93 F.2d 482 | 2d Cir. | 1937
Lead Opinion
This is an action by the Town of Ham-den to recover the penalty of an official bond for $65,000 executed by Carle Van de Bogart, treasurer of the town, as principal, and by the defendant as surety. The bond was conditioned upon the treasurer’s faithful performance of all the duties of his office for a term beginning October 5, -1931. The action was brought in a state court and was removed to the District Court on the ground of diverse citizenship. By stipulation a jury was waived. The case was tried to Judge Hincks, who made general findings in favor of the plaintiff on the first, second, and fourth counts of the complaint. No issues were framed upon the third count, a demurrer thereto having been sustained. From the resulting judgment the defendant has appealed.
On October 5, 1931, Van de Bogart was re-elected treasurer of the Town of Ham-den for his fourth successive two-year term. To qualify for this term of office he gave the bond in suit, upon which the defendant was surety. At the close of business on December 16, 1931, he had funds of the town aggregating some $324,000 on deposit in various accounts in the Ham-den Bank & Trust Company, of which he was then, and had long been, an officer and director. On December 17, 1931, the bank was closed by order of the state bank commissioner, and thereafter a receiver was appointed by the state court. Van de Bogart resigned as town treasurer on December 29, 1931, and subsequently was adjudicated a bankrupt. The present action was begun in January, 1933, to recover from the surety on the town treasurer’s bond for losses sustained by the town through the closing of the bank, which has never reopened. The first count charged Van de Bogart with failing to account for and pay over to his successor $324,-728.18 of the money received by him as treasurer. The second count charged that the money which he had on deposit with the bank at the time of its closing exceeded 30 per cent, of its combined capital, surplus and undivided profits, in violation of section 512, Conn.Gen.Stats. 1930 Revision, which imposes such a limitation upon bank deposits by public officers. The fourth count charged Van de Bogart with making a'deposit of $50,527.40 of town funds shortly before the bank’s closing and solely for the purpose of improving its unsound financial condition. The defendant’s answer to the complaint set up separate and special defenses to each of the counts. The answer was attacked by a motion to expunge portions thereof and by demurrer. This appeal raises only the correctness of the District Court’s rulings on such motion and demurrer.
The first subject to be considered, since it attacks the validity of the bond, is the third defense, to which a demurrer was sustained. This defense alleged that during his prior term of office as town treasurer Van de Bogart had maintained in the bank deposits greatly in excess of the legal limit; that this fact was known to the selectmen throughout 1931 and was disclosed in the annual report filed by the treasurer in October, 1930, and accepted at a town meeting on November 24, 1930; that a majority of the board of selectmen were directors of the bank and knew that its resources were insufficient on October 5, 1931, to permit withdrawal of the town’s funds, or the excessive portion thereof, then on deposit in the bank; that the amount of the bond required of the treasurer was increased from $20,000 to $65,000; and that the defendant executed and delivered said bond as surety without knowledge, of the foregoing facts. In brief, the contention of the defendant is that the failure of the selectmen to disclose these facts when they accepted the treasurer’s bond amounted to a fraudulent concealment of facts material to the surety’s risk and rendered the bond voidable from its inception.
“There is nothing in the answer to show that the sureties signed the bond at the request of the directors, or in the presence of the directors, or that the sureties applied to the directors for any information concerning the character or conduct of Mattoon. In short, there is nothing to show that the directors knew anything about the bond or the sureties thereon until it was presented to them for acceptance. It does not appear that the directors had any opportunity to disclose until after the bond was executed and delivered to the bank.”
In Magee v. Manhattan Life Ins. Co., 92 U.S. 93, 99, 23 L.Ed. 699, it was held that the creditor was under no duty to search for the surety and warn him of the danger of the step he was about to take. Because of the public interest involved and the limited authority of an official board whose duty is merely to accept the bond, this rule is particularly applicable to the bonds of public officers. See Town of Winthrop v. Soule, 175 Mass. 400, 56 N.E. 575; Hogue v. State, 28 Ind.App. 285, 62 N.E. 656; Frownfelter, Myers et al. v. State, 66 Md. 80, 5 A. 410; Cawley v. People, 95 Ill. 249; U. S. Fidelity & Guaranty Co. v. Commonwealth, Ky., 104 S.W. 1029, 31 Ky.Law Rep. 1179; County of Pine v. Willard, 39 Minn. 125, 39 N.W. 71, 1 L.R.A. 118, 12 Am.St.Rep. 622; City of Luverne v. Skyberg, 169 Minn. 234, 211 N.W. 5, 6; City of Hallettsville v. Long, 11 Tex.Civ.App. 180, 32 S.W. 567; Independent School District v. Hubbard, 110 Iowa 58, 81 N.W. 241, 80 Am.St.Rep. 271. The facts alleged in the defendant’s answer were not sufficient to establish an affirmative duty on the part of the town or the selectmen to warn the surety of the treasurer’s prior violation of section 512 or of the shaky condition of the bank in which town funds had been deposited. Hence there was no error in sustaining the demurrer.
Complaint is made of the court’s action in sustaining the demurrer to the fourth defense, which set up what is referred to as the subrogation defense. This alleged that the bank closed with town funds amounting to $324,728.18 on deposit therein; that on May 25, 1932, the town filed with the bank’s receiver a “claim and reclaimer,” asserting that the town funds, having been illegally received by the bank, were held by it as trustee ex maleficio; that thereafter the town took no steps to have its claim and reclaimer adjudicated, but consented to the payment of dividends to itself and other depositors as common creditors, and that the remaining assets in
“As the liability had already attached on payment of the checks, the bank might have sued its indemnitor at once, and was not called on to defend itself against claims of its depositor or to prosecute its own claims against the endorsers. Royal Insurance Co. v. Stinson, 103 U.S. 25, 26 L.Ed. 473. But it could not, as it has sought to' do, retain its indemnity and withhold from its indemnitor the privilege of contesting or making such claims. See American Surety Co. v. Greek Catholic Union, 284 U.S. 563, 52 S.Ct. 235, 76 L.Ed. 490.”
In Royal Insurance Co. v. Stinson, cited in the above quotation, it was said, at page 27 of 103 U.S., 26 L.Ed. 473, that the creditor is not bound to take any active steps to realize the fruits of a collateral, or to keep it from expiring, unless the insurance be first paid and notice be given of the insurer’s desire to be subrogated to the creditor’s rights. The surety’s answer alleges no request that the town’s claim be prosecuted, and says nothing as to the date of the receipt of dividends which are supposed to have affected a waiver of the claim. Although the present action was brought in January, 1933, the surety’s answer was not filed until March, 1935. So far as appears, the surety might, long before filing its answer, have taken over prosecution of the claim unimpaired by any action of the town. Unlike the sureties in the Supreme Court cases relied upon by the appellant, the surety in the case at bar had ample opportunity to ta,ke over the claim; the privilege of prosecuting it was not withheld. The defense must, therefore, rest on a contention that, despite the surety’s opportunity to prosecute the claim and despite its denial of all liability on the bond, the surety was discharged by the town’s releasing a valuable right against the bank. The alleged release is predicated upon the receipt of common dividends by the town and its consent to the payment of common dividends to other creditors of the bank.
Receipt by the town of a less sum than that to which it was entitled could not effect a valid release of its priority claim. State ex rel. Symons v. Wells County Bank, 208 Ind. 543, 196 N.E. 873, 103 A.L.R. 611; Alleman v. Sayre, 79 W.Va. 763, 91 S.E. 805, L.R.A.1917D, 1002; First National Bank v. Bunting & Co., 7 Idaho 27, 59 P. 929, 1106.
Consenting to the receiver’s payment of dividends to other creditors could have no greater effect than to estop it from claiming that the dividends paid were property held in trust for it. So far as the town can trace its deposits into the possession of the receiver, we see no reason why its priority claim may not still be maintained.
Unless it appears that, if the town had not consented to the payment of dividends to other depositors, the bank could have paid the town a sum greater than the nonbonded part of its deposit of
Finally, it is contended that during his prior term of office Van de Bogart had made deposits of town funds which could not be withdrawn during his last term because of the financial condition of the bank, and consequently the loss for which the defendant has been held liable is one that occurred before the date of the bond in suit. The legal principle that a surety on a bond cannot be held for a loss occurring before the bond was executed must be conceded. The plaintiff does not dispute it, but says that the question of when the loss occurred is not presented on this appeal. We think this is true.
Paragraph 4 of the first count alleged that Van de Bogart held the office of treasurer and “received into his care and custody money belonging to said town” until his resignation on December 29, 1931. The first defense to the first count admitted that he held said office until December 29, 1931, and denied the other allegations. Hence the issue was presented whether he did receive money of the town for which he failed to account to his successor in office. The same issue was raised by the first defense to the second count by the allegation in paragraph 3 thereof that Van de Bogart, “as such treasurer, at no time subsequent to his election on said October 5, 1931, ever received into his care and custody as such treasurer” the amounts stated in amended paragraph 3 of the second count. Issue was joined by the plaintiff’s reply. Upon the issues thus framed the court made a general finding in favor of the plaintiff, and awarded judgment for the full penalty of the bond on each of the first and second counts. What evidence supported the finding is not before us, since no bill of exceptions was brought up; but certainly the issue was tried as to what money of the town was received by the treasurer during the term of the bond in suit. The appellant’s contention that it was deprived of an opportunity to prove that the wrongful acts to which the loss of the town is attributable, took place during the treasurer’s prior term of office is clearly unfounded.
Nevertheless, the appellant strongly urges that the defense that the loss actually occurred before the date of the bond in suit is before us on this appeal because such an allegation was advanced in the third defense in connection with the charge of fraud. If such allegation be viewed as asserting this defense independent of the question of fraud, it is a sufficient answer that the same issue was presented by the first defense to the first count and the first defense to the second. Even if it be assumed that it was error to sustain the demurrer to the third defense viewed as alleging merely that the loss occurred prior to the date of the bond, it was a harmless error, since the same question was comprehended under the issues submitted to trial under the other defenses and the judgment awarded on each of the first two counts exhausted the bond.
Judgment affirmed.
Dissenting Opinion
(dissenting).
This suit is on a bond executed by the appellant for the faithful performance of duties by Van de Bogart, as treasurer of the Town of Hamden, Conn., during his term of two years commencing October 7, 1931. Since October, 1925, he. served as treasurer for three terms, giving a bond fixed by the selectmen of the town for $20,000. Conn.General Rev.Stat.1930, §§ 303, 355. When Van de Bogart’s last term expired, he had on deposit with the Hamden Bank & Trust Company, of which he was vice president, moneys of the town substan
Under these circumstances, when he took office October 7, 1931, the selectmen demanded an increase of the bond from twenty to sixty-five thousand dollars, which was furnished to the town by the appellant on the application of the treasurer. The facts of overdeposit and the condition of the bank were not made known to the appellant. These facts were pleaded in the answer as a defense, charging that the selectmen, as a fraud on the appellant, directed the increase in the amount of the bond over the previous years. A demurrer to this defense was sustained.
The court below held that the selectmen were not under any duty to the appellant to make known these facts. The court was required to take judicial n»tice of the Connecticut statute requiring the selectmen to fix the amount of the bond. In such matters a town can only act through its agents, who, in this instance, are provided for by statute. Any matters connected with setting the amount of the bond and its acceptance are within the scope of the authority of the selectmen. The failure to disclose the breach of duty by the treasurer and the insolvent condition of the bank are sufficiently pleaded in the third defense. The facts showing excess deposits were in the treasurer’s report at the town meeting as required by the statutes (Gen.Statutes Conn. § 356), and the proceedings of this meeting must be kept by the town clerk as a public record (Gen.Statutes Conn. § 320). While there is no duty to disclose matters which could be 130 U.S. 643, 647, 9 S.Ct. 645, 32 L.Ed. 1054), there is a duty of disclosure by the selectmen, here, when they knew of the existing default due to the wrongful acts of the treasurer in making these overdeposits. Although the overdeposit was a matter of public record, the default was not. The fact of the bank’s insolvency was known to the majority of the selectmen, but probably could not have been discovered by the surety company at the time they wrote the new bond. It would require an extensive examination of the condition of the bank to be so informed. found out by the exercise of reasonable diligence (Andrus v. St. Louis Smelting Co.,
Since the allegations of the answer must be considered admitted on demurrer, that the selectmen were aware of the facts and they fixed the amount and accepted the new bond with such knowledge, they were under a duty to disclose the facts to the appellant.
Watertown Savings Bank v. Mattoon, 78 Conn. 388, 62 A. 622, was a case in which the directors of the savings bank accepted a bond for the treasurer of the bank whom they knew had embezzled the funds. The court held there was no fraudulent concealment because the statute required the treasurer to obtain the bond and he did this independent of any action by the directors. But in the instant case, the selectmen were intimately connected with the bank and they were required b.y statute to fix the amount of the bond; they accepted a bond for which they had fixed a higher sum without disclosing the factual situation as to the bank’s insolvency. This amounts to fraudulent concealment of material facts. See Griswold v. Hazard, 141 U.S. 260, 11 S.Ct. 972, 35 L.Ed. 678; Copper Process Co. v. Chicago Bonding & Ins. Co., 3 Cir., 262 F. 66, 8 A.L.R. 1477; U. S. v. Fidelity & Deposit Co. of Maryland, 2 Cir., 224 F. 866; Phillips v. United States Fidelity & Deposit Co., 200 App.Div. 208, 193 N.Y.S. 467; Howe Machine Co. v. Farrington, 82 N.Y. 121; Franklin Bank v. Cooper, 36 Me. 179.
The appellant would not have assumed the obligation of the bond if it had known these facts. They were material facts which fair dealing as well as duty required should have been disclosed before accepting the bond. See Zverina Realty Co. v. Maryland Casualty Co., 6 Cir., 67 F.2d 292; Williston on Contracts (1936) § 1249.
The demurrer to this defense should have been overruled. Accordingly, the judgment should be reversed.