National Surety Company v. Franklin Trust Company
| Decision Date | 15 January 1934 |
| Docket Number | 309,293,292,294,308 |
| Citation | 170 A. 683,313 Pa. 501 |
| Parties | National Surety Company (et al., Appellants) v. Franklin Trust Company, Appellant, et al |
| Court | Pennsylvania Supreme Court |
Argued December 5, 1933
Appeals, Nos. 292, 293, 294, 308 and 309, by intervening plaintiffs, and defendant, Franklin Trust Company, from decree of C.P. No. 3, Philadelphia Co., Dec. T., 1931, No 4404, in case of National Surety Company and Glens Falls Indemnity Co. et al., intervening plaintiffs, v. Franklin Trust Company, in hands of William D. Gordon, secretary of banking, and The Pennsylvania Company for Insurances on Lives and Granting Annuities. Decree affirmed in part and reversed in part.
Bill in equity to recover bonds pledged as indemnity. Before DAVIS P.J.
The opinion of the Supreme Court states the facts.
Decree awarding sum of $45,035.50 to plaintiff and balance of fund to cosureties. Cosureties and defendant appealed.
Error assigned, inter alia, was decree, quoting record.
The decree of the court below is affirmed except in so far as it directs the surplus on the sale of the bonds to be divided among the other four indemnitors, which surplus we now decree must be paid to the Franklin Trust Company, in the hands of William D. Gordon, secretary of banking of the Commonwealth of Pennsylvania. The costs on these five appeals are to be paid out of the fund for distribution.
Claude B. Wagoner, with him Glenn A. Troutman, Charles S. Wesley, Special Attorneys, Shippen Lewis, Special Attorney General, and William A. Schnader, Attorney General, for defendant, appellant in No. 292.
Frederick H. Spotts, with him James A. Montgomery, Jr., and Pepper, Bodine, Stokes & Schoch, for intervening plaintiffs, appellants in Nos. 293 and 294.
Frederick W. Gourlay, with him Lewis, Adler & Laws and Felix & Felix, for intervening plaintiff, appellant in No. 309.
Herbert A. Barton, with him Swartz, Campbell & Henry, for intervening plaintiff, appellant in No. 308.
Earl G. Harrison, with him Murray Forst Thompson, Thomas P. Mikell and Walter Biddle Saul, of Saul, Ewing, Remick & Saul, for plaintiff-appellee.
Before FRAZER, C.J., SIMPSON, KEPHART, SCHAFFER, MAXEY, DREW and LINN, JJ.
The school district of the City of Philadelphia, as a condition precedent to the deposit of any of its funds with the Franklin Trust Company, required of the latter indemnity in the sum of $500,000, which was given as follows: by the United States Fidelity & Guaranty Company two bonds in the sum of $100,000 each, and by the Union Indemnity Company, the Maryland Casualty Company of Baltimore and the Glens Falls Indemnity Company each one bond in the sum of $100,000. Several years later, as the result of negotiations growing out of the desire of the Glens Falls Indemnity Company to be released from liability on its bond, it was finally arranged that if the trust company could obtain an acceptable new bond for $75,000, with some other company as surety, and could obtain from the school district and deliver to the Glens Falls Indemnity Company, for cancellation, its $100,000 bond then outstanding, it would execute and deliver a new indemnity bond to the school district in the sum of $25,000.
In order to accomplish this, the trust company made application to the National Surety Company for a bond of $75,000 in favor of the school district, but it refused to execute and deliver such a bond until and unless the trust company deposited $75,000 of the bonds of the United States Government as counter-indemnity to the surety company. On these terms the negotiations were finally concluded. The National Surety Company executed its bond for $75,000 in favor of the school district, and the trust company delivered to the Pennsylvania Company for Insurances on Lives & Granting Annuities, the stakeholder agreed upon by the parties, "$75,000 par value, United States Treasury 3 1/4% Bonds, 1946-56, with March 15, 1932, and subsequent coupons attached." The receipt for the bonds executed and delivered by the Pennsylvania Company, stated that "These bonds are deposited to the joint account of the Franklin Trust Company, and/or the National Surety Company, subject to a further agreement which will be lodged with us," but they were in fact deposited to counter-indemnify the National Surety Company, as above set forth. The "further agreement" referred to in the receipt was agreed to and prepared, but before it could be delivered to the Pennsylvania Company, in the usual course of business, the trust company and all its assets were taken over by William D. Gordon, secretary of banking of the Commonwealth of Pennsylvania, and since that time the trust company has been debarred from transacting any business whatever.
At the time this occurred the school district had on deposit with the trust company the sum of $300,035.50, which the former demanded that its indemnitors should forthwith pay, and this they respectively did as follows:
United States Fidelity and Guaranty Co.
$120,000.00
Union Indemnity Co.
60,000.00
Maryland Casualty Co.
60,000.00
Glens Falls Indemnity Co.
15,000.00
National Surety Co.
45,035.50
Total
The latter company, in order that it might, by their sale, obtain a fund from which it could be reimbursed for the $45,035.50 it had paid, demanded of the Pennsylvania Company a delivery to it, the National Surety Company, of the $75,000 of Government Bonds so as aforesaid held by the former, which refused to deliver them, however, unless the secretary of banking would consent thereto. He refused to consent whereupon the National Surety Company filed the bill in equity in this case, against the trust company in the hands of the secretary of banking, and the Pennsylvania Company, praying a decree that said $75,000 of Government Bonds be delivered over to it, the plaintiff. Subsequently the other four surety companies, who had helped pay the school district, claiming that they were interested in the fund which would be realized on the sale of the bonds, asked and were granted leave to intervene as parties plaintiff.
Answers to the bill in equity were filed by the original defendants and the intervening plaintiffs were excused from filing any pleadings. All the parties in interest were then duly heard, and, after exceptions to the adjudication of the chancellor had been dismissed, a final decree was entered directing (1) a sale of the Government Bonds, (2) that out of the proceeds realized thereby the National Surety Company should receive its $45,035.50 with interest, (3) that the "costs of all parties to this proceeding shall then be paid," and (4) that whatever remained should be divided among the four other indemnity companies, in proportion to the amounts which they had respectively paid to the school district of Philadelphia on account of liability on their respective bonds of indemnity. These five appeals were then taken, one by the Franklin Trust Company in the hands of the secretary of banking, and one each by the other four indemnitors between whom the final distribution was directed to be made.
The following questions are raised and were elaborately and skillfully argued:
1. Had the Franklin Trust Company authority in law, to deliver its Government Bonds to indemnify the National Surety Company, in order that thereby it might be...
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