Case ID: shan-cas_2/html/0013-01.html
Source: Caselaw Access Project
Author: {"author": "Lea, Sp. J., McFarland, J'., Febemau, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

THE NASHVILLE, CHATTANOOGA & ST. LOUIS RAILWAY COMPANY v. C. T. HARRIS.
    Knoxville,
    May Term, 1876.
    1. BOND OE RAILROAD AGENT. Surety liable only lor default alter bond made, when.
    The law governing' collecting and receiving agents and officers is different from the g-eneral rule applicable to debtor and creditor, as to appropriation of payments. The contract of the surety of such an agent is, in effect, that he is liable only for defaults during- the period for which he is bound.
    Cited with approval: Am. Lead. Cas., 300.
    2. SAME. Same. Case in judgment.
    Where a ticket agent had become indebted to the company, and upon giving bond and seeur-ity was allowed to continue acting as such ag-ent; and the money had been paid over to the company according to the terms of the bond, but at the request of the ag-ent a portion of it is applied to- the payment of the previous default of the agent, without the knowledge or consent of the surety to have the same so appropriated or applied: Held, that to permit this would be bad faith to the surety, and that he cannot be made liable for a default which occurred before the execution of the bond.
   Lea, Sp. J.,

delivered the opinion of the court:

The plaintiff commenced this action in the circuit court of Hamilton county, upon a bond executed by Roster Whitesides, and the defendant, on the 25th day of April, 1874. The case was tried without a jury; there was judgment for the defendant, and the plaintiff has appealed to this court. The facts as established by the proof are: that for some time, at least since January, 1873, Foster White-sides had been the ticket agent of the railroad company at Chattanooga; that on the 25th day of April, 1874, the said agent, of whom no bond had been required, had become indebted to said railroad company, who now required a bond of him, and on that day he executed the bond upon which this suit is based, with the defendant as his security. The said Foster Whitesides continued to act as agent for plaintiff until the 31st day of August, 1874. It was his duty to sell tickets and make weekly and monthly reports to the general ticket agent at Nashville, and make weekly remittances of cash from ticket sales. The proof further shows that all the money received from sale of tickets from the 25th day of April, 1874 (the date of the bond), up to the 31st day' of August, following (the date when the agency ceased), was paid by the said agent to the treasurer of the railroad company, but at the request of the agent, a-portion of said fund was applied to the payment of the default of the agent at the time of the execution of the bond. The conditions of the bond were that “the said Foster Whitesides shall well and truly discharge all the duties required of him as such agent, and shall faithfully pay over to said railroad company, or the treasurer thereof, all sums of money received by him as such agent, or which he ought to collect and account for to the company, then this obligation to be void, otherwise, to remain in full force and effect.”

Plaintiff claims that the said agent is indebted to it in the sum of about $1,800. The question presented is: has there been a breach of the conditions of this bond, upon the facts as above stated? The plaintiff relies upon the well-settled general rule in respect to the appropriation of payments — that a debtor owing different debts has the right to apply the payment to either, and if he fails to do so, the creditor may apply it. We do not think this rule applicable to this case. In this case, the agent pays to the railroad company, not his own money, as in case of a debtor, but the money of the company, and with our idea of right and justice, and in view of the good faith and fair dealing to which sureties are entitled, we cannot permit-an agent to pay to the company the money belonging to the company, and with the consent of the agent, and with the knowledge of the company, as we believe, from all the facts in this cause, that it is their own money, and without the knowledge or consent of the surety, to have the same appropriated and applied so as to make the surety liable for a default which occurred before the execution of the bond. It would be bad faith to the surety. The money had been paid over to the company according to the terms of the bond, and as the agent ivas bound to do-, but after it was received by the company, it is then applied to the payment of a previous default of the agent, when, too, the company knew, as we believe, from what source the money -was realized, and that it was tlieir own money, arising from the sale of tickets.

It is a familiar principle that a surety cannot be held liable beyond the undertaking of his bond, and that the contract of the surety, is, in effect, that he is liable only for defaults during the period for which he is bound. The law governing collecting and receiving agents and officers is different from the general rule applicable to' debtor and creditor.

We think the rule stated in American Leading Oases, at page 300, is the more just and equitable: “When a collecting or receiving officer has given bond with different sureties, for successive periods, and becomes a defaulter, payments accruing, due and paid during the period to which the second bond applies, are not, as against the sureties, to be considered as applied in the order of time, so as to relieve the sureties in the first bond at the expense of those -in the second bond, but must be credited to the obligation for which the second set of sureties are bound, for the contract is that each set is to be liable only for actual defaults during the period for which they are bound; and, however the accounts may be made up and the payments applied between the officer and the principal debtor and government, or creditor, the amount of default for which any set of sureties are to be held responsible, is to be ascertained by the difference between the moneys received and the moneys paid out during the period for which they are sureties.”

Judgment affirmed.

McFarland, J'.,

dissents, as follows:

1 do not concur in all the reasoning of this opinion. If the principal, "Whitesides, paid over the money collected by him for the sale of tickets, after the bond was executed, and directed the application of the money to a prior liability of his, and the plaintiff had no knowledge of the ■misapplication, I think the surety of Whitesides would bo liable.

On petition to rehear,

Febemau, J.,

delivered the opinion of the court:

A petition for rehearing has been filed in this case, and considered.

We hold it clear that the undertaking in the bond of April 25th, 1874, was prospective, and did not include a guaranty for previous conduct of the agent, Whitesides.

In the next place, we do not think the principle as to application of payments, as between debtor and creditors strictly, if at all, applicable to the facts of the case. It is a case of an agent for sale of tickets, whose duty it was to account for and remit proceeds of tickets sold by him to the company, his principal at Hashville. . These tickets must be furnished by the company, in the nature of things, and lie charged with them.

The question is, did he account for all sales made from the time of the execution of the bond, and remit the proceeds to tlic office .of the company at Nashville? If so, his bond has- not been broken, and surety not liable. The proof shows clearly that he did remit every cent received, but having been in default with the company to a considerable sum before the execution of the bond in this case, the company, under his direction, applied a-portion of his remittance, from April 25th, 18T4,-to last of August, 18T4, to the old debt, and thus leaves him charged with a deficit during the period covered by the bond.

Whitesides was required to report the amount of his sales, at first weekly, afterwards daily,, and to remit the money to Nashville. Tie also, reported to the general bookkeeper at Chattanooga. We think the inference inevitable, from this record, that the officers of the company knew that all his remittances were receipts for the week or day. They were sent by express, and sent as weekly or daily receipts. This was the well understood character of the remittance. Under these circumstances, we hold it would be a fraud on the surety to apply these remittances of the company’s money to the previous default. It would be a very convenient way of saving a bad debt, probably, but would be grossly unjust to the surety who had guaranteed faithful remittance for the period of the bond.

In this view of the facts, we need not discuss the question as to what would be the result in the event the company, by its officers or agents, had no knowledge that .the money was the weekly and daily collections. The view we have taken of the case is conclusive of the result, without the discussion of the other question.

Let the petition be dismissed.