Request By:
Honorable Scotty Baesler
Mayor
Lexington Fayette Urban County Government
The Municipal Building
136 Walnut Street
Lexington, Kentucky 40507
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter asking whether the Lexington Fayette Urban County Government is required to execute an indemnity bond in order to obtain a duplicate check to replace one issued by the state which never reached the Division of Accounting and is presumably lost. A check was issued by the Treasurer of the Commonwealth to the Urban County Government on July 15, 1980, for the sum of $13,054.06. The check was never received by the Division of Accounting in Lexington. Officials in Frankfort asked the local government to sign a form which would require the local government and two individuals to guarantee and bind themselves unto the Commonwealth that they would make good any loss that might be sustained on account of the issuance of a publicate check.
You state that the letter from the State Treasurer, requiring that the Urban County Government execute an indemnity bond, is based upon OAG 72-757 which relies upon the case of
Gibony v. Commonwealth, Ky., 91 S.W. 732 (1906). You point out that this case has not been cited as authority in any other case.
It is your position that the local government should not have to execute an indemnity bond. You maintain that the state can protect itself by issuing a stop payment order, thereby shifting the responsibility to the bank. You next cite KRS 41.370 which provides in part that any check issued by the State Treasurer shall not be valid as an order for payment after one year from its date of issue.
It is your opinion that there is no requirement that the Urban County Government execute an indemnity bond to obtain a duplicate check. You cite KRS 411.170, concerning an action on a lost, destroyed, mutilated or defaced writing, stating in part that no action shall be brought upon an instrument transferable by delivery, merely, which is alleged to be lost, destroyed, mutilated or defaced, without a previous tender by the plaintiff to the defendant of an indemnifying bond, with good surety. You state that since the check in question was not transferable by delivery only, KRS 411.170 does not require the execution of a bond as a prerequisite to bringing an action for payment. In support of your interpretation of the statute you cite the cases of
Ficklin v. Nickles, 238 Ky. 591, 38 S.W.2d 456 (1931);
Hill's Adm'r v. Grizzard, 133 Ky. 816, 119 S.W. 168 (1909);
Foster's Adm'r v. Metcalfe, 144 Ky. 385, 138 S.W. 314 (1911).
In OAG 72-757, copy enclosed, we referred to and quoted from
Gibony v. Commonwealth, Ky., 91 S.W. 732 (1906), which held in part that a person may, by executing a bond of indemnity to the Auditor and Treasurer and making proof of the loss of the check, receive of them a duplicate check for the amount due him. We concluded in OAG 72-757, as follows:
"We can find no subsequent cases indicating that the indemnity bond procedure outlined in Gibony is no longer applicable. Thus we must conclude that the ruling in Gibony is still the law in Kentucky, and that the payee of subject check, the Powell County Health Department, if a duplicate check is to be issued, must execute subject indemnity bond. Considering the nature of your functions [see KRS 212.260] as county health officer you are the logical person to execute the indemnity bond as principal. You are the chief administrative and executive officer of the County Health Department."
In 81A C.J.S., States, § 248, dealing with payments by state treasurers, the following appears with reference to "loss of check":
"Where a check issued by the treasurer on a warrant is lost or not received by the payee, the latter is entitled to a duplicate, it has been held, on proving the loss of the original and executing an indemnity bond. "
In footnote 88 (p. 841) the case mentioned in support of the above-quoted material is
Gibony v. Commonwealth, Ky., 91 S.W. 732 (1906).
The Gibony case, supra, is also mentioned in the annotations under KRS 41.160 (issuance and delivery of checks) in both the Banks-Baldwin and the Bobbs-Merrill editions of the Kentucky Revised Statutes. We still cannot find any case indicating that the indemnity bond procedure outlined in Gibony is no longer applicable.
Your reference to KRS 411.170 is not relevant to the factual situation you have presented. Your factual situation, OAG 72-757 and Gibony all deal with the issuance of a duplicate check by the State Treasurer and the conditions under which such a check will be issued. KRS 411.170 concerns the bringing of a judicial action on a lost, destroyed, mutilated or defaced bill of exchange or a note or other obligation, or upon an indorsement or assignment thereof. Two different proceedings are involved and your situation, as far as we can determine, has not yet progressed to a judicial or contemplated judicial proceeding.
Where one deposits a bond as security after the loss of an instrument, he is entitled to the return of the bond after the expiration of the period of limitations applicable to an action on that instrument. 54 C.J.S., Lost Instruments, § 2 (p. 804). The bond of indemnity should be such as to save the State Treasurer harmless against all lawful claims of any other person on the lost instrument itself and against all costs and expenses by reason of defending such claims. Its sufficiency should be determined by the circumstances of the particular case. The bond must be executed by the local government (principal or payee of the check) with sureties. See 54 C.J.S., Lost Instruments, § 21 (p. 824).
Thus, in conclusion, the Urban County Government is required to execute an indemnity bond in order to obtain a duplicate check to replace one issued by the State Treasurer which never reached the local government and is presumably lost.