PRINCIPAL AND SURETY - DUTY OF OBLIGEE TO DISCLOSE TO SURETY - SURETY'S RIGHT OF SUBROGATION

Authors

Julian Caplan, University of Michigan Law SchoolFollow

Abstract

Surety defended an action on the bond of the town treasurer on the ground that at the time the bond was entered into the treasurer, in violation of statute, had deposited in a local bank an amount exceeding thirty per cent of the total deposits of the bank and that the town selectmen, although well aware of the situation, failed to disclose the facts to the surety. Plaintiff contended that there was no duty to disclose these facts to the surety, especially since the treasurer's annual report showed that the amount of the deposits exceeded the legal limit. As an additional defence the surety alleged that the town had impaired one surety's inchoate subrogation rights by allowing a preferential claim against the defunct bank to lapse in merely asserting the rights of a general creditor. Plaintiff answered that there was no allegation that there were sufficient funds in the bank to pay off even the non-bonded part of the town's claim and hence the surety was not prejudiced. Held, in sustaining plaintiff's demurrer (one judge dissenting), that under the facts of the case there was no duty to disclose the excessive deposits to the surety, and that no right of subrogation was shown to be lost to the surety by any action of the town. Town of Hamden v. American Surety Co., (C. C. A. 2d, 1937) 93 F. (2d) 482.

Recommended Citation

Julian Caplan, PRINCIPAL AND SURETY - DUTY OF OBLIGEE TO DISCLOSE TO SURETY - SURETY'S RIGHT OF SUBROGATION, 36 Mich. L. Rev. 1217 (1938).
Available at: https://repository.law.umich.edu/mlr/vol36/iss7/20