American Bonding Co. v. United States Fidelity & Guaranty Co.

Pattison, J., delivered the opinion of the Court. In the State of Pennsylvania certain banks, banking institutions and trust companies are designated as depositories in which moneys belonging to the Commonwealth are deposited. The statute of that State (Acts of 1897—131) provides: “Sec. 1. That on or after the first Monday of May, 1898, the State Treasurer of Pennsylvania shall require and collect from each bank, banking institution or trust company, in which funds of the State are deposited, interest on the amount of said deposit at the rate of two per centum per annum. “Sec. 2.

The State Treasurer before making such deposits shall require each bank, banking institution of trust company to give a good and sufficient bond, containing a warrant of attorney to confess judgment ¹⁹¹ in favor of the Commonwealth in double the amount of the contemplated deposit, with sureties to he approved by the Board of Revenue Commissioners of the Commonwealth of Pennsylvania, and no deposit shall at any time be greater than one-half of the amount of the bond furnished by said depository. And further, the said bond or bonds so given shall include a special obligation to settle with and pay to the State Treasurer, for the use of the Commonwealth, the amount of interest as it shall become due, semi-annually.” On the 31st day of December, 1902, while said Act was in force, the Enterprise National Bank of Allegheny, Pennsylvania, one of tlie designated depositories of 'that year and for years thereafter, executed its bond No. 285863 to the Commonwealth of Pennsylvania in the penalty of eight hundred thousand dollars ($800,000), containing the following provisions : “The condition of this obligation is such that if the above bounden Enterprise National Bank of Allegheny, Pa., shall faithfully and honestly keep and account for such funds, moneys, chattels or other property of the Commonwealth of Pennsylvania, which now are or shall hereafter remain on deposit with or be • in custody and keeping of the said Enterprise National Bank of Allegheny, Pa., and shall pay over, deliver and account for the same, and any and every part thereof, from time to time and at any time when the same shall be demanded, to or upon the order of the said Frank G. Harris, State Treasurer as aforesaid, or of Ms successor in office, and shall also from time to time, when the same shall he demanded by the said Frank G. Harris, or his successor in office, pay to Mm or to his order for the use of the Commonwealth the whole or any part of such sum or sums of money deposited as aforesaid as the said Enterprise National Bank of Allegheny, Pa., may owe to the Commonwealth of Pennsylvania; and shall also pay over ¹⁹² to the said Frank G. Harris, State Treasurer, or his successor in office, for the use of the Commonwealth, interest on said moneys at the rate of two per centum per annum, payable semi-annually, then this obligation to be void, otherwise to be and remain in full force and virtue. “And, further, the obligor above named, upon the happening of any default in the payment of principal or any installment of interest, when the same becomes due and payable according to the terms hereof, hereby authorizes and empowers any attorney of any court of record in Pennsylvania or elsewhere to appear for and confess judgment for the above sum, with or without declaration, with costs of suit, release of errors, without stay of execution, and with five per centum added for collections fees, and the obligor doth also hereby waive the holding of inquisition on any real estate that may be levied on by virtue hereof. The obligor further agrees that execution may issue upon such judgment so confessed for the full amount of money and accrued interest thereon that may be due and owing from it to the said Commonwealth of Pennsylvania, upon filing a suggestion in writing in the court wherein such judgment shall be entered.” Upon the foregoing bond is found the following endorsement : “For value received, we do hereby jointly and severally bind ourselves and become security to the Commonwealth of Pennsylvania for the payment of the . foregoing bond, and the faithful performance by the said Enterprise National Bank of Allegheny, Pa., of the conditions of the said bond, according to its terms, and in case of a breach of any of the conditions of the foregoing bond, we hold ourselves bound as principals for any debts arising thereunder, and agree to answer for the same without regard to and independently of any action taken against the said Enterprise National ¹⁹³ Bank of Allegheny, Pa., and whether the said hank he first pursued or not. “And further, we do hereby authorize and empower any attorney of any court of record in Pennsylvania or elsewhere to appear for and confess judgment against us, and each of us, for the sum of eight hundred thousand ($800,000) dollars with or without declaration, with costs of suit, release of errors, without stay of execution, and with five per cent, added for collection fees; and we do further hereby waive and release all relief and benefit from any and all appraisement, inquisition, stay of exemption laws of this State or any State now in force or hereafter to he passed. Said collection fee is hereby directed to he added in and constitute a part of said debt and judgment.

And we further agree that execution may issue upon such judgment so confessed for the full amount of money and interest that may he due and owing from said bank to the Commonwealth, with attorneys’ commissions, upon filing a suggestion in writing in the county wherein such judgment shall be entered. “As witness our hands and seals this 31st day December, in the year of our Lord one thousand, nine hundred and two. The United States Fidelity & Guaranty ( Corporate Seal) Company. (Signed) Edw. J. Penniman, 2nd Yice-President.

(Signed) W. W. Symington, 3rd Asst. Secretary.” On the 12th day of October, A. D. 1905, the appellee still remaining bound as surety on the aforesaid bond, the following re-insurance agreement, drawn by a representative of the appellant, the American Bonding Company, was duly executed by it and the appellee, the United States Fidelity & Guaranty Company: “Whereas the ‘Re-Insured’ has issued its certain bond or guarantee, numbered 285863,- and bearing date ¹⁹⁴ the 31st day of December, 1902, in the sum of eight hundred thousand ($800,000) dollars, guaranteeing the Enterprise National Bank, Allegheny, Pennsylvania, as a depository of the Commonwealth of Pennsylvania, and has applied to the ‘Re-Insurer’ for re-insurance or counter security to the extent of the sum of fifty thousand dollars ($50,000), or. one-eighth of' any such sum or sums as the ‘Re-Insured’ may become liable to pay, and pay, under or by virtue of said Bond No. 285863, a copy of said bond being hereto attached. “Now, therefore, the ‘Re-Insurer,’ in consideration of the sum of one hundred ($100) dollars, to be paid by the ‘Re-insured’ to the ‘Rerinsurer,’ the receipt of which is hereby acknowledged, subject to the following provisions, covenants and agrees to pay to the ‘Re-insured’ one-eighth of any sum or sums which the ‘Re-insured’ shall become liable to pay, and pay, under said bond during a period of one year beginning March 10, 1905, and ending March 10, 1906; and also a like proportion of all expenses, costs and counsel fees incurred by the ‘Re-insured’ in investigating, settling or resisting any claim made, or defending or attempting to defend any action brought upon said bond. “Provided the amount deposited in said bank, as such depository, at any one time shall not exceed the sum of four hundred thousand ($400,000) dollars; and “Provided that the ‘Re-insured’ shall not be liable to the ‘Re-insured’ hereunder for a greater sum than fifty thousand ($50,000) dollars and provided that the said ‘Re-insurer’ shall be entitled to share in the proportion fifty bears to four hundred, with the ‘Re-insured’ all rights, resources and benefits which the ‘Re-insured’ may have against the said Enterprise National Bank and the Commonwealth of Pennsylvania, arising out of the provisions, reservations and conditions of said Bond No. 285863, etc.” On the 18th day of October, 1905, the Enterprise National Bank was closed by the Comptroller of the Treasury ¹⁹⁵ of the United States and placed in the hands of a receiver, because of its insolvency, and on or about the 21st day of the same month demand was made by the Treasurer of the State of Pennsylvania upon the appellee, as surety on said bond, for the losses that the State had sustained because of the bank’s failure to account for and pay over to the State all deposits made with it and such interest as it under the bond was required to pay. ■ In response to this demand, the appellee thereafter paid over to the Treasurer of the State a large sum of money, representing the amount of deposits not accounted for and interest as aforesaid. This suit was then brought and a judgment recovered by the appellee against the appellant upon said re-insurance agreement for the sum of twenty-nine thousand, two hundred and ninety-nine dollars and forty-two cents ($29,-299.42). It is from that judgment this appeal is taken.

There are but two exceptions found in the record, one upon the admission of evidence and the other upon the rulings of the Court on the prayers. We will first consider the action of the Court upon the prayers. The plaintiff offered but one prayer, which was granted. The defendant offered three, all of which were rejected.

The defendant’s first and second prayers and the demurrers to its second and fifth pleas raise the question of defendant’s liability under its reinsurance agreement with the plaintiff. There were outstanding and in force at the time of the execution of the said re-insurance agreement five other similar bonds' of the Enterprise National Bank that were not secured by the plaintiff. These bonds were of the following dates and penalties: May 24th, 1898, two hundred thousand dollars; August 23, 1898, one hundred thousand dollars; April 16, 1901, one million dollars; June 21, 1902, one mil ¹⁹⁶ lion, two hundred thousand dollars; January 6, 1904, one million dollars. On December 30th, 1902, the day preceding the execution of the bond upon which the plaintiff is surety, there was standing to the credit of the Commonwealth of Pennsylvania, on the books of the bank, the sum of five hundred and seventy-five thousand ($575,000.00) dollars; on July 1st, 1905, the sum of one million, eighty thousand ($1,080,-000.00) dollars, and from October 2nd, 1905, up to and including October 18th, 190-5, the sum of one million and thirty thousand ($1,030,000.00) dollars.

It will thus be seen that at the time of the execution of the reinsurance contract, and for a long time prior thereto, there was upon the books of the bank, to the credit of the Commonwealth, an amount greatly in excess of four hundred thousand ($400,000) dollax’s, and because of this fact it is contended by the defendant that it is x*elieved of all liability under its re-insurance agreement. This contention is based upon the clause found in the agreement where it is said, “provided the amount deposited in said bank as such depository, at any time, shall not exceed the sum of four hundred thousand ($400,000.00) dollars.” This provision is construed by the defendants to be- a condition of liability, and by the plaintiff a limitation of liability and not a condition of liability. It is contended by the defendant that under the aforegoing clause of the agreement if, at any time duxdng the life of the' agreement, the amount of deposits upon the books-of the bank, to the credit of the Commonwealth, exceeded four hundx’ed thousand ($400,000.00) dollars, such fact relieved the defendant of all liability under its said reinsur1ance agreement, although the aggregate penalties of other bonds, with the- penalty of the bond°before us, were at all times twice the amount of deposits to the credit of said Commonwealth. In other words, the amount of deposits in said bank to the credit of the Commonwealth deposited therein ¹⁹⁷ under all the bonds were not at any time to exceed the sum of four hundred thousand ($400,000.00) dollars.

If they did, the defendant was relieved of all liability under its said reinsurance agreement, and as the amount of deposits under all of the bonds was in fact at all times during the life of the agreement in excess' of said sum, the defendant thereby escaped all liability under its said agreement with the plaintiff. On the other hand, the plaintiff contends that this