Wrong place at the wrong time?

So I'm trying to sleep and I started thinking about my dogs. Then I started to replay something that happened to me during the summer and how bad I felt, and now I can't sleep.
I have a 10 month old Malamute and a 10 year old Border Collie Mix. My malamute is really playful and drives my other dog up the wall all the time. My Border Collie has always been very timid. We got her at the pound, while my puppy was given to my father while he was working in nunavut.
Anyway, My dog was found on the streets when she was around 1 month old and at the time we were looking for a dog so when no one claimed her we took her in. When we brought her home she was playful but we noticed she was scared to go near my grandfather because of his cane. So we figured wherever she came from maybe she was beaten with a stick. She was always very timid and protective but playful when she got to know you better.

So, during the summer I decided to take her for a walk to get the mail since it had been a while. Our post office is, not even joking, two houses away. For some reason I wanted to get the mail and hurry home. As, I'm opening my mail box, these two kids come in, I think 10 year old and a 7 year old. The 7 year old gets all excited because there's a 'puppy' and he starts asking me her name and what not. By this time I could see that my dog was getting a little uncomfortable because it's a confined space and her ears were flat against her head. Before I knew it, or I could even warn him, he reaches his hand above her head to pet her and she snaps at him. I instantly grabbed her jaw so she wasn't on for very long, no broken skin, but the kid starts cry and I'm pretty sure I looked like a dear in headlights. She's never bitten anyone before in aggression. All I could think to do was quickly apologize and tell them she's never done that before. They left and then I quickly went home. Usually I'd let her off her leash when we got a few feet from the house so she could run through the yard to the door (she's actually well trained) but i didn't. I gave her a spank on the bum and told her she was bad, the only thing I knew how to discipline her with. I think she got the message that I was upset because she slowly walked away with her head down.

I'm pretty sure I was bummed the whole day after that... honestly I think it was mostly the kids fault though to reach out like that to an unfamiliar dog.

Hopefully now I can sleeeeeeeep...