Greek Catholic Union v. American Surety Co., 3662.

• Decision Date: 17 March 1928
• Docket Number: No. 3662.,3662.
• Citation: 25 F.2d 31
• Parties: GREEK CATHOLIC UNION v. AMERICAN SURETY CO. OF NEW YORK et al.
• Court: U.S. Court of Appeals — Third Circuit

25 F.2d 31 (1928)

GREEK CATHOLIC UNION v. AMERICAN SURETY CO. OF NEW YORK et al.

No. 3662.

Circuit Court of Appeals, Third Circuit.

March 17, 1928.

Ralph C. Davis and Thomas S. & O. W. Brown, all of Pittsburgh, Pa., for plaintiff in error.

Edmund W. Arthur and James M. Magee, both of Pittsburgh, Pa., for defendant in error.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

BUFFINGTON, Circuit Judge.

On July 19, 1920, the American Surety Company, a corporate citizen of New York, in consideration of $500 premium, gave its surety bond to the Greek Catholic Union, a fraternal beneficial society and a corporate citizen of Pennsylvania, whereby it became surety for the officers and employees of such society, amongst whom was George Kondor, its treasurer. The bond was conditioned "to pay such order such pecuniary loss as it shall have sustained of money, funds, securities, or other personal property, including that for which the order is responsible (a) through * * * willful misapplication on the part of any such officer or employee, * * * or through the failure of any such officer or employee faithfully to perform his (or her) duties as prescribed by the constitution and by-laws of said order." It was provided by the constitution and by-laws of the society that "the treasurer is not allowed to carry more than $25,000 on a checking account over and above amount necessary for the payment of the death benefits monthly. All surplus funds above these amounts shall be deposited in interest-bearing deposits with safe banks, or invested in safe and legal bonds, according to the discretion of the Supreme Assembly from time to time. All such deposits and investments to be made in the name of the Greek Catholic Union. * * * The treasurer shall deposit all orphans' money in interest-bearing reliable banks, bearing 4 per cent. interest, such deposits not to exceed $10,000 in one bank."

Alleging a violation by Kondor in that respect and of other provisions and a consequent loss thereby to it, the society brought suit in a state court against Kondor, alleging his breach of duty as treasurer and the liability of the American Surety Company as surety. As Kondor made no defense and admitted his breach and liability, the controversy therefore became one between the plaintiff and the surety company, and the latter removed the case to the court below. It there filed an affidavit of defense, which under the provisions of the applicable Pennsylvania Procedure Act, really constituted a demurrer, on hearing of which the court entered judgment in favor of the defendant. Thereupon the society sued out this writ of error.

Accepting as true the allegations of the plaintiff's statement, we note the fact that under the rules of the society the sum which the treasurer could lawfully carry in his checking account at the time of the alleged breach was not more than $45,000, but that in violation of this provision he had accumulated during the months of January, February, and March, 1924, in an insolvent state bank of which he was president, and which had a capital of but $50,000, some $217,000. It is therefore apparent that by so doing he had failed to do his duty and his bond was breached. On April 4, 1924, the Pennsylvania state banking commissioner took charge of its affairs, and examination by that official showed the bank was insolvent, and, if liquidated, would not pay more than 40 per cent. to its depositors. In pursuance of the requirement of the bond that notice of such loss be delivered to the surety at its home office in the city of New York within 10 days after such discovery, the surety company was at once informed by long-distance phone of the situation. It did nothing, offered no suggestion, and the society was apparently left to meet the situation alone and as best it could.

We here note that, when the breach, which previously occurred, became known, the liability of the surety had accrued, and a loss of some $140,000 in the deposit was apparent. What were the respective rights, duties, and obligations at this point? Notice to the surety. That was given. What was the relation of the surety? Being a surety paid for its suretyship, the law adjudges it an insurer, and adjudges its contract and its adjustment on that basis. City of Philadelphia v. Fidelity & Deposit Co. of Maryland, 231 Pa. 208, 80 A. 62, and cases cited. With liability on the bond accrued, with loss certain to follow, with the insuring company, with notice, taking no step and leaving the insured society to meet the situation alone, we think that situation was one akin to salvage, and not one of variation from the contract of suretyship. In fire and marine insurance the insured in the face of threatened loss may act for the benefit of all concerned. He may remove the fire-threatened goods from a building, or he may jettison a cargo. If he does so, and thereby the goods or cargo are lost, stolen, or destroyed, he does not lose his right to recover from the insured, even though, if left in place on land or aboard at sea, they would not have been lost. See 4 Cooley's briefs on Insurance, 3065; Independent Mut. Insurance Co. v. Agnew, 34 Pa. 96, 75 Am. Dec. 638. And the reason of this is that the situation was one that brooked no delay and the acts of the insured, though done in the absence of the other party, were done for the joint benefit of both.

Now here the situation was one that brooked no delay. Whatever was done had to be done on the intervening Sunday; further consultation with the surety was impossible, for Sunday prevented it, and with Monday morning, the bank, already in charge of the state authorities, would be irretrievably closed, with a 40 per cent. liquidation. If the insured society had followed the example of the surety company, done nothing, and had not effected the then possible adjustment, when by such adjustment it could have reduced the loss of the surety company, the latter might well have complained that its rights had been sacrificed by the society. Confronted on a Saturday by this critical condition, which required prompt action before the following Monday morning, the society officers and their counsel met that evening at Johnstown, and by long-distance phone at once told the agent of the surety company at Pittsburgh and an executive officer at New York of the situation. As noted above, they did nothing, offered no suggestion, and left the insured to meet the situation as best it could. This it did by Monday morning, with the result that Kondor's bank was taken...