IN RE CONSERVATORSHIP OF HUERTA

• Decision Date: 08 March 2002
• Docket Number: No. 815, No. 813, No. 814, No. 816, No. 817., No. 86, No. 539
• Parties: In the Matter of the Conservatorship of ERIC FORTINO HUERTA, a Minor, et al.
• Court: Kansas Supreme Court

273 Kan. 97

41 P.3d 814

In the Matter of the Conservatorship of ERIC FORTINO HUERTA, a Minor, et al.

Nos. 86,539, 86,813, 86,814, 86,815, 86,816, 86,817.

Supreme Court of Kansas.

Opinion filed March 8, 2002.

Tracy A. Cole, of Gilliland & Hayes, P.A., of Hutchinson, argued the cause and was on the briefs for appellants St. Paul Fire & Marine Insurance Company, United States Fidelity & Guaranty Company, and Old Republic Surety Company.

Van R. Delhotal, of Delhotal Law Offices, P.A., of Wichita, argued the cause and was on the brief for appellee Guardian Ad Litem and Successor Conservator of Eric Fortino Huerta.

Janell Jenkins Foster, of Wallace, Saunders, Austin, Brown & Enochs, Chartered, of Wichita, argued the cause and was on the brief for appellees Curatorship of Raymond N. Williams, Curatorship of Phillip R. Weidman and Guardianship and Conservatorship of Roger L. Hughes, and Andrea Ramsay, of Wichita, was with her on the brief for appellees Curatorship of Adjui Lane and Curatorship of Roland A. Moore.

Stanley R. Parker, Deanne Watts Hay, and Randy R. Debenham, of Parker & Hay, LLP, of Topeka, were on the brief for amicus curiae Surety Association of America.

The opinion of the court was delivered by

ABBOTT, J.:

Each of the six cases consolidated for review involves a claim by a successor conservator or curator against a former conservator or curator (principal) unable to adequately account for the ward's assets and the former conservator's or curator's surety. At issue is the sureties' liability for interest and costs in excess of the penal sum of the bonds, and the sureties' liability for interest assessed from the date of each conversion, rather than from the date of notice or demand on each surety.

In each of these cases, the successor conservator or curator filed suit against the principal and the surety as a result of the principal's conversion or theft of funds. In each case, the probate court found that the principals had converted assets and subsequently entered judgment against them and their sureties for the amount of the loss to each ward, plus interest from the dates of conversion, and conservator and attorneys fees incurred during the prosecution. In all but one case, judgment exceeded the limit of liability, or penal sum, of the bonds of the sureties as a result of the addition of prejudgment interest and successor conservator or curator fees.

I. SURETIES' LIABILITY FOR AMOUNTS IN EXCESS OF THE PENAL SUM OF THE BOND

These cases raise issues with respect to the extent of the sureties' liability in regard to their fidelity bonds. For their first assertion of error, St. Paul Fire & Marine Insurance Company, United States Fidelity & Guaranty Company, and Old Republic Surety Company (sureties) contend that the probate court erred by awarding judgments to the injured wards in excess of the penal sum stated on the bonds.

"Where a trial court has fashioned a remedy to make the injured party whole, the test on appellate review is not whether the remedy is the best remedy that could have been devised, but whether the remedy so fashioned is erroneous as a matter of law or constitutes a breach of trial court discretion." Gillespie v. Seymour, 250 Kan. 123, Syl. ¶ 10, 823 P.2d 782 (1991).

The sureties present two reasons for limiting their liability to the stated bond amount. We will consider each in its turn.

1. Kansas case law.

First, the sureties argue that case law in Kansas limits the liability of the surety to the amount of the bond. In support of this contention, the sureties cite Koch v. Merchants Mutual Bonding Co., 211 Kan. 397, 507 P.2d 189 (1973); School District v. Delano, 96 Kan. 499, 152 Pac. 668 (1915); McMullen v. Loan Association, 64 Kan. 298, 67 Pac. 892 (1902); and Burchfield v. Haffey, 34 Kan. 42, 7 Pac. 548 (1885).

The curators for Raymond Williams, Phillip Weidman, Roger Hughes, Adjui Lane, and Roland Moore dispute the sureties' contention, characterizing it as an attempt to overturn well-settled law in Kansas. The curators state that Kansas follows the majority rule: While the penalty sum stated on the face of the bond may not be enlarged, a surety may be required to pay prejudgment interest and costs of litigation exceeding the penal sum of the bond. The curators contend that three Kansas cases have allowed the assessment of prejudgment interest against the surety: McMullen, Burchfield, and Delano.

Therefore, we turn to the case law cited by the parties in support of their respective positions. We examine these cases beginning with the earliest.

Burchfield, 34 Kan. 42, decided in 1885, is a case where this court considered the proper measure of damages in connection with a fidelity bond. The case arose from a subcontractual arrangement. H.B. Gurnsey signed a contract with C.J. Haffey in which Gurnsey agreed to transport mail from Elk Falls to Howard, Kansas, from May 19, 1880, to June 30, 1882. Gurnsey procured a fidelity bond in the sum of $300 to be paid to Haffey in the event that Gurnsey failed to "fully and faithfully perform the mail service...." 34 Kan. at 43-44. Gurnsey did carry the mail for a short time, but then declined to comply further with the terms of the contract. The post office canceled its contract with Haffey, and Haffey filed suit against Gurnsey and the sureties to recover damages of $300 for his loss of contract rights, plus interest from the date of the breach.

On appeal, the defendants complained that the court erred in instructing the jury as to the proper measure of damages. The trial court described Haffey's damages as

"the amount he would have received from the United States during the time Gurnsey was to carry the mail, according to the terms of his contract, from the time he ceased to carry the same, less the amount he was [to] pay Gurnsey for said service, not to exceed the sum of three hundred dollars with interest thereon at the rate of seven per cent. per annum from the time Haffey made demand of the defendants therefor." 34 Kan. at 44-45.

In Burchfield, this court noted that conflicting authority existed on the issue of allowing interest as damages beyond the penalty of the bond, but found the weight of American authority allowed the assessment of interest:

"The weight of American authority, however, is in favor of allowing interest. Sutherland, in his work on Damages, says:

"The penalty is the limit of liability at the time of the breach. Interest is afterward given, not on the ground of contract, but as damages for its violation, for delay of payment after the duty to pay damages for breach of the condition to the amount of the penalty had attached.' [Citation omitted.]

"In the notes to Sedgwick on Damages, it is stated:

"`In the case of debt on bonds for the payment of money only, it seems now settled that interest may be recovered after default, even though it exceeds the penalty, and whether the action be against principal or surety.' [Citation omitted.]

"The penalty of the bond covers the misconduct of the principal; but the interest allowed on the penalty is for the misconduct of the sureties—for the delay in payment. If the damages were paid when due, they would have earned interest." 34 Kan. 45.

The Burchfield court ultimately affirmed the trial court, approving the assessment of interest as damages beyond the penalty of the bond. 34 Kan. at 46.

In 1902, this court considered another case involving the assessment of prejudgment interest against a surety. In McMullen, 64 Kan. 298, J.F. McMullen had been elected the secretary of the Winfield Building and Loan Association from its inception in January 1881 and was reelected for several years thereafter. Following J.F.'s reelection on January 13, 1885, he procured a bond in the sum of $2,000 signed by J.C. McMullen as surety. The bond was executed and accepted on February 6, 1885. In 1892, the Loan Association brought suit against J.F. and his surety, alleging that from January 1, 1885, to December 31, 1885, J.F. had wrongfully converted its funds.

The trial court found that J.F. owed the association $2,035.87, and that on February 6, 1886, he had paid $197.46 of the debt. The trial court awarded judgment against both the principal and surety for the unpaid loss of $1,838.41, plus interest from January 31, 1886, for a total judgment of $3,725.84.

On appeal, the surety contested the trial court's assessment of interest damages in excess of the amount named in the bond. This court stated:

"When the secretary [J.F.] converted and wrongfully withheld the moneys of the association the condition of the bond was broken, and a liability arose against both principal and surety. Interest is recoverable against both of them from the time of the default, not as a part of the penalty, but for the detention of the money after the same became due. During the continuance of the default, interest was due from the secretary, just the same as in cases where money is not paid when the creditor becomes entitled to it, and the surety who bound himself against the defaults of the secretary and became liable for them when they occurred can claim no exemption from the rule." 64 Kan. at 304.

Once again, this court affirmed the trial court's assessment of interest in excess of the amount stated in the bond against a surety. 64 Kan. at 309.

In DeLano, 96 Kan. 499, the school board signed a contract with DeLano in 1909 to build an eight-room school building for $15,000 in Spearville, Kansas. Although DeLano began the work as planned, he abandoned the job on July 1, 1910. The board notified the surety of DeLano's abandonment, but the surety did not respond. Finally, the board engaged an architect to oversee the completion of the building. The board filed suit and the case was tried to the court. The district court entered judgment against DeLano in the amount of $1,594.35 for liquidated damages for the delay. The court also entered judgment against the surety for $5,868.08, a sum in...