State v. The United States Fidelity and Guaranty Company

• Decision Date: 12 February 1910
• Docket Number: 16,282
• Citation: 106 P. 1040,81 Kan. 660
• Parties: THE STATE OF KANSAS, Appellee, v. THE UNITED STATES FIDELITY AND GUARANTY COMPANY, Appellant
• Court: Kansas Supreme Court

106 P. 1040

81 Kan. 660

THE STATE OF KANSAS, Appellee, v. THE UNITED STATES FIDELITY AND GUARANTY COMPANY, Appellant

No. 16,282

Supreme Court of Kansas

February 12, 1910

Decided January, 1910.

Appeal from Shawnee district court; ALSTON W. DANA, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. LIMITATION OF ACTIONS--Appeal by a Surety Bond Company. Under section 535 of the General Statutes of 1901 the failure of a bonding company to pay a judgment rendered against it, from which no appeal is taken within sixty days, operates as a forfeiture of the right of the company to do business under the act, but does not preclude the taking of an appeal after the prescribed time.

2. ESTOPPEL--Surety on Bond of State Depositary--Denial of Facts Recited in the Bond. In pursuance of chapter 41 of the Laws of 1891 a bank was designated by the state treasurer as a depositary for the collection of drafts, checks and certificates of deposit that might come into the state treasurer's hands on account of any claims due the state and it gave a bond, signed by the appellant as surety, reciting its designation as a depositary for the foregoing purposes, and also containing the condition that it would "promptly collect all drafts, checks and certificates of deposit that may be delivered to it by the state treasurer for collection and shall safely keep the proceeds of all such collections and promptly pay the same on the state treasurer's order," and afterward the bank made default and failed to pay upon the orders of the state treasurer. Held, that the surety of the defaulting bank is estopped to deny the facts recited in the bond, including the recital that the bank was duly designated, that the drafts, checks and certificates mentioned in the bond were delivered to it for collection and that it undertook to collect all drafts, checks and certificates delivered to it arising from any claims due the state, and is also estopped to deny that the depositary act is valid.

3. ESTOPPEL--Surety Not Released by Illegal Agreement between Depositary and Treasurer--Improper Use of Funds. The surety on the bond of the depositary bank will not be heard to say that there was an illegal agreement between the bank and the treasurer that state funds should remain in and be used by the bank for long periods of time after collections were made, nor will any improper action of the bank in keeping the accounts of the state or in handling the deposits lessen the liability of the surety.

4. BONDS--Common-law Obligation. The bond in question, if not in strict compliance with the statute, has all the elements and binding force of a common-law obligation, and, the bank having by means of the bond secured possession of the state funds, neither it nor the surety can escape liability for nonperformance of the conditions of the bond.

5. ACCOUNTS -- Application of Payments -- Secured and Unsecured Debts. In running accounts where there are items of debit and credit and there has been no appropriation of payments by the parties the ordinary rule is that the first debit items are extinguished by the first credit items, but that is subject to the other rule that where a debtor owes debts, some secured and others unsecured, and neither debtor nor creditor has directed the application, the law will apply the payments on the unsecured debts.

6. INSTRUCTIONS -- Computation of Interest -- Incorrect Rule Beneficial to Complaining Party. The fact that the court gave the jury an incorrect rule for the computation of interest is no ground for reversal where such rule operated to the benefit of appellant and necessarily made the award of the jury less than it would have been under the correct rule.

R. W. Blair, H. A. Scandrett, and B. W. Scandrett, for the appellant; N. H. Loomis, of counsel.

Fred S. Jackson, attorney-general, J. W. Gleed, F. L. Williams, and J. L. Hunt, for the appellee.

OPINION

JOHNSTON, C. J.:

This action was brought by the state against the United States Fidelity and Guaranty Company on a bond given by the First National Bank of Topeka, as a depositary of state funds, and signed by the defendant company as surety. At the general election in 1902 T. T. Kelly was chosen as state treasurer, and he took possession of the office on January 12, 1903. Among his first official acts he designated the First National Bank as a state depositary, and on January 20, 1903, the bank gave to the state a bond in the sum of $ 250,000, signed by the defendant company as surety, which was approved by the executive council on January 28, 1903. This bond recited that the bank had been designated "as a depositary for the collection of drafts, checks and certificates of deposit that may come into his [the state treasurer's] hands on account of any claims due the said state of Kansas," and it provided that if the bank "shall promptly collect all drafts, checks and certificates of deposit that may be delivered to it by the state treasurer for collection and shall safely keep the proceeds of all such collections, and promptly pay the same on the state treasurer's order, and if all drafts that may be issued to said state treasurer by it shall be paid, then this obligation to be void; otherwise to remain in full force and virtue." On January 13, 1903, Kelly deposited with the bank a check for $ 155,385.87, representing money of the state turned over to him by his predecessor, and on that date he opened an account with the bank in his own name, as state treasurer, by depositing other paper, which with the check mentioned aggregated $ 235,256.79. He continued to deposit paper belonging to the state from day to day until April 14, 1905, when the last deposit was made. This paper included checks, drafts, certificates of deposit and warrants, representing money due the state as taxes, some due from the municipalities of the state, and some derived from fees collected by the insurance and other departments of the state. The bank failed, and on July 3, 1905, a receiver was appointed. At that time the state had on deposit in the bank $ 547,575.06. Of this amount the receiver has paid. to the state $ 448,859.11, leaving a balance of $ 98,715.95, which, with interest as computed, amounts to $ 139,003.06. Verdict was returned and judgment given for this amount, and from the judgment the company appeals.

The state made a motion to dismiss the proceeding on the ground that the company had not taken an appeal, writ of error or supersedeas within sixty days after the rendition of the judgment against it. The motion was denied some time ago, but the writing of an opinion disposing of it was deferred until the final decision on the merits of the case. The motion was based on section 535 of the General Statutes of 1901, which provides that the neglect or refusal of a bonding company to pay a judgment rendered against it on its bon from which no appeal is taken within sixty days, shall operate to forfeit its right to do business under the act. The appeal in the present case was not taken within the prescribed time. While the act does not in express terms deny the right of appeal to a company which fails to pay a judgment in time, it is contended that under the decisions of Modern Woodmen v. Heath, 71 Kan. 148, 79 P. 1091, and Daughters of Justice v. Swift, 73 Kan. 255, 84 P. 984, it must be held to have that effect. These decisions were based upon an insurance statute which in most respects is like the one governing bonding companies. However, there is a difference between the provisions. The insurance statute provides that a fraternal benefit society which fails to pay any judgment rendered against it "in any court in this state, unappealed from, within sixty days from the rendition of such judgment, . . . shall be excluded from doing business within this state." (Gen. Stat. 1901, § 3580.) The act in question is that if a bonding company shall fail to pay any final judgment against it, from which no appeal, writ of error or supersedeas has been taken within sixty days after the rendition of the judgment, it shall forfeit its right to do business.

The decision in Modern Woodmen v. Heath, supra, pushed interpretation to the limit, and while that decision and the one which followed it are adhered to, the court does not feel justified in extending them farther, under a different and more limited statute. The language in the insurance statute "any court in this state," clearly means "any court of this state," because just preceding it in the same section there is a provision relating to the removal to the federal court of a suit commenced "in any of the courts in this state." The same language is used in section 534 in the same connection. The insurance statute was enacted in 1898 and the bonding company act in 1895. The difference in the language is significant. In one case it refers to a final judgment of a state court, in the other to a final judgment in any court. The legislature can restrict the period within which steps may be taken to review a. judgment in a state court, but can not regulate appellate procedure in the federal courts. It can reasonably be supposed that the legislature intended a limit when it was referring to state courts, but it can not be thought to have intended that when it was referring to judgments generally. The context clearly shows that the words "in this state" were inserted in the insurance statute to show that the provision was not intended to apply to federal courts. If any one desired to sue an insurance company in the federal court he thereby waived the benefit of the sixty-day provision. If he chose the state court the statute preserved the right to him by forbidding a removal to the federal court. It is equally clear that in the bonding...