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NATIONAL SUR. CORP. v. CITY OF ALLENTOWN

November 29, 1939

NATIONAL SURETY CORPORATION
v.
CITY OF ALLENTOWN et al.



The opinion of the court was delivered by: KIRKPATRICK

This is a suit brought by a surety company against three municipalities for the premium upon a bond, which it executed as surety for the Treasurer of the City of Allentown who was, under the law, also tax collector for city, county, poor and school district taxes within the city. The case was tried by the Court, without a jury.

Mr. Kern was elected City Treasurer of Allentown in November, 1935. On November 19, he made written application to the plaintiff for his bond, agreeing to pay a premium of $6,600. The bond was executed on December 24, and on January 6, 1936, Mr. Kern took office.

 No premiums have ever been paid upon the bond, and the plaintiff claims $19,980 for three years' premiums with interest.

 The plaintiff's case is that the City of Allentown had power, under the statute, to bind the School District and the County and did so by approving the bond, obligating all three defendants to pay the premium agreed to by Kern in the application -- in other words ratified Kern's contract on behalf of itself and the other two defendants. In the alternative, the plaintiff claims that each of the three defendants received the protection of the bond and, by permitting it to stand without protest, became bound to pay quantum valebat, the amount of the premium actually charged being a reasonable price for the protection afforded.

 The City's defense is technical. It recognizes a moral obligation for some portion of the premium, but takes the position that the plaintiff, having declared on an express contract, has proved no more than its right to a fair and reasonable premium, and hence can not recover in this suit.

 The position of the School District is (1) that the statute in force prescribed that a City Treasurer must give separate bonds to each of the municipalities whose taxes he collects, and that the single bond given by Mr. Kern to the City was not in compliance with the law, did not enure to the benefit of the School District and cannot be the basis of any claim for premiums against it, (2) that the bond is not the kind of bond required by the statute -- that is, that the law calls for a "faithful performance" bond, *fn1" whereas Mr. Kern's bond was a fidelity bond only -- and hence there is no liability (3) that, even if the bond is in substantial compliance with the law, the School District is not liable for the agreed premium because it never ratified Kern's agreement, either by its own act or through the agency of the City; but that, if liable at all upon a quantum valebat, it is liable only for what would be a reasonable premium upon a fidelity bond -- an amount much less than the plaintiff claims.

 The defense of the County is substantially the same as that of the School District.

 The facts themselves are not in dispute, but the inferences to be drawn from them, particularly as to ratification, are.

 The first question is whether the applicable statute of Pennsylvania authorized one fidelity bond, for the benefit of all three municipalities, or whether three separate bonds, each in the nature of a faithful performance bond, should have been given.

 The Third Class City Code of 1931 of Pennsylvania, 53 P.S.Pa. § 12198 -- 101 et seq., made all city treasurers also collectors of city, school and poor taxes assessed within their cities. Their bonds are dealt with in Article XIV, Sec. 1402, and in Art. XXV, Sec. 2553 of the Code, 53 P.S. Pa. §§ 12198 -- 1402, 12198 -- 2553.

 It is quite plain that the intention of the Act was that a city treasurer should give a bond as city treasurer and collector of city taxes and also separate bonds to the school district and the county in respect of the school taxes and poor taxes which he would have to collect -- three bonds in all. The provision of Sec. 1402, which reads, "The city treasurer shall be required to give but one bond to the city which shall include his duties as city treasurer and collector of taxes" merely means that he does not have to give one bond to the city as city treasurer and a second bond to the city as collector of city taxes. Sec. 2553 provides for the fixing of the amount of the bond, severally, by the three municipalities involved -- a provision which would be impracticable unless separate bonds were contemplated.

 The character of the obligation required, under the 1931 law, of the officer and his sureties is plainly what has been described as a faithful performance bond (see Sec. 1402.) The provision is that the surety is to assume the obligation that the city treasurer, as tax collector, "shall well and truly collect and pay or account for the whole amount of taxes charged and assessed in the duplicates * * *".

 Thus, prior to the 1935 session of the Legislature a city treasurer was required to give separate faithful performance bonds to the city, school district and county, respectively. This kind of bond, of course, involves a greater liability to the surety than an ordinary fidelity bond, and therefore would justify a higher premium.

 The Act of June 21, 1935, P.L. 363, was the first of two amendments enacted by the Legislature of that year, changing the law relating to city treasurers' bonds. It expressly repealed Sec. 2553 of the City Code of 1931. It did not repeal Sec. 1402 and it did not change the general requirement that the bond should be conditioned for the "honest and faithful discharge of his official duties" (a provision which might apply both to his duties as treasurer and as tax collector), but it very greatly narrowed and carefully defined and limited the obligation to be assumed with respect to the collection of taxes. Under it a treasurer's (and his surety's) obligation would be fully met if the treasurer paid over to the proper authorities all taxes which he actually ...


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