Bennett v. S. A. R. E. B. & L. Ass'n

• Decision Date: 02 May 1882
• Docket Number: Case No. 4373.
• Citation: 57 Tex. 72
• Court: Texas Supreme Court
• Parties: S. C. BENNETT ET AL. v. S. A. R. E. B. & L. ASSOCIATION.

57 Tex. 72

S. C. BENNETT ET AL.

v.S. A. R. E. B. & L. ASSOCIATION.

Case No. 4373.

Supreme Court of Texas.

May 2, 1882.

ERROR from Bexar. Tried below before the Hon. G. H. Noonan.

Thomas J. Devine and Tarleton & Boone, for plaintiffs in error.

I. The court erred in giving any judgment against the defendants, Sam C. Bennett and J. B. Lacoste, because at the time and date of their suretyship for plaintiff's secretary, R. H. Neal, he was a defaulter to plaintiff, which is admitted in the record; and notwithstanding such existing defalcation, the accounts of said secretary had been duly examined and approved by plaintiff, and because such approval was due to the negligence of plaintiff. The sureties are discharged by the culpable negligence of the plaintiff. The People v. Janson, 7 Johns., 331; Rathbone v. Warren, 10 Johns., 587.

II. In an action on a bond, defendant may plead that plaintiff was cause of the damage of which he complains. Theobald on Principal and Surety, sec. 183; Harleston on Bonds, p. 199; Montague v. Tidcombe, 2 Vern., 518; 7 Johns., 332;10 Johns., 587; Pidcocke v. Bishop, 3 Barn. & Cres., 505; Whitmore v. Wilkes, 3 Car. & P., 364; Manhattan Co. v. Lydiz, 4 Johns., 377;3 Wheat., 154, 155, note; Payne v. Ives, 3 Dowl. & Ryl., 664; Holland v. Malken, 2 Wils., 126; Bacon's Abridgment, Obligations, F; Story on Agency, 313; 4 Pick., 339, 340.

III. Where the sureties were misled as to the condition of the accounts of plaintiff's secretary by the approval of the secretary's accounts, while, in fact, defalcations existed at the date of such approval, and the bond was entered into subsequent to such defalcation and approval, they are not liable. Graves v. Lebanon National Bank, Court of Appeals of Kentucky, Reported in American Law Times Reports, 1874, p. 59.

Simpson & James, for defendants in error.

GOULD, CHIEF JUSTICE.

This judgment was rendered against appellants as sureties on the bond of R. H. Neal for the faithful performance of his duties as secretary of the defendant corporation during his continuance in office, the bond bearing date September 30, 1878, and being in the sum of $3,000. The by-laws of the association required the secretary, at each monthly meeting of the board of directors, to furnish a statement of the affairs of the company. On the trial it was developed that Neal was actually a defaulter at the time Bennett and Lacoste signed his bond, and that the association, through its proper officials, had approved his accounts at that time. After the bond was given, subsequent defalcations occurred from time to time largely in excess of the amount of the bond, and which a witness says might have been detected at any time by any competent book-keeper within twelve hours after undertaking the examination of the books. None of the finance committee had made an examination of Neal's accounts after the bond was given. There was no evidence of actual knowledge of Neal's defalcation on the part of any of the officers of the association, at the time the bond was given, or at the time any of the subsequent defalcations occurred. The claim is that the officers of the association were grossly negligent in approving the accounts of Neal, when a proper examination would have exposed his default; that the appellants were misled by this approval, and relying thereon executed the bond, and that by reason of these facts they were not liable thereon.

The authorities are conclusive that mere negligence in the officers of a corporation in failing to examine the books and detect frauds committed by an...