City of Wilkes-Barre v. Rockafellow

33 A. 269, 171 Pa. 177, 1895 Pa. LEXIS 1294

Opinions

Opinion by

Mb. Justice Williams,

This is an action upon an official bond. The principal obligor allowed judgment to go by default. The sureties made defense and raised on the trial some questions that, so far as we have been able to discover, have not been passed upon in the form in which they now appear. It seems that F. V. Rockafellow was elected treasurer of the city of Wilkes-Barre for twenty-one years consecutively. His last election took place in April, 1892, and he gave the bond now sued on soon after. During all this time he was a banker, in good financial standing, doing business in Wilkes-Barre. In February, 1893, his bank suddenly closed its doors. Its liabilities proved to be large and its assets practically nothing. He made a general assignment for the benefit of his creditors, but his assigned estate realized less than seven per cent on his liabilities. His indebtedness to the city as treasurer was ascertained to be $51,743.01. It was made up of four items, viz: the sinking fund of the city, and between four thousand and five thousand dollars of interest thereon; the ordinary or current funds of the city and a considerable sum allowed as interest on the balance due upon this account.

The position of the sureties is that their undertaking is to be responsible for their principal as an officer and not as a banker or borrower; the condition of the official bond being that their principal, “treasurer of said city of Wilkes-Barre shall faithfully discharge the duties of his said office and pay over and safely deliver into the hands of his successor all moneys, books, accounts, papers and other things ” belonging to the city which he shall hold as such officer. They allege that he held no part ■of the §51,748.01, found due from him when his bank closed its ■doors, as a city treasurer, but as a borrower, and that the city has for that reason no claim upon them for any part of its loss. The position of the city on the other hand is that the entire •amount demanded belonged to the city and was in the hands ■of the city treasurer as its lawful custodian. The assignments of error all relate to some phase of this general controversy, ■and will be sufficiently considered by determining the relation of F. V. Roekafellow to the four items into which the plaintiff’s demand is divisible. The general rule is that the liability of both principal and sureties in an official bond must be measured by the terms of the instrument. The terms must receive a reasonable construction, and if there has been no violation of ■official duty there has been no breach of the condition for which the sureties can be-required to account. It follows necessarily that for an extra official act or undertaking of the principal the •sureties cannot be held responsible: 2 Am. & Eng. Ency. of Law, 4675. And if the ordinary course of official action is departed from for the benefit, and at the instance of the party to whom the bond is given, and loss results, the sureties are not in law or morals responsible for such loss unless they assented to the departure from the ordinary course of official ■action which made the loss possible: Rogers sr. The Marshal, 1 Wall. (68 U. S.) 644; Skinner v. Wilson, 61 Miss. 90. What was the official duty of the city treasurer ? Simply to act as ■custodian of the funds belonging to the city. As to the sinking fund it is clear that he had no power to invest it or use it in any manner, except under the direction of the sinking fund commissioners. They had power under the ordinance to invest the funds under their control, subject to the approval of the council, and it was made their duty to report annually the condition of the sinking fund and its securities to the council. The ■eleventh section of the same ordinance provides that “the treasurer of the city shall be the custodian of the moneys and securities of the sinking fund subject to the inspection and order of said commissioners.” As the commissioners had power to invest the sinking fund in such securities as the council should approve, they had of course power to lend it to the person who had the custody of it as an officer. When they did this, the money was no longer in the treasury but the security taken for its return stood in its place.

The treasurer as such held the security. The individual borrower held the money, not as an officer, but as a debtor to the city. The sureties would in that case be liable for the care of the security held by their principal or city treasurer. They would not be liable for the payment of the money borrowed by him from the sinking fund commissioners, because that was a personal debt for the collection of which the creditors would be compelled to look, as in the ease of any other loan, to the solvency of the borrower, and the securities given at the time the loan was made. When asked to pay the personal debts of their principal the sureties may well reply, it was the official conduct, not the personal solvency of the treasurer for which we engaged to be responsible. If he has been guilty of a breach of official'duty, for that we are liable as sureties upon his official bond, but we have no concern with his personal debts. Now the defendants offered to prove at the trial that Rockafellow borrowed the money in the sinking fund from the sinking fund commissioners at four per cent per annum; that he held it under this arrangement for eight j'ears before the bond sued on was given, and paid the interest regularly at the rate agreed upon. They also offered to prove in connection with this offer that each year the commissioners reported the receipt of the interest from him to the city council, and their reports were approved. The learned judge rejected this offer for the reason that it did not undertake to set forth “ what action was taken either by the council or the sinking fund commissioners before the loaning of the money.” But if the fact was as alleged that without the knowledge of the sureties their principal had been turned from a mere custodian of public moneys into a borrower of them by the action of the municipal officers, and the money subjected to all the risks of loss incident to its being mingled with the funds of the borrower and used in his private business, the sureties had a right to show it; and if they did show it, then on the commonest principles of justice they had a right to defend as to so much of the plaintiff’s claim. What difference could it make to the sureties whether the proceedings were strictly formal so long as they resulted in the loss of the money, and were taken by those who had a right to invest it. Suppose the loan had been made to some other person upon whose failure it was lost, and that in the treasury there was found the borrower’s note taken by the commissioners. Would the sureties, if sued, be compelled to show that every step taken by the sinking fund commissioners had been regularly entered on their records and had been in exact compliance with the law, before they could set up the fact that the money had been taken out of the treasury by those who had the right to invest it? Unless there was some breach of official duty on the part of the treasurer in parting with the money, neither he nor his sureties could be held for its loss because the commissioners had made a bad loan. If they had the power to make the loan and did make it they took the money out of the treasury for investment, and the treasurer no longer held it as the custodian. This offer should have been received. Whether the evidence would have supported it we cannot determine, but the defendants had a right to make the showing offered, if it was in their power. It was in effect an offer to show that the sinking fund had been invested and had not been in the treasury for more than eight years. The sinking fund commissioners might be liable to the city for a loss resulting from their neglect of duty, but the defendants are not their sureties and have no concern with that question.

The interest on the sinking fund stands on quite different ground. If Rockafellow as a banker had borrowed of the sinking fund commissioners the money which Rockafellow as city treasurer had in his custody, and had paid interest on it regularly as alleged, for eight years, the interest having been paid by him as borrower to himself as city treasurer, was as to himself and his sureties in the treasury. For this he was liable to account. His failure to pay it over to his successor was a breach of his official duty and for such breach of official duty his sureties were liable on their bond. They were liable not because it was interest due from him to the city, but because it was interest received by him as city treasurer from a borrower from the sinking fund commissioners. It was income derived by the commissioners from an investment of the sinking fund money, paid to the treasurer as the proper receiving officer and custodian of all uninvested money belonging to the city. If the money was not in fact lent to Rockafellow then he was not liable to interest, for as city treasurer his duty was to hold the money subject to the orders of the proper officers, and he had no right to use it. His duty was simply to pay over, when legally required so to do, what he had received by virtue of his office, and for the discharge of this official duty his sureties were liable. When this duty was discharged their liability was at an end. Either he held the sinking fund as treasurer or he had borrowed it as a banker. The rejected evidence, if it had sustained the offer, would have settled this question and the extent of the liability of the defendants as to this part of the plaintiff’s claim.

The remaining question relates to the general funds of the city and the effect of the agreement by Rockafellow to pay interest at the rate of three per cent on balances in favor of the city. It does not appear that there was, as to this money, any agreement entered into. Some member of the city counsel in naming another candidate stated that the person named by him would if elected city treasurer pay interest at the rate of three per centón the balance in favor of the city. Another member said if Mr. Rockafellow was re-elected he would do as well by the city as any one else. The election then took place and resulted in the choice of Mr. Rockafellow by a decided majority. The relation of borrower and lender was not created by these statements. It does not seem to have been contemplated. The balance would be constantly shifting in amount. The treasurer was to be prepared at all times to honor the warrants of the proper officers. And upon the surplus of receipts over disbursements, as balances were struck from time to time, interest was to be allowed. This agreement if made did not amount to a loan of any particular sum of money by the city council to the treasurer, but was in the nature of a premium demanded from him as the price of the office. It was a premium for which he was not liable, which he could not be compelled to pay if he had taken defense to it, and for which the sureties are not liable.

The agreement, if made, was against public policy, and is incapable of enforcement. If, as we incline to think, he was-not a borrower of the money of the city, but was to hold the money subject at all times to the call of the proper municipal officers, his duty, and his sureties undertaking on his behalf are discharged by the payment of the amount of money that came into his hands as treasurer regardless of any promise to-pay interest or a premium in any other form for the privilege of holding the office. The promise to pay interest as the price of an election to the office of treasurer has no valid consideration to support it. It is a promise that we cannot recognize as binding on him who made it; a fortiori is it without binding effect on the sureties upon an official bond. It is contended that as the law requires the city treasurer to keep accounts of his receipts and disbursements of the revenues of the city and to-make at stated intervals transcripts of these accounts for the information of the municipal government, the transcripts so-made should be held to be conclusive upon him and his sureties as to the amount of public moneys received by him. This-is putting the effect of the entries by the treasurer upon his books too strongly. They should be held to make a case, prima facie, against him and those who are in privity with him. They cannot however preclude the defendants from showing that, the items, or some of them, have been erroneously entered;. that their principal was mistaken in his view of his own liability, or was disposed, unfairly, to make them responsible for sums of money for which no recovery could otherwise be had against them. Their liability is limited, as we have seen, by the terms of the bond to a breach of official duty. If it was-not the duty of the treasurer to pay, as such, the price demanded, from him as the consideration of his appointment, his failure-to pay it was not a breach of official duty and, therefore, not a breach of his official bond. B}' the simple device of charging-himself with that for which he was not liable he could not shut, the mouths of his sureties or estop them from alleging the truth, in their own behalf. The interest, whether it be treated as an exaction the law does not authorize, or a price demanded for-the office, must be struck out so far as it relates to the general funds of the city. So far as the facts now appear we see no-reason why the sureties should not be held liable for the general funds of the city. This disposes of the questions raised on tbis record. The assignments of error are sustained so far as they relate to the questions now considered, the judgment is reversed, and a writ of venire facias de novo awarded.