National Surety Co. v. McCormick, 268 F. 185

268 F. 185 | 7th Cir. | 1920

ALSCHULER, Circuit Judge

(after stating the facts as above). Plaintiff in error contends that in any event McCormick has no right of recovery; that the bond describes him as “treasurer,”- and that as treasurer only can he recover, but not in his individual capacity; that the Sanitary District itself had no interest in the bond, and was not protected by it; and that its assignment to McCormick conveys him nothing.

The Sanitary District is a public corporation, and the statute of Illinois which is its source of existence and power provides that its board of trustees shall elect a treasurer, who shall hold office during the pleasure of the board, which shall prescribe his duties and fix the amount of his bond to be given to the board. Chapter 24, § 346, Hurd’s Rev. Stat. Ill. (1917 Ed.).

Rule 15 of the board, enacted pursuant to the statute and in force during all of these transactions, provides that the treasurer shall 'receive all moneys of -the district, sign its checks, negotiate all its bonds, and make payments of interest on same, and pay bonds and interest at maturity, “and he shall convert into the treasury all sums received as interest on any deposit of the funds of the Sanitary District,” fixes his salary at $2,500 per annum, and his official bond to the district at $3,000,000, and provides that—

“The selection of depositories of the funds of the Sanitary District of Chicago in the hands of the treasurer shall be entirely in the control of the treasurer, and nó action of the board shall be considered as ratifying the selection of any depository by said treasurer, or in any way waiving the strict liability of said treasurer, for the custody of, and accountability to the board, for said funds.”

This would indicate that the contention is quite sound that the Sanitary District had no interest in this bond, but looked wholly to its treasurer and his official bond for its security. Who, then, but McCormick himself, had any interest in the bond, or could have been contemplated by the parties as being protected by it? It is suggested that when he ceased to be treasurer the action might be brought or maintained by his successor in office. If the district itself has no interest in it, what possible interest in it can his successor have; and when McCormick has made good his unqualified obligation to pay over to the district, what concern is it of either the district or the successor whether or not anything is realized on this private unofficial contract of indemnity?

[ 1 ] It is urged that the rule of strict construction generally applicable to the obligation of sureties should be here applied. But this is not that ordinary contract of voluntary suretyship, as to which there has arisen a sort of tenderness toward sureties. This is a contract of insurance, entered into by the surety for the revenue which it derives from the business of suretyship, and in this relation the obligation should be treated as other insurance contracts, which are usually construed most strongly against the insurer. Liverpool, etc., Ins. Co. v. Kearney, 180 U. S. 132, 21 Sup. Ct. 326, 45 L. Ed. 460; American Surety Co. v. Pauly, 170 U. S. 133, 18 Sup. Ct. 552, 42 L. Ed. 977; Commercial, etc., Ass’n v. Fulton, 79 Fed. 423 (2 C. C. A.) 24 C. C. A. 654.

[2] The obligation of tire treasurer to his district being absolute, any security which he might take for repayment to him of deposited funds would be wholly for his own protection, and the employment in the bond of the term “treasurer,” following the name of the obligee, is descriptive only, not alone here of the person, but tending also to describe the funds for which the surety contracted liability if deposited, with the bank; i. e., funds only which came into McCormick’s hands as treasurer of the Sanitary District, and none others. We conclude on this point that defendant in error in his own name could properly maintain suit on the bond.

[3, 4] Next it is urged that McCormick had no lawful right to put out the funds of the district on time deposits, or in any way to place them beyond his power of immediate withdrawal, and that in consequence either the bond did not cover time certificates, or, if it did cover time certificates, that the bond is void, and no recovery can be had upon it.

The income of the district is largely from taxes annually assessed and collected, and may not be required to be paid out for many months after their receipt by the treasurer. The same rule 15 makes the treasurer the financial adviser of the board, and he of all persons should know at what times the available funds of the .district are required to meet maturing obligations. There is no statutory inhibition upon the treasurer’s deposit of funds with banks; indeed, in this .day it would be ridiculous to assume that he must keep the same in his physical possession, at the risk of being deemed a violator of the law if he deposits them in banks. From the statute and rule above referred to it is evident, not only that it was not to be deemed unlawful and improper for him to deposit the funds, but that the receipt of interest on deposits was contemplated and permitted, provided only that the district was to have the benefit of it. It is not unreasonable to assume that he would be expected, though not required, to obtain the highest rate of interest consistent with safety and commercial practice, and it is common knowledge that the highest interest rate on bank deposits is carried by deposits on time certificates. Knowing, as the treasurer must be presumed'to know, the financial needs of the district, he could with safety make deposits to mature at times when the funds are needed by the district, and thus secure for the district the largest interest return thereon. I! he miscalculates, and places funds beyond the reach of the district when they are required, he and his official bond would be liable to make prompt restoration, wholly regardless of whether the funds were deposited upon time or call. We are of opinion that in making deposits on time certificates the treasurer did not transgress the law. This view makes it: unnecessary to consider further the proposition that the bond is void and unenforceable if it contemplated indemnity against time deposits.

[5] But plaintiff in error insists that the wording of the bond itself excludes time deposits as a subject of the indemnity. The contention is grounded on the condition of the bond that the—

“bank shall well and faithfully perform and discharge its duties as such depository, and pay out the funds and moneys so deposited with it, and each and every part thereof, in accordance with the warrant, check, or direction of the said J. A. McCormick as such treasurer, and shall account for and pay over all the moneys received by it as such depository, then this obligation,” etc.

Counsel stress the words “warrant” and “check” as conclusively indicating that the deposits contemplated by the obligation were such only as were subject to immediate withdrawal by check or otherwise, thus excluding time deposits. But the terms and manifest intent of the bond are too broad and inclusive to warrant such limitation. The word “deposits” is in no manner limited, and commercially it includes deposits of all kinds such as are customarily made with banks, and of which the most usual examples are checking and time deposits. We find no merit in this contention.

The case of McCormick v. Hopkins, Receiver, 287 Ill. 66, 122 N. E. 151, involved practically the same situation above considered. Another surety company had given McCormick its bond of indemnity against loss which might accrue to him through deposits of the same sort of funds in this same bank, and the action was against that surety company, predicated on this same $50,000 time certificate of deposit. A reading of the opinion in that case makes it evident that the court, in substance, at least, if not in precise form, considered the propositions above discussed, and resolved them all against the contentions of the receiver of that surety company.

Two questions are here raised with which that opinion does not deal, viz.: As to liability upon the $25,000 time certificate of May 1, 1914; and as to recovery of interest.

Respecting the first of these, the claim is that, as the certificate antedates the bond, it does not fall within its indemnity, and that the court therefore erred in the inclusion of that certificate in the damages found. Finding, as we do, that the $50,000 certificate, which postdates the bond, is clearly within the indemnity of the bond, and the amount of that obligation, less dividends paid thereon by the bank’s receiver, largely in excess of the full penalty of the bond, it is needless for the purposes of this proceeding to determine whether the $25,000 certificate would sustain action on the bond. It was suggested on argument that, if the question of contribution between surety companies should arise, the proposition of liability upon the smaller certificate might be important. We do not see how anything that may be done in this proceeding would bind or affect those who are not parties to it. Such questions must be determined if and as they arise, Upon issues made between the then parties, wholly independent of what is here determined. As to plaintiff in error in this action, if there was error in including the smaller certificate in the damages as found, the error was harmless.

[6] As to the proposition of interest, it is claimed that the damages were not liquidated, and that delay in payment was not shown to be vexatious, and that therefore interest is not chargeable under the statutes of Illinois. Chapter 74, § 2, Rev. Stat. Ill., provides that interest shall be payable on moneys after they become due—

“on any bond, bill, or promissory note, or other instrument of writing; on money lent or advanced for the use of another; on money due on the settlement of account from the day of liquidating accounts between the parties and ascertaining the balance; on money received for the use of another and retained without the owner’s knowledge; and on money withheld by an unreasonable and vexatious delay of payment.”

Where the action is on a bond, it does not have to appear that there has been a liquidation or a settlement, or that the delay of payment is vexatious, in order that interest may be allowed. It is sufficient that it is a bond which was sued upon, and that the money was due. The court allowed interest at the statutory rate from date of commencement of suit, and in this there was no error. Illinois Surety Co. v. Davis, 244 U. S. 376, 37 Sup. Ct. 614, 61 L. Ed. 1206; In re Morrison (C. C. A.) 261 Fed. 355; Holmes v. Standard Oil Co., 183 Ill. 70, 55 N. E. 647.

The judgment of the District Court is affirmed, with interest and costs, together with 2 per cent, damages to defendant in error, under section 2 of rule 28 of this court (235 Fed. xii, 148 C. C. A. xii).