Western Surety Co. v. Walter
182 N.W. 635
S.D.
1921
Check Treatment
WHITING, J.

Plaintiff sues, as the indorsee of a negotiable note, and seeks to recover a judgment against the maker of such note. This cause was before us on a former appeal, our opinion being reported in Western Surety Co. v. Walter, 177 N. W. 804. Reference is made to such opinion for a statement of the facts as they then appeared, the question presented upon such appeal, and the decision of this court thereon. A second trial of this cause was had before the court without a jury. Findings and conclusions were filed, and upon these judgment was entered for defendants. From such judgment this appeal was taken.

Appellant contends: First, that the former opinion of this court is res judicata of the issues raised on the second trial; and second, that the findings of the court do not support its conclusions and judgment.

[x] ‘ There is no mterit in appellant’s contention that the for*115mer opinion of this court is res judicata as to the issues now before us. The sole defense pleaded upon the first trial w'as want of consideration, and it appears from our former opinion that the trial court, on that trial, directed a verdict for defendants because it believed such defense to have been • sustained. All that this court held upon the former appeal was that there was a consideration for the note in suit. In a special concurring opinion attention was called to the fact that, as the record then stood, plantiff would not be entitled to recover, even though the note was based on a sufficient consideration; that plaintiff could only recover on the theory of subrogation; that the facts, then before the court, did not show it entitled to be subrogated to the rights of the payee of the note as against the maker; but that, inasmluch as the plaintiff might upon a further trial show facts entitling it to be subrogated to the rights of the payee of the note, a new trial should be awarded. The defense amended its answer, abandoning the defense of want of consideration for the note, but the plaintiff did not amend its complaint — it still sought to recover as an ordinary indorsee of the note, and not by virtue of any equitable right to be subrogated to the rights of the payee of the note. As the only matter adjudicated by this court upon the former appeal was the question of want of consideration, it is perfectly clear that the former decision of this court does not in any manner bar defendants’ right to interpose defense other than want of consideration for such note, and to rely, in support of such defense, upon part or all of the same evidence that was received upon the former trial.

[2,3] Appellant states that the trial court found that the note in suit was given to the payee thereof as security for the loss which it had suffered through the defalcation of the county treasurer; and appellant insists that the evidence did not warrant a finding that it was given as security rather than as a payment of the amount due the county because of such defalcation. There are two answers to the above: First, there was no motion for a new trial, hence appellant cannot question the sufficiency of the evidence to support the findings; second, there was ample evidence to warrant the court in finding that the note in suit was given to and received by the county as security for, or perhaps mtare properly speaking, to indemnify it against, any loss it had *116suffered because of the defalcation. After receiving such note, the county filed a claim against the estate of the defaulter. Furthermore this claim, as well as the note, was assigned to appellant, and, upon such claim!, appellant received a large sum of money which it credited on the note. The above shows that the appellant, as well as the county, understood that the giving of the note did not pay the claim of the county.

[4, 5] 'Can appellant recover on the theory that it is entitled to be subrogated to the rights of the county as against respondents? Ordinarily the issue of subrogation must be pleaded (37 Oye. 390), but it has been held that, even in the absence of a plea claiming the right of subrogation, equity will grant relief, under the prayer for general relief, where 'it is justified by the facts alleged and established. No facts were pleaded by appellant upon which a right of subrogation could rest — it merely alleged and proved that it was the indorsee of the note sued upon. Did the evidence offered by the defense disclose facts entitling appellant to recover? If so, plaintiff should recover. These facts are those stated in the former' opinion of this court, with the additional fact that appellant received a consideration for its undertaking as surety on the treasurer’s bond. Did the writer hereof, in his concurring opinion on the first appeal, err in holding that the facts then before the court did not entitle appellant to a judgment against respondents? If not, the trial court did not err upon the second trial.

[6] Upon what principle of equity can appellant rest any claim to right of subrogation? It has suggested none. 'Subrogation is — •

“the mode which equity adopts to compel the ultimate discharge of the debt by him; who, in good conscience, ought to pay it, and to relieve him whom none but the creditor could ask to pay * * * and the rights of one seeking subrogation must have a greater equity than [the rights of] those who oppose him.” 37 Cyc. 370, 3 7*-

On what ground can it be urged that “good conscience” requires that respondents and not appellant stand the loss flowing from the defalcation? It was appellant’s business, for a consideration moving' to it, to enter into just such contracts of indemnity as the one given by it in this case. There is absolutely no equit*117able ground upon which it can be urged that defendants should pay this claim. They did not give their note for the benefit of appellant, but merely to indemnify the county against any loss from a defalcation that had already occurred, and for which the county had a right of recovery against the defaulter’s estate and against appellant. 'Certainly under the equities, if the county had sued and recovered from respondents, they might have invoked the doctrine of subrogation as against appellant. Respondent’s note was not security which appellant’s principal had secured for the benefit of the county; if it were, there might be some basis upon which appellant might rest a claim of right to subrogation.

Appellant relies upon the decision in Park v. Robinson, 15 S. D. 551, 91 N. W. 344. In this case a bank held a secured note against a party. Thereafter a third party gave his note to the bank as further security. The maker of this last note was required to pay same and this court held that, under section 4309, Comp. Laws 1887 (now section rgio, R. C. 1919), this party whs entitled to the benefit of the security held by the bank as security for the principal debt. This -is a clear recognition of the principle of equity upon which subrogation rests. In Thurston v. Osborne-McMillan El. Co., 13 N. D. 508, 101 N. W. 892, cited by appellant, it was held that a mere surety on a note, who is compelled to pay the note, is entitled, upon payment thereof, to be subrogated to the rights of the creditor under a mortgage given by the principal debtor. Appellant has also cited several cases wherein the holding, if applied to the facts of this case, would be, that, upon payment of its liability under its surety bond, the appellant would be treated as the owner of such bond with the right, as such, to sue its principal thereon — a proposition not having the remotest bearing upon the question before us.

[7] Does section 1510, R. C. 1919, give to appellant the right of subrogation now claimed by it. Such section provides:

“A surety is entitled to the benefit of every security for the performance of the principal obligation held by the creditor, or by a co-surety, at the time of entering into the contract of surety-ship, or acquired by him afterwards, whether the surety was aware of the security or not.”

We think this section does not apply for two reasons: First. This section is intended merely as a declaration of the well estab*118lished rule existing at the time it was adopted, and therefore the “security,” to the benefit of which one entitled to subrogation succeeds, is security furnished the “creditor” or “co-surety” by the principal debtor, and has no reference to security or indemnity furnished by a stranger. Eaton on Equity, § 251; 3 'Pomeroy’s Equity Jurisprudence, 1419; Leggett v. McClelland, 39 Ohio St. 624. Second. Respondents’ note was not given as security ■ f or the bond upon which appellant was a surety. Respondents’ note was given to secure the county from any loss because of a defalcation that had occurred. The primary obligation of the principal on the bond arose not upon the bond, but arose at the time of, because of, and upon the defalcation. The official bond entered into by appellant was but “a collateral security for the faithful performance of the official duties of the officer.” Walton v. U. S., 9 Wheat. 651, 6 L. ed. 182. In other words, we have a case where one party has entered into a collateral undertaking to secure or indemnify another against the results of official misconduct ; after there has been official misconduct other parties give to the injured party a note, not to secure the payment of the undertaking given by the wrongdoer and on which the other party is a surety, but to secure the payment of any loss which the injured party may eventually suffer because of the wrongdoing.

The judgment appealed from is affirmed-.