Case ID: ad_95/html/0566-01.html
Source: Caselaw Access Project
Author: {"author": "Laughlin, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Henry Siebert, Respondent, v. Robert Milbank, Appellant, Impleaded with Margaret R. Slaughter.
    
      Application for the release of a surety on the bond of an assignee for creditors—section 812 of the Code of Civil Procedure contemplates two proceedings — a complaint against a surety discharged under that section must allege a dfault prior to the filing of the new bond—respective liabilities of the sureties on the old and new bonds—account filed ex parte, how far binding.
    
    Section 812 of the Code of Civil. Procedure contemplates two proceedings by a surety upon the bond of an assignee or other officer,- one ex parte as to creditors for the release of the surety from liability for the future acts or . omissions of his principal, and the other upon notice to all parties interested for the release of the surety from liability for all acts and omissions of the principal both past and future.
    A complaint in an action brought against a surety, after he has been discharged from liability for the future acts and omissions of his principal under section 813 of the Code of Civil Procedure, is demurrable, unless it alleges that the default upon which his liability is predicated occurred prior to the filing of the new bond given by the principal.
    In such a case the respective liabilities of the sureties on the old and new bonds are dependent upon the question whether the act or omission of the principal upon which liability is predicated occurred prior or subsequent to the date of the order requiring the principal to account or the date of the filing of the new bond.
    The account filed by the principal in the ex parte proceeding instituted by the surety is not binding upon the creditors, nor is it binding upon the new surety, and before the rights of creditors or the liabilities of the two sureties can be finally established there must be an accounting upon notice. The ex pa/rte account, however, will form the basis for such accounting.
    O’Brien, J., dissented.
    Appeal by the defendant, Robert Milbank, from an interlocutory judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Few York on the 3d day of February, 1904, upon the decision of the court, rendered after .a trial at the Few York Special Term, overruling the said defendant’s demurrer to the plaintiff’s complaint.
    
      Francis D. Pollak, for the appellant.
    
      Richard M. Martin, for the respondent.
   Laughlin, J.:

On the 29th day of February, 1892, the plaintiff made a general assignment for the benefit of creditors. The defendants became sureties on the official bond of the assignee on the twenty-ninth day •of March thereafter. In' 1898 the plaintiff made a composition agreement with his creditors and received releases and discharges from them and an assignment and quitclaim of their rights in and to the assigned estate. He then petitioned the court on notice to the creditors and sureties for a final accounting of the assignee, and on the 3d day of June, 1902, a final order was made requiring the assignee to pay the balance in his hands to the plaintiff. The assignee failed and refused to comply with the order, and the plaintiff obtained leave of the court to bring this action against the sureties upon the official bond of the assignee. The demurrer is upon the ground that the complaint fails to state facts sufficient to constitute a cause of action. The sureties were parties to the accounting, and, if they are liable at .all, the order fixes the extent of liability and is binding upon them. It, however, is not an adjudication that they are liable. The surety claims that his liability for future acts and omissions of the assignee was terminated prior to the default of the assignee upon which this action is predicated. The facts are not controverted. With a view to having the question settled speedily and inexpensively by demurrer the plaintiff has alleged all the..material facts which the surety relies upon for his defense.

It is alleged in the complaint that in the year 1898 the appellant petitioned the court pursuant to the provisions of section 812 of the Code of Civil Procedure as it then existed (See Laws of 1895, chap. 511) praying to be relieved from further liability as surety for the acts or omissions of the assignee and for an order requiring the assignee to show cause why he should not be required to file a new bond in the usual form and to account as and within the time therein prescribed, and also for an order releasing the surety “from liability for any,subsequent act or default” of the .¡assignee; that on the twenty-third day of the same month the assignee duly executed, procured the approval of and filed a new bond bearing that date, with the United States Fidelity and Guaranty Company as surety? and on the fifteenth day of the following month filed an account of his proceedings as assignee -pursuant to the requirement of the order-made on the petition of the appellant; that no notice of this proceeding was given either to the plaintiff or to the creditors and nothing further was done toward an accounting. It does not appear when the order made on the application of the-appellant requiring the assignee to show cause why he should not be required to give a new bond and account was served; but it is assumed, and may be presumed, that the new bond and account were filed within the time prescribed therefor by said section of the Code of Civil Procedure. There is no allegation that the assignee was in default or had been guilty of any mismanagement or misappropriation of the funds prior to these proceedings had in 1898 with a view to releasing the surety. In fact there is no allegation of any mismanagement or misappropriation on the part of the assignee or loss of funds or property. The only default alleged is that he failed and refused to comply with the order that he turn over the balance of the property to the assignor. It is not alleged that the property was not in his hands at that time and it cannot be fairly or reasonably inferred that it had been lost or misappropriated prior to the order under which the new bond was filed. The appellant concedes that the proceedings on his petition in 1898 did not release him from liability for any act or omission of the assignee prior to the filing of the new bond because he did not institute the further proceedings authorized by section 812 of the Code of Civil Procedure for an accounting by the assignee upon notice to all interested parties. But he contends that those proceedings did release him from liability for future acts or omissions of the assignee, and that to state a cause of action against him a default prior to the filing of the new bond must be alleged. The respondent contends that section 812 of the Code of Civil Procedure does not contemplate two 'proceedings, one, ex pa/rte as to creditors, for the release of the surety from liability for the future acts and omissions of his principal, and the other upon notice to all parties interested for the release, adjustment and settlement of accrued liability, and that, therefore, the proceedings on the petition of the appellant for his release in 1898 are void and of no effect. The construction of this section is not difficult. Its provisions are plain and we are of opinion that the legislative intent to provide for two proceedings, as claimed by the appellant, is clear. The official bond of an assignee in the first instance may be approved by the court without notice to the creditors. There is no reason for inferring that the Legislature intended to provide a different rule with reference to the approval of a new bond and the language employed is not susceptible of such construction. It is manifest that it was intended that the proceeding to require the principal to file a new bond and to release the surety as to future acts and omissions of the principal were intended tobe ex jpa/rte as to creditors, and there appears to be no reason why they should not be. The provision requires that in that case the principal shall file an account of his official acts and proceedings to and including the date of the order requiring the filing of the account. The account thus filed pursuant to the statute shows presumptively the condition of the trust estate at that time; and. when the accounting thereon is had, whether then on the application of the released •surety or later at the instance of creditors or otherwise, this will be useful in determining the liability as between the sureties on the old and the new bonds. It is evident that this was the legislative intent. In permitting a substitution of official bonds it was necessary to fix ■a time when the liability on the old bond should terminate and upon the new should attach. That time is the date of the order requiring the principal to account or tfie date of tKe filing of the new bond if not filed before. In case of a controversy between the sureties on the old and new bonds with reference to their liability, it is manifest that the inquiry must be directed to whether the act or omission occurred prior or subsequent to the date of such order or filing of the bond. The account thus filed of course is not binding upon the creditors nor is it binding upon the new surety, and at some future time, before the rights of creditors are determined or the-liability of the, surety is established, there must be an accounting upon notice. The account thus filed ex parte, however, will form the basis for the accounting.

It follows, therefore, that the interlocutory judgment should be reversed, with costs, and the 'demurrer sustained, with costs, with leave to the plaintiff to amend upon payment of the costs of the appeal and of the demurrer.

Van Brunt, P. J., McLaughlin and Hatch, JJ., concurred; O’Brien, J., dissented.

Judgment reversed, with costs, and demurrer sustained, with costs, with leave to amend on payment of costs of appeal and of demurrer.