Sandoval v. United States Fidelity & Guaranty Co.

CAMPBELL, J. — The complaint alleges that in April, 1907, one Epes Randolph recovered a judgment in the district court of Santa Cruz county, against the defendants in this action, A. Sandoval and P. Sandoval, for the sum of $10,528.33; that the defendants appealed from the judgment to this court, and applied to the United States Fidelity and Guaranty Company, a corporation (hereinafter referred to as the Guaranty company), for a bond to be given on appeal to stay the judgment; that in the application for the bond the defendants covenanted “to reimburse said company for any and all loss, costs, charges, suits, damages, counsel fees, and expenses of whatever kind or nature which said company shall or may for any cause at any time sustain or incur or be put to for or by reason or in consequence of said company having entered into or executed said bond”; that in consideration of the — 351 — agreement the Guaranty company agreed to and did execute the bond on appeal, in a sum double the amount of the judgment and costs; that the judgment of the court below was affirmed by this court on or about March 27, 1908, and judgment rendered against the defendants, and against the Guaranty company, for the amount recovered in the lower court, together with interest and costs; that a motion for rehearing was filed and denied on or about the 16th of May, 1908; that thereafter, and prior to the twenty-fourth day of June, 1908, the plaintiff received notice from the governor of the Territory of Arizona to the effect that the judgment of the supreme court of the Territory of Arizona had not been paid; that more than thirty days had elapsed from the rendition of the judgment, and to the effect that, unless the judgment was paid, or sufficient excuse for the nonpayment thereof shown, the company would forfeit its rights to transact business as a surety company in the Territory of Arizona; that plaintiff promptly notified the defendants of said notice having been received by them from the governor, and that defendants, on the twenty-fourth day of June, 1908, had wholly failed to pay the said judgment or to appeal therefrom to the supreme court of the United States, and that on the twenty-fourth day of June, 1908, plaintiff paid Randolph, in satisfaction of the judgment and interest, the sum' of $11,484.95, and that upon said date said sum was due and owing upon the said judgment; that the plaintiff has paid, for charges and expenses, by reason and in consequence of having entered into and executed the bond, the sum of $676.75; that the plaintiff has demanded of the defendants that they reimburse it in the said several sums paid out, and that the defendants have refused to reimburse the plaintiff in said sum, or any part thereof; that in order to collect the said sum from the defendants, it has become necessary for the plaintiff to employ counsel to bring and institute this action, and plaintiff has agreed to pay said counsel a reasonable fee and charge for the institution and prosecution of this suit, and as plaintiff is informed and believes, the reasonable cost of the institution and prosecution of this suit will be the sum of $3,000, be the same more or less. Judgment was demanded in the sum of $13,911.70, together with interest. The defendants demurred to the complaint, on the ground that it does — 352 — not state a cause of action, and by way of answer admit the facts set forth as to the judgment having been rendered, the application for, and the execution of, the bond, the appeal, the affirmance of the judgment by this court, and the denial, of the motion for a rehearing, deny that the plaintiff received the notice from the governor of the Territory, as alleged, and also deny that the plaintiff paid to Randolph for the defendants, in satisfaction of the judgment, any sum of money, or that any sum of money was due upon the said judgment, and allege that after the judgment was affirmed in this court, and the motion for rehearing denied, a notice of appeal was • duly given to the supreme court of the United States; that said cause was thereafter transferred to the supreme court of the United States, and is now pending in said court; that no execution has ever been issued upon said judgment, and that, if the plaintiff in this case has ever paid the amount of said judgment, it has done so by reason of its own negligence, voluntarily, and not at the request-of the defendants, or by any order of the court, or in satisfaction of any judgment The cause was tried to the court without a jury, and resulted in a judgment for $14,683.25 and costs, in favor of the Guaranty company. From this judgment, and from an order refusing a new trial, this appeal is brought. The testimony shows that on March 27, 1908, the judgment of the district court was affirmed in this court, and that pursuant to the provisions of paragraph 1592, Civil Code of 1901, judgment was also entered against the Guaranty company as surety upon the appeal bond. Thereafter, within the time allowed by law, a motion for a rehearing was made, which motion was denied by this court May 19, 1908. The action having been tried before the court without a jury, an appeal to the supreme court*of the United States from the judgment of this court was prayed, and was allowed by one of the justices of the court on June 20, 1908. In the order allowing the appeal it was directed that the judgment be stayed upon the appellants filing their supersedeas bond in the sum of $20,000, to be approved by any justice of this court. This order was filed with the clerk June 22, 1908. A bond in proper form was approved by one of the justices on July 14th, and filed with the clerk on July 15, 1908. Citation was issued July 18,1908, and served on July 31,1908. It also — 353 — appears that on or about June 18th, the judgment creditor, Randolph, demanded of the Guaranty company that it pay the judgment; that on June 24, 1908, the Guaranty company paid the judgment in full, and thereafter, and as a part of the transaction, took from Randolph a bond, with collateral ■security, for the return.of the amount paid him, with interest, should the supreme court of the United States reverse the judgment of this court. Appellants assign as error the overruling of their demurrer, insisting, first, that the complaint is bad for the reason that it does not show that the Sandovals had not paid the judgment at the time that the Guaranty company paid it. The complaint alleges that “said defendants, on the twenty-fourth day of June, 1908, had wholly failed to pay the said judgment, . . . and upon said date said sum was due and owing upon said judgment, ’ ’ and this, we think, is clearly sufficient. It is also complained that the complaint fails to allege that the amount sued for in this ease was unpaid by the Sandovals to the Guaranty company at the time of the commencement of this action. The allegation of the complaint in this respect is that “this plaintiff has demanded of the said defendants that they reimburse this plaintiff in the said several sums paid out as aforesaid, and that the defendants have refused to reimburse the plaintiff in said sum, or any part thereof. ’ ’ While this allegation might not have been sufficient as against a special demurrer, we do not regard it as an entire failure to state an essential fact, but only a defective statement of the fact of nonpayment, good when tested only by a general demurrer. In considering the question whether the complaint as an entirety states a' cause of action, it will be helpful to notice the statutes of the United States governing appeals from this court to the supreme court of- the United States, and the decisions of the supreme court construing them. Section 1007 of the Revised Statutes (U. S. Comp. Stats. 1901, p. 714) provides: “In any case where a writ of error may be a super-sedeas, the defendant may obtain such supersedeas by serving the writ of error by lodging a copy thereof for the adverse party in the clerk’s office where the record remains, within sixty days, Sundays exclusive, after the rendering of the — 354 — judgment complained of, and giving tbe security required by law on tbe issuing of tbe citation. But if be desires to stay process on tbe judgment, be may, having served bis writ of error as aforesaid, give tbe security required by law witbin sixty days after tbe rendition of sucb judgment, or afterward with tbe permission of a justice or judge of tbe appellate court. And in sucb cases where a writ of error may be a- supersedeas execution shall not issue until tbe expiration of ten days.” By section 1012 (page 716) appeals from the circuit courts are made subject to tbe same rules, regulations, and restrictions as are prescribed for writs of error, and by section 1909 it is provided that writs of error and appeals from final decisions of tbe supreme court of Arizona shall be allowed to tbe supreme court of tbe United States in tbe same manner, and under tbe same regulations, as from circuit courts of tbe United States. Therefore, appellants bad sixty days after tbe judgment was rendered, exclusive of Sundays, in which they could give security and suspend tbe judgment upon their appeal to tbe supreme court of tbe United States. This period of sixty days did not commence to run until May 19th, tbe date tbe rehearing was denied. Railroad Co. v. Bradley, 7 Wall. 575, 19 L. Ed. 274; Kingman v. Western Mfg. Co., 170 U. S. 675, 18 Sup. Ct. 786, 42 L. Ed. 1192. Upon this date the liability of tbe surety became fixed. Gillette v. Bullard, 20 Wall. 571, 22 L. Ed. 387; Babbitt v. Finn, 101 U. S. 7, 25 L. Ed. 820. “Execution cannot issue upon tbe judgment until tbe expiration of ten days, exclusive of Sundays, from tbe entry thereof. If the writ of error and bond are filed before tbe expiration of the ten days, no execution can issue so long as tbe case in error remains undisposed of. After tbe expiration of tbe ten days, an execution may issue. Notwithstanding this, under tbe provisions of tbe act of 1872, upon tbe filing of tbe bond witbin sixty days from tbe time of tbe entry of tbe judgment a supersedeas may be obtained. Sucb a supersedeas, however, stays proceedings only from tbe filing of tbe bond. It prevents further proceeding under an execution which has been issued, but does not interfere with what has already been done.’ Bd. of Commrs. v. Gorman, 19 Wall. 661, 22 L. Ed. 226. See, also, Foster v. Kansas, 112 U. S. 201, 5 Sup. Ct. 8, 97, 28 L. Ed. 629. It is not necessary, in order to charge tbe — 355 — sureties in an appeal bond, that an.execution on the judgment recovered in the appellate court should be issued against the principal. Upon affirmance, the surety becomes liable to the same extent as the principal obligor. Babbitt v. Finn, supra. The supersedeas bond was not filed until July 15, 1908, and therefore the Guaranty company was liable to execution upon the judgment at any time between May 31st and July 15th. Being thus liable, had it a right to pay the judgment, or did it owe a duty to its principals to withhold payment during the period within which they might exercise the right to suspend the judgment, pending their appeal to a higher court. No case has been brought to our attention in which such a question has been presented. If we look to the general law governing suretyship, we find that a surety who is in law bound to pay an obligation has an undoubted right to pay the same, and proceed against his principals or cosureties for indemnity or repayment. He may do this as soon as his principal is in' default, and without waiting for suit to be brought against him. 27 Am. & Eng. Ency. of Law, 472; May v. Ball, 108 Ky. 180, 56 S. W. 7; Nixon v. Beard, 111 Ind. 137, 12 N. E. 131; Martin v. Ellerbe’s Admr., 70 Ala. 326; Feamster v. Withrow, 12 W. Va. 611. We can see good reason why a surety on an appeal bond should not be held to be justified in paying within the ten days during which no execution can issue; but, his principal not having suspended the judgment within that time, and he being liable to have his property taken upon execution, we perceive no reason why he may not pay the judgment, and thus relieve himself of liability. A payment so made by a surety may work a hardship upon the principal, but we see no way of avoiding it, except by the exercise of diligence in the matter of perfecting an appeal and filing a supersedeas bond. It is suggested by counsel for appellants that the Guaranty company was not coerced to pay by fear of execution, since it does not appear that the mandate of this court had been sent to the district court. We do not see that this in any wise affects the situation. The filing of the mandate in the district court adds nothing to the liability of the surety. • That is fixed by the judgment in this court. It is probably true that the judgment debtor must resort to the district court to obtain execu — 356 — tion; but, when a motion for rebearing is denied, tbe mandate should go to tbe district court at once, and if tbe clerk should delay in forwarding it, a mere suggestion, without notice, would cause it to be sent. Therefore, tbe refusal of a surety to pay upon demand might almost immediately result in an execution against him being issued. Upon payment being made by a surety be is entitled to claim reimbursement by reason of any agreement of reimbursement which he may-have with his principal, or may sue upon the implied promise which the law raises in his favor; or, if he is compelled to make payment in satisfaction of a judgment, he may be sub-rogated to the rights of the creditor, under the provisions of paragraph 3555, Revised Statutes of 1901. We think the court did not err in overruling the demurrer to the complaint. The allegation in the complaint, and the testimony offered in support of it, that the governor of the Territory had notified the Guaranty company that the judgment was unpaid, that thirty days had elapsed since its rendition, and that, unless the judgment was paid, or excuse for its nonpayment shown, the company would forfeit its rights to transact business as a surety company in the Territory, has given rise to what we regard as much unnecessary confusion, and assignments of error based upon rulings of the trial court admitting testimony to sustain the allegations have been discussed at length by counsel for appellants. Chapter 1, title 8, Civil Code of 1901, providing for the regulation of surety companies doing business within the Territory, contains the following: “Par. 418. That if any such company shall neglect or refuse to pay any final judgment or decree rendered against it upon any such recognizance, stipulation, bond or undertaking made or guaranteed by it under the provisions of this act, from which no appeal, writ of error, or supersedeas has been taken, for thirty days from the rendition of such judgment or decree, it shall forfeit all right to do business under this act.” The act makes no provision for the revocation by the governor of the license issued to a surety company, upon its failure to pay within thirty days, and it is to be observed that at the time when payment was made (if the statute may be held applicable to judgments such as is involved in this case, where the taking of the appeal must depend upon the actions of others, whose rights are governed — 357 — by the laws of the United States) the forfeiture had already been incurred. The receipt of the telegram by the Guaranty company may serve to explain the motives of the company in making the payment, but we do not see that it affects the legal relations existing between the parties to this action. We come now to consider the assignment that upon all of the facts in evidence the court erred in rendering judgment for the Guaranty company. This action is upon the express contract of appellants to reimburse the Guaranty company any loss it may sustain by reason of having executed the appeal bond. The measure of recovery, at least so far as the amount paid to the judgment creditor is concerned, is the same as though brought upon the implied promise raised by the law. As we have seen, - a surety, when he becomes legally liable so to do, may pay the obligation, and proceed against his principal to secure reimbursement. But he is entitled to nothing more than reimbursement. “If the surety extinguishes the debt of the principal for any sum less than the full amount thereof, he can, in the absence of express contract, only recover from the principal the amount paid by him, and interest thereon, and costs. The implied contract is that the surety shall be indemnified only, and he will not be allowed to speculate out of his principal. If he pays in depreciated bank notes, or other money which is below par, but is taken by the creditor at par, he can only recover from the principal the par value of such money. If he pays in land, he can only recover the value of the land. He is entitled to recover the amount paid, not the amount extinguished by that payment. ... If the surety, who compounds a debt for which his principal and himself have become jointly liable, takes an assignment of the debt to a trustee for himself, he can only claim, against his principal, the amount which he has paid. He occupies in that regard the same position as an agent, and cannot speculate out of his principal.” Brandt on Suretyship and Guaranty, sec. 212. The supreme court of California, in Stone v. Hammell. 83 Cal. 547, 17 Am. St. Rep. 272, 23 Pac. 703, 8 L. R. A. 425, in holding that a surety may not, by satisfying the obligation by giving his own note, recover the amount of the note from his principal before payment thereof, bases its holding upon the ground that the surety might recover the whole amount of — 358 — the principal, and never pay his own note, “thus violating the cardinal rule that the surety shall not speculate out of the principal.” Lord Cottenham, in Reed v. Norris, 2 Mylne & C. 361, says: “Now if there had been no authority upon this subject, I should have found very little difficulty in making the precedent for deciding that, under these circumstances, the surety is not entitled to demand more than he has actually paid. I take the ease of an agent. Why is an agent precluded from taking the benefit of purchasing a debt which his principal was liable to discharge? Because it is his duty, on behalf of his employer, to settle the debt upon the best terms he can obtain; and, if he is employed for that purpose, and is enabled-to procure a settlement of the debt for anything less than the whole amount, it would be a violation of his duty to his employer, or, at least, would hold out a temptation to violate that duty, if he might take an assignment of the debt, and so make himself a creditor of his employer to the full amount of the debt which he was employed to settle. Does not the same duty devolve on a surety ? He enters into an obligation and becomes subject to a liability, upon a contract of indemnity. The contract between him and his principal is that the principal shall indemnify him from whatever loss he may sustain by reason of incurring an obligation together with the principal. It is on a contract for indemnity that the surety becomes liable for the debt. It is by virtue of that situation, and because he is under an obligation as between himself and the creditor of his principal, that he is enabled to make the arrangement with that creditor. It is his duty to make the best terms he can for the person in whose behalf he is acting. His contract with the principal is indemnity.” Under the testimony in this case, what loss has the Guaranty company sustained? The payment made by it to Randolph cannot be said to have been an absolute one, but one conditioned that the judgment be affirmed by the supreme court, since it has taken and holds security satisfactory to it for the return of the money with interest, in the event the judgment is reversed. It may not suffer the loss of the amount paid to Randolph. If the judgment in this action is sustained, it will collect the amount from the appellants, and if the supreme court of the United States reverses the judgment — 359 — appealed from, it will also be repaid by Randolph. Such a result would manifestly be inequitable. To sanction it would certainly do violence to “the cardinal rule that the surety shall not speculate out of the principal.” The Guaranty company, in taking the security, as pointed out by the authorities to which we have called attention, may be said to have acted as the agent of the appellants. It took and still holds the security in its own name, and we do not think that it may claim reimbursement from its principals until its actual loss is ascertained, or at least that it may not recover without surrendering the security to its principals. We, therefore, conclude that the trial court erred in giving judgment for the amount paid to Randolph. However, we think that the Guaranty company may recover in this action such amounts as it reasonably expended in connection with the adjustment of the matter, for which it holds no security. These expenses aggregate $544.50, and upon this amount interest at the rate of six per cent per annum should be allowed from August 3, 1908, to the date of the judgment of the district court. The judgment of the district court is therefore modified and reduced to the amount indicated, and as so modified, is affirmed, with costs in this court to appellants, but without prejudice to the rights of the Guaranty company to bring such further action as may be necessary to establish its rights, should a right to reimbursement of the amount of the judgment accrue to it. KENT, C. J., and SLOAN and NAVE, JJ., concur.