Netherton v. Farmers Exchange Bank

This is an action by E.W. Netherton, plaintiff, asking to have an adjudicated claim against the Farmers Exchange Bank of Gallatin, Missouri, declared to be a preferred claim. On March 4, 1926, the aforesaid bank was closed and placed in the hands of Commissioner of Finance for liquidation. At the time of the commencement of this action, S.L. Cantley was the Commissioner of Finance and Joseph M. Martin was Special Deputy in charge of the bank. The evidence discloses that on November 1, 1924. the plaintiff was indebted to the bank in the sum total of $3,335. This indebtedness was evidenced by three notes, one for $1,335 and two notes of $1,000 each. The evidence discloses that the bank sold one of the notes to J.H. Weldon, now deceased, and the other $1,000 was sold to A.M. Dockery, now deceased. At the time of the commencement of this action, both the Weldon and Dockery estates were in course of being administered. As to the Weldon and Dockery notes, it appears that same were kept in private boxes at the bank and that access was had to same by the bank officials who attended to collection of interest and renewals of the notes. The plaintiff was not at the time a resident of Gallatin and the plaintiff's father, C.O. Netherton a resident, appears to have looked after his son's business affairs in connection with dealings with the bank and had signed with his son on the notes. It appears that at regular intervals renewals were made as to these notes and payments of interest and on principle were made so that at the time the bank was taken over plaintiff's actual indebtedness consisted of one note of $1,160, one note (Dockery) for $1,000 and one note (Weldon) for $1,000. However, it appears from the evidence that an official of the bank had taken the Weldon note out of the Weldon estate papers and had charged off bad notes to a like amount and entered the $1,000 Weldon note as a bank asset and it further appears that the $1,160 note and this $1,000 Weldon note had been sold to the Fidelity National Bank Trust Company of Kansas City, Missouri. The evidence discloses that through fraudulent misrepresentation of a bank official under pretense of renewal, wherein original note was delivered, the father of plaintiff was induced to execute for his son an extra note for $1,040, presumably as a renewal of the Weldon $1,000 note and interest. This $1,040 note to which C.O. Netherton had signed his son's name and to which he added his name as security never went into the bank and at the time the bank was taken over by the Commissioner this $1,040 was found in the Weldon estate papers where it had evidently been placed by an official of the bank to take the place of the $1,000 note that had been wrongfully taken therefrom. *Page 298 It appears from the evidence that the plaintiff, through his father, was called upon to pay and did pay all of the outstanding notes which included the $1,040 note aforesaid. It follows, of course, that the plaintiff has paid out $1,040 more than his actual indebtedness. The trial court allowed plaintiff's claim for $1,040 but refused to give the same preference. From the judgment allowing preference the plaintiff appealed. OPINION. This cause is before the court on rehearing. There is no room to doubt but what the assets of the defunct bank were wrongfully swelled by the transaction disclosed by the evidence in the full sum of $1,040. The case was originally presented upon the theory that the transaction directly created a trust ex-maleficio in favor of the plaintiff. The fact that the entire proceeds of the note are shown and admitted to have gone into the Weldon estate is repugnant to the application of the claim that anex-maleficio trust was directly created in favor of plaintiff herein. When the Weldon note was wrongfully taken into the bank, there was created an ex-maleficio trust in favor of the Weldon estate. It therefore follows that for a preference to be declared in favor of the plaintiff it must first be adjudicated that the benefits of that trust enures to plaintiff. Upon this rehearing, a claim for preference is made based upon equitable principles of subrogation. In view of the powers conferred on circuit courts by Section 22, Article 6 of the Constitution of Missouri and in view of the provisions of Chapter 34, Revised Statutes 1929, and further in consideration of the declaration of the Supreme Court in State v. Page Bank of St. Louis County, reported in 14 S.W.2d, at page 597, wherein it is held the power in the circuit court in such matters "included priorities of an equitable nature," we conclude that the principle of equitable subrogation is germane to the issue herein and that this court should give consideration to the issue from that standpoint. It appears that the plaintiff in this case does not plead subrogation. However, if the facts are present the failure to plead same should not bar the right in that it is the duty of the court to give consideration of priorities of an equitable nature. It has been held: "Although the right of subrogation should ordinarily be plead, yet, in the absence of a plea equity may grant relief under a prayer for general relief if it is justified by the facts alleged and established. [Western Surety Co. v. Walter, 44 S.W. 112, 182 N.W. 6235, 24 A.L.R. 1519.] The fact that the plaintiff had an apparent meritorious defense to an action on the $1040 note raises the question as to whether or *Page 299 not he was a mere volunteer in making the payment. If the plaintiff was but a mere volunteer, then no right of subrogation exists. The doctrine of subrogation was borrowed by equity from the civil law. However, as equity has grown so has the doctrine of subrogation grown and while the right was formerly limited to transaction between principals and sureties it has greatly expanded. Under the doctrine as it stands, it is broad enough to include every instance in which one person pays the debt of another for which the other is primarily liable and should in good conscience have been paid by the other, provided, of course, that there are circumstances present which take the transaction out of the sphere of a purely volunteer payment. [Gersta Corp. v. Equitable Trust Co., 241 N.Y. 418, 150 N.E. 501; United States Fidelity, etc., v. Branwell, 108 Or. 261, 217 P. 332.] There can be no doubt but what the Weldon estate would have been entitled to a preferred claim for the amount of the note and interest that was purloined from its papers. The plaintiff, through fraud and manipulation on the part of the bank, was deceived into executing the $1040 note that went to reimburse the Welden estate for the note wrongfully taken from the estate by the bank. We conclude, that the plaintiff in paying the $1040 should not be concluded to be a mere volunteer. In Pomeroy Equity Jurisprudence (4 Ed.), Section 1212, the text is to the effect that one who pays at the instance of the debtor is not a volunteer. The Farmers and Merchants Exchange Bank of Gallatin was unquestionably debtor to the Welden estate in the full sum of $1040. Plaintiff through fraud upon the part of the bank and at the bank's request paid the bank's debt to the Welden estate. One paying under such circumstances cannot be held to be a mere volunteer. [State Saving Trust Co. v. Spencer et al., 201 S.W. 967.] In 37 Cyc. 374, a volunteer is classed as one who pays without either legal or moral obligation to pay. It is presented by the respondent in this case that plaintiff did not pay, that his father paid and that showing is not made that the son has paid the father. As the judgment of the lower court is to the effect, that by reason of this transaction the bank is indebted to the plaintiff in the sum of $1040 and as no appeal has been taken from that judgment the respondent is in no position to urge such a point. It follows, that we are only concerned herein as to the status of the claim. A person placed in the position of the plaintiff cannot be held to the knowledge of all defenses, in law or equity he might impose in defense of payment. There was present a colorable obligation. It is manifest from the record that the plaintiff, under an honest belief that he was bound, paid. Under such circumstances, we conclude that *Page 300 the plaintiff is entitled to be subrogated. [Jacobs v. Webster,199 Mo. App. 604, 205 S.W. 530.] The circuit court having given judgment for the debt, from which no appeal has been taken, therefore, for reasons above given judgment of the court in refusing preference is reversed and cause remanded with instruction for the trial court to enter judgment in favor of plaintiff for preferred claim in the amount the evidence discloses the assets of the bank were swelled by the wrongful act of the official of the bank in wrongfully listing the purloined Weldon note as an asset of the bank. All concur,Trimble, J., in a separate opinion.