United States Fidelity & Guaranty Co. v. McGinnis' Administrator

145 S.W. 1112, 147 Ky. 781, 1912 Ky. LEXIS 358

Opinion

Opinion op the Court by

William Rogers Clay, Commissioner —

Reversing.

On September 21, 1907, J. R. Fears was appointed Master Commissioner of the Henry Circuit Court.' On September 24, 1907, lie executed bond with appellant, United States Fidelity & Guaranty Co., as surety. Tbis bond was executed on behalf of appellant by Thos. S. Dugan, of Louisville, Ky., its general agent. On October 7, 1908, Fears executed another bond with appellant as surety. This bond was also executed on behalf of appellant by Thos. S. Dugan. On September 28, 1909, Fears executed a third bond as commissioner, with appellant as surety. This bond was executed on behalf of appellant by E. H. Smith and W- W. Turner, pursuant to power of attorney on record in the Henry County Clerk’s office. In addition to the. foregoing bonds, signed by appellant as surety,' i't‘ appears that on September 21, 1908, Fears executed-a bond as-commissioner with I. W. McGinnis as surety. .

.Fears failed to pay over to divers persons - entitled thereto certain sums which came into his hands-as com missioner. The parties brought suit against appellant and obtained judgment for the respective amounts due them. These amounts appellant paid. They aggregated the sum of $1,689.59. The defalcations occurred after McGinnis became Fears’ surety.

Appellant brought this action .against appellee to recover contribution to the extent of one-half of said sum. Subsequently McGinnis died, and the action was revived against his administrator. McGinnis defended on two grounds,- first, that it was agreed between him and appellant’s agént that he should go on Fears’ bond temporarily, for the purpose of giving appellant an opportunity to execute another bond, and that upon the execution of the latter bond, he should be released from all liability. Second, that as appellant executed three bonds, and appellee only one, appellee, under no circumstances, should be made liable for a greater sum than one-fourth of the amount of the defalcation. Upon a final hearing, the chancellor dismissed the petition. From that judgment, this appeal is prosecuted.

The record discloses that the appellant is a surety company, engaged in the business of making bonds for judicial and other "State and county offices for compensation. It has been engaged in business in the. State of Kentucky and in Henry County for many years. E. H. Smith was its local agent, and solicited bonds in Henry and other counties in Kentucky. He, together with "W! W. Turner, had from appellant a. power of attorney, executed on October 15, 1902, authorizing them to act as its true and lawful attorneys in and for the county of Henry, in the State of Kentucky, for the following purposes, to-wit:

“To sign its name as surety to and execute, acknowledge, justify upon and deliver any and all stipulations, bonds and undertakings given or required in any 'judicial action or proceedings brought or pending within the aforesaid counties of the said State, or in any judicial action or proceedings over which a United States Court shall exercise jurisdiction.

“It being the intention of this power of attorney'to fully authorize and empower the said E. H. Smith, tOigether with the said W. W. Turner, to sign the name of said' company and affix its corporate seál as. surety to any or all of said stipulations, bonds and undertakings, and thereby to lawfully bind it as fully and to all intents and purposes as if done by the duly authorized officers ' of said company with the seal of the said company there.to affixed, and the said company ratifies and confirms all and whatsoever the said E- H. Smith, together with the said W. W. Turner, may lawfully do in the premises by virtue of these presents.”

' ■ E. H. Smith made- arrangements with Fears for the "execution of all three of the bonds given during Fears’ ‘term as Commissidher. of the Henry Circuit Court. Before, the execution of the bond executed by appellant in September, 1907, Fears prepared his renewal bond and gave it to E. H. Smith'. Smith sent it to Thos. S'. Dugan, the general agent, at Louisville, Ky. At the preceding session of the Legislature, an act was passed requiring a specific penalty to be. riaméd in the bond. (Kentucky Statutes, section 186d.)' .Dugan held up the .bond.until 'this could be arranged! ' This change , in the bond necessitated some delay: During the delay Fears became unieasy, and applied to appéllee. to go on his. bond.

Appellee, I. W!'McGinnis, who gave his deposition shortly before his death,.'testifies that there, was sohie' delay about the. indemnity bond, and Fears came to him and asked him to go. on the bond .temporarily. He then saw E. H. Smith, appellant’s local agent, and Smith told him there would be no. trouble about it, as he would be liable only until- the either bond was executed, and he ‘Would then be released from- all liability.' The agree‘ment between him and Smith was that he should be released by Judge Marshall as' soon as the indemnity bond .was executed. Had it not been for this agreement, he would not have gone on Fears’ bond. His understanding was that Judge Marshall required Fears to.execute the bond, and would not wait until the,return of the bond proposed to be given by appellant. He had no knowledge of these facts, but obtained the information from Fears. Judge, Marshall did notenter any order Releasing him from liability, though he understood this 'Would bé done. Afterwards, witness wrote .to. Judge Marshall, but Judge Marshall declined to enter an .order releasing him. . • . . •

. . . ( \ Fears testifies; tKatJudge Marshall did not require him to execute another bond. Witness himself- took, the matter up with Judge Marshall. While.the proper bond was.being prepared by appellant, he .approached Dr. McGinnis and asked him to go. on his bond temporarily. So far as lie knew, the only authority Smith had to execute- bonds was a power, of attorney on record in the 'Henry County. Clerk’s office, which he procured and 'filed with his deposition. All the bonds which he gave as commissioner were.executed by Thos. S. Dugan, with the .exception of the last one, which was executed by E. H. Smith and W. W~. Turner. He paid to the company $40 for the execution of each” of these bonds.

E. H. Smith, appellant’s agent, testified that he had occupied that relation for about ten years, and was still its agent at the time he testified. He solicited bonds in other comities besides Henry. He arranged with. 'Hears for the execution pf the various bonds upon which appellant was snfety. Witness then detailed the circumstances connected’, with the delay in the bond executed ;pn. October 7, 1908. While claiming to have made no agreement with'’McGinnis to that, effect, witness admits 'that it was . his’understanding that, the bond executed :b'y McGinnis wns to be.in effect only until the bond was executed by1’appellant.. There. was• no understanding, however, bétwehíi him and the company to this ef'f’pct. So far as . he knew, the company never had any 'knowledge that 1.'. W. -..McGinnis had executed the bond. He believed that When the company renewed the bond, I. W. McGinnjs; would be released. After he heard of the defalcation/ he1 ..'s'e’nt for McGinnis, and told him that he was still on the bond1, and asked him to write to Judge Marshall for, his release. McGinnis was not-well, at the time, and witness dictated, the letter. The only authority he had to act for appellant was the power. of attorney to execute bonds in judicial proceedings. In the case of all other .bonds, he had to obtain a special power of httorney. Witness 'filed with his .deposition a special power ■ of attorney from appellant, authorizing him to sign appellant’s name and affix its corporate seal to a bond .executed by the,¿ouhty superintendent of schools.

Dr. A.' G, Elfist'on/ who qualified as administrator of I, W, McGinnis,testified that Smith.admitted to him that Dr. McGinnis Was "on Fears ’ bond only temporarily, and that- he,. Smith, told Dr. McGinnis; prior to the execution of the bond.that McGinnis would be on the bond only fc.r a few days, and. would be'released from all liability upon the execution of'a proper bond by appellant.

, Conceding; that, there is sufficient evidence to show that Smith, appellant’s ágent, agreed .'with Dr. McGin nis before tbe Doctor became surety for Fears, that the Doctor should be liable only temporarily; that is, until a proper bond was executed by appellant, and that upon the execution on the latter bond, Dr. McGinnis would be released from all further liability, the question still remains: Was it within the actual or apparent scope of Smith’s authority to make and bind appellant by such agreement?

In the first place, it is proper to say that the evidence discloses the fact that appellant not only did not ratify the agreement alleged to have been made by Smith with Dr. McGinnis, but had no knowledge of the fact that Dr. McGinnis was on Fears’bond. That being true, the question of ratification is eliminated from the case.

There is no evidence tending to show that appellant held Smith out as having authority to make the kind agreement referred to,, nor is there any evidence of his ever having made' the same or similár agreements with other parties, with the knowledge and acquiescence appellant. While it is true that the authority of an agent must be' determined by the nature of his business and the apparent scope of his employment, and can not be narrowed by private and undisclosed instructions,’ this rule does not appear where the nature óf the business the circumstances of the ease, are such as to indicate that the agent is acting under special instructions or .limited, power. . . • •

By section 482, of the Kentucky Statutes, it isr provided that no person. shall, be bound as the surety of another by the' act of án agent unless the authority of. the iagent is in writing, signed by the principal. This see: tion is held to apply to private and official obligations. First National Bank v. Gaines, 87 Ky., 507. Dr. Mcr 'Ginnis was charged with knowledge of this law. Kn’ow: ing that Smith was .the. agent for the surety company, .this was sufficient to indicate to him that his’ authority .fo act was in writing, and imposed upon him the duty of inquiring into the powers conferred upon Smith. Furthermore, Smith .. acted under a power of attorney. This ■ power of attorney was a recordable instrument, and. was of record. It follows, therefore,, that Dr. Mc-Ginnis was charged..with notice of Smith’s powers.. 1‡ is the law that a formal instrument conferring authority will be-strictly construed, and can be held to include only those powers which are plainly given, and those which are necessary, essential and proper to carry out those expressly given. It will he presumed that the principal, in conferring a power intended to confer with it the right to do those things without the object contemplated could not be accomplished, but beyond this the authority will not be extended by construction. Mechem on Agency, section 308.

In Craighead v. Peterson, 72 N. Y., 279, the rule is thus stated:

“A formal instrument delegating powers is ordinarily subjected to strict interpretation, and the authority is not extended beyond that which is given in terms, or which is necessary to carry into effect that which is expressly given. They are not subject to that liberal interpretation which is given to less formal instruments, as letters of instruction, etc., in commercial transactions which are interpreted most strongly against the writer, especially when they are susceptible of two interpretations, and the agent has acted in good faith upon one of such interpretations.”

In Harris v. Johnston (Minn.), 40 Am. St. Rep., 312, the court held that a formal instrument conferring authority upon an agent will be- strictly construed, and will only include such powers as are necessary and essential to carry into effect those which are expressed.

In Gouldy v. Metcalf (Tex.), 16 Am. St. Rep., 912, the rule is thus stated:

“Authority conferred by power of attorney will be construed strictly, so as to exclude the exercise of any power which is not warranted either by the actual terms used, or the necessary means of executing the authority with effect.”

To the same effect is the case of Gilbert v. How (Minn.), 22 Am. St. Rep., 724; Frost v. Erath Cattle Co. (Tex.), 26 Am. St. Rep., 831; Penfold v. Warner (Mich.), 35 Am. St. Rep., 591. It is also held that powers of attorney delegating authority to perform specific acts, and also containing general words, are limited to the particular acts authorized. Gouldy v. Metcalf (Tex.), 16 Am. St. Rep., 912; Frost v. Erath Cattle Co. (Tex.), 26 Am. St. Rep., 831. ■

Following the-rule' above stated, it is held thát -a power of attorney to sell and' convey real estate does not confer a power to mortgáge, and a mortgage executed under such a power-is void. ! Campbell v. Foster Home Ass’n. (Pa. St.), 43 Am.. St. Rep., 818; Minnesota Stoneware Co. v. McCrossen (Wis.), 84 Am. St. Rep., 927.

In Dugan v. Champion Coal & Towboat Co., 49 S. W., 958, 105 Ky., 821, it was held that a power of attorney executed by defendant, authorizing another to sign his name as surety to a bond for $6,000 in place of a bond for a like amount on which he was already surety, :but which was then barred by limitation, did not authorize the agent to execute a bond for the principal and accrued interest of the existing bond, amounting to $8,667; and a.bond for that amount executed by the agent was. void gs to the. surety..

, Bearing in mind the principles' .-'announced in the’ foregoing cases, we find that the-power'of 'attorney giveii by appellant to ’ E. 'H. Smith'simply authorized him, together with W. W. Turner, to sigh its name as surety and execute, acknowledge, justify' upon and deliver any and- all stipulations, bonds, undertakings given or reJ quired in,, any judicial action or proceedings, brought of pending in Henry County, or in ahy; - judicial action or proceedings over" which the United' States Court should exprcise - jurisdiction. Therefore, Smithes authority--i¿ limited. ■ The power to make the agreement with Dr. Me)1 Ginnis, which was relied upon as. a defense to this action, is neither expressly given, nór is- it ’necessary lo cárry into , effect the power 'to sign, execute and deliver the bonds and undertakings referred1 té:-To So hold wduld place a surety company at thé m'erey-'óíf'its' agent,'who. was authorized only to execute bonds in‘its name. If he could execute the agreement relied'on, then for a 'like reason and for a like consideration, he could agree with all- prior sureties'that they should "be released from' all liability upon the execution of. a bond" by his 'company thus imposing upon the compány a liability which-it never intended to assume, and did not authorize him to impose. Nor is the case made stronger, by the fact that Smith was authorized to solicit 'business in Henry arid adjoining counties from those desiring to execute bonds'; for the power to make an agreement with another person intending to go upon an official bond that he should be liablé only temporarily, and should fié released fiom all liability upon the execution of á bond by a- surety company, can not be implied from the mere power to solicit business. We, therefore, conclude that, the making of the agreement' in question was not within the actual or apparent .scope of Smith’s authority, and is not therefore, binding on appellant.

Nor is there any merit in appellee’s contention that he should be made liable for only one-fourth of the defalcation. The doctrine of contribution in equity among co-sureties is founded not so much on the implied promise by each, severally to each, to contribute his distributive ratio in the event of the inability of the principal, as on the equitable principle of distributing a common burthen equally among those who are able to bear it — a principle of justice and equality equally recognized by both the civil and the common .law. And in such a casé, if the liabilities be to the same party for the saíne principal, and to the same extent as-in this case, it ; js not-material, so far as the right of contribution is concerned, whether the sureties, were bound jointly or severally, or by the same or by distinct undertakings. Breckinridge v. Taylor, 5 Dana, 110.

' While appellant did execute three bonds, the two last bonds were merely cumulative, and did not add in the least to appellant’s liability. These bonds were executed simply because the statute requires them. Being liable upon one bond just as much as on three, we fail to see how the number of bonds éxecutéd by appellant, can in any way affect the question of contribution. Appellee' being a co-surety, and, therefore, equally bound with appellant, it follows..that appellant, which has paid the amount of the defalcation, is entitled to recover of appellee half of the stun so paid, with interest. Breckinridge v. Taylor, 5 Dana, 110; Bosley v. Taylor, 5 Dana, 157; Withers v. Hickman, 6 B. Mon., 292; Cobb v. Haynes, 8 B. Mon., 137; Elbert v. Jacoby, 8 Bush, 542; Ketler, et al. v. Thompson, 13 Bush, 288; Barker v. Boyd, 71 S. W., 528, 24 Ky. Law Rep., 1393.

While it is true that appellant is engaged in the business of furnishing bonds for compensation, and.did réceive compensation for the three bonds executed for it;' for Fears, while appellee went on Fears’ bond merely as a matter of accommodation, we conclude that' the question of contribution is not affected by the fact that one q£_ two co-sureties is a surety for compensation/ while the other is a surety for accommodation. Lewis Admr., et al. v. The United States Fidelity & Guaranty Co., et al., 144 Ky., 425.

Judgment reversed and cause remanded, with directions to enter judgment in conformity with this opinion.’