Opinion
Nos. 30384 and 30400
Decided March 13, 1946.
Suretyship — Contribution or indemnity inapplicable to joint or concurrent tort-feasors — "Subrogation" defined — Subrogation inapplicable where principal debtor pays own debt — Surety of principal subrogated to creditor's rights against others than principal, when — Sureties on different bonds for different principals, not cosureties, when.
1. Where one of two or more joint or concurrent tort-feasors has been compelled to pay damages on account of their joint or concurrent wrongful act, he cannot maintain an action against his cotort-feasors for contribution or indemnity.
2. Subrogation is an equitable doctrine under which, as the result of the payment of a debt by a person other than the principal debtor, there is a substitution of the former in the place of the creditor to whose rights he succeeds in relation to the obligation of the debtor, to the end that the burden of obligation be ultimately placed upon those to whom it primarily belongs, although in the recognition of the rights of others it may have been, for a time, borne by those who are only secondarily liable for the debt.
3. Subrogation is allowed only in favor of one who has been obliged to pay the debt of another, and not in favor of one who pays a debt in the performance of his own primary obligation.
4. Where the obligation of the principal is fully satisfied by the principal's surety, the surety to the extent that he has contributed to this satisfaction is subrogated not only to the rights of the creditor against the principal, but to the rights of the creditor against persons other than the principal whose negligence or wilful conduct has made them liable to the creditor for the same default.
5. Sureties on two different bonds for different principals, where the sureties on one bond assume no responsibility for the acts or defaults of the principal on the other bond, are not cosureties. The fact that there might be a default for which both principals are accountable, or for which they might both be charged jointly, does not make the obligation common to the two sets of sureties.
APPEALS from the Court of Appeals of Mahoning county.
On or about July 16, 1930, the Common Pleas Court of Mahoning county appointed James A. Devine, then secretary of the building and loan associations of Ohio, as receiver of the Central Savings Loan Company of Youngstown. He gave a receiver's bond in the sum of $100,000 with the plaintiff, the Maryland Casualty Company, hereinafter called Maryland, as surety. The condition of the bond was that Devine, the principal, would faithfully discharge his duties as receiver of the Central Savings Loan Company and would obey the orders of the court appointing him. Devine, without order or approval of court, employed the defendant Fred J. Gough of Youngstown as his assistant in the work of the receivership. Gough gave a bond running to James A. Devine, receiver, in the sum of $10,000, with defendant American Surety Company of New York, hereinafter called American, as surety. The condition of this bond was that Gough, the principal, would pay to Devine, as receiver, such pecuniary loss, not exceeding the face of the bond, as such receiver should sustain by any act or acts of fraud, dishonesty, forgery, theft, embezzlement, wrongful abstraction or misapplication on the part of Gough directly or through connivance with others or through the failure of Gough to faithfully perform his duties.
The receivership continued under Devine, with Gough directly in charge of the office, until July 1, 1940. A shortage in the sum of $40,996 was discovered in the receivership funds. This sum was represented by personal checks of Devine which had been held in the cash drawer of the institution as cash and which were not good. Devine resigned and Henry Church was appointed by the court as receiver in his stead.
Upon the demand of Church, as receiver, Maryland paid and made good the full amount of the shortage, except about $8,000 which was paid by Devine, and then instituted an action against Gough and American for the recovery of the money so paid.
Maryland filed an amended petition in which it alleged that "Fred J. Gough, wrongfully abstracted, misapplied and appropriated to his own use large sums of money aggregating the total sum of * * * $40,996 by means of withdrawals from time to time of large sums of money from the deposit account of the receiver in said Union National Bank by means of affixing his signature to checks in the amounts of said withdrawals, presenting said checks to said bank and acknowledging receipt of the cash from said bank by endorsement of the checks so signed by him; all to the loss and damage of the said James A. Devine as receiver of the Central Savings Loan Company in the amount thus wrongfully abstracted, misapplied and misappropriated."
After an appeal from a ruling upon a demurrer to the amended petition ( 72 Ohio App. 260, 51 N.E.2d 216), American filed a separate answer denying that Gough, its principal, had appropriated any funds of the receivership to his own use, and alleging that Devine had abstracted from the receivership all the funds representing the shortage and had appropriated them to his own use. Gough, likewise, filed a separate answer denying that he had abstracted moneys from the receivership and had appropriated them to his own use, and alleging that the shortage in the funds of the receivership was due solely to defalcations of Devine.
The case then went to trial. Gough testified in his own behalf, but Devine was not called as a witness. We adopt the statement of the Court of Appeals, as to the evidence adduced, as follows:
"During all of the years from 1930 to 1940, it was Devine's custom to take money from the cash drawer, leaving his own personal check in place thereof. From the nature of the receivership transactions, it was necessary, or at least convenient, to have considerable sums of money in the office. At first, the amount of money obtained by Devine by cashing his personal check out of the cash drawer would rarely exceed the amount due him in the current accounting period, upon order of court, for expenses. For this reason, the checks were not cleared but carried upon Devine's request until the end of the period when they were taken up. About 1937, the amounts so taken by Devine became progressively larger, Devine explaining to Gough that he was investing the money in other building and loan associations throughout the state of Ohio so it would bear more interest for the receivership. It was his habit from time to time to take up some of these checks with other personal checks or cash, always, however, leaving sufficient personal checks or cash in office to make the books balance.
"The court has designated The Union Bank, of Youngstown, as depository for the receivership funds. In 1933, to facilitate the payment of dividend checks and other disbursements, the total of which aggregated a large number, Devine and his counsel, Mr. Ullman, made arrangements with The Union Bank to honor checks bearing the printed signature of Devine and countersigned by Gough. However, this arrangement did not limit Devine's right to disburse receivership funds on his own signature. In the meantime, in 1933, the Common Pleas Court made an order authorizing and directing Devine as receiver to accept, as payment on real estate which it might sell and on mortgage loans due it, passbooks of the loan company as a credit of $100 for each $125 face value thereof. This instituted a large business in passbooks and much of it came to the receiver's office in the form of requests for the purchase of passbooks by mortgage debtors who left money therefor the purchase of same.
"Gough states that Devine told him not to mingle these funds with receivership funds but to use his personal bank account to clear this business. In all, more than a million dollars of such funds went through Gough's personal account in this manner. He further testified, however, that there would of necessity be some occasions when funds left for the purchase of passbooks would have to be deposited as receivership funds in The Union Bank and then transferred to Gough's personal account by check. This would happen when a prospective purchaser of passbooks left funds for such purpose at the office in the form of checks made out to the receiver. In this way the transfer of funds from the receiver's account at The Union Bank to Gough's private account became not uncommon.
"It was the existence of this situation, Gough explained, which provided the set up for Gough to issue his personal checks to Devine out of funds transferred by Gough by check from the receiver's account at Union Bank to his private account. This was occasioned when, principally after 1937, Devine wanted more money than was in the cash drawer to reinvest in other loan companies, so he said, and did not want to carry so much cash with him, he directed Gough to procure the funds in this way. The exhibits, however, show that for one reason or another Gough transferred by means of checks to cash, endorsed by him, from the receiver's depository in The Union Bank to his own account the sum of $38,250; that he had issued his personal checks to Devine in the sum of $34,160.08, leaving a difference of $4,089.92, which he explained in part by producing checks totalling $3,465.78 to others than Devine, which he claimed were legitimate transactions. Other discrepancies were explained by him by stating that Devine got the money and he profited nothing.
"Gough's evidence is corroborated, to some extent at least, by Devine's statement, shortly after he resigned, to Mr. Church that he (Gough) knew nothing and was not implicated in his (Devine's) misapplication of funds, and also the presence in the cash drawer of Devine's worthless checks covering the entire amount of the shortage. * * * On the other hand, Gough's explanation in his deposition and cross-examination on many details are not entirely lucid."
The jury returned a verdict for Gough and American as his surety. Maryland's motion for new trial was overruled and judgment entered against Maryland for costs.
An appeal was taken by Maryland. The judgment was affirmed by the Court of Appeals as to American but reversed as to Gough with a remand to the Common Pleas Court as to him.
A motion of Maryland to certify the record was allowed by this court (No. 30384). A motion of Gough to certify the record was also allowed by this court (No. 30400).
Mr. A.M. Henderson, for Maryland Casualty Company.
Mr. Clyde W. Osborne, for Fred J. Gough.
Messrs. Garfield, Baldwin, Jamison, Hope Ulrich and Mr. Vernon R. Burt, for American Surety Company of New York.
Maryland, in its appeal (No. 30384), complains that the trial court erred in giving American's special request to charge before argument, in its charge after argument, and in failing to charge the jury before argument propositions of law requested by Maryland in writing.
Gough, in his appeal (No. 30400), asserts that the trial court correctly charged on the issues and complains that the Court of Appeals erred in reversing the judgment in his favor on the ground that the charge of the trial court was erroneous.
The amended petition alleges that Gough alone was responsible for the misapplication of the funds of the loan association. The first time this case was before the Court of Appeals on demurrer to the amended petition, that court was bound to accept the allegations of the pleading as true and judgment was rendered accordingly. However, the separate answers of Gough and American not only deny that Gough was responsible, but allege that Devine alone was responsible for the misappropriation of the funds. Under these denials evidence was admissible to show how the misappropriation actually took place, whether Devine alone was responsible, Gough alone, or Devine and Gough together. 17 Ohio Jurisprudence, 149, 150, Section 119, and cases cited.
Furthermore, Gough and American themselves injected the subject of misappropriation by joint connivance of Devine and Gough into the case by requesting the court to charge before argument, and the court did so charge, as follows:
"If you find from all the evidence that James A. Devine and Fred J. Gough, through connivance and collusion between them, wrongfully abstracted and misapplied and appropriated to their own use large sums of money aggregating the sum of $40,690 which caused and produced a loss to the receivership in this amount, then you must return a verdict in favor of the defendants, Fred J. Gough and The American Surety Company."
Under the evidence it was possible for the jury to have found any one of three factual situations: (1) That Devine alone misappropriated the funds in question to his own use; (2) that Gough alone misappropriated the funds to his own use; or (3) that Gough, by direction of Devine, wrongfully diverted the funds or that Devine and Gough, by connivance and joint wrongful acts, misappropriated the funds for the use of the one or the other or both of them. However, under the pleadings there was but one issue calling for a verdict as to whether Gough wag liable for the loss, and, if so, the additional issue as to whether American, as his surety, was liable for reimbursement.
It is obvious that there could be no recovery from Gough and American if Devine alone misappropriated the funds to his own use. It is equally obvious that if Gough alone misappropriated the funds, as suggested in the second factual situation, Maryland would be entitled to recover in this action. But the jury found for Gough and American and thereby must have found that Gough did not alone misappropriate the funds belonging to the receivership. By inference, we conclude that the jury must have found either that Devine alone was responsible for the misappropriation, or that Devine and Gough by connivance and joint wrongful acts brought about the defalcation. If the court's charge as to the third possible factual situation was in all respects correct, our inquiry is at an end and the judgment of the Court of Appeals must be reversed as to Gough.
The parts of the general charge complained of are as follows:
"Under the law applicable in this case the right of the plaintiff, as surety of Devine the receiver, to recover from Gough, the defendant, and the other defendant who was Gough's surety, is dependent on whether the facts in evidence show that any or all of the amount paid by the plaintiff, $32,035.73, arose by reason of defendant Gough having taken and appropriated the same to his own personal use, and that he had done so wholly without any direction from, knowledge of or connivance with James A. Devine, receiver. If the facts so show by the greater weight of the evidence the plaintiff has a right to recover; if the facts do not by that degree of proof so show the plaintiff does not have a right to recover. All the issues of fact submitted to you under that law can be put in the form of a question, thus: Did defendant Gough abstract, misapply and appropriate to his own use any sum of money belonging to the receivership, which sum was so abstracted, misapplied and appropriated to his own use entirely without any direction from, entirely without any knowledge of and entirely without any connivance or complicity with James A. Devine, receiver? That is your question. * * *
"If you do not find by the greater weight of the evidence that defendant Gough abstracted, misapplied and appropriated to his own use any amount of the receivership funds without the direction, knowledge or complicity of James A. Devine, receiver, your verdict would be for the defendants."
Under the charge of the court, as above outlined, there could be no recovery under the third factual situation. Gough, according to his own testimony, drew large sums of money from the depositary bank and redeposited the same to his own personal account, without court authority, solely upon the suggestion of Devine to whom he gave his personal checks covering all or at least a part of the funds so withdrawn. This unauthorized withdrawal of funds by Gough and his transfer of same to Devine constituted sufficient warrant for the jury to find that the combined wrongful acts of Devine and Gough constituted a joint misappropriation of the funds in question. The court charged that if Devine and Gough through connivance and collusion between themselves wrongfully abstracted and misapplied and appropriated to their own use the funds in question then Maryland could not recover from Gough and American. If Maryland was relegated to the rights of Devine and stood in his shoes as to Gough, the court's instruction was correct, for this court is committed to the proposition that where one of two or more joint or concurrent tort-feasors, especially where their tortious conduct was intentional and wilful, has been compelled to pay damages on account of their joint or concurrent wrongful acts, he cannot maintain an action against his cotort-feasors for contribution or indemnity. Courts will not aid any joint tort-feasor in enforcing contribution or indemnity from the other or others, because each joint tort-feasor is individually liable for the entire damage and because joint tort-feasors are in pari delicto as to each other. Pennsylvania Co. v. West Penn Rys. Co., 110 Ohio St. 516, 144 N.E.) 51; Massachusetts Bonding Ins. Co. v. DingleClark Co., 142 Ohio St. 346, 52 N.E.2d 340; Smith v. Fall River Joint Union High School Dist., 1 Cal.2d 331, 34 P.2d 994. See, also, Maryland Casualty Co. v. Frederick Co., 142 Ohio St. 605, 53 N.E.2d 795.
Furthermore, this court has held, in a series of cases, in harmony with the weight of authority, that where an indemnitor of a joint tort-feasor for the latter's own default fully pays and satisfies a judgment against his indemnitee and another or others for damages resulting from their joint or concurrent default, such indemnitor has no greater right against the cotort-feasors than his indemnitee had against them; and that, although on payment the indemnitor takes an assignment of the judgment, he may not enforce payment of the whole or any part thereof by the codefendant or codefendants of his indemnitee. Royal Indemnity Co. v. Becker, 122 Ohio St. 582, 587, 173 N.E. 194, 75 A. L. R., 1481; United States Casualty Co. v. Indemnity Ins. Co. of North America, 129 Ohio St. 391, 195 N.E. 850; Automobile Ins. Co. of Hartford, Conn., v. Pennsylvania Rd. Co., 133 Ohio St. 449, 14 N.E.2d 613. See, also, Massachusetts Bonding Ins. Co. v. DingleClark Co., supra; Smith v. Fall River Joint Union High School Dist., supra. This rule, applicable to claims for contribution, is likewise applicable to claims for indemnification. 27 American Jurisprudence, 467, Section 18.
It is to be noted that in each of the three cases first cited in the preceding paragraph the plaintiff was an indemnitor and had entered into a contract to save its indemnitee harmless, not from the negligence or wrongful act of a third person, but from the negligence or wrongful act of its own indemnitee.
Maryland, having paid the debt of Devine, is seeking reimbursement or at least contribution from Gough and his surety under the doctrine of subrogation. Subrogation is an equitable doctrine under which, as a result of the payment of a debt by a person other than the principal debtor, there is a substitution of the former in the place of the creditor to whose rights he succeeds in relation to the obligation of the debtor, to the end that the burden of obligation be ultimately placed upon those to whom it primarily belongs, although in the recognition of the rights of others it may have been, for a time, borne by those who are only secondarily liable for the debt.
But it must be observed that subrogation is allowed only in favor of one who has been obliged to pay the debt of another, and not in favor of him who pays a debt in the performance of his own primary obligation. The right of subrogation never follows a primary liability and there can be no right of subrogation in one whose duty to pay is primary, or in one claiming under him, against one who is secondarily liable or not liable at all. In such cases payment results in the extinguishment of the debt. See Joyce v. Dauntz, 55 Ohio St. 538, 45 N.E. 900.
If Devine and Gough were joint tort-feasors, as assumed under the third factual situation, and Devine personally had reimbursed the receivership for the full amount of the shortage, he would have paid his own debt. The successor receiver could not thereafter pursue Gough on the obligation for the very good reason that the debt had been paid, and for the further reason that the payment of a judgment or claim against two or more joint tort-feasors by one of them releases the other or others. Under such circumstances no right, by way of subrogation, would flow from the successor receiver to Devine who had paid his own debt and could not claim contribution from Gough, his fellow tort-feasor. And if Maryland, as Devine's indemnitor, stood in the position of agreeing to save Devine harmless, it paid its own debt in paying Devine's debt to the successor receiver, and acquired no rights of subrogation through Devine or the receiver against any one. It was evidently upon this theory and a reliance upon the doctrine of the cases above cited that the trial court gave the instruction above referred to.
However, the Court of Appeals held that the charge of the trial court on the so-called third factual situation relating to the alleged joint wrong of Devine and Gough resulting in the loss of funds belonging to the receivership was erroneous and prejudicial to Maryland and reversed the judgment in favor of Gough. That reversal was predicated on the theory that Maryland was not the indemnitor of Devine but was his surety and, having paid the amount of defalcation to the receivership, was subrogated to the rights of the successor receiver not only against Devine but against all persons liable for the loss.
Clearly Maryland was surety on the bond of Devine. Its obligation to pay to the receivership, in case of loss through Devine's default, was secondary as to Devine and not primary. It assumed responsibility for the faithful performance by Devine, as its principal, of his duties in the receivership. A surety is always entitled to exoneration from his principal in case the former has been obliged to respond for the principal. The indemnitor for the wrong of his indemnitee is not. He pays for his indemnitee and the obligation of the indemnitee is cancelled, but the indemnitor has also paid his own debt as primary obligor and has no claim for reimbursement against his indemnitee. It is the primary obligation of the indemnitor to pay the debt or obligation of the indemnitee. 42 Corpus Juris Secundum, 564, Section 2; 42 Corpus Juris Secundum, 567, Section 3.
If a surety is compelled to pay the debt of his principal, the legal consequence is that the debt is satisfied and the debtor's personal obligation to his creditor is extinguished, since payment by the surety has the same legal effect as payment by the debtor. But under such circumstances, equity employs a useful fiction in aid of the surety; it treats the latter as not having paid the obligation of the principal but as having purchased it. Hence, equity treats the debt as still subsisting until it is paid by the debtor, the principal on the bond. In other words, payment by the surety does not, in equity, extinguish any of the rights of the creditor against the debtor though it does so at law. But after payment by the surety, the creditor holds his rights, not for his own benefit, but for the benefit of the surety to whom these rights are assigned or transferred as against the debtor. The surety, having paid and fulfilled his obligation to the creditor, is entitled to exoneration from his principal, the real debtor. Zuellig v. Hemerlie, 60 Ohio St. 27, 53 N.E. 447, 71 Am. St. Rep., 707; American Surety Co. of New York v. Bethlehem National Bank, 314 U.S. 314, 86 L.Ed., 241, 62 S, Ct., 226, 138 A.L.R., 509; Haverstick v. Sheirich, 304 Pa. 437, 155 A. 859, 76 A. L. R., 912.
If Maryland, as surety, had not made good the shortage, without question the successor receiver, under the third factual situation, could have sued Devine and Gough as joint tort-feasors separately and could have secured separate judgments against each for the full amount of defalcation and could have enforced such judgments until his claim was satisfied by either one or both of such judgment debtors. Larson v. Cleveland Ry. Co., 142 Ohio St. 20, 50 N.E.2d 163. Maryland claims that by its payment it was subrogated to the rights of the receivership, stands in the shoes of the successor receiver, and is entitled to pursue Devine or Gough or both on the theory that they are primarily liable and that it is entitled to be exonerated or reimbursed for what it was obliged to pay under its liability. Zuellig v. Hemerlie, supra; Poe v. Dixon, 60 Ohio St. 124, 54 N.E. 86, 71 Am. St. Rep., 713; 50 American Jurisprudence, 754, Section 111; Restatement of Security, 389, Section 141, comment h.
This court recognizes the validity of this claim. Where the obligation of the principal is fully satisfied by the principal's surety, the surety to the extent that he has contributed to this satisfaction, is subrogated not only to the rights of the creditor against the principal, but to the rights of the creditor against persons other than the principal whose negligence or wilful conduct has made them liable to the creditor for the same default. In so holding, it must be apparent that the doctrines announced in the Becker, Indemnity Insurance Company of North America and Pennsylvania Railroad cases, the three indemnity cases above cited, wherein the indemnitor indemnified its indemnitee against the latter's default, are not applicable to the situation in this case and such cases must be distinguished from it. The charge of the court on this feature of the case was therefore erroneous and prejudicial.
The position here taken is amply supported by judicial authority. In the case of American Bonding Co. v. National Mechanics Bank of Baltimore, 97 Md. 598, the state of Maryland recovered a judgment against the American Bonding Company of Baltimore as the surety on the official bond of one Vansant as clerk of courts. The breach for which the suit was brought was the failure by Vansant to account for and pay over to the state certain money which had been paid to him collusively by the defendant bank as interest on funds received by him in his official capacity and kept on deposit with such bank. The plaintiff surety company in that case, having paid the state of Maryland the judgment against it and having failed to secure reimbursement from its principal Vansant, brought an action to recover from the defendant bank, a joint tort-feasor with Vansant. The supreme court of Maryland reversed a decree of the lower court in favor of the bank and entered a decree in favor of the appellant surety company, holding that a surety who has paid the debt of his principal is entitled to be subrogated to all the rights of the creditor, not only against the principal but also against another who joined in the tortious acts of the principal in creating the debt which the surety was compelled to pay.
For similar holdings see United States Fidelity Guaranty Co. v. Citizens State Bank of Langdon, 36 N.D. 16, 161 N.W. 562; Kolb v. National Surety Co., 176 N.Y. 233, 68 N.E. 247; United States Fidelity Guaranty Co. v. Union Bank Trust Co., 228 F., 448; United States Fidelity Guaranty Co. v. Citizens' National Bank, 13 F.2d 213; Martineau, Judge, v. Mehlberg, 221 Wis. 347, 267 N.W. 9. See, also, Dantzler Lumber Export Co. v. Columbia Casualty Co., 115 Fla. 541, 156 So. 116, 95 A. L. R., 258; City of Keokuk v. Love, 31 Iowa 119; Blake et al., Exrs., v. Traders' National Bank, 145 Mass. 13, 12 N.E. 414; Indemnity Ins. Co. of North America v. Sampson, 40 Cal.App.2d 119, 104 P.2d 374, and cases cited.
There being no right in Maryland to recover against Gough and American, as his surety, on the theory of indemnity or contribution as such but only reimbursement from Gough on the theory of subrogation to the rights of the receivership in case its loss shall be found to be due to the joint default of Devine and Gough, the question arises, may Maryland recover from American on the theory that American was its cosurety?
Where several sureties stand in the relation to each other of cosureties, by being bound for the same person for the same debt or obligation, so that they have a common interest or a common burden to bear, if one of them is compelled to bear the whole of the burden alone, he may call upon his cosureties to equalize the burden. Hartwell v. Smith, 15 Ohio St. 200, 203; Camp v. Bostwick, 20 Ohio St. 337, 346, 5 Am. Rep., 669; 50 American Jurisprudence, 905, Section 4, and 1083, Section 271.
But, sureties on two different bonds for different principals, where the sureties on one bond assume no responsibility for the acts or defaults of the principal on the other bond, are not cosureties. The fact that there might be a default for which both principals are guilty, or for which they might both be charged jointly, does not make the obligation common to the two sets of sureties." 50 American Jurisprudence, 906, Section 4, citing Southern Surety Co. v. Tessum, 178 Minn. 495, 508, 228 N.W. 326, 331, 66 A. L. R., 1136, 1146. See United States Fidelity Guaranty Co. v. Commercial Casualty Ins. Co., 222 Wis. 151, 268 N.W. 111.
Maryland, to recover against American, must base its claim upon having equities superior to those of American, and not upon being subrogated to the right of the successor receiver against American. Such superior equities do not exist. In this case, each bond was the separate obligation of the principal who signed it together with his surety, and neither is the joint bond of the two principals. American agreed to reimburse the receivership for loss occasioned by the default of Gough, but not for the default of Devine. Neither bond was intended to be the joint obligation of Devine and Gough.
It is true that if Gough was jointly or severally liable with Devine because of Goughs negligent inattention to his duties owing to the receivership and not by wrongful participation and connivance with Devine in the conversion of the funds in question, and American, Gough's surety, had been obliged to respond and make good the loss, it might have a right to recover against Maryland. Southern Surety Co. v. Tessum, supra; Restatement of Security, 413, Section 147 (3), comment c, page 416, and illustrations. A reverse factual situation, namely that Devine was not an actual wrongdoer, is not supported by the pleadings or the evidence and therefore Maryland may not, under such circumstances, maintain its action against American.
This court does not decide whether Gough, in any manner; participated with Devine in bringing about the loss suffered by the loan association. Maryland is entitled to an answer to that question at the hands of a jury under proper instructions. Not having been so answered, we are remanding the case to the trial court in order that it may be submitted to a jury under appropriate instructions.
For reasons here stated, the judgment of the Court of Appeals as to American must also he afirmed.
Judgment affirmed.
WEYGANDT, C.J., ZIMMERMAN, TURNER and MATTHIAS, JJ., concur.
WILLIAMS, J., concurs in paragraphs 1, 2, 3 and 4 of the syllabus, but dissents from the judgment as to American Surety Company.
BELL, J., dissents.
Concurs in the judgment as to Gough and in paragraphs 1, 2, 3 and 4 of the syllabus but dissents from the judgment as to American upon the following grounds: The obligations of the Maryland and American surety companies arise out of contract and not out of tortious conduct. Therefore, when Maryland seeks recovery from Gough and American for indebtedness for which Gough may be found liable by reason of having unlawfully participated with Devine in the commission of the same wrong, American should not be permitted to hide behind the principle that there can be no contribution between joint tort-feasors. See United States Casualty Co. v. Indemnity Ins. Co. of North America, supra, at page 397 et seq.
In my opinion the judgment entered by the Court of Appeals is erroneous insofar as it reverses the judgment of the Court of Common Pleas.
The amended petition filed by Maryland Casualty Company, hereinafter called Maryland (appellant here in cause No. 30384), against Gough and American Surety Company, hereinafter called American, was bottomed upon the claim that Maryland as surety for Devine, receiver, upon demand of the successor receiver, paid the sum of $40,996, by reason of the fact that during the course of the receivership one Gough, an agent appointed by the Court of Common Pleas, wrongfully abstracted and misapplied that sum to his own use.
It was alleged that Devine repaid to Maryland the sum of $8,960.27, and that there was due from Gough the sum of $32,035.73, and from American the sum of $10,000, as surety upon a bond executed by Gough to Devine as receiver, for which amounts Maryland prayed judgment.
Based upon the allegations of the amended petition that Maryland agreed to answer for any default of vine only; that American agreed to answer for any default of Gough; and that Gough embezzled the money; payment by Maryland for the alleged default of Gough for whom it was not surety raises a serious question as to whether Maryland was not a mere volunteer in paying the money.
Gough and American filed separate answers. Each answer contained a denial that Gough had appropriated to his own use the $40,996, or any other sum, and averred that Devine, the receiver, Maryland's principal, had appropriated that sum to his own use.
The situation presented by the pleadings at the time of trial was akin to the situation which arises where a plaintiff alleges injury by reason of defendant's negligence, and defendant answers denying negligence upon his part and alleging that the injury was caused by the sole negligence of plaintiff or a third person. It has been held repeatedly that in such a case there is only one issue made by the pleadings.
The latest pronouncement of this court upon this proposition is found in the case of Taylor v. Cincinnati, 143 Ohio St. 426, 55 N.E.2d 724.
It is there said at page 430:
"A claim on the part of a defendant that plaintiff's injuries were proximately caused by the negligent acts of a person other than the defendant is but another form of a general denial. It does not create a separate issue and does not furnish any basis for the application of the two-issue rule."
Paraphrasing that language a claim an the part of Gough and American (defendants) that plaintiff's (Maryland"s) injury was caused by the acts of a person other than Gough (defendant) is hut another form of a general denial. Therefore there was only one issue made by the pleadings. The majority opinion says that another issue was raised by the evidence, to wit, whether Gough and Devine by their joint wrongdoing embezzled the money.
The issue, made by the allegations of the Amended petition that Gough embezzled this money and the denial of that fact contained in the answers, was properly submitted to the jury, and, when the jury returned a general verdict finding for Gough and American, that made an end of Maryland's case. If not, assuming there were two issues, there being no question that the above issue was correctly submitted to the jury, what has become of the two-issue rule in Ohio?
The majority of the court has concluded that if Gough and Devine by their joint acts embezzled this money then Maryland is entitled to recover against Gough hut not against American, his surety. This creates in Ohio the anomalous situation that in some instances a fiduciary can be held liable for breach of trust, but the surety an such fiduciary"s bond, given to secure the faithful performance of that trust, can escape liability.
The majority opinion says that the jury could have found that Gough and Devine jointly embezzled this money, and it is then said that the special charge offered by Gough and American and the general charge of the court upon that issue were prejudicially erroneous because the court, in substance, charged the jury that if it found that Gough and Devine jointly embezzled the money Maryland was not entitled to recover. In other words, the jury was charged that if Gough and Devine by their joint wrongdoing embezzled this money they were joint tort-feasors and Maryland having paid for the wrongdoing of one joint tort-feasor could not recover from another joint tort-feasor.
The case of Royal Indemnity Co., v. Becker, 122 Ohio St. 582, 173 N.E. 194, 75 A. L. R., 1481, presented this factual situation:
John C. Webber recovered a judgment for injuries sustained by the joint and concurrent negligence of David Gordon, John A. Becker and F. William Becker. Royal Indemnity Company was indemnitor for Gordon and was also surety on a supersedeas bond given by Gordon to stay the execution of such judgment. After the judgment became final, Royal Indemnity Company paid the full amount thereof to Webber, whereupon he executed an assignment of the judgment to it. Royal brought an action to sell real estate owned by the Beckers to satisfy its claim.
It was there held:
"2. Where an indemnitor of a joint tort-feasor fully pays and satisfies a judgment obtained against its indemnitee and another, for damages resulting from their concurrent negligence, such indemnitor has no greater right than the indemnitee, and though upon' payment it obtains an assignment of the judgment, may not enforce payment of the whole or any part thereof by the co-defendant of the indemnitee."
At pages 587 and 588 of the opinion, it was said:
"It must be concluded that Gordon would have had no right whatever to enforce contribution by his joint tort-feasors, the Beckers. In our opinion the right of the indemnity company was no greater than that of its tort-feasor indemnitee, and that the attempt to accomplish by indirection what Gordon could not have done directly must fail. The judgment was paid in full, and it is immaterial whether it was paid by Gordon or by his indemnitor, the Royal Indemnity Company. Whether it was paid by reason of its obligation as indemnitor, or as surety upon the supersedeas bond, such payment operates as a complete satisfaction, just as it would have done if payment had been made by Gordon. Where the right of subrogation exists an assignment is unnecessary, for that is supplied by equity; but here there was no right of subrogation and no additional right accrued by reason of the assignment of the judgment."
That case has been followed and approved in several cases.
The most that can be said in the instant case is that Devine and Gough were joint tort-feasors and the surety for one joint tort-feasor (Devine) paid the amount of the shortage and now is attempting to collect from the other joint tort-feasor.
I am unable to distinguish the Becker case in principle from the instant case.
The majority concludes that Maryland may recover against Gough upon the doctrine of subrogation. That doctrine, frequently referred to as the doctrine of substitution, is a fiction of the law applied by courts of equity in order to do justice; however, it should never be applied where its application will work an injustice. See Black v. Chicago Great Western Rd. Co., 187 Iowa 904, 174 N.W. 774; William Burford Co. v. Glasgow Water Co., 223 Ky. 54, 2 S.W.2d 1027; Fraser v. Fleming, 190 Mich. 238, 157 N.W. 269.
The evidence, in my view, makes inescapable the following, conclusions:
The relationship between Devine (the receiver) and Gough was that of principal and agent or master and servant. Devine was the principal or master and Gough the agent or servant. Every act of Gough was done at the express direction of Devine who embezzled the sum of $40,996 before discovery. His checks for that exact amount were found in the cash drawer. Not one syllable of evidence was adduced that Gough ever got one penny of this money. Over one million dollars (which was not strictly receivership funds), upon the direct order of Devine, passed through Gough's personal bank account and every penny was accounted for except the amounts turned over to Devine, who in his statement to Church (the successor receiver) completely exonerated Gough from any wrongdoing or any knowledge of his (Devine's) wrongdoing. Gough was the man who finally made known the situation which led to the discovery of the embezzlement and at the time of trial was still in the employ of Church, the successor receiver, in the same capacity as he had served under Devine. Upon such a state of facts the doctrine of subrogation should not be applied to aid Devine or his surety.
Let us for one moment compare the equities between Gough and Maryland.
Gough was the agent or servant of Devine. Devine gave the orders, Gough obeyed them. The money which Devine ordered Gough to place in his personal account was money left with the receiver to purchase pass books from the owners thereof and therefore was not receivership funds. When Gough was ordered by Devine to turn over all or any part of that money to him Gough could do nothing but obey. Gough had no authority to question the actions of Devine and the record discloses that Devine told Gough that the money was being 'invested by Devine in other building associations. Maryland, on the other hand, as surety for Devine, had the right to exercise joint control, to countersign all checks, to examine the books at any time. Since Gough did as he was instructed, but Maryland failed to do what it had a perfect right to do, it would seem that Maryland should not be entitled to recover from Gough upon the basis of superior equities.
The majority holding leads to the following result:
Devine embezzles the sum of $40,996. Maryland, his surety, pays that amount to the successor receiver, Church, thereby making the creditors whole. Devine, the embezzler, pays to his surety (Maryland) approximately $9,000, leaving him in possession of $32,000 of the embezzled funds. Maryland recovers the $32,000 from Gough making it whole and Gough who did not embezzle or receive a penny of the embezzled money pays the bill.
In my view the application of the doctrine of subrogation in this case works an injustice only and therefore should not be applied.