Case Name: STUTSMAN COUNTY, a Public Corporation, Respondent, v. DAKOTA TRUST COMPANY, a Corporation, Appellant
Court: North Dakota Supreme Court
Jurisdiction: North Dakota
Decision Date: 1921-01-24
Citations: 47 N.D. 228
Docket Number: 
Parties: STUTSMAN COUNTY, a Public Corporation, Respondent, v. DAKOTA TRUST COMPANY, a Corporation, Appellant.
Judges: Eobinson, Oh. J., and Christianson and Birdzell, JJ. concur.
Reporter: North Dakota Reports
Volume: 47
Pages: 228–235

Head Matter:
STUTSMAN COUNTY, a Public Corporation, Respondent, v. DAKOTA TRUST COMPANY, a Corporation, Appellant.
(181 N. W. 586.)
Depositaries — surety on bond liable for interest from time of demand at legal rate.
’ In an action upon a surety bond, where a bond was given to a county to secure the demand deposits of the county, with interest upon the average daily-balances during each month at 3 per cent per annum, pursuant to the proposal of the bank, the county, after default of the bank, is entitled to recover interest upon the principal demand at the legal rate of 7 per cent per annum from the time of. the demand made upon the surety until July 1, 1915, and thereafter at the rate of 6 per cent per annum.
Opinion filed January 24, 1921.
Appeal from judgment in favor of tbe plaintiff in District Court Stutsman County, Ooffey, J.
Judgment modified and affirmed.
Statement.
Bronson, J. This is an action upon a surety bond. Tbe defendant has appealed from a judgment in favor of tbe plaintiff. Tbe defendant terms tbis action a friendly lawsuit. A question of law alone is involved. Tbis question was presented to this court heretofore by certification, but jurisdiction was declined by reason of the manner in which certification was made. See Stutsman County v. Dakota Trust Co. 45 N. D. 451, 178 N. W. 725. Tbe facts are stipulated. Therefrom it appears that the Medina State Bank was the designated county depository of tbe plaintiff: The-deiendant'iurnishod a surety bond to tbe plaintiff upon tbe condition that tbe bank should safely keep and repayj according to tbe provisions of §§ 2435 to 2437 ine., Rev. Codes 1905, any and all funds deposited with such bank, subject to draft on demand, together with interest thereon at tbe rates specified in tbe application or proposal to the bank.
Tbe proposal of the bank made to and accepted by tbe county stated in writing that interest at the rate of 3 per cent per annum would be paid on the average daily balances during each month on tbe demand funds of such county deposited in such depository, with interest to be paid monthly, and upon condition that such funds, with accrued interest, should be held subject to draft of the county at all times on demand. The bank became insolvent and passed into the hands of a receiver. It then had demand funds of the county on deposit amounting to $5,035.30. On January 30, 1914, notice of the bank’s default and demand for payment of the funds involved was made upon, the defendant. Subsequently, by dividends • paid through the receiver, the principal demand was reduced to $3,035.30, not including* items of interest. After the commencement of this action, the defendant tendered paymhnt of the principal sum, with interest at 3 per cent per annum. This tender was refused.
■ The only question in dispute between the parties is the rate of interest which the county is entitled to recover upon the principal amount pursuant to the facts as stipulated. It is the contention of the defendant that it is liable only for the contract rate of interest stipulated by the Medina State Bank in its proposal to the county, to wit, 3 per cent per annum. -That plaintiff’s cause of action is not based upon a new obligation, but upon the very contract itself; that, pursuant to statute, § 6078, Comp. Laws 1913, the stipulated contract rate remains in force after breach of the contract; that pursuant to statute, § 6072, Comp. Laws 1913, the contract in question carried the same rate of interest after, as before, maturity. That, furthermore, pursuant to statute, § 6677, Comp. Laws 1913, the surety was not obligated beyond the express terms of the contract made.
On the other hand, the plaintiff contends that the obligation of the surety was as broad as that of its principal, — that upon failure of the bank to make payment pursuant to its contract, after demand, the depositary rate of interest no longer governed, and there then became due to the county the amount of the demand plus interest at the legal rate of 7 per cent per annum.
Lawrence & Murphy, for appellant.
“The Code law embraces the whole subject of interest and must control it.” Chipman v. Dem (Cal.) 48 Pae. 618.
“A surety cannot be held beyond the express terms of his contract, and if such contract prescribes a penalty for its breach he cannot in any case be liable for more than the penalty.” Comp. Laws 1913, § 6677.
Moneys after due bear interest at the same rate as before maturity, and the statute rate of interest takes effect after the maturity of the obligation only in the event that there is no interest rate fixed in the contract to be paid either before or after maturity. Overton v. Belton (Term.) 24 Am. Eep. 373; Hubbard v. Callahan, 42 Conn. 534, 19 Am. Eep. 575; Hopkins v. Crittendon, 10 Tex. 189; Findley v. Hall, 12 Ohio, 610; Spencer v. Maxficld, 16 Wis. 178; Adams v. Way, 33 Conn. 431; Cornwall v. Sac County, 96 U. S. 61; Entrye v. McDaniel, 28 111. 203.
John W. Carr, for respondent.
“A surety is an insurer of the debt.” Northern State Bank v. Bellamy, 39N.D. 509, 125N.W. 888.
“We are not unmindful of the fact that a paid surety or bonding company is treated rather as an insurer than a surety.” Long v. American Surety Co. 23 N. D. 492, 137 N. W. 41.
“A surety is bound with the principal on the identical contract under which the liability of the principal accrues.” 20 Cyc. 1400.
If a debt ought to be paid at a particular time, and is not then paid, through the default of the debtor compensation in damages equal to the value of the money, which is the legal interest upon it, shall be paid during such time as the party is in default.” Empire State Surety Co. v. Lindenmeier, Ann. Cas. 1914 C, 1189, 1192; 18 C. J. 593, ¶ 73.

Opinion:
Bronson, J.
(after stating the facts as above). It is evident that the bank under its contract was obligated to maintain, subject to demand, the county deposits, and to pay interest thereon monthly, on demand, upon the daily average balances, per month. The payment of interest on such daily balances was a mere incident to the main obligation to maintain these deposits of the county subject to demand. When the bank became insolvent, these demand deposits, including the accrued interest, no longer could be paid upon demand. There then arose a breach of the bond given by the defendant to the plaintiff, to wit, the engagement to insure the maintenance of such demand funds with the interest specified. In no manner can this engagement be termed a contract to pay interest at 3 per cent per annum upon demand deposits when they were not subject to be so termed. The contract rate concerns the payment of interest upon the fluctuating balance of demand deposits. A distinction may be drawn between a contract to pay money only and tbe obligation to maintain demand funds and tbe payment of interest thereupon, pursuant to a fluctuating balance, while the same are maintained as demand funds. After they ceased to be available as demand deposits, the contract rate for the payment of interest upon a fluctuating balance did not then apply. See Central Bank & Trust Corp. v. State, 139 Ga. 54, 76 S. E. 589; Fidelity & D. Co. v. Wilkinson County, 109 Miss. 879, 69 So. 869; 18 C. J. 594. In a manner, the defendant was an insurer of this obligation on the part of the bank. Long v. American Surety Co. 23 N. D. 492, 504, 137 N. W. 41. The legal rate of interest is allowable by way of compensation as damages for breach of the contract. First Nat. Bank v. State Bank, 15 N. D. 594, 613, 109 N. W. 61; Comp. Laws 1913, § 7141, 7142. See 22 Cyc. 1523. The plaintiff was entitled to recover the legal rate of interest from the time of the demand made upon the surety. Dickinson v. White, 25 N. D. 523, 538, 49 L.R.A.(N.S.) 362, 143 N. W. 754. See note in Ann. Cas. 1916B, 1236, 1244. Until July 1, 1915, the legal rate of interest was 7 per cent per annum. Comp. Laws 1913, § 6073. Since that time the legal rate of interest has been 6 per cent per annum. Laws 1915, chap. 176. The trial court allowed interest at the rate of 7 per cent per annum from the time of the demand. In this regard we are of the opinion that the trial court erred. The plaintiff seeks to recover interest as damages, and not by reason of the contract. It is entitled accordingly to recover such legal interest pursuant to the statutory rate covering the respective periods involved, namely, interest at 7 per cent per annum upon the principal demand until July 1, 1915, and thereafter at 6 per cent per annum. See 22 Cyc. 1523; O'Brien v. Young, 95 N. Y. 428, 47 Am. Rep. 64. It is ordered that the judgment be modified accordingly, and, as so modified, that it be affirmed. Neither party will recover costs upon this appeal.
Eobinson, Oh. J., and Christianson and Birdzell, JJ. concur.