Court Opinion

ID: 6693802
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:44:08.055613+00
Date Added: 2024-06-11T16:01:10.189603
License: Public Domain

Clakic, J.
(dissenting): The point presented, stripped of immaterial circumstances, is this : Jeffreys endorsed for value to Howard a bond of Powell. Howard pressing for further security of Powell or payment, Jeffreys procured Powell to execute a new bond secured by mortgage. Jeffreys notified Howard, who ceased thereupon to press for collection, but instead of turning the new bond with its security over to Howard, Jeffreys wrongfully assigned it, without knowledge of Howard, as collateral, to Vaughan & Barnes for a debt due them, without any knowledge on their part of Howard’s claim to the bond. Soon thereafter Jeffreys made an assignment to Staton, Trustee, for benefit of creditors, Vaughan & Barnes being among the preferred creditors. This action was begun by Vaughan & Barnes against Jeffreys & Powell to foreclose said mortgage. Staton, Trustee, was subsequently substituted as party plaintiff, the court adjudging that he recover of Powell, as the order recited that Vaughan & Barnes had been paid in full, though it is agreed as a fact that in truth Vaughan & Barnes received the sum collected from *148the Powell mortgage, but that after paying off all the indebtedness of Jeffreys to Yaughan & Barnes, and all other creditors holding preferences prior to theirs, there is still a balance in hands of Staton, Trustee.
On these facts Howard, who has interpleaded, claims,
1. That Staton, Trustee, is bound by the recitals in the judgment of foreclosure. 2. That if he is not, still the Powell mortgage was in equity held by Jeffreys as trustee for Howard, and by its tortious conversion to the payment of Yaughan & Barnes the fund now in the hands of Sta-ton, Trustee, has been that much wrongfully swollen by use of the fund belonging to Howard, and that therefore ■Howard should 2iow be subrogated (to the extent of the amount realized from the Powell mortgage) to the priority, or preference, which Yaughan & Barnes held under the deed of assignment, upon the general assets of Jef-freys in the hands of his assignee, H. L. Staton. The court liplow so held, and in this there was no error. It is true that if a trustee tortiously convert a trust fund to his own use, it becomes a debt having no priority or lien over other indebtedness, but if he pays off an incum-brance with the trust fund, in equity it is an investment for the cestui que trust, who is subrogated as owner of the incumbrance. So, on an assignment for creditors, a preferred debt is an incumbrance, so to speak, on the general assets in the hands of the assignee, and the use of the specific trust fund in favor of the preferred debt to Yaughan & Barnes subrogates Howard, the equitable owner of the trust fund, in their place as preferred creditor.
The principle applicable is the well-established one that a creditor whose fund has been taken to pay a prior debt is subrogated to the lien of that debt on other funds. Sheldon on Subrogation, Sects. 61 and 62, and cases there cited. As between Howard and Jeffreys, Howard had a *149right to have Jeffreys decreed Trustee of the Powell mortgage for his benefit. By its tortious transfer to Yaughan & Barnes without notice, they were enabled to apply it on their claim, which, by the terms of Jeffreys’ general assignment for benefit of creditors, became a preferred debt on all the assets of Jeffreys in the hands of Staton, his Trustee. But there being sufficient assets to pay off Yaughan & Barnes (and all liens prior to theirs) without touching this fund, which in equity belonged to Howard— as between Howard and Jeffreys — it should not have been applied to Yaughan & Barnes’s debt, and having been so applied Howard is subrogated to the rank and priority of the debt which his fund paid. If Jeffreys had not passed the Powell mortgage to Yaughan & Barnes without notice, and it had gone with his other assets into the hands of his assignee, as against such trustee, since he stands in Jeffreys’ shoes, Howard would be entitled to a decree that the mortgage be applied to the payment of the bond assigned to him by Jeffreys as a security to which bond the mortgage was executed, and which therefore inured to the benefit of Howard, the assignee and owner of the bond.
AveRY, J.: I concur in the dissenting opinion.