U.S. Fid. & Guar. Co. v. Pullen

• Decision Date: 10 January 1939
• Citation: U.S. Fid. & Guar. Co. v. Pullen, 230 Wis. 137, 283 N.W. 462 (Wis. 1939)
• Court: Wisconsin Supreme Court
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. PULLEN.

230 Wis. 137

283 N.W. 462

UNITED STATES FIDELITY & GUARANTY CO.

v.PULLEN.

Supreme Court of Wisconsin.

Jan. 10, 1939.

Appeal from an order of the Circuit Court for Milwaukee County; August E. Braun, Judge.

Reversed.

Action brought against the defendantLloyd W. Pullen by the plaintiff, United States Fidelity and Guaranty Company, to recover damages sustained by it as surety under a bond, which it furnished for the defendant as trustee of a testamentary trust, in the administration of which the trust estate sustained a loss which the plaintiff paid.The defendant demurred to plaintiff's complaint and to an amended complaint on the ground that there was a failure to state facts sufficient to constitute a cause of action.Each of the demurrers was sustained, and plaintiff appealed from an order in relation to the amended complaint.Lines, Spooner & Quarles, of Milwaukee (Maxwell H. Herriott, of Milwaukee, of counsel), for appellant.

Wood, Warner & Tyrrell, of Milwaukee, for respondent.

FRITZ, Justice.

The appeal herein is from an order sustaining a demurrer to an amended complaint on the ground that the facts alleged are insufficient to constitute a cause of action.Liberally construed the allegations of the complaint, including facts stated in exhibits attached thereto, are to the following effect, in so far as here material.The surety bond, by reason of which the plaintiff sustained the damages which it seeks to recover, was furnished by the plaintiff as surety for the defendant, as principal, when he qualified on December 8, 1917, as the testamentary trustee of a trust under the will of Mary S. Potter, deceased.Upon receiving assets of the trust estate from the executor, the defendant executed a receipt for $14,473.95 as the distributive share of the beneficiary of the trust under the will.However, instead of actually receiving that sum in money, the defendant accepted certain securities at their face value, including a note for $5000 executed by Charles A. Cushman, and secured by a purchase money mortgage on a farm, which he bought for $6000, of which he paid but $1000 in cash.That security was not eligible for the investment of trust funds under sec. 231.32(1), Stats., and it was not paid upon maturity in 1920.Moreover, when Cushman died, the defendant failed to file a claim against his estate, and the right to recover thereon had become barred when the defendant on May 24, 1926, offered to turn the Cushman and other securities over to the Rock County Savings & Trust Company, which was appointed to succeed him as trustee.The successor trustee refused to receive the securities excepting for investigation with a stipulation that there was no responsibility on its part until it found them to be legal as trust investments, and that they could be returned to the defendant if not satisfactory.Upon finding that they were not eligible for the investment of trust funds, the successor trustee brought an action in September 1926 against the plaintiff and the defendant herein, as surety and principal, respectively, to recover the amount invested in the Cushman loan, and also other securities.Thereupon, it was stipulated between the plaintiff and the defendant herein and the successor trustee, in relation to the Cushman security, that the successor trustee should take charge thereof to liquidate it for the benefit of the parties entitled thereto; should give the plaintiff and the defendant herein timely notice of all trials, foreclosures, sales and other legal proceedings relating thereto, which might establish any deficiency liability on their part; and should hold the proceeds realized upon liquidation subject to the determination of the ultimate responsibility for payment thereof as between the parties herein and the trust estate.Subsequently, the same parties stipulated on September 6, 1928, that on a sale under a foreclosure judgment obtained by the successor trustee on the Cushman mortgage, it should buy in the farm at $5000 if no more was bid; and that if it acquired the farm, it should hold, manage and endeavor to sell the property; and that its acts in those respects should be without prejudice to, or the waiver of, the rights or defenses of any party.Pursuant to the stipulation the successor trustee acquired the farm on September 14, 1928, and held it seven years without being able to sell it or secure sufficient income to meet the carrying charges.In 1933, counsel for the successor trustee indicated a willingness to submit to the latter an offer of $3500 for release of the parties herein, but defendant's counsel refused to approve the making of such offer or any offer, or to make any contribution to a settlement.In 1935 the successor trustee notified the plaintiff herein that unless the liability to the trust estate was adjusted, it would take judgment in the action above mentioned, commenced in September 1926, and in that connection the successor trustee offered to settle the action upon the payment of $3500 and the release by the defendant of any claim against the Cushman farm, or the payment of $4000 and the deeding of the Cushman farm to the plaintiff or its nominee.Upon being notified of that demand, defendant's counsel advised the plaintiff's representative that he would advise his client to deny liability and not contribute to any offer in settlement.Thereupon the plaintiff herein elected to pay and paid $4000 on July 24, 1936, to the successor trustee for a deed to the farm, upon which it finally succeeded in realizing $500 on a sale, and consequently sustained a loss of $3500.That amount the plaintiff seeks to recover herein with interest from July 24, 1936, and also $325, which it paid for legal expenses in the action brought against the parties herein by the successor trustee, and which it alleges the defendant agreed in its application for the bond to pay in the event of suit upon the bond.The plaintiff also alleged in its amended complaint that the Cushman mortgage was never a proper investment for trust funds under the statutes of 1915 or any year thereafter because the value of the mortgaged premises was less at all times than twice the amount of the loan secured thereby; that the defendant was negligent in accepting the mortgage as a trust fund investment in the first...