Court Opinion

ID: 3887340
Source: CourtListenerOpinion
Date Created: 2016-07-06 09:16:41.098491+00
Date Added: 2024-06-11T14:15:31.428130
License: Public Domain

[EDITORS' NOTE:  THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 17 
[EDITORS' NOTE:  THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 18 
July 11, 1945.
This case comes before us upon an appeal by the defendant from a judgment against it as surety upon the official bonds of a former Judge of Probate for Greenville County. Although the action was one at law, it was by consent of counsel referred to the Master under a general order of reference, who, after taking the testimony, filed his report to the effect that the plaintiff was not entitled to recover. Upon exceptions to his report, however, it was adjudged by the Court of Common Pleas for Greenville County, in and by the decree of Judge Henderson, that the plaintiff should have judgment against the defendant for the sum of $1,549.16. *Page 19 
The plaintiff, respondent herein, will sometimes be referred to hereinafter as the National Bank or the Bank, and the defendant, appellant herein, as the Guaranty Company.
A recital (as brief as may be practicable) of the undisputed facts out of which this litigation arose is necessary for an understanding of the issues before the Court. Mrs. Fannie C. Scott was the Judge of Probate for Greenville County from 1921 to 1931. And during her administration she appointed by an order dated March 17, 1924, the National Bank as Guardian of Lillie Chamberlain, minor, a colored girl, who had become entitled to $1,500.00 because of an accident sustained by her, and this sum of money was paid to her guardian. The Bank was duly qualified to act in the capacity of guardian through its trust officer and in other like capacities, having indeed so held itself out to the public; and it administered the affairs of its ward until some time in the year 1925, when it decided to give up the guardianship because the ward had moved away from Greenville and the guardian's duties had become too onerous for the small compensation provided by law.
Thereupon, Mr. A.G. Taylor, the Trust Officer, took the matter up with Mrs. Scott, who was then the Probate Judge, and told her that the Bank wanted to surrender the trust, and he testified that she told him to make up a final report and turn the balance of the fund over to her, "that she had the authority to receive it and to handle it as Public Guardian until a successor guardian was appointed." A proper accounting was then made by the trust officer showing that the balance on hand of the guardianship fund was $1,055.26, for which a check was delivered to Mrs. Scott, as Probate Judge, who deposited the same in her official account in the Greenville bank in which she did business. Mrs. Scott then issued letters dismissory (usually termed a final discharge) to the Bank, dated November 23, 1925, reciting that the guardian had made its final accounting and *Page 20 
had (quoting) "turned over to Fannie C. Scott Probate Judge, as Public Guardian, the sum of $1,055.26, to be held by said Probate Judge until said minor is 21 years of age or until a suitable Guardian is appointed in Greenwood County (the child now being a resident there)." It was further recited in the letters dismissory that "(no advertisement necessary in this case)." There were no proceedings taken for the appointment of the Judge of Probate as public guardian for this fund as required by statute, nor was there any notice published of the application for a final discharge, and the ward was not made a party to any such application.
Mrs. Scott retired from office in 1931, and thereafter an investigation of her records was made showing that she had received from various sources the sum of about $38,500.00, and although the cash and the par value of the investments were about that much, the real estate mortgages representing the investments were insufficient in market value to cover the amount received. Thereupon a representative action in the nature of a creditor's bill was brought in 1931 against Mrs. Scott and the United States Fidelity 
Guaranty Company, the surety on her official bonds; a receiver was appointed; and all creditors were called in and made parties. The complaint in that case alleged that Mrs. Scott had carelessly invested the money in her hands, and that by reason of her negligence there would be a substantial loss, and that consequently she was personally liable and her surety was likewise liable for such loss.
The Guaranty Company, as surety on the bonds in the penal sum of $20,000.00, admitted its liability as to some of the claimants, questioned its liability as to others, and denied liability as to still others. A compromise settlement was thereafter effected between the receiver and the surety pursuant to which the surety paid the receiver $12,000.00 (quoting from statement in transcript of record) "in full compromise settlement of its liability to all the claimants and *Page 21 
relinquished its right of subrogation in the collateral held by the receiver," and this compromise settlement was approved by the Court upon the recommendation of the Master, and the Guaranty Company was (quoting from the Court's order) "released and forever discharged of and from any and all liability upon, under, or by reason of the official bonds executed by it as surety for Fannie C. Scott, as Judge of Probate for Greenville County," etc.; and the bonds were thereupon cancelled.
The minor, Lillie Chamberlain, was a party to this cause, being duly represented by her guardian ad litem, and testimony was taken on her claim before the Master; a committee from the Greenville Bar Association having undertaken to audit or list the claims. Further quoting from the transcript of record: "The Master, the Circuit Judge, and the Supreme Court all held that Lillie Chamberlain was not entitled to participate in the funds in the hands of the receiver."
This case was reported as Snyder et al. v. Scott et al.,174 S.C. 403, 177 S.E., 665, 666, and the comprehensive decree of Judge Greene was affirmed by the Supreme Court for the reasons therein stated, and the case will hereinafter be referred to as Snyder v. Scott. We quote the following from the decree, constituting the judgment of this Court, relating directly to the question of whether or not the Guaranty Company was liable to Lillie Chamberlain on account of the funds belonging to her and received by Mrs. Scott as hereinbefore stated:
"There is quite a distinction between the failure or neglect of a public official to discharge some duty imposed upon him by the law and where he acts without any authority of the law. In the former case his bond is liable and in the latter it is not. The case of Wieters v. May et al., 71 S.C. [9], 14, 50 S.E., 547, 548, states the rule very clearly as follows: `The bond cannot cover any act or omission of a *Page 22 
constable done without any authority of law whatever, or in his private or personal capacity as man or citizen, but it protects alone for what he does or omits to do unlawfully in the execution of his office or some official duty imposed by law.'
"There being no statutory law in this state authorizing or permitting Mrs. Scott to receive in her official capacity these funds from administrators, executors, or guardians, she acted without any authority of law, and I hold that her official bond is not liable therefor."
In the year 1940, Lillie Chamberlain having reached her majority brought suit against the National Bank seeking to recover the balance due her by the Bank as her guardian, arising from its unlawful payment of her funds to the Probate Judge, and the result of this suit was that it was adjudged that the Bank having taken no proper proceedings to procure its discharge as guardian "it still remains as guardian of this minor," and that its own negligence was the proximate cause of the minor's loss, notwithstanding its good faith, and judgment was rendered against the Bank for the amount due the ward with interest, and upon appeal to this Court we affirmed the order of Judge Oxner, as Circuit Judge, for "the reasons therein clearly stated." This case is reported as Chamberlain v. First National Bank ofGreenville et al., 202 S.C. 115, 24 S.E.2d 158, and it will be hereinafter referred to as Chamberlain v. Bank. The judgment thus obtained was duly paid by the National Bank.
Thereafter the instant action was commenced by the National Bank against the Guaranty Company on its bonds as surety for Fannie C. Scott, as Probate Judge, and it was alleged in the complaint that the Probate Judge had not qualified as required by law to receive the fund in question as public guardian, and that the instructions and representations made by her "were willfully and fraudulently made by said *Page 23 
Probate Judge for the purpose of inducing the plaintiff to turn said fund over to her so as to enable her to unlawfully manipulate, use and control same"; and that but for said instructions, fraudulent representations and purported discharge (or letters dismissory), "the plaintiff would not have turned said fund over to her"; and judgment is sought for the loss thus sustained by the plaintiff.
The answer in addition to a general denial pleads the order of Court and the entire judgment roll in the case ofSnyder v. Scott as a bar to the plaintiff's cause of action, alleging that the plaintiff stands in the shoes of Lillie Chamberlain and can have no greater rights than she had. It is further alleged that the negligent and unlawful act of the plaintiff in turning over to Mrs. Scott money belonging to Lillie Chamberlain was the proximate cause of plaintiff's alleged loss and damage, and that the plaintiff is estopped from recovering against the defendant.
As we have already stated, the case was referred to the Master under a general order of reference, and he filed his report on October 6, 1944, finding that by reason of the cases of Snyder v. Scott and Chamberlain v. Bank, and the law as therein laid down, the National Bank was not entitled to recover.
Upon exceptions to the Master's report the case came before Judge Henderson, who filed his decree dated November 18, 1944, sustaining the exceptions and finding that Mrs. Scott fraudulently induced the Bank to pay over the guardianship funds to her, and that neither res adjudicata nor estoppel was applicable, but that the Bank was entitled to recover against the defendant as and for a breach of the official bonds, of the former Judge of Probate.
The case comes to this Court upon the appeal of the Guaranty Company upon exceptions which raise three principal points, to wit: *Page 24 
1. That the matter had been finally adjudicated and the bonds involved discharged;
2. That the Probate Judge did not obtain the guardianship fund by fraudulent inducement, nor did she convert it to her own use; and
3. That the Bank's own negligence was the proximate cause of its loss.
The doctrine of res adjudicata (or res judicata) in the strict sense of that time-honored Latin phrase had its origin in the principle that it is in the public interest that there should be an end of litigation and that no one should be twice sued for the same cause of action. But there is another principle collateral to that, although somewhat different, applicable in determining whether a previous judgment is a bar to an action, and that is, the principle of estoppel which rests upon considerations of justice and equity. We refer in this connection to the well-considered opinion of this Court by Mr. Justice Stukes in the recent case of Watson v. Goldsmith, 205 S.C. 215,31 S.E.2d 317.
In the case of Snyder v. Scott the Guaranty Company was before the Court as surety upon the official bonds of Mrs. Scott, as Judge of Probate, and there was also before the Court Lillie Chamberlain, the ward whose money had been paid to Mrs. Scott and who was the real party in interest, and who was properly represented; and in that very cause it was adjudged by the Court below and affirmed by this Court that the Guaranty Company was not liable to Lillie Chamberlain because the Judge of Probate had no lawful authority to receive her money. In other words, the ward was before the Court, the very person to whom the funds belonged, and it having been adjudged that she could not recover, we think the Master was correct in holding that neither could her guardian, the National Bank, recover. *Page 25 
The following statement of the law with reference to the requisites of the doctrine of res adjudicata in our very recent case of Bagwell v. Hinton, 205 S.C. 377,32 S.E.2d 147, 156, is obviously sound:
"Before the defense of res judicata is made good, the following elements must be shown: (1) The parties must be the same or their privies; (2) the subject-matter must be the same; and (3) while generally the precise point must be ruled, yet where the parties are the same or are in privity
the judgment is an absolute bar not only of what was decided but of what might have been decided." (Emphasis added.)
We are of opinion that all the elements of res adjudicata
are present here. The subject-matter, to wit, the Lillie Chamberlain money, was involved in the former suit of Snyder v. Scott and is involved in the present cause. In the former suit the question before the Court was the liability of the surety for the Lillie Chamberlain money received by the Judge of Probate, and that is the very question before the Court in the present cause. It is true that there was no finding relating to any alleged fraud on the part of the Probate Judge in the case of Snyder v. Scott, but that was manifestly an incidental question which might have been raised and decided, for the identical records were then before the Court and the same sources of information were available. The following statement of the law taken from 34 C.J., 818, is amply sustained by our own cases therein cited:
"A judgment on the merits, rendered in a former suit between the same parties or their privies, on the same cause of action, by a court of competent jurisdiction, operates as an estoppel not only as to every matter which was offered and received to sustain or defeat the claim, but as to everyother matter which might with propriety have been litigatedand determined in that action." (Emphasis added.) *Page 26 
We are also of opinion that the first element, to wit, the identity of parties or privies, is definitely shown by the record. As stated by the learned Circuit Judge, quoting from 34 C.J., 1010, "Privity means a mutual or successive relationship to the same rights of property." And we do not think there could be a much clearer case of mutual
relationship than that existing between a ward and her guardian. The National Bank apparently did not see fit to come into the cause of Snyder v. Scott pursuant to the order of Court therein (quoting from the Master's report) "calling in all claimants to prove their claims and such call was published in the Greenville papers", for it may be reasonably inferred that this notice and the fact that the affairs of the former Judge of Probate were in litigation did not escape the attention of The First National Bank of Greenville with a trust department in charge of a trust officer. Although the ward was the real party in interest, the Bank might have been made a party in her stead upon the theory that it was the trustee of an express trust. If then the Bank had been made a party and the ward had not been made a party the judgment of the Court against the guardian would of course have been binding upon the ward. By the same token a judgment against the ward, the real party in interest, is binding upon her guardian, that is to say, she and the guardian were in privity with each other.
There is no hard and fast rule with reference to the matter of privity, as will appear from the following quotation from 30 Am. Jur., 957, which seems to us to be just and reasonable:
"There is no generally prevailing definition of privity which can be automatically applied to all cases involving the doctrine of res judicata. Who are privies requires careful examination into the circumstances of each case as it arises. In general, it may be said that such privity involves a person *Page 27 
so identified in interest with another that he represents the same legal right."
And in the case of McMullin v. Brown, 2 Hill Eq., 457, the trial Judge whose decree was affirmed said: "And I understand by the term privy, when applied to a judgment or decree, one whose interest has been legally represented at the trial."
The circumstances of the instant case, in our judgment, demonstrate the existence of privity, especially in view of the manifest good faith of the Guaranty Company, which surely was justified in assuming that by reason of the compromise settlement made by it with the receiver, including the payment of the large amount agreed upon and the relinquishment of its right of subrogation, the order of Court releasing it from any and all further liability was final and binding — certainly as to all claims of those before the Court whose rights were specifically passed upon and who were the real parties in interest in the funds in question. Evidently no such settlement would have been made if the Guaranty Company had understood that although the rights of award against it were adjudicated, her guardian, who could claim only in the right of the ward, would not be bound by the settlement approved by the Court and the final release of the surety. If the guardian had not been solvent the ward could not have collected the amount due her by her guardian, and she would of course have been precluded from seeking to recover from the Guaranty Company. Is not this in itself sufficient to show the anomaly of permitting the guardian to recover?
Upon the rehearing of this cause there was considerable argument at the bar of this Court on the question of subrogation, and it was contended that the exceptions did not raise this question and that the appellant was not entitled to the benefit of it. But subrogation is merely another way of saying that the rights of a guardian cannot *Page 28 
rise higher than those of his ward. And we are unable to concur with the Court below in the view that a distinction is to be drawn between the Bank as guardian and the Bank in an individual capacity, for surely there can be no doubt that whatever rights the Bank might have must arise solely out of its relationship as guardian to Lillie Chamberlain, the ward. If the ward had been entitled to recover against the surety, the guardian having paid the ward would have been entitled to recoupment, upon the principle of subrogation, but it having been adjudged that the ward could not recover, neither can the guardian.
Moreover, we have carefully scanned the record in this case, and we are unable to find any evidence supporting the allegations charging fraud on the part of the Probate Judge in the receipt of the funds in question. Indeed, we think that the testimony of Mr. Taylor, the Trust Officer, completely negatives any theory of fraud. Mrs. Scott did not seek to procure the money from the Bank, but on the contrary, the Bank initiated the arrangement whereby the fund was paid over, and the only representation made by Mrs. Scott was "that she had the authority to receive it and to handle it as Public Guardian until a successor guardian was appointed". But this was at most merely an erroneous conclusion of law, very probably due to the prevailing misconception that a Judge of Probate is Public Guardianex officio, without appointment.
It is true that a discharge was granted without notice, in violation of the statutory law as contained in Section 213 of the Code, which was likewise merely a mistake of law (likely due to the fact that the Probate Judge knew no creditors were involved); but it will be observed that this section expressly places the duty upon a guardian himself to give the required notice, and does not contemplate that the Judge of Probate shall do so. Nor does the Judge of Probate have anything to do with an application *Page 29 
for appointment as public guardian. See Code, Sec. 8624.
Certainly, Mrs. Scott did not have the legal right to receive the guardianship fund in question, and hence, as was held in Snyder v. Scott, her bonds were not liable. And in one of the cases therein cited, to wit,State ex rel. Elliott v. Jeter, 59 S.C. 483, 38 S.E., 124,125, this Court unanimously held in accordance with the established rule that sureties upon the bond of a public official are liable "for the default of their principal in those cases only where it was a duty, under the law, of their principal to receive funds in his official character." But such unauthorized receipt of the funds does not warrant the implication of fraud. As has been already stated, at the time Mrs. Scott received the Bank's check for the guardianship fund she deposited it as a part of her official account, and there is no evidence whatever of misappropriation or conversion. The illegal appointment, made or attempted to be made by her, from time to time, more than a year after she was paid the money, of certain persons as guardians of Lillie Chamberlain, although they did not apply for such appointment or act in that capacity, as will appear by reference to the Court's decree in the Chamberlain v. Bank case, was of course improper; but no loss was actually occasioned thereby. And we cannot read fraud into the original transaction merely because of some later irregularities.
Our own case of Hunter v. Boykin, 195 S.C. 23,10 S.E.2d 152, 155, is strongly relied on by the respondent, but the facts of that case readily distinguish it from the case at bar, for there the Judge of Probate fraudulently caused certain funds of an estate, in the hands of the administrator, to be paid to himself, which were thereupon converted to his own personal use; having, in order to accomplish this purpose, himself prepared a false and fraudulent return which he caused to be signed by the administrator showing *Page 30 
"full distribution to the distributees each by name." In fact, the lawyer Judge of Probate in that case perpetrated a flagrant, indeed a criminal fraud upon an inexperienced lay
administrator.
Furthermore, it is a recognized and long-established principle of law that generally fraud cannot be predicated on misrepresentation as to matters of law, much less on mere mistake of law. There are indeed some exceptions to this rule, but we do not think this case could be deemed to come within any of them. 23 Am. Jur., 809; 37 C.J.S., Fraud, § 55, p. 323; Koon v. Pioneer-PyramidLife Ins. Co., 175 S.C. 117, 178 S.E., 503.
There is yet another reason for the conclusion that the Guaranty Company is not liable to the National Bank, and that is, the Bank was the author of its own loss, and is therefore estopped to recover. In the case of Chamberlain v. Bank, as we have already stated, the Court held that while the Bank acted in good faith its negligence was the proximate cause of its loss. Indeed, it is somewhat difficult to conceive that the trust officer of a national bank could be deemed to have been defrauded by a statement made by a lay Judge of Probate relating to a matter of law. We should think that it would be generally assumed that a trust officer charged with the duty of dealing with and handling estates would be at least as well informed as to the law relating to his employment as would a Judge of Probate who was not a lawyer. And in a matter involving the relinquishment of a trust and the disbursement of its funds a trust officer of a national bank would reasonably be expected in the exercise of ordinary care to consult the bank's attorneys. Even where fraud exists, it may not be available as a cause of action or defense, as will be seen by reference to the discriminating opinion of Mr. Justice Fishburne in the case ofThomas v. American Workmen, 197 S.C. 178,14 S.E.2d 886, 136 A.L.R., 1, for it was there held that although *Page 31 
fraud may be involved every person must use reasonable prudence and diligence for his own protection. Afortiori the protection of a trust represented by him would require at least like reasonable prudence and diligence.
The judgment of the Circuit Court is reversed and the case remanded for entry of judgment in appellant's favor.
Reversed.
MR. CHIEF JUSTICE BAKER and MR. ASSOCIATE JUSTICE TAYLOR concur.
MESSRS. ASSOCIATE JUSTICES FISHBURNE and STUKES dissent.