Williams v. Hitchcock, 86 Wash. 536, 150 Pac. 1143 (1915).


      [No. 12276. Department Two. August 11, 1915.]

C. M. WILLIAMS, Appellant, v. GEORGE C. HITCHCOCK et al.,
                         Respondents. 1

RECEIVERS - RECEIVER'S BOND - LIABILITY OF SURETIES - ESTOPPEL.
Sureties on a receiver's bond, who intrusted the bond to the
receiver for the purpose of securing the signature of the wife
of one of them before filing, and who failed to examine the
record and repudiate their liability for failure to secure the
signature, cannot be heard to say that creditors, not parties
to the suit, for whose benefit the bond was given, should have
examined the record so as to know that the bond was defective;
and the sureties, as the one of two innocent parties who made
the injury possible, must suffer the loss.
SAME, A consent in open court to an order making permanent
a temporary appointment of a receiver, upon which was based a
finding, without exception, that the temporary bond was a good
and sufficient bond to protect all parties concerned during the
continuance of the receivership, followed by judgment accepting
the bond accordingly, is a ratification of the bond and precludes
the parties to the action from asserting, as against creditors,
that it was invalid for want of the signature of one of the
sureties.

HUSBAND AND WIFE - COMMUNITY PROPERTY - LIABILITY - SURETYSHIP.
A receiver's bond signed as surety by the husband as a plaintiff
in an action to prevent the dissipation of the assets of a
corporation, one-half of the stock of which was the community
property of himself and wife, was given for the benefit of the
community estate, and was therefore a community debt without
execution of the bond by the wife.

COSTS - ON APPEAL. Where appellants sought a community as
well as a personal judgment against a married woman, and on appeal
were awarded judgment against the community only, the respondent
wife is entitled to recover her costs.


1 Reported in 150 Pac. 1143.

                WILLIAMS v. HITCHCOCK.                537
 Aug. 1915          Opinion Per ELLIS, J.

Cross-appeals from a judgment of the superior court for
Clallam county, Ralston, J., entered March 5, 1914, upon
findings in favor of the defendants, in an action on a
receiver's bond, tried to the court. Affirmed on defendants'
appeal and reversed on plaintiff's appeal.

Van Dyke & Thomas, for appellant.

Cochran & Plummer and James W. Redden, for respondents.

ELLIS

ELLIS, J. - The plaintiff brought this action to recover
from Hitchcock, as principal, and Peter and Thorp and
the marital communities consisting of Peter and wife and
Thorp and wife, as sureties, on a receiver's bond. The
circumstances leading up to the receivership are as follows:

The defendants Peter and Thorp, prior to 1901, were
partners engaged in an insurance, real estate and law
business at Ballard. In May, 1901, they took one Jasperson
as a third member of the partnership. He kept the books
and acted as cashier. In 1905, the profits of the business
having fallen off, Thorp withdrew from the firm, and Peter
and Jasperson incorporated the business under the name
of W. H. Peter & Company, with a capital stock of five hundred
shares of a par value of one hundred dollars each.
Peter owned one-half of the stock and Jasperson the other
half. It appears that, sometime later, Peter and Thorp became
satisfied that Jasperson, prior to the dissolution of
the partnership, had appropriated a large part of the profits
to his own use. Thereupon they brought an action in the
superior court of King county against Jasperson and wife
and certain of his relatives for an accounting. The corporation
was made a party to that suit and, at the instance of Peter and
Thorp, Hitchcock was appointed receiver of the corporation
pendente lite. His bond as receiver was fixed at $5,000. He
qualified as receiver and filed a bond, which, omitting caption
and justification of sureties, reads as follows:

 538    WILLIAMS v. HITCHCOCK.
                Opinion Per ELLIS, J.           86 Wash.

"Know all men by these presents: That George C. Hitchcock,
receiver of Peter & Co., a corporation and W. H. Peter
and - Peter his wife and F. S. Thorp and Eva J. Thorp,
his wife, are held and firmly bound unto the defendants and
the state of Washington in the sum of Five Thousand Dollars
($5,000) lawful money of the United States of America,
to be paid to the said defendants and the state of Washington,
its successors and executors, administrators or assigns,
for which payment well and truly to be made we bind ourselves
our heirs, executors and administrators jointly severally and
firmly by these presents. Sealed with our seals and dated the 28th
day of February one thousand nine hundred and eight.

"The condition of the above obligation is such, that if the
above bounden George C. Hitchcock as receiver of W. H.
Peter & Co., a corporation shall well and faithfully perform
the duties of his said office and perform all orders of the court
concerning said receivership then the above obligation to be
void; otherwise to remain in full force and virtue.

"In testimony whereof we have hereunto set our hands and
seals this 28th day of February A. D. 1908.
                               "George C. Hitchcock           (Seal)
                               "W. H. Peter                (Seal)
                               "F. S. Thorp                (Seal)
                               "Eva J. Thorp                (Seal)"

The bond was filed February 29, 1908. On November 2,
1909, upon the final hearing in that action, the court held
that the claims of Thorp and Peter against Jasperson, on
account of matters arising in connection with the former
partnership, were separate and distinct from the claims of
Peter against Jasperson as an officer of the corporation, and
therefore entered a decree dismissing Thorp as plaintiff because
he had no interest in the corporation, and dismissing
the claims of Peter so far as they related to the former
partnership, but making the receivership permanent, and, with
the consent of all the parties who had appeared in the action,
adopted the original bond given by the receiver as his
bond as permanent receiver.

                WILLIAMS v. HITCHCOCK.                539
 Aug. 1915          Opinion Per ELLIS, J.

During the progress of the receivership, the plaintiff in
this action, C. M. Williams, and Charles F. Zeigler and B. F.
Carpenter obtained three separate judgments against W. H.
Peter & Company, a corporation, and against its receiver.
These judgments were only partially paid, when the assets
of the corporation were exhausted and the court found that
the receiver had made improper use of funds sufficient to
have paid these judgments in full. Thereafter Williams,
for himself and as assignee of the Carpenter and Zeigler
judgments, having first obtained leave in the receivership
proceedings, brought this action to recover on the receiver's
bond.

The case was tried to the court without a jury. The court
made findings in favor of the plaintiff as against all of the
defendants, except Amy V. Peter and the marital communally
composed of W. H. Peter and Amy V. Peter, and rendered
judgment against W. H. Peter individually and F. S. Thorp
and Eva J. Thorp individually, and against the marital
community composed of Thorp and wife. Both parties appealed.

The defendants urge a reversal on the ground that the
evidence shows that, at the time the receivership bond was
signed by the defendants, Jasperson, the principal defendant
in the suit in which the receiver was appointed, and the
attorneys for all the other defendants except the corporation,
W. H. Peter & Company, were present; that it was then
agreed and understood that the bond was not to be delivered
or filed until Amy V. Peter had also signed it as surety; that
the bond was delivered to the receiver, Hitchcock, with that
understanding, and that he, without securing the signature
of Amy V. Peter, filed it as his bond as receiver, without the
knowledge or consent of any of these defendants.

The plaintiff in his appeal urges that the court erred in
refusing to enter a judgment against the community consisting
of W. H. Peter and Amy V. Peter. We shall first
dress ourselves to the question raised by the defendants'

 540    WILLIAMS v. HITCHCOCK.
                Opinion Per ELLIS, J.           86 Wash.

appeal. To avoid confusion, we shall designate the parties
throughout as plaintiff and defendants.

I. The authorities are practically uniform that, where one
signs a bond as surety upon condition that others are to
sign it also, and it is delivered without his consent and
without the additional signatures, it cannot be enforced against
the person who signed, if the obligee had actual or implied
notice of the condition, unless the condition be subsequently
dispensed with by the one who signed. 1 Brandt, Suretyship
& Guaranty (3d ed.), SS 450; Seattle v. Griffith Realty &
Banking Co.,
28 Wash. 605, 68 Pac. 1036; Seattle National
Bank v. Becker, 74 Wash. 481, 188 Pac. 613; Young v.
Smith, 14 Wash. 565, 45 Pac. 45; Pawling v. United States,
4 Cranch 218.

It is also generally held that the fact that the names of
other persons than of those who sign are found in the body
of the bond shows prima facie that the contract is not complete,
and is hence sufficient to put the obligee upon inquiry
and charge him with notice that those who signed may have
done so only on condition that the other parties named therein
would also sign it, thus opening the door to extrinsic evidence
of that fact. 1 Brandt, Suretyship & Guaranty (3 ed.), SS 461;
Young v. Union Say. Bank & Trust Co., Wash. 860, 68 Pac. 247;
Sharp v. United States, 4 Watts (Pa.) 21, 28 Am. Dec. 676,
and note, p. 679.

Some of the foregoing authorities, and many others which
might be cited, hold that, when a bond containing in its
body names of others than the signers is delivered to the
principal named therein, with the understanding that he is
to secure the signatures of such others as additional sureties
before delivery, the delivery to him is in escrow; that if he
deliver the bond without securing the other signatures, his
delivery is void as to those who actually signed as sureties
on that condition, and that these can defeat all liability on
the bond by proof of the facts.

                WILLIAMS v. HITCHCOCK.                541
 Aug. 1915          Opinion Per ELLIS, J.

While the foregoing principles are too well established as
general rules to be open to question as between the sureties
and the obligee, it will be noted that they have usually been
invoked against an obligee who in the nature of the case
would be expected to see the bond when it was delivered, and
would hence be charged with notice of its condition. It
seems to us hardly consonant with justice to apply these
rules to bonds given for the protection of persons not parties
to the litigation at the time the bond was given, as is the
case here touching the creditors of the corporation, whose
rights would be left wholly unprotected because of defects in
a bond which, under the circumstances, they could hardly be
expected to examine until the necessity to resort to it for
protection had become imminent. Peter and Thorp themselves
procured the appointment of the receiver primarily for their
own benefit. They and Mrs. Thorp signed the bond and delivered
it to the receiver, trusting him to secure the signature of
Mrs. Peter before filing it, thus making injury to someone
possible. They should be the ones to suffer the consequences
of the receiver's breach of their confidence rather than visit
it on the heads of creditors of the corporation who reposed no
such confidence. It would seem to be a case for the application
of the rule that, where one of two innocent persons must suffer,
he who made the injury possible should suffer it. The filing
of the bond in its incomplete condition as a part of the record
in the receivership proceeding is the only thing which could
be held as charging the creditors with notice. But surely Peter
and Thorp, who were parties to the suit when the bond was filed
and at whose instance the receiver was appointed, ought, first
of all, to be charged with knowledge of the record which, by
their own neglect, they suffered to be made. Not having examined
the record themselves and repudiated their liability, but having
permitted the court to accept the bond as their bond and on its
faith to put the receiver in possession of the assets of
the corporation, they should not now be heard to say that

 542    WILLIAMS v. HITCHCOCK.
                Opinion Per ELLIS, J.           86 Wash.

the creditors, not then parties to the suit, should have examined
the record so as to know that the bond was defective.

While we have found no case exactly parallel with that
here presented, the principle which we think should apply is
recognized in Richardson v. People's Nat. Bank, 57 Ohio
299, 48 N. E. 1100. It was there held that, in order for a
surety to escape liability on a replevin bond on the ground
of conditional delivery, it is not enough to show notice of the
condition in the sheriff, to whom the bond was delivered, but
that the defendant in the replevin must also be shown to have
had notice. The court (opinion p. 314) said:

"It is too well settled to be questioned, that a surety on a
bond of any kind cannot defeat his liability thereon by showing
that it was delivered in violation of agreements between
himself and the principal, or any other co-maker, unknown
to the party for whose benefit it was given. It will be
sufficient to cite some of the numerous cases on this point:
Bigelow v. Comegys, 5 Ohio St. 256; Harrison v. Wilkin, 69 N.
Y. 412; Dangler v. Baker, 35 Ohio St. 673; Taylor County
v. King, 73 Iowa 153; Smith v. Peoria County, 59 Ill. 412;
Deardorff v. Foresmart, 24 Ind. 481; McCormick v. Bay City,
23 Mich. 457; State v. Peck, 53 Maine 284. In Bigelow v.
Comegys, the decision is placed on what is termed the settled
rule, 'that where one of the two persons must suffer a loss by
fraud or misconduct of a third person, he who first reposes
the confidence, or commits the first oversight, must bear the
loss.'"

In Smith v. Peoria County, 59 Ill. 412, cited by the Ohio
court, the bond, like that here, contained the name of another
as surety whose signature it was agreed between the
surety who signed, and the principal to whom the bond was
entrusted, that the principal should secure the other's signature
before delivery. The principal delivered it without securing
the additional signature. The court, after stating
the principle that the one reposing confidence should suffer
the loss, said:

"There is no actual negligence imputable to the obligee,
and there is none other than the technical neglect of not as

                WILLIAMS v. HITCHCOCK.                543
 Aug. 1915          Opinion Per ELLIS, J.

certaining the extent of the actual authority of a special
agent. And as we hold, the duty of so doing did not exist,
in this case the obligee is not chargeable with even such neglect.
We regard the case as one where the surety must run the risk
of the fraud of his own agent. We deem it the duty
of the signer of an instrument, under such circumstances, to
see to it that the authority be has so delegated is not abused,
and that it is not just nor reasonable to allow him to take
advantage of its abuse to defeat his obligation."

The reasoning of the Illinois court seems to us unanswerable.
But we are not required to go that far in order to sustain the
liability of the sureties on the bond before us. If it
is not negligence for the obligee, as a participant in the res
gestae, to fail to examine the bond for signs of a secret agreement
and then inquire, a fortiori a creditor not then a party
to the proceedings cannot be charged with negligence for
failing to so examine and inquire.

Following the general rule, we would be inclined to hold
that Jasperson, who was a party to the suit when the bond
was filed, should be charged with notice of its contents and
put upon inquiry. There is also evidence tending to show
that he had actual notice of the agreement. Jasperson, however,
was not the only obligee. The bond ran to the state
of Washington and was intended to protect all creditors of
the corporation as well as the defendants in the original
action. These creditors could hardly be expected to examine
the bond, and they cannot be charged with Jasperson's negligence
in failing to do so.

But there is another and a stronger reason why the defendants
here cannot now question this bond. When the
receivership was made permanent, the court found:

"That the gist of the action of the plaintiff W. H. Peter,
as regards the relations of the said Jasperson to said corporation,
is for such accounting and the appointment of a receiver of the
said corporation for the purpose of collecting its assets,
operating its business and the winding up of the affairs of the
said corporation, if the court should so direct.

 544    WILLIAMS v. HITCHCOCK.
                Opinion Per ELLIS, J.           86 Wash.

"That after the commencement of this action, to-wit, on
the . . . . day of . . . . . . . . , by the consent in open court
through their respective counsel of all parties to the action
who have appeared herein, a receiver, to-wit, George C.
Hitchcock, was appointed by this court to take charge of
the affairs of said corporation pending the final hearing
herein, and that said receiver thereupon qualified as such by
taking the oath required by law and filing a bond as directed
by the court, and that he has ever since conducted the affairs
of said corporation and is still in charge of the same as such
receiver.

"That all of the parties to this action who have appeared
herein do now consent in open court by their respective counsel
that the appointment of said receiver be made permanent."

Among the conclusions entered on the foregoing findings
is the following:

"That the bond heretofore furnished by the said George C.
Hitchcock as such receiver is a good and sufficient bond and
ample to protect the interests of all parties concerned during
the further continuance of his receivership, and that all of
the parties to this action who have appeared so agree in
open court by their respective counsel."

These findings and this conclusion were not excepted to
so far as the record shows, and no appeal was taken from
the decree rounded thereon. The decree itself recites:

"That the said George C. Hitchcock is a proper and suitable
person to act as a permanent receiver of said corporation under
the further orders and directions of the court, and
that he is hereby appointed such receiver and that his bond
heretofore given as temporary receiver be and the same is
hereby regarded and accepted by the court as his bond as
such receiver."

The findings and decree show that both Thorp and Peter
were then present in court and represented by counsel.
Whatever may be said as to their prior right to dispute
liability on the bond because it was agreed when it was
originally given that they should not be bound unless Mrs. Peter
also sign it, they must now be held to have ratified it as their
valid bond by their failure to object to the findings, conclusion

                WILLIAMS v. HITCHCOCK.                545
 Aug. 1915          Opinion Per ELLIS, J.

and decree above quoted. Being then present and represented in the
proceedings, they cannot be heard to say that they did not know
that the court was acting upon and adopting this bond as a valid
bond. If they did not intend to be bound by it, it was their
duty then to have examined it and raised the objection which
they now urge. It is true that Thorp was dismissed from that
action by the same decree, on the ground that his right of action
was against Jasperson alone and not against the corporation. He is,
however, as conclusively charged with notice of the fact
that this decree recognized as his valid obligation the bond
which he had signed, as he is with notice of the further provision
of the decree dismissing him from the action.

We bold that the bond is a valid obligation of Thorp and
wife and W. H. Peter, who signed it. So far as the defendants'
appeal is concerned, the judgment must be affirmed.

II. The plaintiff's appeal also raises but a single question,
namely, that the court erred in refusing to enter a
judgment against the marital community consisting of W. H.
Peter and wife and in awarding Amy V. Peter judgment for
her costs.

Peter and Thorp brought the action in which the receiver
was appointed, to secure an accounting from Jasperson and
to enforce the payment of whatever amount might be found
due from him. They procured the appointment of the receiver
in order to prevent the dissipation of the assets of the
corporation. Peter owned one-half of the capital stock of
that corporation. This was admittedly community property of
himself and wife. Every benefit intended to result from that
action and from the receivership would of necessity accrue to
the two communities as such - Peter and wife - Thorp and wife.
The giving of the receiver's bond was an essential prerequisite
to consummate any of the purposes for which the receiver was
appointed. The obligation which Peter assumed as surety on the
receiver's bond was an

 546    WILLIAMS v. HITCHCOCK.
                Opinion Per ELLIS, J.           86 Wash.

obligation incurred by him for the protection of community
property and must, therefore, be held an obligation
incurred on behalf of the community.

In McDonough v. Craig, 10 Wash. 239, 38 Pac. 1034,
this court held that:

"Any liability incurred by the husband in the prosecution of
any business is prima facie a charge against the community; and
that the presumption to that effect will continue in force until
it is overthrown by proof that such liability was not incurred
in any business of which the community would have had the benefit,
if profit had been realized therefrom."

See, also, Oregon Imp. Co. v. Sageister, 4 Wash. 710,
30 Pac. 1058, 19 L. R. A. 233; Horton v. Donohue-Kelly
Banking Co., 15 Wash. 399, 46 Pac. 409, 47 Pac. 435;
Shuey v. Holmes, 15 Wash. 193, 60 Pac. 402; Allen v. Chambers,
22 Wash. 304, 60 Pac. 1128; Shuey v. Adair, 24 Wash.
378, 64 Pac. 536; Anderson v. Harper, 30 Wash. 378, 70
Pac. 965; Floding v. Denholm, 40 Wash. 463, 82 Pac. 738;
McGregor v. Johnson, 58 Wash. 78, 107 Pac. 1049, 27 L.
R. A. (N. S.) 1022; Peacock v. Ratliff, 62 Wash. 653, 114
Pac. 507; Woste v. Rugge, 68 Wash. 90, 122 Pac. 988;
Bird v. Steele, 74 Wash. 68, 132 Pac. 724.

We hold that the plaintiff is entitled to a judgment not
only against Thorp and wife and Peter personally, and
against the community consisting of Thorp and wife, but
also against the community consisting of Peter and wife.
The court, however, committed no error in allowing Mrs.
Peter her costs. Since the plaintiff undertook to hold her
personally and not merely as a member of the community,
she was compelled to appear and defend in order to prevent
a judgment which would bind her separate estate.

The cause is remanded with direction to modify the
judgment in accordance with this opinion. The plaintiff
will re cover his costs in this court.

MORRIS, C.J., FULLERTON, MAIN, and CROW, JJ., concur.