Lochenmeyer v. Fogarty

Mr. Justice Craig delivered the opinion of the Court: This was a bill in equity, brought by William Fogarty, against appellants, and Ezekiel French, to require appellants to pay certain notes which were given by them, payable to Jacob Hammon, guardian of Edward Applegate, and also to compel French to account for certain moneys belonging to the ward, alleged to have been received by him as executor of the estate of Jacob Hammon, deceased. On the hearing, the court rendered a decree against appellants, as prayed for in the bill, but dismissed the bill as to French. The facts out of which this litigation arose are substantially as follows: On the 18th day of April, 1864, Jacob Hammon was appointed guardian of Edward Applegate by the county court of Logan county. The minor owned a certain tract of land in Logan county, which the guardian sold, under a decree of court, February 15, 1875, which authorized the sale. The land brought at the sale $2414.30. A part was sold to John Cutlip for $152.40, who paid in cash $52.40, and gave his promissory note for $100, payable to Jacob Hammon, guardian, due in one year. The balance of the land was sold to John L. Lochenmeyer for $2261.90. He paid down $762.48, and gave his two promissory notes, for $749.71 each, due in one and two years, with ten per cent interest. George Stoll signed the notes as surety, and a mortgage was also given on the premises to secure the payment of the purchase money. At the sale, the money and notes passed into the hands of Edmund Lynch, who was the attorney of the guardian in obtaining a decree to sell the land. Jacob Hammon died November 30, 1875, testate, and Ezekiel French was named as executor in his will, and qualified as such. On or about the 14th day of February, 1876, Cutlip called on Lynch, and satisfied the note he had given Hammon, guardian of Applegate. On the same day, Lochenmeyer and Stoll went to Lynch’s office and took up the two notes of $749.71 each, and gave in their jdace smaller notes for the full amount of the indebtedness, all payable to the order of Lynch. These notes were indorsed and sold by Lynch before maturity, and after they became due they were all paid by the makers. On the 22d of December, 1875, an order was made in the county court of Logan county appointing Lynch guardian of Edward Applegate, upon filing bond in a certain amount, with certain persons named in the order, as sureties. No bond was, however, filed until June 11,1877, when Lynch filed a bond, with complainant as surety, and entered upon the discharge of his duties as guardian. Under the advice of Lynch, French, as executor of the estate of Hammon, filed a report in the county court, charging himself with the entire proceeds of the sale of the minor’s land. Lynch then recovered a judgment against French, executor, for the amount, receipted the judgment, and charged himself, as guardian, with the amount. No money was, however, paid over by Lynch to French, or from French to Lynch, but Lynch had squandered the money long before French qualified as executor of Hammon’s estate. Subsequently, failing to give additional security on his bond, as he was ordered to do by the county court, Lynch was removed, and Joseph Beam ivas appointed guardian of the minor. Beam sued Lynch and Fogarty on their official bond, to recover the money Lynch had reported as coming into his hands as guardian of Apple-gate, and which had been squandered by Lynch, and such proceedings were had that Fogarty, the surety of Lynch, was compelled to pay Beam the money Lynch had received belonging to Applegate. Fogarty, having paid the amount, filed this bill to be subrogated to all the rights of Beam and Applegate, against appellants and French. It is a fact concerning which there is no controversy, that Lochenmeyer took up the two notes which were given for the land secured by mortgage, and gave his own notes, signed by himself and Stoll, payable to the order of Lynch, which he subsequently paid to the persons who had purchased the notes of Lynch. But the question arises, whether this constituted a payment of the indebtedness for which notes had been given payable to Jacob Hammon, guardian of Edward Applegate. It will be remembered that these notes 'were lifted on February 14, 1876, and that Lynch did not become guardian of the minor until June 11, 1877. He did not at this time act, or even profess to act, in the capacity of guardian. It is apparent, from the evidence, that he had no right, title or interest whatever in the notes. He had them in his possession when Hammon died, and after his death continued to hold the notes as mere custodian. It is a plain proposition, if the notes had been paid to a person authorized to receive payment, the indebtedness would have been extinguished. It is also equally plain that payment of a note to a person who has no authority to receive the money does not extinguish the debt. Here, Hammon, the guardian, died, leaving the notes in the possession of Lynch. It nowhere appears that Hammon, while living, had authorized Lynch to collect; but if he had, that authority was revoked by his death, and Lynch could not then collect or convert the notes to his own private use. ■ He had authority, merely, after Hammon’s death, to hold the notes in his possession until some person authorized should call upon him for them. Appellants are in no position to claim that they paid the notes innocently or in good faith. They knew that the- notes were given for land that belonged to the minor. They also knew that the notes were payable to the guardian, that he was dead, and that the money which the notes represented was trust funds, and knowing these facts, they had no right to take up the notes from Lynch by giving others payable to his order, nor can they claim any rights by virtue of such a transaction. It may be a hardship that these parties are required to pay their notes a second time; but who is to blame ? They knew, or by the exercise of the least precaution might have known, when they obtained the notes of Lynch, that he had no authority to surrender them; and if they saw proper to deal with him, they acted at their own peril. But it is urged that when the notes were taken up, Lynch was attorney for French, who was executor of Hammon’s estate, and as the legal title to the notes was in French, the act of Lynch was authorized. This position is not tenable. Lynch, in his evidence, does not pretend that in the surrender of the notes and mortgage he was acting as attorney of French, and French testified that he never had the notes in his possession; that he supposed Lynch held them as attorney of Hammon; that he never gave Lynch any instructions in regard to the notes. There is, therefore, no foundation in the evidence for the position. But if he had been acting as attorney of French, he could only have received payment in money. An attorney, in the absence of special authority, has no right to give up his client’s notes for paper payable to himself. The law may be regarded as well settled that an attorney has no authority to receive anything but money in payment of his client’s debt. 2 Parsons on Notes and Bills, 614, note c; Nolan v. Jackson, 16 Ill. 272. If, then, the transaction between appellants and Lynch did not discharge the debt which belonged to the minor, Apple-gate, which we have seen it did not, it follows that Beam, who succeeded Lynch as guardian, had the right to proceed and collect of appellants the original debt. He also had the right to compel payment from Fogarty, who was surety on the bond of Lynch. Here were two remedies open to Beam. He saw proper to enforce the latter, and compelled Fogarty to pay the money due his ward, Applegate. Fogarty having paid the money, is he entitled to be subrogated to the rights of Beam, as against appellants? The rule on this subject is well stated in Eddy v. Trevor, 6 Paige, 521, as follows: “It is an established principle of equity, that sureties, or those who stand in the situation of sureties for those who pay a debt for them, are entitled to stand in the place of the creditor, or to be subrogated to all his rights as to any fund, lien or equity which he may have against any other person or property on account of the debt.” City of Keokuk v. Love, 31 Iowa, 119, is a case also in point, where it is expressly held that the equities of sureties extend to all the rights of the creditor respecting the debt which the sureties pay. In 1 Leading Cases in Equity, page 144, it is said: “Moreover, as soon as the surety has paid the debt an equity arises in bis favor to have all the securities, original and collateral, which the creditor holds against the person or property of the principal debtor, transferred to him, and to avail himself of them as fully as the creditor • could have done. For the purpose of obtaining indemnity from the principal, he is considered as at once subrogated to all the rights, remedies and securities of the creditor,—as substituted in the place of the creditor, and entitled to enforce all his liens, priorities and means of payment, as against the principal, and to have the benefit even of securities that were given without his knowledge.” In Hays v. Ward, 4 Johns. Ch. 123, Chancellor Kent says: “This right of the surety stands not upon contract, but upon the same principle of natural justice upon which one surety is entitled to contribution from another. ” But the right of a surety to be subrogated to the rights of the creditor is by no means a new doctrine in this court. Indeed, it has been often held, as in Richeson v. Crawford, 94 Ill. 165, that it is the right of the surety, when he pays the debt of his principal, to be subrogated to whatever security the creditor had. (See, also, Rice v. Rice, 108 Ill. 199.) Indeed, when Fogarty v. Ream, 100 Ill. 366, was before us at a former term, although, perhaps, the question was not directly involved, yet it was passed upon, and held that Fogarty, upon payment of the liability imposed upon him by the bond he had signed as surety for Lynch, would be entitled to be subrogated to whatever rights Beam might have, as against appellants. If there is any case where a' surety should be entitled to the benefit of the remedies and securities that were in the power of the creditor, this would seem to be one in which the doctrine should be strictly enforced. Lochenmeyer, Stoll and Cutlip, appellants, who had given the original notes for the lands belonging to the minor, made them payable on their face to the order of Jacob Hammon, guardian of Edward Applegate. Now, when the guardian was dead, the notes not indorsed, and no new guardiap having been appointed, the exercise of the least precaution should have dictated to them that Lynch had no authority whatever to' surrender to them the notes, and accept in lieu thereof new notes payable to his order. But it is claimed by counsel for appellants, that if the doctrine of. subrogation may be invoked, Fogarty could only be entitled to be subrogated to the rights of Lynch. No authority has been cited in support of this position, and we are aware of no case where such a doctrine has been announced. Beam, the guardian of Applegate, was the creditor, and when Fogarty, who was a security for the money due from Lynch to the guardian, was compelled to pay that money, he became subrogated to the rights of the creditor, Beam, and was entitled to enforce such securities as Beam held for the collection of the money, one of which was an action against appellants on the original notes, which had never been legally paid. One other question remains to be considered, and that is, whether French, the executor of Hammon, is liable. It is not claimed that French ever received any money belonging to the minor, Applegate, but as executor of the estate of Hammon he filed an inventory, in which these notes were scheduled as assets of the estate. Subsequently he allowed a judgment to be rendered against him in favor of Lynch, guardian, for the amount of these notes. He also filed in the county court a report, in which he charged himself with the amount of these claims as money collected, and in the same report claimed a credit for the full amount thereof paid over to Lynch, guardian, and also filed Lynch’s receipt in proof of the payment. The records of the county court fail to disclose any liability resting on French, while they show he received the money. At the same time they disclose the fact that he paid it all out to a person lawfully entitled to receive the same,—so that, by the records, no case can be made against French. But it is claimed by Fogarty that he has a right to go behind the record and prove that no money was actually paid over by French to Lynch at the time the receipt was given. If this be true, and it is proper to go behind the record for that purpose, then it is proper to go behind it and prove that no money ever came into the hands of French. If it is right to set aside that portion of the county court record which shows that French paid over the money to Lynch, it is also right to set aside that part of the record which shows that he received the money. It is not French who asks to impeach the county court record, but it is Fogarty, and when he undertakes to dispute the truth of that portion of the record which defeats his right of action, the other portion is so closely connected with that portion as to render it manifestly unjust to exclude the evidence bearing upon it. But it is unnecessary to discuss the matter further. We do not think there is any liability resting on French. The judgment of the Appellate Court will be affirmed. Judgment affirmed. Mulkey and Scott, JJ., dissenting.