Commissioner of Banking v. Chelsea Savings Bank

Ostrander, J.

(after stating the facts). In determining the obligation of a surety, the rules of interpretation and of construction employed are not different from those employed in the interpretation and construction of other written agreements. In the case presented there is a bond which refers to a contract between the principal and the obligee in the bond. These instruments may be considered together. It appears that the treasurer of the State, the obligee in the bond, agreed with the Chelsea Savings Bank, the principal in the bond, to make it a depository of a part of the surplus funds of the State and that the bank agreed to accept and safely keep, account for and pay over on demand “ to the amount of the funds so deposited,” and to pay interest upon “ all such surplus *700funds of said State of Michigan as may be offered or deposited by said State treasurer.”

The condition of the bond is that if the said bank shall, in accordance with said contract, safely keep and reimburse and pay over upon demand all moneys belonging to the said State of Michigan, deposited with it by said State treasurer in accordance with said contract, etc., “then this obligation to be void, otherwise, to remain in full force and effect.”

The language employed is not ambiguous; the ordinary meaning thereof is not doubtful. In terms the liability of the surety is that of the principal, limited only by the penalty of the bond and by provision for paying no more than such proportion of the total loss sustained by the treasurer of the State as the penalty of this bond bears to the total of the penalties of all bonds furnished by said bank as principal in favor of said State treasurer. It is said that the express obligation of the surety denoted by the terms of the contract and bond is modified and restricted by the statute; that there was, in effect, an agreement that for all moneys of the State deposited in the bank security would be taken; that this is recognized and is indeed contracted for in the term “as authorized bylaw,” employed in the agreement of the State treasurer and the bank. It is not to be supposed that the State, in accepting security, however ample, released the right to rely, also, upon the property of the bank. Assuming the legislature to have intended that the good and ample security required should be distinct and separate from and in addition to the credit and security afforded by the assets of the bank and the liability of its stockholders, it is a provision exclusively for the protection of the interests of the State. If otherwise construed, if it is held that the statute qualifies the contract of every surety and amounts to an agreement between the State and those furnishing security pursuant to the statute, that there will be no breach of the official duty to require “good and ample security,” the whole purpose of the law is liable to be defeated by a careless or wilful *701failure to obey the law. The term above referred to, employed in the agreement to deposit, must be given a meaning in harmony with this construction of the statute, and must be held to mean that the designation of the bank as a depository of State funds is an official, authorized designation. The provision in the bond which limits liability of the surety to such a proportion of the total loss sustained as the penalty of the bond' bears to the aggregate penalties of all bonds is effectual, according to its terms and its reasonable intent, without reference to the statute. The accounts of the State with banks of deposit are, of necessity, fluctuating. In a particular case, the amount on deposit might be much less than the aggregate of the security furnished. ' It follows that a violation of the statute cannot be complained of by the surety, and the statute in no respect modifies the express obligation of the surety to respond, as the principal should respond, to the amount of the penalty. City of Detroit v. Weber, 26 Mich. 284.

The debt due to the State from the bank is the sum of all deposits. The bank, the principal in the bond, has not paid the debt and upon its failure so to do the surety became at once liable to pay the amount which it had agreed to pay. The surety has paid. It paid the entire penalty of the bond because the debt due to the State from the bank exceeded in amount the aggregate of the penalties of all bonds. The debt of the State has not been paid. The State is proceeding, as a creditor of the bank, to secure and it has accepted, as they have been divided by the receiver, such proportion of the assets of the bank as its debt bears to the total of debts of the bank allowed by the court. It appears that this proportion of the assets will not pay the State or any other creditor in full. The contention of the surety that there has been no loss to the State as to that part of the deposit which it secured, that so much of the deposit as it secured was a separate and distinct deposit and debt, that therefore it has paid the debt in full and is entitled, to that extent at least, to *702be subrogated to the claim of the State against the bank and to recover dividends, requires little consideration further than it has already, inferentially, received. We reject the theory that a particular bond furnished by a depository of State funds, conditioned like the bond in question here, should be treated as securing a particular deposit of funds. And this as well when the State has the “ good and ample security ” which the intervener says it should have taken as when it has not. The deposits in the Chelsea Savings Bank were made, generally, from time to time, and were from time to time withdrawn. That this would be the course of affairs was to be expected, and that it was so understood is evident. All security was given and accepted for all of the deposit, whatever the amount of the deposit might be. If intervener secured and intended to secure any particular deposit of $50,000, it had no occasion to provide that it should pay no greater part of any loss than the proportion of the penalty of its bond to the total penalties of all bonds. Its undertaking is that its principal shall repay all moneys deposited, and it must be construed as a security for the whole debt. It is conceded, and the authorities cited by counsel for the intervener sustain the concession and the general rule, that in such a case the guarantor is not entitled to a share of the dividends which are declared and paid in reduction of the whole debt. 1 Brandt on Suretyship & Guaranty (3d Ed.), § 277; Ellis v. Emmanuel, L. R. 1 Excheq. Div. 157; Dumont v. Fry, 14 Fed. 293.

If the State is of right entitled to a preference and to have debts due to it paid to the exclusion of other creditors, the assets of the bank would have paid the demand substantially in full. Neither in the Constitution nor in the statutes of the State is the right of the State to a preference and priority over other creditors distinctly asserted. If the right exists it is as a prerogative of sovereignty. Successive Constitutions of the State have declared, generally, that the common law shall remain in force, and it is not doubted that by the common law of England it was *703a prerogative right of the sovereign, with some exceptions and limitations, to have debts due to him paid ahead of debts due to his subjects. Whether the States of the Union, independent of statute declarations, have such right, is a question which has received judicial consideration in some of the States. A collection of cases will be found in a note to Freeholders of Middlesex County v. State Bank at New Brunswick, 30 N. J. Eq. 311. See, also, United States Fidelity & Guaranty Co. v. Rainey, 120 Tenn. 357 (113 S. W. 397); State v. Foster, 5 Wyo. 199 (38 Pac. 926, 29 L. R. A. 226, 63 Am. St. Rep. 47); Seay v. Bank of Rome, 66 Ga. 609; Giles v. Grover, 9 Bing. 128 (House of Lords Cases).

The decisions of State courts are not uniform.

The question is not presented for decision in this case unless, assuming the right to exist, the intervening surety may insist upon the exercise of the right by the State. The statute, 2 Comp. Laws, § 6144 et seq., points out the procedure when a State bank has become insolvent. The general banking law, of which the sections referred to are a part, was enacted long after the statute authorizing the deposit of State funds in banks, and it has been since its passage many times amended. The funds of a bank, the possession of which is taken under this act by an officer of the State, are required to be paid, as collected, to the State treasurer. There is no provision for retaining out of such funds moneys due to the State, excluding other creditors of such a bank. On the contrary, ratable dividends are to be made (section 6146) from time to time on all such claims as may have been proved. Without treating the action of the banking commissioner in closing the Chelsea bank as the precise legal equivalent of a fair and bona fide assignment by the bank of its assets for a valuable consideration, it is nevertheless true that the proceedings taken passed all the property of the bank beyond its power or control. This, being the result of enforcement of the State law, should have an effect equal to an assignment for benefit of all creditors. Such an assignment could not *704be avoided by the crown nor could it lay claim to goods seized by tbe sheriff on fieri facias and sold. King v. Lee, 6 Price, 369; Giles v. Grover, 1 Cl. & Fin. 72; King v. Watson, 3 Price, 6; 2 Tidd’s Practice, pp. 1098, 1099; Chitty’s Prerogative of the Crown, 281, 284, 285; State v. Bank of Maryland, 6 Gill & J. (Md.) 205 (26 Am. Dec. 561).

The principle proceeded upon seems to be that the right of priority of the sovereign attaches, as does the right of any lienor, only upon seizure under or enforcement of the proper writ. We do not hesitate to say that, assuming the right of priority contended for to exist in this State, the courts, in the absence of any assertion of the right by the State, and after the debtor has been divested of all control of its property in proceedings authorized by and following the statutes of the State, should not, sua sponte, assert the right in favor of a guarantor of the debtor.

The decree is affirmed.

Montgomery, C. J., Hooker, Blair, and Stone, JJ., concurred.