People v. Backus

Headnote

1. Depositaries—Guaranty—Construction.

A national bank entered into an agreement with the state, in consideration of certain deposits, to pay on demand such moneys as should be deposited under the agreement. These deposits, as recited in the agreement, were certain of the state moneys which “have been and are proposed to be deposited” in said bank by the agent and warden of Auburn prison for safe-keeping and for interest. The performance of this contract was guarantied by the president and directors of the bank in their individual capacities. At the time of the agreement the deposits were composed in the main of contract earnings, with small additions of moneys given by individual convicts to the warden for safe-keeping. Subsequently acts were passed abolishing the contract system, and authorizing the employment of the convicts in manufacturing on state account, and the proceeds from'the sales of such articles were deposited with the bank from time to time, greatly increasing the deposits. Held, that the guaranty covered deposits arising from such sources.

2. Same—Expiration op Charter—Renewal.

Some time after the agreement was entered into the charter of the hank expired, and it was immediately renewed by the comptroller of the currency, according to the national banking laws, upon an application of the officers and the consent of the stockholders, the name continuing the same, and its business being carried on without interruption. Held that, as the guarantors, having knowledge of the change, had failed to termihate the guaranty by notice as provided for therein, their assent to the continuance of the contract would be presumed.

3. Same—Authority op Comptroller.

As by Laws I860, c. 399, § 8, it was made the duty of the comptroller to require a bond, subject to his approval, he had the authority, and it was his duty, to require a new bond of a depositary whenever he deemed it necessary.

Appeal from judgment entered on report of James G.'Smith, Beferee.

Action by the people against Clinton T. Backus, Manson 3?. Backus, James Kerr, and William 35. Hughitt, on a bond given to guaranty an agreement for deposits entered into by the First National Bank of Auburn. The referee filed the following opinion in connection with his report:

“ The defendants, by their contract dated the 14th of June, 1880, engaged that the First National Bank of Auburn would perform its agreement, made on the same day, witli the state, to pay on demand such moneys as the state should deposit with it under such agreement. By such agreement, after reciting that whereas, ‘ certain moneys ’ of the state ‘ have been and are pro

posed to be deposited ’ in said bank by the agent and warden of Auburn prison for safe-keeping and for interest, the bank promised to pay such deposits on demand, with interest on daily balances at the rate of three per cent. For many years next preceding the making of the agreement the bank had been a depositary of moneys received by it from the agent and warden of the prison on each alternate week during the early part of the time, and for each alternate month during the latter part; the National Exchange Bank of Auburn having received similar deposits during the alternate weeks and months of such period; and that arrangement as to alternation continued after the agreement in question was made, and as long as the First National Bank did business. The deposits which the bank received during the period preceding the making of the agreement, and the deposits which it then held, were composed, in the main, of contract earnings, with some small additions, consisting of moneys placed by individual convicts with the agent and warden for safekeeping or the proceeds of the sale of refuse from the prison. No part of such deposits, during that period, came from the avails of the sale of merchandise manufactured on state account. In 1884 an act was passed inhibiting the superintendent of the state-prisons from contracting for the employment of convicts in the prisons, (Laws 1884, c. 21,) and the act was followed the next year by an appropriation of five hundred thousand dollars for certain enumerated purposes connected with the prisons, including • material and expenses of manufacturing.’ Laws 1885, c. 70. Thereafter the convicts were employed in manufacturing on state account, and the sale of the articles so manufactured resulted in a large increase of the sums received by the agent and warden of the Auburn prison, and by him deposited from time to time in the First National Bank. The moneys in respect to which the bank made default were mostly derived from the latter source, and to that extent the defendants insist that they are not liable, their contention being that deposits of money derived from the new system of prison labor are not within their undertaking. Their contention rests mainly upon the meaning and effect of the words above referred to, contained in the recital in the agreement of the bank. Those words, they argue, limit their liability to deposits of money received at the prison under the system of labor existing prior to and at the time of making the agreement, and do not include the increased deposits of money realized from the sale of articles manufactured on state account.

“While a surety or guarantor has the right to insist that his liability shall not be extended beyond the precise terms of his contract, yet in ascertaining the meaning of the language used the same rules of construction are applicable to contracts of suretyship as to other contracts. The apparent intention of the parties is to control, and, if the language is ambiguous or needs interpretation, the surrounding circumstances may be looked at to ascertain the intent. Testing the agreement by these rules, I do not think the contention of the defendant can be maintained. The guaranty is as broad as the undertaking of the bank, and that, it seems to me, was intended to cover all moneys that should come to the hands of the agent and warden of the prison, as such, and be deposited by him. The object of the bank in making the arrangement was to secure the deposits to itself. That the bank sought the deposits, and regarded them as a source of profit, appears from the fact that it agreed to pay interest upon them; and that the defendants were of the same mind is shown by the fact that they recited the making of such deposits as one of the considerations of their guaranty. These features of the transaction repel the idea that either the bank or its guarantors intended to restrict the amount of the deposits, or to limit the source from which the prison was to derive them. The larger the deposits, the greater would be the expected profits of the bank. The words of the recital were not intended as a limitation of the source or amount of the moneys which the agent and warden was to deposit. They had no other object than to refer to the fact that the state

had previously made the bank its depositary of prison moneys, and that the intention was to continue that relation. It was the duty of the comptroller, by statute, to require a bond, subject to his approval, (Laws 1860, c. 399, § 8,) and impliedly he had the authority, and it was his duty, to require anew bond from any depositary, whenever he deemed it necessary. The same statute constituted the agent and warden the fiscal officer of the prison of which he had charge, and made it his duty to deposit ail moneys received by him, once in each week, to the credit of the treasurer of the state, in a bank located in the city or village « most adjacent to the prison.’ The act of 1884 did not authorize the introduction of a new system of prison labor. An earlier statute, which was in force when the guaranty was entered into, provided that the system of labor in the state prisons should be by contract or by the state, or partly by one system and partly by the other, in the discretion of the superintendent. Laws 1877, c. 107, § 6. The act of 1884 only prohibited the superintendent from further continuing the contract system. In ascertaining the intention of the defendants, it is to be presumed that they had in view the statutory provisions above referred to, making it the duty of the agent and warden to deposit all moneys received by him, and vesting the superintendent with authority to adopt the state account system of convict labor, in his discretion, and that they intended to be bound, whichever authorized system of labor might be employed, and whatever might be the amount of moneys-received and deposited by the agent and warden, reserving to themselves the right to terminate their liability at any time on giving ten days’ notice. Another alleged ground of defense is that the liability of the defendants did not extend beyond the life of the charter under which the bank had existence at the time when the guaranty was made. The charter expired on the 23d day of February, 1883. Thereafter it was renewed by the comptroller of the currency, in pursuance of the provisions of the act of congress, approved 12th day of July, 1882, to enable national banking associations to extend their corporate existence. The certificate of the comptroller bears date the 24th of February, 1883, and was based upon a certificate of the officers of the bank, in due form, dated the 16th of January, 1883, containing a consent in writing to the extension of the charter for twenty years, signed by stockholders owning not less than two-thirds of the capital stock of the bank, among whom was each of the defendants. The name of the eorportion was not changed, and it continued its business under the renewed charter, without interruption.

“A large share of the deposits, respecting which the plaintiff seeks to hold the defendants in this action, was made after the renewal of the charter, and the defendants claim that as to such portion they are not liable. That contention, also, I think, fails. The corporation remained the same, not only in name, but in fact. It was one and the same body. It continued its business generally, and its dealings with the state, precisely as it had done before. Each of the defendants was not only a stockholder, but a director, at the time of the execution of the guaranty, and during the entire period of the reception of the deposits in question both before and after the renewal of the charter. As directors, the defendants are presumed to have had knowledge of the transactions of the bank. By the terms of their guaranty they had the right to terminate their liability by giving notice. In these circumstances, their silence and inaction imply an assent on their part to the continued receipt by the bank of the deposits made by the warden. If the guaranty of these directors had been given to a private individual to induce him to deposit his funds in the bank, and he had continued to do so on the faith of the guaranty, after the renewal of the charter, it will hardly be contended that the defense under consideration would have availed against him. It is immaterial that the defendants acted in their private capacity, and not as directors, in executing the guaranty. Whatever knowledge a director has or ought to have

officially, he has or will be conclusively presumed at law to have as a private individual. Thus, a director is affected with notice of the condition and transactions of the bank. Morse, Bank. § 131 et seq. Irrespective of the official relation to the bank which the defendants held, and of their implied assent in its action, I think it is a complete answer to the defense under consideration that the bank was the same entity, before and after the extension of its charter. In the case of Bank v. Phelps, 16 Hun, 158 ,97 2ÑT. Y. 44, the City Bank of Poughkeepsie, a state corporation, became a national bank under the name by which it brought suit. The action was upon an instrument by which the defendants in the action guarantied to the «state bank the payment of any sum, not exceeding five thousand dollars, which one Woodruff might secure of the bank for legitimate business purposes. It was held, not only that the guaranty was a continuing one, and that the identity of the bank was not so changed as to terminate the guaranty, but also that the City national Bank could continue to advance upon the guaranty and enforce it. 97 21. Y. 50. That case was a much stronger one for the defense than is this. There, was a change of name; here, there is none. There, the guaranty was given to the bank by persons in no way connected with it, to induce it to lend its money;, here, the guaranty is given for the bank by some of its stockholders and directors to induce the state to deposit its money in the bank. There, the new organization was under federal, instead of state, authority, and to some extent clothed with new powers and subjected to new liabilities. If the change of name and organization did not release the sureties in that case, the conclusion is hardly warranted that the defendants here did not continue liable upon their guaranty after the charter of the bank was renewed with their assent and participation.

“Several cases are cited by the defendants’ counsel. They are—Thompson v. Young, 2 Ohio, 835 ; Bank v. Ridgely, 1 Har. & G. 433; Bank v. King-man, 16 Gray, 478 ; Bank v. Barrington, 2 Pen. & W. 27 ; and Broion v. Lattimore, 17 Cal. 93 . Bach of them, except the last, is the case of sureties upon the bond of a cashier or other officer or employe of a bank or other corporation, given to the employer, for its benefit or protection. The sureties in each case were in no way connected with the corporation, and were not shown to have knowledge of its affairs, actual or implied. In three of the cases the charter of the bank expired, and was renewed before the alleged defalcation occurred, and in one of them the capital stock of the bank was increased. It did not appear that the sureties had knowledge of the renewal of the charter or the increase of the stock. In the California case, the legislature extended the term of a county treasurer, who afterwards defaulted, and it was held that the sureties in his official bond were not liable. The considerations already stated show the distinction between those cases and this. The case of Bank v. Rogers, 7 H. H. 21, seems to be in conflict with the cases above referred to, except the last. There, the charter of a bank incorporated in 1803, for twenty years, was renewed for alike term from 1st January, 1824. A cashier of the bank, appointed in 1809, gave bond, with sureties, for faithful performance, etc., and continued cashier till 1830.. It was held that the bond covered the whole time while he remained in office. If either of the defenses above considered is good, then not only are the defendants released from their guaranty, but from aught I see the bank also is absolved from liability under its agreement. Bank v. Blwood, 21 2sT Y 88, 90; People v. Vilas, 36 21. Y. 459, 461. The bond or agreement executed by the bank, although not official, partakes, in many respects, of the character of an official bond. It is executed to the state, by a depositary of public moneys, selected by a state official, pursuant to law'. It has been held, in numerous cases, that an official bond conditioned for the discharge of the duties of the office is not restricted to the duties prescribed by law' at the time of the giving of the bond, but embraces the duties of the office as fixed and regulated

by the legislature, from time to time. In People v. Vilas, supra, it was said by Grover, J., that ‘ any alteration, addition, or diminution of the duties of a public officer made by the legislature does not discharge his official bond, or the sureties thereon, so long as thy duties required are the appropriate functions of the particular officer; that all such alterations are within the contemplation of the parties executing the bond.’ Board v. Clark, 92 íf. Y. 391; Board v. Quick,, 99 Y. Y. 138, 1 Y. E. Rep. 533. Even if a new system of labor had been introduced into the prison by the action of the legislature, after the execution of the bond and guaranty, leading to a large increase of the prison receipts and deposits, the ease apparently would have been within the reason of the rule pertaining to official bonds, but, as no such action was had by the legislature, it is not necessary to test the case on that ground. The cases relating to official bonds do touch this controversy, however, so far as they authorize the proposition that the statutes in force respecting the duty of the warden in depositing money, and the authority of the superintendent in respect to systems of labor in the prisons, were in the contemplation of the parties executing the agreement and the guaranty. The amount of deposits in the bank when it made default is shown to have been the sum of $66,404.27. Prom this is to be deducted a dividend paid by the receiver of the bank, amounting to $16,601.06, leaving a balance of $49,803.21, for which sum last mentioned, with interest at the contract rate on the principal both before and after such payment, the plaintiffs are entitled to judgment.”

Defendants appeal.