and subrogation is never allowed to the prejudice of a creditor.
Musgrave v. Dickson, 51 Am. St. Rep. 65.
The distribution of the assets of an insolvent national banking association is governed by United States Revised Statutes No. 5236, Section 194, Title 12, U.S. Code Annotated.
Appellee Deposit Guaranty Bank Trust Company filed its bill in the chancery court of Hinds county against the First National Bank of Jackson, and J.R. Stevens, receiver of that bank, and appellant Fidelity Deposit Company of Maryland as surety on two guardians' bonds executed by that bank as guardian for Mansfield Dendy and Estella Dendy, minors, to recover eight per cent interest on the funds in the custody of said bank as such guardian from the time they were received by the guardian. Appellant answered and made its answer a cross-bill praying that, if the court should find any liability on the part of the First National Bank and appellant as such surety, it render a decree against J.R. Stevens, receiver of the First National Bank, for the amount due. The cause was heard on amended bill, answer of the defendants, except the First National Bank, and a cross-bill of appellant, and proofs, resulting in a decree against appellant as surety for the interest, as prayed for, and dismissing the amended bill as to Stevens, the receiver of the First National Bank, and also the cross-bill of appellant, and adjudging that the right of subrogation was given appellant after the depositors of the First National Bank were paid in full to the extent of such sums as should be paid by appellant under the decree "as against the First National Bank of Jackson, Mississippi." From that decree, appellant prosecutes this appeal.
The material facts of this case are undisputed. On the 23d day of March, 1927, the First National Bank of Jackson was appointed and qualified as guardian of Estella Dendy and Mansfield Dendy, minors. On July 1, 1927, there was turned over to the guardian for each of its wards approximately six hundred dollars. The first National Bank did not invest these funds, but treated them as ordinary deposits. On January 19, 1931, the bank suspended business on account of its insolvency, and soon thereafter went into the hands of the Comptroller of the Currency for liquidation. J.R. Stevens, one of the defendants, was appointed receiver. On September 1, 1931, about nine months after the bank had closed, the receiver filed a final account in the chancery court of Hinds county of each of said guardianships, and prayed to be relieved from the trust, and for the appointment of another guardian. On the same day his final account was presented, the chancery court entered a decree appointing appellee Deposit Guaranty Bank Trust Company of Jackson as guardian of each of said minors. Subsequently there was paid over by the receiver of the First National Bank to the guardian approximately five hundred dollars for each of said minors, which represented the balance of the principal standing to the credit of each of said minors on the books of the First National Bank.
The court held that the First National Bank, as guardian, and appellant, as its surety, were liable for interest on the funds of the wards at the rate of eight per cent per annum from the time they were received by the bank up to the time the receiver turned over the principal to appellee Deposit Guaranty Bank Trust Company, its successor in the guardianship, and gave the right of subrogation to appellant as such surety against the funds of the First National Bank "after the deposits of the First National Bank are paid in full to the extent of such sums as are paid by said surety company under this decree, as against the First National Bank of Jackson, Mississippi."
Appellant's contention is that the First National Bank as such guardian was liable for interest on the funds of its wards at the rate of eight per cent per annum from the time they were received by it until the bank closed, and that the claim therefor is in the same category and entitled to the same dignity as the claims of the other unsecured creditors and depositors of said bank, and in the administration of the affairs of the bank should be paid by the receiver pro rata along with such claims, and that appellant as such surety is entitled to maintain its cross-bill establishing that right in order to protect its interest as surety for the custodian.
Section 1885, Code of 1930, provides that in case any guardian fails to report to the court the fact that he has money of his ward not needed or allowed to be used in current expenditures, and to ask the order of the court as to the disposition of such money, he shall be charged with interest on the same at the rate of eight per cent per annum during the time of failure. It is unquestioned that the First National Bank as guardian for these wards failed to comply with that statute.
Under paragraph (k), title 12, U.S. Code Annotated, section 248, authority is granted to national bank associations to act as guardian as well as in other trust relations set out in the statute. It is not so expressly provided, but the statute by its plain purpose makes national banks exercising the trusts enumerated in the statute subject to the laws of the state in which they are located governing such trust relations. Clearly under the laws of this state a state bank, or an individual, or a trust company, acting as guardian for these minors, having failed to comply with section 1885, Code of 1930, would be liable for eight per cent interest per annum on the trust funds. We are of opinion that for the same reason the First National Bank is liable, but only up to the time it closed and went into the hands of a receiver, and that this liability is of equal right and dignity as the claims of the other unsecured creditors and depositors of the bank.
The distribution of the assets of an insolvent national banking association is governed by United States Revised Statutes, section 5236, section 194, title 12, U.S. Code Annotated, which provides as follows: "From time to time, after full provision has been first made for refunding to the United States any deficiency in redeeming the notes of such association, the comptroller shall make a ratable dividend of the money so paid over to him by such receiver on all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction, and, as the proceeds of the assets of such association are paid over to him, shall make further dividends on all claims previously proved or adjudicated; and the remainder of the proceeds, if any, shall be paid over to the shareholders of such association, or their legal representatives, in proportion to the stock by them respectively held."
In the case of White v. Knox, 111 U.S. 784, 4 S.Ct. 686, 28 L.Ed. 603, the Supreme Court of the United States held that when a national bank fails, its business is at an end as a going concern, and no new debt can be created after its failure, and that the receiver of such a bank is liable for interest up to the date of suspension, but not after. In American National Bank v. Williams (C.C.A.), 101 F. 943, 947, the court held that in an action against a receiver of an insolvent national bank to establish a claim which had been declined, the debts of the bank should be liquidated by the receiver "as of the date when insolvency supervenes," and the amount of all debts were to be computed as of that date, but that interest should not be allowed against the receiver subsequent to its suspension.
The record in this case does not show that appellant as surety has paid this interest to the present guardian, Deposit Guaranty Bank Trust Company. Stevens, the receiver of the First National Bank, contends that for that reason, under the law, the appellant is not entitled to subrogation, and to sustain that position relies on the general rule that a surety is not entitled to subrogation until the whole debt is paid; that the right of subrogation does not arise in favor of a surety until he has actually paid the debt in full for which he is liable as surety — citing, Sheldon on Subrogation (2 Ed.), par. 127, and numerous other authorities to the same effect. Appellant concedes that to be the general rule, but contends that it has no application to the particular facts of this case. Appellant invokes the well-established principle that the relationship of debtor and creditor exists between the principal and surety from the time the contract of indebtedness was entered into, and that if the principal becomes insolvent after the debt is due and before it is paid the surety has an immediate equity to compel the principal, or his legal representative, to pay the liability. The principle is stated thus in 21 R.C.L., p. 1115, section 151: "If a principal becomes insolvent after the debt is due and before it is paid, his surety has an immediate equity against him and actual payment need not be made by the surety to enable him to sustain an action to compel payment of the debt out of his principal's assets." The doctrine in such case rests upon the right as between principal and surety that the surety is entitled to be protected by his principal. 50 C.J., p. 244.
Canton Exchange Bank v. Yazoo County, 144 Miss. 579, 109 So. 1, is somewhat illustrative of the principle. The court in that case held the right acquired by a surety company to a fund retained by a county until completion of the contract arose under equitable subrogation which originated on the day of the execution of the bond by the contractor.
We think appellant's contention is sound, and the result is that the present guardian, the Deposit Guaranty Bank Trust Company, has a valid claim against the receiver of the First National Bank for interest on these funds from the time they were received by the latter bank until it suspended business, which claim is to be paid pro rata with all the other unsecured creditors and depositors of the bank; depositors having no preference over other general creditors of the bank. In order to reach this result, we are unable to see why it was necessary to make the First National Bank a party to this cause; the receiver being the representative of all parties and interest.
Reversed and remanded.