UNITED STATES FIDELITY & GUARANTY CO. v. NAYLOR et al., 237 F. 314

SANBORN, Circuit Judge (after stating the facts as above). The test of cosuretyship is a common liability for the same debt or burden.

This liability may arise at the same time or at different times,, out of the same writing or out of many writings: A common interest and a common burden alone are required to create the relation^ and to enable the cosurety who has paid more than his due proportion to claim contribution from those who have paid less than their just proportion of the common liability. “If several persons, or several sets of persons, become sureties for the same duty or debt, of, to, and for, the same persons, though by different instruments, at different times, and without a knowledge of the obligations-of each other, they will be bound to mutual contribution.” 2 Wait’s Actions and Defenses, 297; 4 Pomeroy’s Equity Juris. § 1418; Assets Realization Co. v.

American Bonding Co., 88 Ohio St. 216, 102 N. E. 719, 720, 725; Dering v. Earl of Winchelsea, 1 Cox’s Chan. Cases, 318, 322, 323. The first question, then, is: Was the bond of the personal sureties given to secure the same liability as the bond of the Fidelity Company? The evidence from which the answer to this question must be deduced consists of the two bonds, the judgments on the bonds, the testimony of Mr. Gilroy, one of the personal sureties, the stipulation that his testimony shall be considered the testimony of the sureties Thompson, Hoggatt, and Naylor, and the testimony of Mr.

Gustin, one of the county commissioners.' Mr. Gilroy testified that Mr.

Dickerson, the principal in the bond the personal sureties signed, told him about March 2, 1902, that he had $5,000 of the county’s money that was secured by a bond in a trust company; that he could get more money if he could get more bond; that there would not be much of the time when he would have more than $5,000 of the county’s money, but that he had to give a bond to secure it; that Dickerson asked him to sign the bond for the bank; that as a result of this conversation and solicitation he signed the bond for $10,000 without, as he thinks, reading it; that he had no intention of becoming liable for the $5,000 already guaranteed by the Fidelity Company; and that he could not answer the question whether or not he would have signed the bond if the matter had been presented to him as a proposition to sign as additional surety for the $5,000 already guaranteed by the Fidelity Company.

Mr.

Gustin, the county commissioner, testified that the $5,000 bond was approved by the commissioners February 3, 1902; that on January 1, 1902, the bank was indebted to the county for the county funds deposited with it in the sum of $10,868.20; that after the $5,000 bond was approved Dickerson made application for an additional deposit over and above the $5,000 secured by the Fidelity Company’s bond; that the board issued an order to allow him additional money above the $5,000 if he would give another bond, and instructed the county treasurer to deposit nothing above the $5,000 with his bank until the board received more bond to cover the amount the bank should receive; that the board knew when it met that the bank had on hand more than its proportion, and that was one of the things they met for, to give this order that he should give more bond; that they gave the county attorney the facts upon which to prepare the bond; that he prepared it, and the board examined ’the names of the sureties.

There was no other material testimony upon this issue. The result is that the facts were that the bank had more than $5,000 of the county funds when the county board met and Dickerson asked for more deposits; that the board then knew this fact, and that it had met to make the order that Dickerson should give more bond; that these facts were stated to the county attorney; that the county attorney drew the bond, and the personal sureties signed it without reading it. The bond was signed March 2, 1902, and it was approved March 3, 1902.

If it had been given to secure only additional deposits to be subsequently received by the bank on the faith of this bond, the county attorney, on the state of facts which were given to him, would surely have so drawn it as to limit the liability of the sureties to the repayment of the deposits made subsequent to its date.

The facts were, and doubtless they were so stated to him, that the bank was on February 1, 1902, and had been, indebted to the county in more than $5,000; that the board had made the demand of more bonds of the owners of the bank, and the county attorney so drew the bond that the sureties on it covenanted to repay all deposits made in the bank subsequent to January 31, 1902, a date more than a month prior to the date of the signing of the bond by the sureties. There can, therefore, be no doubt that the bond was given to secure'all deposits after January 31, 1902, until January 31, 1903.

The sureties, therefore, by the express terms of the bond covenanted promptly to pay over on demand the funds of the county deposited with the bank between January 31, 1902, and February, 1903. The bank defaulted in January, 1903. Hence the bond of the personal sureties by its clear terms secured the same debt as the bond of the Fidelity Company.

It is true that Dickerson told the personal sureties before the'bond was signed that it secured only the deposits in excess of $5,000, that they signed it in reliance upon that statement, and did not intend thereby to become liable to pay the $5,000 for which the Fidelity Company had become liable. But Dickerson was neither the agent nor representative of the county nor of the Fidelity Company.

The personal sureties were charged.with the duty as against the county and as against the Fidelity Company to read the bond before they signed it, and if it did not accord with their intentions to modify it so that it did before they executed it. Insurance Co. v. Mowry, 96 U. S. 544, 547, 24 L. Ed. 674; Chicago, St. P., M. & O. Ry. Co. v. Belliwith, 28 C. C. A. 358, 362, 83 Fed. 437, 441.

It is conceded that by an agreement between themselves and the county, or by a contract between themselves and the Fidelity Company, they might have limited their liability to the repayment of deposits in excess of $5,000; but they did not do so.

And the question here is, not what they might have done, but what they did, and there is nothing in the testimony in this case to overcome the incontrovertible fact, which the two bonds conclusively establish, that each surety on each bond covenanted to pay, up to the amount of the penalty of the bond he or it signed, the entire deposits in the Toronto Bank of the funds of the county between January, 1902, and February, 1903. The bond of the personal .sureties was given to secure the same debt as the bond of the Fidelity Company.

This conclusion has not been reached without notice of other contentions of counsel for the personal sureties which have not yet been discussed.

They call attention to minor differences in the verbiage of the two bonds, such as that the Fidelity Company’s bonds secured the deposits of the county, while the personal sureties’ bond secured these deposits and also 2 per cent, interest on daily balances, guaranteed that the bank would do all business of exchange on checks and drafts without charge, and that it would make all reports required by law; that the surety company’s bond guaranteed the payment of all checks and drafts of the treasurer of Woodson county, while the personal sureties guaranteed the payment of all warrants, checks, and drafts legally drawn on said fund;^ and that the Fidelity Company’s bond ran to the board of county commissioners, and the bond of the personal sureties to the county treasurer.

All these and other objections of the same class specified in their brief have received consideration. But there was no defalcation of payment of interest on deposits, and none of these objections relates to any accrued liability to the county of any of the sureties, or in any way challenges the controlling fact that each bond and every surety on each bond was bound by the bond he or it signed to pay, up to the penalty of the bond, to the county the debt for its deposits which has occasioned this litigation. The foregoing suggestions are therefore immaterial.

Counsel argued that the principals in the bond were not the same, because “the body corporate, the Toronto Bank,” was specified as principal in the Fidelity Company’s bond, and that bond was signed by “The Toronto Bank, W. P. Dickerson, Cashier,” while “The Toronto Bank, W. P. Dickerson and C. H. Starrett, as owners of said bank,” is named as principal in the personal sureties’ bond, and it is signed as principal by W. P. Dickerson, who, at the date of his signature on March 2, 1902, had purchased and become the owner of the interest of Starrett in that bank.

But the contention is baseless, for the personal sureties in their answer and in the stipulation of facts admitted that the Toronto Bank was owned by W. P. Dickerson and C. H. Starrett, doing business as partners under its name in the year 1902, until on March 1st in that year Dickerson purchased the interest of Starrett therein, and the condition of the bonds was that the respective sureties thereon would pay over on demand the eounty funds deposited in that bank between January, 1902, and February, 1903, and the bank continued in operation and received deposits until.its defalcation in January, 1903.

They invoke the rule that sureties for joint principals are not liable for one of them -acting independently, or after subsequent changes are made in the members of the firm, or by the dissolution thereof, and argue from these propositions that the personal sureties were not liable for the same debt as the Fidelity Company.

There are two reasons why this position is untenable: First, the change in the membership of the Toronto Bank by the purchase by Dickerson of Starrett’s interest was made on March 1, 1902, the personal sureties did not sign their bond until March 2, 1902, and by the terms of that bond they covenanted to repay all the deposits of county funds in the bank between January, 1902, and February, 1903, although the bank was owned by Dickerson when they made their bond, and it had been owned by Dickerson ancj Starrett before that date, and they knew it; and, second, prior to the making of the personal sureties’ bond Dickerson and Starrett had contracted with the county to repay to it all deposits of its funds with the Toronto Bank made between January, 1902, and February, 1903, and the personal sureties knew that fact.

With knowledge of this fact they covenanted in their bond to repay to the county the deposits made by the county with -that bank during the same time, and where sureties have become liable for the performance of a particular contract by a partnership, its subsequent dissolution before the completion of the contract will not release them from liability for each of the former partners so far as that particular contract is concerned. Abbott v. Morrissette, 46 Minn. 10, 48 N. W. 416; Freeman v. Berkey, 45 Minn. 438, 440, 48 N. W. 194; Kaufmann v. Cooper, 46 Neb. 644, 650, 65 N. W. 796.

The Fidelity Company, notwithstanding the subsequent sale by Starrett of his interest in the firm to Dickerson, remained liable on its bond for the repayment of the funds of the county deposited with the bank between January, 1902, and February, 1903, and the personal sureties, by their execution of their bond subsequent to the sale of Starrett’s interest to Dickerson, by the clear terms of the covenants therein, made themselves liable for the same debt.

No logical or rational avenue of escape is perceived from the conclusion that the bond of the personal sureties was given to secure the same debt as that of the Fidelity Company, and this conclusion is verified by the fact that in the strenuously contested action of U. S. Fidelity & Guaranty Co. v. Woodson County, 145 Fed. 144, 76 C. C.

A. 114, in the court below, that court adjudged the Fidelity Company liable to pay these deposits up to the amount of the penalty of its bond, and that judgment was approved by this court, and in a similar action by Wqodson county against the personal sureties, Naylor, Thompson, Gilroy, and Hoggatt, on their bond, a judgment was rendered against them for the part of the deposits in the Toronto Bank secured by both bonds that was not paid by the Fidelity Company and others.

The next contention of the counsel for the personal sureties is that, although they were liable for the same debt as was the Fidelity Company, the latter js not entitled to contribution from them, because it received a money consideration for assuming its liability, while they received nothing but the deposit of tire moneys of the county with their friends Dickerson and Starrett, for whose accommodation they signed their bond.

The argument is that the right to contribution rests on principles of equity, and primarily on the thought that equality is equity, and that the personal sureties are not placed on an equality with the Fidelity 'Company if they are required to pay their proportion of the common debt, because they received nothing for their obligation but the accommodation of their friends, while the company received its regular premium for its suretyship.

The record fails to disclose the amount paid to the Fidelity Company for its bond, nor does it show what the value in actual, substantial, or sentimental benefit the friendship of the owners of the bank, doubtless induced or fostered by the accommodation of the personal sureties, was to these sureties, so that the court cannot, if it would, place these parties on an absolute equality.

Certain it is, however, that its refusal to compel contribution from the personal sureties would, even if the amount of money received by the company for its suretyship were known, result in the payment by the Fidelity Company of thousands of dollars more, and the payment by the personal sureties of thousands of dollars less, than their just and lawful proportion of the common liability, and would leave these parties in a more gross and unjust inequality than the enforcement of contribution.

The true answer to this contention of counsel, however, is that the principle and practice of contribution among cosureties are neither founded upon nor do they require absolute equality among the sureties. They do not undertake to investigate, review, reform, or give consideration to the motives, considerations, or inducements -that caused the cosureties to become such, nor do they attempt to equalize tire contracts they made, and for that reason the consideration, or the lack of it, which sureties may have received, except where they receive practical indemnity, is immaterial.

The principle and practice of contribution take the cosureties as they find them after their contracts have been made, and they are founded on the proposition that, where some of such cosureties have paid more than their proportion of the common liability, it is just and equitable that those who have paid less than their proportion thereof should contribute to the former sufficient to make the proportion paid by each cosurety just and equitable.

Hence, where some of the cosureties for a common debt have been compensated, but not indemnified, for their suretyship, and others became cosureties for the accommodation of their principals, that fact is immaterial, and the compensated cosureties, who have paid more than their proportion of the common liability, are entitled to contribution from the accommodation cosureties. United States Fidelity & Guaranty Co. v. McGinnis, 147 Ky. 781, 145 S. W. 1112, 1115; Frost on Guaranty Insurance, § 284; Lewis, Adm’r, v. United States Fidelity & Guaranty Co., 144 Ky. 425, Ann. Cas. 1913A, 564, 138 S.

W. 305, 306; Fidelity & Deposit Co. v. Phillips, 235 Pa. 469, 84 Atl. 432, 434. If the rule were otherwise it would necessarily follow that an accommodation cosurety who had paid more than his proportion-could not have contribution from a compensated cosurety, for the inequality suggested inheres in the contracts and exists in one situation as well as in the other. And the conclusion is that the Fidelity Company may have contribution from the personal sureties.

Many other questions relevant to the settlement of the decree which must be rendered have been discussed by counsel in their briefs and have been considered by the court, and our opinion upon them will be briefly stated. Both bonds were given pursuant to

section 1704, General Statutes of Kansas 1901, which provides that when the bond of a surety company is given it must be 7iA an amount aggregating the largest sum which may be on deposit at any one time,” and that when a personal bond is given “it must be double the largest approximate amount that may be on deposit at any one time.” Counsel for the personal sureties cite this section, and contend that, because the personal bond of $10,000 must be presumed to have been given for double the amount that might be on deposit at any one time and the bond of the Surety Company for $5,000 for only the amount of such deposit,, each of the bonds was given for only $5,000, and the proportion of the common debt which the Fidelity Company should,pay is the same as that which the personal sureties should pay.

The proposition cannot be sustained. Notwithstanding the provisions of the statute, the personal sureties expressly covenanted to pay the common debt to_ the. amount of $10,000, and the Fidelity Company covenanted to pay it to the extent of $5,000 only, and the proportion o.f it which the personal sureties should pay is two-thirds, and that which the Fidelity Company should pay is one-third, of the debt.

Where there are several bonds securing the same debt, and the surety or sureties on one of these pays more than his proportion of the debt, the contribution between the sureties must be in proportion to the penalties of their respective bonds. Story’s Equity Jurisprudence, par. 497; Armitage v. Pulver, 37 N. Y. 494; Jones v. Blanton, 41 N. C. 115, 51 Am. Dec. 415; Loring v. Bacon, 57 Mass. (3 Cush.) 465, 468; Dering v. Winchelsea, 2 Bos. & Pul. 270; Bosley v. Taylor, 35 Ky. (5 Dana) 157, 30 Am. Dec. 677; Moore v. Boudinot, 64 N. C. 190.

Another question is whether the solvent sureties on the $10,000 bond within the jurisdiction of the court are liable to pay the entire amount which the sureties on that bond should contribute, although some of the sureties are insolvent, or beyond the jurisdiction of the court, or may escape by paying only their aliquot part of the amount which all the sureties on that bond were liable to contribute.

The answer is that while in an action at law, where some of the sureties liable to contribute have died, or are beyond the jurisdiction of the court, or are insolvent, the solvent sureties within the jurisdiction of the court are liable for their respective aliquot parts only of the amount which all the sureties on that particular bond are liable to contribute, the rule is otherwise in equity.

In suits in equity the solvent sureties within the jurisdiction of the court are liable to contribute the entire amount which all the sureties on their particular bond were liable to eontribute, where some of the sureties are insolvent, or have died, or are beyond the jurisdiction of the court. And the court in equity may render its decree for the, payment by the respective sureties of the amounts they owe, and retain jurisdiction of the case and render supplemental decrees until the entire amount which all the sureties were liable to contribute has been paid by the solvent sureties, or some of them.

In the case at bar the solvent sureties within the jurisdiction of the court are liable to pay the entire amount which all the sureties on the bond of the personal sureties would have been liable to contribute, if they had all been alive, solvent, and within the jurisdiction of the court below. 1 Story’s Equity Jurisprudence (13th Ed.) § 496; Gross v. Davis, 87 Tenn. 226, 11 S. W. 92, 93, 10 Am. St. Rep. 635; Riley v. Rhea, 5 Lea (Tenn.) 115; Brandt on Suretyship & Guaranty, § 314; Boutin v. Etsell, 110 Wis. 276, 85 N. W. 964, 965; Smith v. Mason, 44 Neb. 610, 63 N. W. 41; Stallworth v!

Preslar, 34 Ala. 505; Werborn’s Adm’r v. Kahn, 93 Ala. 201, 9 South. 729; Faurot v. Gates, 86 Wis. 569, 57 N. W. 294; Hardell v. Carroll, 90 Wis. 350, 63 N. W. 275. The Fidelity Company alleged that, at the conclusion of the action of the county against it, ■ it was compelled to and did pay $536.40 in court costs and expenses and $1,000 in attorney’s fees that were reasonably and fairly worth $1,000 in the conduct of that litigation.

The personal sureties admitted .the averment regarding the court costs and expenses, but denied that regarding attorney’s fees, and the record contains no proof of the payment of the attorney’s fees, or of their value. On account of the absence of any such proof, the attorney’s fees cannot be allowed, and the discussion concerning them is disregarded. Is the Fidelity Company entitled to contribution from the personal sureties to the payment of the court costs and expenses in the suit of the county against it which it was compelled to pay?

When the bank defaulted, and the principals in the bonds failed to pay on demand their debt to the county, it was the duty of the personal sureties toward the Fidelity Company to pay two-thirds of that debt, and it was the duty of the Fidelity Company toward the personal sureties to pay one-third of it. “By becoming sureties,” said Appleton, C. J., “each impliedly promised the other that he would faithfully perform his part of the contract and pay his proportion of loss in case of the insolvency of .the principal.” Hichborn v. Fletcher, 66 Me. 209, 210 (22 Am. Rep. 562).

And it was the duty of the personal sureties towards the county to pay the entire debt, because that debt was less than the $10,000, the penalty of their- bond, while it was equally the duty of the Fidelity Company towards the county to pay $5,000 of the debt. None of the sureties paid anything without suit. The county sued the Fidelity Company, recovered judgment, and compelled it to pay $536.40 court costs and expenses of that litigation.

The personal sureties might have prevented that suit and those costs and expenses by the simple discharge of their duty, by the payment of the debt which they had agreed with the county to pay, and probably by the payment of their two-thirds of it. The defense which the Fidelity Company made to the suit against itself was not frivolous, although it did not prevail. It presented serious issues of law and of fact, was prudent and hopeful, one which counsel might well have made with reasonable expectation that it might succeed. United States Fidelity & Guaranty Co. v. Woodson County, 145 Fed. 144, 76 C. C. A. 114.

In this state of the case the Fidelity Company is entitled to contribution from the personal sureties on account of its payment of these court costs and expenses, and for like reason it is entitled to contribution on account of the interest, which was included in the judgment against it and which it also paid, to the same extent that it is entitled to contribution on account of the principal of the debt.

Where several cosureties are liable for a common debt or default, and none of them pays without suit, one who is sued and compelled to pay the judgment, to pay court costs, expenses, and interest, is entitled to contribution on account of those costs and expenses and that interest to the same extent that he is entitled to contribution on account of the principal of the debt he has paid, provided his defense to the suit was not frivolous, but was prudent and hopeful, though unsuccessful. Carter v. Fidelity & Deposit Co., 134 Ala. 369, 32 South. 632, 633, 92 Am. St. Rep. 41; Fletcher v.

Jackson, 23 Vt. 581, 593, 56 Am. Dec. 98; Gross v. Davis (Tenn.) 11 S. W. 92, 93, 10 Am. St. Rep. 635; 11 Brandt on Suretyship & Guaranty (3d Ed.) § 309; Davis v. Emerson, 17 Me. 64; Boutin v. Etsell, 110 Wis. 276, 85 N. W. 964, 965; Backus v. Coyne, 45 Mich. 584, 8 N. W. 694; Van Winkle v. Johnson, 11 Or. 58, 5 Pac. 922, 924, 50 Am. Rep. 495; Briggs v. Boyd, 37 Vt. 533, 536. We turn to the facts of the case and the liabilities which they establish and limit. The evidence satisfies that 'C. H.

Starrett was a principal and not a surety on the bond of the Fidelity Company, that he never signed and was not a party to the bond of the personal sureties, that any cause of action which any of the parties to this suit ever’ had, or might have had, against Odenia E. Starrett as administratrix of his estate, or against her, Nina E. Hull, Chas. Sidney Starrett, Clyde Horace Starrett, Marion Fedora Starrett, and Hazel Fern Starrett, as the heirs at law of C. H. Starrett, is barred by the statute of limitations, and that as against them this suit should be dismissed on its merits.

The fact that the Fidelity Company did not present and prosecute a claim against the estate of Starrett in the probate court to compel the payment of Starrett’s liability to the county does not constitute such laches as bars its recovery in this suit against its cosureties.

The duty of the personal sureties to prosecute such a claim was as imperative as was that of the Fidelity Company, and the latter company had not paid anything on account of its bond, and therefore had no accrued and due cause of action against the estate or the heirs of Starrett prior to the time when the statute of limitations had fun against the claims against the estate. As between the Fidelity Company and the defendant Josie Braley, the evidence satisfies that the Fidelity Company has the right to a decree for the payment by her of such an amount, not exceeding $700, the value of the estate of the surety, F.

C. Braley, deceased, which came to the hands of Josie Braley as his heir, as may be required to complete the payment of his proportion of the common debt of the cosureties on account of which he paid $740.63 on February 3, 1903. But as between Josie Braley' and the defendants G. W. Naylor, E. T. Thompson, J. R. Hoggatt, and Z. Gilroy, the latter agreed with F. C. Braley in his lifetime, and are legally liable, to pay, as against him and Josie Braley, his sole heir, the amount for which F. C.

Braley was, or Josie Braley is, or may be, liable to the Fidelity Company, or any other party, on account of the bond of the personal sureties. The record establishes the fact that the common debt of the co-sureties to the county has been paid in part out of the assets of the bank, in part by the principal Starrett, and in part by the co-sureties. The amounts paid by the cosureties were as follows: ’F. O. Braley, on February 3, 1903................................ I 740.62 G. W. Naylor, on December 31, 1904............................... 389.90 E. T.

Thompson on December 31, 1904............................ 389.90 Z. Gilroy, on December 31, 1904 .................................. 389.90 J. B. Hoggatt, on December 31, 1904............................. 389.90 The Fidelity Oompány, on June 7, 1906........................... 6,563.30 The date when Naylor, Thompson, Gilroy, and Hoggatt paid appears in their pleading and in the agreed statement of facts to be on the-* day of- 1904, and as the burden was on them to prove the date the court assumes that they made their payment on the last day of that year.

Crediting the personal sureties with interest on the amounts they respectively paid from the dates of their respective payments, until June 7, 1906, when the Fidelity Company made its payment, in order to place them on an equality, as nearly as may be, with that company, their payments as of that date were: F. O. Braley.................................................... $ 851.99 G. W. Naylor................................................... 419.53 E. T. Thompson................................................. 419.53 Z. Gilroy....................'..................................... 419.53 J. K.

Hoggatt.......'............................................ 419.53 Aggregate ............................................... $2,530.11 The Fidelity Company paid................................ 6,563.30 All the sureties paid....................................... $9,093.41 The personal sureties should have paid two-thirds of the amount which all the sureties were required to pay, or $6,062.27, and the Fidelity Company should have paid one-third of the amount that all the sureties were required to pay, or $3,031.14. 'The Fidelity Company, therefore, paid on June 7, 1906, $3,532.16 more than its just and equitable proportion of the common debt, and the personal sureties had paid as of that date $3,532.16 less than their proportion thereof, and the Fidelity Company is consequently entitled to a decree for the recovery of $3,532.16, interest thereon from June 7, 1906, to the date of the entry of the decree, and the costs of this süit, from the defendants Naylor, Thompson, Gilroy, and Hoggatt, jointly and separately, until the full amount is paid, and to an execution to enforce this recovery.

And in case the full amount - decreed to be owing by Naylor, Thompson, Gilroy, and Hoggatt is not and cannot be collected of these four sureties, or either of them, then the Fidelity Company is entitled to a decree against Josie Braley for the sum of $700, or such part of this $700 as 'shall be required to completely satisfy the decree against Naylor, Thompson, Gilroy, and Hoggatt.

Let the decree below be reversed, and let this case be remanded to the District Court, with instructions to enter a decree in favor of the Fidelity Company and to take further proceedings'in this suit in pursuance of the views expressed in this opinion.