SOUTHERN SURETY CO. v. AUSTIN, Commissioner of Banking of Texas, 22 F.2d 881

FOSTER, Circuit Judge. Plaintiff in error, hereafter called defendant, executed an indemnity bond in the penal sum of $10,000, guaranteeing the Farmers’ & Merchants’ State Bank of Ranger, Tex., against loss resulting from the embezzlement, wrongful abstraction, and willful misappropriation of its moneys, funds, and securities by its vice president, J. A. Cbaffe. The bond also ran in favor of any receiver who might be put in charge of the affairs' of the hank. Chaffe proved dishonest and delinquent, and caused a loss to tho bank exceeding $10,000.

The bank was taken over by defendant in error, hereafter called plaintiff, under the law, as statutory receiver, and brought suit on the bond. At the close of the evidence, both sides moved for a verdict. The motion of plaintiff was granted while that of defendant was denied. Error is assigned thereto. Defendant relies upon the provision of the bond set out below: “Fifth.

That no suit or action of any kind against the company for the recovery of any claim, upon, under or by virtue of this bond shall be sustainable in any court of law or equity, unless such suit or action shall be commenced witbin the term of two years next after the date of any loss for which the company may be liable hereunder; and in case any suit or action shall he commenced against the company after the expiration of the said period of two years, the lapse of time shall be taken and deemed as conclusive evidence against the validity of tho claim thereby so attempted to bo enforced.” Suit was brought more than two years after the date of loss, but within the statute of limitation of Texas which is four years.

Plaintiff relies on

article 5545 of the 1925 Revised Statutes of Texas, which reads as follows: “No person, firm, corporation, association or combination of whatsoever kind shall enter into any stipulation, contract, or agreement, by reason whereof the time in which to sue thereon is limited to a shorter period than two years.

And no stipulation, contract, or agreement for any such shorter limitation in which to sue shall ever be valid in this state.” Defendant contends that the statute above quoted is void for uncertainty, because it is indefinite as to the time when the two-year period begins; that, if it be considered valid, and contravened by that part of the clause in the bond barring suit unless commenced within two years next after the date of any loss, then that the clause is divisible, and the second provision, that in ease suit is commenced after the expiration of said period of two years the lapse of - time shall be taken and deemed as conclusive evidence against the validity of the claim, is valid, and does not contravene the statute,' as it does not take effect until more than two years have elapsed.

It may be conceded that stipulations in a contract barring suit in a lesser period than provided by the statute of limitation are valid, if reasonable, and not in conflict with the law of the state, or with settled public policy, and also that, if an otherwise illegal provision of a contract is divisible, and one

part is invalid, the other, if valid, may be given effect. The clear meaning of the statute above set out is that the plaintiff must be given at least two years after the cause of action accrues in which to file suit. Such has been the construction of the Texas courts in upholding its validity. See Maryland Casualty Co. v. Farmers’ State Bank & Trust Co. (Tex. Civ. App.) 258 S. W. 584; Webb v. Smith (Tex. Civ. App.) 288 S. W. 624. This agrees with our own conclusions.

Argument is hardly necessary to show that a provision of a contract that requires suit to be brought and process served within two years after the loss is sustained, .rather than after its discovery, or the cause of action accrues, restricts the time for suit to less than two years. A cáuse of action accrues when the debt is due and suit may be brought on it. Defendant was under no obligation to pay anything before plaintiff gáve notice and made proof of loss. Under bther provisions of the bond, plaintiff had 90 days after discovering a loss to do this.

That the contract is in conflict with the statute is apparent. As to whether the clause is divisible, the distinction sought to be made is somewhat metaphysical. Both provisions would seem.to mean about the same. The second provision is meaningless, standing alone, and depends for its validity upon the enforcement of the first. Under either, the failure to bring suit within two years from the loss bars recovery. We conclude that the provision of the policy relied on is invalid under the law of Texas. The suit was brought solely against the defendant.

It is contended by defendant that it could not be maintained without joining the principal on the bond, and also that there was not sufficient evidence to sustain the judgment. Chaffe was not a party to the bond, except that he agreed to reimburse defendant for any loss sustained by it, so was not an indispensable party; but the complete answer to this contention is found in

article 1987, 1925 Revised Statutes of Texas, which relieves • a plaintiff, suing a surety, from joining the principal, if he resides beyond the limits of the state or is actually insolvent. There'was sufficient showing to warrant the finding that at the time the suit was filed Chaffe was a nonresident, and -was insolvent, and there was sufficient evidence as to the character and amount of the loss to sustain the judgment. Moreover, both of these contentions involve questions of fact, which are foreclosed by the motions to direct. Buetell v. Magone, 157 U. S. 154, 15 S. Ct. 566, 39 L. Ed. 654. Affirmed.