American Surety Co. v. Independent School Dist. No. 18

• Decision Date: 29 September 1931
• Docket Number: No. 8993.,8993.
• Citation: 81 ALR 1,53 F.2d 178
• Parties: AMERICAN SURETY CO. OF NEW YORK v. INDEPENDENT SCHOOL DIST. NO. 18 OF LAKE PARK, MINN.
• Court: U.S. Court of Appeals — Eighth Circuit

81 ALR 1, 53 F.2d 178 (1931)

AMERICAN SURETY CO. OF NEW YORK v. INDEPENDENT SCHOOL DIST. NO. 18 OF LAKE PARK, MINN.

No. 8993.

Circuit Court of Appeals, Eighth Circuit.

September 29, 1931.

Charles S. Kidder, of St. Paul, Minn. (Orr, Stark, Kidder & Freeman, of St. Paul, Minn., on the brief), for appellant.

H. N. Jenson, of Detroit Lakes, Minn., for appellee.

Before KENYON and BOOTH, Circuit Judges, and OTIS, District Judge.

OTIS, District Judge.

One William J. Norby was elected treasurer of the Independent School District No. 18 of Lake Park, Minn., appellee herein, for a term of one year from August 1, 1924, and until his successor was duly elected and qualified. He was required to and did give a bond, with the appellant, the American Surety Company, as surety, one of the conditions of which was that he should pay over to the officer entitled thereto all moneys coming into his hands as treasurer. On August 24, 1925, he had on deposit, in his official capacity, in the First National Bank of Lakeview the sum of $15,902.54. On August 24, 1925, that bank was closed and was taken over by the Comptroller of the Currency and was placed in the hands of a receiver. Norby was elected to succeed himself for a term beginning August 1, 1925, but did not qualify until November 12, 1925. His second term expired August 1, 1926. He continued in office, however, until in November, 1926, when he was succeeded by one Hanson. He had given a second bond, with the appellant as surety, when he qualified on November 12, 1925, to succeed himself. Failing, on the succession of Hanson, to turn over to Hanson any funds belonging to the school district, the district brought suit on the second bond and had judgment thereon for the full amount of its penalty. The present suit thereafter was brought on the first bond to recover the amount lost through the failure of the First National Bank, an amount claimed to be, after the deduction of dividends paid by the receiver, $8,746.41. Appellee had judgment in the District Court for that amount.

The questions raised by the appeal include the following: (1) Did the mere failure of the bank on August 24, 1925, involve a breach as of that date of Norby's obligation as protected by the bond? (2) Did Norby breach the obligation protected by the bond when, succeeding himself on November 12, 1925, he failed to turn over to himself a sum equivalent to that which had been lost by the closing of the bank? And (3) was the bond here sued on still in force on November 12, 1925, when Norby qualified to succeed himself as treasurer?

1. It is suggested but not seriously contended by appellee that Norby breached his obligation to the school district at the time and by reason of the mere failure of the bank in which school funds were deposited. We think this an untenable view. No official depository of the district had been designated. It was certainly consistent with Norby's duty to deposit funds in his charge in some reputable bank, although he did not thereby, as is conceded by appellant, relieve himself of responsibility for them. But his duty to faithfully discharge the duties of his office was not violated by the failure of the bank. That failure was the result of none of his acts nor was it in any sense his fault. He breached no duty until and unless, on proper demand of the district, he failed to pay over funds intrusted to him or until and unless, at the expiration of his term, he failed to turn over to his successors such funds. Failure to pay over funds when required made him and his surety liable, and neither could successfully defend on the ground that a bank in which the funds were deposited had failed. The breach of duty, however, was as of the time of the failure to pay over. Northern Pacific R. R. Co. v. Owens, 86 Minn. 188, 90 N. W. 371, 57 L. R. A. 634, 91 Am. St. Rep. 336; Board of Education v. Jewell et al., 44 Minn. 427, 46 N. W. 914, 20 Am. St. Rep. 586. See, also, United States v. Prescott et al., 3 How. (44 U. S.) 578, 588, 11 L. Ed. 734; Gartley et al. v. People, 28 Colo. 227, 64 P. 208; Rose et al. v. Douglass Township, 52 Kan. 451, 34 P. 1046, 39 Am. St. Rep. 354; Tillinghast v. Merrill, 151 N. Y. 135, 45 N. E. 375, 34 L. R. A. 678, 56 Am. St. Rep. 612; Bush et al. v. Johnson County, 48 Neb. 1, 66 N. W. 1023, 32 L. R. A. 223, 58 Am. St. Rep. 673; State ex rel. v. Moore, 74 Mo. 413, 41 Am. Rep. 322.

2. There was then no breach of Norby's obligation as protected by his bond (if the bond was then in force), on August 24, 1925, when the bank was closed. There is nothing in the record to show any unsatisfied demand on him for funds prior to November 12, 1925, when he qualified as his own successor. The fact that he was his own successor did not affect the nature of his duty which was to turn over to his successor the school funds he had received and had not lawfully paid out. The trial court found as a fact that he did not turn over the funds which originally had been deposited by him in the First National Bank. That finding the evidence supports. At the time he succeeded himself he breached the obligation which his bond protected, if the bond was then in force. Appellee contends it was not then in force on the theory it had expired before November 12, 1925.

3. The bond was executed November 3, 1924. It contained this language:

"The condition of the above Obligation is such, That whereas the above bounden William J. Norby was heretofore duly elected to the office of Treasurer for the Independent School District #18, Minn. for the term of one year from and after the 1st day of August, 1924, and until his successor is elected and has qualified;

"Now, Therefore, if the said William J. Norby shall faithfully and impartially, in all things, during his continuance in office, perform the duties thereof without fraud, deceit or oppression, and pay over without delay to the officer entitled by law thereto all moneys which shall come into his hands by virtue thereof, then this obligation shall be void, otherwise to remain in full force and effect."

By the express terms of the bond appellant was liable for any shortage (covered by the bond), arising during Norby's term expiring August 1, 1925, "and until his successor is elected and qualified." His successor was not qualified until November 12, 1925. By the express terms of the bond, read literally, that date, which was the date of Norby's failure to pay over, was within the term covered by the bond. The appellant contends, however, that such a bond containing such language continues in force only "until a reasonable time after the expiration of the statutory term" and that such a reasonable time is only a time "sufficient to give the public body a reasonable opportunity to choose a successor and have him qualified." It is contended that from August 1, 1925, to November 12, 1925, was an unreasonable time. County of Scott v. Ring, 29 Minn. 398, 13 N. W. 181, 185, is cited by appellant to be decisive.

The facts in County of Scott v. Ring were these: One Ring had been elected county treasurer for a term expiring March 1, 1880. A statute (Gen. St. Minn. 1878, c. 8, § 144) provided that the term of a county treasurer should "continue for two years, and until a successor is elected and qualified." Other pertinent statutes (Gen. St. Minn. 1878, c. 8, § 146; c. 9, § 2) however, provided that if the duly elected successor to the office of county treasurer did not qualify by January 15th following election the "office shall become vacant" and that in that event the board of county commissioners should appoint a county treasurer. Ring was elected to succeed himself but did not, by January 15, 1880, give the required bond for his second term. Nevertheless he continued in office until June 21, 1880. Between March 1, 1880, and June 21 he was guilty of certain defalcations. The surety on his bond was required by the judgment of the trial court to make good the loss sustained by the county, but the Supreme Court of Minnesota reversed the judgment. The ground of reversal was this: That the various statutes fixing the county treasurer's term, declaring a vacancy in that office for failure to qualify, providing for the filing of such a vacancy, all entered into and were a part of the contract (the bond), signed by the surety; that it was not the intention of the parties, in view of the statutes thus incorporated in the contract, that Ring should remain in office, having failed to qualify for his second term, after March 1, 1880, nor that the surety should be liable for Ring's delinquencies after that date.

But the ground stated was not alone sufficient for the reversal and the court added: "We do not say that that obligation that is, the obligation of the bond would not extend in any event beyond the first day of March. It has been decided, under statutes similar to our own, and under laws of incorporation declaring the continuance of a term of office to be for a definite period named, and until a successor should be elected and qualified, that an official bond of suretyship applied to the definite period of office named, and until such reasonable time thereafter as might be necessary for the purpose of providing a new incumbent by the appointed means. * * * We think the same construction of the statute and contract here would be correct. * * *" Adopting this principle as the correct one, the court held that only a showing of special circumstances justifying a delay beyond March 1st in the making of an appointment to fill the vacancy caused by Ring's failure to qualify could at all extend the surety's obligation, and that, "In no event * * * should it be considered that the obligation extended beyond a reasonable time after March 1st for filling the office by appointment."

Appellee has sought to distinguish the Ring Case from the present case on the facts. But however different are the facts, the Minnesota Supreme Court did in the Ring Case declare...