Paulsell v. Peters

• Decision Date: 01 August 1941
• Docket Number: 28323.
• Citation: 9 Wn.2d 599,115 P.2d 708
• Parties: PAULSELL v. PETERS et al.
• Court: Washington Supreme Court

115 P.2d 708

9 Wn.2d 599

PAULSELL v. PETERS et al.

No. 28323.

Supreme Court of Washington

August 1, 1941

Department 1.

Suit by Otis Paulsell against Frank E. Peters and the Metropolitan Casualty Insurance Company of New York, on real estate broker's bond. From a judgment against the defendant surety company alone, the surety company appeals.

Affirmed.

Appeal from Superior Court, Pierce County; Ernest M. Card, judge.

Ryan Askren & Mathewson and Meyer Horowitz, all of Seattle, for appellant.

Stuart H. Elliott, of Tacoma, for respondent.

STEINERT Justice.

Plaintiff brought suit against a real estate broker and his bondsman, a surety company, to recover for the misappropriation and embezzlement, by the broker, of certain sums of money alleged to belong to plaintiff. At the trial, had Before the court without a jury, the defendant broker defaulted, and the cause proceeded to judgment against the defendant surety company alone. Upon entry of judgment, the surety company appealed.

The facts as shown by the record are as follows During 1937 and 1938, defendant Frank E. Peters was engaged in the real estate brokerage business in Tacoma, Pierce county, Washington. Appellant, Metropolitan Casualty Insurance Company of New York, was surety upon Peters' real estate broker's bond in the sum of one thousand dollars, under the provisions of chapter 129, Laws of 1925 Ex.Ses., p. 218 (Rem.Rev.Stat. § 8340-1 et seq.).

Respondent, Otis Paulsell, owned a certain parcel of real estate in Pierce county, and on or about October 15, 1937, listed the property with Peters for sale. About a month later, Peters negotiated a written contract for the sale of the property by respondent to Norris O. Telling and wife for the sum of eleven hundred dollars, payable sixty dollars in cash, and the balance in installments of fifteen dollars, or more, per month. The contract was left, unrecorded, in the possession of Peters, who was to collect the monthly installments and remit them to respondent.

Between November 15, 1937, and November 15, 1938, Peters collected installments amounting to $245, but of the total amount thus collected he remitted only $131.44 to respondent, and he has never accounted for the remaining $113.56. The unpaid balance owing by Telling and his wife on their contract with respondent amounted, in November 1938, to $928.35.

In the meantime, on November 25, 1937, Peters, in some way not altogether clear from the record, prepared or procured what purported to be an assignment transferring respondent's interest in the foregoing contract to H. E. Newfield, of Puyallup, Washington, and also procured a warranty deed of the property from respondent to Newfield. The deed was thereafter delivered to the grantee, Newfield, and was filed for record on June 20, 1938.

It subsequently transpired that respondent's signature to the assignment of the contract was forged, and that his signature to the deed, though genuine, had been procured by Peters through some fraudulent method unknown to respondent.

Newfield paid Peters five hundred dollars for the deed and assignment, and there is no contention here that Newfield's connection with the transaction was other than that of a bona fide purchaser. Peters, however, absconded with the money and has been a fugitive from justice ever since.

After learning from Newfield's attorney the details of the transaction involving the deed and assignment, and having discovered that Peters had absconded, respondent commenced this action against both Peters and the surety company to recover the unremitted portion of the installments which Peters had collected on the Telling contract, together with the amount which Peters had received from Newfield for the deed and assignment. The total amount thus sought to be recovered was $613.56, which, it may be noted, was less than the balance still owing on the contract between respondent and the Tellings.

Service of the complaint in this action was never made on Peters, and the litigation resolved itself into a contest between respondent and appellant surety company concerning appellant's liability on the bond.

Appellant's answer to the complaint consisted of a general denial and an affirmative defense in which appellant alleged (1) that, under the provisions of the bond, its total liability for all causes of action arising thereon was not to exceed one thousand dollars, and (2) that it had already paid out the full amount of the bond upon two judgments previously rendered against it for earlier defalcatios by Peters. The trial court sustained a demurrer to the affirmative defense, and thereafter, upon the evidence adduced in support of the complaint, entered judgment for respondent in the full amount prayed for by him.

Appellant's first contention is that the court erred in sustaining respondent's demurrer murrer to its affirmative defense. Rem.Rev.Stat. § 8340-10, provides that any person desiring to carry on the business of real estate broker in this state shall deliver to the director of licenses a bond running to the state of Washington, in a form approved by the director, in the sum of one thousand dollars, executed by a surety company authorized to do business in this state, or by two good and sufficient sureties to be approved by the director, and guaranteeing the faithful accounting of all trust funds committed to such real estate broker.

Rem.Rev.Stat. § 8340-11, provides: 'All bonds given under the provisions of this act, after their approval by the director, shall be filed in his office. Any person who may be damaged by the wrongful conversion of trust funds by such real estate broker, shall, in addition to other legal remedies, have a right of action in his own name on such bond for all damages not exceeding one thousand dollars ($1,000).' (Italics ours.)

This court has never construed Rem.Rev.Stat. § 8340-11, with reference to the extent of the surety's liability upon a bond when two or more claims against it exceed, in the aggregate, the amount of the penalty stated therein.

The general rule is that a surety on a bond is not liable beyond the amount specified therein as the penalty. 50 C.J. 74, § 128; 21 R.C.L. 1085, § 127. In practically all of the states where the question has arisen, that rule has been applied to cases where the aggregate of claims against a bond exceeds the amount of the penalty prescribed therein.

In Wiggins v. Pacific Indemnity Co., 134 Cal.App. 328, 25 P.2d 898, suit was brought on a real estate broker's bond given pursuant to a statute which contained provisions almost identical with those of Rem.Rev.Stat. § 8340-11, and it was there held that the aggregate recovery on the bond could not exceed the penalty thereof.

In Coast Surety Corp. v. White, 14 Cal.App.2d 35, 57 P.2d 951, it was held that one recovery of the full amount of a broker's bond would constitute a defense against all pending or future suits, even though such suits were based upon distinct wrongful acts of the principal.

Likewise, in New Amsterdam Casualty Co. v. Hyde, 148 Or. 229, 34 P.2d 930, 35 P.2d 980, where a number of claims had been made against a surety bond, it was held that the surety was liable only to the extent of the penalty named in the bond.

See, also, to the same effect, United States F. & G. Co. v. Zidell-Steinberg Co., 151 Or. 538, 50 P.2d 584, 51 P.2d 687; Witter v. Mass. Bonding & Ins. Co., 215 Iowa 1322, 247 N.W. 831, 89 A.L.R. 1065; Fidelity & Deposit Co. of Maryland v. Sholtz, 123 Fla. 837, 168 So. 25; Southern Surety Co. v. Bender, 41 Ohio App. 541, 180 N.E. 198; Notes L.R.A.1917D, 617; 1934, 89 A.L.R. 1071.

If the rule as declared in the foregoing authorities were held to obtain in this state, appellant's initial contention necessarily would have to be sustained. This court has, however, in cases closely analogous to the case at bar, definitely taken a contrary view.

In Salo v. Pacific Coast Casualty Co., 95 Wash. 109, 163 P. 384, 386, L.R.A.1917D, 613, the plaintiff brought an action to recover damages for personal injuries sustained by her when a jitney bus in which she was a passenger collided with an automobile. In the same accident, four other passengers were injured, and each brought a separate action for damages. In each case, recovery was sought against the owner and operator of the bus and against the surety upon the bond required by chapter 57, Laws of 1915, p. 227 [Rem.Code, § 5562-37, et seq.]. Section 3 of that act (which has since been amended [chapter 27, Laws of 1929, p. 27], the changed wording now being found in Rem.Rev.Stat. § 6384) provided:

'Every person injured by any careless, negligent or unlawful act of any person, firm or corporation receiving a permit under the provisions of this act * * * shall have a cause of action against the principal and surety upon the bond provided for in the preceding section for all damages sustained and in any such action the full amount of damages sustained may be recovered against the principal, but the recovery against the surety shall be limited to the amount of the bond * * *.' (Italics ours.)

In each of the five cases arising out of that accident, the surety company filed an answer setting up as an affirmative defense the pendency of the four other actions, stating the amount of damages claimed in each, and alleging that the limit of liability, as against it, was the amount of the penalty provided in the bond.

By stipulation, the five cases were tried together, but were not consolidated as one action. The evidence as to liability was the same in the several causes. The surety company requested the trial court to charge the jury that the limit of its liability was the sum of twenty-five hundred dollars, which was the amount of the...