Deitrick v. Standard Surety & Cas. Co., 303 U.S. 471 (1938)

MR. JUSTICE BLACK, dissenting.

When two or more persons have jointly perpetrated a fraud with intent to injure others, justice and law combine to entitle injured parties to recover from any or all of the conspirators. Corporations can act only through agents. When, as here, two corporations, acting through authorized agents, have jointly perpetrated a fraud which was intended to, and did, injure others, a just rule of law should likewise hold both corporations jointly and severally responsible for the damages inflicted by them upon innocent parties.

In this case, innocent depositors and other creditors of a now insolvent national bank suffered damages as a direct result of fraud willfully perpetrated on them by joint action of the bank and the respondent surety corporation, acting through their agents. Because of the guilty participation of the bank president in this fraud, the opinion just read denies the receiver of the insolvent bank a recovery which would inure to the benefit of the innocent depositors. At the same time, however, the respondent surety corporation is freed from any responsibility to these innocent parties in spite of the admitted guilty participation of its agent. That the agent of the respondent surety corporation was authorized to write the indemnity bonds used in the fraud is disclosed by the findings of the master and auditor, acting "under a stipulation that findings of fact shall be final." These findings show that:

The duly licensed agent of the surety company (respondent) conspired with the president of the bank to supply indemnity bonds guaranteeing the payment of certain notes held by the bank, which bonds were to be placed among the assets of the bank for the purpose of deceiving federal bank examiners, the bank’s directors, and all others entitled to inquire as to the soundness of the notes; the surety company’s agent also personally assured the examiners that the bonds were all right; no premium was paid the surety company, and the bonds were intended by the respondent’s duly authorized agent and the president of the bank to be valueless, and used as "window dressings" to accomplish deceptions; respondent’s duly licensed agent had a power of attorney

to make, execute and deliver . . . for and on its behalf as surety, and and all bonds . . . undertakings, or anything in the nature of any of them, . . . to all intents and purposes as if same had been duly executed and acknowledged by the regularly elected officers of the company . . . ;

a copy of the power of attorney was attached to the bonds, and the examiners inspected public records and verified the authenticity of this power of attorney; these bonds were executed after the examiners had notified the bank to make good an impairment of capital, and the execution of these bonds caused the Comptroller to withdraw his order to make good the impairment, and, as a result, the bank continued to remain open, assumed additional obligations, and accepted further deposits in large amounts.

Since the receiver represents the creditors as well as the bank,{1} he can sue in his own name to recover assets on behalf of the bank or its creditors.{2}

It is the duty of the receiver of an insolvent corporation to take steps to set aside transactions which fraudulently or illegally reduce the assets available for the general creditors, even though the corporation itself was not in a position to do so.

Texas & Pacific Ry. Co. v. Pottorff, 291 U.S. 245, 261. There is no occasion to consider whether the bank could recover against the insurance company on the indemnity bonds. "Enough that the receiver has the requisite capacity." McCandless v. Furlaud, 296 U.S. 140, 160. In the McCandless case (p. 171), the minority view was that "the receiver’s rights could rise no higher" than the corporation’s rights. The majority rejected this viewpoint (p. 159), holding that, where corporate officers and shareholders combined with others to despoil a corporation, recovery could be had "either by the creditors directly or in their behalf by a receiver."

The receiver does not merely represent the corporation -- the bank. The object of the appointment of a receiver is to collect and protect all of the insolvent’s assets in the interest of the creditors first, then for the benefit of the stockholders. It has long been recognized that even in the case of a going bank, the rights of depositors and the public would be jeopardized unless given protection in addition to that afforded by the bank’s officers elected by the stockholders. For that reason, among others, the government has provided a system of examination for all national banks.{3} Statutes require banks to make reports to the Comptroller of the Currency and to permit examinations by federal bank examiners. These examinations are designed to prevent such frauds as were perpetrated in this case. This objective will be frustrated if surety companies, with complete immunity, can, through their authorized agents, conspire with bank officials to deceive and trick bank examiners. The convenient fiction that knowledge of an officer of the bank is imputed to the bank itself is not sufficient to relieve respondent surety company from the consequences of the wrong committed by its authorized agent. There is not even a fiction under which knowledge can be imputed to innocent depositors. Strange, indeed, it is if the elaborate system of precautions provided by the government to protect the interests of creditors of national banks by examination and visitation of federal officials must be held for naught by application of the fiction that the bank, not the injured depositors, knew everything its president knew. The interests of the bank and the interests of the depositors and creditors are not always identical. That their interests are recognized as separate and distinguishable is amply shown by laws passed to protect depositors and creditors of national banks. Public solicitude for protection of depositors is exemplified by the recent passage of the law insuring public deposits.{4}

The receiver filed suits at law side to recover on the several indemnity bonds. The surety company proceeded in equity praying cancellation of the bonds. All actions were tried on evidence before a master and auditor "under a stipulation that findings of fact shall be final." These findings set forth all of the rights of the receiver as the representative of the creditors, the stockholders, and the bank.

In this case, the principles involved are of great importance. The decree below adjudged the indemnity bonds to be void and unenforceable. Since I believe the receiver was entitled under these actions to enforce the bonds and to protect the innocent victims of fraud, I would reverse the decree below.

MR. JUSTICE REED concurs in this opinion.

1. Case v. Terrell, 11 Wall.199, 202; High, "On Receivers," 4th Ed., §§ 314, 320; In re Pleasant Hill Lumber Co., 126 La. 743, 757, 52 So. 1010; Duke v. Stayton Co., 132 Wash. 69, 77, 231 P. 171; Atlantic Trust Co. v. Dana, 128 F. 209, 221; De Stefano v. Almond Co., 107 N.J.Eq. 156, 159, 152 A. 2; Industrial Mutual Deposit Co.’s Receiver v. Taylor, 118 Ky. 851, 854, 82 S.W. 574; Iglehart v. Todd, 203 Ind. 427, 440, 178 N.E. 685.

2. See Kennedy v. Gibson, 8 Wall. 498, 506.

3. See Easton v. Iowa, 188 U.S. 220, 238.

4. 12 U.S.C. § 264 et seq.