Sparks v. President of the Farmers' Bank

The sureties claim to be relieved upon three distinct grounds.

Heston was first chosen cashier by the directors of the branch bank of Wilmington, February 13, 1858. This was a temporary appointment, continuing until the meeting of the general board, in January 1869, when he was regularly elected by the board. Subsequently, he was re-elected by the general board, in January of each year, until 1867, the year in which he was removed. After each of these elections, he took an oath'of office. He also gave anew official bond in each of the years 1859, !86o, 1861, 1862, and 1865. For reasons not necessary to be stated, the taking of bond was dispensed with in 1863 and 1864.

The bonds are taken in the corporate name of the principal bank, and to each there is a condition, without any recital preceding it, in these words :

‘‘The condition of this obligation is such, that if the “above bound Joseph A. Heston shall behave himself “well, and faithfully discharge his duties as cashier of the “branch of the Farmers’ Bank at Wilmington, then the “above obligation to be void, otherwise to be and remain “in full force and virtue in law.”

It will be observed that the obligation of the sureties is not, by the terms of the condition, or by any recital in the bond, limited to a definite period, as for a year; but their undertaking is, for Heston’s good behavior, “as “cashier.” Then, according to a settled rule of construction, their obligation is coextensive with the duration of Heston’s office. Add. on Cont., 663. And to the rule, as thus stated, there should be added this qualification, viz : that the undertaking of the sureties in either bond, was for Heston’s good behavior only so long'as he should hold his office by virtue of that election pursuant to which the bond was given ; so that their obligation under such bond would cease, as well upon his re-election and qualification for a new term of office, as upon the election and qualification of another, person as his successor. Add. on Cont., 662, and cases cited; Bigelow vs. Bridge, 8 Mass., 274 .

This leads directly to the main question discussed upon this branch of the case, viz: Whether the office of cashier is an “annual office,” — one that expires at each annual meeting of the general board in January, upon the election of a successor, or the re-election of the incumbent —and if an “annual office,” then whether the term of the incumbent expires ipso facto upon a new election in January, or continues until the qualification of his successor by giving bond, or upon his being himself duly qualified in case of his re-election. It is upon the latter question that the case will be found to turn.

It is. very clear that, by no provision of the charter, nor by any by-law or ordinance of the stockholders, is the cashiership made an annual office or a term office of any kind, such as is the office of the president of the bank.

But it was insisted,for the complainants,that the office, though not made an annual one by the charter, by-laws or ordinances, has become such under certain resolutions adopted by the general board in 1825 and 1826, directing the annual election of cashiers, and by the uniform usage of the corporation since the adoption of those resolutions to hold annual elections in conformity therewith. Such action on the part of the general board, the body invested by the charter with the absolute control of the subject, is claimed to have all the force of a charter provision to constitute this an annual office.

Before taking up this question, it is necessary to advert to the practice of the general board, in the election of cashiers from the period of the bank’s organization.

Prior to 1825, the action of the board was governed by no rule. From the organization of the principal bank, in 1807, cashiers for that bank and for the branches, were elected annually, until 1810. From that year until 1823 there were no elections except to fill vacancies, but the

“ Resolved farther, That the persons to fill the respective offices of cashiers and clerks, in the different “departments of this bank, shall be ballotted for at the “present meeting, and annually at the meeting of the “general board of directors, in the month of January of “ each year hereafter, and shall, on entering upon the duties “of those offices, respectively, give bond and warrant of “attorney, in the manner and form prescribed by the Act “of Assembly in such case made a,nd provided.”

Preceding this, was another resolution, by which the cashiers of the respective banks were directed to cause proceedings for the collection of interest due and in arrears more than twenty days prior to the declaring of each semi-annual dividend; and this duty was enforced by a declaration “that the cashier or cashiers who shall neglect “or refuse to comply with this provision shall not be “allowed to be nominated or voted for at annual elec“tions thereafter to fill the said office, but be wholly “excluded therefrom.” In the next year, 1826, cashiers and tellers were elected, and a further resolution, evidently supplementary to that of 1825, was adopted respecting the bonds of these officers: — •

“ That the cashier and clerk of the principal bank, and “the cashiers and clerks of the respective branch banks, “enter into bond with surety and sureties and warrants of “attorney, conditioned as provided by law for the faithful “performance of their offices as required by a former by-law

In 1827, and from thence until this time, cashiers and tellers have been annually elected or re-elected, and when elected or re-elected have given official bonds and taken oaths of office, except that, in 1863, 1864, 1866 and 1867, the bonds were dispensed with.

This reference to the transactions of the general board of directors presents all that is at present material, and I proceed now to state to counsel, the views formed, after much reflection, upon the points discussed touching the effect of the resolutions of 1825-6, and the subsequent practice of the general board.

1. And, first, there seems to be no doubt that the power of appointing cashiers for the branch banks is vested in the general board — the branch boards having only authority to fill vacancies occurring within the year, by temporary appointments, to continue until an election by the general board — an authority at first exercised from necessity, and since 1849 under the statute of that year, authorizing such temporary appointments of all officers of branch banks.

2. Further, I am of opirtion that the resolutions of 1825-6, and the practice of the general board to elect the cashier annually, pursuant to its direction, did make the office, for the time being," an annual office,” though not so strictly such as to expire ipso facto at the end of the year, or at the annual meeting of the board, or even upon the election alone of a successor, or the re-election of the incumbent — not until both the election and qualification of the newly elected or re-elected officer.

It was insisted at the bar, that what purported, on the minutes of the general board, to have been re-elections of

In the Massachusetts cases, Dedham Bank vs. Chickening, 3 Pick., 335 , and Bank of Amherst vs. Root, 2 Met., 523 , successive re-elections of a cashier were held to be but expressions of assent to a continuing office, but these decisions rest upon special circumstances which distinguish those cases from the present one.

Again, it was argued that the resolutions of 1825-6, and the practice of the board pursuant to them, could not, of their own force, make the cashier’s office “an annual office ; ” that only a provision of the charter or a by-law could have that effect. This is true so far, that the resolutions, and the practice of the board, did not affix a term to the office, making it an annual one in the same sense as is that of the president of the bank, such that succeeding boards could not elect for a longer period than one year. It was a self-imposed regulation which any board might disregard. Nevertheless, inasmuch as the boards succeeding those of 1825 and 1826 have chosen to

3. But this brings us to the point which is decisive against this branch of the complainants’ case. Although under the practice of the general board, pursuant to the ■resolutions of 1825-6, the cashier’s office has become, in a general sense, an “annual one,” the term of the incumbent cashier does not expire ipso facto upon the election of his successor, or upon his own re-election, but his term continues, and, by consequence, his official bond remains in force until his successor becomes qualified for the office by giving an official bond ; or in case of are-election, until the incumbent shall be himself qualified in like manner for his new term of office.

Such is the effect of the resolutions and of the practice of the board. For, othex'wise, there would not be a proper succession of .cashiers qualified, as is required by the charter. There would be, annually, an interval between the election and the giving of bond pursuant to it, during which the bank would be without any official security whatever. It is to protect the bank against this very result, that a fundamental article of the charter (Art 8 of Sec. 12) requires that the cashier, before entering upon the duties of his office, shall be required to give bond ; and in conformity with this article, and to secure the same end,

The case is not within the point ruled in Bank of the United States vs. Danbridge, 12 Wheaton, 64. It was there, held that, if a bank permit a person to act as cashier without his having given bond as required by the charter, his acts as cashier de facto will incur against the bank the same responsibilities and, to some extent, will acquire for it. the same rights as if he had been duly qualified. But here the question is whether upon a fair construction of the resolution under which the cashier was re-elected, he is to be considered after a re-election as acting in his new term of office before security given for it, or in his old term continued until he shall be newly qualified.

There is a further consideration necessary to a complete view of the subject. It is this : In holding that the term of office of the cashier, under elections by the general board, pursuant to the resolutions of 1825-6, continues until there shall be a qualified successor in the same office, I have but extended to the resolutions of 1825-6 and the elections held under them the same principle of construction which the common law applies to like provisions

The principle is, that if the term of an officer, civil or corporate, created by statute or charter, is not limited to expire at a fixed time, or upon a specified event, but there is simply a direction for the annual election of the officer, his original term continues, though after the year, until a successor is duly elected and qualified. It is true that this, as a general common law principle, has been doubted by Chancellor Walworth, in 1 Paige, 595. In 2 Kent’s Com., 295, the principle is treated as not definitely settled upon authority, though it is supported by the author’s great name. It was also affirmed by the Supreme Court of New York, in People vs. Runkle, 9 Johns., 147 , and Trustees of Vernon Society vs. Hill, 6 Cowen, 23. The apparent uncertainty of the English' authorities on this point is removed by discriminating between the cases arising under statutory provisions expressly limiting the office to expire at the end of the year, or directing that the election be held on a fixed day, and the cases in which a term is implied from the direction to elect annually, without limiting the election to a fixed day. A provision for holding an election on a fixed day was held to be peremptory ; but one for electing annually, without a day fixed, was treated as directory only. The distinction is one of questionable soundness; yet it harmonizes the cases, and gives certainty to the rule adjudged by them.

Of the former class was the Banbury x.ase in 10 Mod., 346, in which a corporation was held dissolved through a failure to elect a Mayor on a charter day, it being a day fixed by the charter, and no provision for continuing the office. It was against the mischief resulting from this class of decisions, in working the dissolution of corporations through the failure to elect on charter days, that the Statute 11, Geo. I, was passed eight years after the Banbury case — which statute provided that a corporation

Returning now to the present case, I am of opinion that the resolutions of 1825-6, and the practice of the general board under them, ought to be so construed as to preserve an unbroken succession of 'cashiers qualified according to the requirement of the charter. Such a construction is quite consistent with the language of the resolutions, is necessary in order to harmonize them with the eighth fundamental .article of the charter, is supported by a reasonable presumption as to the intent of the board, and, moreover, it is in accordance with the effect given at common law to like provisions in statutes and charters for the election of civil and corporate officers.

What then, we next inquire, is the effect upon Heston’s term of office, and his official bonds, under the elections of 1862 and 1865 ? The re-elections of Heston in 1863 and 1864 were rendered ineffectual to create a new term of office by his omission to give bond pursuant to those elections, as required by the eighth fundamental article. His term of office under the election of 1862 continued, until, in 1865, he gave bond pursuant to his re-election in that year. So the term of office, commencing in 1865, continued until his removal in March, 1867 ; no official bond having been meanwhile given. It follows that the liabilities of the sureties under each bond being co-extensive with the term of office for which the bond was given, covered, under the two bonds, the whole period from the date of the bond of 1862 until-Heston’s removal from office in 1867.

But here we are met by an objection, argued with much ability and force, that the bank is estopped from holding the sureties liable under either bond beyond a year from the election pursuant to which the bond was given; and this upon the ground that the sureties undertook for Heston under an expectation that their liabilities would be limited strictly to the ensuing year,an expectation induced by the very practice or usage on the part of the bank of annually electing -cashiers. And especially was it urged that the sureties ought not to suffer in consequence of the departure of the bank, after they became bound, from its previous practice of taking a new bond

The case lacks the essential feature necessary to entitle the complainants to protection under the doctrine of equitable estoppel, or as it is usually termed, estoppel in pais. Assuming that the sureties were induced to engage for Heston under the expectation that his term was for a year only, and not to be extended by the omission in the following year to elect or re-elect and take new bond, still such misapprehension as to the extent of the liability they were about to assume is not chargeable to the bank. There is no proof of any misrepresentation on the part of the bank or of its officers, nor of the withholding of any information sought from it, or which, unsought, it was its duty to give; nor (and here is the point of the objection) was such misapprehension warranted by the practice or usage of annual elections. For, in the first place, in the total absence of evidence to the contrary, the sureties are presumed to have understood the practice or usage according to its true construction and effect, that is, that, although the office was in a general sense an annual one, yet that the incumbent officer for whom they were about to engage would hold over until the election and qualification of a successor, or the re-election and qualification anew of the incumbent. A mistake on this point cannot be assumed when none appears in proof. But, in the next place, if such mistake were shown to have existed, and to have influenced the sureties to become such, still it does not appear that they were denied,by the bank,access to its records or proceedings, or any information sought for in order to ascertain the precise extent of the liability they were about to assume. On the contrary, in must be considered that their mistake (if such existed) was due to their own passiveness, caused by over confidence in Heston, and not to any breach of duty on the part of the bank. I now speak of the case as it stood at the time the sureties became bound.

This distinction between the effect of fraud and of laches only on the part of a creditor or obligee upon the liability of sureties is clearly put in the United States vs. Kirkpatrick, 9 Wheat., 720 . That was an action upon an official bond taken by the United States Government. The defense was neglect on the part of the collecting officer of the Government to sue within the time prescribed by law. The Court, reasoning from what it considered an undisputed rule in suretyships between private parties, says “it is admitted that mere laches without fraud forms “ no discharge of a contract of this nature, between private “individuals. Such is the clear result of authorities.” The same distinction has been applied to the case of sureties in a cashier’s official bond in The State Bank vs. Chetwood, 3 Halst., 1, and in Taylor vs. Bank of Kentucky, 2 J. J. Marshall 565.

There is another principle quite well adjudged, which is equally decisive against this defense of the sureties. It is this : — The obligation of the sureties being to the corporation, i. e,, to the stockholders by their corporate name, is not affected by the acts or omissions of the directors of the branch bank, who are themselves but servants of the corporation, and who, though they exercise many important corporate powers, have not authority to compromise or impair the official securities of the corporation. This has been decided in two cases where the directors, whose acts were called in question by sureties, were directors of the bank to which the official bond was given, and not of a branch bank. Minor vs. The Mechanics' Bank of Alexandria, 1 Peters, 46; Amherst Bank vs. Root, 2 Metcalf, 522. In another case, quite like the present one, this

III. There remains a third and last ground of relief taken for the sureties — that is, that under the Statute barring suits on official bonds after two years from the accruing of the cause of action, the sureties are discharged as to so much of the defalcation as occurred more than two years’ previous to the entering of judgment on the bonds, which was in March, 1867. It will be observed here, that two of the memorandum checks, amounting together to $6,088 44, bear date, one, September 5, 1866, the other, January 15, 1867, both within two years next before the entering of judgment on the bonds. We have seen that the defalcations represented by these checks respectively, must, in the absence of evidence to the contrary, betaken to have been committed at the date of the checks, and to these, therefore, the statutory bar can have no application.

We then take up the check of December 1, 1864, for $3046.46. This sum was abstracted more than two years before the judgments were entered. Should the bank, on that ground, be restrained from collecting this amount ? I here pass by one of the questions raised in the argument, viz.: Whether Heston’s failure, on March 2, 1867, when his defalcation was discoverd, to pay over the sums he had taken, was of itself a new breach of his official bond

It is a settled and familiar principle that a court of equity will not permit a party to make an unconscientious use of an advantage gained at law. Hence it will deprive him of defenses when set up to protect fraud though such defenses be founded upon the most positive statutory enactments.

A familiar instance of this jurisdiction arises out of the Statute of Frauds. Although this statute was intended absolutely to avoid parol contracts for interests in land, courts of equity do not allow an unconscientious use of it, and, therefore, it is that if a party has in part performed a parol contract for the sale of lands, the statute shall not be set up against a bill seeking a complete performance. This court has long exercised the same power to restrain an unconscientious use of the Statute of limitations. A very able vindication of this power, and one now received as authoritative, is by Lord Redesdale in Bond vs. Hopkins, 1 Sch. and Lef., 431. The adjudged cases afford many illustrations of the doctrine. In Putney vs. Warren, 6 Ves., 73, it was applied by Lord Eldon to protecta party who had been prevented from pressing his remedy at law by his adversary’s carrying on an unfounded litigation in equity until the statute had run. So in some cases where through mistake a party has omitted to prosecute his rights in time, equity has relieved against the statute, as

There is nothing in the present case to except it from the operation of the rule. It is true that equity will not relieve against the bar of the statute in favor of a •party who has been in laches in not using means within his power to discover the fraud. But a close supervision by large moneyed corporations over their officers, sufficient to ensure the speedy detection of fraud, is not practicable, and were it so, would become intolerable. These institutions must unavoidably trust their officers and rest upon the official bond as the guaranty for their fidelity. It is to this end that the bonds are taken. Their value would be destroyed and their purpose defeated were it in the power of a shrewd cashier to absolve himself and his sureties by covering up his frauds for two years.

If the rules applied to this case seem to bear hardly upon the sureties-, it must be remembered that by these bonds they undertook for the cashier’s fidelity, absolutely and at all events, and engaged unconditionally to make good his defaults. They had the power to limit their responsibility expressly to one year, or to make it subject to any conditions which might be agreed upon. But this

A decree will be entered dissolving the injunction so far as to allow the bank to collect the amount of the defalcations proved, with interest.