Walden National Bank v. Birch — 28 N.Y. St. Rep. 98

Majority

p. 98

The Walden National Bank, Resp’t, v. Caleb Birch and Michael G. Snyder, App’lts.

(Supreme Court, General Term, Second Department,

Filed December 9, 1889.)

Headnote

1. Principal and surety—Liability op surety on bond op bane CASHIER.

The sureties upon the official bond of the cashier of a hank are liable for

p. 99

a conversion by him of stock held as collateral. They are liable for his malfeasance as well as misfeasance.

2. Same—National banks—Loan on stock.

The United States government alone can attack the validity of a loan by a national bank made on security of its own capital stock, and the prohibition against such transactions in the banking act cannot be urged as a justification of the cashier for a wrongful conversion of the stock.

Appeal from judgment against defendants for $1,137.83 and costs.

Defendants were sureties on the bond of one Rutherford, plaintiff’s cashier. One T. was indebted to plaintiff on notes and assigned thirty shares of plaintiffs’ capital stock to Rutherford on the agreement that they should be held collateral to the notes which Rutherford had endorsed. Ten shares were sold and applied to the indebtedness and the remainder Rutherford converted to his own use. The bank recovered judgment on the remaining notes, execution on which was returned unsatisfied.

A. S. & W. F. Cassedy, for app’lts; B. B. Champion, for resp’t.

This is an action upon the bond of Wm. Gr. Rutherford as cashier of the plaintiff against the sureties in the bond for the recovery of the damages sustained by the bank through tile misconduct of the cashier.

The facts are quite complicated, but they are to a considerable extent undisputed, and the findings of the trial court have ample support in the testimony and the stipulation of the parties.

The defense seems to rest upon the theory that the transactions of Rutherford, in the conversion of the stock, which resulted in the loss to the bank, and which constitutes the basis of the claim against the sureties in this action was not in the line of the regular duties of a cashier, and that the sureties are not liable upon the facts found by the court.

In relation to the first position it is to be said that no misconduct is in the line of duty of a cashier of a bank or any other officers, and yet persons who become surety in official bonds undertake to indemnify against malfeasance in office as well as misfeasance.

The second position is founded upon the provision of the United States Banking Act, which prohibits banking associations from making loans or discounts on the security of the shares of its own capital stock, without providing any penalty for a violation of the law.

It seems plain, therefore, that the government alone can attack the validity of such a transaction, and that the prohibition cannot be urged as a justification of the cashier for a wrongful conversion of the stock.

A full and careful examination fails to disclose any error in the proceeding or any defense to the action.

The judgment should, therefore, be affirmed, with costs.

Pratt, J., concurs; Barnard, P. J., not sitting.