
    The Second National Bank of Cincinnati v. American Bonding Company of Baltimore et al.
    
      Statute of limitations — Six years — Implied promise — Unauthorised sale of bonds by trustee — Succeeding trustee sues bank purchasing bonds — Surety of original trustee reimburses trust estate — Subrogation and substitution of surety as plaintiffs Sections 11222, 11241 and 11261, General .Code.
    
    (No. 14907
    Decided January 25, 1916.)
    Error to the Court of Appeals of Hamilton county.
    This proceeding was brought in the superior court of Cincinnati ■ March 29, 1901, by John C. Healy, trustee for James Robinson, against The Second National Bank of Cincinnati.
    An amended petition was filed March 24, 1902, in which' it was alleged, that a trust fund was created by the will of John Robinson for his grandchild James; that the original trustees having resigned, one Charles A. Santmeyer was appointed by the probate court of the county as their successor and received from them, on the order of the court, the sum of $15,000, belonging to said trust, on or about the 13th of April, 1890; that on or about July 1, 1890, said Santmeyer, under the direction of the court, invested $14,550 of said fund in $12,000, face value, four per cent, bonds of the United States, which were duly registered on the books and in the office of the treasurer of the United States in the name of Charles A. Santmeyer, trustee; that about the 2d of October, 1899, without warrant or authority of law, without any order or authority of said probate court, in violation of his duty as such trustee and without the knowledge of the court, Santmeyer sold and delivered $2,000, face value, of said registered bonds to the defendant, The Second National Bank of Cincinnati; that the bank had due notice that Santmeyer held said bonds as trustee; that when he sold said bonds to the defendant he intended to commit a breach of trust; that with such knowledge the bank at the time placed the proceeds to the individual credit of Santmeyer on its books and thereafter allowed him to draw out the same for his individual purposes; that on February 5, 1901, Santmeyer was removed by order of the court and plaintiff appointed in his stead; that the court ordered said Santmeyer, trustee, to transfer to the plaintiff all the property and assets in his hands belonging to said trust, including the $2,000, face value, of the registered bonds aforesaid, and that said Santmeyer has failed to perform the order of the court or deliver to the plaintiff the bonds or any part thereof.
    Plaintiff further alleges that in October, 1899, the defendant sold the $2,000 of bonds for an amount which he has been unable to ascertain, but on information and belief alleges that it was not less than $2,340, which was the market- value thereof, and prays judgment for the value thereof.
    By its answer, filed on May 3, 1904, the defendant admits the creation of the trust by the will of John Robinson and the appointment of Santmeyer as successor to the original trustees; alleges that it has no knowledge of the investment of the trust funds in the United States bonds referred to; denies that Santmeyer filed any accounts in the probate court showing that he had invested the sum of $14,550 in registered bonds of the United States; denies that he held such bonds as trustee until October, 1899, and denies that he sold and delivered $2,000 of said bonds to the defendant.
    It further denied that it had any notice that Santmeyer held the bonds as trustee; denied acknowledge of any attempt on the part of Santmeyer to commit a breach of trust, and denied that with such knowledge it placed the proceeds of the sale of any bonds held by Santmeyer as trustee to his credit on its books, or permitted him to draw out moneys held as trustee for his individual purposes. It denies that Santmeyer, as trustee, sold to the defendant said $2,000 of United States bonds, or that he failed to deliver to the plaintiff the $2,000 registered bonds, or any part thereof. It further denies that it has sold or transferred any bonds bought by it from Santmeyer, as trustee, to any person, and denies that it ever purchased any bonds of any kind from said Santmeyer, as such trustee, or that it had any knowledge of any sale of bonds by said Santmeyer as trustee.
    For a second defense the defendant alleged that the plaintiff had no interest whatever, as trustee or otherwise, in the above cause of action, and no right to bring the action.
    It further alleges that the plaintiff, or the cestui que trust, had suffered no loss by reason of the alleged acts of Santmeyer, and that The American Bonding & Trust Company, as bondsmen of said Santmeyer, has fully repaid and recompensed said trust estate for any and all loss suffered by reason of the alleged acts of said Santmeyer.
    No further pleading was filed in the case until February, 1908, when a reply was filed, in which the defendant denied each and every allegation of new matter contained in the answer.
    On October 19, 1908, The American Bonding & Trust Company filed its application to be substituted as the plaintiff on the ground that on August 6, 1901, it had paid to the plaintiff trustee the sum of $15,860.83, being the full amount then due to the said plaintiff as such trustee, said Santmeyer, for whom it became security, having absconded and having failed to pay the plaintiff the fund or investments thereof in his hands, or any part thereof, and that on the payment by this company-to the plaintiff, the plaintiff, in accordance with the terms of the agreement between him and this company, delivered to it a receipt for the sum named, which provided that The American Bonding & Trust Company “is hereby subrogated, by reason of said payment and settlement, to all the rights and claims which the .undersigned, as said trustee, may have against any person whomsoever, growing out of the misappropriation by the said Charles A. Santmeyer of the proceeds of certain bonds, explained in full in entry of the probate court in said proceeding on February 5th, 1901.”.
    On February 13, 1909, the motion of the bonding and trust company was sustained, and it was ordered to be substituted as plaintiff in the place of Healy, trustee.
    On February 23, 1909, the defendant bank filed an amended answer, in the second defense of which it is alleged that the original plaintiff, Healy,. trustee, had no interest whatever, as trustee or otherwise, in the cause of action from the 6th day of August, 1901, and had no right or authority to maintain the action since that date, and that neither the plaintiff nor his beneficiary suffered any loss by reason of the acts of Santmeyer; that the bonding company had fully repaid and recompensed said trust estate for all loss-suffered by the acts of Santmeyer, said payment having been made on the 6th of August, 1901; that the substituted plaintiff had full knowledge of the commencement of the action and the pendency thereof at the time it made said payment to the original plaintiff; that said plaintiff was at the time acting as the attorney of said bonding company, with full knowledge of all the facts herein alleged, and that said bonding company took no steps of any kind and made no application in this cause to be substituted as a party plaintiff until the 19th of October, 1908, and that by reason thereof the cause of action was barred by the statute of limitations at the time of the filing of its application to be made a plaintiff.
    As a third defense the defendant averred that the original plaintiff had no interest in the cause of action subsequent to August 6, 1901; that on April 30, 1902, Healy, trustee, had paid over to his beneficiary, James Robinson, all moneys due the latter and had received an acquittance from him, that said trustee’s duties had thereby become fully completed and ended and that by reason thereof this cause of action had abated on August 6, 1901, and the plaintiff’s duties and powers as trustee ceased on April 30, 1902; that the bonding com-, pany, with knowledge of these facts, had taken no steps to revive said cause of action prior to October 19, 1908.
    As a fourth defense defendant alleged that the bonding company was guilty of laches, and therefore should not be permitted to maintain its claim against the defendant.
    The bonding company, on May 3, 1909, filed its reply to the defendant’s amended answer, in which ' ’ it set up the execution of the bond and the payment. of the amount to the original plaintiff, trustee, on August 6, 1901, but that on said date, in consideration of said payment and by written agreement, there was assigned to the bonding company by Healy, trustee, said claim, and it had become subrogated to all the rights and claims which the trustee had or might have against the defendant herein.
    On the trial in the superior court judgment was entered upon the issues in favor of the defendant. In a proceeding in error in the court of appeals this judgment was reversed and final judgment entered in favor of the bonding company for the sum of $2,208 with interest. This proceeding is brought to reverse the judgment of the court of appeals.
    
      Messrs. Jelke, Clark & Forchheimer, for plain-, tiff in error.
    
      
      Messrs. Healy, Ferris & McAvoy, for defendants in error.
   By the Court.

In our view the decisive question in the case is whether the action by the bonding company was barred by the statute of limitations.

It will be observed from the statement that the suit was commenced by Healy, trustee, March 29, 1901. The undisputed facts show that the bonding company on August 6, 1901, paid to Healy, trustee, the full amount due to the trust estate; that on April 30, 1902, he paid over to his beneficiary all money due him and filed his voucher for it in the probate court. The powers and duties of the trustee thereby became fully completed and ended.

The amended petition was filed March 24, 1902, and included no reference to the bonding company or any payment by it. The answer of defendant was filed May 3, 1904, in the second defense of which it is averred that the bonding company, as surety of Santmeyer, had fully repaid and recompensed the trust estate for all loss on account of Santmeyer, that therefore no loss had been suffered by the trust and that plaintiff had no interest, as trustee or otherwise, in the alleged cause of action. The reply to this answer was a general denial.

Then, on October 19, 1908, the bonding company made its first appearance in the case by its application to be substituted as the plaintiff, in which application a copy of the receipt of Healy, trustee, delivered to it August 6, 1901, is set out, and in which it is stated that said bonding company “is hereby subrogated” by reason of said payment and settlement to all rights which the trustee may have against any person whomsoever on account of the wrongful acts of Santmeyer.

This application was sustained and the defendant bank thereafter filed its amended answer, in which it avers that at the time of the filing of the application by the bonding company its cause of action was barred by the statute of limitations.

Section 11241, General Code, requires that an action must be prosecuted in the name of the real party in interest, except as provided in the next three succeeding sections, which do not apply here.

Defendant in error contends that Section 11261, General Code, authorizes the action taken in this case. The pertinent portion of this section is as follows: “Upon the disability of a party, the court may allow the action to continue by or against his representative, or successor in interest. On any other transfer of interest, the action may be continued in the name of the original party, or the court may allow the person to whom the transfer is made to be substituted for him.”

It is insisted that these provisions warranted the substitution of the bonding company at the time it was done and that the statute of limitations did not bar its right of action.

The sections referred to should, of course, be construed together and effect given to both, if this can be done.

When the suit was brought Healy, trustee, was the real party in interest. But the trust fund was fully paid to the beneficiary on April 30, 1902, and the estate finally settled and terminated. So that after April 30, 1902, the original plaintiff trustee could not “prosecute” or “continue” the suit because there was no such trustee. Legally the plaintiff trustee was dead. This was the situation on the record from April 30, 1902, till October 19, 1908, more than six years. And, moreover, it must be noted that the reply in the case denied the allegation in the answer of the bank that the trust estate had been fully recompensed and paid all loss it had sustained.

On the issue thus made, and as it stood October 19, 1908, a trial would necessarily have resulted in favor of defendant bank after the disclosure of the exact situation.

Surely the bonding company would not contend that during this term it was prosecuting or would have prosecuted the cause in the name of the original plaintiff when the record disclosed that the same plaintiff was denying in effect that it had any right or interest in the case.

In Insurance Co. v. Carnahan, 63 Ohio St., 258, suits were brought by a partnership to recover on policies of insurance the amount of loss by fire. The suit was brought in the partnership name and it was held that “If in such case one of the partners dies, the plaintiff firm is under a disability within the meaning of Revised Statutes, Section 5012, and the action is in abeyance and cannot proceed without revivor by substitution of the representative or successor in interest, in place of the partnership.”

So in this case, the legal existence of the trustee having completely terminated, there was a disability of the original plaintiff.

In Insurance Co. v. Carnahan, supra, there was no substitution, and this was held to be fatal because “the actions were not begun or 'prosecuted’ in the name of the real party in interest.”

In this case there was a substitution, more than six years after the disability of the original plaintiff and more than six years after the cause of action of the bonding company accrued. Did the substitution at that time prevent the application of the statute of limitations ?

It is well settled that where a substitution by amendment makes no change in the cause of action the amendment relates back to the commencement of the suit and stops the running of the statute of limitations at that point. If the substituted plaintiff introduces a new cause of action the defense of the statute is available.

In this case the legal liability of the bank to the original plaintiff trustee arose from the averments in the amended petition that it had purchased the trust property with knowledge of the facts. It was liable because of its fraud in assisting in the breach of the trust relationship between the trustee, Santmeyer, and his beneficiary. It took the bonds impressed with the trust and as a constructive co-trustee was liable for the wrongful act of conversion.

Now, the. bonding company’s claim arose substantially on the proposition that as the bank was a constructive cotrustee for the beneficiary, it should have paid the value of the bonds into the trust estate; and as the bonding company paid the money which the bank should have paid, an implied promise arose in law that it would indemnify the company. The cause of action of the bonding company was a new and different one -from that of the original trustee. The receipt executed by Healy, trustee, is not and does not purport to be an assignment of the claim. The bonding company simply paid what it was obligated by its bond to pay.

In Poe v. Dixon, 60 Ohio St., 124, the court declare : “The authorities are quite numerous in holding that a-surety who has paid a debt for his principal may maintain an action on the implied promise of indemnity. The security having paid a debt which the principal ought to have paid, the law raises (or implies) a promise on the part of the principal to reimburse the surety, and the latter may maintain an action on the implied promise as for money paid for the use of the principal.”

It was further said in that case that “The rule that the period of limitation fixed for beginning an action of this kind is the same that applies generally to other actions upon implied and unwritten contracts, is also generally recognized. * * * This rule prevails in this state, and the period as fixed by statute above cited is six years.”

Many authorities are cited by the court in support of these propositions.

We think the plea of the statute of limitations set up in the answer of the bank should have been sustained.

For these reasons the judgment of the court below will be reversed and the cause remanded with instructions to enter judgment in favor of the plaintiff in error.

Judgment reversed.

Johnson, Newman, Jones and Matthias, JJ., concur.

Nichols, C. J., and Donahue, J., not participating.  