Case Name: FORTHUN SCHOOL DISTRICT NO. 7 OF BURKE COUNTY, NORTH DAKOTA, a Public Corporation, Respondent, v. H. P. ALTNER, Gustav Flugge, and the First State Bank of Columbus, North Dakota, a Corporation. H. P. ALTNER and Gustav Flugge, Appellants
Court: North Dakota Supreme Court
Jurisdiction: North Dakota
Decision Date: 1929-10-22
Citations: 58 N.D. 673
Docket Number: 
Parties: FORTHUN SCHOOL DISTRICT NO. 7 OF BURKE COUNTY, NORTH DAKOTA, a Public Corporation, Respondent, v. H. P. ALTNER, Gustav Flugge, and the First State Bank of Columbus, North Dakota, a Corporation. H. P. ALTNER and Gustav Flugge, Appellants.
Judges: Burke, Oh. J., and Nuessle, Biedzell, and Ci-IRistiaNSON, JJ., concur.
Reporter: North Dakota Reports
Volume: 58
Pages: 673–680

Head Matter:
FORTHUN SCHOOL DISTRICT NO. 7 OF BURKE COUNTY, NORTH DAKOTA, a Public Corporation, Respondent, v. H. P. ALTNER, Gustav Flugge, and the First State Bank of Columbus, North Dakota, a Corporation. H. P. ALTNER and Gustav Flugge, Appellants.
(227 N. W. 190.)
Opinion filed October 22, 1929.
Olaf Braaielien, for appellants.
H. A. Hanson and George P. Homnes, for respondent.

Opinion:
Burk, J.
On June 12,1928, tbe plaintiff designated tbe First State Bank of Columbus a depositary of tbe funds belonging to tbe plaintiff, requiring from tbe bank a bond in tbe sum of $5,000 to secure tbe repayment of tbe funds. Tbe defendants Altner and Flugge are tbe sureties upon said bond given July 25, 1928. By tbe terms of tbe contract set forth in tbe bond the sureties were to be discharged from obligation "if tbe said First State Bank shall well and truly account for and pay over to tbe said obligee or to its order, on demand, all funds so deposited with it as such depositary, with interest, if any, as may be agreed upon, and agreeable to the terms of -such deposits as being payable on demand or at any particular time, and shall well and truly perform all other obligations and conditions now or hereafter imposed by law on its part to be kept and performed, . ."
On August 15, 1928, the plaintiff deposited with the First State Bank of Columbus as such depositary the sum of $2,000 on time deposit taking therefor two certificates of deposit for $1,000 each, "payable to the order of its treasurer on the return of this certificate properly endorsed twelve months after date with interest at 5% per an-num," and on Sept. 11, 1928, the school treasurer deposited the further sum of $1,000 represented by two certificates of deposit dated Sept. 11, 1928, and "payable to the order of himself on the return of this certificate properly endorsed 12 months after date with interest at 5% per annum." .
The complaint of the plaintiff set forth these facts and further alleges that these moneys accepted by the bank as such legal depositary so designated, and the public funds, are evidenced by these certificates of deposit, copies of which are annexed to and made a part of the complaint. The complaint further alleges that since on or about the 24th day of November, 1928, "the said First State Bank of Columbus, North Dakota, a corporation, has been unable to meet and has failed and refused to meet the demands of its creditors in the usual and customary manner and has made public announcement of its refusal to pay any of the deposits of any of its creditors in any manner whatsoever, and that the said First State Bank of Columbus, North Dakota, a Corporation, is insolvent and unable to pay any part of the funds of said Forthun School District No. 7, which has been deposited as aforesaid with said First State Bank of. Columbus, North Dakota, a corporation."
The complaint further alleges that on December 9, 1928, the clerk of the school district served upon each of the sureties a written notice of the defaxdt of the First State Bank of Columbus and that on December 17, 1928, the treasurer of the school district presented these certificates of deposit to the First State Bank of Columbus "and demanded payment thereon and that payment of said certificates of deposit was thereupon refused by the said bank, and by the duly qualified and acting receiver in charge of the affairs of the said bank." The com plaint then demands judgment against tbe sureties in tbe sum of $3,000 and interest.
Tbe sureties demurred to tbe complaint on tbe grounds "that tbe court bas no jurisdiction of tbe subject of tbe action; that there is a defect of parties defendant; that tbe complaint does not state facts sufficient to constitute a cause of action."
Tbe trial court overruled tbe demurrer, and in. tbe order required that tbe "receiver should be interpleaded as party defendant in such action" and gave tbe sureties 13 days in which to answer tbe complaint.
From tbe order overruling tbe demurrer .the defendants Altner and Flugge appeal setting forth seven specifications of error. These specifications of error involve but two points so far as the demurrer is concerned — tbe defect of parties defendant in that tbe receiver bad not been made a party to tbe action; and that tbe complaint shows on its face there was nothing due on tbe bond when tbe action was commenced.
So far as tbe defect of parties defendant is concerned tbe demurrer was properly overruled. The complaint does not allege that any receiver bad ever been appointed for tbe insolvent bank. Tbe parties to tbe bond are tbe First State Bank of Columbus and tbe two sureties. These are made parties to the action. As said in Baird v. Williston, ante, 478, 226 N. W. 608, 613:
"It is not tbe fact of insolvency which prevents service of summons and complaint upon officers of the insolvent institution, it is the appointment of the receiver and bis taking charge of affairs. Until tbe receiver steps in, tbe officers represent tbe insolvent corporation."
If there be a receiver and be desire to intervene, or if any of tbe parties care to have him interpleaded, proper action may be taken looking to these ends.
Tbe respondent seeks to recover on tbe aforementioned certificates of deposit which were not due until long after tbe commencement of tbe action and tbe overruling of tbe demurrer, but it is the contention of tbe respondent, viz.: that tbe insolvency of tbe bank made tbe certificates of deposit due upon tbe demand.
Bespondent cites Gilbertson v. Northern Trust Co. 53 N. D. 502, 42 A.L.R. 1353, 207 N. W. 42, arguing that- therein it is held insolven cy makes a deposit due immediately and actionable; but' in that case we were dealing with funds due on demand. We said therein: "Where funds are deposited in a bank subject to payment on demand, and the bank is closed on account of its insolvency, the deposit thereby becomes due and actionable. No demand is necessary." Respondent also cites the rule laid down in 7 0. J. 741, to the effect that "money on deposit in a bank subject to check becomes due without demand when the bank becomes insolvent." But this rule has no application to the case at bar. It does not refer to time certificates.
Respondent cites the case of Scott v. Armstrong, 146 U. S. 499, 36 L. ed. 1059, 13 Sup. Ct. Rep. 148, where a deposit was permitted to be set off against a note to the bank not due at the time of suspension and the rule announced in Stone v. Dodge, 96 Mich. 514, 21 L.R.A. 280, 284, 56 N. W. 75, that "it is well settled that in a suit by a receiver of an insolvent bank upon a note or obligation due the bank the defendant will be allowed to set off his deposit or a certificate of deposit held by him at the time of the suspension of the bank."
The right to offset a time certificate of deposit as against a claim made by the defendant against the holder of the certificate is an entirely different matter from the one at bar. The receiver acts for the defendant so far as his certificate of deposit is concerned. The parties have mutual accounts and an unmatured certificate is a bank liability which the receiver must meet. Certificates purchased after the insolvency of the bank can not be offset as shown by the Michigan case cited — even if the certificate were due. Between the bank and depositor, accounts owing each other at the time of insolvency may be adjusted, without reference to their due date. In the United States case the deposit was subject to check or at least held for the purpose of paying the note. It was not a time certificate. It was a case in equity for the enforcement of the set off and the court said: "Courts of equity frequently deviate from the strict rule of mutuality when the justice of the particular case requires it, and the ordinary rule is that whére the mutual obligations have grown out of the same transaction, insolvency on the one hand justifies the set-off of the debt due upon the other."
Respondent quotes the rule laid down in 7 C. J. 741, to the effect:
"And it has also been held that the liquidation of a state bank ma tures a certificate of deposit issued by such bank, although it is not yet due according to its face."
It cites in support thereof the case of First State Bank v. Bank of Braggs, 43 Okla. 342, 142 Pac. 1183. This case is cited by Corpus Juris as authority for the rule quoted; but an examination of the ease shows that it is dealing- with an entirely different situation. It was an actiQn in equity. The Bank of Braggs was in process of liquidation, the plaintiff was the owner of a time certificate, the bank which had taken.oyer the assets of the Bank of Braggs, under an agreement to pay off the'obligations, together with the Bank of Braggs was collecting and disbursing the assets and ignoring or refusing to pay plaintiff's claim; and plaintiff brought an action in equity to require the defendants to acknowledge and provide for this claim, and asked for the appointment of a receiver so that its claim would not be lost. The court held that in such a case as that and under such circumstances "the effect - of such liquidation upon a certificate of deposit issued by the liquidating bank which upon its face is not due is to mature it." The Bank of Braggs had entered into an agreement with the Guaranty State Bank whereby it turned over its property for the benefit of its creditors and directed the Guaranty State Bank to liquidate its assets for the purpose of paying off its debts. The action of the Bank of Braggs was- in effect its agreement and promise to pay these immature! claims as if they were-mature. The holder of the immature claim had a right to so construe it as being mature, and the rule in equity laid dowil in Scott v. Armstrong, supra, was applicable. This is not the situation in the case at bar.
A contract-consists of binding promises, and a broken promise will constitute a breach of contract. Repudiation of liability under a certain contract may result in a condition wherein the one entitled to enforce the same' may consider this repudiation as a breach of the contract and sue for damages before the time set forth in the contract for its fulfillment. This doctrine is extended, in certain cases, so that an anticipatory inability to perform may amount to a breach and in the case of the Central Trust Co. v. Chicago Auditorium Asso. 240 H. S. 581, 60 L. ed. 811, L.R.A.1917B, 580, 36 Sup. Ct. Rep. 412, it was held that on the bankruptcy of a party to a bilateral contract before a breach the other party had a provable claim. But when it comes to the question of unilateral obligations, however, the rule is well settled there' can be no anticipatory breach. In the case of Nichols v. Scranton Steel Co. 137 N. Y. 471, 33 N. E. 561, the court said: "It is not intimated that in the bald case of a party bound to pay a promissory note which rests in the hands of the payed, but which is not yet due, such note can be made due by any notice of the mater that he does not intend to pay it when it matures." This language was quoted with approval by the Supreme Court of the United States in the case of Roehm v. Horst, 178 U. S. 1, 17, 44 L. ed. 953, 960, 20 Sup. Ct. Rep. 780. The Supreme Court of the United States was passing upon the rule regarding an unqualified and -positive refusal to perform a contract, though the performance thereof is not, yet due, and says: "In the case of an ordinary money contract, such as a promissory note, or a bond, the condition has passed; there are no mutual obligations; and cases of that sort do not fall within the reason of the rule."
"A surety cannot be held beyond the express terms of his contract." Section 6677 of the Compiled Laws of 1913. The language of the bond is that the bank will pay "all funds so deposited with it as such depositary, with interest, if any, as may be agreed upon, and agreeable to the terms of such deposits as being payable on demand or at any particular time, etc."
The sureties agreed the bank would pay these certificates of deposit at the time stated therein. Unless insolvency accelerated the time of payment then payment was not due at the time the action was commenced.
In the case of the United States Fidelity & G. Co. v. American Bonding Co. 31 Okla. 669, 122 Pac. 142, one surety on a bond brought an action against a co-surety on a "binder" bond given the territorial treasurer by a depositary to repay the funds of the territory. The Capital National Bank had become the depositary and the United States Fidelity & Guaranty Co. became surety on the bond. _ The American Bonding Co. also became a surety on a separate instrument and the defendant gave this additional instrument known as a "binder." The bank became insolvent and an action was brought by the bonding company on the theory that the cosurety, the guarantee company, "was liable to contribute to it one third of what it had just paid" on this bond. The guaranty company contended that there was no demand made upon the bank for its money, and that there was no breach of the bond because of insolvency, though the bank became insolvent prior to the expiration of the time limit of the bond. There were many other features involved in the case but the court held "that the insolvency of the bank pending the duration of said risk was not a breach of said bond."
The sureties bound themselves to reimburse the school district according to the terms of the bond which .was that the bank would pay these time certificates of deposit when they became due. The sureties did not alter this contract in any way and the time certificates of deposit were not due. This is an action on contract and so the demurrer should have been sustained, holding that the complaint did not state facts sufficient to state a cause of action.
Another specification of error is:
"That the district court erred in holding and determining that L. R. Baird, as Receiver of the First State Bank of Columbus, North Dakota, could at the time of the making of the Order appealed from be properly interpleaded as a party defendant in said action."
The fifth specification of error is to the same effect. The sixth specification of error deals with the order requiring the defendants Altner and Flugge to answer the complaint. These need not be determined here in view of our holding the action is brought prematurely. The order is reversed, and the case dismissed with costs.
Burke, Oh. J., and Nuessle, Biedzell, and Ci-IRistiaNSON, JJ., concur.