Oakland Cnty. v. Cent. W. Cas. Co.
| Decision Date | 03 April 1934 |
| Docket Number | No. 126.,126. |
| Citation | 266 Mich. 438,254 N.W. 158 |
| Parties | OAKLAND COUNTY et al. v. CENTRAL WEST CASUALTY CO. |
| Court | Michigan Supreme Court |
OPINION TEXT STARTS HERE
Appeal from Circuit Court, Oakland County; Herman Dehnke, Judge.
Suit by the County of Oakland and others against the Central West Casualty Company. Judgment for plaintiffs, and defendant appeals.
Remanded, with directions.
Argued before the Entire Bench.Beaumont, Smith & Harris, of Detroit, for appellant.
Arthur P. Bogue, Pros. Atty., and Robert D. Heitsch, Asst. Pros. Atty., both of Pontiac, for appellee Oakland County.
Goodenough, Voorhies, Long & Ryan, of Detroit, for appellees John C. Spaulding and Irvin Long, receivers.
February 10, 1930, defendant executed and delivered to plaintiff county of Oakland a depository bond in the penal sum of $50,000, which bond was continued in force to a date subsequent to June 13, 1931. The bond was given to entitle the Pontiac Commercial & Savings Bank to qualify as a depository of moneys and funds of the county of Oakland, pursuant to sections 1193 to 1202 of 1 Comp. Laws 1929.
June 13, 1931, the bank closed its doors and defaulted in the performance of the conditions of said bond by refusing to pay the funds of the county then on deposit with the bank. When the bank failed it had depository bonds running to the county in the total sum of $825,000 and the total deposits subject to withdrawal by the county treasurer amounted to $2,160,860.53. The county has received dividends from the insolvent bank in the amount of $183,000.
Defendant's bond contained the following paragraphs:
‘If the amount of the Obligee's deposit at the time of the default of the Principal does not exceed the amount of this bond, the Surety shall be subrogated to all rights of the Obligee against the Principal and any other person or corporation, as respects such default; and the Obligee shall execute all papers required, and shall co-operate with the Surety to secure to the Surety such rights.
Upon refusal of defendant to pay, the plaintiffs brought suit, and the lower court awarded judgment for the plaintiffs in the amount of the bond together with interest from the day of the bank's default.
Defendant contends that under the terms of the bond the guaranty covers only funds of Oakland county and that moneys held by the county temporarily as custodian only are not covered. This contention of the defendant is without force, as the case of Muskegon County v. Michigan Surety Co., 264 Mich. 65, 249 N. W. 454, decided that moneys collected by the county treasurer and deposited in the depository bank are protected by the depository bond, although they belong to other governmental agencies and must eventually be paid over to them.
Defendant next contends that the subrogation clause in the bond is valid and enforceable. This clause provides that if the amount of the obligee's deposit at the time of default exceeds the amount of security, the surety shall be entitled to share with the obligee dividends received in the propertion that the amount of the bonds bears to the total amount of the deposit at the time of default, and that the obligee shall execute all papers required to secure to the surety such rights. The effect of this clause is to require as a condition precedent to defendant's liability the execution of documents by plaintiffs directing the receiver to pay defendants a certain proportion of the dividends paid by the bank before full reimbursement has been received by the county.
The real question is whether such a subrogation clause is valid under the facts as shown in this case.
In determining this question we must have in mind that there must be read into every statutory bond the provisions of the statute and that stipulations and conditions at variance with the statute must be read out of the bond. The parties are held to know the law and to have made the contract with that knowledge in mind. Muskegon County v. Michigan Surety Co., 264 Mich. 65, 249 N. W. 454;Lawrence v. American Surety Co., 263 Mich. 592, 249 N. W. 3, 88 A. L. R. 535.
The applicable statute (section 1195, 1 Comp. Laws 1929) prescribes:
Under the principles of equitable subrogation, one who has paid another's debt is not entitled to subrogation until the claim of the creditor has been satisfied in full. Stearns, Suretyship (3d Ed.) § 245; 9 A. L. R. 1596, note. Where the principal debtor is insolvent (as in the instant case), a creditor who is secured for part of his claim by a surety may prove the full amount of his claim against the bankrupt, in addition to enforcing payment from the surety to the limit of the surety's liability, but any dividends received by the creditor above the total amount of his claim are held in trust for the surety. Arnold, Suretyship and Guaranty, § 216. In other words, where the surety is liable for only a part of the debt, he is not entitled to participate in dividends until the creditor is paid in full. Commissioner of Banking v. Chelsea Savings Bank, 161 Mich. 691, 125 N. W. 424,127 N. W. 351.
The defendant relies upon the case of Lawrence v. American Surety Co., 263 Mich. 592, 249 N. W. 3, 5, 88 A. L. R. 535, to support its contention that the subrogation clause is valid and enforceable. The issue involved in that case was the validity of the ‘pro rata’ clause under which the liability of the surety was limited to a proportionate amount of the total loss based on the ratio of the defendant's bond to the total of all bonds insuring the loss. It was held that this clause merely specified a maximum liability without qualifying the obligation of the bond. The decision in the Lawrence Case, supra, was based upon the following statute (section 348, 1 Comp. Laws 1929): ...
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