Opinion ID: 2395787
Heading Depth: 1
Heading Rank: 3

Heading: Liability for 1955 taxes.

Text: We consider the surety's liability for shortages in the sheriff's accounts occurring after the execution of the bonds for the succeeding year. The appellant contends that the failure of the obligees in the bonds to reveal the previous defaults of the principal before allowing the surety to renew the bonds or to execute new ones for the ensuing periods entitles the surety to exoneration from liability under such renewed bonds as a matter of equitable estoppel. The rule to that effect is well recognized as applicable to private transactions or to fidelity bonds executed in the commercial world. Connecticut Mutual Life Ins. Co. v. Scott, 81 Ky. 540, 5 Ky.Law Rep. 639; Brunner v. City of Louisville, Ky., 311 S.W. 2d 402. See also 50 Am.Jur., Suretyship, § 328; 72 C.J.S. Principal and Surety §§ 77e, 150. But there is an overriding public policy which makes a distinction between the action or nonaction of public officials when acting in a governmental capacity. That policy, in short, is that negligence or dereliction of public officials will not work an estoppel against the state or its several agencies and subdivisions. The principle rests upon the broad ground that the public is entitled to greater consideration in weighing the equities than where rights of individuals only are concerned. City of Paducah v. Gillispie, 273 Ky. 101, 115 S.W.  2d 574. The law is long established and deeply rooted in this and other states that, subject to special exceptions, the doctrine of equitable estoppel has no application to governments, municipal corporations and other agencies when their officials are acting in governmental capacities. Taylor v. City of LaGrange, 262 Ky. 383, 90 S.W.2d 357; City of Paducah v. Gillispie, 273 Ky. 101, 115 S.W.2d 574; Monticello Electric Light Co. v. City of Monticello, Ky., 259 S.W.2d 486; 19 Am.Jur., Estoppel, §§ 166, 167, 168; 31 C.J.S. Estoppel § 138. See Annotation, 1 A.L.R.2d 338. The principle has been often applied to different states of fact. Of particular authority for holding in the present case that the surety is not discharged by the negligence or omissions of the public officials are Commonwealth v. Tate, 89 Ky. 587, 13 S.W. 113; Wade v. City of Mt. Sterling, 33 S.W. 1113, 18 Ky.Law Rep. 377; Fidelity and Deposit Co. of Maryland v. Commonwealth, 104 Ky. 579, 47 S.W. 579, 20 Ky. Law Rep. 788; Gay v. Jackson County Board of Education, 205 Ky. 277, 265 S.W. 772; Bennett v. County Board of Education of Harlan County, 273 Ky. 143, 116 S.W.2d 302; 67 C.J.S. Officers §§ 165, 171, Discharge of Sureties; 43 Am.Jur., Public Officers, § 427. The facts in Federal Surety Co. v. Board of Education of Marshall County, 222 Ky. 502, 1 S.W.2d 954, are strikingly like the facts in the instant case. The act of the public officials in lulling the surety into renewing the sheriff's bonds for the following year by concealing the known facts of the previous defalcations is inexcusable from the standpoint of good faith and ethical conduct. It is defensible legally only on the ground that they were acting under the cloak of officialdom and the doctrine of public protection recited above. The appellee insists that the company voluntarily renewed the bonds without inquiry as to whether there had been any irregularity or dereliction on the part of the sheriff in accounting for taxes he had collected and should not be heard to complain. In the commercial world it is not necessary to enable a surety to avail himself of the defense of fraudulent concealment that the obligee should have actively solicited the surety to become bound on the bond. Bellevue Building & Loan Association v. Jeckel, 104 Ky. 159, 46 S.W. 482, 20 Ky.Law Rep. 460. But the surety company knew, or should have known, that equitable estoppel has no application to public officials, as above declared, and governed itself accordingly. The surety cannot, therefore, be relieved of liability for the failure of its principal to account for taxes collected for the year 1955-1956. There is a difference here from the officials' omission to give notice within ninety days of the 1954 defalcation. Here the concealment of the previous default did not violate a statutory duty or a condition precedent to recovery on the contract of suretyship, a provision which is consonant with public policy. Wilhoit v. Furnish, 295 Ky. 356, 174 S.W.2d 515, 149 A.L.R. 941. To the extent of the $16,116.44, the amount adjudged for the year 1954-1955 shortage, the judgment is reversed. To the extent of the balance of the judgment, i. e., for taxes collected for the year 1955-1956, the judgment is affirmed. MOREMEN, STEWART and PALMORE, JJ., dissenting. PALMORE, Judge (dissenting in part). The doctrine that in their dealings with the public the arms and agencies of the state are held to different and lower moral standards than those that are binding upon everyone else is an offensive anachronism. If it cannot be defended from the standpoint of good faith and ethical conduct, as the majority opinion admits, then it is an ugly parasite on the face of the law and ought to be removed. As the rule was created by the courts in the first place, and continues in force by no other authority, it is right and proper that the injustice  be likewise corrected by the courts. I therefore dissent from that portion of the foregoing decision which holds the principle of estoppel inapplicable to the acts of public officials. STEWART and MOREMEN, JJ., concur in this dissent.