Fidelity & Deposit Co. of Maryland v. Duke

• Decision Date: 03 December 1923
• Docket Number: 4048.
• Citation: 293 F. 661
• Parties: FIDELITY & DEPOSIT CO. OF MARYLAND v. DUKE, Supervisor of Banking of Washington.
• Court: U.S. Court of Appeals — Ninth Circuit

293 F. 661

FIDELITY & DEPOSIT CO. OF MARYLAND v. DUKE, Supervisor of Banking of Washington.

No. 4048.

United States Court of Appeals, Ninth Circuit.

December 3, 1923

Grinstead Laube & Laughlin and Thomas E. Davis, all of Seattle, Wash for plaintiff in error.

Miller Wilkinson & Miller, of Vancouver, Wash., for defendant in error.

Before HUNT and RUDKIN, Circuit Judges, and BOURQUIN, District Judge.

BOURQUIN District Judge.

In a trail to the court, judgment for $25,000 was rendered against plaintiff in error, defendant below, a surety company authorized to do business in Washington, upon its bonds in that amount to reimburse the bank, a Washington corporation, for pecuniary loss due to dishonesty of the latter's cashier.

Defendant's contention that the record is without evidence of any such loss is hardly disputed by plaintiff and is vindicated by inspection. There is evidence tending to show that certain notes found in the bank are valueless, were executed for the cashier's benefit, and are the basis of unauthorized credits to his account with the bank; but there is no evidence of the state of that account, or that by reason of notes or credits the bank is out or the cashier in a dollar.

The judgment is reversed and retrial ordered. For enlightenment therein, some of the other errors assigned require brief consideration.

In its answer defendant pleaded fraud, breach of warranties and conditions, and set-off arising from its payment of $46,000 as surety for the bank to a treasurer in respect to his deposits. All bonds were executed before liquidation of the bank commenced, and that to the treasurer was paid subsequent thereto, but before this action. Both bank and cashier are insolvent. The learned trial court denied set-off, for that in its view it 'is based upon the assigned claim of the county treasurer'; that defendant filed a claim therefor with plaintiff liquidating the bank, which was allowed and a 20 per cent. dividend paid; that the bonds in the cashier's behalf to the bank are statutory 'to secure the bank depositors generally'; that in consequence the warranties if not also the alleged fraud of the bank are immaterial; and that 'in equity there would be no right to set-off the amount paid on the' bond to the treasurer 'against the amount due on the' bond to the bank, 'because of the prejudice it would work to those for whose protection the latter bond was in part at least required.'

If there is any evidence that defendant counts upon an assignment from the treasurer, it has not been cited nor observed. On the contrary, defendant relies upon subrogation to the treasurer. In the circumstances, if ever, assignment does not defeat the right to subrogation. There is no inconsistency between them. So, too, that defendant presented its claim to the plaintiff and received a dividend has no effect on subrogation. Upon statutory notice in liquidation it was bound to present the claim, which allowed, is in effect a judgment. Of right defendant received the dividend. Later, the occasion for set-off arising by reason of this action, defendant rightfully asserted it. If therein it succeeds, it must account for dividends received upon the amount of it.

In so far as the bonds to the bank are concerned, the evidence is insufficient to characterize them as statutory, however it may be on retrial. The distinction between statutory and common-law bonds cannot be ignored, and is that the first conform to the statute, and the latter do not, even though so intended. City of Mt. Vernon v. Brett, 193 N.Y. 276, 86 N.E. 10.

The character of the bond is determined by its terms and the circumstances of its execution. Miles v. Baley, 170 Cal. 151, 149 Pac. 48; United, etc., Co. v. Poetker, 180 Ind. 255, 102 N.E. 372, L.R.A. 1917B, 984. In the instant case the bonds are annual renewals of a series begun in 1911 and on representations by the bank stipulated to be warranties. In 1917 Washington enacted a statute (section 3239, Rem. Comp. Stats. 1922) providing that the board of directors of each bank 'shall require its active officers * * * each to give a surety company bond, in such sum as the board shall specify and the state bank examiner shall approve, conditioned for the faithful and honest discharge of his duties and for the faithful application of all moneys. ' The bonds in suit are subsequent to the statute and substantially conform to the statutory condition, but in addition provide various other conditions for the protection of the defendant. There is no evidence that the board of directors required any of these bonds, that it or the examiner approved the amount, that no other bond was given, or that either party contemplated bonds by virtue of the statute.

But, if they are statutory bonds, and in proper sense public obligations to indirectly benefit depositors and other creditors of the bank, the express obligee is the bank, if nominally it is trustee for the depositors and creditors (see Equitable, etc., Co. v. McMillan, 234...