Catholic University of America v. Morse ( 1908 )

Mr. Justice Robb

delivered the opinion of the Court:

While there are. several assignments of error, they are all embraced in two general propositions: (1) That the court erred in receiving evidence of the acts of the University after its discovery of Waggaman’s breach of trust, and (2) in directing' a verdict for the defendants.

First: As the liability of the defendants was to be determined solely by the bond, it became very important to determine whether the University had waived any of its provisions, and hence the evidence objected to was pertinent and clearly admissible.

Second: An analysis of the bond upon which this suit is predicated clearly shows - that two separate and distinct obligations were therein incurred. First, that Waggaman should account for and pay over to the University “all sums of money collected or received by him for or on behalf of said University and, second, that he should “safely keep, account for, and deliver up to said University all notes or other evidences of indebtedness belonging to said University,” which should come into his hands.

The money here sought to be recovered was delivered to Waggaman for investment; consequently his sureties are not liable under the bond, unless it appears that Waggaman did not, in fact and in good faith, invest said money and duly account for and surrender the notes and other evidences of the loans, and that the University with knowledge of the facts, did not recognize and adopt such acts of Waggaman. If Waggaman did invest the money intrusted to him, and did surrender the evidences of the loans, neither he nor his sureties were liable under the bond in the event of disaster, for the bond did not attempt to guarantee'the safety of the loans. It merely guaranteed that money coming into Waggaman’s hands for investment would be accounted for, which in this case meant that it would be invested in good faith, and not embezzled. •

Loaning the funds of the University to himself upon inadequate security was not in good faith investing such funds,, but if the University, with full knowledge of the facts, recognized and adopted such loans, it could not subsequently question AVaggaman’s authority to make them, for ratification was tantamount to original authority. Nor could the University repudiate the transactions in part and ratify them in part. Rader v. Maddox (Teague v. Maddox) 150 U. S. 128, 37 L. ed. 1025, 14 Sup. Ct. Rep. 46; Mechem, Agency, ¶ 130.

In the fall of 1903 the University demanded of Waggaman that he surrender the securities belonging to it which were in his keeping. In response Waggaman surrendered both the collateral real-estate notes and the principal notes. The University, with full knowledge of the facts, retained both, and in all subsequent proceedings continued to treat both as its property. It is not denied that these notes were all the evidences, of the loans which Waggaman had made.

We are impressed with the contention of appellees that when the University, under the conditions disclosed by the record,, accepted and retained the notes and collateral security evidencing the loans, the making of which it now contends constituted a breach of trust, it absolved the sureties on the bond from further liability. Knowing all the facts, the University, instead of repudiating the acts of Waggaman constituting a breach of his hond, deliberately adopted another course, accepted and retained the notes, and obtained from Waggaman additional security that they would be paid. It thereby adopted and ratified his acts, and cannot now be heard to say that the loans were made without authority.

Moreover, after knowledge that Waggaman had committed a breach of trust constituting a breach of his bond, the University, without notice to the sureties, entered into the agreement of July 13, 1904, with Waggaman, under which it deferred the collection of its claim against him until a time certain. Only one of the notes representing the amount here involved was then ■due, but, prior to the agreement, the University, had it not ratified the loans, would have had the right to demand immediate payment of the entire amount. The agreement was made .upon sufficient consideration, was binding upon the parties, ■and put it beyond the power of the sureties to proceed against Waggaman until the time limit fixed in the agreement had expired. Before the expiration of that time, Waggaman had been petitioned into bankruptcy.

It is a familiar rule that any contract between the principal and creditor, made upon sufficient consideration and without the-consent of the surety, which extends the time of payment bj the principal, discharges the surety. 27 Am. & Eng. Ene. Law;, 2d ed. p. 499; Brandt, Suretyship, sec. 376; Bank of United States v. Hatch, 6 Pet. 250, 8 L. ed. 387; Union Mut. L. Ins. Co. v. Hanford, 143 U. S. 191, 36 L. ed. 120, 12 Sup. Ct. Rep. 437; United States Fidelity & G. Co. v. Golden Pressed & Fire Brick Co. 191 U. S. 423, 48 L. ed. 245, 24 Sup. Ct. Rep. 142.

Inasmuch as the present case involves the undertaking of ordinary guarantors, the rule of strictissimi juris should apply. The sureties guaranteed that Waggaman would, when called upon, account for the moneys intrusted to him. The University ■called upon him to account, and found him guilty of a breach •of trust. Clearly, the sureties were entitled to be consulted before an arrangement materially affecting their interests was •entered into. They were not consulted, and are now entitled to stand on the letter of the bond.

The judgment is affirmed, with costs. Affirmed.