MATTER OF RISING

• Decision Date: 17 March 1952
• Parties: In the Matter of Susan Rising, an Infant.
• Court: New York Surrogate Court

201 Misc. 869

In the Matter of Susan Rising, an Infant.

March 17, 1952.

Robert J. Trainor for Vauda W. Miller, petitioner.

Thomas J. McManus for London & Lancashire Indemnity Company of America, respondent.

Emmett F. Good and Maxleon D. Powell for Veterans' Administration.

Jessie E. Rising, in person, as executrix of William S. Rising, Jr., deceased guardian.

Joseph F. Gagliardi, special guardian.

GRIFFITHS, S.

This proceeding is instituted pursuant to the provisions of section 115-a of the Surrogate's Court Act to fix and determine the liability of the respondent London & Lancashire Indemnity Company of America, hereinafter called the Company, as surety upon a general guardian's bond. The petitioner is successor guardian to the principal, who has since died.

The decree made on the judicial settlement of the accounts of the deceased guardian fixed a surcharge in a sum exceeding the face amount of the bond. The question presented for determination in this proceeding is whether the liability assumed by the Company is limited to defalcations not exceeding in the aggregate the face amount of the bond or whether its liability is for defalcations not exceeding such amount occurring in each year the bond was in force and effect.

Preliminarily the respondent Company moves to strike from the amended petition certain paragraphs thereof on the grounds that the allegations therein contained with reference to the allocation of the surcharge on an annual basis are "irrelevant, and redundant, sham, libelous, unnecessary and impertinent" pursuant to rule 103 of the Rules of Civil Practice.

The bond in question bearing date January 10, 1946, is in the sum of $1,500 and has no stated period of duration. The condition of the bond is that the named guardian "shall in all things faithfully discharge the trust reposed in him as guardian of the said infant and obey all lawful directions of the Surrogate's Court of the County of Westchester touching the trust; and if he shall, in all respects, render a just and true account of all money and other property received by him and of the application required so to do, by a Court of competent jurisdiction". One of the challenged paragraphs of the amended petition alleges the payment of annual premiums for the years 1947, 1948, 1949 and 1950, and another purports to allocate the surcharge aggregating $2,237.28 to each of said years according to the date of the omission or act of commission of the deceased guardian upon which the claim for surcharge is based. It is also alleged that the total surcharge thus allocated to any one year for which premiums on the bond were paid do not exceed the face amount of the bond. The respondent Company admits liability to the extent of the face amount of its bond with interest from the date of the decree fixing the surcharge, but vigorously opposes the attempt of petitioner to enlarge its liability in the respect above outlined.

The liability of a surety on a fiduciary bond sounds in contract. (Matter of Ayvazian, 157 Misc. 306; Montgomery Ward & Co. v. Fidelity & Deposit Co., 162 F.2d 264; 4 Butler, New York Surrogate Law and Practice, § 3022.) "A contract of guaranty, as all the authorities agree, should receive a reasonable interpretation, according to the intent of the parties as disclosed by the writing, which, in a case of ambiguity, may be read in the light of surrounding circumstances." (Powers v. Clarke, 127 N.Y. 417, 424.)

While no authority has been cited by counsel and independent research has failed to disclose any determining of the extent of the liability of a surety on a fiduciary bond in the respect here involved, a similar question with respect to employee fidelity bonds has been the subject of extensive litigation particularly in the Federal courts. The decisions of such courts have been collated and commented upon in Michigan Law Review (Vol. 27, p. 442); Temple University Law Quarterly (Vol. 15, p. 174), and Southern California Law Review (Vol. 20, p. 226). (See, also, 6 Couch, Cyclopedia of Insurance Law, § 1374.) Recognizing that the particular provisions of each bond and the wording of a pertinent statute or regulation may be determinative of the intent of the parties, nevertheless an analysis of the decisions of such courts shows that where as here the language of the bond is general and there is no specific provision for termination and renewal, the courts appear to be in disagreement. In one of the more recent decisions by the Federal tribunals, the Court of Appeals for the Second Circuit decided by a divided court that the liability of a surety on a bond of a United States postal employee was cumulative and that consequently the surety was liable for defalcations not exceeding the face amount of the bond each year it was in force and effect. (United States v. American Sur. Co. of New York, 172 F.2d 135, affg. 77 F.Supp. 318, certiorari denied, 337 U. S. 930.) In rejecting the rationale of certain decisions of other Federal courts holding that the liability on such bonds is continuous rather than cumulative the court said, at page 139: "The substantial and controlling point is that an annual premium was required and paid in the expectation of the obvious protection which that should afford." (Cf. Columbia Hosp. v. United States Fidelity & Guar. Co., 188 F.2d 654.) The New York courts have had occasion to decide a similar question in two decisions (Campbell Milk Co. v. United States Fidelity & Guar. Co., 161 App. Div. 738; Russeks Fifth Ave. v. Ætna Cas. & Sur. Co., 239 App. Div. 913). (See, also, Hawley v. United States Fidelity Co., 100 App. Div. 12, affd. 184 N.Y. 549.) In the Campbell Milk Company case the bond in question was for a stated period and on the anniversary date thereof a continuation certificate was issued for a further one-year period, the premium for such renewal being in the same amount as the original premium. In holding that the surety was liable for defalcations not exceeding the face amount of the bond in each of the...