Continental Casualty Co. v. United States

• Decision Date: 28 February 1934
• Docket Number: No. 5047.,5047.
• Citation: 68 F.2d 577
• Parties: CONTINENTAL CASUALTY CO. v. UNITED STATES, for Use of AINSWORTH, et al.
• Court: U.S. Court of Appeals — Seventh Circuit

68 F.2d 577 (1934)

CONTINENTAL CASUALTY CO. v. UNITED STATES, for Use of AINSWORTH, et al.

No. 5047.

Circuit Court of Appeals, Seventh Circuit.

January 29, 1934.

Rehearing Denied February 28, 1934.

Earl S. Hodges and H. N. Tragethon, both of Springfield, Ill., and William P. Smith, of Chicago, Ill., for appellant.

W. Edgar Sampson and Harry C. Moore, both of Springfield, Ill., and W. B. McBride, of Taylorville, Ill., for appellees.

Before ALSCHULER, EVANS, and SPARKS, Circuit Judges.

ALSCHULER, Circuit Judge.

The decree for appellees, from which this appeal is taken, was rendered in an equity suit against appellant as surety upon a bond in the penal sum of $100,000 given to secure deposits of bankruptcy funds in the Ridgely-Farmers State Bank, of Springfield, Ill., the principal of the bond, against loss on account of such deposits. The bond, with indorsement of approval thereon by the United States District Judge, is set forth in the margin.¹

The bank failed and was closed December 29, 1932, since which time a receiver has been in charge; and up to the time of the hearing no dividend had been paid. At the time of failure bankruptcy receivers and trustees had on deposit in the bank bankruptcy funds aggregating $115,399.40, all of which remained unpaid. The suit was brought by the United States for the use of the several trustees and receivers in bankruptcy (199 in number) who had such deposits in the bank. The decree was for the full penalty of the bond.

Appellant contends that the cause of action, brought in equity to avoid multiplicity of suits, was cognizable at law and that equity does not have jurisdiction. It is maintained that the United States might have brought a single suit at law, and in case judgment was recovered each person entitled thereto could then have assessment of his damages made. In view of what we determined in Illinois Surety Co. v. United States, 226 F. 665, where just such a situation was presented, we deem it unnecessary to discuss the proposition. We there held that where a bond, in like form as here, had been given by a depository to secure the various deposits of bankruptcy funds, the action thereon should be brought in equity.

It is urged that the District Court erred in hearing the case at the time it was heard, in that under Equity Rule 47 (28 USCA § 723) it was improper to set the case for trial before the expiration of 110 days after the cause was at issue.

The applicable facts thereon are: The bill was filed March 14, 1933, to which appellant filed a motion to dismiss. Both judges of that district being disqualified to act, District Judge Barnes of the Northern District of Illinois was designated. He sat at Springfield April 21, at which time the motion to dismiss was denied, the time to file answer extended to May 1, and the cause set for hearing May 19. Answer was filed April 29. On May 16 appellant served notice that it desired to take depositions, and that on the 19th it would move for a continuance before Judge Barnes in order to take depositions of named witnesses living more than one hundred miles away, and on May 19 appellant moved for continuance of the hearing accordingly. None of the moving papers indicated what was sought to be shown by such witnesses. On inquiry by the court, appellant's counsel said that one of the proposed witnesses was, at the time the bond was executed, in appellant's office at Chicago, and that he had conversations relative to execution of the bond; and that the other had knowledge of telephone conversations with one of the officers of the bank. Counsel said:

"We expect to show not only the computation of the return premium, but also the preparation of notices, and matters in the Chicago office, and conversations relative to the cancellation of this bond. * * * By this young man. I am not sure, but it is my understanding that he did have a conversation, or someone had."

Nothing which was so disclosed could have tended to invoke the court's discretion to grant a continuance, nor to indicate an abuse of discretion in denying it. But it is contended that under the equity rule the case could not properly be set until the aggregate of time therein mentioned within which depositions might be taken had expired, which aggregate is 110 days.

In our judgment the rule (see margin²) does not contemplate that the time fixed therein is an inhibition upon the setting of the case within such time. We regard it rather as an inhibition upon the parties against postponement of the setting and the hearing of the cause beyond the times as fixed in the rule, unless indeed the statute otherwise provides. Deutsch v. Southern Corp. (D. C.) 53 F.(2d) 96; Reflectolyte Co. v. Edwin F. Guth Co. (D. C.) 31 F.(2d) 777; Kentucky-Tennessee Light & P. Co. v. City of Paris, Tenn., 48 F.(2d) 795 (C. C. A. 6).

But even if appellant is correct in its construction of the rule, the record does not show that at the time the setting was made there was any objection thereto by appellant. Any right of insistence that the setting be not within the time fixed by the rule was thus waived. This left the disposition of the motion for continuance within the court's discretion, which we do not find to have been abused in denying the continuance.

Appellant contends that under section 61 of the Bankruptcy Act (11 USCA § 101) providing that "Courts of bankruptcy shall designate, by order, banking institutions as depositories for the money of bankrupt estates, * * * and shall require bonds to the United States, subject to their approval," it is necessary that in the record of a suit on such a bond there must appear in evidence an order made by the court designating the bank as a depository and approving the bond, and that no such orders are shown by this record.

The pleadings do not specifically raise any such issues, and they cannot be first raised in the assignments of error and the briefs. But appellant is in no position to raise such questions. It executed and delivered the bond upon the assumption that the bank had been duly designated a depository, and during the intervening years appellant proceeded upon the assumption that the bank had been duly designated as depository, and that the bond had been duly approved by the court. It well knew that the bank itself, and the receivers and trustees in bankruptcy, were relying upon the same assumption. The approval of the district judge was indorsed on the bond itself. Every act of appellant, including its letter of withdrawal from the bond, written nearly six years after the bond was executed, points unerringly to its assumption that it was, up to that time, a lawful surety upon a lawful and effective bond. Under these circumstances we are of opinion that appellant is estopped from now asserting the want of any of the specified formalities. Richfield Nat. Bank v. Amer. Surety Co., 39 F.(2d) 387 (C. C. A. 8); Dickey County, N. D., v. Gesme, 51 N. D. 272, 199 N. W. 873; Bryson v. Fischer, 258 Ill. App. 502.

It is complained that the District Court abused its discretion in denying to appellant its requested leave to amend its answer by setting up the existence of a prior bond — given by the same bank in 1919 in the sum of $50,000 with surety approved by the court, as security to receivers and trustees depositing bankruptcy funds in the bank; and that such bond remained and was in force at the time this suit was brought; and it is asked that the sureties upon that bond be made parties to this action.

If there was such a bond (existence of which was in the proposed amendment alleged only on information and belief) and appellant was entitled as a matter of absolute right to have sureties on that bond made parties to this action, the denial of the motion to amend might have been an improper exercise of the court's discretion. But there was no such absolute right, nor indeed any right, in appellant to demand that such other sureties be made parties. The bond in suit provides that the obligors shall be jointly and severally liable. The statute of Illinois (Smith-Hurd Rev. St. 1933, c. 76, § 3, Cahill's Rev. St. 1933, c. 76, par. 3) provides that all joint obligations shall be several as well as joint. See Cummings v. People, 50 Ill. 132; Wisner v. Catherwood, 225 Ill. App. 471; Scanlon v. People, 95 Ill. App. 348; and Tandrup v. Sampsell, 234 Ill. 526, 85 N. E. 331, 17 L. R. A. (N. S.) 852. Under the circumstances it was the right of the obligee of the bond in suit to treat as several any and all joint obligations, whether arising under one or under different bonds, and to prosecute its action against such of the obligors as it might select. Weger v. Robinson Nash Motor Co., 340 Ill. 81, 172 N. E. 7; Phillips v. Pedarre, 156 La. 509, 100 So. 699; 50 C. J. 278, §§ 466 and 467.

The disposition of a motion to amend is usually within the court's discretion; and while it might have been better to allow the amendment and to have brought into one action all possible parties in interest, we cannot find that the court abused its discretion in denying the motion — especially as the proposed amendment did not positively allege the existence of such a bond. We find no error in the court's ruling upon the motion to amend the answer.

The main controversy is over appellant's contention that its suretyship on the bond was terminated long before the bank's closing. There seems to be no serious dispute of the right of a surety to terminate its suretyship where, as here, the term of the obligation is unlimited and the thing secured to be done is the compliance with specified contractual undertakings of the principal. The authorities well support the right to terminate. Emery v. Baltz, 94 N. Y. 408; Klatte v. Franklin State Bank, 211 Wis. 613, 248 N. W. 158, 249 N. W. 72; Crane v. Newell, 2 Pick. (Mass.) 612, 13 Am. Dec. 461; Yeargain v. Board, 90 Okl. 38, 215 P. 619; Clark v. Amer. Surety Co., 171 Ill. 235, 49 N. E. 481; 18 C. J. 589.

And so the...