McMullen v. The Winfield Building and Loan Association

• Decision Date: 08 February 1902
• Docket Number: 11,994
• Citation: 67 P. 892,64 Kan. 298
• Parties: J. F. MCMULLEN et al. v. THE WINFIELD BUILDING AND LOAN ASSOCIATION
• Court: Kansas Supreme Court

67 P. 892

64 Kan. 298

J. F. MCMULLEN et al. v. THE WINFIELD BUILDING AND LOAN ASSOCIATION

No. 11,994

Supreme Court of Kansas

February 8, 1902

Decided January, 1902.

Error from Cowley district court; W. T. MCBRIDE, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. SURETIES--Terms of Bond--Prospective and Retrospective Liability. Where the terms of a bond clearly show that it was intended to be retrospective as well as prospective sureties may he held liable for defaults occurring before the execution of such bond.

2. SURETIES--Officer's Bond--Term of Office--Date of Bond. A bond of an officer recited that he had been elected for the year beginning January 1, 1885, and ending December 31, 1885, and had accepted the office, and it was conditioned that if he should faithfully perform the duties of his office "during said year" the bond should be void and of no effect, but otherwise should remain in full force and effect. The officer was not elected until some time after the first of the year, but had held successive terms and been continually in office for several years before and after 1885. Held, that the surety made himself responsible for the defaults of the entire year of 1885.

3. SURETIES--Evidence of Time of Misappropriation--Burden of Proof. Presumably, money which came into the officer's hands and should have been there was still in his possession, and the burden was on the surety to prove that the funds presumably in the hands of his principal had been misappropriated before he became liable on the bond.

4. SURETIES--Limit of Liability--Allowance of Interest. While the penalty of the bond fixes the limit of liability of the surety at the time the liability arises, yet if the principal or surety fail to discharge that liability when it matures, interest may be allowed on the amount from the time the liability arises, even if the amount of recovery shall exceed the penalty.

5. SURETIES--Limitation of Action--Fraudulent Concealment of Defalcation. Where an officer and agent misappropriates money entrusted to him, and fraudulently conceals his defalcations, the statute will not begin to run until the discovery of the fraud and of the breach of the condition of the bond.

6. SURETIES--Identity of Liability of Principal and Surety--Concealed Fraud of Principal. The liability of the principal is that of the surety, and where the statute of limitations does not begin to run because of the concealed fraud of the principal, the surety cannot invoke the aid of the statute on the ground that he was innocent of the fraud.

7. SURETIES--Failure of Obligee to Detect Defalcation--Recovery. Where the officer bore a good reputation and was generally believed to be honest by the obligees in the bond, and they had no knowledge or notice of unfaithfulness, the fact that the books were open to their inspection and that they failed to detect the defaults which a close examination might have disclosed will not defeat a recovery on the bond, if they acted in good faith toward the surety.

J. Jay Buck, and McDermott & Johnson, for plaintiffs in error.

Herrick & Rogers, and L. H. Webb, for defendant in error.

JOHNSTON, J. CUNNINGHAM, GREENE, ELLIS, JJ., concurring.

OPINION

JOHNSTON, J.:

J. F. McMullen acted as secretary of the Winfield Building and Loan Association from its organization, in January, 1881, until January, 1892, having been elected at the beginning of each year during that period. On January 13, 1885, he was elected for that year, and gave a bond in the sum of $ 2000, signed by J. C. McMullen as surety, which was dated February 2, 1885, and approved four days later. He failed to account for all the moneys received by him, and on February 2, 1892, this action was brought against him and his surety upon the bond mentioned.

In the petition, it was alleged that during the period covered by the bond, J. F. McMullen, as secretary, collected $ 2190.91 more than he had accounted for or paid over to the treasurer of the association, and that this amount he had fraudulently converted to his own use. There was a further averment that by false entries made in the books of the association, and by false statements and reports, he had concealed his wrong and defaults, and that therefore the association had no knowledge of the same until January, 1892.

A trial was had upon an agreed statement of facts, and among other things it was stipulated that during the year 1885 he collected $ 10,799.34, and that during the same time he paid to the treasurer only $ 8763.47, so that from January 1, 1885, until December 31, 1885, his receipts exceeded the amount of his payments to the treasurer $ 2035.87.

From the facts agreed upon, the court found that J. F. McMullen was indebted to the association on January 1, 1886, in the sum of $ 2035.87, and that on February 6, 1886, he paid on this indebtedness $ 197.46, leaving $ 1838.41 unpaid. For this latter sum, with interest from January 31, 1886, amounting to $ 3725.84, judgment was given against both the principal and the surety.

It will be observed that the court held the surety liable for all the funds received by the secretary during the year 1885 and for which he had not accounted. It is contended that the bond is prospective only, and that it did not cover any defaults except those occurring after it had been executed and accepted. As has been seen, the election occurred after the first of the year, the bond was not executed until February 2, and was not accepted until February 6. A considerable amount of the funds involved here was received by the secretary between January 1 and the execution and acceptance of the bond. Does the bond cover the defaults of the entire year? It is true, as plaintiffs in error contend, that sureties are favorites of the law, and that their liability cannot be extended by implication nor enlarged beyond the fair scope of their agreements. At the same time, their obligation, like other written contracts, must be given a reasonable interpretation, and if the fair scope of its terms covers past derelictions it must be so enforced. It may be assumed that, in the absence of a provision to the contrary, a bond can only be regarded as prospective and to cover only future transactions, but if the language used is retrospective, and clearly shows an intent to include defaults occurring before the execution of the instrument, the sureties will be held liable. The condition of the bond is as follows:

"Whereas, said J. F. McMullen has been elected secretary of the Winfield Building and Loan Association, of the city of Winfield, state of Kansas, for the year beginning January 1, 1885, and ending December 31, 1885, and has accepted said office: Now, therefore, if the said J. F. McMullen shall faithfully perform the duties of his office as secretary of said association during said year, then this bond shall be void and of no effect; but, otherwise, shall remain in full force and effect."

It will be noticed that the bond definitely fixes the period of responsibility. The surety binds himself for the faithful performance of the duties of the secretary for the year beginning January 1, 1885, and ending December 31, 1885. The principal occupied the position of trust during that period, and it was competent for the surety to make himself responsible for the defaults of the entire year. It appears to have been an annual office, which McMullen held continuously for about eleven years, and he was elected at the first meeting of the association held in January each year. The fact that the election was after the first of the year and term is not controlling, but the real question is, What time was intended to be covered by the bond? and that must be determined from its terms. The language is plain, and manifestly the parties contemplated that the bond should be retrospective in its operation, and should indemnify against defaults occurring from the first to the last of the year. When it appears that a bond is intended to be retrospective as well as prospective, such effect must be given to it. ( Brown v. Wyandotte County, 58 Kan. 672, 50 P. 888; Myers v. Kiowa County, 60 id. 189, 56 P. 11; The State, ex rel. Chatham Nat. Bk. v. Finn, 98 Mo. 532, 11 S.W. 994, 14 Am. St. Rep. 654; Abrams v. Pomeroy, 13 Ill. 133.)

The amount collected during the year and not paid over exceeded the amount named in the bond. There is some contention as to the money on hand at the beginning of 1885, and whether it was misappropriated after the liability of the surety began. Presumably, money which came into the secretary's hands and should have been there was still in his possession, and the burden is on the surety in cases like this to prove that the funds presumably in the hands of his principal had been embezzled and misappropriated before he became liable on the bond. (Bernhard v. City of Wyandotte, 33 Kan. 465 6 P. 617; Weakley v. Cherry Township, 62 id. 867, 63 P. 433; Bruce et al. v. The United States, 17 HOW 437, 15 L.Ed. 129.) In like manner, it will be presumed that moneys collected during the period of liability and not accounted for were misappropriated during that period. Where there are successive terms and bonds, there is considerable difficulty in fixing the time of misappropriation and the liability of sureties, but when money is traced to the hands of an officer or trustee, and is not accounted for, the burden of proof is upon the principal or surety upon the bond to show what became of the money. The officer has knowledge of the time of misapplication, and by reason of the relations existing between principal and surety the latter is deemed to have knowledge of the fact, while the information would not be accessible to the parties indemnified. In Boyd v....