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

[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.] On the 17th day of December, 1914, E. Henry Wemme died testate in Multnomah County, Oregon, owning 98 of the 100 shares of corporate stock of the E. Henry Wemme Company, a corporation. By his will, Mr. Wemme gave this corporate stock to various people. He also provided, among other things, for the payment to Hattie E. Miller and Mamie Karlan of $35 per month each during their respective lives thus:

"Fifth: Notwithstanding the devise hereinbefore made of the capital stock of said The E. Henry Wemme Company, it is my will and I hereby direct that before the payment of any dividends on any of the capital stock of said The E. Henry Wemme Company, there be first paid from the rents, issues and profits collected and owned by said corporation, the following amounts to the following persons respectively: * * * to Hattie E. Miller the sum of $35 each month during her natural life, * * * to Mamie Karlan, the sum of $35 each month during her natural life."

By an appropriate provision in his will, Mr. Wemme also constituted The E. Henry Wemme Company residuary legatee and devisee of his entire estate. His estate was probated and on the 2d day of August, 1919, the executor thereof was discharged.

On the 7th day of May, 1927, said Hattie E. Miller and Mamie Karlan instituted a suit in the circuit court of Multnomah county, to enforce the payment by said corporation of said bequests to them, to enjoin the disposition or transfer of the corporate assets, to impress a lien as security for said bequests upon said corporate assets, and to set apart sufficient of said assets as a trust fund to be administered by a trustee to insure the future payments of said bequests.

Besides the said The E. Henry Wemme Company, the Overlook Land Company, a corporation, and the United States National Bank of Portland, were made parties defendant to said suit. When the suit was instituted, The E. Henry Wemme Company owned 41 shares of the corporate stock of the Overlook Land Company and had three thousand dollars on deposit with said bank. A temporary injunction was issued restraining said bank from paying out any money on deposit to the credit of said The E. Henry Wemme Company, enjoining and restraining The E. Henry Wemme Company from paying or distributing to its shareholders or officers any moneys or property, or selling or disposing of any of its property, and enjoining and restraining the Overlook Land Company from transferring any of its corporate stock owned by the E. Henry Wemme Company.

On July 19, 1927, the defendants in said suit filed an answer to plaintiff's complaint and a motion to dissolve said injunction. On the 29th day of July, 1927, the following order was made therein (omitting the title of the case and the signature of the judge):

"This matter having come on to be heard this 28th day of July, 1927, upon the application of the defendants to dissolve the injunction heretofore granted in the above entitled suit against said defendants, the plaintiffs and defendants being represented by counsel, and it appearing that the said injunction should be dissolved upon the filing of a bond and undertaking in the sum of $10,000, and a bond for that amount having been furnished by the defendants with the United States Fidelity Guaranty Company, as surety, the said bond having been filed in court: It is now ordered, adjudged and decreed that the injunction heretofore granted in the above entitled suit be and the same is hereby dismissed and dissolved and held for naught.

"Done in open court this 29th day of July, 1927."

Omitting the title of the cause, the bond mentioned in the above order is as follows:

"WHEREAS, an injunction having been heretofore granted in favor of the plaintiffs and against the defendants in the above entitled action; and it being now desired by the said defendants to have the said injunction vacated:

"Now, therefore, we The E. Henry Wemme Company and the Overlook Land Company, as principals, and the United States Fidelity and Guaranty Company, a corporation organized under the laws of the State of Maryland and authorized under the laws of the State of Oregon to transact the business of surety, as surety, hereby undertakes that if the defendants above named carry out any decree which may be given against them, not exceeding the sum of Ten Thousand and 00/100 Dollars ($10,000.00), then this obligation shall be null and void; otherwise to remain in full force and effect.

"Dated this 28th day of July, 1927.

"The E. Henry Wemme Company, "By Dow V. Walker, Secretary.

"The Overlook Land Company, "By Dow V. Walker, Secretary.

"United States Fidelity and Guaranty Company, "By C.O. Price, Attorney in fact,

"Countersigned: "By C.O. Price, "Resident Agent.

"Approved 29 July, 1927. "ROBERT G. MORROW, (Corporate Seal) Circuit Judge."

On the 12th day of December, 1928, an order was made, which, omitting the title of the cause, is as follows:

"The above cause was heretofore submitted for a decree upon the pleadings, R.G. Smith for the motion, T. Mannix, contra.

"The court in pursuance of the motion gives its decree upon the pleadings as follows:

"I. It is ordered, adjudged and decreed that the plaintiffs severally each recover judgment gainst defendant, The E. Henry Wemme Co., for the sum of thirty-five dollars per month for the term beginning with the month of March, 1927, and till the month of November, 1928, inclusive, with interest on such sum as thirty-five dollars from the last day of March, 1927, and last day of each succeeding month.

"II. That Title and Trust Company, a corporation of the State of Oregon, be and hereby is appointed trustee by this court to collect and receive from The E. Henry Wemme Co., the sum of Twenty Thousand Dollars to be held by said trustee and invested at interest as a trust fund for the payment of the legacies of the plaintiffs after first paying from said principal sum, the amounts now due said plaintiffs with interest, for which decree and judgment is now given, and the costs of this suit, and a reasonable sum to be allowed the plaintiffs as attorney's fees, which the court will fix by supplemental decree upon a hearing for the determination of that question, upon application of plaintiffs within ____ days.

"III. That said trustee is hereby empowered and directed that after the payments of the sums due on legacies to plaintiffs, and attorney's fees and costs, to pay the said legacies in the future and the expenses and the costs of the trustee in performing his duties, from the annual interest that may be received from the said trust fund when created, if sufficient, and if not from the principal sum.

"IV. The trustee is empowered and authorized to begin any suit or action against the defendants or either of them that may have money or property of the E. Henry Wemme Co.

"V. If sufficient to make such trust fund is not now owned by The E. Henry Wemme Co., then the trustee is authorized to commence and prosecute any suit or action proper or necessary against any shareholder in The E. Henry Wemme Company who became such by or through the bequest of shares of stock made by E. Henry Wemme by his will, who received any dividends upon said shares as earnings or as a distribution of proceeds of the sale of the property or assets of The E. Henry Wemme Company, or against any person or corporation that holds or has acquired any of the property of The E. Henry Wemme Company since the probate of the will of E. Henry Wemme, with knowledge or notice of the rights of these plaintiffs as set forth in said will, and also upon any undertaking given in this suit by the defendant The E. Henry Wemme Company or any other defendant for the protection and benefit of plaintiffs.

"VI. It is Ordered and Adjudged That the plaintiffs also recover from defendants their costs and disbursements herein.

"Dated December 12, 1928. "Robert G. Morrow, Judge."

The case at bar was instituted to recover for the alleged breach by the defendant herein of the terms of the undertaking above set out. In the circuit court, after trial thereof, a judgment was rendered in favor of the plaintiff against the defendant herein in the sum of $10,000, and for the costs and disbursements in this action. From this judgment defendant appeals. 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 insufficient 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 decree 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 consideration of the dissolution of a temporary restraining order: Baker v.Bartol, 7 Cal. 551; Woodside v. Johnston, 5 Alaska 99; Barnesv. Brookman, 107 Ill. 317; American Exchange Bank v.Brenzinger, 10 Ohio Dec. 208 (8 Oh. N.P. 502); Cotton'sGuardian 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. SouthernSurety Co., 227 N.W. 78; Cavender v. Ward, 28 S.C. 470 (6 S.E. 302); McNerney v. Downs, 92 Conn. 139 (101 A. 494), Palmerv. Vance, 13 Cal. 553; Pay v. Shanks, 56 Ind. 554; Koch v.Costello, 93 N.J. Law 367 (108 A. 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 StatesFidelity, 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 CountySchool 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 LumberCo. 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 StateSurety 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); VanBurenCounty 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 BondingCo., 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 cases 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. R.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 TrustCo., (1909) 134 Ky. 311 (120 S.W. 283, 20 Ann. Cas. 861);Cutter v. Burroughs, 100 Me. 379 (61 A. 767); Burroughs v.Gaither, 66 Md. 171 (7 A. 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; Shafferv. 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.