Punxsutawney v. Mitchell (No. 1)

The question at issue in this case is the liability of a surety for a borough treasurer's defalcation. That the treasurer misappropriated $17,025.71 of the municipality's funds is not controverted. The defense made on behalf of the surety is that, because the borough auditors in their unappealed from reports and settlements for the last year of the treasurer's first term ending the first Monday of January, 1926 (he succeeded himself, with new sureties), and the first year of his second term showed no shortages or defalcations, and stated, as of the end of one term and the beginning of the other, "cash on hand" to be equal in amount to his indebtedness to the borough, the borough was bound by the report, and proof could not be received to show that he had not turned over to himself at the beginning of his second term all the money with which he was chargeable.

Borough auditors audited the treasurer's accounts on February 27, 1926, for the year ending December 31, 1925, the last year of his first term, and found that his accounts showed he then had "cash on hand" amounting to $48,932.95 in various funds. Again, in April, 1927, the auditors went over his accounts for the year ending December 31, 1926, the first year of his second term, and reported that his accounts showed he had "Balance cash on hand last settlement" in various funds, amounts totaling the same sum, $48,932.95. These audits correctly reflected the sum owed by Mitchell to the borough and charged him with the amounts found to be in his hands. Under the Borough Code then in force (Act of May 14, 1915, P. L. 312) any taxpayer of the borough could enforce collection for the borough's benefit by action or execution.

The Borough Code required the treasurer to keep a just account of all receipts and disbursements and annually to submit "his account" to the borough auditors. The report of the auditors for the first year of his second term did not establish the fact that he had actually paid over to himself the amount with which he was charged for the previous year, they carried it into the accounting as something with which he was already charged. The settlements of his accounts by the auditors were conclusive of the sums he was liable for, not that he had discharged his liability; it always remained for him to show that he had. The auditor's report did not require the treasurer to turn over his balance of funds on hand to the auditors. Their statement simply fixed the amount he owed the borough. If in his accounts for the first year of his second term he set up as funds on hand the balance shown as on hand at the end of the preceding year, this did not affect his liability to the borough for the sum named if he had not actually paid it over; all that such an entry in his accounts could mean or amount to was a recognition by him of his liability for this indebtedness.

Appellant, the surety, has misconceived the functions of borough auditors and the effect of their reports in situations such as that with which we are now dealing. The duties of borough auditors are fixed by statute and are in many respects entirely different from that of auditors examining, for instance, the financial standing of a business enterprise. The duty of borough auditors consists in merely ascertaining the balance due by the officers of the borough. The auditors' report for the year 1925, which was made on February 27, 1926, indicated the amounts with which the treasurer was chargeable because he had received them in the borough's behalf during the previous year. The sum of them constituted, under the express language of the Borough Code, a surcharge against him from which he could be relieved only by showing that he had paid over, and this he did not do. It does not stand in his right to claim that, because the auditors' report for the first year of his second term, which was made on April 1, 1927, stated sums as "on hand," he actually had them, and had turned them over from the previous year to himself. All that the report indicated was that, when the auditors examined his accounts, they showed that he should have the amount named on hand and the report charged him with it. This sum, when the report was filed in the prothonotary's office, as it was, was a surcharge against the treasurer from which he could discharge himself only by payment to the borough. Under the Borough Code of 1915, as amended by the Act of March 31, 1921, P. L. 79, section 11, "Any balance in any report of the auditors against any officer of the borough shall constitute a surcharge against such officer as fully as if expressly stated in said report to be a surcharge, and the amount of any balance and of any express surcharge shall be entered by the prothonotary as a judgment against such officer and in favor of the borough. The clerk of the court of quarter sessions shall certify the amount of every balance or surcharge contained in any such report to the court of common pleas for entry thereof by the prothonotary as a judgment."

The undenied averment of plaintiff's statement of claim offered in evidence shows that the treasurer did not pay over the sum total with which he was charged, but $17,025.71 less than that sum. The trial court found upon undisputed evidence that at the close of his first term the treasurer did not have on hand the sum with which he was charged, but that he had a less amount, and that he paid over to his successor (himself) this smaller amount and has never turned over to the borough the difference. Had some one other than himself been chosen treasurer, the shortage would have immediately appeared when the new incumbent of the office called upon him to hand over the money which the auditors' report showed he should have in his hands.

Appellant's counsel is in error when he argues in effect that the borough auditors had not correctly performed their duties when they stated the treasurer had the funds in hand which they enumerated, and draws the conclusion that the surety should not be mulcted because of their alleged mistake. The auditors by their report charged the treasurer with the sums they enumerated as due by him to the borough; in saying that he had the moneys "on hand" they meant that from his accounts he should have them in hand. It was the surety's duty to see that he turned over the amount he was charged with if it wished to end liability at the close of the treasurer's first term. One of the conditions of the bond is that the treasurer "shall pay over all moneys remaining in his hands."

Appellant's counsel is further mistaken in contending that the borough is contradicting the report of its auditors, which he says it cannot do under the authority of Skelton v. Lower Merion Twp., 318 Pa. 356, 178 A. 387, and Riehl v. Miller,319 Pa. 201, 178 A. 495. The borough is standing on the reports of its auditors, not contradicting them by saying to its defaulting treasurer, "You did not turn over the money which your accounts showed you had on hand belonging to me." Neither the two cases cited, nor any of the others adverted to by appellant, have any bearing on the situation here appearing, because appellee is not setting up something counter to the auditors' reports. The borough could show, as it did, that the amount of cash as stated was not actually on hand: Com. v. Sweigart, 9 Pa. Super. 455-460 (RICE, P. J.).

Another matter to be determined is the date from which interest is to be calculated. The trial court fixed December 31, 1925, the end of the treasurer's first term. It is set up that this is erroneous, that the calculation should be from the time of demand made and that the date of this is May 2, 1933, when the statement of claim was filed and when the surety first learned the exact amount claimed. To sustain this view appellant cites Herron v. Stevenson, 259 Pa. 354; Folz v. Tradesmen's Trust, etc., Co., 201 Pa. 583; Pa. Co. v. Swain,189 Pa. 626, and State of New Mexico v. American Surety Co.,37 N.M. 411, 89 A.L.R. 1314. Suit was begun on May 22, 1930, and there was a long delay in filing the statement of claim. Until it appeared appellant could not know the exact amount of the claim. However it did know when suit was commenced that payment by it would be insisted upon. Under these circumstances, a definite demand was made the day suit was brought, May 22, 1930, and that is the proper date from which to calculate interest. The judgment will be modified to this extent, and, as thus modified, it is

Affirmed.