211 S.W.2d 670 | Ky. Ct. App. | 1947
Reversing.
The City of Middlesboro, joined by others as taxpayers, brought this action against Herndon H. Hutcherson, City Tax Collector, and others, including the appellee, American Surety Company of New York, to recover *368 for shortages and misappropriation of funds in excess of $50,000, which allegedly occurred in Hutcherson's office.
The City of Middlesboro was operating under the commission form of government. The defendant, Hutcherson, was elected as City Tax Collector and Clerk in January 1938 for the ensuing year. He executed bond with appellee, American Surety Company of New York as surety in the sum of $5,000. Hutcherson was reelected each year for a period of 8 years, and each year the City paid its $60 annual premium as consideration for the execution of the bond, and the bond was renewed.
Appellant seeks to hold the surety liable for $40,000, or $5,000 for each of the 8 years. In paragraph 2 of its answer the surety pleads in its defense that its liability is limited to $5,000 by reason of the following provision in its bond: "That in no event shall the liability of the surety for any one or more defaults of the principal during any one or more years of this suretyship exceed the amount herein specified."
Appellants filed motion to strike from the answer the allegation of such limitation of liability. This motion was overruled. Appellants then demurred to the second paragraph of the surety's answer, which, likewise, was overruled. From that ruling this appeal is prosecuted.
We are here concerned only with that ruling and not with any of the other ramifications of the suit pending in the Bell Circuit Court.
Appellee takes the position that there was only one bond executed by the surety which continued in force in its entirety as one bond for the 8 year period; that the bond was continued in force by the payment of the annual premiums; and that, consequently, the liability is limited to the sum specified in the bond.
Appellants, on the other hand, contend that the bond was executed for one year, which covered the one year term of the City Tax Collector; that upon the re-election of the City Tax Collector the bond was renewed just as though, or rather instead of, executing a new bond; and that each renewal constituted a new contract. *369
The court below took the view of appellee, holding that the surety's limitation liability, as provided in the contract above set out, is valid and enforceable.
The question here is whether a bond and its renewals together constitute one single contract or whether each is a contract in itself. There seems to be a distinct conflict of opinion on this point. Some courts have construed renewals of bonds to be separate and distinct contracts, on each of which the surety is liable to the limit set therein for defalcation occurring during the particular term the original bond and each renewal thereof is in force. Other courts have held that the bond and the renewal is a continuing contract which is continued in force by the payment of annual premiums, and that the renewal does not constitute or make a new bond but is simply the act which keeps alive the old bond for an additional period. See 50 Am. Jur., Suretyship, Section 366, and State ex rel. Freeling v. New Amsterdam Casualty Co., 110 Opl. 23,
The question, then, whether a bond and the renewals thereof constitute multiple contracts or one continuing contract, thereby affecting the limit of liability of the surety, depends primarily on the facts of the particular case and the contract of suretyship itself.
Having adopted the theory of multiple contracts, appellants cite and rely upon De Jernette v. Fidelity and Casualty Company of New York,
Counsel for appellants suggest that pursuant to KRS
This conclusion is made further obvious by the provisions of KRS
Thus, it will be seen that it is possible for a surety to limit its liability to a specified sum. The courts generally seem to recognize this ability on the part of the insurer so to do. See National Surety Company v. Commonwealth ex rel. Coleman, State Auditor,
In the case of Fidelity Deposit Co. of Maryland v. Champion Ice Mfg. Cold Storage Co.,
Also in the case of United States Fidelity Guaranty Co. v. Citizens' National Bank of Monticello,
Then it will be further noted that continuation certificates were issued as follows: " 'In consideration of the sum of forty-five dollars, the United States Fidelity Guaranty Company hereby continues in force bond No. 292114 in the sum of fifteen thousand dollars, on behalf of Chas. McConnaghy, in favor of Citizens' Nat'l Bank, Monticello, Ky., for the period beginning the 15th *372 day of March, 1905, and ending on the 15th day of March, 1906, subject to all the covenants and conditions of said original bond heretofore issued on the 15th day of March, 1904.' "
Thus, we can readily see that the construction placed upon the bond and renewals, as stated above, must depend upon the state of facts and the language of the contract in each particular case, the terms of the bond being the governing factor.
Let us now look at the facts and circumstances of this particular case. Herndon H. Hutcherson was elected City Tax Collector for a period of one year. Appellee executed bond in the sum of $5,000 as suretyship, and the City of Middlesboro paid the annual premium of $60 in consideration therefor. The bond, among other things provided: "* * * this suretyship to begin January 1, 1938, and to end (a) * * *, or (b) with the date of the retirement of the principal from his said position, or (c) * * *." Further in the bond is paragraph 3, set out above and relied on by appellee in defense of its limitation of liability. Whether or not that provision, providing "one or more defaults of the Principal during any one or more years" was a stock paragraph inserted in all bonds, we cannot say. In any event that paragraph must be construed as applicable to the suretyship for the year the officer or employee had been elected to serve. There is nothing in this record to show but that the elections were for one year at a time, and no reason to contemplate that it was for a continuing period of more than a year. It cannot be doubted but that at the end of the year the term of the Collector terminated, and that the bond terminated. The City could then have elected another Collector or could re-elect the outgoing one. The second election made the Collector a new employee as if elected for the first time or as much so as if another had been elected. The City then paid its annual $60 premium for bond covering this newly elected Tax Collector, and the bond was renewed. This record does not disclose the nature of renewal certificate or receipt, if any.
Let us suppose for argument that the City of Middlesboro had elected, or chosen, a different Tax Collector each year. This, no doubt, would have necessitated *373 the execution of new, separate, and distinct bonds. It could hardly be convincingly argued that the surety would be liable only on the first bond executed as surety for the first Collector. Or, to put it another way, suppose the City had insured with one company for the first year, with another company for the second year, and so on with a different company each year for 8 years. In the event of a loss, similar to that in the instant case, obviously there could be recovery of $5,000 from each company. Can it then be justifiably argued that if it insures with the one company and renews with the same company its protection is reduced to a total of $5,000 for all the years. In other words, the original premium will buy $5,000 worth of protection for one year, but 8 such premiums, one original and 7 renewals, will buy exactly the same total of protection. Or, to put it another way, if the employee has defaulted to the limit of liability under the original bond during the first year, the second year's renewal premium buys nothing.
The fact that the same Collector was re-elected each year in no way destroys the fact that each premium paid was for the bond for the particular year on which the premium was paid, and, as stated in the De Jernette case above, the bond is a distinct contract, the renewals are separate and distinct contracts, and the liability of the Company for an act committed during a given period must be determined by the terms of the contract in force at the time of its commission. True, subsequent renewal does not extend time for disclosing the wrong and the enforcement of liability therefor, but that question is not here presented.
The obligation of the bond is to make good the loss occurring during its term. The obligation of each renewal is to make good the loss occurring during the renewal term. Each stands upon its separate consideration. We think the bond and the renewals were separate and distinct contracts and established separate and distinct liabilities.
We, therefore, conclude that the court erred in overruling the motion to strike as above stated, and also in not sustaining the demurrer to paragraph 2 of the answer. *374
Wherefore, the judgment is reversed for proceedings not inconsistent herewith.