State ex rel. Pasquotank County v. American Surety Co.

Clakkson, J.

Tbe court below rendered judgment against the defendant John L. Rogerson, administrator of Ernest L. Sawyer, deceased, for $59,811.81, with 12 per cent interest thereon from 9 April, 1929, from which judgment no appeal was taken. The defendant American Surety Company, alone appealed, so we consider only the question presented by defendant American Surety Company.

(1) Is this action barred by the statute of limitations as to the bond, executed by the deceased clerk and his surety, covering the period from 5 December, 1921, to 4 December, 1922, inclusive?

The American Surety Company, frankly in its brief states: “The one question upon this point is whether the six-year statute (C. S., 439), or the three-year statute (0. S., 441(9), providing for relief on the ground of fraud or mistake is applicable. To state the question more specifically — is the instant case controlled by S. v. Gant, ante, 211?” We think the action is controlled by the Gant case, supra.

The defendant contends: “In the Gant case, supra, it appeared that the defendant, clerk, had not only misapplied moneys received by virtue or color of his office, to wit, certain pension funds, but that by systematized forgeries and false entries in his records he had both obtained the funds and concealed their misapplication. Upon the facts in the Gant case, as stated in the Court’s opinion, a thorough investigation of his office, at any time until just before the suit was instituted, would have failed to disclose the slightest irregularity. It required an accident to discover his long continued misapplications. In the instant case the converse is true. It appears from the case on appeal that ‘There was evidence tending to show that clerk Sawyer kept records showing the correct amount and balance of moneys due the various funds and parties, and bank accounts showing the correct amount which he had on deposit in the various institutions, and records of his bank deposits, and that the various notes and securities referred to in the referee’s report aggregating $55,378.08, were kept by him in a pouch in his office in a vault.’ There was no evidence to the contrary. This is shown by the further statement in the case on appeal, to wit: ‘This case on appeal contains all of the evidence offered by all parties bearing upon the statute of limitations.’ ”

But it also appears from the case on appeal that “There was no evidence to show any report made by the clerk Sawyer to the county commissioners or to their predecessors in office at any time during his-incumbency in which, any mention whatsoever was made of these funds and particularly none in which any mention was made either of the receivership funds or the so called special funds like the 'Wadsworth, Jenkins, Pendleton and Hewitt funds. There was no evidence whatsoever of any report made by clerk Sawyer to the county commissioners at any time during his incumbency or to any Superior Court judge in which any of the so called investments referred to in the referee’s findings were listed or reported. There was no evidence tending to show any report whatsoever by said clerk to a judge of the Superior Court in accordance with Bule 13 of the Superior Court. There was no evidence whatsoever of any order made at any time specifically authorizing any or either of the so called investments. There was no evidence whatsoever of any authorization by any judge or any board of commissioners or anyone else in authority for the mixture of these funds. There was evidence tending to show a mixture of the funds by said clerk through investments in the so called securities, and evidence tending to show that as a result of the clerk’s action in so mixing them it is impossible to allocate the investments or any of them to any particular fund or funds, and this is true even of those which were made payable to him as clerk Superior Court and of those which were made payable to him as receiver. That some of these so called investments were made payable to the clerk individually, or to bearer.”

C. S., 956, is as follows: "On the first Monday in December of each and every year, or oftener, if required by order of the board of commissioners or any other lawful authority, clerics of the Superior Courts’ shall make an annual report of all public funds which may be in their hands. The report shall be made to the- board of county commissioners and addressed to the chairman thereof. It shall give an itemized statement of said funds so held, the date and source from which they were received, the person to whom due, how invested and where, in whose name deposited, the date of any certificate of deposit, the rate of interest the same is drawing, and other evidence of investment of said fund; and it shall include statement of all funds in their hands by virtue or color of their office, and which may belong to persons or corporations. The report shall be subscribed and verified by the oath of the party making it before any person allowed to administer oaths.” (Italics ours.)

Rules of Practice in the Superior Court, 200 N. C., at p. 845: “(13) Every clerk of the Superior Court, and every commissioner appointed by such court, who, by virtue or under color of any order, judgment, or decree of the court in any action or proceeding pending in it, has received or shall receive any money or security for money, to be kept or invested for the benefit of any party to sucb action, or of any other person, shall, at the term of such court held on or next after the first day of January in each year, report to the judge a statement of said fund, setting forth the title and number of the action, and the term of the court at which the order or orders under which the officer professes to act were made, the amount and character of the investment, and the security for the same, and his opinion as to the sufficiency of the security. In every report, after the first, he shall set forth any change made in the amount or character of the investment since the last report, and every payment made to any person entitled thereto. The report by the next preceding paragraph shall be made to the judge of the Superior Court holding the first term of the court in each and every year, who shall examine it, or cause it to be examined, and, if found correct, and so certified by him, it shall be entered by the clerk upon his book of accounts of guardians and other fiduciaries.”

The law above set forth, C. S., 956, requires a report from the clerk in detail on the first Monday in December of each and every year (or of tener, if required by order of the board of commissioners) — an open hand; and to the same effect is Rule 13, supra. The record discloses contrary to the statute and rule — a closed hand — “a mixture of the funds” and as a result “It is impossible to allocate the investment,” etc.

In Ewbank v. Lyman, 170 N. C., at p. 508, citing numerous authorities, the following principle is stated: “Under authoritative decisions here and elsewhere construing this and similar statutes, it has been very generally held that these words, ‘The action not to be deemed to have accrued until the discovery of the facts constituting the fraud,’ etc., by correct interpretation mean until the impeaching facts were known or should have been discovered in the exercise of reasonable business prudence.” Sanderlin v. Cross, 172 N. C., 234; Latham v. Latham, 184 N. C., 55.

The matter is fully discussed in S. v. Gant, 200 N. C., at pp. 226, 7, 8, 9.

O. S., 934, is as follows: “At every regular term of the Superior Court for the trial of criminal cases the solicitor for the judicial district shall inspect the office of the clerk and report to the court in writing. If any solicitor fails or neglects to perform the duty hereby imposed on him, he is liable to a penalty of one hundred dollars to any person who sues for the same.” Defendant cites the above statute.

The negligence of others in the nonperformance of duty did not relieve the defendant clerk of his duty. Again, a clerk is an insurer.

“In Smith v. Patton, 131 N. C., at p. 397, we find: ‘It is settled in this State that the bond of a public officer is liable for money that comes into bis bands as an insurer, and not merely for tbe exercise of good faitb. . . . (Citing authorities.) Bonds of administrators, executors, guardians, etc., only guarantee good faith citing authorities. Marshall v. Kemp, 190 N. C., at p. 493; Gilmore v. Walker, 195 N. C., at p. 464; Indemnity Co. v. Corp. Com., 197 N. C., 562.” S. v. Gant, supra, at p. 226.

Tbe court below found: “Tbe referee finds as a fact, and that fact is approved by tbe court, that tbe facts as to tbe defalcations and misapplications of funds in tbe bands of said Ernest L. Sawyer, could not have been discovered by tbe plaintiffs in tbe exercise of reasonable care and diligence until after tbe death of said Sawyer on 7 December, 1928, or at least, within three years prior to tbe commencement of this action. Tbe court also finds that there was never any demand made upon said clerk by any of tbe parties plaintiff, or their predecessors in title, during bis term of office, and only by death was tbe statutory demand put into operation.” We think tbe evidence on this record sufficient to support tbe above finding.

(2) If not, what sum is recoverable upon tbe bond covering said period ?

In Gilmore v. Walker, 195 N. C., at p. 464, speaking to tbe subject “It is established in law in this State that failure of tbe clerk to pay upon demand, raises tbe presumption that tbe money was misappropriated and converted upon receipt thereof, and tbe burden is upon him to show tbe contrary.” Presson v. Boone, 108 N. C., 79; Marshall v. Kemp, 190 N. C., 491.

In Williams v. Hooks, 199 N. C., at p. 492, tbe following observation is made: “Thus, if tbe clerk makes an investment in tbe utmost good faitb and in tbe exercise of sound business judgment, and tbe investment fails, be is still responsible for tbe money and must pay it to tbe person entitled thereto. If be deposits tbe money in a bank of known and approved solvency and tbe bank thereafter fails, be must suffer tbe loss, because if be fails to pay upon demand tbe law presumes that be mis-approjwiated tbe fund at tbe very instant it came into bis bands.”

Under tbe facts and circumstances of this case, tbe sums of money received by said clerk covering said period not exceeding tbe penalty of tbe bond, $10,000, is recoverable.

(3) Are tbe orders of Judge Sinclair entered at tbe September Term, 1929, of tbe Superior Court of Pasquotank County, and tbe order of Judge Small entered at March Term, 1930, valid orders; and, if so, what is their significance?

Tbe material portion of tbe order of Judge Sinclair, is as follows: “It is further ordered that said receivers be, and they are hereby authorized, and directed to pay over to N. E. Aydlett, clerk of Superior Court, such funds as they have collected, less an amount sufficient to defray the expenses of the receivership, and to take from said clerk a receipt for the amount so paid, which payment shall operate as a credit on the liability of the defendant, Surety Company, in this proceeding.”

But it appears thereafter, at March Term, 1930, that Judge Small made the following order: “It further appearing that the funds collected by said receivers should be properly paid to said cleric and thereupon operate as a credit in the final adjustment of the liability of the defendants, administrator and surety company; Now, therefore, it is ordered, decreed and adjudged that N. E. Aydlett and J. H. LeBoy, Jr., receivers, be, and they are hereby authorized and directed to pay over to N. E. Aydlett, clerk Superior Court, such funds as they may hereafter collect as such receivers, less an amount sufficient to defray the expense of said receivership, and to take from said clerk a receipt for the amounts so paid, which payments shall operate as a credit on the liability of the defendant Rogerson, administrator, and of the defendant, Surety Company, in this proceeding.” (Italics ours.)

No exceptions were taken by the litigants to either of these orders. The referee found, and this finding was sustained by the court below, that “The defendant Surety Company is entitled to recover of the defendant administrator the amount of its ultimate liability to plaintiffs with interest and costs, expenses and attorneys’ fees in this action and should be subrogated to plaintiffs’ rights in any assets remaining in the hands of the receivers after the plaintiffs’ rights therein have been fully satisfied.”

We think the orders of Judges Sinclair and Small temporary instructions by the court to its officers, the receivers, made without hearing on the merits and not intended and in no way prejudicial to the contentions presented by the pleadings. The appellant contends that these orders are res judicata and do not permit the judgment rendered. The order of Judge Small is later than Judge Sinclair’s. No exception was taken by appellant and it distinctly says “therefore operate as a credit in the final adjustment of the liability ” etc. The matter was in fieri.

The case of Wellons v. Lassiter, 200 N. C., 474, is not applicable to the facts in this case. From the view we take of the case we do not think it necessary to discuss certain contentions made by interveners. The judgment below is

Affirmed.