Title & Trust Co. v. United States Fidelity & Guaranty Co.

7 P.2d 805, 1 P.2d 1100, 138 Or. 467, 1931 Ore. LEXIS 232

• Court: Oregon Supreme Court
• Decided: June 18, 1931
• Status: Published

Opinions

KELLY, J.

It is urged that the written instrument set out in the foregoing statement of fact, being the instrument upon which this action is based, is insuffi cient to constitute a valid undertaking. Attention is called to the fact that no obligee is named. It is claimed that no penal sum is mentioned. It is also argued that no covenant is stated, and it is alleged that there was no consideration for its execution.

In accordance with the statutory rule, which prescribes that “for the proper construction of an instrument, the circumstances under which it was made, including the situation of the subject of the instrument, and of the parties to it, may also be shown, so that the judge be placed in the position of those whose language he is to interpret,!’ (Section 717, Or. L., Section 9-216, Oregon Code. 1930), the circumstances of the giving of this .undertaking were shown by introducing in evidence the record'in said suit. The learned trial judge was right in holding that the plaintiffs in the suit mentioned were the obligees. While there was no express promise to pay, nevertheless, the condition that, said undertaking would be void “if the defendants carry out any decrée which may be given against them not exceeding the sum of ten thousand dollars,” being a condition of defeasance, if not -performed, would render defendant herein liable thereon: Philbrook v. Burgess, 52 Me. 271. The dissolution of the temporary injunction constituted a consideration for the execution of said undertaking. .

There is no statutory provision in this state for the giving of an undertaking as a basis for an order dissolving an injunction-; but where-such an undertaking is voluntarily given, not being prohibited by statute nor contrary to public policy, it will be enforced as a common law obligation. This principle is supported by the following cases, although none of them is a case wherein a bond was given in considera tion of the dissolution of a temporary restraining order: Baker v. Bartol, 7 Cal. 551; Woodside v. Johnston, 5 Alaska 99; Barnes v. Brookman, 107 Ill. 317; American Exchange Bank v. Brenzinger, 10 Ohio Dec. 208 (8 Oh. N. P. 502); Cotton’s Guardian v. Wolf, 77 Ky. 238; Hoy v. Rogers, 20 Ky. 225; Brady v. Butts, 15 Ky. Law Rep. 127; Gayle v. Martin, 3 Ala. 593; Munter & Faber v. Reese, 61 Ala. 395; Lowe v. Southern Surety Co., 227 N. W. 78; Cavender v. Ward, 28 S. C. 470 (6 S. E. 302); McNerney v. Downs, 92 Conn. 139 (101 Atl. 494), Palmer v. Vance, 13 Cal 553; Pay v. Shanks, 56 Ind. 554; Koch v. Costello, 93 N. J. Law 367 (108 Atl. 225); Emanuel v. McNeil, 87 N. J. Law 499 (94 A. 616); Pasternacki v. O’Reilly, 217 Mich. 56 (185 N. W. 739, 741); Archer v. Hart, 5 Fla. 234; McCarty v. Gordon, 4 Whart (Pa.) 321.

The trend of modern decisions in the construction of the law appertaining to sureties is to distinguish between .individual. and corporate suretyship where the latter is an. undertaking for a money consideration by a company chartered for the conduct of such business. The contract of' an individual surety, -or a “voluntary surety” as he is spoken of in some cases, will be strictly construed and all doubts and technicalities resolved in favor of the surety, such person being regarded as a favorite of the law; but an undertaking executed for a money consideration by a corporation adopting such, business for its own profit, will be construed most.' strongly against the surety and in favor of the indemnity which the obligee has reasonable grounds to expect: 21 R. C. L. 1160, section 200, citing American Surety Co. v. Pauly, 170 U. S. 133 (18 S. Ct. 552, 42 L. Ed. 977); United States Fidelity, Etc., Co. v. United States, 191 U. S. 416 (24 S. Ct. 142, 48 L. Ed. 242); United States v. American Surety Co., 200 U. S. 197 (26 S. Ct. 168, 50 L. Ed. 437); United States v. Bayly, 39 App. Cas. (D. C.) 105 (41 L. R. A. (N. S.) 422); Clark County School Dist. No. 1 v. McCurley, 92 Kan. 53 (142 P. 1077, Ann. Cas. 1916B, 238 and note); Standard. Asphalt & Rubber Co. v. Texas Bldg. Co., 99 Kan. 567 (162 P. 299, L. R. A. 1917C, 490); Champion Ice Mfg., Etc., Co. v. American Bonding, Etc., Co., 115 Ky. 863 (75 S. W. 197, 103 Am. St. Rep. 356); Victor Lumber Co. v. Wells, 139 La. 500 (71 So. 781, L. R. A. 1916E, 1110, Ann. Cas. 1917E, 1083); Tarboro Bank v. Fidelity Etc., Co., 126 N. C. 320 (35 S. E. 588, Id. 128 N. C. 366, 38 S. E. 908, 83 Am. St. Rep. 682); Cowles v. United States Fidelity, Etc., 32 Wash. 120 (72 P. 1032, 98 Am. St. Rep. 838 and note). Note: Ann. Cas. 1912B, 1087.

And in general, as the contract of surety companies are essentially contracts of indemnity, the courts ordinarily apply to them by analogy the rules of construction applicable to contracts of insurance.

Hence in an action on a bond written by a surety company, if the bond is fairly open to two constructions, one which will uphold and the other defeat the claim of the insured, that which is most favorable to the insured will be adopted: Empire State Surety Co. v. Lindenmeier, 54 Colo. 497 (121 P. 437, Ann. Cas. 1914C, 1189); American Surety Co. of N. Y. v. Pangburn, 182 Ind. 116 (105 N. E. 769, Ann. Cas. 1916E, 1126 and note); VanBuren County v. American Surety Co., 137 Iowa 490 (115 N. W. 24, 126 Am. St. Rep. 290); Chicago Lumber Co. v. Douglas, 89 Kan. 308 (131 P. 563, 44 L. R. A. (N. S.) 843); Hormel v. American Bonding Co., 112 Minn. 288 (128 N. W. 12, 33 L. R. A. (N. S.) 513, and note); People v. Metropolitan Surety Co., 205 N. Y. 135 (98 N. E. 412, Ann. Cas. 1913D, 1180); Tarboro Bank v. Fidelity Etc., Co., supra; Cowles v. United States Fidelity, Etc., Co., supra; American Surety Co. v. Pauly, supra; State v. Blanchard Constr. Co., 91 Kan. 74 (136 P. 905, Ann. Cas. 1915C, 192).

The doctrine of the authorities just cited distinguishes the eases cited by defendant wherein written instruments similar to the one in suit were held to be insufficient as bonds. They are cases wherein individuals are sought to be held as sureties. The case at bar is one wherein the defendant is a company chartered for the conduct of the business of suretyship for profit. By a strict construction, the undertaking in suit might be deemed to be conditional only upon the entry of a decree in said suit not exceeding the sum of ten thousand dollars and the failure of the defendants therein to comply therewith; but applying the more liberal construction, in the interest of the obligees, we hold that the failure of said defendants to comply with the decree, no matter in what amount, constitutes a breach of the terms of said undertaking.

It is stated in defendant’s reply brief, in effect, that the record is devoid of any testimony to show that The E. Henry Wemme Company “did not own sufficient funds to make such trust fund.”

On this point, Mr. B. G. Smith, testified as follows:

“Q. Have you been able to accumulate any of that fund as provided for in the decree?

“A. No. The United States Fidelity & Guaranty Company refuses to pay any part of it and The E. Henry Wemme Company had no assets that we could recover from and no property; a demand was made on The E. Henry Wemme Company and they refused to pay anything. ’ ’

This testimony is uncontradicted.

We are not concerned with the irregularities alleged by defendant to have attended the rendition of the decree in said suit, because, with reference thereto, this is a collateral proceeding.

The effect of limiting the guaranty to ten thousand dollars is to restrict recovery thereon to a sum not in excess of that amount.

Having concluded that there is a valid and enforceable undertaking, and a breach thereof, we are confronted with the question of whether plaintiff herein may recover thereon. This brings us to a consideration of the terms of the will of E. Henry Wemme. This will contained bequests payable monthly during the natural lives of the legatees. It directed that the payments thereof be made-by The E. Henry Wemme Company. For a time such payments were made by said company. The will also provided that The E. Henry Wemme Company should' be the residuary legatee and devisee of said estate. In this way a trust was created. The E. Henry Wemme Company became trustee, and accepted that office under the terms set forth in the will. Sometime before the institution of the suit in question, The E. Henry Wemme Company refused to act further in the premises. This justified the institution of the suit and the action taken by the court of equity having for its object the execution of said trust. 39 Cyc. 320, note 39, citing Cullam v. Mobile Branch Bank, 23 Ala. 797; Duncan v. Simmons, 2 Stew. & P. (Ala.) 356; Prince v. Barrow, 120 Ga. 810 (48 S. E. 412); Green v. Louisville Fidelity Trust Co., (1909) 134 Ky. 311 (120 S. W. 283, 20 Ann. Cas. 861); Cutter v. Burroughs, 100 Me. 379 (61 Atl. 767); Burroughs v. Gaither, 66 Md. 171 (7 Atl. 243); Babbitt v. Babbitt, 26 N. J. Eq. 44; Schultz v. Blackford, 9 Lea. (Tenn.) 431; Johnson v. Roland, 2 Baxt. (Tenn.) 203; Saunders v. Harris, 1 Head. (Tenn.) 185; Colton v. Colton, 127 U. S. 300 (8 S. Ct. 1164, 32 L. Ed. 138); Batesville Inst. v. Kauffman, 18 Wall. 151 (21 L. Ed. 775).

To this end, plaintiff was appointed trustee and, among other things, expressly authorized by the court of equity to institute action upon any undertaking given in said suit. Bearing in mind that this authority was given in a suit wherein Hattie E. Miller and Mamie Karlan were plaintiffs, at their instance and for their protection, it cannot be successfully argued that they would not be bound by the result of this action as completely as if it had been instituted by them personally.

As to the appeal prosecuted by defendant, it remains only to dispose of the question of the proper measure of damages herein. The measure of compensatory damages for breach of a bond is determined by the principles applicable to contracts generally. The object to be attained is to reimburse the obligee for actual damages sustained not in excess of the amount limited in the undertaking. Applying that rule, the measure of damages in this case would be the value of the bequests given to Hattie E. Miller and Mamie Karlan at the time of the trial of this action, but not in excess of ten thousand dollars.

The creation of a trust fund by the equity court, no matter in what amount, could neither augment nor diminish the amount of the loss sustained by the legatees in failing to receive the payments provided for in said will.

In the testimony, we cannot find any statement of the respective ages of these two .ladies. Hence, there appears to be nothing in the record upon which the judgment of ten thousand dollars entered herein can be supported. The trial court adopted the value of the trust fund created by the decree in equity as the measure of damages, restricting recovery, however, to the amount limited in the undertaking. Except in reference to the matter of interest accruing after demand upon an adjudicated liability, the maximum recovery is represented by the limitation expressed in the undertaking; but treating the value of the trust fund as the measure of damages was error and leads to a reversal of the case.

The question necessarily arises whether the amount recoverable should be limited to the aggregate amount of the unpaid installments of said legacies due at the time of the retrial, or whether consideration should be given to an award for loss of prospective installments. Owing to the form of the undertaking, only one recovery may be had; and, in consonance with justice and fair dealing, the award should include, not only the amount due and unpaid upon said legacies at the time of the retrial, but also an amount representing the current value of future installments, of which the legatees will be deprived by the default of The E. Henry Wemme Company in failing to carry out the terms of said decree: Philbrook v. Burgess, supra; Shaffer v. Lee, 8 Barb. (N. Y.) 412.

The plaintiff has prosecuted a cross-appeal herein, claiming that the trial court erred in failing to award interest upon the amount for which judgment was rendered from January 1, 1929, being the approximate date of an alleged demand upon defendant by plaintiff, and also urging that the trial court erred in refusing to give plaintiff judgment for one thousand dollars as a reasonable attorney’s fee.

In making this claim for interest, plaintiff invokes the statutory rule that interest shall be payable on all moneys after the same become due: Section 57-1201, Oregon Code 1930. if the amount of the trust fund were the measure of defendant’s liability, this rule might be applicable; but, as above stated, the amount of the trust fund is not the measure of damages, and, until the amount of plaintiff’s loss has been determined and at least a demand made therefor, defendant cannot be charged with interest thereupon.

As to the matter of an attorney’s fee, if we apply section 46-134, Oregon Code 1930, to the instant case, we must determine whether there is any testimony tending to show that proof of loss as therein required was filed with defendant. There is no such testimony. At most, there was only a demand for the payment of ten thousand dollars, and a refusal to pay any part of it. In no sense could this be deemed proof of the value of the legacies, nor does a refusal to pay any part of the trust fund operate as an estoppel against requiring the statutory proof of the loss actually sustained. Moreover, no estoppel is pleaded.

In this connection, it will be noted that the complaint herein does not present a demand based upon loss of the value of said legacies. Paragraph II of defendant’s second, further and separate answer and defense tenders that issue.

Reversed and remanded.

Bean, C. J., Rand and Rossman, JJ., concur. Chester A. Sheppard, of Portland (Sheppard, Phillips & Ralston and R. B. Nason, all of Portland, on the brief), for appellant. Robert C. Smith, of Portland (Roscoe P. Hurst, of Portland, on the brief), for respondent.'