Deitrick v. Standard Surety Casualty Co of New York

Decision Date28 March 1938
Docket NumberNo. 455,455
Citation58 S.Ct. 696,303 U.S. 471,82 L.Ed. 962
PartiesDEITRICK et al. v. STANDARD SURETY & CASUALTY CO. OF NEW YORK
CourtU.S. Supreme Court

Messrs. George P. Barse, of Washington, D.C., and Robert E. Goodwin, of Boston, Mass., for petitioner.

Messrs. Frederic H. Chase and Raymond P. Baldwin, both of Boston, Mass., for respondent.

Mr. Justice McREYNOLDS delivered the opinion of the Court.

The Boston-Continental National Bank, established in December, 1930, through consolidation of Boston National Bank and Continental National Bank, became insolvent. December 17, 1931, a receiver appointed by the Comptroller of the Currency took charge of its affairs. Petitioner is his successor. Among the bank's effects were four 'Note-Guaranty' Bonds—$40,000, $52,000, $20,000, and $20,000—alike in form, dated in August and December, 1930, and June and July, 1931, with certain 'endorsements' showing extensions. Each purported to be executed by the maker of a described note as principal with respondent as surety, and was conditioned to pay to the bank the amount of the note upon default, etc.

In June and September, 1932, the receiver brought separate actions at law upon three of these bonds. In each he alleged that the company was indebted to him for the specified penalty with interest; and for this he asked judgment. The three declarations are alike in form and allegations. One, typical of all, is copied below.1 There also is one of the note-guaranty bonds, typical of all.2 Each declaration exhibited a bond, alleged that thereby the company bound itself to pay the bank a specified sum in the event of default, which had occurred, etc., that damages had been sustained whereby the surety had become indebted 'in the penal sum of said bond, with interest.'

Answering, the company denied liability and alleged that, as the bank well knew, the bond was executed without authority, had been fraudulently obtained, was invalid.

Before the three law actions were filed the surety company instituted four separate equitable proceedings in the Superior Court, Suffolk County, Mass., against the bank and makers of guaranteed notes. Each complaint alleged that the bank had fraudulently obtained the bond and asked that it be declared null and void. Later, the receiver became party in these causes and all were removed to the federal court. There, he filed separate answers, substantially alike, averring that the bond had been duly executed, that default had taken place, and that damages amounting to the full amount of the specified penalty had been sustained. Each answer concluded, 'Wherefore these defendants pray: 1. That the court determine the amount due from the plaintiff to Boston-Continental Bank and John B. Cunningham, its receiver, and order the plaintiff to pay the same with interest. 2. For such further relief as the court finds meet and just.'

Copies of one complaint3 and answer4 thereto, typical of all, are in the margin.

A jury was waived in the law actions and the seven causes went to an auditor and master with instructions to report findings of fact and conclusions of law; the former to be final. After taking much evidence he reported with a finding of facts showing clearly that the bank obtained the bonds through the fraud of its president, Ragan, and Cliff, general agent of the company. Among other things he said: 'I rule that the bonds and 'endorsements' in suit were not binding obligations in the hands of the bank as a going concern, for the reason that Ragan's knowledge of their infirmities is imputed to the bank; and that the bonds and 'endorsements' would not be binding obligations in the hands of the receiver, if his rights were derived solely from the bank as distinguished from its creditors.' He further ruled that as Cliff, general agent of the surety company, knew the bonds would be shown to the bank directors and to any others entitled to inquire concerning the notes described therein for the purpose of deception, therefore, 'the bonds and 'endorsements' in suit are binding obligations in the hands of the receiver due to the fact that he represents the bank's creditors.'

The District Court heard the causes on report and exceptions. It held the bonds void, and further 'adjudged and decreed that the counterclaim of the defendant receiver, set forth in his answer, be and the same is hereby dismissed.'

By stipulation the causes were joined for appeal upon a single record. The Circuit Court of Appeals, 1 Cir., 90 F.2d 862, 864, affirmed the District Court, and said: 'The master and auditor held that the receiver in bringing these actions did not derive his right of recovery through the bank, but because one or more creditors of the bank were deceived, and as he represents creditors he derived his right of action through them. The receiver, however, makes no such allegations in his declaration.' 'It is clear from the pleadings that the receiver seeks to recover on these bonds as assets of the bank. In such an action, he stands no better than the bank itself. All defenses open against the bank in such a case are open against the receiver, and he is chargeable with knowledge of all facts known to the bank affecting the character of the claim.' 'If, therefore, the contract with the surety company was illegal as to the bank, because, as the master and auditor found that the bank was charged with the knowledge of its president, a recovery could not be had by the bank. A recovery based on the contract of surety cannot be had by the receiver, since a recovery must be based on the pleadings, and the allegations of liability in the plaintiff's declarations are based solely on the contract of surety.' In respect of the receiver's counterclaim set up in the equity suits, it said: 'The plaintiffs' counterclaim distinctly raises the question of the validity of the bonds. The issue of trust for the benefit of creditors is not raised or suggested.' 'The obligations of the surety company based on the depositors of the bank being injured by the giving of the bonds, and the receiver's claim against the surety company based on a trust relationship are not mentioned, and, we think, are not raised by the plaintiffs' counterclaim in the equity suits.'

We agree with the conclusion reached by the Circuit Court of Appeals. Its judgment must be affirmed.

Counsel for the petitioner here submit: 'The Receiver's position rests primarily upon the proposition that the circumstances surrounding the giving of the note-guaranty bonds by Cliff to the Bank accompanied by the supporting powers of attorney, * * * and the consequences which followed the credence given to said bonds and powers of attorney by the national bank examiners and the Comptroller, acting as the representatives of the depositors and other creditors, give rise, in a suit by the Receiver to enforce the bonds, to an estoppel which precludes the Surety Company from denying the validity of the bonds and from asserting as a defense that its agent acted fraudulently and without authority in executing the bonds and that a fraudulent official of the Bank knew of the agent's misconduct.'

An examination of the pleadings makes it quite clear that the receiver undertook to set up rights acquired by the insolvent bank through duly executed contracts between it and the surety company. He makes no suggestion of a purpose attributable to the company to mislead creditors or others; makes no allegations of damage, except that sustained by the bank. He sets up no facts which would render unconscionable a denial of liability upon the bond because of the agent's fraud obviously induced by the president of the bank. In this state of the pleadings the receiver may not have judgment; he cannot rely on something not complained of; nor can he have damages because of supposed deceptions which the pleadings fail to suggest.

In Rankin v. City National Bank, 208 U.S. 541, 545, 546, 28 S.Ct. 346, 348, 52 L.Ed. 610, a suit by the receiver of the Capitol National Bank of Guthrie to recover the amount of an alleged deposit where it appeared 'that the whole business, from beginning to end, was and was intended to be, a mere juggle with books and paper to deceive the bank examiner,' this Court denied the receiver's claim and said: 'If the Guthrie bank had sued while it was a going concern, it could not have recovered, and the receiver stands no bet- ter than the bank.' We adhere to the doctrine there approved and regard it as decisive of the present cause.

Affirmed.

Mr. Justice CARDOZO took no part in the consideration or decision of this case.

Mr. Justice BLACK (dissenting).

When two or more persons have jointly perpetrated a fraud with intent to injure others, justice and law combine to entitle injured parties to recover from any or all of the conspirators. Corporations can act only through agents. When, as here, two corporations, acting through authorized agents, have jointly perpetrated a fraud which was intended to—and did—injure others, a just rule of law should likewise hold both corporations jointly and severally responsible for the damages inflicted by them upon innocent parties.

In this case innocent depositors and other creditors of a now insolvent national bank suffered damages as a direct result of fraud willfully perpetrated on them by joint action of the bank and the respondent surety corporation, acting through their agents. Because of the guilty participation of the bank president in this fraud, the opinion just read denies the receiver of the insolvent bank a recovery which would inure to the benefit of the innocent depositors. At the same time, however, the respondent surety corporation is freed from any responsibility to these innocent parties, in spite of the admitted guilty participation of its agent. That the agent of the respondent surety corporation was authorized to write the indemnity bonds used in the fraud is disclosed by the findings of the master and...

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