Pittsburg, Fort Wayne & Chicago Railway Co. v. Shaeffer , 1869 Pa. LEXIS 23 ( 1868 )

The opinion of the court was delivered, January 4th 1869, by

Sharswood, J.

The rule is well settled that mere forbearance by the creditor to the principal debtor, however prejudicial it'may be to the surety, will not have the effect of discharging him from his liability: United States v. Simpson, 3 Penna.R. 437. That this is the general principle was admitted by the learned judge in the court below, but he thought that the sureties of a railroad officer, charged with the receipt and disbursement of various sums of money, formed an exception, and that in such a case it was the duty of the company to dismiss the officer as soon as any default became known, and to give notice to his sureties in order that they might take measures to secure themselves by proceedings against the principal.

But no authorities are to be found in the books sustaining any such distinction. On the contrary, in regard to the sureties of the officers of government, whose duties in receiving and disbursing money are of the same varied character, it has been invariably held that they are not discharged by such indulgence. The United States v. Kirkpatrick, 9 Wheat. 720, was the case of a collector of direct taxes and internal duties. “ It is admitted,” said Story, J., “ that mere laches, unaccompanied with fraud, forms no discharge of a contract of this nature between private individuals. Such is the clear result of the authorities. Why, then, should a more rigid principle be applied to the government — a principle which is at war with the general indulgence allowed to its rights, which are ordinarily protected from the bars arising from length of time and negligence ? It is said that the laws require that settlement should be made at short and stated periods; and that the sureties have a right to look to this as their security. But these provisions of the law are created by the government for its own security and protection, and to regulate the conduct of its own officers. They are merely directory to such officers, and constitute no part of the contract with the surety. The surety may place confidence in the agents of the government, and rely on their fidelity in office; but he has the same means of judgment as the government itself, and the latter does not undertake to guaranty such fidelity.”

This principle was reconsidered and reaffirmed in The United States v. Vanzandt, 11 Wheat. 184, where it was held that the omission of the proper officer to recall a delinquent paymaster contrary to the express injunction of an Act of Congress, did not discharge the surety: The Commonwealth v. Brice, 10 Harris 211.

The reasons so clearly stated by Story, J., in regard to officers of government, apply with equal force to the officers of corporations. Corporations can act only by officers and agents. They do not guaranty to the sureties of one officer the fidelity of the others. The rules and regulations which they may establish in regard to periodical returns and payments are for their own security, and not for the benefit of the sureties. The sureties, by executing the bond, became responsible for the fidelity of their principal. It is no collateral engagement into which they enter, dependent on some contingency or condition different from the engagement of their principal. They become joint obligors with him in the same bond, and with the same condition underwritten. The fact that there were other unfaithful officers and agents of the corporation, who knew and connived at his infidelity, ought not in reason, and does not in law or equity, relieve them from their responsibility for him. They undertake that he shall be honest, though all around him are rogues. Were the rule different, by .a conspiracy. between the officers of a bank or other moneyed institution, all their sureties might be discharged. It is impossible that a doctrine leading to such consequences can be sound. In a suit by a bank against a surety on the cashier’s bond, a plea that the cashier’s defalcation was known to and connived at by the officers of the bank, was held to be no defence: Taylor v. Bank of Kentucky, 2 J. J. Marsh. 564.

But it is urged that in this case’ the rules and regulations of the railway company were expressly made a part of the contract with the sureties. The condition of the bond in suit was that the said Charles A. Shaeffer “shall, with care and diligence, faithfully discharge the duties devolving upon him as cashier, as required by the present rules and regulations of said Pittsburg, Port Wayne and Chicago Railway Company (a copy of which he acknowledged to have received), hereby adopted, and by such other rules and regulations as said company may hereafter adopt, and shall promptly obey all orders that may be issued by said company, or by their duly appointed officers or agents.” Even giving to the words “hereby adopted,” which are plainly, however, a mere clerical error for “heretofore adopted,” all the force attributed to them, it is not easy to see how it helps the sureties. One of these rules, and the one principally relied on by the defendants, was that “they (the cashiers) shall,make a monthly return to the auditor on or before the 10th of each month, in manner and form prescribed.” Shaeffer failed to make such returns as is alleged. His failure was a breach of the condition of the bond. It is not provided in the rules that on his default in making returns he shall be immediately dismissed, and the sureties notified of his default. Admitting such a rule would have been a part of the contract, the absence of it leaves the case bare of any legal or equitable ground of defence. It was clearly not the duty of the company to give notice to the sureties of the principal’s failure to make returns: Orme v. Young, 1 Holt N. P. 84.

’ There was nothing in this case but simple indulgence and forbearance, and that under circumstances which were not such as to call for any extraordinary diligence. Whatever may have been the discrepancies between Shaeffer’s cash-book and his returns, the account which is annexed to the plaintiffs’ paper-book shows that the balances due by him according to the ledger varied from month to month — from May to October 1864 — when he was notified of his discharge. In June it was $5270.59; but in August only $2110.83, and in September, [$3101.83. The balance found in his hands at the close of his last month (October) was $13,891.27; showing, by subtracting from it the September balance, that his default in that month alone was $10,789.44. This may have been the result of previous defaults brought into that month’s accounts; but supposing the directors to have had access to these returns and accounts, and that it was their duty to scrutinize them, what was there to fasten on them the charge of negligence? Even so far as the company — whose interests, and not those of Shaeffer’s sureties, they were bound to consult— was concerned, I confess myself unable to discover it.

Judgment reversed, and a venire facias de novo awarded.