Maryland Cas. Co. v. Magoffin County Bd. of Ed.
| Decision Date | 29 September 1961 |
| Citation | 358 S.W.2d 353 |
| Parties | MARYLAND CASUALTY COMPANY, Appellant, v. MAGOFFIN COUNTY BOARD OF EDUCATION, Appellee. MARYLAND CASUALTY COMPANY, Appellant, v. MAGOFFIN COUNTY, Appellee. |
| Court | United States State Supreme Court — District of Kentucky |
Stoll, Keenon & Park, Lexington, for appellant.
J. K. Wells, Paintsville, Earl Cooper, Arnett Mann, Salyersville, for appellees.
STANLEY, Commissioner.
In consolidated actions the trial court found that Hade Montgomery, former sheriff of Magoffin County, was short in his accounts as tax collector and was liable to (1) Magoffin County for $32,737, principal and interest, for the fiscal year 1955-1956, and (2) to the Magoffin County Board of Education for $25,636.95, principal and interest, for the fiscal years 1954-1955 and 1955-1956. The Maryland Casualty Company was surety on the several bonds. Default judgment was rendered against Montgomery for those sums in favor of the County and the Board of Education, respectively. Because of the limitations on the amount of the bonds, judgment on a trial went against the surety in favor of the County for $20,650 and in favor of the Board of Education for $23,114.95. The amounts include accrued interest on the defalcations.
Before assuming the duties of the office of sheriff on January 4, 1954, Montgomery executed a bond (a) in the penal sum of $5,000 for the faithful performance of his duties. This was the 'General Bond of the Sheriff' required by KRS 70.020, but the terms of the bond carried the additional provision that the principal would 'honestly account for all monies coming into his hands according to law.' The bond covered the calendar year 1954. Another bond with the same terms (b) was executed in January, 1955, for $10,000. This covered the year 1955. Another bond (x) executed as of January 4, 1956, was for the period January 4, 1956, to January 4, 1957, to the Commonwealth for $10,000.
On May 20, 1954, a revenue collection bond (c) was executed for $15,000 to 'Magoffin County, Commonwealth of Kentucky' covering the period from May 30, 1954, to May 30, 1955. The terms are identical with the foregoing general bonds (a) and (b). Another such bond (d) was executed May 30, 1955, for the ensuing fiscal year 1955-1956. These bonds were executed under the provisions of KRS 134.230, as amended in 1954. The provision in subsection (3) of that statute shows an intention that the bond shall be for the benefit of any taxing district, and it has been often held that the bonds cover county levies no less than the state revenue. Leslie County v. Maggard, 212 Ky. 354, 279 S.W. 335. KRS 134.250, entitled 'Special County Levy Bond,' also requires that the sheriff shall annually execute a bond to the Commonwealth covering the collection of the 'County Levy.' KRS 134.260 provides that subject to the provisions of KRS 134.270 the sureties on the sheriff's revenue bonds shall be liable for any default of the sheriff during the calendar year in which the bond was executed and not for any other year.
The appellant contends that it cannot be held liable for any defalcation of the sheriff under the general bonds, (a) and (b). If the contention is sound, the surety's obligation would be limited to $15,000 for each year, according to the revenue collection bonds, (c) and (d).
The appellant relies on Fidelity & Casualty Company v. Breathitt County, 276 Ky. 173, 123 S.W.2d 250, in which it was held, after a review of the several statutes and types of bonds, that the sureties on a sheriff's official bond were not liable for default in revenue collections when the sheriff had also executed revenue bonds. The question was very pertinent in that case, for the issue was contribution among different sureties on the general bond and the revenue collection bonds. The terms of the official bond followed the language of § 4556, Ky. Stats. (as a present examination of the record shows) and contained the provision that the sheriff 'would pay over to such persons, and at such times as they may respectively be entitled to the same, all money that may come into his hands as sheriff.' This was construed in the opinion as not including tax collections, for a revenue collection bond had also been executed. The present successor statute relating to the general official bond, KRS 70.020, does not contain such provision. It merely provides in general terms that the sheriff shall execute bond for the faithful performance of the duties of his office.
Neither of these general official bonds contains any reference to the statutes. Regardless of how they may be denominated--as general official bonds or revenue collection bonds--their real character and commitments determine the liability. Leslie County v. Maggard, supra, 212 Ky. 354, 279 S.W. 335. But, as a matter of fact, they contain the express assurance that the sheriff would 'honestly account for all monies coming into his hands according to law.' The obligation cannot be regarded as invalid or rejected as surplusage. In an earlier case it was held that the general bond with respect to tax collections was additional protection to that afforded by the revenue collection bonds. Fidelity and Deposit Co. of Maryland v. Commonwealth, 104 Ky. 579, 47 S.W. 579, 49 S.W. 467, 20 Ky.Law.Rep. 788, 1402. And it was held in Russell County Board of Education v. Leach, 288 Ky. 769, 157 S.W.2d 70, 72, following Fidelity Deposit Company of Maryland v. Brown, 230 Ky. 534, 20 S.W.2d 284, that the terms of § 4134, Ky.Stats. (which was part of the series of statutes relating to revenue bonds), which authorized the county court to require additional bonds and which provided that there should be no liability on the bond unless notice of default giving rise to a claim on the bond should be given within a certain time, were broad enough to cover 'any and all bonds executed by the sheriff.' The applicable provisions of former § 4134, Ky.Stat., are now contained in KRS 134.230(4), 134.260 and 134.270.
It seems to us all of these bonds must be given the same legal effect.
But as the revenue collection bonds executed under KRS 134.230 et seq. are specific in their purpose as defined in the statute, we are of opinion that liability for failing to account for tax collections is primarily under such bonds. However, in case the liability stipulated in such bonds proves insufficient to cover the aggregate default of the obligee in tax collections, resort may be had to the general fidelity bonds executed under KRS 70.020, which the statute declares 'shall be in addition to the bond required of him by KRS 134.230.' In the present case the bonds executed under KRS 134.230 proved to be insufficient. Indeed, all of them together were not enough, for, as stated above, the judgments against the surety are about $15,000 less than against the sheriff personally.
The appellant contends that there was a shortage in the sheriff's accounts with the Board of Education for the year 1954-1955 of $16,116.44 and no notice thereof was given the surety within ninety days after the discovery. It therefore submits that it should be relieved of liability for that amount because of the failue to give timely notice. It claims also that it may not be held liable for all subsequent defaults, i. e., the shortages for 1955-1956, by reason of the concealment of the fact of the shortage, which misled the surety into executing the bonds for that subsequent year.
The Board of Education case, 1954-1955 taxes.
An obligee's compliance with a provision calling for notice of a claim within a specified time is regarded as a condition precedent to the recovery on the contract of suretyship. Jellico Grocery Co. v. Sun Indemnity Co. of New York, 272 Ky. 276, 114 S.W.2d 83; 72 C.J.S. Principal & Surety § 253. It is made so by KRS 134.270, reading:
'Nether the sheriff nor a surety shall be liable for any act or default of the sheriff in connection with his revenue duties unless notice of the act or default of the sheriff giving rise to a claim upon the bond has been given to the surety by the Department of Revenue, the county judge, the county attorney or other person asserting the claim within ninety days after discovery or at the latest within one year after the end of the year within which the bond was executed.'
This section was a proviso in former § 4134, Ky.Stats. It came into the statutes in 1934. Ch. 20, Acts of 1934; Mt. Vernon Independent Graded School District v. Clark, 281 Ky. 230, 135 S.W.2d 892. Before that enactment, a like provision of limitation conditioned on the absence of stipulated notice included in a tax collector's bond was held not binding because in derogation of the statutory requirements. Bankers' Surety Co. v. City of Newport, 162 Ky. 473, 172 S.W. 940. None of the present bonds contain a similar condition as to notice, but the statutory provision is, of course, effectual.
The trial court found as a fact that a shortage occurred in the accounting of school funds for the fiscal year 1954-1955 in the sum of $15,256.07, but that it was not discovered until the completion of the audit in June, 1956, and thereafter proper and timely notice was given the surety. The court found another shortage in the school funds for the fiscal year 1955-1956 in the sum of $6,002.64. Timely notice of that default was given.
An entry on the record of the school board on June 29, 1955, recites that the board would 'accept the figures of the sheriff as presented and any error * * * to be corrected and to not accept final settlement until the bill is paid, which appears to be according to the figures $16,116.44.' On July 14, 1955, Montgomery gave the treasurer of the board a check for that amount drawn on his account as sheriff. It bore the notation, 'Amount to complete settlement of 1954-1955 tax collection.' The bank refused payment on account of insufficient funds. (His balance was $3,851.72) This was reported to the board. The...
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