Court Opinion

ID: 7811402
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:13:16.265132+00
Date Added: 2024-06-11T16:30:28.906565
License: Public Domain

Smith, J., (concurring). I concur in the majority opinion except that portion of it which deals with the right of appellant guaranty company to set-off: the deposit paid by it to the life insurance company against the demand of the receiver. Subrogation is of two kinds, legal and conventional, according to the text-writers. Conventional subrogation arises out of the agreement of the parties, but ordinarily, when the term subrogation is used, legal subrogation is meant; and this is the kind of subrogation with which we are here dealing. The annotator’s note to the case of American Bonding Co. v. National Bank, 99 Am. St. Reps. 466, constitutes a treatise on this right, covering fifty-nine pages and collects a very great many authorities on the subject. In this note it is there said: “Legal subrogation is not founded upon contract or privity or strict surety-ship. It is bom of equity, and results from the natural justice of placing the burden where it ought to rest. It does not How from any fixed rule of law, but rather from principles of justice, equity, and benevolence. It is a purely equitable result, depending like other equitable doctrines upon the facts and circumstances of each particular case to call it forth. It is a device adopted or invented by equity to compel the ultimate discharge of a debt or obligation by him who in good conscience ought to pay it.” This court is thoroughly committed to the proposition that a receiver is not -an innocent purchaser. The cases cited in the majority opinion so hold. The receiver takes over the assets of the bank subject to all outstanding equities, and the question for decision is, therefore, what are the equities in regard to the deposit of the life insurance company paid by thei appellant guaranty company. The majority treat the appellant guaranty company as having acquired its rights after the bank became insolvent, and disposes of the claim of subrogation by saying that, if it were allowed, persons could purchase claims of depositors and thus secure preferences. The trouble ■with this declaration of the law is that it assumes as true the point really in controversy, and that is, that the rights of the guaranty company did not accrue until after the bank became insolvent. It may be freely conceded that, if appellant’s right did not accrue until payment was actually made by it, the right of subrogation must be denied as constituting a preference. But just here is where the majority falls into error. In the case of Wasco County v. New England Equitable Insurance Co., L. R. A. 1918-D, 732, the point presented was when the surety’s right of subrogation accrued, and in that case, where the court considered the principles involved and the authorities thereon, the court (Supreme Court of Oregon) held that “* * * the right of subrogation dates back to the time when the insurance company entered into the contract of suretyship.” In that case, as in this, the surety received compensation for his suretyship, but it was there said that “a court of equity 'grants the right of subrogation because the surety has paid the debt of the principal, and the right of subrogation is not dependent upon whether the surety was or was not paid to sign the bond. ’ ’ In 25 R. C. L. page 1328, it is said: “This right of a surety to subrogation stands upon the principles of natural justice. Payment by the surety is deemed equivalent to a purchase from the creditor, and operates as an equitable assignment of the debt, and all its incidents, to the former. It has well been said that in these cases the law creates or implies a contract on the part of the creditor that such property or securities will be turned over to the one who is secondarily liable as soon as he pays the creditor’s claim. The right of a surety to subrogation begins with the contract of suretyship, and is not simply inchoate until he pays the debt.” In Michie on Banks & Banking, vol. 2, p. 1073, sec. 135, it is said: “Where a party executes a guaranty for the payment of sums deposited in a bank to which he is indebted, which sums are due and payable at the time of the bank’s suspension, equity will give him credit on his indebtedness for the payments made because of the bank’s failure to do so, whether he is regarded as a surety, and becomes subrogated to the rights and claims of the depositors, or simply that by the bank’s failure and default he became liable for such sums. Where such guarantor owed certain notes to the bank, which became due before a receiver was appointed for such bank, but owing to the time required to fix plaintiff’s liability, he did not pay the creditors for some time after, suspension, that claim will be deemed to relate back, and to have been made at the time of suspension, and the amount so paid may be set-off against the notes held by the bank against plaintiff. ’ ’ It is not necessary, however, that we should search beyond our own decisions to determine when the right of surety attaches, as this court decided that question in the case of Griffin v. Long, 96 Ark. 271, where it is said: “The principal thus becomes indebted to the surety for the payments he is compelled to make for the former, and the question which arises is, does such indebtedness have its inception from the time the party became surety or from the time payment is made by the surety? The true rule seems to be that the surety becomes a creditor of the principal at the time he signs the note as surety, and not at the time he pays the same. In the case of Wiggin v. Flower, 5 Rob. (La.) 406, it is said: ‘Though the obligation of a surety cannot be enforced till after the event on.which it becomes absolute, it exists from the time it was contracted, so the rights of the surety against his principal exist before the obligation of the former becomes absolute.’ ” See also McDonald v. Mueller, 123 Ark. 226. It required payment of this deposit by the guaranty company to the insurance company to make the right of subrogation enforceable, but when payment was made —and it has been made — the guaranty company was put in the shoes of the insurance company, and has all the rights against the receiver which are incident to the ownership of that deposit, and it has therefore the right io set-off this deposit, which, in equity, became the property of the guaranty company, upon payment thereof, against the demand of the receiver. In other words, the guaranty company has the same right of set-off it would have had had- the deposit been in its own name at the time the bank closed its doors, because, by subrogation, it is given the rights which the insurance company itself would have had had the receiver asserted some demand against appellant’s surety company. Funk v. Young, 138 Ark. 38. Justice Hart concurs in the views here expressed.