President, Directors & Co. of Bank of Brighton v. Smith

Colt, J. This is an action against the defendant as surety in a bond conditioned that one Woodworth, the principal, should faithfully perform and discharge all the duties which were assigned, or which might thereafter be assigned, to the office of cashier of the plaintiffs’ bank, and faithfully observe and obey all the by-laws of said bank, and all the rules and regulations which were then or might thereafter be adopted, by the president and directors of said bank. It appears by the report of the auditor, upon which judgment was rendered by the superior court, that it was the custom of the directors to have an examination of the affairs of the bank once in six months, and of the cashier to lay before them twice a week a general statement of its condition, showing its assets and liabilities. On the 20th of September 1858, Woodworth still filling the office of cashier, presented to the directors a written statement, which purported to show the condition of the bank on the 18th of that month. In answer to questions put to him by the directors on that occasion, Woodworth made certain verbal admissions, and stated certain facts, showing that the account as then rendered was a false exhibit of the affairs of the bank. The auditor admitted these verbal statements and admissions as evidence, and the defendant objects that they were improperly received. We think this objection cannot be sustained. The statements were made in the course of the duty for the faithful performance of which by the cashier the defendant had bound himself. They were made while the cashier was still in office, they accompanied and explained an official act, and must be regarded as part of the res gestee. They were not like declarations made by the principal subsequent to the act to which they related, and out of the course of his official duty. The surety is indeed to be held responsible only for the actual conduct of the party, and not for [250] what he may say he has done; his mere narrations of past transactions, though made while still in office, may not be competent evidence to prove the truth of the facts stated in an action against the surety alone, on a bond which was not in its nature joint, and while the principal may be called as a witness. But in this case his written statement and his accompanying verbal explanations are in the nature of written and verbal acts, and constitute a part of his official conduct. They are like entries made in the course of duty, and are as such admissible in evidence though the party making them is living and competent to testify. It does not appear in this case to be necessary to hold that these statements were competent to establish the fact of the misappropriation of the funds of the bank at some time before. The objection to their admission was general, and the exception cannot be sustained if it appears that they were competent for any limited purpose. And for the purpose of showing the unfaithful performance of the official act they accompanied, as part of a chain of evidence tending to establish a breach of the condition of the bond, they were competent. Middleton v. Melton, 10 B. & C. 317. 1 Greenl. Ev. § 115. Amherst Bank v. Root, 2 Met. 522. Chelmsford Co. v. Demarest, 7 Gray, 1. Lexington & West Cambridge Railroad v. Elwell, 8 Allen, 371. The defendant further claims that the sureties of the cashier are only liable for $13,750, the amount of the ascertained deficit, exclusive of the two drafts on time drawn on the Fulton Bank and that each of the ten sureties are liable for only one tenth of that sum, and not each for the whole penalty. By the terms of the obligation which the defendant entered into, he with ten others bound themselves severally and not jointly as sureties, each in the sum of $2000, for Woodworth the principal. And the sufficient answer to this claim is, that so long as the unsatisfied defalcation of the cashier exceeds the amount for which this defendant agreed to be held, the plaintiffs may pursue him and the other sureties, and recover judgments against each to the extent of their several liabilities, though only one satisfaction ob execution can be had upon the judgments so obtained. And [251] this consideration renders it needless to inquire whether the sureties are liable, in addition to the sum above named, for the two drafts which it is alleged were illegally drawn by the cashier with the approbation of the president and directors of the bank. The remaining point for consideration is the ruling of the superior court, that damages should be awarded for the full penalty of the bond with interest from September 23d 1858. It appears that at the date named the amount of the defalcation was ascertained and charged to the cashier on the books of the bank. The defendant claims that judgment can only be rendered for the penalty of the bond without interest. In suits against sureties the limitations which by the contract they make to their liability are to be strictly upheld. It may be that as between the principal and the plaintiffs in this case interest from the time of the misappropriation of the funds intrusted to him might be recovered of the principal as constituting a part of the damages occasioned by his misconduct. Or if the extent of the defalcation and interest so added had in this case fallen short of, or did not exceed, the penalty in the defendant’s bond, such interest might be taken into account in ascertaining for what portion of the penalty judgment should be rendered. But the measure of the principal’s liability ceases to operate as the rule against the surety when that liability exceeds the penalty agreed on. The surety has a right to say,yI agreed to be liable for such losses as may be occasioned by the principal only to the extent fixed, although that loss is in part made up of interest on money wrongfully taken. But it does not follow that the surety can in no case be held liable for interest upon the penalty. The true rule seems to be that the surety may be liable for interest on the penalty, not as part of the debt for which he originally became responsible, but as damages for its detention. There is a plain distinction to be observed between cases in which interest is given by way of damages and those jn which it constitutes a part of the debt, as it does in contracts in which there is a promise to pay interest. As a general rule, in all cases in which a debtor is in default for not- paying monej in pursuance of his contract, he is liable for interest thereon from [252] the day of his defa alt, and when a demand is necessary to put the debtor in fault interest is to be given only from the demand. Where interest is not stipulated for as part of the contract, it is given by way of damages for the detention of the money. If the surety becomes charged by the default of the principal for the amount of the penalty or any portion of it, it is his duty to pay the same on demand; and if he neglects or refuses, the general principle above stated applies, and the interest is added by way of damages for his own default, not as enlarging in any degree his liability for the misconduct of the principal. The liability of an insurer upon a policy of insurance illustrates the principle applicable here. The contract of an insurer is a contract of indemnity. It is an engagement to pay an amount not exceeding a given sum on the happening of certain losses; and yet interest is recoverable upon the whole amount insured, after proof of loss and demand of payment. Oriental Bank v. Tremont Ins. Co. 4 Met. 1. The case of Harris v. Clap, 1 Mass. 308, cited by the plaintiffs, seems to stand well upon this doctrine. It was an action against principal and surety in an arbitration bond for the penal sum of $5000, conditioned to pay the award within one hundred and twenty days after the making of it. The amount awarded was less than the penalty, but with interest added from the expiration of the one hundred and twenty days exceeded it. In point of fact the suit on the bond was commenced but a short time after the expiration of the time of payment. And upon a careful examination of the several opinions given, it appears that a majority of the court intended to affirm the doctrine stated by Sewall, J., in these words: “ In this suit the plaintiff cannot recover beyond the penalty of this bond and the damages for the detention of it, which may be considered as legally demanded at the service of the writ. The penalty and interest from the demand must be the measure of the judgment; not exceeding, however, the sum awarded, and interest on it from the time of payment according to the condition of the bond 4nd the judgment must be entered for that amount, viz., $5000 as recovered for debt, and the residue as damages for the detention.” [253] In Warner v. Thurlo, 15 Mass. 154, where it was held that in a suit upon a replevin bond damages may be recovered beyond the penalty so as not to exceed interest on the penalty from the commencement of the action, the court say, with Harris v. Clap in mind, “ Further than that no case decided in this commonwealth will be found to have gone.” The decisions of this court, therefore, justify the allowance of interest when the surety is in fault, though the judgment should thereby be made to ex-, ceed the penalty. The case of Brainard v. Jones, 18 N. Y. 35, states that the same doctrine is now recognized by the courts of New York, Comstock, J. remarking: “ The role has often been laid down in general terms that sureties are not liable beyond the penalty of the bond in which their obligation is contained. But, on a careful examination of the reason and justice of the rule, it will be found inapplicable to a question of interest accruing after they are in default for not paying according to the condition of the bond. There is a plain distinction which has sometimes been lost sight of, and consequently some confusion and contradiction will be found in the cases on this subject. Where the sum claimed becomes a debt actually due from them and they continue in default, the question, properly considered, is one of damages for the delay.” In this case, then, interest is to be added to the penalty as damages for the detention for such time as the case shows the defendant to have been in fault for its non-payment. His undertaking by its express terms was not that of a joint promisor with Woodworth, and he cannot be said to have been in fault until notice that he had become liable, and demand for payment. No notice was given or demand made until the commencement of this action ; and interest ought not to have been allowed before the date of the writ. To this extent the defendant’s exceptions are sustained, but the plaintiffs may remit of the amount for which execution is to issue all except $2000, with interest from the date of the writ, and take execution for that amount.