Case ID: w-va_107/html/0679-01.html
Source: Caselaw Access Project
Author: {"author": "Lively, Judge:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

CHARLESTON.
    Central Trust Company, Receiver, etc. v. Bank of Mullens et al.
    
    (No. 6564)
    Submitted October 2, 1929.
    Decided October 8, 1929.
    
      
      Brown, Jackson <& Knight and Lon II. Kelly, for appellants.
    
      Hartley Sanders, for Fidelity & Deposit Company of Maryland.
   Lively, Judge:

The Bank of Mullens, prior to its failure, was legally designated as a state depository, and on April 17, 1926, executed a bond payable to the State in the proper penalty with Fidelity & Deposit Company of Maryland as surety conditioned that it would repay the State’s money deposited with it together with 3% interest thereon. On April 20, 1927, the bank then being insolvent .and now insolvent, was closed by the commissioner of banking and Central Trust Company was appointed as receiver. On this date, the bank had state money amounting to $18,249.50. On April 11, 1928, the Fidelity & Deposit Company of Maryland, surety on the bond, paid that sum to the State in discharge of its obligation as surety, and took from the state treasurer a written assignment of all the right, title and interest of the State in and to the assets of the Bank of Mullens, and a subrogation to the surety of all the State’s rights and remedies against the bank in respect to the money paid. The receiver instituted this suit for convening the creditors, ascertaining the indebtedness of the bank, priorities of the creditors, and for the winding up of the affairs of the insolvent. The Fidelity & Deposit Company intervened by petition setting up its surety-ship and payment of its obligation as such in discharge of the bond and claimed a preference against the assets of the bank by virtue of such payment to the State. The cause was referred to a commissioner before whom the Fidelity & Deposit Company proved its debt, claiming interest thereon at the rate of 6% per annum from date of payment to the State. The commissioner reported that the surety was entitled to 3% to which report the surety excepted, on the ground that 6% was not allowed. By decree of February 27, 1929, the court sustained the surety’s exception to the report and entered the decree complained of allowing 6% from the time the debt was paid; and it is from this decree that the receiver prosecutes this appeal.

There is no controversy of fact and tbe issue is one of law clearly defined. Is tbe surety entitled to 6% interest as a preferred lienor? Tbe surety affirms that it is so entitled, and tbe receiver denies. Thus tbe issue is made up. There can be no question of tbe right of tbe surety to be subrogated to tbe lien of tbe State which tbe latter bolds against tbe bank. That lien extends, under tbe sovereignty doctrine (Woodyard v. Sayre, 90 W. Ya. 295), to tbe assets of tbe insolvent bank in preference to tbe other general creditors. Tbe State bad its prerogative right to preference and priority over other -creditors for the State’s money on deposit together with interest at tbe rate of 3% per annum until paid. To these rights and remedies of tbe State, tbe.surety company is subrogated.

It is quite well established that tbe remedy of tbe surety against bis principal is upon tbe implied contract between him and bis principal that tbe latter would repay tbe surety' whatever sum be was legally compelled to pay, and bis measure of damages in such case is that sum together with legal interest thereon. Weimer v. Talbot, 56 W. Va. 257; Butler v. Butler’s Adm’r., 8 W. Va. 674; Feamster v. Withrow, 9 W. Va. 296: McNeil v. Miller, 29 W. Va. 480; Faires v. Cockrill, (Tex.), 28 L. R. A., 528; Memphis, etc. v. Dow, 120 U. S. 287; Appleford v. Snake River Mining Co., 122 Wash. 11, 210 Pac. 26, 29 A. L. R, 268; Bushnell v. Bushnell, 77 Wis. 435; Holloman v. Oxford, (Tex.), 168 S. "W. 437. The surety’s action is not on tbe original obligation between bis principal and tbe creditor, but on tbe implied promise of tbe principal for reimbursement as above set out. Story Eq. Juris., 13th Ed., section 499C. Tbe scope of tbe doctrine of subrogation in suretyship includes the “immediate transfer, by operation of law, to tbe promisor in suretyship, of all of tbe rights of tbe creditor against tbe principal whenever tbe promisor pays tbe debt or satisfies tbe obligation.” Stearns on Suretyship, 3rd ed., sec. 244. Tbe cases of Shipman v. Bailey, 20 W. Va. 140; Pickens v. McCoy, 24 W. Va. 344, and Watson-Loy Coal Co. v. Monroe Coal Mining Co., 85 W. Va. 645, cited by tbe receiver, have no application here because those were cases on contracts by one party against tbe others for judgment on tbe obligations sued on, and which cases bold tbat tbe rate of interest agreed upon in tbe contract must govern until tbe debt is paid by tbe debtor. Suretyship and subrogation were not there involved.

Tbe cases are uniform tbat tbe surety who pays bis principal’s obligation is entitled to recover interest at tbe legal rate from tbe time be discharges tbat obligation; and tbat be is immediately subrogated to tbe securities and preferences of tbe creditor or obligee to whom be has made payment of tbe debt or obligation. Subrogation is independent of any agreement and rests upon principles of natural justice and equity. As was said by Lord Broúghan in Hodgson v. Shaw, 3 Myl. & K. 183, “A surety will be entitled to every remedy which tbe creditor has against tbe principal debtor, to enforce every security and all means of payment; to stand in tbe place of tbe creditor, not only through tbe medium of contract, but even by means of securities entered into without the knowledge of tbe surety; having a right to have those securities transferred to him though there was no stipulation for tbat; and to avail himself of all those securities against tbe debtor.” Tbe right of the surety to recover against bis principal, as above stated, is for tbe amount paid by him with legal interest; but when be relies upon the lien of tbe creditor for payment of bis recovery, be cannot enlarge tbat lien, nor tbe rights under it. He cannot attain any right under it which tbe creditor did not have. Tbe right which tbe State bad under its contract extended to recovery of tbe State’s money with 3% interest and its lien for preference extended only to tbat amount with, its 3% interest. A surety who pays a debt can acquire no greater rights than tbe creditor bad at tbe time of payment. Globe & Rutgers Fire Insurance Co. v. Hines, 273 Fed. 774. (Certiorari denied 257 U. S. 643): 37 Cyc. 429. Tbe cases are quite uniform on tbat proposition. Tbe situation here is somewhat analagous to a payment by a junior lienor on land of a prior lien securing a debt at 5% in order to protect bis subsequent lien. When be pays tbat debt and asserts tbe lien securing it be cannot enlarge tbat lien to recover a debt at a greater rate of interest as against other lienors. His amount of recovery under that first lien to which be is subrogated must be confined to tbe rate of interest specified in tbe debt wbicb it secures. Tbe principle is well stated in Faires v. Cockrill, supra, as follows: “When tbe creditor in sucb a contract bas a security from tbe principal obligor, or either of them, or if tbe debt itself constitutes a lien upon property of tbe debtor, as a vendor’s lien, of if, from its nature, it be entitled to priority in payment over other debts of tbe debtor, tbe person paying tbe debt, not being a volunteer, will be subrogated to tbe securities, liens and priorities of tbe creditor to tbe extent that be makes payment of tbe debt; and if it be necessary from tbe character of tbe lien or security, in order to do full justice between tbe parties, equity will treat tbe original debt as subsisting, so far as may be necessary to accomplish that end,” citing many cases. In tbe instant case tbe State bad a lien for a specific sum (principal of its deposit and 3% interest) against all of tbe assets of tbe insolvent bank. It could claim no lien for a greater sum. Tbe other creditors and depositors of tbe bank were entitled to rely upon tbe assumption that tbe State would invoke its sovereign lien only to the discharge of tbe agreed amount. We bold that when tbe surety company invokes tbe State’s prerogative lien it steps in tbe shoes of tbe State and cannot enlarge tbe State’s right for its own benefit. It was very proper for tbe surety to have a decree for tbe amount paid by it with interest at 6% from date of payment, but the decree is erroneous when it awards a priority in tbe payment at tbe rate of 6%. Tbe priority to tbe surety should be for tbe sum paid by it together with 3% from time of payment. As to tbe other 3% to wbicb tbe surety is entitled as against tbe bank, it has no preference over creditors of like class.

Tbe decree will be reversed to the extent indicated and tbe cause remanded.

Reversed in part; remanded.