Tuzzeo v. . American Bonding Co. , 226 N.Y. 171 ( 1919 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The Code of Civil Procedure (Sec. 1915) provides: "A bond in a penal sum, executed within or without the State, and containing a condition to the effect, that it is to be void, upon performance of any act, has the same effect, for the purpose of maintaining an action or special proceeding, or two or more successive actions or special proceedings thereupon, as if it contained a covenant to pay the sum, or to perform the act specified in the condition thereof. But the damages to be recovered for a breach, or successive breaches, of the condition, cannot, in the aggregate, exceed the penal sum, except where the condition is for the payment of money; in which case, they cannot exceed the penal sum, with interest thereupon, from the time when the defendant made default in the performance of the condition."

The bond in this case is expressly limited to the payment of all damages, costs and expenses resulting from the default of the principals therein, not exceeding the sum of $15,000. It is expressly provided in said act of 1907 (Sec. 4) that "A suit to recover on a bond required to be filed under the provisions of this act may be brought by or upon the relation of any party aggrieved in a court of competent jurisdiction."

In Guffanti v. National Surety Company (196 N.Y. 452, 456), this court say: "The condition of the bond read in connection with section four of the act would seem to give a person who deposited money, which is subsequently embezzled, a right of action upon the bond in his individual capacity, but the bond is for the benefit of every person who deposits money with a corporation, firm or person named in the act, and where the facts require it the court will exercise its equitable powers to prevent the amount of the penalty thereof being paid to some of the persons defrauded to the exclusion of others equally entitled to payment therefrom."

In any form of contract where the amount to be paid thereby is subject to computation and the time of payment and the person or persons to whom the payments are to be made are certain and definite, interest is chargeable upon the amount found due thereon. (Bradley v. McDonald, 218 N.Y. 351, 389.)

Under the statute, pursuant to which the bond in question was given, it is contemplated, in case of a default, that a suit to recover on the bond may have to be instituted by or upon the relation of the party or parties aggrieved. In practical experience, a suit similar in form to that considered in theGuffanti case is necessary in nearly every case to determine the persons to whom the amount of the bond shall be paid and the amount to be paid to each.

When the principal makers of the bond in this case absconded, they were in default in their contract with the several persons who had deposited money with them for transmission to a foreign country. The default, however, from which interest is to be computed on the bond as against the defendant, is its own default or failure to pay the amount of the bond when it should have paid it. It does not appear that prior to the commencement of this action there was any person or persons to whom the defendant could have paid the amount of the bond in bulk. The liability of the surety arising from the default of the principals did not permit it to pay one or more of the persons defrauded to the exclusion of others equally entitled to payment from it. There are in this case a large number of claims and a limited fund out of which the aggregate recovery must be sought. Without a judgment of a court of equity the defendant was not obligated or even permitted except at its peril to divide and pay the amount of the bond among the persons named on or in the proportions shown by the books of the defaulters even if such books were accessible to it. To insist upon such a division would neither be fair to the defendant nor to the creditors of the defaulters. Many persons asserted claims against the defaulters and insisted that the defendant was liable therefor as surety on the bond. Some of such claims were rejected by the referee in this action and others to the number of four hundred and eighty-eight were accepted. The valid claims and the amount of each were unascertainable with certainty sufficient to compel or reasonably justify payment by the defendant as surety to the limited amount of the bond, except through the machinery of a court of equity.

In United States v. United States Fidelity GuarantyCompany (236 U.S. 512, 530) the court say: "Sureties, if answerable at all for interest beyond the amount of the penalty of the bond given by their principal, can only be held for such an amount as accrued from their own default in unjustly withholding payment after being notified of the default of the principal." The words quoted were the words of Justice CLIFFORD used at Circuit but they were repeated and approved by Justice PITNEY in the Fidelity Guaranty Company case. In this state a surety on a bond given pursuant to statute, like the bond under consideration, is chargeable with interest not from the default of the principal but from the time when he could have safely paid the same providing he then unjustly withholds it.

When the time has come for a surety to discharge his liability and he neglects or refuses to do so, it is reasonable and altogether just that he should compensate the creditors for the delay which he has interposed. (Brainard v. Jones, 18 N.Y. 35. )

In Hurley v. Tucker (128 App. Div. 580; affirmed, 198 N.Y. 534) it was held that an owner of real property who retained in his hands about $10,000, the amount unpaid on a contract for work done and material furnished thereon and against which real property mechanics' liens had been filed by various subcontractors, is not chargeable with interest thereon while the amount remains in his hands awaiting the decision of the court as to whom it should be paid if at no time he could have safely paid it over to the lienors. (American Surety Co. v. LawrencevilleCement Co., 110 Fed. Rep. 717; Laughlin Co. v. AmericanSurety Co., 114 Fed. Rep. 627.)

In the more recent case of Faber v. City of New York (222 N.Y. 255, 262) this court say: "The question of the allowance of interest on unliquidated damages has been a difficult one. The rule on this subject has been in evolution. To-day, however, it may be said that if a claim for damages represents a pecuniary loss, which may be ascertained with reasonable certainty as of a fixed day, then interest is allowable from that day. The test is not whether the demand is liquidated. Was the plaintiff entitled to a certain sum. Should the defendant have paid it. Could the latter have determined what was due, either by computations alone or or by computation in connection with established market values, or other generally recognized standards."

We do not think that the defendant in this case could have safely determined by any investigation and computation what distribution to have made of the amount of the bond without the aid of a decree of the court. When, however, this action was brought in equity to determine and apportion the liability of the defendant among the several creditors of the defaulters for the benefit of whom the bond herein was given, it was a demand for the payment thereof for such creditors, and there being no dispute about the default of the bankrupts in the transmission of money deposited with them and no substantial dispute that the amount of the default was in excess of the penalty of the bond, the defendant could properly and safely have paid the amount of the bond into court to be there distributed among those entitled thereto and thus be relieved from all further liability thereon. The allowance of interest is sometimes determined upon considerations of equity and natural justice. (Woerz v.Schumacher, 161 N.Y. 530; Brainard v. Jones, 18 N.Y. 35;Blun v. Mayer, 189 N.Y. 153, 158; Forschirm v. Mechanics Traders Bank of N.Y., 206 N.Y. 745, reversing a judgment on the dissenting opinion in S.C., 137 App. Div. 149.) As the defendant could have safely paid the amount of the bond into court as soon as this action was brought, considerations of equity and natural justice would seem to require that it should have done so or on failure so to do pay interest upon the amount of the bond from that time.

We are of the opinion that the defendant should be deemed in default on the bond for the purpose of charging it with interest as of the date of the commencement of this action. (See IllinoisSurety Company v. Davis Company, 244 U.S. 376.)

The judgment should be modified so as to include interest on the $15,000 from July 9, 1913, the day of the commencement of this action to the day of the entry of judgment, and as thus modified affirmed, without costs.

HISCOCK, Ch. J., HOGAN, CARDOZO, POUND, McLAUGHLIN and ANDREWS, JJ., concur.

Judgment accordingly.