Fidelity & Deposit Co. v. Poe

Pattison, J., delivered the opinion of the Court. The appeal in this case is from a judgment recovered by the appellees, the receivers of the United Surety Company, against the appellant, the Fidelity and Deposit Company, in the Superior Court of Baltimore City. The declaration consists of six of the common counts and four special counts. In the seventh count, the first of the special counts, it was alleged “That the United Surety Company, on or about February 7, 1910, executed a bond in the penalty of fifty thousand dollars on behalf of John 0.

Eodgers, John J. Hagerty and James M. Eodgers, in favor of the City of Hew York, guaranteeing the completion of the Kensico Dam and appurtenant works, * * * and in consideration of the execution of such bond, John C. Eodgers, John J. Hagerty and James M. Eodgers agreed to pay to the United Surety Company for executing said bond and continuing the same the sum of nineteen hundred and eighty-eight dollars and twenty-six cents per annum, until the United Surety Company should, in the manner provided by law, be discharged or released from any and all liability and responsibility upon and from said bond and all matters ⁴⁸¹ arising thereon, and proper legal evidence of such discharge or release be served on the United Surety Company; that thereafter John C. Eodgers, John J. Hagerty and James M. Eodgers assigned the contract covered by said bond to H. S. Kerbaugh, Inc., and the said H. S. Kerbaugh, Inc., assumed the obligation of the said Eodgers and Hagerty to pay premiums as aforesaid; and that thereafter the Fidelity and Deposit Company, as agent and fiduciary of the United Surety Company and these Eeceivers, received from H. S. Kerbaugh, Inc., the net sum of sixty-six hundred and seventeen dollars and eleven cents in installments and on the dates set forth in the account marked ‘Exhibit B,’ attached to and made a part of this declaration, in accordance with the agreement of John C. Eodgers, John J. Hagerty and James M. Eodgers made to the United Surety Company, which said agreement was assumed, as aforesaid, by H. S. Kerbaugh, Inc.; that demand has been made upon the defendant to pay to the plaintiffs said amount so collected upon behalf of the United Surety Company and these plaintiffs, but payment has been refused and no part of the same has ever been paid.” It was upon the eighth count that the plaintiffs sought to recover .an annual premium collected by 'the Fidelity and Deposit Company, its agent and fiduciary, upon a bond executed on or about December 20th, Í909, by the United Surety Company, together with the Fidelity and Deposit Company, in the penalty of two million dollar® “running to the City of Hew York” guaranteeing the completion of a contract for the construction of the municipal building by Thompson-Stai-rett 'Company, and which said -sum so collected has never been ;piaid to the United Surety Company. The amonnt of liability assumed by the United Surety Company by the execution of said bond was sixty thousand dollars; and for the assumption of such liability it was to be paid by the principals of the bond the sum of eight hundred eighty-four dollars and twenty-five cents per annum, in ⁴⁸² advance, until it was released from such liability in the manner sett forth in the aforegoing eighth count of the declar ration; and! as alleged therein, the Fidelity and Deposit Company, .asi agent of the United Surety 'Company, on or about January 6, 1911, collected1 one annua! premium, amounting to eight hundred eighty-four dollars and twenty - five cents, from which amount the Fidelity and Deposit, Company was authorized to deduct a commission of two hundred sixty-five dollars and twenty-seven cents for the collection of such premium, leaving due and unpaid to the United Surety ■Company and the plaintiffs a balance of six hundred eighteen dollars and ninety-eight cents. The ninth count was on a bond executed by the United Surety 'Company, together' with the Fidelity and Deposit Company, on or about the 9th day of December, 1909, on behalf of Frank B. Down, executor, conditioned upon the faithful performance of his duties as such executor. In consideration of the execution of tihei bond by the United Surety Company, Frank B. Lown agreed to- pay to it a premium of four hundred .and thirty-eight dollars and eighty-nine cents for the first year, and thereafter an annual premium of two hundred and thirty^eight dollars and eigjhtyeight cents until the United Surety Company was discharged or released in the manner stated in the aforegoing count from any and all liability under said bond and all matters arising therefrom; and thereafter' the defendant, acting as agent and fiduciary of the United ¡Surety Company and the plaintiffs, collected from Frank D. Lown, from time to time, as shown by said “Exhibit B” the net sum of thirteen hundred and ten dollars .and fifty-one centsi, which it has never paid over to the United Surety 'Company, though demand therefor has been made upon it.

In the tenth count recovery was sought on a bond executed on the 17th day of September, 1909, by tbe United Surety Company, together with the Fidelity and Deposit Company, in behalf of Bessie M. Leggett et al., administratrix, for the faithful performance of her duties as such administratrix; ⁴⁸³ and in consideration of the execution of said bond, the said Bessie M. Leggett agreed to pay to the United Surety Company an annual premium of eighty-nina dollars and fifty cents, until the United Surety- Company was released and discharged in the manner1 stated in the aforegoing counts; “and thereafter the defendant, acting as agent and fiduciary of the United Surety Company * * *, collected from Bessie M. Leggett on the respective dates set forth in * * * ‘Exhibit B’ (attached to the declaration) the net sumí of fifty-one dollars and eighty-nine cents,” which amount has never been . paid to the United Surety Company although demand has been made upon the defendant therefor. To the declaration, the defendant filed, on the 25th day of June thereafter, the general issue pleas and the plea of payment, and later, on the fourth day of October of the same year, filed two others known as its fourth .and fifth pleas. In its fourth plea it was stated That John C. Dodgers, John J. Hagerty, and James 1£. Dodgers had a contract with the City of Dew York, for the construction and completion of the Kensico Dam and appurtenant works, for which they were to he paid the sum of $7,953,050.

That they applied to the defendant to become surety upon a bond to he given to the City of Dew York, guaranteeing the completion of said contract and to procure other sureties, to the end that the amount of bond required, to wit, one million dollars, might he furnished and filed as required by ‘the terms of the contract; that the defendant became surety upon a bond in the penalty of $250,000 and procured the United Surety Company, together with other surety companies, to execute bonds of like tenor and effect, which with the bond executed by the defendant, amounted in all to the sum of one million dollars, the defendant thereby becoming what is known in surety parlance as the originating company. That in accordance with the custom and practice in such cases the annual premium upon all the bonds so executed, including the bond of the United Surety Company, were payable to the' Fidelity and ⁴⁸⁴ Deposit Company, the originating company. “That under the terms and conditions of said bonds each surety thereon was liable up to the penalty of its particular bond for the faithful performance of the entire contract. Therefore, in the eveflt of the withdrawal or release of any one or more of said sureties the hazard or liability as to the remaining sureties was increased to the extent of the liability of the withdrawing surety or sureties. That thereafter H. S. Kerbaugh, Incorporated (which had by consent of all the parties to said contract and bonds been substituted in the place and stead of said John C. Kodgers et al.), the contractors on whose behalf the various bonds were given and the obligee therein, applied to the various sureties on said bonds to execute an agreement consenting to certain changes' and modifications in said contract and agreeing that their said bonds should be deemed as conditioned for the performance of the contract as so modified with the same force and effect as if the said contract has been originally drawn and executed as so modified.

The said modifications or changes materially altered the terms of said contract in that under the contract payment for clearing areas was not to be made until the flooding of the areas cleared or the complete filling of the reservoir, whereas under the proposed change it was provided that clearing should be done from time to time and payment therefor made for such clearing as the work progressed, and that payment should be made but once for clearing any given area regardless of how many times the contractor might be required to go over it, and that clearing should be done as often as necessary in order to insure the space being in proper condition before flooding or when the reservoir was completely filled. That under said contract the areas to be cleared were very extensive and the -provision that the contractor would be paid but once for clearing, although it might be required that the site be cleared many times owing to the annual growth of trees, bushes, and shrubbery, materially increased the risk and hazard of said contract. That all of the sure ⁴⁸⁵ ties on said bonds executed said agreement save and except the United Surety Company, which company neglected, failed and refused to sign said agreement. That the City of New York required said contractor to procure the consent of the sureties on said contract to said modifications and when the plaintiffs herein refused to consent to said modifications, the City of iSTew York intervened in the receivership proceedings of the United Surety Company and petitioned the court therein that the receivers might be required and compelled to assent to said change or modifications.

That said receivers, the plaintiffs' herein, took the position that the United Surety Company was no longer a going concern and that they should not by reason thereof execute any consent or agreements which might change or affect the status of the United Surety Company, and thereupon the court refused to require them to execute said consent. That thereupon the City of Hew York elected to make the said altera- • tion and change in said contract and did make said alteration and change without the consent of the United Surety Company. That thereupon the contract was so materially changed and modified that in consequence of the refusal of the United Surety Company to sign said agreement as aforesaid it became released and discharged from all liability on its said bond, and it therefore ceased to be entitled to share in or to receive any part of the premium paid to the defendant, as said originating company, after the contract had 'been changed and modified.” For a fifth plea the defendant stated “That the bond dated on or about the seventh day of February, 1910, in the penalty of $50,000 on behalf of John C. Rodgers et al.; the bond dated on or about December twentieth, 1909, in the penalty of $2,000,000 on behalf of the Thompson-Starrett Company; the bond dated on or about December ninth, 1909, on behaf of Frank B. Town, and the bond dated on or about September seventeenth, 1909, on behalf of Bessie M. Leggett, were bonds in which the defendant ⁴⁸⁶ was the originating company. That the obligation and duty of ‘this defendant to the said John C. Rodgers et al., the principals upon each of the said bonds created by virtue of the application to this defendant to procure the necessary sureties upon their said bonds, was to procure other sureties that would be acceptable to the various authorities required by law to approving said bonds on behalf of the obligees.

And the defendant procured the United Surety Company and others to become surety thereon, and in accordance with the custom and usage among surety companies the entire premium was to be received by the defendant and then diverted among the various surety companies in accordance with the penalties of their bonds and (or) the agreements among the sureties as to the amount of liability to be carried by each. That on or about the thirteenth day of January, 1911, receivers were appointed for the United Surety Company and were directed to wind up and close its affairs. That from and after the appointment of said receivers the United Surety Company was no longer in a position to promptly respond to and perform its obligations. That this defendant was surety upon various bonds and obligations upon which the United Surety Company was principal, and that after the thirteenth day of January, 1911, the said United Surety Company defaulted and failed to perform its various contracts and obligations upon which this defendant was surety, with the result that this defendant was called upon to pay and did pay large sums of money on account of the obligations it had executed as surety for the said United Surety Company, and that although the correctness of the said claims was checked and admitted by the plaintiffs they failed and refused to pay or to reimburse the defendant after it had paid any of said sums so paid by the defendant, nor have the plaintiffs paid the same to this day, and the defendant therefore says that the United Surety Company was not entitled to participate in or receive any premiums collected by the defendant on the bonds of John 0.

Rodgers et al., Thompson-Starrett Company, Frank B. ⁴⁸⁷ Lown, and Bessie hi. Leggett after the date of the appointment of said receivers.” The plaintiff's for replication to defendant’s fourth plea said: “That John C. Rodgers, J ohn J. Hagerty and J ames hi. Rodgers applied to the Hnited Surety Company for a bond of $50,000 to be executed by the Hnited Surety Company in favor of the City of Hew York, and prior to the execution of such bond by the Hnited Surety Company and as a condition thereto the said John 0. Rodgers, John J. Hagerty and James M. Rodgers executed a written application and indemnity agreement, a copy of which is attached hereto, marked ‘Indemnity Agreement,’ and prayed to be taken as a part of this replication herein.

" “Thereafter the defendant and its attorneys wore in correspondence with the plaintiffs and their attorneys with respect to the said bond in the penalty of $50,000 executed by the Hnited Surety Company in favor of the City of Hew York, and with respect to the premiums on said bond .and the termination of liability of the Hnited Surety Company and its estate by reason thereof, copies of 'the letters forming this correspondence being attached hereto, marked ‘Correspondence,’ and prayed to he taken as a part of this replication.” And for replication to the fifth plea the plaintiff said: “That the principals, John C. Rodgers et al., executed an application and indemnity agreement in favor of the Hnited Surety Company, as set forth in the plaintiff’s replication to the defendant’s fourth plea, and that the other three principals referred to in the defendant’s fifth plea, to wit, Frank B. Lown, Bessie M. Leggett and Thompson-Starrett Company, likewise executed indemnity agreements of substantially the same tenor and effect in favor of the United Surety Company, and the execution of such indemnity agreements was a condition precedent to the execution ⁴⁸⁸ by tbe United Surety Company of tbe four bonds referred to in tbe defendant’s fifth plea. . “Upon tbe appointment of receivers of tbe United Surety Company due notice was given to tbe obligees upon tbe four bonds of tbe United Surety Company referred to in tbe defendant’s fifth plea'to prove any claims arising from said bonds against tbe estate of tbe United Surety Company in equity proceedings pending in tbe Circuit Court of Balitmore City, and no claim was ever proven against tbe estate of tbe United Surety Company growing out of any one of tbe four bonds referred to, nor were*any of tbe said four bonds, nor tbe bonds of' tbe defendant or other sureties made in relation therewith on behalf of tbe principals named in said fifth plea, ever breached, and no losses resulted to any of tbe said sureties by reason of said bonds, or any of them.” Thereafter on the 16th day of January, 1924, the defendant asked for and obtained leave of the court to amend its fifth plea, by eliminating therefrom all reference to the Down Bond, and to file an additional plea -known as its sixth plea, in which it is stated: “That in December, 1909, one Frank B. Town applied to tbe United Surety Company to become surety upon bis bond as executor of Charles H. Roberts, deceased, in tbe penalty of $1,500,000, in tbe Surrogate’s Court of Ulster County, ÍTew York. That tbe United Surety Company requested tbe defendant to become co-surety with it upon said bond, which tbe defendant company did. That tbe United Surety Company collected tbe entire premium on said bond, and paid to tbe defendant its pro rata part, to wit, two-thirds thereof less thirty per cent, commission in accordance with tbe custom and practice among surety companies. And when tbe renewal or annual premium became due tbe United Surety Company likewise collected and divided tbe premium, less its commission of thirty per cent.

That after tbe appointment of receivers for tbe United Surety Company tbe agent, or broker, who placed this business with tbe Uni ⁴⁸⁹ ted Surety Company refused and declined to pay to it further annual premiums, hut, instead, paid them to the defendant as the remaining solvent surety, although there was no contract between said Lown and said Fidelity and Deposit Company of Maryland other than that arising from the relation of principal and surety. “That prior to the making of any payments to the defendant by said Frank B. Lown, the defendant, on April 24th, 1911, offered to carry the entire liability, retaining the entire annual premium.” Thereafter, on January 24th, 1924, a demurrer was filed to the replication to the fourth audi fifth pleas. This made it the duty of the court, iu passing upon such demurrer, to inspect the whole record and, mounting up to the first fault, to give judgment against the party committing the first material error, and as the court, iu its opinion, found the fourth and fifth pleas had, they were so. held under the demurrer; and a demurrer filed to the sixth plea was sus.tained. Iu this condition of the pleading, the case was tried by the judge without -the aid of a jury, and the verdict and judgment being in favor of •the plaintiff, the defendant has appealed. The evidence discloses that the United 'Surety Oompauy became cosurety ou the four bonds named in the declaration.

In three of these, the defendant was thei originating company, or the company which procured the business., while in the other, the Lown bond, the United Surety was the originating company. As .shown by the record, the practice, in such cases, is for the originating company to collect the entire premium upon the bond, that is, the amounts owing to. its cosureties, as well as the amount owing to it, and after deducting thirty per cent, from the amount so collected for them, as commissions therefor, to. pay over to each of them the balance owing to it. Pursuant to such practice the defendant, iu the oases iu which it was the originating ⁴⁹⁰ company, collected not only the premium owing to- it, but also the premium owing to each of its co-sureties, including the plaintiffs, and paid1 over to> each of them-, except the plaintiffs, the premiums collected for them, less the commissions aforesaid; but, of the premiums collected by the defendant for the United Surety Company, no part thereof collected after the .appointment of tire receivers on January 13th, 1911, was paid over either to. the company or its receivers. The United iSprety Company, in the case of the Down bond, where it was the originating company, collected the annual premiums on the bond, inehiding those owing to the defendant, to- the time of the appointment of receivers, and of such premiums, it paid to the defendant the amounts to. which it was entitled, less commissions for collection.

Thereafter the principal of the bond, without the consent of the plaintiffs; paid to the defendant in each and every year the entire premium, on the bond, of which no part has ever been paid to the plaintiffs. By the bonds: mentioned above the United Surety Company assumed liability to the extent shown by the record, and for which it was to be paid the annual premiums agreed upon “until (as stated in the agreements) the United Surety Company .shall in the manner provided by law be discharged or released from any and all liability and responsibility upon ■and) from said bond and all matters arising therefrom, and proper legal evidence of such discharge, or release be served on the United .Surety Company.” Upon the: bond of Rodgers., ITagerty and Rodgers, there were collected by the defendant for and on behalf of the plaintiffs and not turned over to it, net premiums amounting to $'6,617.11. The first of these collections was on June 29-th, 1911, and the last on March 6th, 1916. The contract in that class, which was for the construction of the Kensico Dam was, within a few month® after its execution, assigned to.

H. S. Kerbaugh, Inc., to which assignment the United -Surety Company assented on tire 7th day of November, 1910. ⁴⁹¹ The defendant collected for the plaintiffs; net premiums ■ on the three remaining bonds, which were not turned over by them to the plaintiffs, of the following sums, to wit: On the Down bond, $1,310.51, on the Leggett bond, $51.89, and on the Thomip'son-Starrett bond, $618.98, making a, total (including the net premiums collected and not paid over by the defendant on the Podgers, Hagerty and Rodgers bond) of $8,598.49; and as disclosed by the evidence, no> loss was suffered by any of the indemnifying companies upon any of said bonds. The defendant’s, grounds; for its refusal to turn over to the plaintiffs' the amounts soi collected by it for them are disclosed by the defendant’s contention raised and presented by its pleas and prayers. These contentions are as follows: 1st. That if the United Surety Company, a co-surety of the defendant, “from and after the appointment of the receivers * * * did not promptly pay claims that were made upon it or was not in