Opinion
Decided March 1, 1938.
The surety on the bond of a tax collector, appointed for a specified year, is liable for his peculations of money collected under the warrant for that year although he pays over that money to cover a previous delinquency under a former warrant. Nor is such surety discharged because the collector failed to submit his tax book and lists to the treasurer for inspection and computation as required by P.L., c. 47, s. 30. Sureties on official bonds are not released by the negligence or misconduct of other officials.
ACTION, on a bond in the penal sum of $5,000, dated August 11, 1932, and given by the defendant as surety for one Arthur R. Caverly, tax collector for the plaintiff town. The defendant filed a plea of confession as to $845.74 (the amount collected by Caverly under the tax warrant for 1932 and not remitted to the town) and pleaded that it was not indebted as to the remainder. Trial by a referee, who found that during the period covered by the bond in question Caverly collected on the 1932 tax warrant a sum "much in excess of the penal sum of the bond" which he did not pay to the town treasurer as having been received on account of the tax warrant of that year. Caverly had held the office of tax collector for several years, and another company was surety on his earlier bonds.
It was the defendant's contention that Caverly directed the application of the sum collected under the 1932 warrant to the payment of taxes which he had misappropriated in 1931, that he had remitted to the town treasurer all funds collected in 1932 (except the sum confessed to be due), and that the surety for 1931 was liable for the earlier defalcation.
The referee ruled that "If any payments were made by him from money collected by him under his 1932 warrant to make up any shortage caused by his peculations in 1931 it would not be in performance of his duty as collector for the year 1932, but would be in discharge of a private debt he owed the town for money previously stolen by him."
After the referee's final report had been filed the defendant, "fearing that the legal issue was not so clearly raised" by this report as by an earlier report which it superseded, requested an express finding (contained in the original report) to the effect that "a sum in excess of $5,000 was diverted by the Collector from its application to the 1932 tax and paid to the Treasurer as having been collected on account of the assessment for the year 1931." This request was denied on the ground that the issue, so far as the evidence made possible, was already raised by the final report and that additional findings were therefore unnecessary. The defendant excepted to the referee's refusal to make the requested finding.
The referee found, without objection, "that nothing the Selectmen or Town Treasurer did or failed to do during the period covered by the bond would have prevented the misfeasance of the collector." He further found that the defendant was liable for the full penal sum of the bond and recommended that judgment be entered for the plaintiff for $5,000 with interest and taxable costs.
The material provisions of the bond are recited in the opinion. All questions of law raised by the pleadings and the referee's report were transferred by Johnston, J., without a ruling.
Hughes Burns and Charles F. Hartnett (Mr. Hartnett orally), for the plaintiff.
Conrad E. Snow (by brief and orally), for the defendant.
The bond on which the present action is brought amounts in all essential particulars to a contract of insurance. Guaranty Trust Company v. Company, 79 N.H. 480, 481. The obligation assumed by the defendant is that Arthur R. Caverly, having been duly elected tax collector for the town of Strafford for the year 1932, "shall faithfully perform all the duties incumbent on him as Tax Collector and shall serve all processes lawfully directed to him, and perform all other things whatever which a Tax Collector may or ought by law to do, and shall really and truly account to said Town for all money coming into his hands as said Tax Collector."
Although the question of law argued by the defendant appears to be sufficiently presented by the ruling of the referee, the case is here treated as though the finding requested by the defendant had been expressly made.
The payment by Caverly of the money collected under the 1932 tax warrant "to cover a previous delinquency under a former bond" was "a misapplication of money" (Pingrey, Suretyship Guaranty, 2d ed., s. 307) and "as much a breach of his bond, as if he had retained it in his own pocket" (Frownfelter v. State, 66 Md. 80, 87). This is not a case where a tax collector has properly paid to the treasurer money received in a given term and the treasurer, with the collector's consent, has later applied the money to a default occurring prior term. See Spencer, Suretyship, s. 270, p. 376. Here the tax collector, "by his own act, diverted the funds received to a purpose for which they were not received, in disregard of his official duty." State v. Sooy, 39 N.J. Law 539, 549. See also, Enfield v. Hamilton, 112 Conn. 314; Hudson v. Miles, 185 Mass. 582, 588, and cases cited.
The general rule governing situations of this kind has been stated as follows:
"Where an officer has been elected for two succeeding terms, with different bond for each term, and he abstracts money received during the second term to pay a defalcation made under the first term, the sureties on the second bond are liable. In order to make good the defalcation of the first term, the principal might have borrowed money from an outside source, in which case it would have been equivalent to payment with his own funds, leaving an indebtedness on his part to outside parties, and the sureties on the first bond would not be liable. If, instead of borrowing from outside, the principal uses the funds received during the second term, the effect is the same as to the first set of sureties as if he had borrowed it elsewhere; but it is a conversion of the funds received during the second term, and the second set of sureties would be liable for it. It is the same as using the money received during the second term to pay his private debts . . . .
"A test which may be applied in cases where an officer succeeds himself, and has given a different bond for each term, is to determine what would be the liability of the sureties if the officer, instead of succeeding himself, had been succeeded by another person. If the successor should take money received by the latter to make good a defalcation of his predecessor, there is no doubt of the liability of the second set of sureties." Childs, Suretyship, s. 116, pp. 201, 202.
"The weight of authority is that the second sureties are liable and the first exonerated, and that the use of public money received in the second term to square the accounts of the first term, cannot be distinguished from the use of the funds to meet any other obligation of the principal." Stearns, Suretyship (4th ed.), s. 156, pp. 260, 261, and cases cited.
The defendant relies upon the decision in United States v. January, 7 Cranch 572, and cases based thereon. Mr. Justice Story discusses this decision at some length in a note appended to his opinion in United States v. Wardwell, 5 Mason 82, 87. In the light of his analysis the case appears to go no farther than to decide that where payments have been indiscriminately made by a collector of revenue to the supervisor of revenue and carried by the latter to general account, the collector "has no right subsequently to direct" a special application of the payments to any other account. See, also, State v. Sooy, 39 N.J. Law 539, 547, in which it is said: "United States v. January, as explained by Judge Story . . . only decided that there was no right of appropriation after payments had been made upon general account."
The suggestion that the defendant cannot be held liable if the treasurer knew or ought to have known the source of the funds received from Caverly is untenable even if, despite the referee's findings and the dearth of the defendant's exceptions, that question could properly be raised. It is the general rule that sureties upon official bonds are not released by the negligence or misconduct of other officials. Stearns, Suretyship (4th ed.), s. 162 and cases cited. As already stated, the bond is in effect a contract of insurance and, unlike the bond in the case of Guaranty Trust Company v. Company, 79 N.H. 480, it is not conditioned upon supervision over the principal "for the prevention of default."
Nor is the defendant discharged from liability merely because Caverly failed to submit his tax book and lists to the treasurer for inspection and computation in compliance with the requirements of P.L., c. 47, s. 30. Statutory provisions of this kind are designed for the protection of the public, and constitute no part of the contract with the surety. United States v. Kirkpatrick, 9 Wheat. 720, 736.
Judgment for the plaintiff.
All concurred.