National Surety Co. v. McCormick

• Decision Date: 05 October 1920
• Docket Number: 2751.
• Citation: 268 F. 185
• Parties: NATIONAL SURETY CO. v. McCORMICK.
• Court: U.S. Court of Appeals — Seventh Circuit

268 F. 185

NATIONAL SURETY CO. v. McCORMICK.

No. 2751.

United States Court of Appeals, Seventh Circuit.

October 5, 1920

Fletcher Dobyns, of Chicago, Ill., for plaintiff in error.

George Buckingham, of Chicago, Ill., for defendant in error.

Plaintiff in error is a corporate surety company, and as such, under date of June 2, 1914, it executed as surety, with the La Salle Street Trust & Savings Bank as principal, a surety bond to defendant in error as obligee, in penal sum of $25,000 conditioned as follows:

'The condition of the foregoing obligation is such that whereas the La Salle Street Trust & Savings Bank has been designated by said obligee as depository of funds and moneys coming into his hands as such treasurer of said Sanitary District of Chicago; and whereas, said obligee may from time to time deposit said funds and moneys with said the La Salle Street Trust & Savings Bank:

'Now, therefore, the condition of the foregoing obligation is such that if the said the La Salle Street Trust & Savings Bank shall well and faithfully perform and discharge its duties as such depository, and pay out the funds and moneys so deposited with it, and each and every part thereof, in accordance with the warrant, check, or direction of the said J. A. McCormick, as such treasurer, and shall account for and pay over all moneys received by it as such depository, then this obligation shall be null and void; otherwise, to remain in full force and effect.'

June 12, 1914, the bank failed; defendant in error holding its two obligations as follows:

'The La Salle Street Trust & Savings Bank of Chicago. No. 247. Chicago, Ill., May 1st, 1914. $25,000.00. John A. McCormick, Treas., has deposited with us twenty-five thousand dollars, payable to the order of himself in current funds on the 1st day of August, 1914, without grace, on the return of this certificate properly indorsed, with interest at 3%.'

'The La Salle Street Trust & Savings Bank of Chicago. No. 265. Chicago, Ill., June 11th, 1914. $50,000.00. John A. McCormick, Treas., has deposited with us fifty thousand dollars, payable to the order of himself in current funds on the 3d day of September, 1914, without grace, on return of this certificate properly indorsed. Interest from June 3, 1914.'

Both represent funds of the Sanitary District which defendant in error as such treasurer deposited in the bank. The first, as appears from its date, was deposited before the bond was given, and the last was issued to defendant in error upon his surrender of a similar obligation for like amount given March 3, 1914, and due June 3, 1914, not paid at its maturity, but surrendered and canceled upon the delivery of the new certificate the day preceding the failure of the bank.

Suit upon the bond was brought by McCormick, 'Treasurer of the Sanitary District of Chicago,' and the breaches alleged were the failure of the bank to pay the said two obligations then held by him. While the suit was pending, McCormick ceased to be treasurer of the Sanitary District, and thereupon an amended declaration was filed by him in his own name as plaintiff setting forth that he had resigned as such treasurer, and had fully accounted for and paid over to the said Sanitary District all moneys and funds which had come into his hands as such treasurer, and that said Sanitary District had executed to him an assignment of all rights, if any, which it had in and to the obligation sued upon.

Before BAKER and ALSCHULER, Circuit Judges, and FITZHENRY, District judge.

ALSCHULER Circuit Judge (after stating the facts as above).

Plaintiff in error contends that in any event McCormick has no right of recovery; that the bond describes him as 'treasurer,' and that as treasurer only can he recover, but not in his individual capacity; that the Sanitary District itself had no interest in the bond, and was not protected by it; and that its assignment to McCormick conveys him nothing.

The Sanitary District is a public corporation, and the statute of Illinois which is its source of existence and power provides that its board of trustees shall elect a treasurer, who shall hold office during the pleasure of the board, which shall prescribe his duties and fix the amount of his bond to be given to the board. Chapter 24, Sec. 346, Hurd's Rev. Stat. Ill. (1917 Ed.).

Rule 15 of the board, enacted pursuant to the statute and in force during all of these transactions, provides that the treasurer shall receive all moneys of the district, sign its checks, negotiate all its bonds, and make payments of interest on same, and pay bonds and interest at maturity, 'and he shall convert into the treasury all sums received as interest on any deposit of the funds of the Sanitary District,' fixes his salary at $2,500 per annum, and his official bond to the district at $3,000,000, and provides that--

'The selection of depositories of the funds of the Sanitary District of Chicago in the hands of the treasurer shall be entirely in the control of the treasurer, and no action of the board shall be considered as ratifying the selection of any depository by said treasurer, or in any way waiving the strict liability of said treasurer, for the custody of, and accountability to the board, for said funds.'

This would indicate that the contention is quite sound that the Sanitary District had no interest in this bond, but looked wholly to its treasurer and his official bond for its security. Who, then, but McCormick himself, had any interest in the bond, or could have been contemplated by the parties as being protected by it? It is suggested that when he ceased to be treasurer the action might be brought or maintained by his successor in office. If the district itself has no interest in it, what possible interest in it can his successor have; and when McCormick has made good his unqualified obligation to pay over to the district, what concern is it of either the district or the successor whether or not anything is realized on this private unofficial contract of indemnity? It is urged that the rule of strict construction generally applicable to the obligation of sureties should be here applied. But this is not that ordinary contract of voluntary suretyship, as to which there has arisen a sort of tenderness toward sureties. This is a contract of insurance,...