Williams v. Hitchcock

• Decision Date: 11 August 1915
• Docket Number: 12276.
• Citation: 86 Wash. 536,150 P. 1143
• Parties: WILLIAMS v. HITCHCOCK et al.
• Court: Washington Supreme Court

150 P. 1143

86 Wash. 536

WILLIAMS v. HITCHCOCK et al.

No. 12276.

Supreme Court of Washington

August 11, 1915

Department 2. Appeal from Superior Court, Clallam County; J. M. Ralston Judge.

Action by C. M. Williams against George C. Hitchcock and others. From a judgment against defendants W. H. Peter individually and F. S. Thorp and Eva J. Thorp individually and against the marital community composed of Thorp and wife, they and the plaintiff appeal. Remanded, with direction to modify.

Van Dyke & Thomas, of Seattle, for appellants.

Cochran & Plummer and Jas. W. Redden, all of Port Angeles, for respondents.

ELLIS J.

The plaintiff brought this action to recover from Hitchcock, as principal, and Peter and Thorp and the marital communities consisting of Peter and wife and Thorp and wife, as sureties on a receiver's bond. The circumstances leading up to the receivership are as follows: The defendants Peter and Thorp, prior to 1901, were partners engaged in an insurance, real estate and law business at Ballard. In May, 1901, they took one Jasperson as a third member of the partnership. He kept the books and acted as cashier. In 1905 the profits of the business having fallen off, Thorp withdrew from the firm, and Peter and Jasperson incorporated the business under the name of W. H. Peter & Co., with a capital stock of 500 shares of a par value of $100 each. Peter owned one half of the stock and Jasperson the other half. It appears that some time later Peter and Thorp became satisfied that Jasperson, prior to the dissolution of the partnership, had appropriated a large part of the profits to his own use. Thereupon they brought an action in the superior court of King county against Jasperson and wife and certain of his relatives for an accounting. The corporation was made a party to that suit and, at the instance of Peter and Thorp, Hitchcock was appointed receiver of the corporation pendente lite. His bond as receiver was fixed at $5,000. He qualified as receiver and filed a bond, which, omitting caption and justification of sureties, reads as follows:

'Know all men by these presents: That George C. Hitchcock, receiver of Peter & Co., a corporation and W. H. Peter and _____ Peter his wife and F. S. Thorp and Eva J. Thorp, his wife, are held and firmly bound unto the defendants and the state of Washington in the sum of five thousand dollars ($5,000) lawful money of the United States of America, to be paid to the said defendants and the state of Washington its successors and executors, administrators or assigns, for which payment well and truly to be made we bind ourselves our heirs, executors and administrators jointly severally and firmly by these presents. Sealed with our seals and dated the 28th day of February one thousand nine hundred and eight.

'The condition of the above obligation is such, that if the above bounden George C. Hitchcock as receiver of W. H. Peter & Co., a corporation shall well and faithfully perform the duties of his said office and perform all orders of the court concerning said receivership then the above obligation to be void; otherwise to remain in full force and virtue.

'In testimony whereof we have hereunto set our hands and seals this 28th day of February A. D. 1908.

'George C. Hitchcock. [Seal.]

'W. H. Peter. [Seal.]

'F. S. Thorp. [Seal.]

'Eva J. Thorp. [Seal.]'

The bond was filed February 29, 1908. On November 2, 1909, upon the final hearing in that action the court held that the claims of Thorp and Peter against Jasperson on account of matters arising in connection with the former partnership were separate and distinct from the claims of Peter against Jasperson as an officer of the corporation, and therefore entered a decree dismissing Thorp as plaintiff because he had no interest in the corporation and dismissing the claims of Peter so far as they related to the former partnership, but making the receivership permanent, and, with the consent of all the parties who had appeared in the action, adopted the original bond given by the receiver as his bond as permanent receiver. During the progress of the receivership the plaintiff in this action, C. M. Williams, and Charles F. Zeigler and B. F. Carpenter obtained three separate judgments against W. H. Peter & Co., a corporation, and against its receiver. These judgments were only partially paid when the assets of the corporation were exhausted and the court found that the receiver had made improper use of funds sufficient to have paid these judgments in full. Thereafter Williams, for himself and as assignee of the Carpenter and Zeigler judgments, having first obtained leave in the receivership proceedings, brought this action to recover on the receiver's bond. The case was tried to the court without a jury. The court made findings in favor of the plaintiff as against all of the defendants, except Amy V. Peter and the marital community composed of W. H. Peter and Amy V. Peter, and rendered judgment against W. H. Peter individually and F. S. Thorp and Eva J. Thorp individually, and against the marital community composed of Thorp and wife. Both parties appealed.

The defendants urge a reversal on the ground that the evidence shows that at the time the receivership bond was signed by the defendants, Jasperson, the principal defendant in the suit in which the receiver was appointed, and the attorneys for all the other defendants except the corporation W. H. Peter & Co. were present; that it was then agreed and understood that the bond was not to be delivered or filed until Amy V. Peter had also signed it as surety; that the bond was delivered to the receiver, Hitchcock, with that understanding, and that he, without securing the signature of Amy V. Peter, filed it as his bond as receiver without the knowledge or consent of any of these defendants.

The plaintiff in his appeal urges that the court erred in refusing to enter a judgment against the community consisting of W. H. Peter and Amy V. Peter. We shall first address ourselves to the question raised by the defendants' appeal. To avoid confusion we shall designate the parties throughout as plaintiff and defendants.

1. The authorities are practically uniform that where one signs a bond as surety upon condition that others are to sign it also, and it is delivered without his consent and without the additional signatures, it cannot be enforced against the person who signed, if the obligee had actual or implied notice of the condition, unless the condition be subsequently dispensed with by the one who signed. 1 Brandt, Suretyship & Guaranty (3d Ed.) § 450; Seattle v. Griffith Banking & Realty Co., 28 Wash. 605, 68 P. 1036; Seattle National Bank v. Becker, 74 Wash. 431, 133 P. 613; Young v. Smith, 14 Wash. 565, 45 P. 45; Pawling v. United States, 4 Cranch, 218, 2 L.Ed. 601.

It is also generally held that the fact that the names of other persons than of those who sign are found in the body of the bond shows prima facie that the contract is not complete, and is hence sufficient to put the obligee upon inquiry and charge him with notice that those who signed may have done so only on condition that the other parties named therein would also sign it, thus opening the door to extrinsic evidence of that fact. 1 Brandt, Suretyship & Guaranty (3d Ed.) § 461; Young v. Union Savings Bank & Trust Co., 23 Wash. 360, 366, 63 P. 247; Sharp v. United States, 4 Watts (Pa.) 21, 28 Am. Dec. 676, and note, p. 679.

Some of the foregoing authorities, and many others which might be cited, hold that when a bond containing in its body names of others than the signers is delivered to the principal named therein, with the understanding that he is to secure the signatures of such others as additional sureties before delivery, the delivery to him is an escrow; that if he deliver the bond without securing the other signatures, his delivery is void as to those who actually signed as sureties on that condition, and that these can defeat all liability on the bond by proof of the facts.

While the foregoing principles are too well established as general rules to be open to question as between the sureties and the obligee, it will be noted that they have usually been invoked against an obligee who in the nature of the case would be expected to see the bond when it was delivered and would hence be charged with notice of its condition. It seems to us hardly consonant with justice to apply these rules to bonds given for the protection of persons not parties to the litigation at the time the bond was given, as is the case here touching the creditors of the corporation, whose rights would be left wholly unprotected because of defects in a bond which, under the circumstances they could hardly be expected to examine until the necessity to resort to it for protection had become imminent. Peter and Thorp themselves procured the appointment of the receiver primarily for their own benefit. They and Mrs. Thorp signed the bond and delivered it to the receiver, trusting him to secure the signature of Mrs. Peter before filing it, thus making injury to some one possible. They should be the ones to suffer the consequences of the receiver's breach of their confidence rather than visit it on the heads of creditors of the corporation who reposed no such confidence. It would seem to be a case for the application of the rule that where one of two innocent persons must suffer, he who made the injury possible should suffer it. The filing of the bond in its incomplete condition as a part of the record in the receivership proceeding is the only thing which could be held as charging the creditors with notice. But surely Peter and Thorp who were parties to the suit when the bond was filed and at whose instance the receiver was appointed ought, first of all,...