# Brief for the Respondent — Amer. Surety Co. v. Bethlehem Bank

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Brief for the Respondent
- **Published:** January 1, 1941
- **Citation:** 314 U.S. 314

## Text

FILE COPY hi-tiintun es

FIL.wD
OCT 21 :31]

| CABLES ELWOME CAOPLEY
OLERK
IN THE
Supreme Court of the Anited States

Ocronern Trim. 1941.

\urnteax Surery Company or New Youn, Petitioner,
V.

Tour Bermieuem Narioxat Bank or Berucenem, PEN NsYL-
vanta, apd LL. M. Reep. Receiver, The Bethlehem Na
tional Bank of Bethlehem, Pennsvivantia, Respoudents,

BRIEF FOR THE RESPONDENTS.

Grongr PL Banse
(Couns | for Comptrolier of
the Currency),
Attorney for Be sponds wes.
PP. MeFappes,
Ie thlehem, Pennsvivania,
Of Counsel,

+ Rey Srover,
'soqaetT BreKkincuam,

ican Berne,

As-istant Counsel for
(oniptroller of the Currency),

Of Counsel,

Pesso Or ByRon SS. Adams. Washi naton, D.C

INDEX.

Subject Index.

Bae, mmmenry Of Avamment . coc cc ccccsccccccccccecs
PD ata oie a ee rae elu aa hes

A—The claim of a surety for reimbursement must
be measured by the amount the surety actually
pays the principal’s creditor under the re-
quirements of the surety’s bond. The fact of
insolvency of his principal does not permit en-
hancement of, or increase in, the face amount
of said claim as permitted to be filed in the
insolvency proceedings as a basis of dividend
payments thereon te the surety from the estate
Or oo o'l re id. an bee bade cas

(1)—It is settled law that the claim of the
surety for reimbursement from the prin-
cipal, or from the estate of the principal,
must be measured by the amount paid by
the surety to the creditor of the principal
under the requirements of the surety
bond. This is the measure of recevery,
irrespective of whether reimbursement
ig sought upon a claim of indemnity, or
under a claim of subrogation ..........

(2)—It would seem entirely clear, in principle,
that the fact that the principal has be-
come insolvent, and has been placed in
liquidation proceedings, does not permit
enhancement of, or increase in, the facfe
amount of the provable claim of the
surety in the liquidation proceedings. As

Index Continued.

Page

previously indicated, the basis of reim-
bursement of the surety is measured by
the amount he is required to expend for
the benefit of the creditor under bond.
Any possible doubt in this connection,
so far as concerns provable claims
against insolvent national banks in re-
ceivership, is removed by the provisions
of section 5236, Revised Statutes, (Sec.
194, Title 12, U. S. C.), requiring ratable
dividends, and by construction of the
statute by the courts, to the effect that
the claims established thereunder must

be in the amount owing to the claimant
by the bank as of the date of closing of
ETE 6 0 0 6 0666000 6400494600005 c0% 8

B—It would be inequitable to the general deposi-
tors and creditors of the receivership bank to
allow the surety company, by subrogation or
otherwise, a claim, as the basis of dividends,
in the sum of $135,000, representing the full
amount of the deposit of the commonwealth at
the time of the suspension or closing of the
SN io uo 6000 bbe0essecudecesiesseéenescess 9

(1)—-The deposit balance to the credit of the
Commonwea!th on the date of suspension
or closing of the bank was more than
double the amount permitted by the State
statute and hence, to the extent at least
of the excess, was illegal .............. 10

(2)—In balancing the equities, the general de-
sitors and creditors of the receivership
ank are entitled to have the benefits of
the surety bond, rather than to have it
weighed in the balance against them. The
District Court, (R. 16-17) and also peti-
tioner, in adopting (page 15 of his peti-
tion for writ of certiorari) the position
and reasoning of the District Court—to
the effect that the general depositors and
creditors of the bank would be receiving
a ‘‘windfail’’ by reason of ‘‘purely for-

™
. ‘ one neem eee NS NTN ES 8 SY

Index Continued. iii

Page

tuitous’’ (R. 17) circumstances, in con.
sequence of the execution of the surety
bond-——were clearly in error, both in rea.
soning, and in the assumptions of fact,
upon which reliance was made ......... 14
6
(‘—The case of Merrill v. National Pank of Jack-
sonville, (1899) 173 U. S. 131, relied upon by
petitioner, does not support his position, but,
to the extent applicable to the instant case,
supports the position of respondent ........ 22

(1)—Analysis of the Merrill case ........... 22

(2)—Comments end observations concerning
the Merrill vase in so far as it may apply

to, or may be distiguished from, the in-

Se Ab an Neen decad ewecneawees ees 24
Ws RT cit cig cddaenedehhdne aeedeeecenna 27
Wis SEE 6 Gn & bebo nce euredveseesesduvenceesvin 28
CASES CITED.
Page
Aetna Life Insurance Co. v. Middleport, (1888) 124
FF Perr rrr ree enehnneéceuces 10
American Surety Co. v. De Carle, (C. C. A. 9th, 1928)
Ts 5... Gussie nseececeaeuhiaseeesaieees 35
American Surety Co. v. Westinghouse Electric Manu-
gS eee 7
Bates v. Swiger, 40 W. Va. 420, 21S. E. 874.......... 12
Batsell v, Richards (Tex. 1891), 16 S. W. 313........ 7
Board of Commissioners v. Strawn, (C. C. A. 6th, 1907)
Pt? 17. cease kanee keen eiedacueoneke 12
Boyer v. Bolender, 129 Pa. 324, 18 Atl. 127 .......... 12

Brown v. Thompson, et al., 128 S. E. 309,99 W. Va. 56 7
City of Fort Worth v. McCamey (C. C. A. 5th, 1937)

_ 93 F (2d) 964, cert. denied 304 U.S. 571.......... 9
City of Oakland v. Hartford Accident & Indemnity Co.,
(C. C. A. 6th, 1936) 81 F’. (2d) 717 .............. 35

Commonwealth v. U.S. F. & G. Co., (Pa. 1934) 170 Atl.
Cae Joewcchsunbedueneeeate ' ‘dithatweeons ws 18

iv Incex Continued.

445 ae 00 ae od PAN AT AEE Owen aOR eae e OO ek AE
Coonrod v. Kelly, (C. C. A. 3rd, 1902) 119 Fed. 841. .13, 14
Dairymen’s Co- operative Sales Co. v. Maryland Cas.

Co., (1934) 11 F. Supp. 423, aff. C. C. A. 78 F.

I oe a ee et yas, 37
oun v. Elmira Savings Bank, (1896) 161 U.S. 275.. 37
Eshleman v. Bolenius, 144 Pa. 269, 22 Atl. 758....... 12
Faires v. Cockerell, 31 S. W. 190, 88 Tex. 428 ........ 7
Fimamv. State of So. Dak. (C. C. A. 8th, 1928) 29 F.

(ah) 776, cert. denied 279 U.S. 841 ............ 12
Ft. Dodge Building & Loan Association v. Scott, (Iowa,

og SR SY ee ree 13
Fouts v. Maryland Casualty Co., (C. C. A. 4th, 1939)

i SR en. nae c eine a gest aussie as 39
Galliland v. Williams, 181 Ala. 173, 61 eS 12
German Savings and Loan Society v. Tull, (C. C. A.

en I oe eo 12
Gifford v. Rising (Sup. Ct. N. Y. 1891), 12 N. ¥Y. 8.430 7
Huey v. Brand, (1936) 92 S. W. he ike ERE es 32
In re Freeman & Brooks (C. C. A. 7tb, 1924), 1 F. wit

ir le els eg ne bas Se huh 6.0.0 5s 7
In re Harr, (Pa. BS. (t., 3935) 179 Atl. 725... 6c censs 22
In re Kent Refining Co. (W. D. Mich., 1937), 20 F.

i eres rie ase a Kew Uak eek Wa De ae aan 7, 26
In re Deumeciiben Motor Car Co. (Mass., 1924), 299

RR Cl a hg a aaah 5g 7
In re South Philadelphia State Bank’s Insolvency,

(1929) 295 Pa. 433, 145 Atl. 520 ................ 19
In re Thompson, (W. D. Pa., 1924) 306 Fed. 215...... 36

Jennings v. U.S. F. & G. Co., (1935) 294 U.S. 216.... 0 37
Justice v. Empire State Surety Co., (Pa., 1953) 209

io Se SUR US Re 37
Krebs v. Bezler (Mo., 1936), 89°S7 W. (2a) ae 7
Lacy v. Maryland Casualty Co. (C. C. A. 4th, 1929), 32

F. (2d) “Ae alti aan eee a rah enna am
Lidderdale’s Executors v. Executor of Robinson,

SE Oui vu ns cca beeks cuende sake mews 37

Maryland Casualty Company v. Cox, (C. C. A. 6th,
Se We se i 6 Suv ed hos caduavauacvenss
McCandless v. Dyar (S. D., 1928), 34 F. (2d) 989...... 9
McDonald v. Chemical National Bank (1899), 174 J. S.

SoG SH 0a k cue his ENE beans dee oeutaeeees

“Index Continued. Vv

Page

Memphis & Little Rock Railroad +. Dow, (1887) 120
i Serre pert re rr ere rrr Tere
Merchants National Bank v. Schoo] District, (C. C. A.

Me Ok 8 eerrrerre frer reer rier rr 12
Merrill v. National Bank of Jacksonville, (1899) 173

Bs ae as sc eae ko ce eee esas eae 5, 9, 22
Meyers v. Bank of America Nat. Trust & Savings

Ass’n., et al. (1938), 77 Pac. (2d) 1084..........
Montgomery v. Ward, (Ala., 1933) 151 So. 583 ....... 12

Morrah v. The First National Bank, 65 S. W. (2d) 830 31
Napier v. Duf, (1939) 281 Ky. 779, 136 S. W. (2d) 10837
Old Company’s Lehigh v. Meeker, (1935) 294 U.S. 227 37
Penn. R. Co. v. Fidelity & Deposit Co., (C. C. A. 3rd,
ee ee hs ee EE ro ek cccue ye caeeeks sees’ 22
Phipps v. Fuqua (Tex. Civ. App. 1930), 32 S. W. (2d)
660

ce hae Kate ig Gian lank ae we Wiel oo 60 e-y 9 7
Porter v. Ourada, (Nebr. 1897) 71 N. W. 52.......... 13
Poweshiek County v. Merchants Nat. Bk., (Iowa, 1928)
I A a oN Se alg 12
Reserve Loan Life Insurance Co. v. Dulin (Ind. App.
eR lk Oy ere Pe ree 7
Ross v. Lee (S. D. Fla. 1936), 15 F. Supp. 972, 973 ..... 9
Royal Indemnity Co. v. White Engineering Corp., 120
PE SE BO ie Ss I ca hk can seer esseveysee 7
Scott v. Armstrong, (1892) 146 U.S. 499............. 9
Shaw v. New Amsterdam Cas. Co. (1933) 310 Pa. 213,
Se St Sak ee even es 36
Smith v. Wells, (Ind. 1919) 122 N. E. 334............ 7
Sokoloff v. Fidelity and Casualty Co., (1927) 288 Pa.

Be Re ee re ener ee 22
Steele v. Randall (C. C. A. 8th, 1927), 19 F. (2d) 40... 9
The Livingstone (C. C. A. 2nd, 1904) 130 Fed. 746.... 7
The Old National Bank v. Swearing, 72 S. W. (2d) 545;

I a ob we 63 oe 4 aw Oe a LAS «a 31
Troyer v. Bank of Dequeen, (Ark. 1926) 281 S. W. 14. 12
Union Indemnity Co. v. Stevens, (C. C. A. 5th, 1932),

Oe bial cr ada cou chaSkeewav aware 7
United States Fidelity Company v. Weoldridge, (1925)

EM EE 6 cs eda bake uhewe kEeu wane ee ae 16
U.S. F. & G. Co. v. Hood, (1934) 206 N. C. 639, 175

ori 64 so thad en eds andes e seus ereKe 26

U.S. N. B. of Centralia v. City of Centralia, (C. C. A.
9th, 1917) 240 Fed. 93, cert. denied 243 U.S. 656.. 12

vl Index Continued.

Wallace v. Benner, (1931) 156 S. E. 799
Ward v. First Nat. Bank of Caruthersville, (C. C. A.

ee A Oe ere er rere 26
White ¥, BRBOR, TPE) BFE Us B. 6OOs 6 6 veccicc dence, 9, 23
Withers v. D’Auria Bank & Trust Co. (1987) 122 N. J.

ee eS eee rere ee Tree 26
Young v. American Bonding Co., (1910) 228 Pa. 373,

SET ag he ee a oo AO eee 18, 21, 36

STATUTES CITED.

Page
Section 5236, Revised Statutes ..... 1.25. ccesceveses 4,8
Se Ae a i as ho ies eee ece es ver eenee ss 4,8
See. 3812, Title 72, Purdon’s (1936) Pa. Stats. ....... 1]
See. 3791, Title 72, Purdon’s (19386) Pa. Stats. ....... 1]

MISCELLANEOUS CITATIONS.
i ee ea what e hee is Gala 14
ey ag I is BR SURO «Cuba eu Seen neeedsaen vows 13
ee ec ark hued us hee ee ae ae Ye Aa 6,7
Oe ec ade UaceNecueu de seee cas ie Sauk ss 2
Fb eS eae re irene ee hres a
Se res OE oko 4 bine GAS weed RN ae oad Ae 7
Restatement of the Law—Restitution—See. 162 (¢) ... 6
Sheldon on Subrogation, (2d Ed.) See. 4, p.5 2.2.2... 10)
APPENDIX.
Administrative Code of Pennsylvania ............... a
ee os a on ee eV Cees wee eas 28
a SERN RA re a

IN THE

Supreme Court of the Anited States

OcroBER TERM, 1941.
No. 29.

American Surety Company or NEw York, Petitioner,
v.

Tue BETHLEHEM NATIONAL Bank or BETHLEHEM, PENNsyYL-
vania, and L. M. Reep, Receiver, The Bethlehem Na-
tional Bank of Bethiehem, Pennsylvania, Respondents.

BRIEF FOR THE RES?PONDENTS.

I.
THE FACTS.

The facts are not in dispute. The case was decided upon
the pleadings, (consisting of the bill of complaint and ex-
hibits thereto attached (R. 2-10), and the motion to dismiss,
—k. 10) as supplemented by twe stipulations of counsel (R.
11-13; 21-22). The allegations and statements comprised
within the pleadings and the stipulations, are summarized
in the petition for writ of certiorari (pp. 2-4; 9-10).

However, in view of the fact that the bond securing the
deposit of the Commonwealth of Pennsylvania (signed by

9
i

the bank as principal, and by petitioner as surety), was
dated and became effective as of December 10, 1928, whereas
the bank was placed in conservatorship on March 15, 1933,
it was deemed appropriate to remove any doubt that might
be entertained,—from the face of the record,—as to whether
the bond had been kept continuously in force and effect by
the payment by the bank to the surety of the required annual
premiums during said period. Hence, by agreement of
counsel, a letter was written by counsel for petitioner, dated
October 10, 1941, clarifying the record in this respect, with
the understanding, as indicated in said letter, that the facts
therein stated should be

‘‘submitted to the Supreme Court of the United States
for its consideration to the same extent and effect as
if included in the formal transcript of record, and that
our agreement in this regard may be evidenved by the
insertion of a copy of this letter as an appendix of
Respondents’ brief which you are about to file.”’

Accordingly, a true copy of said letter of October 10, 1941,
is contained in the appendix hereof at p. 28.

Attention is also directed to an inadvertent but erroneous
assumption of fact by the District Court to the effect that
the surety bond in question had been ‘‘bought and paid
fer’? by the Commonwealth of Pennsylvania (R. 16):

‘*On the one hand, it the surety be allowed dividends
on the full amount of the creditor’s claim, they will
be based upon an amount in excess of what he has ex-
pended, whereas the general creditors will be sharing
only on the basis of their actual advancements. If,
on the other hand, the surety is limited to the amount
which he has actually paid as the basis of his claim,
then the general creditors get a windfall, for no other
reason than that one of them has bought and paid for
additional protection which none of the others chose
to take—for, of course, if there had been no surcty-
ship, the creditor would be proving and receiving divi-
dends on the full amount of his claim.’’ (Italics in-
serted)

3

II.
QUESTIONS PRESENTED.

The questions presented are summarized in the following
extract from the opinion of the court below: (R. 16)

‘‘The question before the court on this appeal is the
basis upon which the plaintiff surety might prove and
receive dividends, Plaintiff takes the position that it
is entitled to dividends upon the full amount of its
obligee’s original bank claim which was $135,000. The
court below, after a carefully prepared and thought-
fully reasoned opinion, sustained the plaintitf’s view.
The receiver contends that plaintiff is entitled to par-
ticipate in the liquidation of the bank to the extent of
a claim of $68,588.56, the amount it actually paid to
the Commonwealth. There is also the question of
whether the plaintiff is entitled to interest upon further
dividends which have been declared and paid to other
creditors, but which the plaintiff has not received.”’

III.
SUMMARY OF ARGUMENT.
A.

THE CLAIM OF A SURETY FOR REIMBURSEMENT
MUST BE MEASURED BY THE AMOUNT THE
SURETY AUVTUALLY PAYS THE PRINCIPAL'S
CREDITOR UNDER THE REQUIREMENTS OF
THE SURETY’S BOND. THE FACT OF INSOL-
VENCY OF HIS PRINCIPAL DOES NOT PERMIT
ENHANCEMENT OF, OR INCREASE IN, THE
FACE AMOUNT OF SAID CLAIM AS PERMITTED
TO BE FILED IN THE INSOLVENCY PROCEED-
INGS AS A BASIS OF DIVIDEND PAYMENTS
THEREON TO THE SURETY FROM THE ESTATE
OF HIS PRINCIPAL.

(1) It is settled law that the claim of the surety for re-
imbursement from the principal, or from the estate of the
principal, must be measured by the amount paid by the

4

surety to the creditor of the principal under the require-
ments of the surety bond. This is the measure of recovery,
irrespective of whether reimbursement is sought upon a
claim of indemnity, or under a claim of subrogation.

(2) It weuld seem entirely clear, in principle, that the
fact that the principal has become insolvent, and has been
placed in liquidation proceedings, does not permit en-
hancement of, or increase in, the face amount of the prov-
able claim of the surety in the liquidation proceedings. As
previously indicated, the basis of reimbursement of the
surety is measured by the amount he is required to expend
for the benefit of the creditor under bond.

Any possible doubt in this connection, so far as concerns
provable claims against insolvent national banks in re-
ceivership, is removed by the provisions of section 5236,
Revised Statutes, (Sec. 194, Title 12, U. 8. C.), requiring
ratable dividends, and by construction of the statute by
the courts, to the effect that the claims established there-
under must be in the amount owing to the claimant by the
bank as of the date of closing of the bank:

B.

IT WOULD BE INEQUITABLE TO THE GENERAL DE-
POSITORS AND CREDITORS OF THE RECEIVER.
SHIP BANK TO ALLOW THE SURETY COMPANY,
BY SUBROGATION OR OTHERWISE, A CLAIM,
AS THE BASIS OF DIVIDENDS; IN THE SUM OF
$135,000, REPRESENTING THE FULL AMOUNT OF
THE DEPOSIT OF THE COMMONWEALTH AT
THE TIME OF THE SUSPENSION OR CLOSING OF
THE BANK.

(1) The deposit balance to the credit of the Common-
wealth on the date of suspension or closing of the bank was
mre than double the amount permitted by the State
statute and hence, to the extent at least of the excess, was

illegal.

5

(2) In balancing the equities, the general depositors and
creditors of the receivership bank are entitled to have the
benefits of the surety bond, rather than to have it weighed
in the balance against them. The District Court, (R. 16-
17) and also petitioner, in adopting (page 15 of his peti-
tion for writ of certiorari) the position and reasoning of
the District Court—to the effect that the general depositors
and creditors of the bank would be receiving a “windfall”
by reason of “purely fortuitous” (R. 17) circumstances, in
consequence of the execution of the surety bond—were
clearly in error, both in reasoning, and in the assumptions
of fact, upcn which reliance was made.

C.

THE CASE OF MERRILL v. NATIONAL BANK OF
JACKSONVILLE, (1899) 173 U. 8. 131, RELIED
UPON BY PETITIONER, DOES NOT SUPPORT HIS
POSITION, BUT, TO THE EXTENT APPLICABLE
TO THE INSTANT CASE, SUPPORTS THE POSI-
TION OF RESPONDENT.

(1) Analysis of the Merrill case:

(2) Comments and observations concerning the Merrill
case in so far as it may apply to, or may be distinguished
from, the instant case:

6

IV.
ARGUMENT.
A

THE CLAIM OF A SURETY FOR REIMBURSEMENT
MUST BE MEASURED BY THE AMOUNT THE
SURETY ACTUALLY PAYS THE PRINCIPAL'S
CREDITOR UNDER THE REQUIREMENTS OF
THE SURETY’S BOND. THE FACT OF INSOL-
VENCY OF HIS PRINCIPAL DOES NOT PERMIT
ENHANCEMENT OF, OR INCREASE IN, THE FACE
AMOUNT OF SAID CLAIM AS PERMITTED TO BE
FILED IN THE INSOLVENCY PROCEEDINGS AS
A BASIS OF DIVIDEND PAYMENTS THEREON
TO THE SURETY FROM THE ESTATE OF HIS
PRINCIPAL.

(1) It is settled law that the claim of the surety for re-
imbursement from the principal, or from the estate of the
principal, must be measured by the amount paid by the
surety to the creditor of the principal under the require-
ments of the surety bond. This is the measure of recovery,
irrespective of whether reimbursement is sought upon a
claim of indemnity, or under a claim of subrogation.

‘‘Subrogation gives indemnity only. It cannot take
place beyond the amount actually disbursed under legal
necessity.’’ (60 C. J. page 724)

To tne same effect: (Restatement of the Law—Restitu-
tion—see. 162(c))

‘“‘e, Where obligation not fully discharged. Where
property of one person is used in partially discharging
an obligation owed by another, and the balance of the
obligation has not heen discharged, the former is not
entitled to be subrogated to the position of the obligee.
Until the obligation is fully discharged, the ob'igee is
himself entitled to enforce the balance of his claim,
and the person whose property has been used in dis-

Le A
/
‘

charging only a part of the claim is not entitled to
occupy his position. If the balance of the claim ts sub-
sequently discharged by the obligor, however, the per-
son whose property was used in discharging a part of
the obligation is entitled then to be subrogated to the
claim to the extent that his property was used m dis-
charging the claim. (Italics inserted)

‘*" trations:

‘*i. A owes B $100 and C is surety for A on the debt.
(‘ pays B $25 in part payment of the debt. C is not en-
titled to be subrogated to B’s claim against A, although
he is entitled to reimbursement from A.

‘*2. The facts are as stated in Illustration 1, except
that A has paid B the balance of the debt. C ts entitled
to be subrogated to B’s claim against A to the extent
of $25.’’ (Italics inserted)

Also see: Memphis & Little Rock Railroad v. Dow, (1887)
120 U. S. 287, 302; In re. Freeman & Brooks (C. C. A. 7,
1924), 1 F. (2d) 480, 434; Lacy v. Maryland Casualty Co.
(C.C. A. 4, 1929), 32 F. (2d) 48,53; Union Indemnity Co. v.
Stevens (C. C. A. 5, 1932), 57 F. (2d) 839, 840; In re Kent
Refining Co. (W. D. Mich., 1937), 20 F. Supp. 661, 662;
In re Metropolitan Motor Car Co. (Mass. 1924), 299 Fed.
320, 322; The Livingstone (C. C. A. 2, 1904) 130 Fed. 746,
749; Brown v. Thompson, et al., 128 S. E. 309, 312; 99 W. Va.
06; Napier v. Duff, (1939) 281 Ky. 779, 136 S. W. (2d) 1083,
1086; Smith v. Wells, (Ind. 1919) 122 N. E. 334, 338; Faires
v. Cockerell, 31 S. W. 190, 193; 88 Tex. 428; Phipps v. Fuqua
(Tex. Civ. App. 1980), 32 S. W. (2d) 660, 663; Reserve
Loan Life Insurance Co. v. Dulin (Ind. App. Ct. 1919), 122
N. E. 3, 7; Batsell v. Richards (Tex. 1891), 16 S. W. 313,
314; Royal Indemnity Co. v. White Engineering Corp., 120
Mise. 332, 198 N. Y. S. 264, 270; Krebs v. Bezler (Mo. 1936),
89 S. W. (2d) 935, 937 ; Gifford v. Rising (Supreme Ct. N. Y.
1891), 12 N. Y.S. 430; 25 R.C. L. pg. 1389; 60 C. J. pg. 724.

As to the functional similarity of operation of the reme-
dies of indemnity and of subrogation:

‘*A surety who has undertaken to pay the creditors of
the principal, though not beyond a stated limit, may

8

not share in the assets of the principal by reason of
such payment until the debts thus partially protected
have been satisfied in full. This is the rule where the
right to a dividend has its basis in the principle of
equitable subrogation. ‘A surety liable only fer part
of the debt does not become subrogated to collateral or
to remedies available to the creditor unless he pays
the whole debt or it is otherwise satisfied.’ United
States v. National Surety Co., 254 U.S. 73, 76. If the
holding were different, the surety would reduce the
protection of the bond to the extent of its dividend in
the assets of the debtor. Jenkins v. National Surety
Co., supra. The rule is the same, and for like reasons,
where the basis of the claim is the debtor’s promise to
indemnify, if the debtor is insolvent when the promise
is enforced. Jenkins v. National Surety Co., supra, at
pp. 266, 267.’" American Surety Co. v. Westinghouse
Electric Manufacturing Co, et al., (1935) 266 U.S. 1338,
137.

(2) It would seem entirely clear, in principle, that the
fact that the principal has become insolvent, and has b.-en
placed in liquidation proceedings, does not permit en-
hancement of, or increase in, the face amount of the prov-
able claim of the surety in the liquidation proceedings. As
previously indicated, supra, page 6, the basis of reim-
bursement of the surety is measured by the amount he is
required to expend fcr the benefit of the creditor under
the bond.

Any possible doubt in this connection, so far as concerns
provable claims against msolvent national banks in re-
ceivership, is removed by the provisions of section 5236,
Revised Statutes, (Sec. 194, Title 12, U. 8. C.), requiring
ratable dividends, and by construction of the statute by the
courts, to the effect that the claims established thereunder
must be in the amount owing to the claimant by the bank as
of the date of closing of the bank:

**$ 194. Dividends on adjusted claims; distribution
of assets

‘*From time to time, after full provision has been
first made for refunding to the United States any de-

9

ficiency in redeeming the notes of such association, the
comptroller shall niake a ratable dividend of the money
so paid over to him by such receiver on all such claims
as may have been proved to his satisfaction or adjudi-
cated in a court of competent jurisdiction, and, as the
proceeds of the assets of such association are paid over
to him, shall make further dividends on all claims pre-
viously proved or adjudicated; and the remainder of
the proceeds, if any, shall be paid over to the share-
helders of such association, or their legal representa-
tives, in proportion to the stock by them respectively
held. (R.S. § 5286.)”’

To the effect that the amount ef the provable claim for
dividend purposes must be the amount owing to the claim-
ant by the bank as of the date of closing of the bank, see:
Merrill v. National Bank of Jacksonville, (1899) 173 U.S.
131, 146; White v. Know, (1884) 111 U.S. 784, 786; Scott
v. Armstrong (1892) 146 U.S. 499, 511; City of Fort Worth
ve McCamey (C. CL. A. 5, 1987), 93 F. (2d) 964, $68; cert.
denied 304 U.S. 571; Steele v. Randall (C. C. A. 8, 1927),
19 F. (2d) 40, 42; MeDonald v. Chemical National Bank
(1899), 174 U. S. 610, 619; MeCandless vy. Dyar (S. D.
1928), 34 F. (2d) 989, 991; Ross v. Lee (S. D. Fla. 1936),
15 I’. Supp. 972, 973.

B.

IT WOULD BE INEQUITABLE TO THE GENERAL
DEPOSITORS. AND CREDITORS OF THE RE-
CEIVERSHIP BANK TO ALLOW THE SURETY
COMPANY, BY SUBROGATION OR OTHERWISE,
A CLAIM, AS THE BASIS OF DIVIDENDS, IN THE
SUM OF $135,000, REPRESENTING THE FULL
AMOUNT OF THE DEPOSIT OF THE COMMON.
WEALTH AT THE TIME OF THE SUSPENSION
OR CLOSING OF THE BANK.

It is settled doctrine that subrogation is entirely an equit-
able right, and it is not inevitably and inflexibly applied
or allowed in all cases. A general statement of the law in

10

this respect is contained in Sheldon on Subrogation, (2d
Ed.) see. 4, p. 5:

‘Ti is a Mode of Equitable Relief —Subrogation is
an exercise of the equitable powers of the court, to
relieve a meritorious creditor, who might otherwise be
subjected to loss by his funds being applied to pay an-
other’s debt, or by the operation of proceedings at law
against the estate or funds of one who is indebted both
to him and to others. This remedy is allowed only
when it does not conflict with the legal or equitable
rights of other creditors of the common debtor; and the
principle is one of equity merely, and will be carried
out in the exercise of a proper equitable discretion,
with a due regard to the legal and equitable rights of
others. One who ciaims this equity must be governed
by the common maxim, Sic utere tuo ut alienum non
laedas.’’

Also see Aetna Life Insurance Co. v. Middleport, (1888)
124 U.S. 534, 549, 550.

For the reasuns hereinafter indicated, it is considered,
that under the facts and circrmstances existing in the in-
stant case, the surety should not be allowed a claim against
the receivership, for dividend purposes, in excess of the
sum of $68,588.56, representing the amount paid by the
surety to the Commonwealth, under the terms of the bond.
(R. 4, 6)

It may well be, in view of the restrictions contained in the
State statutes relating to State deposits, hereinafter next
discussed, that the surety should not be allowed a claim in
excess of $62,500, inasmuch as that sum is the maximum
amount that could be legally deposited under a bond of
$125,000.00

(1) The deposit balance to the credit of the Common-
wealth on the date of suspension or closing of the bank was
more than double the amount permitted by the State statute
and hence, to the extent at least of the excess, was illegal.

‘The Pennsylvania statutes, hereinafter next quoted,
prohibit the deposit of state funds in a sum greater than

Z

Le

1]

one-half of the amount of the bond required to be furnished
by the depository. The amount of petitioner’s bond in the
instant case was $125,000.00 (R. 3). The amount of the
deposit to the credit of the Commonwealth at suspension
of the bank was $135,900.00 (R. 3). Therefore the maxi-
mum amount legally permitted to be on deposit under the
security of the $125,000.00 bond, was $62,500.00, thereby
revulting in an illegal excess of $72,500.00. The controlling
state statutes in this connection provide:

Sec. 3812, Title 72, Purdon’s (1936) Pa. Stats.

‘“‘The state treasurer before making such deposits
shall require each bank, banking institution or trust
company to give a good and sufticient bond, containing
a warrant of attorney to confess judgment in favor of
the commonwealth in double the amount of the con-
templated deposit, with sureties to be 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 fur-
nished by said depository. Ana, 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 (1897, June 15, P. L. 157,
See. 2.)’’

Sec. 3791, Title 72, Purdon’s (1936) Pa. Stats.

‘‘ All banks, banking institutions, and trust companies,
selected as aforesaid, shall, upon the receipt of notice
of such selection as depositories of State moneys, fur-
nish a bond to secure payment of deposits and interest
to the Commonwealth of Pennsylvania, witb a proper
warrant of attorney to confess judgment in favor of
the Commonwealth, secured by a surety company or
individual sureties, to be approved by the Revenue Com-
missioners and Banking Commissioner, or a majority
of them, in double the amount of the deposit to be made,
and, if corporate bonds are given, no one company shall
be approved in an aggregate amount in excess of five
times its capital, surplus and reserve. (1906, Feb. 17,
P. L. 46, See. 5.)’’

ede]

12

(a) It is settled doctrine that public funds deposited in
a bank contrary to the requirements of statutes regulating
such deposits, constitute illegal deposits. See: Fiman v.
State of So. Dak. (C. C. A. 8th, 1928) 29 F. (2d) 776, 77s,
cert, denied 279 U. 8. 841; U. S. N. B. of Centralia v. City
of Centralia, (C. C. A. 9th, i917) 240 Fed. 93, 95; cert. de-
nied 243 U.S. 656; Merchants National Bank v. School Dis-
trict, (C. C. A. Yih, 1899) 94 Fed. 705, 706; Board of Com-
missioners v. Strawn, (C. C. A. 6th, 1907) 157 Fed. 49, 50;
Montgomery v. Ward—-(Ala., 1933) 151 So. 583, 585; Powe-
shiek County v. Merchants Nat. Bk., (lowa, 1928) 220 N. W.
63, 66.

(b) A claimant seeking subrogation must act fairly and
equitably and be free from fauit in the transaction in con-
nection with which he claims subrogation. He will not be en-
titled to subrogation where he derives his claim through or
from a wrongdoer.

To the foregoing effect see: Galliland ». Williams, 181
Ala. 173, 61 So. 291, 293; Boyer v. Bolender, 129 Pa. 324,
18 Atl. 127, 128; Bates v. Swiger, 40 W. Va. 420, 21 S. E.
874, 878; Montgomery v. Ward, supra; Eshleman v. Bolen-
ius, 144 Pa. 269, 22 Atl. 758, 759; Troyer v. Bank of De-
queen, (Ark. 1926) 281 S. W. 14, 16; German Savings and
Loan Society v. Tull, (C. C. A., 9th, 1905) 136 Fed. 1, 6.

Also see ‘‘ Additional Cases’’, App. p. 31.

As above indicated, supra, p. 10, the deposit balance to
the credit of the Commonwealth at the time of suspension
and closing of the bank, and for which claim was allowed
to the Commonwealth by the receiver in the sum of $135,000
represented moneys illegally deposited by the State Treas-
urer to the extent of $72,500, said sum constituting the ex-
cess over the permitted one-half of the depository bond.
Hed the deposits been restricted to the permitted amount
of $62,500, as enjoined by State statute, the assets of the
receivership would not have been required to respond for
said excess of $72,500. While it is by no means suggested
that petitioner participated in, or in any way was causally

13

responsible for, the making of said illegal deposits, never-
theless, the claim of the petitioner to subrogation in the
base amount of $135,000, is necessarily derived from, and
is a result of, the making of said illegal deposits by the
State treasurer, in that the proof of claim in that amount
allowed by the receiver to the Commonwealth embraces said
sum of $72,500.

Consequently, in the light of the doctrines established
by the hereinabove cited cases, (supra, p. 12) it would
seen clear that it would be inequitable and in contraven-
tion of the vested rights of the general depositors and
creditors of the receivership bank, to allow petitioner the
right of subrogation for any sum in excess of the sum of
$62,500, representing the maximum amount permitted to be
deposited, and constituting the maximum face an:ount for
which a claim should be allowed.

(c) Subrogation should not be allowed where the ciaim
sought to be charged and enforced against innocent third
parties—resulted from, or was caused by, the negligence
of the claimant.

To the foregoing effect see: Ft. Dodge Building & Loan
Association v. Scott, (lowa, 1892) 53 N. W. 283, 284; Coon-
rod v. Kelly, (C. C. A. 3rd 1902) 119 Fed. 841, 848; Porter
v. Ourada, (Nebr. 1897) 71 N. W. 52, 53; 60 C. J, par. 21,
pp. 708-709.

It would seem clear that petitioner, as surety upon the
depository bond, was chargeable with notice as to the re-
quirements of the State depository statutes including the
definite restriction upon the amount which could lawfully
be deposited. Petitioner was chargeable with notice that
recovery could not be had, through subrogation, as to
amounts illegally deposited in excess of the permitted
maximum under the bond, and it would therefore seem
necessarily to follow that petitioner was guilty of negli-
gence in not supervising the deposit account to the extent
of being kept constantly informed as to the balance thereof,
and that said balance was within the allowed maximum.

14

There can be no doubt that the books of the bank reflecting
the deposit entries were at all-times open to appropriate
inquiry on the part of petitioner as to the condition and
status of the deposit so far as amount was concerned.

Assuming and conceding that petitioner, as surety, was
an innocent party in the transaction, it is obvious that the
depositors and other creditors of the bank were likewise
innocent parties, and had no connection whatsoever with
the transaction in question. The equities, therefore, would
clearl¥. seem to be with the depositors and other creditors
under the recognized maxim. that where loss is sustained,
affecting two innocent parties, the one whose negligence or
other wrongful act made the loss possible shouid suffer the
loss. See: page 848 of Coonrod vy. Kelly, supra; and 60 C. J.,
p. 707.

(2) In balancing the equities, the general depositors and
creditors of the receivership bank are entitled to have the
benefits of the surety bond, rather than to have it weighed
in the balance against them. The cistrict court, (R. 16-17)
and also petitioner, in adopting (page 15 of his petition
for writ of ceriorari) the position and reasoning of the
district court—to the effect that the general depositors and
creditors of the bank would be receiving a “windfall” by
reason of “purely fortuitous” (R. 17) circumstances, in
consequence of the execution of the surety bond—were
clearly in error, both in reasoning, and in the assumptions
of fact, upon which reliance was made.

The district court, in stating the problem involved, and
in the course of indicating the basis of its decision against
the respondents, stated, in the opinion:

‘‘The ereditor, having been paid, and so eliminated
as a factor in the problem, it remains to balance the
surety’s rights and the interests of the general credi-
tors. It is not easy’to arrive at any solution which is
entirely satisfactory and leaves one free from doubt
as to the justice of the result. On the one hand, if
the surety be allowed dividends “n the fuii amount of

15

the creditor’s claim, they wiil be based upon an amount
in excess of what he has expended, whereas the gen-
eral creditors will be sharing only on the basis of their
actual advancements. If, on the other hand, the surety
is limited to the amount which he has actually paid as
the basis of his claim, then the general creditors get a
windfall, for no other reason than that one of them has
bought and paid for additional protection which none
of the others chose to tae—for, of course, if there had
been no suretyship, the creditor would be proving and
receiving dividends on the full amount of his claim.

‘‘On the whole, it seems to me that, if the real ob-
jective of tie doctrine of subrogation be kept in mind,
we come closer to distributing the loss fairly and avoid-
ing unjust enrichment of any interest by allowing the
surety to claim on the basis of the full amount of the
creditor’s claim. By so doing it may be possible to re-
imburse him fully, and still do entire justice to the
general creditors—for it can hardly be called unjust or
unfair to leave them exactly where they would have
been had there been no suretyship, with their rights
neither impaired nor enlarged by an arrangement with
which they had nothing to do and which was purely
fortuitous so far as they are concerned.’’ (Italics in-
serted)

As pointed out in the supplementary statement of facts
herein (supra, p. 2) the district court erroneously as-
sumed that the surety bond had been ‘‘bought and paid
for’’ by the Commonwealth of Pennsylvania, the state-
ment of the court in that connection being (as set forth in
the foregoing quotation) that aa

‘‘the genéral creditors get a windfall, for no other
reason than that one of them has bought and paid for
additional protection which none of the others chose
to take-—for, of course, if there had been no suretyship,
the creditor would be proving and receiving dividends
on the full amount of his claim.’’ (R. 16)

The fact is, however, as pointed out in the supplementary
statement of facts herein (supra p. 2) the surety bond
was ‘‘bought and paid for’’, not by the Commonwealth of

16

Pennsylvania, but by the bank, in 1928, and the bank paid
the annual premiums upon said bond to petitioner, for a
period of approximately five years prior to the appoint-
ment of the conservator for the bank in March of 1933.
(See letter of October 10, 1941, appendix hereof p. 28).

Still laboring under this mistake of fact, and placing
substantial reliance upon the fact thus erroneously as-
sumed, the trial court reasoned and concluded:

‘‘for it can hardly be called unjust or unfair to leave
them exactly where they would have been had there
been no suretyship, with their rights neither impaired
nor enlarged by an arrangement with which they had
nothing to do and which was purely fortuitous so far
as they are concerned.”’

The reasoning thus indulged, and the conclusion thus
reached, appears substantially inequitable to the general
depositors and creditors of the bank. The surety bond was
procured and paid for by the bank with the presumed in-
tent and expectancy that it would become operative in per-
formance and payment of the penalty therein provided,
cnly in the event of insolvency of the bank. There being no
question as to the fact that the bank would be obligated
to repay the deposits thereunder to the commonwealth from
time to time, as demanded, there could be no other reasor
and no other occasion or contingency, upon which payment
of the penalty under the bond would be required.

The surety bond must be considered, and relicd upon, as
an asset of the bank in receivership. As stated by this
court in United States Fidelity Company v. Wooldridge.
(1925) 268 U. S. 234, 238, in considering a fidelity bond re-
lied upon and collected by the receiver of a national bank:

‘*the right of the Railway Company was simply that
of a depositor, a right to share with other unsecured

creditors in the assets of the Bank, of which the bond
now in suit was a part.’’

17

The surety bond involved in the instant case was for the
benefit of, not only the Commonwealth of Pennsylvania as a
public deposito:, but it was also, indirectly, for the benefit
of the general depositors and creditors of the receivership
bank, in that the amount of the penalty required to be paid
by the surety under the bond to the commonwealth enabled
and permitted the other assets of the bank on hand at the
time of suspension and closing,—and constituting a trust
res,—to be applied toward the payment of the general de-
positors and creditors.

It thus follows, in consequence, that the general deposi-
tors and creditors are entitled ‘o retain the full benefit of
the assets constituting this trust res. Jt further follows
that the general creditors and depositors are not thereby
fortuitously obtaining a ‘‘windfall’’, and that they are only
realizing upon a potential asset bought and paid for by the
bank prior to suspension and for the presumed purpose of
meeting exactly the contingency, to wit, receivership, which
did occur.

If petitioner should be allowed, either by way of subroga-
tion or of implied indemnity,—to participate by way of
dividends upon the basis of a claim of $135,000, instead of
upon a claim measured by the amount expended under the
penalty of the bond, ($68,588.56) the petitioner would
thereby substantially cut into the assets constituting the
trust res retained for the benefit of the general depositors
and ereditors,—entirely contrary to, and beyond the meas-
ure permitted by, the surety bond. As well stated by the
court below in its opinion,

“The risk that the debtor bank might become insolrent
was the very thing which the surety company msured
agaist and presumably was paid for su duing. That
was the same risk which was taken by the unsecured
depositors in the bank who, along with the surety, now
seek an apportioned share of the bank’s assets. There
is only so much money to go around; the more one
gets the less someone else will receive. The surety
and the depositors shared the same risk. It seems fair

18

that they should share, in partial compensation for
their loss, on the same'basis. The basis on which the
depositors share is the proportion of their actual Joss,
the amount of their deposits. The surety’s actual loss
is the same that it paid out, which was $68,588.56.
This, we think, is the basis on which it is entitled to
claim.’’ (Italics inserted) (R. 30)

The State statutes under which the deposits in the instant
case were made, and in pursuance of which the bond was
given, will be found in the appendix hereof at p. 29.

It will be noted from the foregoing quotation from the
opinion of the court below, that the court considered that
the relation between the Commonwealth and the surety was
in the nature of that of insured and insurer. The same
conclusion has been reached by the Pennsylvania courts.
In Commonwealth v. U. S. F. & G. Co., (Pa. 1934) 170 Atl.
686, 688, the court said:

‘““* * * Read in the light of the statutory regulation
and of the object to be attained, the words used were
obviously intended to insure payment, and, therefore,
solvency of the bank —or, in other words, that the bank
would always be in condition to pay. Though termed
‘surety’, defendant is an insurer. South Phila. State
Bank v. National Surety Co., 288 Pa. 300, 305, 135 A.
748, and eases cited; also see the General Insurance
Act of 1921 (P. L. 682, sees. 661 to 665 [40 PS secs.
832-836|). The -purpose was to provide insurance of
state deposits. * * * Liability was not intended to de-
pend on the commonwealth's right to sue the bank; it
was intended, inter alia, to cover a receivership. South
Phila. State Bank’s Insolvency, 295 Pa. 433, 145 A.
520, 88 A. L. R. 1123; National Surety Co. v. Franklin
Trust Company (Pa. Sup.) 170 A. 683. Any other con-
struction would attribute to the parties an intention to
express their agreement in words that would satisfy
the statute, when, in fact, they intended tc disregard
it, an interpretation that cannot be tolerated. * * *”’

In Young v. American Bonding Co. (1910) 228 Pa. 373, 77
Atl. 623, 625, the court said:

19

‘©* * * Tn all essential particulars the appellee here is
an insurance company, and its obligation in this par-
ticular instance was that of an insurer. It was paid
for its undertaking; the amount of its compensation
being based on the calculation of risk assumed. * * *”’

In the case of In Re South Philadelphia State Bank’s In-
solvency, (1929), 295 Pa. 4338, 145 Atl. 520, the court was
considering the respective equities of a surety claiming sub-
rogation under a depository bond, and the general deposi-
tors and creditors of the bank. The particular point with
which the court was concerned in its discussion hereinafter
next quoted, was the right of the surety to be subrogated

>to the preferred status of the Commonwealth growing out

~-of its sovereign priority rights; and the conclusion was
there reached that such priority rights intended for the
henefit and protection of the sovereign, should not, in equity
and good conscience, be exercised by the surety, by subroga-
tion, to the prejudice and detriment of the general deposi-
tors and creditors of the receivership bank. The court said
(p. 521):

‘*Though the state of Pennsylvania has a sovereign
right of priority over all other creditors, it by no means
follows that, on the facts in this ease, such right would
pass to one in the position of appellant. It must be
reme:.ibered that appellant, a surety obtained and paid
by the insolvent bank, not by the commonwealth, claims
the right to enjoy the sovereign privileges of the latter,
and this under the equitable doctrine of subrogation;
the right claimed is to a preference over all other de-
positors of the bank. Since the right of priority of
the sovereign state exists pro bono populo, it follows
that, where a situation arises in which the state, hav-
ing been paid in full, is not immediately concerned, and
where the transfer of its right of priority would re-
sult in prejudice to one class of its citizens for the
benefit of another, it cannot be held that the good of
all the people would thus be served. It may well be
assumed that the ordinary depositor in a bank which
pat state deposits, knowing that, in event of the in-
solvency of the institution, the state has the right to

20

priority of payment, would likewise know that the laws
of Pennsylvania require all state deposits to be secured
by bonds with ample security thereon. Furthermore,
since the doctrine of subrogation is an equitable one,
the ordinary depositor might properly believe that, in
event of the insulvency of their depository, if no neces-
sity existed for the state to protect itself by exercising
its sovereign right to priority of payment, that right
would not be used to his prejudice, and, on such basis,
he would make, or continue, his deposits; therefore the
doctrine in question should not be allowed to operate
in a manner to produce prejudicial results to such de-
positors.
eo * ®

‘*We conclude that appellant surety company has the
equitable right to stand in the shoes of the common-
wealth as a depositor, but not to enjoy its right of pri-
ori‘y over other depositors. When the bank failed,
the commonwealth had all the rights of an ordinary
depositor; those rights passed by subrogation tu appel-
lant. The commonwealth had also the sovereign’s
right to priority of payment over other depositors,
but, owing to the peculiar nature of that right, it would
not pass by subrogation to appellant.’’

By way of analagous application to the instant case, of
the discussion contained in the foregoing quotation, it may
he observed:

(a) That although the surety company was there allowed
subrogation to the rights of the Commonwealth as a deposi-
tor, such allowance was based upon the fact that the surety
had paid the full amount of the deposit of the Common-
wealth in the receivership bank.

(b) Adopting, (but not quoting) and paraphrasing to the
extent considered appropriate, portions of the language
contained in the foregoing quotation, it seems fair to state,
by analogous application that:

It may well be assumed that the ordinary depositors
in a national bank in Pennsylvania which enjoys State
deposits, knowing that, in the event of the insolvency
of the bank, the State would enjoy, in effect, a pre-

~

21

ferred status in view of the fact that the laws of Penn-
sylvania require alt State deposits to be secured by
bonds with ample security thereon, and further, since

the doctrine of subrogation is an equitable one, the
ordinary depositors might properly believe that in
event of insolvency of their bank, the State would be
paid by the surety under the penalty of its bond (and
that such bond would be in double the amount of the
State’s deposit, as required by law) and that through
applicatiou of the doctrines of subrogation, the surety
might acquire such rights, remedies or securities as the
State possessed for the protection and enforcement of
its depository rights, and that under such cireum-
stances the depositors could safely continue their de-
posits in the bank, and that, in view of such circum-
stances, and upon the assumption that all requirements
of the State depository law had been made, the ordi-
nary depositors could well assume further that such
rights of subrogation as the surety might acquire
through payment of the deposit of the State, would not
be used to their prejudice nor to detract from nor di-
minish the vested rights which they had in the assets
possessed by the bank at the time of its failure and
suspension, constituting a trust res required by law to
be administered for the benefit of the depositors and
creditors of the bank.

It is only fair, of course, that the fact that petitioner is a
corporate surety should not be used as a basis of undue dis-
crimination, nor to deprive it of any rights to which it is
lawfully entitled, whether by way of subrogation or other-
wise. However, it is proper, in weighing the equities, to
have in mind the situation indicated by the Pennsylvania
Supreme Court in Young v. American Bonding Company,
(1910) 228 Pa. 373, 77 Atl. 623, 626, wherein the court said:

«* 6° 6 6*) 6 The trend of all our modern decisions, fed-
eral and state, is to distinguish between individual and
corporate suretyship where the latter is an undertaking
for money consideration by a company chartered for
the conduct of such business. In the one case the rule
of strictissimi juris prevails, as it always has. With
respect to the other, because it is essentially an insur-

22

ance against risk, underwritten for a money considera-
tion by a corporation adopting such business for its
own profit, the courts generally hold that such a com-
pany can be relieved from its obligation for suretyship
only where a departure from the contract is shown to
be a material variance. * ° *°”’

The above extract was quoted with approval in Sokoloff v.
Fidelity and Casualty Co., (1927) 288 Pa. 211, 135 Atl. 746;
In re Harr, (Pa. 8. Ct., 1935) 179 Atl. 725; and Penn R. Co.
v. Fidelity & Deposit Co., (C. C. A. 3d, 1936) 81 F. (2d) 526,
528. See also footnote 4, (R. 30) of the opinion of court be-
low (116 F’. (2d) 77), citing 12 A. L. R. 382 and 94 A. L. R.
876. @

O.

THE CASE OF MERRILL v. NATIONAL BANK OF
JACKSONVILLE, (1899) 173 U. 8. 131, RELIED
UPON BY PETITIONER, DOES NOT SUPPORT ITS
POSITION, BUT, TO THE EXTENT APPLICABLE
TO THE INSTANT CASE, SUPPORTS THE POSI-
TION OF RESPONDENT.

Petitioner relies also upon Merrill v. Nationai Bank of
Jacksonville, supra, to support its position. Analysis of
the case would seem to indicate that it does not support
petitioner's contentions, but that, to the extent that the Mer-
riul case is applicable, it supperts the contentions of respond-
ent.

(1) Analysis of the Merrill case:

The First National Bank of Palatka, Florida, was in
receivership. The National Bank of Jacksonv.ile,-Florida,
held a claim against the First National Bank, for approxi-
mately $10,000.00, secured by certain collateral, and sought
to prove its claim against the First National Bank in the
face amount of approximately $10,000.00 (the amouut of the
indebtedneas at the time of suspension of the First National
Bank) and to retain said collateral for future liquidation
and application, as permitted by law. The National Bank

23

of Jacksonville contended that it was entitled to receive
dividends from time to time upon said face amount of said
claim without surrendering to the receiver said collateral.
The receiver, by direction of the Comptroller of the Cur-
rency, refused to allow the claim, for dividend purposes, in
the face amount of approximately $10,000, and insisted (p.
132) that said creditor must, first ‘‘exhaust the collaterals
given to secure the certificate of deposit, and then * * * prove
for the balance due, after applying the proceeds of the col-
laterals in part payment’’. The issue thus raised, was, in
due course, presented to this Court for determination, on
appeal. This Court held:

(a) The assets of the insolvent bank constituted a trust
res for the benefit of all of its creditors, and a creditor, upon
proof of claim, acquired a vested interest in the trust res.
(pp. 136, 138).

(b) ‘*The distribution is to be ‘ratable’ on t! “ms
as proved or adjudicated, that is, on on e of

proportion applicable to all alike. In ore to be
‘ratable’ the claims must manifestly be estimated
as of the same point of time, and that date has
been adjudged to be the date of the declaration of
insolvency. White v. Knox, 111 U. S. 784.’ (p..
143.)

(c) In quoting from White v. Knox, 111 U. S. 784, this
Court said, in the Merrill case, (at p. 144 thereof) :

‘‘Mr. Chief Justice Waite, speaking for the court, said:
‘Dividends are to be paid to all creditors, ratably, that
is to say, proportionally. To be proportionate they
must be made by some uniform rule. They are to be
paid on all claims against the bank previously proved
and adjudicated. All creditors are to be treated alike.
The claim against the bank, therefore, must necessarily
be made the basis of the apportionment * * * The bus-
iness of the bank must stop when insolvency is declared.
Rev. Stat. sec. 5228. No new debt can be made after
that. The only claims the Comptroller can recognize
in the settiement of the atfairs of the bank are those
which are shown by proof satisfactory to him or by the
adjudication of a competent court to have had their
origin in something done before the insolvency. It is

24

clearly his duty, therefore, in paying dividends, to take
the value of the claim at that time as the basis of dis-
tribution’.’’ (p. 144)

‘‘In short, the secured creditor is not to be cut off
from his right in the common fund because he has taken
security which his co-creditors have not. Of course,
he cannot go beyond payment, and surplus assets or
so much of his dividends as are unnecessary to pay him
must be applied to the benefit of the other creditors.
And while the unsecured creditors are entitled to be
substituted as far as possible to the rights of secured
creditors, the latter are entitled to retain their securi-
ties until the indebtedness due them is extinguished."’
(p. 141)

‘‘Our conclusion is that the claims of creditors are
to be determined as of the date of the declaration of
insolvency, ‘vrespective of the question whether par-
ticular creditors have security or not. Wher secured
creditors have received payment in full, their right to
dividends, and their right to retain their securities
cease, but collections therefrom are not otherwise ma-
terial. Insolvency gives unsecured creditors no greater
rights than they had before, though through redemp-
tion or subrogation or the realization of a surplus
they may be benefited.’’ (p. 147)

(2) Comments and observations concerning the Merrill
case in so far as it may apply to, or may be distinguished
from, the instant case:

(a) As indicated by the court below (R. 28), the Merrill
ease ‘‘did not concern a surety and, therefore, is not di-
rectly in point here.’’ The instant case concerns ‘‘the rights
of a surety who has paid a part of a claim against a national
bank which is in liquidation’’, and the extent to which the
surety may be entitled to subrogation, if at all, by reason
of having paid a portion of the claim of the creditor pro-
tected by the bond. Such questions were not involved in
the Merrill case.

(b) In the Merrill case the secured creditor’s claim
against the bank was measured by the amount of its de-

25

posit balance as of the date of suspension of the bank. As
previously indicated herein (supra, p. 6), the claim of the
petitioner, as surety, should be measured by its claim
- against the bank as represented by the amount paid by pe-
titicner to the creditor to the extent required under the
bond. The bank does not owe petitioner the amount it orig-
inally owed the secured creditor ($135,000); it owes the
petitioner only the amount lawfully expended under the re-
quirements of the bond.

(c) In the Merrill case the court held, in effect, that when
dividends paid by the receiver, plus proceeds of liquidation
of collateral, equalled the amount of the creditor’s claim,
said claim would be discharged. The result under such cir-
cumstances would be that the remaining assets of the re-
ceivership would be retained for distribution to the general
depositors and creditors.

In the instant case no unliquidated collateral remained in
the hands of the Commonwealth, and consequently, there
was no basis of subrogation in that respect,

So far as subrogation to rights and remedies are con-
cerned, the situation is obviously different from what it
would have been if the secured creditor had held, as col-
lateral, a note or other obligation owing to the bank by a
third party, in which event it may be assumed, for dis-
cussion, that petitioner would have succeeded, by subroga-
tion, to the rights and remedy of the Commonwealth, as a
creditor, to pursue the collateral claim against the third
party for the purpose of applying it upon the bank’s indebt-.
edness to the Commonwealth. However, in the instant case,
the claim of the Commonwealth was against the bank, and
the claim of petitioner is against the bank. Therefore, it
would appear, in substance, that there is no res or corpus,
either by way of collateral or remedy to which petitioner
can be subrogated. Further, if full weight be given to the
established principle in the Merrill case that the claim of
the secured creditor is extinguished when fully paid by
dividends and realization upon collateral, it would seem to

26

follow that there remained no claim, on the part of the
Commonwealth, to which petitioner could be subrogated.

(d) The formal assignment executed by the Common-
wealth to petitioner would appear to have no bearing upon
the issues here involved. Obviously, under equitable doc-
trines, substance rather than form must be considered, and
petitioner cannot, through the form of an assignment, en-
hance or increase his claim against the insolvent bank to the
detriment and prejudice of the general depositors and cred-
itors. See: Withers v. D'Auria Bank & Trust Co. (1937),
122 N. J. Eq. 503, 195 Atl. 298; Meyers v. Bank of America
Nat. Trust & Savings Ass’r., et al. (1938), 77 Pac. (2d)
1084, 1086.

As stated by the court below:

‘*As a possible makeweight it can be added that the
surety in this case took an assignment from the credi-
tor, after the surety had paid the sum due the creditor.
This makeweight, however, has no added force since, at
the time of the assignment, the claim had been dis-
charged. We do not think that the assignment added
anything to the rights which the surety already had.
See Louisville Trust Co. v. Royal Indemnity Co., 230
Ky. 482, 20 S. W. (2d) 71 (1929).’’ (R. 29)

Our examination of the authorities indicates that the
issues involved in the instant case have not heretofore been

passed upon by this court. Counsel for petitioner appear to
have reached the same conclusion. However the decision of
the court below is in aceord with decisions in the closely
analogous eases of: Maryland Casualty Company v. Cor,
(C. C. A. 6, 1939) 104 F. (2d) 354; U.S. F. € G. Co. v. Hood,
(1934) 206 N. C. 639, 175.S. E. 185; Ward v. First Nat.
Bank of Caruthersville, (C. C. A. 8, 1935) 76 F. (2d) 256;
In re Kent Refining Co., (W. D. Mich., 1937) 20 F. Supp.
661.

Additional comments on cases cited by Petitioner will be
found in Appendix at p. 35.

27

V.
CONCLUSION.

The judgment of the court below should be affirmed.

Respectfully submitted,

GerorcE P. Barse,

(Counsel for Comptroller

the Currency),
Attorney for Respondents,
H. P. McFappen,
Bethlehem, Pennsylvania,
Of Counsel.

Lee Roy Srover,

Harritt BUCKINGHAM,

F. Ricnarp Burke, -
(Assistant Counsel for
Comptroller of the Currency),

Of Counsel.

of

28

VI.
APPENDIX.

Law Offices of
JosePH A. SLATTERY
123 South Broad Street
Philadelphia
October 10, 1941.

George P. Barse, Esq., General Counsel,
Office of Comptroller of the Currency,
Room 309, Treasury Building,
Washington, D. C.

Dear Sir:

You have asked us to clarify the record in the ma‘ter of
American Surety Company of New York v. Bethlehem Na-
tional Bank et al., now pending in the Supreme Court of the
United States, on the point whether the petitioner surety
company was a paid surety. Confirming our conversation
on the telephone today, we are writing to advise that pe-
titioner in this case was a paid surety. The respondent
Bank paid to it an annual bond premium to maintain in ef-
fect the bond of December 10, 1928, and the bond was in
effect and the Commonwealth's deposit was secured thereby
at the time of the appointment of the conservator on March
15, 1933, as averred in Paragraph 6 of the complaint (R. 3).

It is agreed between us that the foregoing facts may be
submitted to the Supreme Court of the United States for its
consideration to the same extent and effect as if included
in the formal transcript of record, and that our agreement
in this regard may be evidenced by the insertion of a copy
of this letter as an appendix of Respondents’ brief which
you are abont to file.

Yours very truly,
(Signed) Rutieper Suattery.
RS /hs

¢

29

Excerpt from Section 1102 of Act No. 274, approved June
7, A. D. 1923, known as the Administrative Code, as amended
by Act No. 164, approved April 13, A. D. 1927.

Section 1102. Board of Finance and Revenue. * * * the
Board of Finance and Revenue shall have the power and its
duty shall be:

(c) To select and designate as depositories for the State
moneys, banks, banking institutions or trust companies,
which are subject to nzetional or State supervision and each
of which

1. Has made written application to the State Treasurer
for a deposit of State moneys designating the amount of
deposit solicited and accompanying its application by a writ-
ten statement showing the amount of its capital actually
paid in, the amount of its surplus, the number of its stock-
holders, and whether its stock is well distributed or largely
held by a few individuals, and the length of time that said
institution has been engaged in business under its charter.
Each such statement shall be verified by the oath or affirma-
tion of the president, cashier or trust officer as the case
may be, and the State Treasurer shall present the same to
the Board for its consideration within thirty days after the
receipt thereof, provided, that where the selection of any
bank, banking institution or trust company as a depository
of State moneys has been made by the former Revenue
Commissioners and the Banking Commissioner, or a ma-
jority of them as heretofore provided by law such selection
and the deposit made in accordance therewith in such bank,
banking institution or trust company shall in no way be
affected by the failure of such bank, banking institution or
trust company to have made application in the manner
herein provided but it shall be the duty of the depository
so selected to furnish on request the information aforesaid
verified in the manner stated.

2. Shall upon the receipt of notice of its selection as a
depository of State moneys furnish a bond to secure pay-
ment of deposits and interest to the Commonwealth of Penn-
sylvania with a proper warrant of attorney to confess judg-
ment in favor of the Commonwealth secured by a surety
company or individual sureties to be approved by the board
in the amount of the deposit to be made. If a corporate
bond be given no one surety company shall be approved in
an aggregate amount in excess of five times its capital, sur-

30

plus and reserve. Provided, that in lieu of the surety bonds
of surety companies or of individuals as aforesaid the
deposit of State moneys may be secured by the deposit with
the State Treasurer, of United States, municipal or county
bonds to be approved by the board in an amount measured
by their actual market value equal to the amount of deposit
so secured and twenty per centum in addition thereto. Said
bonds shall be accompanied by proper assignment or Power
of Attorney to transfer the same and said trust deposit of
securities shall be maintained on request at the amount
aforesaid in case of any depreciation in the value thereof.

3. Agree to pay interest upon all State deposits at the
rate of not less than two per centum per annum upon active
deposits and not less than three per centum per annum
upon non-active deposits, and that all collections shall be
made for the Commonwealth without cost or compensation.

(f) To see that no bank, banking institution or trust com-
pany shall receive a deposit of State moneys in excess of
twenty-five per centum of its paid-in capital and surplus,
or have at any one time an aggregate of deposits in excess
of five hundred thousand dollars. This section shall not
apply to institutions to be designated by the board as active
depositories of State funds subject to daily check by the
State Treasurer, but at no time shall the combined deposits
in i active depositories exceed the total sum of ten million
dollars.

7 31
ADDITIONAL CASES ON SUBROGATION.

Old National Bank v. Swearing, 72 S. W. (2d) 545, 548 &
049; 167 Tenn. 529

FACTS: Life tenant under will borrowed money to
pay taxes and improve property. Gave
ank a note secured by mortgage. It was
claimed that life tenant did not have the
power under the will to mortgage property
and bank contended that if the mortgage
was not valid they should be subrogated
to the claims of the lienors whose demands
were discharged.

HELD: As to the lien for repairs, there was no sub-
rogation as said lien had expired prior to
the payment by the bank.

As to the lien for taxes, the bank could not’
be subrogated as search of title would
have disclosed that in a prior proceeding
it was determined that the life tenant did
not have the power to incumber property,
so the bank was guilty of such culpable
negligence as to preclude any favor at the
hands of the Court of Equity.

Morrah vy. First National Bank, 65 S. W. (2d) 830, 831
(1932)

QUESTION: Right of bank to become subrogated to first
mortgage lien which was discharged and
-paid by bank upon faith of release of note
secured by second mortgage holder who,
in fact, had sold note prior to release.

Second mortgage holder attempted to have
said mortgage declared a first and prior
lien.

HELD: Bank not guilty of culpable negligence, but
if so would not have been entitled to sub-
rogation which was granted in this case.
Also, no showing that the right of the sec-
ond mortgage holder was prejudiced and
thus subrogation was not denied.

32 ~.

Wallace v. Benner, (1931) 156 S. E. 795, 799

“The exceptions to the general rule to the doc-
trine of subrogation: (1) The relief is not granted to
a volunteer; (2) nor where the party claiming relief
is guilty of culpable negligence; (3) nor where to grant
relief will operate to the prejudice of the junior lien-
holder.”’

However, the facts in this case did not come in any of
the above exceptions, and the subrogation was granted.

4d
Huey v. Brand, (1936) 92S. wi 508, 507

FACTS: The tax collector illegally deposited funds in
the bank and the president of the bank and
another executed a surety bond. Upon
failure of the bank, Huey paid the state
and was allowed a general claim against
the bank.

The present action is for the purpose of
establishing a preferred claim on the
theory that Huey was entitled to the right
of subrogation to the preferential right of
the sovereignty, which was denied.

‘“‘The rule of preferential right of sovereignty
to be paid ahead of its citizens comes from monarchial
Europe. It is held to be transferred therefrom into the
law of democratic America by the legislative adoption
of the English common law. It was a prerogative that
belonged to ancient kings, before justice for the com-
mon man was born. If it may be justified as a cold
legal formula, now a part of American jurisprudence,
we doubt that either its origin, or the result of its ap-
plication to the average bank failure, is such as to pro-
duce enthusiasm or profound respect in the modern
judicial mind of this country. This much is said to
show that c arts should recognize its binding force in
any form only in a clear case. Concerning it the Su-
preme Court of Pennsylvania has held: ‘The proper
rule is that the state’s right to a preference over other
creditors, b+! ig a sovereign right enjoyed for the bene-
fit of all the people, cannot be transferred to individuals
except by express legislative sanction.’ In re South

33 ,

Philadelphia State Bank’s Insolvency, 295 Pa. 433, 145
A. 520, 83 A. L. R. 1123, at page 1125. However, we
need not announce such as the Texas rule Upon equit-
able principles more hoary with age than Anglo Saxon
jurisprudence, Huey is not entitled to the right of sub-
regation, conceding the preferential right of sov-
ereignty, and that same may be transferred to an indi-
vidual. We quote some of these:

‘Subrogation does not owe its origin to statute or
custom, nor is it a doctrine of the common law. It
originated in equity and is a creature of equity, a
doctrine of equity jurisprudence which was adopted
by equity from the Roman or the civil law. * * *

‘Subrogation is founded upon principles of justice
and equity and rests upon the principle that substan-
tial justice should be attained regardless of form. Its
basis is the doing of complete, essential and perfect
justice between all the parties without regard to
form. * * *

‘It will not be enforced unless there is some equit-
able doctrine upon which it can be predicated, and
only when the applicant therefor has an equity to in-
voke and his cause is just and its enforcement is con-
sonant with right and justice, and then only in a clear
case. It will not be allowed where it would be contrary
to public policy, or where it would accomplish by indi-
rection that which a statute forbids to be done by
direction. * * *

‘Nor can the doctrine be extended so as to author-
ize the application of the principle for the relief and
benefit of a party who ‘aluaasthe surrenders a right
or suffers An injury, the consequence of his own will-
ful neglect or wrong, or who has connived at and as-
sisted in the wrong, for one seeking subrogation must
come into court with clean hands. * * *

‘The person seeking subrogation must act fairly
and equitably and be free from fault. It will not be
allowed where he has intermeddled with the rights
of others, or is guilty of fraud or culpable negligence,
or where he would derive an advantage from, or
establish his claim through, his own negligence, or,
in any way, would thereby reap advantage from his
own wrongdoing. * * *

34

‘Subrogation will be granted only where an equita-
ble result will be reached. It will not be allowed when
to do so would be inequitable or where it would ac-
complish injustice.’ 60 C. J. pp. 696, 697, 698, 699,
701, 702, 707, 708 and 709.

‘‘See, also, Padgett v. Young County (Tex. Civ.
App.) 204 S. W. 1046; 60 C. J. p. 729.

‘‘In this case Huey openly flaunted the law of the
state and violated his oath of office by devositing state
funds illegally. A. P. Borger conspired with him in
this high-handed act. Now both are before a court of
equity, claiming in effect a right of preference over the
individual depositors of the Borger State Bank, based
upon their own wrongd. ag. Who would pay Huey if
his claim be allowed? Obviously the general depositors
would contribute. Laborers, bended with toil, gingham-
clad washer women, the aged, the infirm, even the or-
phan—these a part of the usual run of bank depositors
are to be made to enlarge the bank account of Huey and
enrich the estate of A. P. Borger. This consequence is
claimed to flow directly from a violation of Huey’s offi-
cial duty in making an illegal] deposit with Borger's
bank. We confess little enthusiasm or respect for the
rule which gives the state the iegal right to take the
assets of an insolvent bank from the above class, and
none at all for the rule invoked by both Huey and
Borger’s estate in this case. That it would work a loss
and grave injustice to the general depositors of the
Borger State Bank is, to our mind, as clear as sunlight.
Such a contention was rejected by the Pennsylvania Su-
preme Court upon the same reasoning we use here. In
re South Philadelphia State Bank’s Insolvency, 295 Pa.
433, 145 A. 520, 83 A. L. R. 1123.

‘‘The judgment of the trial court allowing the Huey
claim as a preference is hereby reversed and rendered
in favor of the Banking Commissioner.”’

39

ADDITIONAL COMMENTS ON CASES CITED BY
PETITIONER.

Fouts v. Maryland Casualty Co. (C. C. A. 4th, 1939) 30 F.
(2d) 357.

The opinion discloses at pg. 359 that the surety company
was asking for the allowance of an indemnity claim and
payment of bank dividends thereon before the State Treas-
urer had received all the dividends due on the state’s claim,
the court stating:

‘Tt is shown by the record that Mr. Lacy has not yet
received all his dividends, in fact there is a considera-
ble sum in the receiver’s hands to be distributed, yet
the court permits the proving and filing of the casualty
company’s claim for a certain fixed amount necessarily
greater than the company’s final loss.’’

The above statement indicates that expressions in the last
paragraph of the opinion of the court with respect to the
surety’s right of subrogation cannot be determinative of
the question involved in the instant case and must be con-
sidered as dicta.

American Surety Co. v. De Carle, (C. C. A. 9th, 1928) 25
F. (2d) 18.

In this case the full amount of the depository bond was
paid by the surety and left unpaid a substantial amount of
the County Treasurer’s deposit in the bank. However, the
surety, basing its claim against the receiver on its indemnity
agreement, sought allowance of a claim for dividend pur-
poses before the Treasurer was paid in full. The court de-
nied the surety’s claim based on the indemnity agreement
and indicated the surety’s only right would be that of sub-
rogation after the claim of the County Treasurer was sat-
isfied. Clearly, the court’s statements with respect to sub-
rogation, though relied upon by the petitioner, were merely
dicta in this case.

City of Oakland v. Hartford Accident & Indemnity Co..
(C. C. A. 6th, 1936) 81 F. (2d) 717.

The City sued the surety to enforce payment upon a de-
pesitory bond covering funds deposited in a state bank by
the City. Upon suspension of the bank, the City in a prior

36 -

suit in the state courts was denied a claim for dividend pur-
poses for the full amount of the City’s deposit, the state
court requiring a deduction of the proceeds of pledged bonds
in determining the amount of the City’s claim for dividend
purposes. This case in the Federal court was a suit by the
City against the surety company only, to recover the de-
ficiency after applying the proceeds of the collateral and a
dividend. The court held judgment should have been ren-
dered against the surety for the difference between its lia-
bility on the bond nd that portion of the deposit for which
the City had been compensated by application of the divi-
dend payment and the collateral proceeds. As the surety
had never paid its obligation on the bond, no questions of
subrogation were before the court for consideration. As
to that portion of the court’s opinion holding the City was
entitled to receive a dividend upon the full amount of the
claim without deducting the value of the collateral, it will
be noted that this point was res adjudicata, in view of the
previous decision by the state court to the contrary.

In re Thompson (W. D. Pa. 1924), 300 Fed. 215.

A brief statement of the facts in the above entitled case
will show that the holding of the court is not applicable to
the facts of the instant case. In that case the holder of
fifteen promissory notes compelled an indorser to pay the
entire indebtedness. The indorser then assigned his
claim for value to the Federal Security Company, which
proved the claim against a co-indorser’s bankrupt estate.
Two other co-indorsers were insolvent. Held: That the
Company was entitled to dividends on the entire claim as
proved, for as a surety it was subrogated to the rights of
the principal debtor.

It will be noted that the entire debt was paid by the
surety; that the surety’s claim was filed against a bankrupt
estate; and there was not involved a question of the con-
struction of the ratable distribution provisions of the Na-
tional Bank Act. The case involved the rights of an in-
dividual surety, as distinguished from a corporate surety.
The Pennsylvania courts in a long line of decisions have
held that the rule of strictissimi jurts in favor of an individ-
ual surety does not apply to a contract of suretyship by a
corporation, underwritten for a money consideration for
profit. Young v. American Bonding Co., (1910) 228 Pa.
373, 77 Atl. 623; Shaw v. New Amsterdam Cas. Co., (1933)

37

310 Pa. 213, 164 Atl. 916; Dairymen’s Co-operative Sales
Co. v. Maryland Cas. Co., (1934) 11 F. Supp. 423, aff. C. C.
A. 78 F. (2) 1014; Justice v. Empire State Surety Co., (Pa.
1913) 209 Fed. 105, aff. 218 F. 802.

Lidderdale’s Executors vy. Executor of Robinson, (1827) 25
U.S. 594.

The question involved was whether a joint endorser of a
bil! of exchange who had paid more than his share was en-
titled to priority of payment under the Virginia law against
the estate of a co-endorser. The Wirginia act provided that
protested bills of exchange had equal dignity with a judg-
ment after the death of the drawer or endorgezr and the
executors or administrators shall suffer judgment to pass
against them for all debts due upon a protested bill of ex-
change before payment of other debts of inferior dignity.
The court granted priority to the endorser in the amount
by which his payments had exceeded bis share of the debt.
The case does not appear to involve a problem of subroga-
tion of a surety to rights of a creditor in the distribution of
assets of an insolvent national bank under a ratable distri-
bution statute, as no statutory priority of payment against
an insolvent national bank is possible under the decisions
of this court. Cook County National Bank v. U. S., (1882)
107 U. S. 445; Davis v. Elmira Savings Bank, (1896) 161
U. S. 275; Old Company’s Lehigh v. Meeker, (1935) 294
U. S. 227: Jennings v. U. S. F. & G. Co., (1935) 294 U.S.
216.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386401_0461%3A5. Public record. Not legal advice.