Hopkins v. National Surety Co.

For convenience we state the preliminaries by quoting as follows from Horsthemke v. National Surety Co., 151 La. 55, 91 So. 544, since in that particular the facts are identical in both cases, to wit:

I. By an ordinance, No. 2346, adopted by the commission council of the city of New Orleans April 27, 1915, regulating the transportation of passengers for fares in that city, it is provided that persons or corporations engaged in the business of transporting passengers shall file with the commission of public safety an indemnity bond for the sum of $5,000 for each and every vehicle used in such business —

"The said indemnity bond or bonds to be executed by a surety company or companies duly authorized to do business in the state of Louisiana, payable to the city of New Orleans, and shall contain stipulation that in the event any person or persons who may sustain damages to his or their persons or property as the result of the fault of the person, firm, association of persons, or corporation concluding said business or his or their agents, servants or employees, he or they shall have his or their right of action on said indemnity bond as fully and to the same extent as if said bond was made and executed directly in favor of the claimant of such damages. * * *"

In accordance with the provisions of that ordinance, the New Orleans Railway Light Company executed the bond which is involved in this case, with the National Surety Company as surety, the condition whereof is in the following language:

"Now therefore the condition of this instrument is such that if the principal indemnifies the obligee, or any person or persons who sustain damages to his or their person or property as a result of the fault of the principal, its agents, servants or employees in any amount not to exceed the sum of five thousand dollars * * * then this instrument shall be null and void, otherwise to remain in full force and effect. * * *"

And again: "The provisions of the ordinance must be read into the bond, and they fix the rights as well as the obligations of the surety." (The ordinance may be seen in full in Le Blanc v. City of New Orleans, 138 La. 247, 70 So. 212).

II. On January 2, 1922, plaintiff obtained final judgment against the New Orleans Railway Light Company for $10,000, with interest, etc. See Hopkins v. N.O. Railway Light Co.,150 La. 61, 90 So. 512, 19 A.L.R. 1362.

On June 4, 1923, plaintiff obtained final judgment also against National Surety Company (defendant here) for $5,000. See Hopkins v. National Surety Co., 154 La. 61, 97 So. 297.

The judgments speak for themselves; and show that the railways company was condemned as principal for $10,000, and the surety company (this defendant) as surety up to the sum of $5,000.

III. After the judgment of June 4, 1923, plaintiff issued execution against the surety company; and the latter at once enjoined the seizure on the ground that plaintiff had compromised and settled with the principal, thereby discharging the surety.

Plaintiff thereupon applied to this court for a rule upon thedistrict judge and counsel for the surety company to show cause why they should not be held in contempt of this court. Which rule was, of course, promptly denied.

The surety company now pleads the action of this court, on the rule for contempt against the counsel, as res judicata upon the issues involved in the injunction; which plea is deserving of, and will have, no more serious consideration than the rule itself.

IV. Of course, where the creditor voluntarily compromises with the principal, or otherwise voluntarily discharges the debt, then the surety is entitled to his release. R.C.C. 3062.

But it is a wholly different matter where the creditor simply takes from the principal debtor all the latter has to give (and therefore all the creditor can possibly get), and then looks to the surety for the balance of the debt.

Under the system prevailing in this state, that is precisely what the creditor is obliged to do; since he cannot resort to the property of the surety until he has first exhausted that of the principal, unless the surety has expressly agreed otherwise. R.C.C. 3045.

V. The facts are that during all these proceedings the railways company was in the hands of a receiver appointed by the federal court for this district; that, whilst plaintiff's suit against the surety company was pending on appeal before this court, the railways company was reorganized for the purpose of taking it out of the hands of the receiver; that the ordinary creditors of said railways company were tendered common stock, at par, in the new corporation (New Orleans Public Service, Incorporated); that if they failed to take this, they would likely (almost certainly) get nothing; that plaintiff advised defendant herein of that situation, and offered defendant to cede it her claim against the railways company, on payment of her judgment against it (which, however, was whollyunnecessary, since the surety company had a direct right of action against said railways company, R.C.C. 3057, Nos. 1 2); that plaintiff received in full for her judgment $11,338.84 in stock of said new company; that plaintiff offered said stock to defendant at par, who refused to take it; that thereupon plaintiff sold said stock for $8,163.96, the best price obtainable, and then issued execution against defendant as aforesaid.

All of which has, of course, none of the elements of a voluntary remission or compromise of the debt with the principal (R.C.C. 2205, 3076), but, on the contrary, evidences a bona fide effort on the part of plaintiff to reduce as far as possible the ultimate liability of the surety, as both equity and law require (R.C.C. 3045).

VI. Defendant contends that according to the condition of its bond, as set forth in paragraph I of this opinion, it was discharged as soon as plaintiff recovered as much as $5,000 from the railways company; said condition being that —

"If the principal (railways company) indemnifies * * * any person * * * who sustains damages * * * in any amount not to exceed $5,000, * * * then this instrument shall be null, etc."

This contention is not sound, for it fails to take into account that —

"The provisions of the ordinance must be read into the bond, and they fix the rights as well as the obligations of the surety." Horsthemke Case, ut supra.

And that ordinance, though fixing the amount of the bond to be furnished at $5,000, yet requires that —

said bond "shall contain a stipulation that in the event any person or persons may sustain damages, * * * he or they shall have his or their right of action on said indemnity bond as fully and to the same extent as if said bond was made and executed directly in favor of the claimant for such damages."

Of course, the amount of said bond limits the extent of surety's liability thereunder; but we may search the ordinance in vain for any clause therein limiting the right of action therein to persons who have been damaged not exceeding $5,000, or denying a cause of action upon said bond to any person who shall have been indemnified by the principal up to the sum of $5,000. Andthat is just the meaning which this defendant now seeks to give to the bond executed by it.

On the contrary, the ordinance (which is the only measure of the surety's liability) very clearly gives a right of action on said bond to "any person * * * who may sustain damages," regardless of the amount of such damages; and nowhere restricts said cause of action to such only as shall not have been able to collect as much as $5,000 from the principal of the bond.

VII. Of course, this defendant, notwithstanding the judgment of June 4, 1923 (154 La. 61, 97 So. 297), is liable only for such balance as may still be due upon its claim against the railways company; for that judgment must be read in the light of the pleadings upon which it is based, and as surety this defendant owes no more than that. R.C.C. 3037.

VIII. As the execution issued herein for the full sum of $5,000 (also for 10 per cent. attorney's fees thereon, which we expressly rejected), defendant was, of course entitled to some relief; but not to the relief sought for.

It should have proceeded by rule to have the execution reduced to such amount as it actually owes. That amount is clearly the difference between the par value of the stock received by plaintiff and the price for which she sold it, to wit, $3,174.88; together with legal interest thereon from January 13, 1923, and her costs in the proceedings against the National Surety.

Decree. The judgment appealed from is therefore reversed; and the injunction herein sued out is now dissolved; reserving to the National Surety Company the right to have the execution herein issued reduced to the amount due as hereinabove set forth. National Surety Company to pay costs.

On Rehearing.