Aetna Indemnity Co. v. State ex rel. Gillaspy

1. Guardian and Ward. Bond. Liability covered. Conversion: Bond given after actual conversion. Code 1906, Sec. 2407. Where a chancery court proceeding under Sec. 2407, Code of 1906, requires a guardian to execute a new bond,, such new bond has no retrospective effect unless such bond plainly indicates an intention that it should have such effect. 2. Same. Where it is plain that a guardian converted the funds of his ward to his own use while acting as guardian under the first bond and afterwards gives a second bond, the sureties on the second bond are not liable for such conversion but the sureties on the first bond are liable. 3. Same. Where when the second bond was given the actual conversion of the wards’ property had taken place under the first bond, but the guardian was solvent and fully able to pay the amount then, due. the wards and the amount was lost to them because the guardian failed and neglected to pay over the amount to them as he should have done, in such case the sureties on the second bond are liable, as well as the sureties on the first bond. 4. Guardian ad Litem. Next friend. Actions. When a person bringing suit for a minor ward styles himself in the pleadings as “guardian act Mem,” when in fact he is suing as “next friend,” he will be treated as such and the courts will not look with critical eyes on the characterization which the next friend chooses to give himself in the pleadings.

Appeal from the chancery court of Newton county. Hon. Sam "Whitman, Jr., Judge. Suit by the state for the use of Eva Mae Gillaspy and others against the Aetna Indemnity Company and others. Judgment for plaintiffs against the Aetna Indemnity Company and suit dismissed as to the other defendants. The Aetna Indemnity Company appeals and plaintiff prosecutes a cross-appeal. The facts are fully stated in the' opinion of the court. The case of the State v. Shackleford, reported in 56 Miss, 648, and the case of McWilliams v. Norfleet, reported in 60 Miss. 987, both hold that the surety on a substituted guardian’s bond is not liable for defaults or conversions occurring before the execution of the bond; and the case of State v. Shackleford, supra, further holds that since the surety is not liable for the value of the property or money converted by the- guardian to his own use, the surety is not liable for the failure of the guardian to render an account of it. These cases, so far as we know, have never been criticised or overruled, and are the law in this state at the present time; and if so, then the Indemnity Company is not liable for the ■default of the guardian in converting said sum of one thousand seven hundred twelve dollars and thirteen ■cents belonging to each of his wards, prior to the execution of the substituted bond, nor is the Indemnity Company liable for the failure of the guardian to render an account of the sum so embezzled by him. The above cases, as we understand it, dispose of the first two questions above stated, and the only remaining question is as to whether or not the Indemnity Company is liable for the failure of the guardian to collect from himself, as an individual, the sum previously converted to his own use. The case most nearly analagous to the proposition last •above presented, is the case of McWilliams v. Norfleet, reported in 63 Miss. 183. The facts of that case were as follows: “In 1869, E. A. Eoberts was made the guardian of ■ Belle T. Means and her two sisters, minors, and executed the required bond. In 1872, Eoberts and Anderson entered into a partnership for the purpose of carrying •on a general merchandise business. Eoberts, without any order of court, loaned the firm of Eoberts & Anderson, of which he was a member ten thousand dollars of money belonging to his wards, taking the note of the firm therefor, payable to him, as guardian. In February 1.873, E. E. Chew was taken into the firm as an equal partner, and the business of the old firm merged into that of Eoberts, Anderson & Chew. In April 1873, Eoberts, of his own motion, appeared before the court and ■executed a new guardian’s'bond with J. P. Norfleet, E. O. Woodson, J. E. Daugherty, W. S. Puryear, J. D. Fennell, and Jas. B. Potts as sureties. Both Eoberts and Anderson were solvent long after the execution of this new bond, but Eoberts made no effort to collect the note. In 1880, Eoberts, and the firm of which he was a member, failed. Mrs. Belle T. McWilliams, formerly Belle T. Means, exihibited a bill against Eoberts, praying for a final settlement of his account as guardian, and made the sureties on the second bond parties to the suit. ’ ’ In passing upon the facts of that case, the supreme court speaking through Arnold, J., holds the following-language : “A guardian’s bond imports responsibility for losses-occasioned by negligence or inattention,- as well as for tbe corruption of tbe guardian. It cannot be that a breach of tbe first bond confers an infraction of tbe latter. They are liable not only for tbe money and assets of tbe wards’ estate, which actually came into tbe bands of Eoberts, but also for such as he might and could have collected and reduced to possession by a faithful administration of bis office. Any other doctrine would be a. novelty in tbe law in relation to guardians and trusts. “The record shows that when the second bond was executed Eoberts seld a note for ten thousand dollars payable to him, as guardian, made by a solvent firm of which he was a member, for money of his wards previously lent him without an order of tbe court for that purpose, and that for several years afterwards tbe note-could unquestionably have been collected by proper attention, and that Eoberts made no effort whatever to collect the note and that the money due thereon was lost. The sureties on tbe second bond are liable for tbe amount of the note and interest theréon at ten per cent, as well as for other money collected by.tbe guardian; they became sponsors for bis fidelity.” As we understand it, tbe difference between the case-just quoted from and the case at bar, is this, to-wit: That in the McWilliams case, the guardian had dealt with the fund in bis bands as trust funds. He bad loaned the money at interest to the firm of Eoberts & Anderson, and bad. taken tbe note of Eoberts & Anderson for the amount loaned, payable to himself, as guardian. In that case, there was all the time a trust fund of ten thousand dollars actually in existence, represented by the indebtedness of the firm of Eoberts & Anderson to the guardian, as evidenced by the note payable to Eoberts as guardian. There was no conversion of the fund at all, but there was simply a loan made by the guardian of the funds of of the wards, without authority of court, and all the duty that he owed was the duty of using reasonable diligence in the collection of the amount due on this note; and the court held that because he could have collected it, and made no effort to collect it, he and his sureties were liable for the amount of the note, which was lost. In other words, the court placed the ground of liability in that case on the negligence of the guardian in failing to collect a note payable to himself, as guardian, and the same result would have been reached and the same rule applied, if the court, in the first instance, had authorized the guardian to make the loan that was made, or any other loan. In this case, however, there was not at the time of the execution of the substituted bond, any trust fund in existence, excepting the sum of one hundred and ten dollars and sixty-eight cents for each of the wards. The guardian had long prior thereto embezzled and converted all the funds in his hands to his own use, excepting the said sum of one hundred and ten dollars and sixty-eight cents for each of his wards. He did not recognize or treat any sum other than the one hundred and ten dollars and sixty-eight cents as trust funds. So far as the estate of the wards was concerned it had been wholly confiscated and embezzled prior to the. execution of the substituted bond, with the exception of the said sum of one hundred and ten dollars and sixty-eight cents; and because of that fact the guardian and the sureties on his original bond had become and then was. absolutely and unconditionally liable to the wards for the conversion and confiscation of their estate, and no order of the court made ex parte could relieve them or either of them from this liability. Iu the McWilliams case, at the time of the execution of the substituted bond, Eoberts, as guardian, held, as guardian, a note payable to himself, as guardian, for ten thousand dollars which was a part of the assets of the estate of his wards in his hands, for which he was bound to account to the court, and touching the collection of which, it was his duty to exercise reasonable care and diligence. In this case, at the time of the execution of the substituted bond, there was nothing in the hands of the guardian, as guardian, excepting the sum of one hundred and ten dollars and sixty-eight cents for each of his wards. He did not recognize the funds in his hands as trust funds at all, but claimed and used, and continued to claim and use the same as his own property and not as the property of his wards. The liability of himself and the sureties on his original bond had become fixed and absolute and nothing was ever done by the guardian or any one else to change that status in the least. The liability of the sureties on the original bond could not. be shifted to the surety on the substituted bond by an ex parte decree of the court, or by any other act short of a special undertaking on the part of the surety in the substituted bond to that effect. It seems to us that there is no escape from the proposition that the sureties on the original bond are liable to the wards for the conversion of the funds by the guardian prior to the execution of the substituted bond. And if court should also hold that the surety in the substituted bond is also liable because of the failure of the guardian to collect the amount so embezzled by him, from himself, then the effect of such holding will be that the substituted bond was not, in fact, a new or substituted bond at all, but was an aditional bond or security. This is a three cornered fight; the appellant, the Aetna Indemnity Company, contends that it is not liable bnt that cross-appellants, J. B. McAlpin et al., are liable, and J. B. McAlpin et al., cross-appellees, contend that they are not liable but that the Aetna Indemnity Company appellant, is liable, and appelees contend that they are both liable to them. The proof in this case established beyond a doubt that G. M. Gillaspy, guardian, was abundantly able to pay to his said wards every cent he was due them from the time he became guardian up to a few months before his death. That at the time the Aetna Indemnity Company’s bond was given, he was solvent and was ready and willing to settle with his wards or the court, had he been required to do so. Counsel for appellant seem to think that because the guardian deposited the money in the bank in his own name and then drew it out in his own name, he, therefore, embezzled the money before the giving of the bond by appellant, and it is therefore not liable. This reasoning is manifestly unsound; when he placed the money in the bank to his individual account it necessarily follows that he must draw it out in his individual name. As to whether he drew it out of the bank for the purpose • of investing it, as the law requires him to do, for the benefit of his wards, the record is silent. The only penalty visited upon him for this negelect of duty is fixed by the section of the Code just quoted. This penalty, visited upon the guardian for using and mingling his wards’ property with his, is upheld in the cases of Garland v. Norman, 50 Miss. 238; Boyd v. Hawkins, 60 Miss. 277; Jamison v. Glover, 46 Miss. 510. It is an elementary principle of law that the bondsmen of a guardian are liable for the neglect or failure of the guardian to collect any outstanding indebtedness due the ward where the same could have been collected, liad lie exercised reasonable diligence. It is as much the duty of the guardian to collect outstanding debts as it is to protect and care for that which is in his possession. A guardian failing in this is liable on his bond for any sum he might have collected by the exercise of reasonable diligence. G-. M. Gillaspy, the individual, and G. M. Gillaspy, the guardian, in law, are two separate and distinct individuals. When he was acting in the fiduciary character as guardian he must deal with claims, debts, etc., held against his wards’ estate by himself in the same manner as if they were held by strangers, and failing to do so and loss occurs, his bondsmen must make it good. Under the testimony in this case there cannot be a shadow of a doubt, that at the time of the giving of this bond by appellant, the Aetna Indemnity Company, and for. a long time thereafter, G. M. Gillaspy, guardian, could have collected every dollar of this money, out of G. M. Gillaspy, the individual, and failing to do this he breached his bond and appellant is liable for said breach. If the guardian still had the funds in his power, though he had already wrongfully used or converted them, he will be liable for them on the new bond. Can there be any doubt, in this case that this guardian still had these funds in his power in view of the testimony in this record. I quote the following from the. 15th volume, pages 116 and 119 of 2nd edition of the American and English Encyclopedia of Law. “Additional and Substituted Bonds, — Where additional bonds are required and given, the former bond continues to be security for the entire management of the estate. If the new bond is a substitution for the oíd, instead of an addition to it, though the old bond may be discharged upon the substitution, the sureties continue to be liable for any default already committed, but not for subsequent defaults. The carrying forward into later balanced sums already converted which are lost, will not relieve the sureties on the former bond from liability. In either case the new bondsmen are liable for all defaults which occur after the giving of their bond, and if the guardian still has the funds in his power, though he had already wrongfully invested or converted them, he will be liable for them on the new bond; so he will be liable on such bond for a former misappropriation if he carried forward the balance to his later account.” The authority just quoted holds that “if the guardian still has the funds in hi's power, though he had already wrongfully invested or converted them, he will be liable for them on the new bond.” This doctrine is upheld in the case of Parker v. Medskbr, 80 Ind. 155; State v. Dennis, 58 Mo. App. 568; Clark v. Wilkerson, ■69 Wis. 543. We contend that under the state of facts shown by the record in this case that the new bond is not alone liable but that the old - one is equally liable because if there was a conversion prior to the giving of the new bond or if the placing of the money in the bank by the guardian to his individual credit was a misappropriation thereof, then that alone makes the old bondsmen liable to the full penalty, of their bond; or if they failed to show what became of the one hundred and ten dollars and sixty-eight cents shown to be in the hands of the guardian on November 20, 1902, the old bondsmen are liable for that. This guardian filed a second and last annual account on the 20th day of November, 1902. This was long before the giving of the new bond. He never at any time after the 20th of November, 1902, filed an annual account notwithstanding the law explicitly requires a guardian to report at least once every year, nor di'd his bondsmen make a report after his death as required by law. Every guardian is required under the law, to make a true account and if .he fails to do so and a loss is occasioned thereby, he is liable on his bond. One of the conditions of every guardian’s bond is, that he shall make true accounting, fmd if it is not written on the face of the bond, the law writes it there. If he fails to comply with this requirement the bond is breached and all loses sustained are recoverable from the-bondsmen. And this is the only sane and reasonable rule. I quote the following from the 15th volume of the American and English Encyclopedia of Law, page 119,. 2nd edition: “But whether the guardian is in any event, liable on the new bond for the entire funds of the estate, though the loss occurred before the giving of the new bond and though the balance was not carried forward to the later account, is a question upon which the authorities are not entirely harmonious. The prevailing rule holds him liable on the grounds of his obligation to make true account, but in a few jurisdictions the contrary rule prevails.” This is the' rule laid down by the courts of all the states, except perhaps Indiana and Mississippi. The case of Parker v. Medsker, 80 Ind. 155, seems to be in conflict with Armstrong v. State, 7 Blackf. (Ind.) 81 and the cases of McWilliams v. Nor-fleet, 60 Miss. 987; State v. Shackleford, 56 Miss. 648, seems to be somewhat in conflict with Hull v. State, 53 Miss. 262. The Mississippi cases just referred to were decided under a different statute to the one under which we are now operating. This perhaps, is the reason why our court seems to have gotten out of line, on this proposition, with the great weight of' authority. Sec. 17, Art. 145, Code of 1857, speaking of guardian’s bond concludes with these words, “and a new guardian appointed by the new bond shall only operate for the future, the original sureties being bound for all breaches of the first bond.” Sec. 1212, Code of 1871, uses this language: “If the new bond be given, the, sureties on the former bond shall not be liable thereon, except as to all acts of the guardian up to the time of executing the new bond.” Sec. 2101, Code 1880, concludes with these words, “But the new sureties shall only be bound for the future, the original sureties being bound for all breaches, of the first bond.” This idea of the statute was left out of the Code of 1892, Sec. 2190, and the Code •of 1906, Sec. 2407. The statute under which we are now operating reads as follows: “The court by which a guardian was appointed, may, for sufficient cause, remove him after having him cited to appear; and if the court should ascertain that the sureties of a guardian were insufficient at the time the bond was executed, or have since become so, or are of doubtful solvency, it may require the guardian to give a new bond; and if he refuse or neglect to do so, he may be removed. If the sureties of any guardian apprehend danger and desire to be discharged, they may petition the court for that purpose and the guardian shall be cited; and if, on hearing the court should be of opinion that the complaint is well-founded, the guardian may be required to give a new bond, and, on failure to do so, may be removed.” In the case of Matthews et al. v. Malden 'et al., 4 Am. and Eng. Ann. Cas. 344, the court held, “When the sureties on the bond of a guardian petition the probate court that the guardian give a new bond and a new bond.is filed, the sureties on the old bond are liable for any devastavit prior to the approval of the new bond. But in such a case the sureties on the new bond are liable for a conversion of the trust funds before the making of the new bond, upon the ground of the guardian’s obligation to make true account.” This case is almost identical with the one under consideration. I respectfully call the court’s attention to the notes cited under this Alabama case and especially to the reference made to Mississippi statute. Counsel devote a great deal of their brief to the question of the guardian ad litem. I deem it useless to discuss this proposition at any length. He is clearly mistaken as to how the suit was brought. This case is in the name of the state of Mississippi for the use and benefit of the two minors, Eva Mae Gillaspy and Garland Gillaspy, and Leila Gillaspy Rivers, an adult, and as to whether the name of the guardian ad litem appears or does not appear is wholly immaterial. This question was raised in the lower court by a general demurrer and the court very properly decided that there was nothing in the proposition, and if there was it could not be reached by a general demurrer, such a demurrer as went to the whole bill. I deem it useless to discuss this question to any great length or to cite authorities. The demurrer of appellant went to the whole bill ^ certainly Mrs. Leila Gillaspy Rivers who was an adult at the time of filing the bill, had a right to maintain her action against the appellant. It would have been manifestly wrong for the chancellor to have sustained the demurrer and dismissed the bill. If appellant really desired to have the bill dismissed because J. R. Rowzee’s name appeared therein, as guardian ad litem, a special demurrer should have been filed. If there is any merit whatever in counsel’s contention on this point, he is too late, the opportune time has passed. What difference could it possibly make whether Rowzee is designated as guardian ad litem or next friend. Appellants cannot possibly suffer by reason of him being designated as guardian ad litem; if he was designated as next friend he would be under no bond. The question of the liability of appellant and the question of the guardian ad litem are the only questions argued in appellants’ brief and I assume that they have abandoned all other questions, if there be any shown by the record. At the time the new bond was executed and up to the time shortly prior to his death, the said Gillaspy was amply able to pay all sums due these minors, and could have been made to pay them had he been compelled to do so. No other sensible conclusion can be reached touching the liability of the surety on the last bond for the entire loss due said minors than that the estate was squandered and lost after the new bond was given, and was so squandered and lost because the said guardian did not comply with the obligations of his bond and the law in accounting faithfully to the court for his conduct in the administration of the said estates. To sustain this contention, we' have only to cite the court to the authorities in the brief filed for the benefit of the said minors by appellee and cross-appellants in this cause. See See. 2407, Code 1906, Sec. 2190, Code 1892, as compared to similar sections of Code of 1871 and 1880. McWilliams v. Norfleet, 60 Miss. 987 and-63 Miss. 183 as well as the Alabama, cases and notes thereunder, relied on by counsel for direct appellants, support our contention. The contention that the guardian converted the estate of the wards to his own use by placing the check received for timber in the bank to his own credit and drawing the same out on his individual check, is wholly untenable for the reason that he comes into court after that and files his inventory, and is charged up with the full amount due each of said wards on account of the said timber. Then, too, the check was made payable to him individually, he having an interest in the said timber; and if he placed the same in the bank to his own credit, as he had a right to do, then he had an equal right to check it out in his own name. The proof is overwhelming that the sureties on the first bond required a regular accounting to be made to the court and that the surety on the last bond failed to do so. Also the surety on the last bond made an investigation of the solvency of the said guardian, and of the condition of the said estate at the time the new bond was executed and with full knowledge of the facts, it executed a bond in a sum sufficient to cover the entire estate. Also, that the said guardian was amply able at the time the new bond was given to have made full and complete settlement with each of said minors, had he been required to do so by the court or by the surety on the last bond; and not having made any effort to have a proper accounting made to the court or a proper settlement made with said minors, as required by law and by the obligations of the new bond, the said Aetna Indemnity Company is liable for the entire loss, and the chancellor’s finding in this cause should therefore be affirmed.