American Surety Co. v. Hill County

• Decision Date: 02 June 1923
• Docket Number: (No. 8855.)<SMALL><SUP>*</SUP></SMALL&gt
• Citation: 254 S.W. 241
• Parties: AMERICAN SURETY CO. OF NEW YORK et al. v. HILL COUNTY.
• Court: Texas Court of Appeals

254 S.W. 241

AMERICAN SURETY CO. OF NEW YORK et al. v. HILL COUNTY.

(No. 8855.)^*

Court of Civil Appeals of Texas. Dallas.

June 2, 1923.

Rehearing Denied June 30, 1923.

COPYRIGHT MATERIAL OMITTED

Appeal from District Court, Ellis County: W. L. Harding, Judge.

Action by Hill County, for the use and benefit of Special Road Districts Nos. 3, 6, 7, 10, and 12 of such county, against the American Surety Company of New York and others. Judgment for plaintiff, and defendants appeal. Affirmed.

Phillips & Townsend, of Dallas, and O. L. Stribling, of Waco, for appellant American Surety Co. of New York.

Louis, Campbell & Nicholson, of Houston, for appellant Hughes.

John B. McNamara and Williams & Williams, all of Waco, and Frazier & Averitte and Collins, Dupree & Crenshaw, all of Hillsboro, for appellants Bibb and Bibb & Hughes.

John D. Abney, of Hillsboro, and Sleeper, Boynton & Kendall, of Waco, for appellees.

JONES, C. J.

Special Road Districts Nos. 3, 6, 7, 10, and 12 of Hill county, were duly created under the Hill county special road law, and each duly authorized the issuance of bonds for the building of good roads. The bonds of the several districts aggregated the sum of $904,000, and were duly issued, approved by the Attorney General, and registered as required by law. The bonds for districts 3, 6, and 7 bear date of August 9, 1919, and those of districts 10 and 12 bear date of April 10, 1920. During the summer and fall of 1920 these bonds could not be sold on the market for their par value.

W. S. Bibb, Jr., and Joe D. Hughes were partners under the firm name of Bibb & Hughes, with their offices in Waco, Tex. They were engaged in the general road construction business, and Bibb came to Hillsboro for the purpose of submitting a bid for his firm for the construction of the contemplated good roads in these five districts. The work for all of the districts, it seems, was to be embraced in one contract.

Forbidden by law to sell the bonds at less than par value and accrued interest, and unable to secure such price, the commissioners' court and Bibb, acting for his firm, on September 4, 1920, entered into an oral agreement by which Bibb & Hughes were to make an ostensible bid for the purchase of the bonds at par and accrued interest, which bid was to be accepted by the commissioners' court. In reality, however, there was to be no purchase of the bonds by Bibb & Hughes, but the bonds were to be delivered to Bibb for sale by him at such price as could be obtained for them on the market. Bibb & Hughes were to be awarded the contract on their bid for the road construction, and this bid should be for an amount sufficient to include both the cost of construction and the estimated discount at which it was contemplated the bonds would be sold. A discount of 25 per cent. was estimated as the probable discount at which the bonds would be sold, and this represented the approximate amount the accepted bid was padded. On this same day the commissioners' court entered a simulated order on its minutes to the effect that the bid of Bibb & Hughes for the bonds as for par and accrued interest was accepted, and Bibb & Hughes were awarded the contract for the construction of the roads in each of the said districts for a bid sufficiently padded to take care of the estimated 25 per cent. discount.

Under this scheme of a simulated sale of the bonds, it was contemplated by the parties that the entire issue of $904,000 of bonds would be turned over to Bibb for the purpose of sale for the best price that he could obtain in the market, regardless of whether same should be for par value and accrued interest. In fact, it was known at the time that the sale would not be at face value. In order that the good road districts might be secure against any default on the part of Bibb & Hughes, Bibb, with the American Surety Company of New York as surety, executed a fidelity bond in the sum of $500,000 of date September 5, 1920, in favor of the county judge of Hill county and his successors in office, indemnifying the county judge and his successors as employer against such pecuniary loss, not exceeding the amount of the bond, as such county judge might sustain by any act or acts of fraud, dishonesty, forgery, theft, embezzlement, wrongful abstraction, or willful misapplication on the part of Bibb as an employé of the obligee during the life of the bond.

On September 21, 1920, Bibb and Bibb & Hughes, with the consent of the commissioners' court of Hill county, executed an agreement in favor of the American Surety Company of New York, in which it was specified that the county agreed to deliver the said bonds only to the said Bibb and to a representative of the American Surety Company of New York, and, in effect, that Bibb and said representative of said surety company were to have the joint possession and control of said bonds. It was also recited in said agreement that Bibb contemplated and expected to resell the entire issue of bonds so delivered to other bond buyers, and that the proceeds of the resale of said bonds were to be deposited in a depository named by the Texas representative of said surety company; said depository to acknowledge the joint control by the American Surety Company of New York over any and all money deposited in it under such account. The effect of this agreement was to place the bonds in the possession of Bibb and a representative of the surety company, and to cause the commissioners' court of Hill county to surrender possession of said bonds to those who are given no lawful right of possession.

In order to carry out this scheme, formulated for the illegal purpose of selling the bonds below the minimum price fixed by law, the entire issue of the bonds was turned over to Bibb and a representative of the surety company and taken by them to Chicago, where, on the 6th of November, 1920, they were delivered by them to the purchaser secured by Bibb, and the proceeds of such sale turned over to Bibb and deposited in a bank in Chicago to the credit of W. S. Bibb, Jr.; but, at the same time, said bank issued a letter acknowledging the joint control over the deposit of the American Surety Company and agreeing that no check or draft of W. S. Bibb, Jr., on said fund should be honored unless same was countersigned by the representative of the surety company. The price paid for the bonds was 82 cents on the dollar, and this is agreed to have been the market price for the bonds at such time. The proceeds of the bonds amounted to $744,582.22.

Under a further agreement, with the commissioners' court, within ten days after Bibb received the proceeds of the sale of the bonds, he was to deposit one-fourth of said amount in banks to the credit of Hill county, and, in compliance with this agreement, he made such deposit at said time. The remainder of the proceeds was to be deposited in three installments at three, six, and nine months thereafter. There seems to be no question raised as to this part of the agreement having been carried out by Bibb. At the time the original petition was filed there was on deposit from the sale of the bonds the sum of $109,850 in the First State Bank of Hillsboro, Tex., and the sum of $120,000 in the First State Bank & Trust Company of Waco, Tex., both of these deposits being under the joint control of Bibb and the surety company. The remainder of the proceeds of the sale had gone to pay for construction work on the various roads, except 3 per cent. of same was paid to Bibb as his commission on the sale of the bonds and 2 per cent. was paid to a broker who secured for Bibb the purchaser.

The original petition was filed on April 30, 1921, with Hill county as plaintiff suing for the use and benefit of the said road districts, and W. S. Bibb, Jr., Joe D. Hughes, Bibb & Hughes, the American Surety Company of New York, the First State Bank & Trust Company of Waco, and the First State Bank of Hillsboro were all made parties defendant. As against the two named banks the suit was for the respective amounts each held on the joint account of Bibb and the surety company. As against the other defendants, it was for an alleged conversion of the bonds of said special road districts in the aggregate sum of $904,000. Recovery was also sought against Bibb and the surety company upon the said fidelity bond in the sum of $500,000.

A change of venue was ordered to Ellis county, and, upon a trial of the case, judgment was entered against W. S. Bibb, Jr., Joe D. Hughes, the firm of Bibb & Hughes, and the American Surety Company of New York, in favor of Hill county for the use and benefit of the said road districts Nos. 3, 6, 7, 10, and 12 of Hill county, in the sum of $461,437.53 with interest at the rate of 6 per cent. per annum from date of judgment. Judgment was also entered against the First State Bank of Hillsboro, in favor of Hill county for the use and benefit of said road districts in the sum of $109,850, with interest from date of judgment at 6 per cent. per annum, and against First State Bank of Waco, Tex., in favor of Hill county for the use and benefit of said road districts in the sum of $120,000, with interest from the date of judgment at the rate of 6 per cent. per annum. Said banks were also perpetually enjoined from paying out said money on the joint order of Bibb and the surety company. The judgment further provided that the sums of money paid by these banks should be credited on the amount of the judgment rendered against W. S. Bibb, Jr., Joe D. Hughes, Bibb & Hughes, and the American Surety Company of New York. Judgment was given in favor of the American Surety Company on the fidelity bond.

Appellee based its cause of action on the theory that the facts, briefly stated above, constituted a conversion of the bonds by Bibb, Bibb & Hughes, and the American Surety Company, and that such conversion occasioned a loss to the several road districts in an amount equal to the difference in the price for which...