The Board of County Commissioners of The County of Barber v. The Lake State Bank

• Decision Date: 08 January 1927
• Docket Number: 26,565
• Citation: 122 Kan. 222,252 P. 475
• Parties: THE BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF BARBER, Appellant, v. THE LAKE STATE BANK et al., Appellees
• Court: Kansas Supreme Court

252 P. 475

122 Kan. 222

THE BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF BARBER, Appellant, v. THE LAKE STATE BANK et al., Appellees

No. 26,565

Supreme Court of Kansas

January 8, 1927

Decided January, 1927.

Appeal from Harper district court; GEORGE L. HAY, judge. Opinion on rehearing filed January 8, 1927. (For original opinion of reversal, see 121 Kan. 223.) Former judgment adhered to.

Judgment adhered.

SYLLABUS

SYLLABUS BY THE COURT.

1. PRINCIPAL AND SURETY--Liability of Surety--Surety as Favorite of the Law. The principle that "sureties are favorites of the law" cannot be carried to the extent of releasing sureties on a bond given by a bank to secure the deposit of county money so long as the principal on the bond is bound and nothing has been done to release the sureties.

2. SAME--Duration of Bond. The rule declared in Barber County Comm'rs v. Lake State Bank, 121 Kan. 223, 246 P. 524 adhered to.

3. SAME--Default on Bond. There was a default on the bond given by the Lake State Bank to secure the money deposited therein by the county treasurer of Barber county.

4. SAME--Discharge of Sureties--New Arrangement for Deposits After Expiration of Bond. The sureties on the bond mentioned in the third paragraph of this syllabus were not discharged by a new arrangement made by the county commissioners under which the county treasurer continued to deposit money in the Lake State Bank after the expiration of the bond nor by the failure of the county to require security for deposits made after that date.

5. SAME--Rule Binding Principal Applicable to Surety. The rule that binds the principal in such a bond as is mentioned in this syllabus so far as the application of payments is concerned also binds the sureties.

6. SAME--Sureties on Bond Securing County Deposits--Statutory Liability. Sureties on a bond given by a bank to secure the deposits of county money made by a county treasurer under the order of the board of county commissioners cannot limit their liability except in the manner prescribed by section 78-107 of the Revised Statutes.

Charles B. Griffith, attorney-general, John G. Egan, assistant attorney-general, Riley MacGregor, county attorney, John W. Davis, of Greensburg, Samuel Griffin and W. E. York, both of Medicine Lodge, for the appellant.

Chester I. Long, J. D. Houston, Austin M. Cowan, Claude I. Depew, James G. Norton, W. E. Stanley, Earle W. Evans, George C. Spradling, all of Wichita, Adrain S. Houck and A. L. Orr, both of Medicine Lodge, for the appellees.

Marshall, J. Burch, Dawson, JJ., Mason, J., dissenting.

OPINION

MARSHALL, J.:

An opinion in this action was filed June 12, 1926 (Barber County Comm'rs v. Lake State Bank, 121 Kan. 223, 246 P. 524). The judgment of the district court was there reversed, and the trial court was directed to render judgment in favor of the plaintiffs for $ 90,656.80 and interest thereon. A rehearing was granted, additional briefs have been filed, and the case has been reargued. It is not necessary to state any additional facts. They were correctly stated in the former opinion.

1. The defendants argue that "the signers of the bond were uncompensated sureties, favorites of the law, and the condition of their obligation should be strictly construed." This argument depends for its validity on the principle that sureties are favorites of the law. The law may favor sureties, but the law and public policy require them to pay to the county treasurer public money that he, at different times, has deposited in a bank for which they have become surety in order that the bank might receive the deposits. Sureties are bound by their contracts in the same manner and to the same extent as principals, except that under certain circumstances sureties may be released by the conduct of obligees. None of those circumstances exist in the present case.

2. The defendants urge that "the bond expired on February 4, 1921, was not continuous, but was given by the bank and accepted by the board as a bond for a two-year period only." Although counsel for the plaintiff made an able argument on the first hearing that the bond was a continuing bond, the court in its former opinion agreed with the contention now made, and what was said on this subject in the former opinion is now adhered to.

3. The defendants urge that "there was no default on the part of the Lake State Bank on any condition of the bond when it expired and, therefore, no liability." The argument to support this contention depends on the fact that all checks drawn on the bank during the two years for which the bond was given were paid when presented, but of the amount received during that time there remained on deposit on February 4, 1921, the date of expiration of the bond, the sum of $ 146,375.50. On that date, the bondsmen were liable for that amount. Payments were afterward made until the amount on deposit was reduced to $ 90,656.80, the amount for which the action was brought. It was not shown that at any time from that date until the failure of the bank there was less than $ 90,656.80 on deposit. Unless the payments made after February 4, 1921, are applied to the deposits made before that date, there was a default on the part of the Lake State Bank in the payment of money, the conditions of the bond were violated, and the defendants are liable thereunder.

4. The defendants urge that "the sureties on this bond were discharged: (a) by extending the old contract and changing the conditions thereof, both without the sureties' consent, (b) by the negligence of the county in leaving its funds unsecured after April 5, 1921." There was no extension of time for the payment of the money that was on deposit on February 4, 1921. The money was not taken out of the bank, but there was no extension of time for its payment. The county should have taken security for the deposits made after that date, but the failure to do so did not release the sureties on the bond for the deposits previously made unless payments made after that time should have been applied to deposits made before that time.

5. The defendants argue that "all sums of money withdrawn from the Lake State Bank by Barber county after February 4, 1921, should be applied to the payment of deposits made prior to that time, since the rule of applying payments preferentially to unsecured debts will not be applied where the other claims are secured by personal guarantors or sureties who are favorites of the law." Part of the argument to support this contention of the defendants is based on the principle that sureties are favorites of the law. They should not be favored to the extent of being released from liability on the contract which they signed and which has not been performed. The contract binds both principal and surety. To the extent that the principal is discharged, the surety is likewise discharged but no farther, except as has been stated. If application of payments had been made by the Lake State Bank, that application would have bound the sureties. If application had been made by the county treasurer, the sureties would have been bound thereby. When application is made by law, the sureties must abide by that application. Application of payment cannot be made one way so far as the principal is concerned and another way so far as the sureties are concerned.

6. The defendants urge that this court made a mistake in ordering judgment in favor of the plaintiffs. Attention is called to the following language contained in the bond which was not set out in the former opinion:

"Know all men by these presents, that the undersigned, the Lake State Bank, of Lake City, Barber county, Kansas, as principal, and the undersigned persons, whose names also appear hereunder and who sign as sureties, are held and firmly bound unto the county of Barber and state of Kansas in the sum of six hundred thousand and no/100 dollars ($ 600,000), to the payment of which said undersigned hereby bind themselves, severally, but not jointly, in the amounts set opposite their signatures, in the aggregate to be at least six hundred thousand and no/100 ($ 600,000) dollars, or such pro rata portion of said sum as the aggregate amounts qualified for shall call for in case of default under the terms and conditions of this bond."

That part of the language to which attention is directed is as follows:

"Undersigned hereby bind themselves, severally, but not jointly, in the amounts set opposite their signatures, in the aggregate to be at least six hundred thousand and no/100 ($ 600,000) dollars,...