Royal Indemnity Co. v. Knott, as Treasurer, 101 Fla. 1495

Royal Indemnity Co. v. Knott, as Treasurer

101 Fla. 1495 | Fla. | 1931

Lead Opinion

This is a suit in equity for an accounting and for recovery against bond trustees and their sureties.

The suit was brought by W. V. Knott, as Treasurer of the State of Florida; Citrus County, Florida; J. K. Kelley as Chairman and J. A. Perryman, L. C. Yeomans, W. R. Levins and Burton Gilbert, as the remaining members of, and together constituting the Board of County Commissioners *1497 of Citrus County, Florida; against G. I. Singleton, W. H. Edwards and I. O. Fender, individually and as trustees; also against Royal Indemnity Company, a corporation, certain named banks and bank receivers and against Ernest Amos, as Comptroller of the State of Florida.

The bill of complaint as amended among other things in substance sets forth that Under and by virtue of Chapter 11451, Extraordinary Session, Laws of Florida, 1925, Citrus County, Florida, on or about November, 1926, issued and sold its negotiable bonds in the principal amount of $771,000.00, for the purpose of constructing hard-surfaced highways and bridges in Citrus County; that after the issuance by Citrus County of its bonds, its County Commissioners appointed G. I. Singleton, W. H. Edwards, and I. O. Fender, Trustees for such bonds; that each of said Trustees executed a bond, in the sum of $25,000.00; that Royal Indemnity Company executed each of said bonds as surety; that the bonds executed by the trustees and Royal Indemnity Company were approved by the Board of County Commissioners of Citrus County; that each of the bonds executed by the Trustees and the surety were conditioned as follows:

"NOW, THEREFORE, if the said Principal shall well and faithfully perform all and singular the duties incumbent upon him by reason of his election or appointment as said BOND TRUSTEE except as hereinafter limited, and honestly account for all moneys coming into his hands as said BOND TRUSTEE according to law, then this obligation shall be null and void; it is otherwise to be and remain in full force and virtue;"

and contained the following limitation:

"The Surety shall not be liable to said BOARD *1498 OF COUNTY COMMISSIONERS, CITRUS County FLORIDA, by reason of any public moneys being now on general or special deposit or hereafter placed on general or special deposit by or on behalf of said Principal with any bank, depository or depositories, or by reason of the allowance to or acceptance by said Principal of any interest thereon, any Law, Decision or Statute of the State of Florida or Ordinance of the said City of Inverness to the contrary notwithstanding."

It is alleged that part of the proceeds from the sale of bonds, and moneys furnished to provide for payment of interest and a sinking fund, which were received by trustees are unaccounted for, have not been lawfully paid out and have been lost, in part by conversion by some one or more trustees, in part by being misappropriated by the trustees and in part by the negligence of defendant trustees in handling of said fund.

The bill prays for an accounting of the moneys received and disbursed by the said trustees and for a decree against the surety for so much of the moneys found due upon accounting as the Royal Indemnity Company, the surety, may be liable for upon the bonds executed by it.

The Royal Indemnity Company demurred to the bill as amended and urged in support thereof that it was not a proper party to this proceeding; that the complainants have a full, adequate and complete remedy at law against it; and that it is entitled to a jury trial as to its liability on the surety bonds.

The demurrer of Royal Indemnity Company was overruled, and from that order this appeal was taken.

Section 5, Chapter 11451, Laws of Florida, Extraordinary Session, 1925, provided:

"Trustees shall be appointed for said bonds and they *1499 shall exercise the powers and perform the duties in regard thereto as are prescribed in Sections 1544 to 1549, both inclusive, of the General Statutes of Florida."

Section 1544, Revised General Statutes of Florida, 1920, now Section 2322, Compiled General Laws of Florida, 1927, provides:

"When the county commissioners shall have issued bonds * * * they shall appoint by resolution of their board to be recorded in the minutes, a financial committee of three persons, who shall be resident free holders of the county, to be styled trustees of county bonds, who shall each give bond running to the chairman of the board of county commissioners and his successors in office, with sufficient securities, in such sums as may be required by the county commissioners, conditioned that the said trustee shall faithfully discharge the trust confided to him, and shall pay over and duly account for all such sums of money as may come into his hands by virtue of such trust, which said bonds shall be approved as to the form and the sufficiency of sureties by the board of county commissioners * * *.

The practice of this State strictly preserves the demarcation between courts of equity and of law and the respective fields of operation of such courts. Fidelity and Casualty Co. v. Morrison Construction Co., 99 Fla. 309, 126 So. 151.

A bond conditioned:

"Now Therefore, if the said Principal shall well and faithfully perform all and singular the duties incumbent upon him by reason of his election or appointment as said Bond Trustee * * * and honestly account for all monies coming into his hands as said Bond Trustee, according to law, then this obligation shall be null and void; it is otherwise to be and remain in full force and virtue"

*1500 is an indemnity bond. American Surety Co. v. Smith, 100 Fla. 1012, 130 So. 440; Wolthausen v. Trimpert, 93 Conn. 260,105 A. 687; Fidelity and Casualty Co. v. Morrison Construction Co., supra; Phillips v. Gilbert, 101 U.S. 721, 25 L. Ed. 833,

A court of equity cannot enforce the penalty of an indemnity bond unless the bond is accompanied by some extraneous circumstance which would inject into the cause a matter of equitable cognizance to which the recovery upon the bond would be incidental. Fidelity Casualty Co. v. Morrison Construction Co., supra; First Nat. Bk. v. Perkins, 81 Fla. 341, 87 So. 912; Union Indemnity v. Worthingstun, 98 Fla. 242, 123 So. 759; King v. Ramsey, 66 Fla. 257, 63 So. 439; Phillips v. Gilbert, supra; 9 C. J. 83.

It is contended by appellees that the equity court having acquired jurisdiction for purposes of accounting has therefore also acquired jurisdiction to enter judgment against the surety upon the indemnity bonds, and appellees further insist that if the court has not jurisdiction to render a decree against the surety upon the indemnity bonds, the surety is nevertheless a proper party defendant, as distinguished from a necessary party, in order that it may be concluded by the accounting.

In First Nat. Bk. v. Perkins, supra, bill was filed on a contractor's bond by materialmen against the principal and against the surety. The bill prayed for an accounting and a decree against the surety for the balance due. The bond among other things was conditioned to "pay for all labor performed or furnished and for all materials used in carrying out of said contract" and was sufficient as a contract entered into between the formal parties thereto for the benefit of the materialmen (American Surety Co. v. Smith, supra), but it was held that the bill did not show an equity to proceed in that cause against the bond. *1501

In Fidelity Casualty Co. v. Morrison Construction Co., supra, suit in equity was brought to enforce a statutory lien against real property and for recovery therein against the surety upon a bond given pursuant to Section 5396, Compiled General Laws of Florida, 1927, conditioned to pay "any judgment which may be recovered on said lien with costs." It was held that there was not sufficient equity shown for recovery therein against the bond.

In Labell v. Campbell, 99 Fla. 1125, 128 So. 422, a supersedeas bond was given conditioned "* * * that in the event said final decree appealed from shall be * * * dismissed, that all damages sustained thereby, or occasioned thereby, may be assessed and determined by the chancery court in the same cause from which the is appeal is taken." The appeal was dismissed and it was therein sought to have the chancery court assess damages against the principal and surety by virtue of the stipulation contained in the bond, and it was held that in the absence of a statute providing for entry of a summary judgment upon such bond, the parties are limited to their remedy at law to recover such damages as they may show they have sustained by reason of the taking of the appeal.

We have held that in a suit against a guardian for an accounting, the sureties upon his bond are proper, but not necessary parties, as they are interested in the taking of the account, and ought to be made parties, but the rule is not imperative that they must be. Pace v. Pace, 19 Fla. 438.

In the case of official bonds when the sureties undertake in general terms that the principal will perform his official duties and account, they do not agree to be absolutely bound to the extent of any judgment obtained against the principal. They cannot be precluded as to the extent of their liability without an opportunity to be heard. In such *1502 cases, the sureties may properly be made parties for the purposes of the accounting so that the extent of their liability may be fixed. Pico v. Webster, 14 Cal. 202, 73 Am. Dec. 647; Annotation, Ann. Cas. 1915D, 400, et seq. Where a court of equity has jurisdiction of a bill for an accounting against the principal on a bond, the sureties can properly be made parties for the purpose of the accounting so that the extent of their liability may be fixed, but no decree for payment may be made against them. 1 C. J. 632; Rutherford v. Alyea, 53 N.J. Eq., 580, 32 A. 70; Dorsheimer v. Rorabeck,23 N.J. Eq. 46.

The order of the court below overruling the demurrer of the surety company is affirmed and this cause is remanded for further proceedings not inconsistent herewith.

For appeal herein by two of the defendant trustees, see Singleton Edwards v. W. V. Knott, as Treasurer, this day decided.

Affirmed.

Addendum

The record in this cause having been considered by the court, and the foregoing opinion prepared under Chapter 14553, Acts of 1929, adopted by the Court as its opinion, it is considered, ordered, and decreed by the Court that the order of the court below should be, and the same is hereby, affirmed and this cause is remanded for further proceeding not inconsistent with the opinion.

BUFORD, C.J., AND WHITFIELD, ELLIS, TERRELL AND BROWN, J.J., concur.

ON REHEARING. 1. Where a bill of complaint seeks an accounting and discovery against trustees and their surety, and sets forth the complicated character of the accounts, the need of discovery and the existence of a fiduciary or trust relationship, such bill contains grounds upon which equitable jurisdiction may rest.

2. Whenever there is a fiduciary relation such as that of trustee, *1503 agent, executor, etc., the right to an accounting in equity is undoubted. The right in such cases is based upon the substantive equity of trusts which jurisdiction equity always had.

3. Where a court of equity has jurisdiction to compel an accounting from a fiduciary, the sureties on the fiduciary's bond may not only be made parties defendant to such suit, but their liability upon such bond may be enforced in the same suit.

4. Where there are executions against principal and sureties, or an execution against a principal and surety or sureties, it is the duty of the sheriff or other officer to make the money out of the property of the principal unless he be insolvent, or has no property, in which case, the execution may proceed against the property of the surety.

5. A trustee's bond, by the terms of which the principal and surety jointly and severally obligate themselves among other things that the trustee will faithfully perform all and singular the duties incumbent upon him by reason of his election or appointment as such trustee and account for all moneys coming into his hands as such trustee according to law is not an indemnity bond according to the strict literal meaning of the term, as it is not given to protect the promissee against loss or damage arising through liability to a third person, but for loss occasioned by reason of the principal's failing to properly account or perform his duties.

6. The essential distinction between an indemnity contract and a contract of guaranty or suretyship is that the promissor in an indemnity contract undertakes to protect the promissee against loss or damage through a liability on the part of latter to a third person, while the undertaking of a guarantor or surety is to protect the promissee against loss or damage through the failure of a third person to carry out his obligation to the promissee.

Appeal from Circuit Court; Citrus County; Fred L. Stringer, Judge.

Cause again affirmed on rehearing, but former opinion modified.

Knight, Adair, Cooper Osborne, for Appellant;

Whitaker, Himes Whitaker, for Appellees.

Fred H. Davis, Attorney General, for Appellee, W. V. Knott, as State Treasurer. *1504

Addendum

This is a suit in equity for an accounting and for recovery against bond trustees and their sureties. The material allegations of the bill relating to the issuance and sale of Citrus County negotiable bonds, appointment and qualification of trustees, receipt of moneys by trustees and alleged misappropriation and mismanagement by trustees of trust funds which came into their hands are set forth in the original opinion filed herein, 136 So. 474.

The bill charged that a correct accounting and understanding of the transactions covering the handling of the trust funds by the trustees involves consideration of extensive mutual and complicated accounts and discovery of portions of lost or destroyed records and examination of private records of several banks; also that trustees have failed to account.

Appellant, the surety on the several bonds of defendant trustees, by demurrer in the court below contended it was not a proper party defendant to this suit and that the court was without jurisdiction to render a decree against it on the bonds. This demurrer was overruled and the surety appealed.

Upon the filing of the original opinion of the court, all parties to this appeal petitioned for a rehearing, which was granted and the case was then argued before this Court for the first time.

In the original opinion filed in this case, we held that where a court of equity has jurisdiction of a bill for an accounting against the principal on a bond, the sureties can properly be made parties for the purpose of the accounting so that the extent of their liability may be fixed, but that no decree for payment may be made against them, citing Rutherford v. Alyea, 53 N.J. Eq. 580, 32 A. 70, and Dorsheimer vs. Rorback, 23 N.J. Eq. 46. *1505

It is urged by the appellees that the court below has jurisdiction to render a decree against the surety on the bonds; that the New Jersey decisions in denial of this right are not in accord with the early decisions of this Court, and that nothing was said in First National Bank v. Perkins,81 Fla. 341, 87 So. 912, and Fidelity Casualty Co. v. D. N. Morrison Construction Co., 99 Fla. 309, 126 So. 151, which conflicts with this view.

In First National Bank v. Perkins, supra, this Court held that a subcontractor cannot recover in equity against the surety upon a contractor's bond in the absence of equitableconsiderations; and in Fidelity Casualty Co. v. D. N. Morrison Construction Co., supra, we held that a court of equity cannot acquire jurisdiction to enforce the penalty of a bond given pursuant to Section 5396 (3532) Compiled General Laws of Florida, 1927, unless the bond is accompanied by someextraneous circumstance which would inject into the matter aground of equitable cognizance, to which a recovery upon thebond would be incidental.

The doctrine of the New Jersey Court announced in Dorsheimer v. Rorback, supra, and followed in Rutherford v. Alyea, supra, which denies the jurisdiction of equity to enforce liability of sureties on administration bonds in actions for accounting against the principal is in direct conflict with early decisions of this Court.

In Hendry v. Clardy, 8 Fla. 77 (1858) it was held by this Court that equity has jurisdiction of a proceeding against a guardian and the sureties on the guardian's bond, where it is alleged that the guardian had possessed himself of property for which an accounting was sought, and that the equity court might administer complete relief by the entry of a money decree against the guardian and his surety on the bond. The Court there pointed out that in *1506 cases of this kind, the surety ought always to be made a party to the taking of the accounting, but that the execution should go out against him only in the event of the inability of the principal to pay and that if a final decree for the payment of money be made against the defendant surety, the decree should be so framed that it should be enforced against the sureties only on the event that the money could not be made out of the principal.

In Pfeiffer v. Knapp, 17 Fla. 144, (1879), a proceeding in equity for an accounting and for recovery therein against the guardian and his sureties, the sureties demurred to the bill on the ground among others that they were improperly joined as parties defendant. This Court, in disposing of the ruling of the lower court in overruling the demurrer, said there can be no question as to the propriety of joining the guardian and his sureties as defendants to a bill for an accounting and decree in this State nor is there any doubt as to the jurisdiction of a court of equity in the premises.

In May v. May, 19 Fla. 373 (1882), suit in equity was brought to establish the liability of the guardian and his sureties upon the guardian's bond, and to obtain an accounting to ascertain the amount due and for a decree accordingly. The cases of Hendry v. Clardy, supra, and Pfeiffer v. Knapp, supra, were therein cited with approval, and this Court, in denying the first ground of appeal urged by representatives of the guardian and the surety to the effect that complainant had an adequate remedy at law, said, "the suit is brought upon a guardian's bond against the representatives of the deceased guardian the representatives of a deceased surety, and against a surviving surety, and involves the settlement of the deceased guardian's account. Cases of this character are peculiarly within equity jurisdiction." *1507

In Pace v. Pace, 19 Fla. 438, a suit in equity by a ward against his guardian for an accounting it was said that the surety upon the guardian's bond was a proper, but not a necessary party defendant, but there is nothing therein said which denies the right of recovery in such cases against the surety upon the bond if he be made a party defendant therein.

Although the jurisdiction of equity to enforce liability on administration bonds has been unequivocally denied, the generally prevailing view in the United States is that such liability may be enforced in equity. The remedy in equity sometimes exists by virtue of statutory provisions, but many of the decisions sustaining such jurisdiction are based merely on the ground that permitting the enforcement of the bond in equity prevents multiplicity of suits and circuity of actions where plaintiff was obliged to come into equity in the first instance. It has also been held that the liability may be enforced in equity, where the remedy at law is inadequate or not available. 24 C.J. 1095; 11 A. E. Ency. Law (2d Ed.) 902; 8 Ency. Pl. Pr. 726.

In the case at bar, the bill seeks an accounting and discovery against the trustees and their surety. It sets forth the complicated character of the accounts, the need of discovery and the existence of a fiduciary or trust relationship. Equitable jurisdiction may rest upon these grounds. 1 Ency. Pl. Pr. 93. And it may be said generally that whenever there is a fiduciary relation such as that of trustee, agent, executor, etc., the right to an accounting in equity is undoubted. The right in such cases is based upon the substantive equity of trusts which jurisdiction equity always had. 1 Ency. Pl. Pr. 96.

In line with the early decisions of this Court, and the weight of authority generally, we now hold that where a *1508 court of equity has jurisdiction to compel an accounting from a fiduciary, the sureties on the fiduciary's bond may not only be made parties defendant to such suit, but their liability upon such bond may be enforced in the same suit. Hendry v. Clardy, supra; Pfeiffer v. Knapp, supra; May v. May, supra.

In this State, it is provided by statute, that where there are executions against a principal and sureties or an execution against a principal and surety or sureties, it shall be the duty of the sheriff or other officer to make the money out of the property of the principal unless he be insolvent, or has no property, in which case, the execution may proceed against the property of the surety. Section 4508 (2821) Compiled General Laws of Florida, 1927.

If, upon the accounting had, it be found there is a liability upon the bonds given in this case, the decree may properly go against the principals and surety herein, but the sheriff or other officer who may seek to make the money upon execution should first attempt to make the money out of the principals unless they be insolvent or have no property.

By the terms of the bonds which the defendant trustees executed as principals and the appellant executed as surety, the principals and surety jointly and severally obligated themselves among other things that the trustees would faithfully perform all and singular the duties incumbent upon them by reason of their election or appointment as bond trustees and account for all moneys coming into their hands as said bond trustees according to law. These bonds were not given to protect the primissee against loss or damage arising through liability to a third person, but for loss occasioned by reason of the principals' failing to properly account or perform their duties and are not *1509 indemnity bonds according to the strict literal meaning of the term.

The essential distinction between an indemnity contract and a contract of guaranty or suretyship is that the promissor in an indemnity contract undertakes to protect the promissee against loss or damage through a liability on the part of latter to a third person, while the undertaking of a guarantor or surety is to protect the promissee against loss or damage through the failure of a third person to carry out his obligation to the promissee. 16 A. E. Ency. Law (2d Ed.) 168.

What was said in the former opinion filed in this case concerning the denial of the right of recovery herein against the surety and the classification of the bonds herein mentioned as indemnity bonds is hereby modified to accord with this opinion.

The order of the court below overruling the demurrer of the surety company is again affirmed and this cause is remanded for further proceedings not inconsistent herewith.

Addendum

The record in this cause having been considered by the Court, and the foregoing opinion on rehearing prepared under Chapter 14553, Acts of 1929, adopted by the Court as its opinion, it is considered, ordered and adjudged by the Court that what was said in the former opinion filed in this case concerning the denial of the right of recovery herein against the surety and the classification of the bonds herein mentioned as indemnity bonds is hereby modified to accord with this opinion, and it is further considered, ordered, and adjudged by the Court that the order of the court below overruling the demurrer of the surety company be, and the same is hereby again affirmed *1510 and this cause is remanded for further proceedings not inconsistent with the foregoing opinion.

BUFORD, C.J., AND WHITFIELD, ELLIS, TERRELL AND BROWN, J.J., concur.

DAVIS, J., disqualified.