Opinion
No. 73-327
Decided April 30, 1974.
Action by assignee of bank on promissory note executed to bank by defendants. From judgment for plaintiff, defendants appealed.
Affirmed
1. BILLS AND NOTES — Action by Assignee — Bank's Assets — Payment — On Bond — Recovery — Defalcation of Officers — Makers of Note — Not Entitled — Credit on Obligation. In action by assignee of bank's assets against maker of note payable to the bank, any payment by bonding company on bond issued to secure bank against defalcation of its officers, or any recovery from the officers as result of alleged defalcation, would be a payment or recovery based on the illegal acts of the officers, and not on the note executed by defendants; hence, such recovery does not entitle the makers of the note to any credit on their obligation.
Appeal from the District Court of the City and County of Denver, Honorable Mitchel B. Johns, Judge.
White Steele, Lowell White, for plaintiff-appellee.
Elmer Lee Hamby, Jerome J. Duff, for defendants-appellants.
Federal Deposit Insurance Corporation, as assignee of the Rocky Mountain Bank, sued Bill Beeney and Voice of Reason, Inc., for the balance of $58,423.15 due on a promissory note executed by defendants. Following a trial to the court, judgment was entered in favor of plaintiff, from which judgment defendants appeal. We affirm.
The trial court found, inter alia, that the note was a valid obligation of defendants, that there was no failure of consideration, and that the balance due was as alleged in the complaint, and entered judgment in that amount. These findings are supported by the evidence, and are not questioned on appeal.
Appellants assert that plaintiff is not entitled to judgment because it has already been paid in full "by reason of its collection from the surety and its second and additional collection from former officers of the Rocky Mountain Bank."
The facts pertinent to this issue are that Maryland Casualty Company had executed a bond to the bank providing for reimbursement to the bank of losses incurred by reason of dishonest acts of its officers or employees. After the Banking Commissioner took possession of the bank, he sold many of the assets of the bank to plaintiff, including the rights of the bank under the bond. Plaintiff claimed losses under the bond in excess of $1,000,000, all of which were denied by the bonding company. A compromise was entered into whereby the bonding company paid plaintiff $275,000 in settlement of all the claims and assigned to plaintiff all its subrogation and salvage rights under the bond. In return, plaintiff released the bonding company of all obligations under the bond.
Thereafter plaintiff sued certain officers of the bank to recover for losses which resulted from alleged illegal acts by the officers. The loss arising from the non-payment of the note here sued on was included among the claims filed against the bond, and in the action against the officers.
Appellants claim that any recovery obtained by plaintiff from the bonding company or the officers should be credited against the amount due on the note and thus relieve them, to that extent, of their obligation thereon. We do not agree. Any recovery by plaintiff under the bond is based on damages for breach of the conditions of the bond; i.e., the defalcation of the bank officers. The bank, or its assignee, may sue the maker of the note, who is primarily liable thereunder, and at the same time seek recovery from the bonding company for losses sustained which are covered by the bond. Westervelt v. Mohrenstecher, 76 F. 118(8th Cir.).
There can be only one recovery for the debt owing on the note. However, any recovery which plaintiff obtains from defendants would reduce the liability on the bond, Westervelt, supra, and the damages recoverable from the bank officers. Payment by the bonding company would not relieve the maker of his obligation on the note. This would be true even if the bonding company were deemed to be a surety on the note. "It is a general rule that discharge of a surety does not discharge a principal . . . . " City of New Orleans v. Whitney, 138 U.S. 595, 11 S.Ct. 428, 34 L.Ed. 1102; Gilstrap v. Smith, 101 Ga. 120, 28 S.E. 608. This is so because, "If the surety pay anything on the debt, he is instantly invested with a right of action for his reimbursement against the principal . . . . " In re Kimbrough-Veasey Co., 292 F. 757 (N.D. Ga.).
In this case, payment by the bonding company, or recovery from the officers, being based on the illegal acts of the officers, and not on the note, does not entitle the makers to any credit on their obligation. See Westervelt, supra.
Judgment affirmed.
JUDGE COYTE and JUDGE SMITH concur.