Hinman v. Mason ( 1927 )

Campbell, J.,

delivered the opinion of the court.

This suit was instituted to settle the affairs of a copartnership. In the year 1914, E. Bernard Hinman and Walter N. Mason entered into a copartnership under the firm name and style of Parksley Auto Company, for the purpose of buying and selling automobiles, conducting a garage, and of dealing in automobile supplies and accessories.

The copartnership was not a successful business venture. On the 3d of February, 1916, the concern was hopelessly insolvent. Its chief creditor was the Parksley National Bank, of Parksley, Virginia. To this institution it was indebted to the extent of over forty-one thousand dollars. Of this amount, the record shows that the sum of $7,662.50 was represented by forged or disputed notes; some of the other involved items of indebtedness consisted of a deposit slip in the handwriting of E. B. Hinman, charged to the account of a Mrs. S. A. White; a check drawn by W. N. Mason, attorney for Susan A. White; a deposit slip carried in the drawer as cash; two debit slips aggregating $3,306.90 and a note executed by Hinman and Mason, covering an indebtedness to the Hailwood National Bank of $2,525.78.

Both Hinman and Mason were connected with the Bank of Parksley, one as cashier and the other as assistant cashier.

All of this particular indebtedness represented either forged or disputed paper, or false entries or pretenses. There were other items of indebtedness evidenced by discounted paper.

This state of affairs in the bank came to light when Mason was removed as cashier and after an audit of the books of the bank. So flagrant had been the conduct of these two trusted employees, that they were faced with criminal proceedings in the Federal court.

On the night of the 3rd of February, 1916, a settlement or adjustment of this indebtedness was made by Emory D. Hinman, father of E. B. Hinman, and H. Thomas Mason, father of W. N. Mason. On this occasion the bank turned over to Hinman, Sr., and Mason, Sr., the forged or disputed notes and other questionable evidences of debt held by it against the firm, amounting to $19,422.50. Of the paper which had been discounted, the bank retained the sum of $7,500.00 and treated this amount as so much cash in the settlement.

While the affairs of the copartnership were in this condition, Hinman, Jr., brought suit against Mason, Jr., to wind up and settle the partnership affairs. Receivers were appointed and suits were instituted against some of the firm’s debtors.

In the meantime, an effort was made by the Federal banking authorities to indiet both Hinman, Jr., and Mason, Jr. This effort was successful as to Mason, Jr. He pleaded guilty to one count of the indictment returned against him, and paid the fine and costs assessed.

The suit to wind up the copartnership dragged along slowly, until October 9, 1924, when James C. Nelson was appointed a commissioner to take evidence and report upon the correctness of the report filed by Roy D. White, surviving receiver, to which numerous exceptions had been filed:

On the 16th of December, 1924, the commissioner filed his report, finding, among other things, that H. T. Mason was a creditor of the Parksléy Auto Company in the principal sum of $17,725.36; that E. D. Hinman was a creditor of the company in the principal sum of $13,924.36; and that this indebtedness grew out of the settlement with the bank.

The Parksley Coal and Supply Company and the Ajax Rubber Company duly excepted to that part of the commissioner’s report finding that Mason, Sr., and Hinman, Sr., were creditors of the insolvent company.

The court being of the opinion that the payments made by Mason, Sr., and Hinman, Sr., to the Parksley National Bank on February 3, 1916, were voluntary payments, without legal obligation or compulsion, sustained the exception to the report and decreed that Mason, Sr., and Hinman, Sr., were not creditors of the company.

This action of the court is the primary question for determination. The whole case hinges on whether or not Hinman, Sr., and Mason, Sr., are creditors either by assignment of the claim of the bank against the company, or by right of subrogation.

We find no difficulty in holding that they are creditors by right of subrogation. There was no legal obligation upon them to pay the debt, either as sureties or as protectors of their own interests. Subrogation depends upon the payer’s relationship to the debt. If his interest in the subject matter is imperiled in any legal sense, then he is entitled, upon the payment of the debt, to be subrogated to all the rights of the creditor.

In Clark v. Moore, 76 Va. 262, Judge Burks, Sr., said: “It is contended by the creditors of J. T. Clark that this judgment is a subsisting lien on the lands of the debtor, prior and paramount to the lien of the deed of trust, and not disturbed or affected by the deed. It does not appear that J. T. Clark was in any way liable for this judgment or the debt represented by it. If, therefore, he paid it, either voluntarily or at the request of his father, without any agreement or understanding that he was to have the benefit of the judgment, or that it was to be transferred or assigned to him, the debt was satisfied by the payment, and the lien extinguished both at law and in equity. There would be no ground for substitution in such a case. That equitable principle, in the absence of special agreement, applies only where payment is made by one who is surety for the debt or is compelled to pay it in order to protect his own interest.” See Janney’s Ex’or v. Stephen’s Admr., 2 Pat. & H. 11; Burton v. Mill, et al., 78 Va. 468; Repass v. Moore, 98 Va. 377, 36 S. E. 474; Clevinger v. Miller, 27 Gratt. (68 Va.) 740.

Let us now consider the question of assignment. There was no written assignment of the debt. There was no delivery of the entire evidences of debt. The record fails to show the employment of the word “assignment” in any way at the midnight conference held on the 3rd of February. No one testifies explicitly that the debt was assigned. The nearest approach thereto is the evidence of Hinman, Sr., that he “thought” the notes retained by the bank as collateral belonged to the company and that upon one occasion, some while after the transaction, he went to the bank and requested that they be turned over to him. It does appear that such of these notes as were collectible were charged by the commissioner to the receivers. There is not the slightest evidence that either Hinman, Sr., or Mason, Sr., ever filed any claim with the receivers of the company. In fact, no claim was made against the company until eight years after the claim of the bank was settled.

■ Mason, Sr., has never testified in the ease, though he was present when the settlement was effected, nor has he filed any claim as a creditor.

An evidential fact against the contention of assignment is the exception filed by these claimants, to the report of the surviving receiver, in regard to the collateral notes: “ * * * and your exceptors here state and' charge that said surviving receiver was negligent and culpable in failing to prosecute a suit on the Circuit Court of Accomac county, Virginia, for the purpose of obtaining possession of said notes.”

There is nothing in the record to indicate that either Hinman, Jr., or Mason, Jr., ever requested their respective, fathers to discharge their indebtedness to the bank, or that either of the fathers ever took from their sons any evidence of the debt. “Assignment is the act of the parties and depends generally upon intention.” Gatewood v. Gatewood, 75 Va. 407, There is no concrete evidence that assignment was intended.

While it is true that equity looks at the substance of a transaction and not at its mere form, and. that no particular form of words is necessary to constitute a valid assignment in equity, yet we are bound to conclude that under the facts and circumstances of this case, as exhibited by the record, the claimants were volunteers in the payment of the bank debt and the decree of the trial court is plainly right and should be affirmed.