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such distinction. On the contrary, in regard to the sureties of the officers of government, whose duties in receiving and disbursing money are of the same varied character, it has been invariably held that they are not discharged by such indulgence. The United States v. Kirkpatrick, 9 Wheat. 720, was the case of a collector of direct taxes and internal duties. " It is admitted," said Mr. Justice STORY, “that mere laches, unaccompanied with fraud, forms no discharge of a contract of this nature between private individuals. Such is the clear result of the authorities. Why, then, should a more rigid principle be applied to the government—a principle which is at war with the general indulgence allowed to its rights, which are ordinarily protected from the bars arising from length of time and negligence ? It is said that the laws require that settlement should be made at short and stated periods; and that the sureties have a right to look to this as their security. But these provisions of the law are created by the government for its own security and protection, and to regulate the conduct of its own officers. They are merely directory to such officers, and constitute no part of the contract with the surety. The surety may place confidence in the agents of the government, and rely on their fidelity in office; but he has the same means of judgment as the government itself, and the latter does not undertake to guaranty such fidelity.”
This principle was reconsidered and reaffirmed in The United States v. Vanzandt, 11 Wheat. 184, where it was held that the omission of the proper officer to recall a delinquent paymaster contrary to the express injunction of an Act of Congress, did not discharge the surety: The Commonwealth v. Brice, 10 Harris 211.
The reasons so clearly stated by Judge Story in regard to officers of government, apply with equal force to the officers of corporations. Corporations can only act by officers and agents. They do not guaranty to the sureties of one officer the fidelity of the others. The rules and regulations which they may establish in regard to periodical returns and payments are for their own security, and not for the benefit of the sureties. The sureties, by executing the bond, became responsible for the fidelity of their principal. It is no collateral engagement into which they enter, dependent on some contingency or condition different from the engagement of their principal. They become joint obligors with
him in the same bond and with the same condition underwritten. The fact that there were other unfaithful officers and agents of the corporation, who knew and connived at his infidelity, ought not in reason, and does not in law or equity, relieve them from the responsibility for him. They undertake that he shall be honest, though all around him are rogues. Were the rule different, by a conspiracy between the officers of a bank or other moneyed institution, all their sureties might be discharged. It is impossible that a doctrine leading to such consequences should be sound. In a suit by a bank against a surety on the cashier's bond, a plea that the cashier's defalcation was known to and connived at by the officers of the bank, was held to be no defence: Taylor y. Bank of Kentucky, 2 J. J. Marsh. 564.
But it is urged that in this case the rules and regulations of the railway company were expressly made a part of the contract with the sureties. The condition of the bond in suit was that the said Charles A. Shaeffer “shall, with care and diligence, faithfully discharge the duties devolving upon him as cashier, as required by the present rules and regulations of said Pittsburgh, Fort Wayne and Chicago Railway Company (a copy of which he acknowledged to have received) hereby adopted, and by such other rules and regulations as said company may hereafter adopt, and shall promptly obey all orders that may be issued by said company, or by their duly appointed officers or agents.” Even giving to the words “hereby adopted,” which are plainly, however, a mere clerical error for “heretofore adopted,” all the force attributed to them, it is not easy to see how it helps the sureties. One of these rules, and the one principally relied on by the defendants, was that “they (the cashiers) shall make a monthly return to the auditor on or before the 10th of each month, in manner and form prescribed.” Shaeffer failed to make such returns as is alleged. His failure was a breach of the condition of the bond. It is not provided in the rules that on his default in making returns he shall be immediately dismissed and the sureties notified of his default. Admitting that such a rule would have been part of the contract, the absence of it leaves the case bare of any legal or equitable ground of defence. It was clearly not the duty of the company to give notice to the sureties of the principal's failure to make returns: Orme v. Young, 1 Holt N. P. 84.
There was nothing in this case but simple indulgence and forbearance, and that under circumstances which were not such as to call for any extraordinary diligence. Whatever may have been the discrepancies between Shaeffer's cash-book and his returns, the account which is annexed to the plaintiffs' paper-book shows that the balances due by him according to the ledger, varied from month to month-from May to October 1864—when he was notified of his discharge. In June it was $5270.59; but in August only $2110.83, and in September $3101.83. The balance found in his hands at the close of his last month (October) was $13,891.27; showing, by subtracting from it the September balance, that his default in that month alone was $10,789.44. This may have been the result of previous defaults brought into that month's account; but supposing the directors to have had access to these returns and accounts, and that it was their duty to scrutinize them, what was there to fasten on them the charge of negligence, even so far as the company—whose interests, and not those of Shaeffer's sureties, they were bound to consult—was concerned? I confess myself unable to discover it.
Judgment reversed, and venire facias de novo awarded.
United States District Court, Western District of Pennsylvania.
IN THE MATTER OF MICHAEL O'HARA, BANKRUPT.
Compensation of counsel for petitioning creditors in involuntary bankruptcy, is taxable as part of the costs of the proceedings, and payable out of the fund realized.
But the principle does not extend to give petitioning creditors a right to contribution from the other creditors in case of failure to realize a sufficient fund to pay expenses and counsel fees.
Counsel for the petitioning creditors presented to the Register a claim of $1500 for compensation for their services as counsel, which they asked to have taxed in their favor as costs in the proceedings, to be paid out of the funds in the hands of the assignees.
At the time of presenting said claim, they also made proof that notice of their intention to do so had been served upon the bankrupt and the assignees. The bankrupt neither appeared in person, VOL. XVII.-8
nor was he represented by counsel. The assignees appeared and filed a written objection to the allowance of said claim, on the ground that no provision therefor is made either in the Bankrupt Act or General Orders; admitting, however, the extent of the services rendered, and the reasonableness of the charge therefor.
SAMUEL HARPER, Register. A question similar to this one has 'been decided in favor of allowing compensation to the petitioning creditors' counsel by Judge BRYAN, of the United States District Court for South Carolina : In re Daniel Williams, 2 Bankrupt Register 28. It is true that the decision in that matter rested on an analogy drawn from the practice in the courts of that state, in Chancery, in allowing counsel fees on a creditor's bill against the insolvent estates of deceased persons, yet the learned judge gives other equitable and just reasons for the allowance.
“ There is,” said he, “ a very cogent reason why any single creditor should feel at liberty to prosecute without the fear of having his claim swallowed up by the expenses of the suit—even when successful. The act contemplates fraud as the ground of prosecution in a great variety of forms. Instant action by one creditor in a precise locality, separated from all other creditors, and without opportunity of counselling with them, is necessary for the efficient administration of the law, and the protection of the whole body of creditors. To wait for time for consultation would, in numerous instances, be to lose the golden moment, and let the fraudulent debtor go free.”
In that case it was remarked that, “in contemplation of law, so far as his property is concerned, the bankrupt is dead. He is no longer entitled to control over it, or the distribution of it. It is assets in the possession of the court, to be administered by the agency of an assignee, for the equal benefit of all creditors—not preferred and protected by liens—and such lien-creditors secured in their liens, as in the case of an insolvent deceased's estate.” In the present case, this condition of things exists as the result of the proceedings instituted, and (after an unusually severe struggle) successfully prosecuted by the petitioning creditors ; and although the Bankrupt Act and General Orders are silent upon the subject, I think it is within the equity of the court to say whether the general creditors shall reap the benefit and share in the burdens, or whether they shall be entirely exempt from the latter, and the expense of preparing the petition and its prosecution to the decree of bankruptcy be thrown upon the petitioning creditors alone. To say the latter, is to say that the involuntary feature of the Bankrupt Law is a delusion and a fraud. A decision that casts such a pecuniary burden upon the creditor who rescues the property of a fraudulent debtor for the benefit of all his creditors, will virtually amount to the abrogation of the involuntary provisions, for it will deter individual creditors from instituting proceedings against their debtors, which are almost sure to involve them in still greater pecuniary loss.
The debt of the petitioning creditors in this matter, as proved before the Register, amounts to $1511.80. If the burden of this claim should be thrown on them, and the bankrupt's estate should pay all debts in full, it follows that the petitioning creditors would realize out of the estate eleven dollars and eighty cents, or considerably less than one per cent., while the other creditors would realize one hundred per cent.
It is no answer to this position to say that the creditors of a debtor can consult together before proceedings are instituted, and agree to equally bear the necessary expenses. I have no knowledge of any bankruptcy matter all the creditors in which could be got together in time to prevent the accomplishment of the debtor's purpose. It is difficult to follow the most kinds of property after the possession has passed to others; and the hope of recovering the value of such property from those who may have aided the debtor in his fraudulent transactions, affords but little encouragement for the institution of legal proceedings necessarily expensive. The suggestion that the creditors may or should consult before filing the petition, and agree to bear the expense jointly, is, however, a recognition of the equity of this claim. To allow this claim is merely to say-after the successful prosecution of the petition—what the creditors themselves would almost universally say before the filing of the petition. And there is more reason and justice in saying it now, because by the prompt action of the creditor who first learns of the fraudulent actions of the debtor, much more of his property is rescued for the benefit of the creditors than would be the case if the proceedings were delayed until the creditors could be got together for consultation. The suinmary processes of the Bankrupt Law encourage prompt action. Its