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remedies of the creditor against all persons who were liable for the debt is both asserted by text-writers and sustained by the authority of many decided

This is especially held to be true of the sureties of a fiduciary who are compelled to answer for his breach of trust, and they have repeatedly been subrogated to the rights and remedies of both the trustee and the cestui que trust against the fiduciary and those participating in the wrongful act."

It is held in an elaborate and well-considered opinion (Railway Company v. Fire Association, 55 Ark, 163, 175, 18 S. W. 43) that an insurance company, after paying the amount of a fire loss, may be subrogated to the assured's right of action against the person or corporation who caused the fire. The court said:

"Both were responsible to the assured. The loss for which they were responsible was one and the same, and the assured was entitled to but one satisfaction. It had a right to demand and receive payment of the loss from the insurer by virtue of its contract, as it did, without seeking to recover it of the wrongdoer. As it did so, and received payment of the insurer, the wrongdoer was not thereby discharged from liability; but the insurer suc ceeded to and became entitled to the assured's rights to relief against him to the extent of the amount paid as an indemnity, he being primarily liable, and the assured holds the claim against him in trust for the insurer."

The same conflagration which was the subject of the last-mentioned case was considered by the United States Supreme Court in St. Louis, etc., Railway Co. v. Commercial Ins. Co., 139 U. S. 223, 11 Sup. Ct. 554, 35 L. Ed. 154, and Mr. Justice Gray, speaking for that court, said:

“In fire insurance, as in marine insurance, the insurer, upon paying to the assured the amount of a loss of the property insured, is doubtless subrogated in a corresponding amount to the assured's right of action against any other person responsible for the loss."

In Boone Co. Bank v. Byrum, 68 Ark. 71, 56 S. W. 532, the facts are that a collector of state taxes deposited money in a bank, which, with knowledge that the deposit consisted of taxes collected by him, appropriated a part of it to satisfy the collector's individual debt. The surety on his official bond, after paying to the state the amount of the misappropriation, was subrogated to the right of the state to the deposit against the bank.

Reason and authority, as disclosed by the foregoing citations, conduce to only one result; and that is that a surety, after paying the debt of his principal, is entitled to be subrogated to remedies which the principal had against third parties for the claim which the surety paid.

But it is argued, that, because the bank did not have actual knowledge and did not participate in the wrong perpetrated upon the county by Bourne, it is not brought within the principle of the foregoing cases, and should not be held liable to the surety. This view seems to have been adopted by the learned trial judge; but, after a full and patient consideration of the subject, we are unable to give it our sanction. The bank may not have been morally culpable; but its failure to discharge the duty of making inquiries suggested by the nonnegotiable character of the orders which it purchased, and by other circumstances attending the transaction, was an act of omission equally as effective to occasion injury to the county as many affirmative acts of commission could have been. Such inquiry at the auditor's or treasurer's office would have quickly disclosed that the payees were entitled to nothing, that they were inyths, and that misrepresentation, fraud, and forgery were being practiced upon the county. Ignorance in fact occasioned by indulging indifference to almost obvious danger and negligence of the grossest sort is entitled to little consideration by a court of conscience. The bank's negligence operated as effectually to defraud the county as any willful or intentional participation in the fraudulent scheme could have done. If the bank did not have actual knowledge of the fraud, it did have, under wellrecognized law, constructive knowledge of all the facts which reasonable inquiry would have disclosed, and therefore of the fraud itself. Such knowledge in ordinary civil actions subjects its possessor to all the consequences of knowledge in fact, and we see no reason why it should not do so in the present case. Notwithstanding the contrary contention, we think a brief reference to the authorities will support our conclusion.

In Hall & Long v. Railroad Companies, 13 Wall. 367, 370, 372, 20 L. Ed. 594, it is held that an insurer of goods destroyed by fire in course of transportation by a common carrier is entitled, after he has paid the loss, to recover what he has paid by suit against the carrier. In delivering the opinion of the court, Mr. Justice Strong makes use of the following language:

"Standing thus, as the insurer does, practically, in the position of a surety, stipulating that the goods shall not be lost or injured in consequence of the peril insured against, whenever he has indemnified the owner for the loss, he is entitled to all the means of indemnity which the satisfied owner held against the party primarily liable. His right rests upon familiar principles of equity. It is the doctrine of subrogation, dependent not at all upon privity of contract, but worked out through the right of the creditor or owner. It has been argued, however, that these decisions rest upon the doctrine that a wrongdoer is to be punished; that the defendants against whom such actions have been maintained were wrongdoers; but that, in the present case, the fire by which the insured goods were destroyed was accidental, without fault of the defendants, and therefore that they stood, in relation to the owner, at most in the position of double insurers. The argument will not bear examination. * * The law raises against him (the carrier) a conclusive presumption of misconduct, or breach of duty, in relation to every loss not caused by excepted perils.”


In The Potomac, 105 U. S. 630, 634, 26 L. Ed. 1194, considering a similar subject, the Supreme Court makes the following observation:

“The mere payment of a loss by the insurer does not, indeed, afford any defense, in whole or in part, to a person whose fault has been the cause of the loss, in a suit brought against the latter by the assured. But upon familiar principles, often recognized by this court, the insurer acquires by such payment a corresponding right in any damages to be recovered by the assured against the wrongdoer, or other party responsible for the loss.

To the same effect are Phenix Ins. Co. v. Erie & Western Transportation Co., 117 U. S. 312, 320, 6 Sup. Ct. 750, 29 L. Ed. 873; Wager v. Providence Ins, Co., 150 U. S. 99, 108, 14 Sup. Ct. 55, 37 L. Ed. 1013; Norwich Union Fire Ins. Soc. v. Standard Oil Co., 8 C. C. A. 433, 59 Fed. 984; Chicago, etc., Railroad Co. v. Pullman Car Co., 139 U. S. 79, 11 Sup. Ct. 490, 35 L. Ed. 97; Atlantic Ins. Co. v. Storrow, 5 Paige (N. Y.) 285. In the last-mentioned case it is held that where the master or shipowners are liable for a loss by theft for which underwriters are also liable, if the underwriters pay the loss to the assured, they are entitled in equity to be subrogated to his rights against the master or shipowners; and this, notwithstanding the fact that the thieves were in no way connected with the ship.

In Browne v. Fidelity & Deposit Co. of Maryland, 98 Tex. 55, 80 S. W. 593, the facts are that a guardian sold real estate belonging partly to himself and partly to his wards, and took notes payable to his own order for deferred payments, then sold and assigned the notes to a third party (Lee), and converted the proceeds to his own use. He was afterwards removed, and a new guardian appointed, who collected the amount of the defalcation from the Fidelity & Deposit Company, a surety on the defaulting guardian's bond. Thereupon the surety brought his action against Lee, the purchaser of the notes, claiming that the assignment of the notes to Lee were forbidden by statute, and therefore that he did not get good title by his purchase. The court held that, the assignment to Lee being unauthorized, the title to the notes did not pass, and he was liable to the new guardian for the value thereof, notwithstanding the fact he had paid the same to Lee. In that case there was no showing that Lee, the purchaser of the notes, was a party to the guardian's wrong, or that he had actual knowledge that the notes purchased were the property of the ward. He was affected with constructive knowledge only.

In Skiff v. Cross, 21 Iowa, 459, the facts are that the sheriff levied an execution in favor of Cross against John Mosier on a county warrant as the property of the defendant in execution and delivered the same, as permitted by Iowa statutes, to Cross, who received it in full satisfaction of the execution. Daniel Mosier claimed the warrant as his property, and sued the sheriff and sureties on his official bond for conversion of it, and recovered judgment, which the sureties paid. It was held that the sureties were entitled to be subrogated to the rights of Daniel Mosier against Cross, who got his property. Dillon, Judge, afterwards United States Circuit Judge for this circuit, delivered the opinion of the court. He said as follows:

“Now, if Cross would be liable in respect to the order if he had been pro ceeded against directly by Daniel Mosier, what good reason can be given why he should not be liable to the plaintiffs? We can discover none. Daniel had his election to go against Cross or against the sheriff and his sureties. He chose to proceed against the sheriff and his sureties, and the sureties were compelled to pay him. Is it any greater hardship on Cross to pay the amount of the order to the sureties than it would have been to have paid it directly to Daniel? Is it not equitable to treat the sureties who have paid to Daniel, as substituted by operation of law to Daniel's right as against Cross? The ground of Cross' liability is that he has received money to which he has no right or claim, and for which plaintiff's have been coinpelled to account."

The case does not disclose that defendant Cross had any actual knowledge of the ownership of the warrant in question when he took it in satisfaction of his execution. Whether he knew it or not seems from the opinion to have been quite immaterial, as the court appears to be totally indifferent to that fact.

The pur

In Edmunds v. Venable, 1 Patt. & H. (Va.) 121, a trustee or committee, holding two bonds showing on their face that they belonged to the estate of a lunatic, sold them to a third person, who thought he was engaged in an innocent and lawful transaction. chaser afterwards realized on them, and was held bound to account to the estate for what he received, notwithstanding the fact he had paid for them their full value; and it was further held that sureties of the trustee, who had been decreed to answer for his defaults, were entitled to be subrogated to the rights of the lunatic against the purchaser. The Court of Appeals held, in the language of one of the judges, that the right of subrogation existed, although the purchaser of the bonds"did not intend to commit a fraud, and did not suspect that he was engaged in a transaction not perfectly innocent, but unwarily had done that which may subject him to loss, but to no imputation upon his motives."

It appears from the foregoing that what seems to us to be the natural equities between the parties is supported by abundant authority. The case was disposed of below on demurrer to the bill, which set out the facts as already discussed. The trial court sustained the demurrer, and entered a final decree dismissing the bill. This, from what has been said, was error.

The decree is reversed, and the cause remanded to the Circuit Court, with directions to permit an answer to be filed and otherwise proceed in harmony with this opinion.

HOOK, Circuit Judge (dissenting). The case in brief is this: A deputy county auditor of Ramsey county, Minn., for whose official conduct and integrity the surety company stood sponsor, fabricated some orders on the county treasurer payable to fictitious persons. He forged the names of the payees to indorsements of the orders and disposed of them to the bank for face value. In form the orders were nonnegotiable, but it is conceded that in fact the bank acted innocently in buying them. Afterwards the county treasurer, being in funds, paid to the bank the amount of the orders and accrued interest. When the criminal conduct of the deputy auditor was discovered, the county, acting through its board of county commissioners, cast about to recover its loss. It sued the auditor and the surety company, his official bondsman, and obtained judgment which met with the approval of the Supreme Court of Minnesota. Board of Co. Com’rs v. Johnson, 89 Minn. 68, 93 N. W. 1056. The surety company paid the judgment and now seeks reimbursement from the bank. It invokes the equitable doctrine of subrogation, and claims that the county could have maintained an action against the bank for the recovery of the money paid on the spurious orders, and therefore it should be put in the place of the county. It is admitted at the threshold of this proposition that if the bank had sustained the loss, instead of the county, and could in such case have recovered from the surety company, of course, the latter cannot now recover from the bank.

Could the bank have recovered from the surety company? I said at the beginning that the surety company stood sponsor for the official conduct and integrity of the deputy. The Minnesota court so decided, and its decision to that effect lies at the root of the judgment which the county obtained and the surety company paid. A statute of Minnesota made the bond of the surety company available, not only to the county, but also to every person damaged by the official misconduct of the auditor; and in this connection we may substitute the deputy for the auditor, because the auditor and the surety company were responsible for whatever the deputy did by virtue of his office. The sole test of the liability of the surety company to the county was loss resulting from official misconduct of the deputy. Precisely the same test applies between the surety company and the bank and every other person seeking indemnity for loss caused by the deputy. Now the Supreme Court of Minnesota held in effect that the loss sustained by the county by the payment of the money to the bank in redemption of the orders was due to the official misconduct of the deputy. The recovery by the county upon the bond of the surety company could have proceeded upon no other theory. The swindling scheme of the deputy commenced with his forgery of the spurious orders, and it must be conceded that this was done under color of his office; in other words, that it was official misconduct. He was convicted and sent to prison for it. State v. Bourne, 86 Minn. 426, 90 N. W. 1105. The final act in the transaction was the payment by the county treasurer to the bank; and the Supreme Court of Minnesota in effect held in the action brought by the county that the loss of funds so caused was likewise due to the official misconduct of the deputy, and for that reason a recovery by the county upon the bond was sustained. The conclusion of my associates, therefore, exhibits this situation: The surety company, being answerable to every person injured by the official misconduct of the deputy auditor, is liable for loss caused by the forging of the orders, and also for loss caused by the payment of them by the county to the bank; but it is not liable for any intervening loss, because all intervening acts of the deputy were his personal acts, not done under color of his office. It seems to me that this is a short-circuiting that is not at all in harmony with the decision of the highest court of the state upon a matter peculiarly within its province to decide. If the county could recover from the surety company for the loss of the money it paid to the bank, and it was held that it could, I am unable to see why the bank, equally protected by the bond, would not, if the orders had remained on its hands, be entitled to recover the money it paid to the deputy auditor. That the bank might recover from the surety company seems clear, unless it is held that the decision of the Supreme

Court of Minnesota is wrong, and that no recovery by the county from the surety company should have been allowed because, after the deputy, acting under color of his office, had forged the orders, he did some personal acts in furthering his scheme of obtaining moneys from the treasury, such as indorsing and selling them, which were not covered by the bond. That is what we are brought to. Can the conduct of the deputy properly be characterized as official delinquency towards the county, and at the same time be called mere personal, unofficial conduct as to third persons, who are equally protected by the

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