United States Fidelity & Guaranty Co. v. Centropolis Bank

• Decision Date: 09 February 1927
• Docket Number: No. 7411.,7411.
• Citation: 53 ALR 295,17 F.2d 913
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. CENTROPOLIS BANK OF KANSAS CITY, MO., et al.
• Court: U.S. Court of Appeals — Eighth Circuit

53 ALR 295, 17 F.2d 913 (1927)

UNITED STATES FIDELITY & GUARANTY CO. v. CENTROPOLIS BANK OF KANSAS CITY, MO., et al.

No. 7411.

Circuit Court of Appeals, Eighth Circuit.

February 9, 1927.

Whitson Rogers and Ellison A. Neel, both of Kansas City, Mo. (A. L. Cooper, of Kansas City, Mo., and Joseph A. McCullough and J. M. McFall, both of Baltimore, Md., on the brief), for appellant.

Leslie J. Lyons and Ilus M. Lee, both of Kansas City, Mo. (R. R. Brewster and Henry M. Griffith, both of Kansas City, Mo., on the brief), for appellees.

Before BOOTH, Circuit Judge, and PHILLIPS and JOHN B. SANBORN, District Judges.

PHILLIPS, District Judge.

The United State Fidelity & Guaranty Company (hereinafter called Surety Company) brought this suit against the Centropolis Bank of Kansas City, Mo., C. E. French, commissioner of finance of the state of Missouri, H. F. Lawrence, deputy commissioner of finance of the state of Missouri, Jackson county, Mo., and E. W. Hayes, Daniel G. Stewart, and Henry Rummel, judges of the county court of Jackson county, Mo., to secure a decree, adjudging that the Centropolis Bank, an insolvent banking corporation, is indebted to the Surety Company in the sum of $50,000, and that the Surety Company is entitled to share ratably with other general creditors in the distribution of dividends from the assets of the bank, directing Lawrence, as deputy commissioner of finance, and his successors in office, to pay the Surety Company its pro rata share upon its claim of $50,000 of all dividends distributable to general creditors, and enjoining such deputy commissioner and his successors from paying dividends upon such claim of $50,000 to Jackson county.

The material facts are not in dispute and are as follows:

The Centropolis Bank was a banking corporation organized under the laws of Missouri. On May 9, 1923, the county court of Jackson county, Mo., by order duly entered, awarded a contract to the bank for one-tenth of the county deposits for the ensuing two years. On May 18, 1923, the bank made a written application to the Surety Company for a surety bond to secure such deposit with the bank. The application in part read as follows:

"The undersigned agrees as follows: * * *

"2. To indemnify, and keep indemnified, from and against all losses by reason of said United States Fidelity & Guaranty Company having executed said bond. * * *"

It was duly executed by the bank. Pursuant to such application the Surety Company, as surety, and the bank as principal, executed and delivered to Jackson county a surety bond in the usual form for the penal sum of $50,000. The bond was conditioned as follows:

"The condition of the above obligation is such that whereas, the above bounden Centropolis Bank of Kansas City, was on the 9th day of May, 1923, by the county court of Jackson county, Missouri, in regular session at Independence, Missouri, duly declared and awarded by said county court to be the successful bidder as depository for one-tenth of the funds of said county for a period of two years, beginning the 19th day of May, 1923, and ending on the 15th day of August, 1925, and to pay interest upon such one-tenth of the funds of said county so deposited with said depository computed on the daily balances with said depository, said Centropolis Bank of Kansas City, at the rate of 3.75 per cent. per annum thereof, to the treasurer of said Jackson county monthly.

"Now, therefore, if the said Centropolis Bank of Kansas City shall faithfully perform all of the duties and obligations devolving by law upon said Centropolis Bank of Kansas City as depository of said one-tenth of said funds of said Jackson county, Mo., as aforesaid, and pay upon presentation of all checks drawn on said depository whenever any funds therefor shall be in said depository when drawn thereon by the proper officers of said county, and that all interest will be promptly paid to the treasurer of said county monthly, and that all of said funds shall be faithfully kept and accounted for according to law, then the above obligation to be void, otherwise to remain in full force and effect."

At about the same time, the bank, as principal, and the Maryland Casualty Company, as surety, executed and delivered to Jackson county a surety bond for the penal sum of $50,000, conditioned the same as the bond of the Surety Company.

On November 14, 1924, the bank, having become insolvent, closed its doors. Whereupon the commissioner of finance of the state of Missouri took charge of the bank and its assets, and since said date has been and now is engaged in liquidating such bank pursuant to the provisions of the laws of Missouri. Sections 1 and 4 of the Act of March 24, 1921, Laws of Missouri 1921, p. 394, and sections 11700 to 11724, inclusive, Revised Statutes of Missouri 1919. On the day the bank closed, Jackson county had on deposit therein, pursuant to such order of the county court, the sum of $122,324.59. It presented checks for the amount thereof to the bank, payment was refused, and it made due demand upon the Surety Company to perform the obligations of its bond. On May 7, 1925, the Surety Company paid to Jackson county $51,441.65, the amount of the penal sum of the bond, together with interest from November 14, 1924, to May 7, 1925, and received from the county a receipt in full for such amount. The Maryland Casualty Company also paid Jackson county the sum of $50,000, with interest from November 14, 1924, to date of payment.

Jackson county filed with the deputy commissioner of finance, in charge of the liquidation of the bank, its claim for $122,324.59, the full amount of its deposit. On May 7, 1925, after its payment to Jackson county, the Surety Company filed with the deputy commissioner of finance, its claim for $50,000. The commissioner of finance approved and allowed the claim of Jackson county, and disapproved and rejected the claim of the Surety Company.

The assets of the bank are insufficient to pay its creditors in full.

After the rejection of its claim, the Surety Company brought this suit. It set up the above facts, and, basing its claim both on the right of subrogation and on its contract of indemnity, sought the relief above stated.

Jackson county filed an answer and cross-bill. By its cross-bill it sought a decree directing the deputy commissioner of finance to set aside and pay dividends on its entire claim of $122,324.59 until the amount of such dividends should equal the sum of $22,324.59, the balance remaining after deducting the payments made by the two surety companies.

The trial court held that the Surety Company was not entitled to be subrogated to the claim of Jackson county to the extent of $50,000; that it was not entitled to dividends on its claim for $50,000 pro rata with the general creditors; that it had a claim against the bank, but that it was not entitled to receive dividends on such claim until Jackson county had been paid in full; that the deputy commissioner of finance should pay dividends to Jackson county upon its claim of $122,324.59, until such dividends should equal the sum of $22,324.59, and that he should then pay the remaining dividends, one half to the Surety Company, and the other half to the Maryland Casualty Company. It entered its decree accordingly, and the Surety Company has appealed from such decree.

Counsel for the Surety Company now abandon any claim under the right of subrogation and predicate their case squarely upon the contract of indemnity.

The first contention urged by counsel for the Surety Company is that the county was only entitled to receive dividends on the sum of $22,324.59, the balance remaining due on the deposit after the application of the payments made to it by the two surety companies.

Where the creditor of an insolvent bank holds collateral security for the payment of its debt, it is entitled to the allowance of a claim for the full amount of its debt, and to the payment of dividends on the entire debt, pro rata with general creditors, until the dividends, plus the amount realized from the security, equals the full amount of the debt. Merrill v. National Bank of Jacksonville, 173 U. S. 131, 19 S. Ct. 360, 43 L. Ed. 640; Chemical National Bank v. Armstrong (C. C. A. 6) 59 F. 372, 28 L. R. A. 231; Commercial & Savings Bank v. Jenks Lbr. Co. (C. C.) 194 F. 732; Washington-Alaska Bank v. Dexter Horton National Bank of Seattle, Washington (C. C. A. 9) 263 F. 304; Goodman Mfg. Co. v. Pittsburgh-Buffalo Co. (C. C. A. 3) 265 F. 561; Pintsch Compressing Co. v. Buffalo Gas Co. (C. C. A. 2) 280 F. 830, 844, 845; 32 C. J. p. 882, sec. 176.

Counsel for the Surety Company undertake to distinguish the instant case from the cases above cited. They say that in those cases the debts were either secured by a pledge of collateral or by a mortgage of property, and that here the debt was secured by a contract of suretyship. We are unable to see any reason why the character of the security held by the debtor should change the rule. We have found only one case on the question where the debt was secured by a contract of suretyship — Citizens' National Bank v. Minge, 49 Minn. 454, 52 N. W. 44. In that case, the court said:

"2. Under the late federal bankrupt act, it was provided that, where a debt was secured on the property of the bankrupt, it could only be proved for the balance over and above the value of the security, unless the creditor filed a release of his security. Our insolvent law contains no express provision of this kind, and whether any such is implied is a question not now before us. But, under all bankrupt laws of which we have any knowledge, it has been uniformly held that, where the debt is secured by the property or personal obligation of a third person, who stands in the relation of surety, it is provable for its full amount against the estate of the bankrupt principal debtor, and that, too, without the creditor being required to release his security. Any other rule...