Court Opinion

ID: 3496831
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:04:30.83295+00
Date Added: 2024-06-11T14:15:33.111647
License: Public Domain

This is an action in assumpsit brought by the county of Oakland, a municipal corporation, against the directors of the Birmingham Savings Bank to recover on a depository bond given by the Birmingham Savings Bank as principal and its directors as sureties to protect plaintiff's deposit in the Birmingham Savings Bank.
On May 8, 1931, plaintiff had on deposit in the above bank approximately $128,000. The bank was the designated depository of the county funds. On or about March 24, 1931, the Oakland county board of auditors requested the bank to furnish additional security to the extent of $65,000 to qualify under Act No. 99, Pub. Acts 1909, as amended (1 Comp. Laws 1929, §§ 1193-1202 [Stat. Ann. §§ 5.531-5.540]), as a depository of public funds. On May 8, 1931, the bond was furnished and the defendants who were all of the directors of the bank signed the bond as sureties. On December 16, 1931, the above bank was experiencing financial difficulties and it entered into an agreement with the First National Bank, Birmingham, to effect an orderly liquidation of its affairs. On December 28, 1931, the stockholders of the Birmingham Savings Bank by more than two-thirds majority approved the proposed transaction between the two banks. Notice of the transaction was sent to all depositors by the Birmingham Savings Bank on December 17, 1931. Between January 5, 1932, and July 20, 1932, the First National Bank cashed one of the certificates of deposit of the Birmingham Savings Bank held by plaintiff and accepted the surrender of all of the other certificates of deposit of the Birmingham Savings Bank held by plaintiff and issued to plaintiff its own certificates of deposit for the amount of the surrendered certificates *Page 71 
of deposit of the Birmingham Savings Bank. February 14, 1933, the First National Bank was closed and did not reopen. On or about October 3, 1935, plaintiff filed its claim with the receiver of the First National Bank for the sum of $254,338.72 and alleged in the claim that said amount was owing plaintiff by the First National Bank. This amount included $98,593.75 evidenced by First National Bank certificates of deposit issued by it to plaintiff in exchange for the Birmingham Savings Bank certificates above mentioned. Subsequently, plaintiff received three dividends from the receiver of the First National Bank.
The trial court after hearing the evidence entered a judgment of no cause of action; and found as a matter of law that there was a novation because:
"1. The First National Bank assumed the liabilities of the Birmingham Savings Bank and the plaintiff knew this.
"2. The plaintiff transacted business with the First National Bank, surrendered to it the Birmingham Savings Bank certificates, and accepted in lieu thereof the First National Bank certificates which were not in the same form and which bore a greater interest rate.
"3. They filed claim against the receiver of the First National Bank for all moneys including those formerly in the Birmingham Savings Bank.
"4. By the plaintiff's acts and deeds, it is evident to this court that the Birmingham Savings Bank, and consequently the sureties, were released from all liabilities to plaintiff."
Plaintiff appeals. The question involved in this case is one of novation. Defendants contend that there was a novation of the obligations of the Birmingham Savings Bank secured by the bond upon *Page 72 
which action in this case was brought. The principles of novation are not in dispute.
In George Realty Co. v. Gulf Refining Co., 275 Mich. 442,447, this court said:
"In the case of Harrington-Wiard Co. v. Blomstrom Manfg. Co.,166 Mich. 276, 286, we said:
" 'It is a well-established rule that the necessary legal elements to establish novation are: (1) Parties capable of contracting; (2) a valid prior obligation to be displaced; (3) the consent of all parties to the substitution, based upon sufficient consideration; and (4) lastly, the extinction of the old obligation and the creation of a valid new one. All of these elements must be established by the evidence; not necessarily by direct evidence, but by evidence of such facts and circumstances as logically lead one to the conclusion that a new contract has been made.'
"Novation need not be in writing or expressed but may be implied from facts and circumstances.
" 'It is a well-settled principle that the assent to, and acceptance of the terms of a novation need not be shown by express words to that effect, but the same may be implied from the facts and circumstances attending the transaction and the conduct of the parties thereafter.' 46 C. J. p. 580.
"See, also, Gillett v. Ivory, 173 Mich. 444; Keppen v. Rice,257 Mich. 299; Frank C. VanDyke  Co. v. A. J. Stuart Land Co.,245 Mich. 119; Mulgrew v. Cocharen, 96 Mich. 422;Chicago Boulevard Land Co. v. Nutten, 268 Mich. 541."
Defendants rely upon Gillett v. Ivory, supra, to support their claim of novation. In that case the plaintiff deposited $400 in the bank owned by the defendants. Eight days later the defendants sold their interest in the bank to Hagle and Varran who continued the business under the same name and assumed all of the obligations as a part of the purchase price. About a month later plaintiff learned of the sale. Approximately five months later, plaintiff demanded payment from Hagle and Varran and the bank closed shortly thereafter. Plaintiff filed a claim with the receiver and subsequently received $142 in dividends. Plaintiff brought suit against *Page 73 
the defendants who were the owners of the bank at the time of the original deposit. We there held that there had been novation because the facts established consent to the substitution; and that plaintiff was estopped to deny the substitution of debtors by his actions.
The acceptance of the new debtor alone does not necessarily discharge the old debtor, see Epworth Assembly v. Railway,236 Mich. 565, but is a circumstance to be considered, ChicagoBoulevard Land Co. v. Nutten, supra. The renewal of a note by a new debtor does not destroy the old obligation, GuardianDepositors Corp. v. Currie, 292 Mich. 549.
In 20 R. C. L. p. 365, it is said:
"The rule applicable to promissory notes applies to certificates of deposit, and therefore the renewal of bank certificates does not operate as a novation of the original indebtedness."
In Riber v. Morris (syllabus), 279 Mich. 344, we held:
"In the absence of an express agreement as to satisfaction, the taking of the direct obligation of such third party,prima facie, by substitution or specie of novation, extinguishes the obligation of the original debtor but suchprima facie presumption departs when in conflict with credible evidence."
In the case at bar the bond signed by the defendants contained the following language:
"This bond shall continue in full force and effect from this date forward unless revoked by resolution of the board of auditors, and until all moneys now on deposit shall have been paid in accordance with the terms of said certificates of deposit."
It is conceded that the board of auditors never passed or adopted any resolution releasing defendants. *Page 74 
There must be a legal discharge of sureties.Lawrence v. American Surety Co., 263 Mich. 586*
(88 A.L.R. 535). The trial court made the following finding of facts:
"On several occasions the Oakland county treasurer mailed certificates to the First National Bank requesting that bank to reissue the certificates and send the interest then due to the treasurer. In some instances, the interest rate borne by the certificates issued by the First National Bank exceeded the interest rate borne by the former certificates issued by the Birmingham Savings Bank. The wording in the First National Bank certificates differed in some respects from the wording in the Birmingham Savings Bank certificates.
"Subsequent to the failure of the First National Bank to reopen after the banking holiday, February 14, 1933, Oakland county filed claim with the receiver of the First National Bank for all moneys due the county, including the balance of funds traceable to the Birmingham Savings Bank, and has received on such claim, three different dividends, totalling 55 per cent. of the county's claim."
In the case at bar plaintiff had knowledge of the arrangements between the two banks and the county treasurer of Oakland county accepted dividends upon the new certificates, but knowledge and acceptance of dividends are not sufficient to call into being the doctrine of novation. Nor do we find anything in the record giving the county treasurer power and authority to discharge the defendants from their liability upon the bond. Such authority, where public moneys are involved, must be clear and convincing. In our opinion the record does not sustain a finding of novation.
The judgment should be reversed and a judgment should be entered in the circuit court for the amount of the obligation. Plaintiff should recover costs. *Page 75 
CHANDLER, J., and BUTZEL, J., concurred with SHARPE, J.
WIEST, J. I concur in the opinion of Mr. Justice SHARPE.
The bond pledged payment. This prevented bar by novation. Defendants' obligation continues until payment, with right of credit for moneys received by plaintiff from the liquidating bank.
Defendants plead estoppel by novation without satisfaction of their obligation.
It was plaintiff's duty to collect where it could and thus protect defendants and this duty performed did not operate as an estoppel to the release of defendants.
* Rehearing denied, 264 Mich. 516. — REPORTER.