Case Name: THE ATLANTIC AND PACIFIC TELEGRAPH COMPANY v. WILLIAM E. BARNES, JAMES A. BARNES, AND HENRY BISCHOFF, Jr.
Court: New York Superior Court General Term
Jurisdiction: New York
Decision Date: 1875-02-01
Citations: 7 Jones & S. 40
Docket Number: 
Parties: THE ATLANTIC AND PACIFIC TELEGRAPH COMPANY v. WILLIAM E. BARNES, JAMES A. BARNES, AND HENRY BISCHOFF, Jr.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 39
Pages: 40–53

Head Matter:
THE ATLANTIC AND PACIFIC TELEGRAPH COMPANY v. WILLIAM E. BARNES, JAMES A. BARNES, AND HENRY BISCHOFF, Jr.
SURETIES ON BOND POR THE FAITHFUL PERFORMANCE BY THE PRINCIPAL OF CERTAIN DUTIES AND TRUSTS, AND THE ACCOUNTING AND PAYING OYER OF ALT, MONEYS OF THE OBLIGEE COMING TO HIS HANDS.
What dobs not discharge them from liability.
Where the' principal, after the execution of the bond, received in the course of his employment, moneys of the obligee which, he failed to account for and "pay over, which was well-known to the obligee,
¡ETELD)
that the obligees thereafter keeping the employee in his-service, without notifying the sureties of such default, did not discharge them from liability for future default, it not appearing either that the omission to give notice resulted' in any injury to the sureties, or that the default was fraudulent in its character.
Before Freedman, Curtis, and Speir, JJ.
Decided February 1, 1875.
Exceptions ordered to be heard at general term.
In this case a verdict of two hundred and sixty-nine dollars and sixty-seven cents was directed for the plaintiff, at the trial term, exceptions to be heard in the first instance at general term, and judgment to be meantime suspended.
The plaintiff moved for judgment.
No testimony was taken, but the case was tried upon admissions made by the respective parties.
From these it appeared that the defendant, William E. Barnes, entered the plaintiff’s employ December 23, 1873, and that he and the co-defendants, James A. Barnes and Henry Bischoff, Jr., executed a bond conditioned, that so long as said employment continued, said William E. Barnes should well, truly, and faithfully perform all the duties assigned to, and trusts reposed in, him by the plaintiff, and in particular should faithfully account for all moneys and property of said plaintiff which should come to his hands.
Upon this bond the present action was brought to recover the sum of two hundred and sixty-nine dollars and sixty-seven cents, in which amount William E. Barnes was indebted to the plaintiff at the time of his discharge (which occurred March 24, 1874), on account of moneys of the plaintiff which had come to his hands while the employment continued.
The defendants, James A. Barnes and Henry Bischoff, Jr., wére duly notified of the deficiency, and payment of said sum was duly demanded, and refused.
When one month of the employment had expired (January 30th), said William E. Barnes was behindhand in his accounts with the plaintiff to the amount of fifteen dollars and ninety-two cents, and plaintiff had knowledge of this fact, but did not notify said James
A. Barnes and Bischoff; and it is claimed by these defendants, who alone have answered the complaint, that by reason thereof they as sureties are discharged.
McDaniel, Lummis, and Souther, attorneys, and Charles Edward Souther, of counsel for plaintiff, urged;
I. Defendants’ undertaking is absolute, by the express terms of the instrument. All are bound originally and no one collaterally. The defense of suretyship is, therefore, not pertinent.
II. But regarding defendants as sureties, their liability on the bond has not terminated. Nothing in the admitted facts constitutes a defense to the action (Albany Dutch Church v. Vedder, 14 Wend. 165; approved, Looney v. Hughes, 26 N. Y. 522, and cases there cited; Schroeppell v. Shaw, 3 N. Y. (3 Comst.) 446; Remsen v. Beekman, 25 N. Y. 552, 557; Black River Bank v. Page, 44 N. Y. 453). Of course there is no question but that the action is well brought. The bond being joint and several, all the obligors are properly included as defendants in a single action (Code, § 120; Carman v. Plass, 23 N. Y. 286; Brainard v. Jones, 11 How. Pr. 569).
J. Edwin Leary, attorney and of counsel for defendants, urged
I. Equity holds the creditor or employer to good faith towards the sureties, and to the exercise of so much diligence and care in the management of his affairs as a prudent man would ordinarily make use of, and although the creditor could not be held to exercise active diligence in investigating the” accounts of his servant qr manager, still when knowledge of a default or dishonesty is brought to the knowledge, or confessed to the creditor or employer, the sureties are not responsible for any subsequent defalcation or dishonesty if the employment is continued (Story Eq. Jur. §§ 324-326; 2 Vernon (Eng.) 518; 3 Eng. R. 272; 7 Law R. Q. B. 666; 10 Clark & F. 934; 11 Am. R. 237).
II. There is an implied covenant on the part of the creditor or employer with the sureties that he will conduct his affairs in the ordinary manner and that he will use ordinary due care and diligence during the employment of the principal for whom the sureties bound themselves (Fell on Guaranty & Suretyship, 229).
III. That the admissions on the part of the plaintiff constitute a sufficient negligence and laches in law to discharge the sureties from all defalcations subsequent to the first default which occurred, and of which the plaintiff had knowledge January 30th, 1874, as admitted (2 Ver. 518; 3 Eng. R. 272; 7 Q.B. 666).
IV. By neglecting to discharge and dismiss the defendant, William E. Barnes, from the employ of the plaintiff upon discovery of the first default, and by continuing said William E. Barnes in their employment thereafter, the plaintiff condoned the offense for which they could have discharged him, and thereby entered into an agreement with him to forbear prosecution against said William E. Barnes for the amount of the first default, and should the sureties, the defendants, James A. Barnes and Henry Bischoff, Jr., have discovered the default of the said defendant, William E. Barnes, and demanded his discharge and that the plaintiff prosecute him at once, and that they be absolved from further liability, the plaintiff would have been unable so to do owing to such condonation and agreement to forbear, and thus the rights of the sureties would become compromised (Burge on Suretyship, 203; 18 Ves. 20; 7 Hill, 250; 9 Clark & F. 1, 45, 47; Fell on Guaranty & Suretyship, 449, 518).
Whether the sureties would have been discharged if either the-element of fraud in the default,"-or that of injury resulting from the omission to give notice, or both, had existed, seems to have been regarded by the court as not presented by the case for decision.

Opinion:
By the Court.—Curtis, J.
The three defendants jointly and severally executed a bond, conditioned that one of their number, William E. Barnes, would faithfully perform certain duties and certain trusts, and account for all moneys belonging to the plaintiffs coming into his hands.
Two of the defendants answer claiming that they are discharged from liability, because on an occasion previous to the one in question, Barnes was indebted and in default to the plaintiffs in the sum of fifteen dollars and ninety-two cents, of which they were not notified at the time, though plaintiff knew about it, and Barnes was kept in plaintiff's employment. The facts thus alleged by the answer are admitted. Ho other evidence was introduced at the trial.
The difficulties of sustaining the defense are, that it is not shown that this indebtedness of Barnes for fifteen dollars and ninety-two cents prejudiced or injured in any way the other two defendants, or that Barnes is not able and ready to indemnify and save them harmless, and further that there is no provision in the bond that any notice of default should be given them, and that it was their duty if they wished to protect themselves, either to have required this, or else to have looked into Barnes's accounts, and found the extent of his defaults, and required the plaintiff to prosecute, when they would have had a defense in equity.
It does not appear that Barnes was guilty of a fraud in owing the plaintiff the fifteen dollars and ninety-two-cents. They knew of it, and for aught that appears, there were proper reasons why he should have retained that sum. If every omission, or negligence, or failure of duty, however trivial, on the part of the person for whose conduct sureties have become responsible, is to operate to exonerate them from future liability unless they are forthwith notified, or the employee discharged,, then very little protection would result from that form of security. A collusion between two employees^ as for example, the cashier and the collecting clerk of a corporation, would defeat all recourse by the defrauded stockholders against the sureties of these officers.
Bat whatever may have been the earlier decisions in this State, the law in respect to the liabilities of sureties appears to be settled. In The People v. Berner, 13 John. 383, it was held that negligence in not calling upon their principals, after numerous defaults, did not exonerate them unless an injury resulted from the negligence. In The Albany. Dutch Church v. Vedder (14 Wend. 169, 171), the plaintiffs neglected to call their treasurer to account for seven years after his defaults from year to year, until he became insolvent, when by their own by-law he was bound to render his account every six months, and it was held, that, whatever may have been the moral duty of the plaintiffs to have called their officer to account, " it was the legal duty of the defendants, the. sureties, to have examined into the state of the accounts of the person for whose correctness they had become responsible," and that the facts pleaded constituted no defense in law.
This case appears to have been carefully considered, the previous adjudications were to some extent reviewed, and there seems to have been no decision since, that changes or affects the obligations of sureties, by reason of any of the matters shown in the present action.
If these views are correct, the exceptions should be overruled, and the plaintiff should have judgment on the verdict, with costs.
Speir, J., concurred.