American Surety Co. v. Town of Islip

268 A.D. 92, 48 N.Y.S.2d 749, 1944 N.Y. App. Div. LEXIS 3116
CourtAppellate Division of the Supreme Court of the State of New York
DecidedJune 5, 1944
StatusPublished
Cited by18 cases

This text of 268 A.D. 92 (American Surety Co. v. Town of Islip) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
American Surety Co. v. Town of Islip, 268 A.D. 92, 48 N.Y.S.2d 749, 1944 N.Y. App. Div. LEXIS 3116 (N.Y. Ct. App. 1944).

Opinion

Aldrich, J.

The plaintiff, surety upon two official bonds of Warren F. Greenhalgh, a former supervisor of the defendant Town, brings this action to recover the sum of $4,180.36 received by the Town in payment of a fine imposed upon one Watkins in a criminal prosecution.

During the years 1936, 1937, 1938 and 1939, Greenhalgh was supervisor of the defendant Town. His official bonds for the highway moneys during that period were furnished by the plaintiff. Greenhalgh was unfaithful to his trust and, acting in concert with one Gertrude Watkins, he participated in the abstraction of the sum of $8,360.72 from the highway moneys by means of false and fraudulent vouchers for material which was never in fact delivered to the Town. . The record indicates that Watkins would make out a false and fraudulent bill or voucher, which voucher would then be approved by Greenhalgh and a check drawn by him to pay the amount. Plaintiff and defendant agree that Greenhalgh and Watkins were acting together. Upon discovery of their fraudulent and felonious conduct they were indicted. Watkins was charged on three indictments, but the one with which we are presently concerned is No. 3053, which was a joint indictment against Greenhalgh and Watkins and charged the crime of 1 ‘ Obtaining Proceeds of Fraudulent Audit or Payment, contrary to Penal Law, Section 1864.”

Greenhalgh stood trial and was convicted. His conviction was affirmed by this court (261 App. Div. 824) and by the Court of Appeals (286 N. Y. 595). Watkins pleaded guilty to the three indictments against her. On indictment No. 3053, out of which the fine arose, she was sentenced “ to serve not less than three years nor more than five years in Bedford Hills Prison — sentence suspended and fined four thousand one hundred eighty [94]*94dollars and thirty-six cents ($4180.36) said fine to be returned to the Town of Islip automatically.” Watkins paid her fine, which was held by the County Treasurer at first, but subsequently, upon order of the County Court of Suffolk County, the fine was paid to the defendant Town as required by Sec. 1864 of the Penal Law.” Shortly before the County Treasurer paid the amount of the Watkins fine to the defendant Town, the plaintiff paid to defendant $8,360.72, with interest, to cover in full the loss which the defendant had sustained by reason of the fraudulent acts of Greenhalgh.

Upon these.facts, the plaintiff claims the right to the amount of the Watkins fine as partial reimbursement for the amount of the loss paid by it on the bonds. The claim is that the fine was of a restitutionary nature, and that, upon payment thereof to the Town, the plaintiff was subrogated to the rights of the Town and, by operation of law, became immediately entitled to payment over to it. In this contention the plaintiff is in error.

In general, a surety or liability insurer is subrogated to the rights of the creditor against third parties whose wrongs have compelled the surety or insurance company to make payment. (4 Williston on Contracts, § 1267; U. S. F. & G. Co. v. Carnegie Trust Co., 161 App. Div. 429, at p. 433, affd. on opinion below 213 N. Y. 629.) The surety here, by its payment of the loss, became subrogated to the civil rights and remedies of the Town against Watkins. (Fidelity & Deposit Co. v. Queens Co. Trust Co., 226 N. Y. 225; National Surety Co. v. National City Bank, 184 App. Div. 771.) However, this doctrine of subrogation does not give a surety any rights which the creditor never possessed. The right of subrogation is derivative, comes solely from- the assured, and can only be enforced in his right. If the assured has no right which he can transfer to the insurer, then the insurer can have no subrogation and cannot take the place of the assured for the purpose of enforcing the liability for the loss. (Platt v. Richmond, Y. R. & C. R. R. Co., 108 N. Y. 358, at p. 364; Phoenix Ins. Co. v. Erie Transportation Co., 117 U. S. 312.) One text writer states the rule as follows (1 Brandt on Suretyship [3d ed.], § 328): There are scores of cases where the applicant for subrogation has been turned away because the proofs failed to show that the creditor or obligee had anything in the nature of rights or remedies to which the party paying could be subrogated. Subrogation was denied because there was nothing to be subrogated to. One paying the debt of another is subrogated only to those rights and remedies of which the creditor might have availed himself for the col[95]*95lection of that debt and is not subrogated to rights of the creditor that are wholly disconnected therewith.”

Here, the right of the Town to this fine is entirely independent of any civil right or remedy to which the Town was entitled. The section of the Penal Law (§ 1864) under which the indictment was found and for the violation of which the fine was imposed and paid, reads as follows:

“ A person who, being or acting'as a public officer or otherwise, by wilfully auditing, or paying, or consenting to, or conniving at the auditing or payment of a false or fraudulent claim or demand, or by any other means, wrongfully obtains, receives, converts, disposes of or pays out or aids, or abets another in obtaining, receiving, converting, disposing of, or paying out any money or property, held, owned, or in the possession of the state, or of any city, county or village, or other public corporation, or any board, department, agency, trustee, agent or officer thereof, is guilty of a felony, punishable by imprisonment for not less than three nor more than five years, or by a fine not exceeding five times the amount or value of the money or the property converted, paid out, lost or disposed of by means of the act done or abetted by such person, or by both such imprisonment and fine. The amount of any such fine when paid or collected, shall be paid to the treasury of the corporation or body injured. A conviction under this section forfeits any office held by the offender, and renders him incapable thereafter of holding any office or place of trust.
“ A transfer in whole or part of any deposit with any bank or other depositary, or of any credit, claim or demand upon such depositary, whereby the right, title or possession of the owner or holder of such deposit, or of any custodian thereof, is impaired or affected, is a conversion thereof under this section. ’ ’

That section, it will be noted, expressly provides that any fine imposed thereunder “ when paid or collected, shall be paid to the treasury of the corporation or body injured.” The indictment under which the fine was imposed expressly charged a violation of section 1864. By the statute the fine, when paid, was to be paid to the Town. The County Court had no discretion about where that fine should go.

Section 2 of the Penal Law speaks of a fine as “ punishment.” Likewise, the same section includes as punishment imprisonment, removal from office, disqualification to hold any office of trust, honor or profit under the State, or other penal discipline. Section 1864 says that the crime is “ punishable ” by imprison[96]*96ment, “ fine ” or by both. There is also the additional punishment of forfeiture of office and disqualification to hold any office or place of trust. In other words, this penal section includes four of the forms of punishment referred to in section 2.

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Bluebook (online)
268 A.D. 92, 48 N.Y.S.2d 749, 1944 N.Y. App. Div. LEXIS 3116, Counsel Stack Legal Research, https://law.counselstack.com/opinion/american-surety-co-v-town-of-islip-nyappdiv-1944.