Storing v. National Surety Co.

The plaintiff brings action upon a surety bond given to indemnify the First National Bank of Turtle Lake against loss occasioned through the fraud, dishonesty, misappropriation of money, etc. of certain employees, including one Wilhelm Lierboe. It is stipulated that all of the statements of the complaint are true. The defendant answered, setting up two defenses; first, as a set-off, that it had executed and delivered to the bank a bond "to guarantee the deposit of certain government funds in said bank . . . that in accordance with the terms and conditions of the bond this defendant paid the U.S. Government on account of such deposits the sum of $24,905.83 . . . that the claim of the U.S. Government against the First National Bank of Turtle Lake was assigned to this defendant. That no part of the same has been paid," and, second, that this bond sued upon provides that an action thereon must be commenced within "fifteen months after the claim had been presented," that the claim was presented on the fourth day of February 1924, and suit was not commenced until May 21, 1925, "by reason of which said claim is barred under the provisions and terms of the bond herein referred to." The plaintiff demurred to both defenses and the demurrer was sustained, with leave to answer over.

The defendant then filed an amended answer to the effect that the bond referred to is a Minnesota contract, "executed pursuant to the National Bank Act in the office of the defendant company in St. Paul, Minnesota and mailed to the said bank at its place of business at Turtle Lake, N.D." and "the premium therefore paid in the city of St. Paul." The answer then alleges the contract limited the time for bringing action to fifteen months from the date of presentation of the claim, and that therefore the action is barred.

The case was submitted to the court without a jury, upon the pleadings, certain stipulated facts and the depositions of two witnesses. The court found in favor of the plaintiff and the defendant appeals.

The specifications of error deal with the ruling of the trial court upon the demurrer, and the findings and conclusions to the effect that the bond was not a Minnesota contract.

The demurrer to the first defense in the original answer was well taken. Such a claim cannot be used as a set-off in this action. See Gilbertson v. Northern Trust Co. 53 N.D. 502, 42 A.L.R. 1353,207 N.W. 42.

The demurrer to the second cause of action set forth in the original complaint was well taken. The answer did not allege the contract was a Minnesota contract, and therefore the presumption is that it was governed by the laws of this State. Section 5927 of the Code makes void a provision restricting the limit of time when it may be enforced, and therefore any such provision in the contract must be disregarded. Dinnie v. United Commercial Travelers, 41 N.D. 42, 169 N.W. 811. It is contended that § 4978 allows a reasonable limitation of not less than one year but such section has no application to this sort of insurance. It is further contended that because § 9, chapter 158 of the Sess. Laws 1919 contains a provision limiting actions brought upon bonds issued by the state bonding fund that such a "right of contract has been accorded between principal and surety." Such section is limited strictly to the state bonding fund and is for its benefit alone. There was no error in overruling the demurrer.

The defendant alleges the action is barred, but this depends upon whether the contract is to be considered a Minnesota contract. The stipulated facts show loss was discovered on January 4, 1924; that the receiver duly notified the defendant of this loss and on the fourth of February 1924, filed with the defendant his verified claim. Summons and complaint were served upon the commissioner of insurance on the 21st day of May, 1925. It is clear, therefore, the action was not commenced until more than 15 months after the filing of the verified claim. It is the contention of the defendant that this bond is a Minnesota contract; that the provisions of § 5927 of our code are in derogation of common law; that in the absence of proof to the contrary we assume the common law prevails in Minnesota, and therefore the parties have the right to contract regarding the time for the bringing of action (Code, § 7936, subd. 41). It is conceded that if this be a North Dakota contract the provisions of § 5927 apply, and the contractual provision regarding the limitation of time for bringing action is void.

The court found that one R.T. Lierboe "was the duly authorized agent of the defendant, the National Surety Co. at Turtle Lake, N.D.;" that the bond was mailed by the defendant to the said R.T. Lierboe for the purpose of delivery of the same to the First National Bank; was by him delivered to the bank and the premium of the bond was charged upon the books of the defendant to R.T. Lierboe; that the company was authorized to do business in the state of North Dakota at the time of the delivery of the bond; that both parties intended the bond should be issued and performed under and pursuant to the laws of this state; that subsequent annual premiums which fell due were charged to R.T. Lierboe by the company; and the payments were made by the bank to the agent Lierboe.

The testimony of one L.A. Green as a witness for the defendant was taken by deposition. Mr. Green testified he was "secretary of Wm. B. Joyce Co. and attorney in fact and agent for the National Surety Company;" that Wm. B. Joyce Co. are the northwestern managers of the National Surety Company; that he himself was attorney in fact for the purpose of binding the company as surety on bonds; that he signs the bonds for the company and in the name and on behalf of the company; that this was his position in 1921; and that he recalled this particular transaction. The agent identified various exhibits as the correspondence between the bank, Wm. B. Joyce Co. and R.T. Lierboe relative to the matter in issue. He testified that R.T. Lierboe "at the time of the execution of the bond was the duly authorized agent of the National Surety Company at Turtle Lake, N.D.;" that the business the company received from Turtle Lake was charged to his account on the books of the company; that commissions would be deducted by the agent or he might remit in full and a check would be sent for the commissions; that subsequent premiums were received either from Lierboe or the bank; and were charged on the books of the company to R.T. Lierboe who was entitled to the agent's commission. Among the exhibits introduced by the defendant was this letter which was enclosed with the bond and is known as defendant's exhibit 6.

November 7, 1921

Mr. R.T. Lierboe, Turtle Lake, N.D. Dear Sir:

Re: First National Bank, Turtle Lake, N.D. In accordance with your request we enclose herewith bond for the above, together with our bill for the premium, which we have charged to your account.

Yours truly, Wm. B. Joyce Company.

J/C By Enc. 2009.

There is no doubt but what "the question of the validity — of a contract is to be determined by the law of the place where it is made." The issue is, where is this place and what is the test? It is a settled rule that if a contract be invalid according to the law of the jurisdiction in which one party resides and valid in the jurisdiction where the other party resides the presumption is they intended it to be governed by the law of the jurisdiction where it would be valid. It is not presumed they intended to violate the law, and also it may be presumed they intended to make it a living contract rather than undertake a work of supererogation; but such presumption yields to the facts. In any event invalidity of the provision under discussion does not render the whole contract invalid. It still leaves a valid contract between the parties. The test to determine the place of the contract is set forth in the case of Douglas County State Bank v. Sutherland, 52 N.D. 617, 204 N.W. 683. Here this court, speaking through Judge Nuessle, lays down the rule that "the contract, becomes binding, and effective when it is delivered." We are not dealing with an express declaration of the parties that the contract is to be determined by the law of any particular jurisdiction. In the case at bar it will be noticed the contract was not sent directly to the First National Bank. It was sent to the "duly authorized agent" at Turtle Lake and the premium was charged to him. (See Ex. 6.)

Until the agent delivered the bond to the bank the defendant had control over it, could have wired him to stop the delivery and thus prevent the completion of the contract. Even if the rule of place of performance were applicable it would be of little value to the defendant for the place of performance is clearly North Dakota. The company was insuring against fraud and dishonesty in North Dakota and clearly contemplated that if any payment were to be made thereon the payment would be made in North Dakota, and to North Dakota parties. The evidence amply sustains the findings that the contract was a North Dakota contract.

Being a North Dakota contract the provision limiting the time for the commencement of action is void under the provisions of § 5927 of the Code, and being thus void the action was commenced in time. The judgment of the district court is affirmed.

BIRDZELL, Ch., J., and BURKE, CHRISTIANSON, and NUESSLE, JJ., concur.