Johnson v. Eaton Milling & Elevator Co. , 18 Colo. 331 ( 1893 )

Chief Justice Hayt

delivered the opinion of the court.

As applicable to this case, the following principles with reference to the liability of sureties upon official bonds may be stated. They are founded in sound reason, and supported by authority:

First. The liability of a surety is to be strictly construed, but this rule does not exclude a fair consideration of the instrument from which the obligation is derived.

Second. Where there are several officers of an institution, as of a bank, and it is the customary and usual course of business at such institutions for one officer to temporarily discharge the duties of another, in case of the latter’s absence, or sickness, a surety of the former is usually liable for default made while his principal is thus temporarily filling the place of another officer.

Third. Where the same person holds two separate positions, each requiring distinct and independent duties from the other, the obligation of a surety upon a bond given to cover the acts of the principal in the discharge of the duties devolving upon such principal while acting in one of such capacities, cannot be extended so as to cover defaults occurring in the other. Nat. Mech. B'k'g Asso'n v. Conkling et al., 90 N. Y. 116; Rochester City Bank v. Elwood, 21 N. Y. 88; Detroit Savings Bank v. Ziegler, 49 Mich. 157; Rogers v. Odom, 86 N. C. 432; Cooper v. The People, 85 Ills. 417; Orman v. City of Pueblo, 8 Colo. 292.

The claim of the appellants is that the record fails to disclose any omission or improper conduct on the part of Nice in his capacity as treasurer, but that the improper conduct complained of occurred in connection with his office as general manager for the company, for which office no bond was given.

' The office of manager was the principal office created by the bjr-laws of the company. This officer was given control and management of appellee’s business. It is true that this was nominally under the direction of the board of directors, but, as the directors met only at rare intervals, the general manager was allowed to exercise almost absolute control in directing the details of the company’s business. He, with the secretary, were the only officers of the corporation allowed salaries, the former at the rate of $2,000, and the latter at the rate of $1,200 per annum.

- It is shown that it was the custom of the corporation to purchase grain through the firm of B. H. Eaton & Co., the latter buying the grain from the farmers, and in turn selling it to the Milling & Elevator Company. An open account was kept by the latter with the former, and Nice advanced large sums of money to the copartnership, of which the president of the Milling Company constituted one member, and he, Nice, the other. The advances were made without authority, but were made in the course of transactions in grain, entered into by the general manager. The shortage, for which the surety was held responsible, is made up almost entirely of advances so made.

While it is true that Nice as treasurer executed notes, and procured the same to be discounted, he placed the proceeds thereof to the credit of the company. The raising of money and the placing of the same with the depository designated, seem to have constituted his only transactions as treasurer, and these were undertaken in pursuance of authority expressly conferred by resolution, duly adopted.

This resolution also provided the manner in which such deposits should be checked out. The resolution reads as follows : “ Resolved, That all moneys received by the company shall be deposited in the name of The Eaton Milling & Elevator Company, and that William 1^. Nice be, and is hereby authorized to check the same out for the uses of this companjs signing, The Eaton Milling & Elevator Company, By William H. Nice, Manager.”

This resolution was expressly authorized by the by-laws of appellee. By it the disbursement of the funds was given entirely in the charge of the general manager. Applying the principles of law above stated to these facts, and the liability of the surety on the bond of the treasurer cannot be upheld.

The misconduct complained of grew out of the improper disbursement of the company’s funds. In paying out this money Nice acted as general manager and not as treasurer. His acts in so doing do not come under the principle governing in cases where an officer, by reason of holding one position and as incidental thereto, temporarily performs the duties usually devolving upon another.

■It was the express intention ©f the company to require Nice also to give a bond for the faithful performance of the duties of general manager. If such bond had in fact been given, it would without doubt have covered the transaction now complained of. The fact that through the neglect of other officers of the company such a bond was not required, furnishes no reason why the obligation of the surety upon this bond should be extended so as to cover his transactions as general manager.

The condition of the obligation made the basis of this suit reads as follows: — “ That whereas the said William H. Nice has been appointed by the said The Eaton Milling & Elevator Company, as treasurer for said company, now if the said William H. Nice shall well and faithfully discharge his duties as said treasurer, and shall faithfully account for all moneys, property, and other things which may come into his possession, or under his control and management as such treasurer, then the above obligation to be void; otherwise, to remain in full force and virtue.”

The recital in the bond shows that Nice had been appointed treasurer of the corporation, and his surety promised only that he would |)e responsible for the faithful performance of the duties appertaining to that office. Adopting the language of the supreme court of New York in National Mechanics' Banking Association v. Conkling, supra, “ That was the office brought to the attention of the surety, and which he had in mind when he executed the bond. The recital in such bond, undertaking to express the precise intent of the parties, controls a condition or obligation which follows, and does not allow it any operation more extensive than the recital which is its key.”

The facts in the case before us are much stronger in favor of the surety than in the New York case, for there the letter of the condition following the recital was more extended than the recital itself, but such is not the fact in the case at bar. There is nothing in the bond before us to indicate that, it was executed for the purpose of indemnifying the company for any act of Nice as general manager. The judgment of the district court is accordingly reversed.

Reversed.