Bankers' Surety Co. v. City of Newport

• Decision Date: 02 February 1915
• Citation: 172 S.W. 940,162 Ky. 473
• Parties: BANKERS' SURETY CO. ET AL. v. CITY OF NEWPORT.
• Court: Kentucky Court of Appeals

172 S.W. 940

162 Ky. 473

BANKERS' SURETY CO. ET AL. v. CITY OF NEWPORT.

Court of Appeals of Kentucky.

February 2, 1915

Appeal from Circuit Court, Campbell County.

Action by the City of Newport against the Bankers' Surety Company and another. From a judgment for plaintiff defendants appeal. Affirmed.

Harry L. Gordon, of Cincinnati, Ohio, Robert C. Simmons, of Covington, and Gordon, Morrell & Ginter, of Cincinnati, Ohio for appellants.

Otto Wolff and L. J. Diskin, both of Newport, for appellee.

NUNN J.

Henry Reusch was delinquent tax collector of the city of Newport during the years 1909, 1910, and 1911, and defaulted in the sum of about $15,000. The appellant was surety upon his bond as such collector for the year 1909. That part of his defalcation occurring during the years 1910 and 1911 is not involved in this controversy. The city sued to recover of appellant as surety the sum of $1,600 with interest, the alleged amount of his shortage for the year 1909. The case was referred to a commissioner, who reported that the proof showed a shortage of $1,249.79. Judgment of the lower court went against appellant for that amount. No question is raised as to the amount of the shortage. Before considering the grounds relied upon by appellant for reversal, it may be well to explain further that under the provisions of section 3188 Kentucky Statutes, Reusch was elected delinquent tax collector and executed the bond required by the statute. It thus appears that he was a public officer--not an employé. He was elected to serve the city in an official capacity for a term of two years.

The appellant contends that the city failed to comply with section 5 of the bond, and thereby absolved appellant from all liability. The city admits the failure to give the notice, but insists upon its right of recovery notwithstanding. That clause of the bond which it claims the city breached is as follows:

"(5) That the employer's claim for default hereunder must be presented to the surety within six months from the date the responsibility of the surety for the employé's further acts ceased from any cause, and no suit or proceeding at law or in equity shall be brought after 365 days shall have passed from the date upon which the surety's responsibility for the further acts of the employer ceased."

Appellant concedes that so much of the clause as requires a suit to be brought within 365 days is void, because it is against public policy and in contravention of the statutes of limitation; but it says the employer--that is, the city--failed to present to the surety a claim for the default within six months from the date its responsibility ceased on the bond. It cites and relies upon the case of Ballard County Bank's Assignee v. U.S. F. & G. Co., 150 Ky. 236, 150 S.W. 1, where this court had under consideration a similar clause in a surety bond executed to a private corporation. In that case it was held that the clause only required discovery of the losses and notice thereof by the employer within a six months' period, and that its effect was not to fix a period of limitation for filing suit different from that prescribed by the statute. The contract as to notice was deemed binding as against individuals or private corporations because parties who are sui juris have a right to contract as they please, subject to the limitation that the contract shall not violate the Constitution or statute or be against public policy.

But a city, of course, can only act through its officers. Were the city officers who took this bond sui juris? Although the six months' notice clause might be considered as not attempting to fix a period of limitation less than that prescribed by statute for instituting an action, was the bond none the less in contravention of the statutes regulating official bonds, and therefore against public policy?

As is said in the case of U.S. F. & G. Co. v. Commonwealth, 104 S.W. 1029, 31 Ky. Law Rep. 1179:

"A public officer has no authority except such as is conferred upon him by law. * * * The state (and the appellee here is but an arm of the state) is never affected by the acts of her officers beyond the scope of their duties, for all persons dealing with them must take notice of the laws of the land."

Sections 3751 and 3752 of the Kentucky Statutes prescribe certain terms and provisions that must be in the bond of public officials. Section 3751 says: Such bond "shall be a covenant to the commonwealth of Kentucky, from the person and his sureties that the principal shall faithfully discharge the duties of the office, trust or employment."

Under the authority of Connelly v. American B. & T. Co., 113 Ky. 903, 69 S.W. 959, 24 Ky. Law Rep. 714, such bonds are controlled by these sections of the statute, "and must be read in connection therewith."

By an act of 1908, which is section 186d, Kentucky Statutes, it is provided that such bonds, "shall be limited in a definite...