Tapley v. Martin. "Moreover, the cases which we have referred to are cases in which the information withheld or not disclosed, related in some way to the business which was the subject of the suretyship. In this case, the undisclosed information related, not to the business which Was the subject of the suretyship, and not to the conduct of the cashier, as cashier, but to bis general character. It did not follow that because he gambled he would fail in his duty as cashier, and the exceptions do not show that his actual delinquency had any connection with his gambling. The directors may have deemed it advisable to demand an increase of his bond because of his gambling; and so they might have deemed if they had learned he was keeping a fast horse, or speculating in the stocks. But would it have been their duty, unless inquired of, to impart their knowledge to the sureties? We think not, in the absence of a more confidential relation than that which is implied in the mere giving and accepting of the surety bond. If, when there is no such confidential relation, the sureties wish to have the obligees affected with a duty to give such information, they should inquire for it. Otherwise, it may be supposed that they are content with what they themselves know, or with inquiries which they have made elsewhere." In Owen v. Homan, 8 Mac. & G. 378, the creditor or obligee was held to be bound to make a full, fair and honest communication to the surety of all circumstances connected with the transaction to which the suretyship is to be applied, which are calculated to influence the discretion of the surety in entering into the required obligation. See that case on appeal, 4 H. L. Cas. 997. Matters unconnected with the transaction of the suretyship need not be disclosed to the surety unless he inquire concerning them. Wythes v. Labenchere, 3 De G. & J. 593. Mere negligence of a bank in detecting dishonest practices of a cashier will not discharge his sureties. There must be such negligence as in law amounts to a fraud on the sureties to accomplish that result. The distinction between mere negligence and fraud on the part of obligees as to the liability of sureties was clearly stated in United States v. Kirkpatrick, 9 Wheat. 720. That was an action on an official bond taken by the 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, STORY, J., delivering the opinion, said: “It is admitted 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." The same distinction was applied to cashier's bonds in State Bank v. Chetwood, 3 Halst. 1, and in Taylor v.Bank of Kentucky, 2 J. J. Marsh. 565; Morris Canal Co. v. Van Vorst, 1 Zabr. 100. So, in Minor v. Bank of Alexandria, 1 Pet. 61, it was held that a usage of the board of directors to permit the cashier to misapply the funds of the bank would not exonerate his sureties. STORY, J., who delivered the opinion of the court, said: "The question then comes to this, whether any act or vote of the board of directors, in violation of their own duties and in fraud of the rights and interests of the stockholders of the bank, could amount to a justification of the cashier, who was a particeps criminis. We are of opinion that it could not. However broad and general the powers of the direction may be for the government and management of the concerns of the bank, by the general language of the charter and by-laws, those powers are not unlimited, but must receive a rational exposition. It cannot be pretended that the board could, by a vote, authorize the cashier to plunder the funds of the bank, or to cheat the stockholders of their interest therein. No vote could authorize the directors to divide among themselves the capital stock, or justify the officers of the bank in an avowed embezzlement of its funds. The cases put are strong, but they demonstrate the principle only in a more forcible manner. Every act of fraud, every known departure from duty by the board in connivance with the cashier, for the plain purpose of sacrificing the interests of the stockholders, though less responsible in morals or less pernicious in its effects than the cases supposed, would still be an excess of power, from its illegality, and, as such, void as an authority to protect the cashier in his wrongful compliance. Now, the very form of these pleas sets up the wrong and connivance cannot for a moment be admitted as an excuse for the misapplication of the funds of the bank by the cashier." The same rule was held in Amherst Bank v. Root, 2 Metc. 522; Taylor v. Bank of Kentucky, 2 J. J. Marsh. 565, and in Sparks v. Farmers' Bank, 9 Am. Law Reg. 365. So in Atlantic and Pacific Telegraph Co. v. Earnes, 64 N. Y. 385; S.C., 21 Am. Rep. (21, in an action upon a bond given by an employee to his employer, Tapley v. Martin. conditioned that the former would faithfully account for all moneys and property coming to his hands, it was held that the sureties were not discharged from subsequent liability by an omission of the employer to notify them of a default by the employee which was knowu to the employer and a continuance of the employment after such default where it did not appear that such default arose through the fraud or dishonesty of the employee. The court expressed the opinion that had the default arisen through the dishonesty of the servant, a withholding of the fact from the sureties and the continuance of him in the service would have discharged the sureties. This was held in Phillips v. Foxall, L. R., 7 Q. B. 666, where on a continuing guaranty of the honesty of a servant it was held if the master discovered that the servant has been guilty of dishonesty in the course of the service and instead of dismissing the servant he chooses to continue him in his employ without the knowledge and consent of the sureties, he cannot afterward have recourse to the surety to make good any loss arising from the dishonesty of the servant during the subsequent service. The same principle was held in Sanderson v. Aston, L. R., 8 Exch. 73, and in Burgess v. Eve, L. R., 13 Eq. 450. In Black v. Ottoman Bank, 15 Moore's P. C. 472; S. C., 8 Jur. (N. S.) 801, the surety on the bond of a bank cashier was held not to be discharged by a failure of the bank to use diligence in guarding against the cashier's dishonesty that mere negligence would not absolve the surety; and in Dawson v. Laces, Kay, 280; S. C., 23 L. J. Chan. 434, it was held that to discharge a surety for the due performance of duties, there must be on the part of the obligee an act of connivance or gross negligence, amounting to willful shutting of the eyes to fraud or something approximating it. There must be something amounting to fraud to enable a surety to say that he is released from his contract on account of misrepresentations or concealments. Pledge v. Buss, Johns. (Eng.) 663. A concealment by a creditor that at the time of the contract the principal debtor was already indebted to the creditor in a considerable sum, of which fact the surety was ignorant, has been held evidence to go to the jury of such fraud on the surety as would discharge him. Lee v. Jones, 14 C. B. (N. S )386 bee, also, Hamilton v. Waison, 12 C. & F. 258; Smith v. Bank of Scotland, 1 Dow. 272; Padrock v. Lishop, 3 B. & C. 695; Peel v. Tatlock, 1 Bos. & P. 419; Squire v. Whitten, 1 H. L. Cas. 333; and the same rule would apply to sureties on cashiers' bonds as to concealments by the bank. In Lee v. Jones, supra, affd. on appeal, 17 C. B. (N. S.) 482, P. had been employed by the plaintiffs in the sale of coal for thein on commission, for which he at the end of each month gave them his acceptance, and by the terms of his agreement he was to hand over to them within six days all moneys he received from customers. P. having fallen in arrear to the extent of 1.272, the plaintiffs required him to find security to the amount of 300., and at his request the defendant consented to guarantee 100. The agreement of guaranty recited the terms of dealing between the plaintiffs and P.; but the fact that P. was already indebted to the plaintiffs in the large sum above mentioned was concealed from the sureties. In an action against the defendant upon the agreement, he pleaded that he was induced to make it by the fraudulent concealment by the plaintiffs of a material fact: Held, that the non-communication by the plaintiffs to the defendant of the fact that P. was at the time indebted to them was evidence for the jury in support of the plea. Farmington v. Stanley, 60 Me. 472, cited in the principal case, held that the failure of selectmen to examine the accounts of a town treasurer as by statute directed or to detect an error in his accounts would not discharge a surety on his bond. This decision was put upon the ground that the selectmen were only agents of the town with limited powers; that they had no authority directly to discharge the sureties on the treasurer's bond and could not therefore do it indirectly. In the Board of Supervisors v. Otis, 62 N. Y. 88, it was held that neither negligence nor malfeasance of a board of supervisors in their transactions with a county treasurer, would discharge the sureties on the bond of such treasurer. A cashier's bond (and the bonds of other bank officers are governed by th same rules) covers all duties annexed to the office from time to time, either by law or by the directors, and the sureties are liable for any default in such duties. Minor v. Bank of Alexandria, 1 Pet. 46; Morris Canal Co. v. Van Vorst, 1 Zabr. 100. Such bonds are a surety not only for honesty, but for reasonable skill and diligence, so that if a cashier violates his duties through negligence or want of capacity his sureties are liable. Minor v Bank of Alexandria, 1 Pet.64; State Bank v.Chetwood,3 Halst.1; American Upton v. National Bank of South Reading. Bank v. Adams, 12 Pick. 303; Union Bank v. Forrest, 3 Cranch, 218; Commercial Bank v. Ten Eyck, 48 N. Y. 305. The failure of a cashier to be sworn when that is required does not vitiate his bond but is rather a breach of it. State Bank v. Chetwood, 3 Halst. 1. But it is no forfeiture of a bond conditioned for the faithful service of a cashier that a loss has occurred by mere accident or mistake. Morris Canal Co. v. Van Vorst, 1 Zabr. 100 So it is a breach of a cashier's bond for him to change, without authority, the securities of the bank. Barrington v. Bank of Washington, 14 Serg. & R. 405. It is a violation of duty for a cashier to allow an overdraft. Bank of St. Mary v. Calder, 3 Strobh. (S. C.) 403 ; or to certify a check without funds; or that a deposit has been made when in fact none has been made, or to change without authority the securities of the bank Barrington v. Bank of Washington, 14 Serg. & R. (Penn.) 405; to omit some duty required of him by law, as to make a report to the Comptroller of the Currency, whereby the bank has been subjected to a fine or otherwise injured. Bank of Washington v. Barrington, 2 Penn. 27. To violate any valid by law, the corporation may prescribe. Bank of Carlisle v. Hopkins, 1 Min. (Ky.) 245. And in each case the sureties to the cashier's bond are liable. UPTON V. NATIONAL BANK OF SOUTH READING. (120 Massachusetts, 153.) Purchase of real estate by National bank. A National bank has authority to purchase such real estate as may be necessary in order to secure a debt due to it, although in excess thereof, if the security of the debt be the real object of the purchase. A National bank advanced money to a person already indebted to it and took a mortgage on real property to secure both the advance and prior indebtedness. Held, that the transaction was valid under the National Banking Law.* BILL ILL in equity by the assignee in bankruptcy of one Emerson, to redeem certain lands from a mortgage given by Emerson to John Sawyer, to secure the payment of $4,500, and assigned by several conveyances to defendant. The bill alleged that the debt for which the mortgage was given had been all paid, except the sum of $800 and interest from August, 1873, and that before this suit was begun the plaintiff was ready and offered to pay that sum to the bank. The defendant's answer admitted these allegations, and alleged that prior to February 21, 1871, the bank had three notes against Emerson amounting to $911.21, and that by a parol agreement, which was set forth in the answer, between Emerson and the bank, * See Ornn v. Merchants' National Bank, ante, p. 490; First National Bank v. Haire, ante, p. 480; Fowler v. Scully, post, and note. Upton v. National Bank of South Reading. the latter agreed to lend $3,000 on the mortgage and to take an assignment of the same to secure said $3,000 and the said three notes. A general replication was filed, and an issue for the jury was framed and tried before WELLS, J. The judge found that such an agreement was made, The plaintiff objected to the proof of such an agreement by oral evidence; and asked the judge to rule as follows: "1. That it was not competent for the defendant to set up and prove such an oral agreement for the purpose for which the evidence was offered under the answer. 66 2. That the purchase of the mortgage by the defendant, and the loan made thereon were contrary to the U. S. Statute of 1864, chapter 106, section 28, and the bank could not legally hold the same for the purposes set forth in the answer." The judge overruled both objections. It appeared that on February 21, 1871, the mortgage was held by Abbott & Thomas, and that the full amount of the mortgage note, $4,500, was then due and unpaid. Emerson had been in negotiation with an officer of the defendant bank, who was also an officer of the South Reading Agricultural and Mechanic Association, for an advance of $3,000, to enable him, with other funds which he expected to procure, to take up his mortgage from Abbott & Thomas. Some objection was suggested as existing, under the act of Congress, against making the transaction directly with the bank; and it was then proposed and arranged that the transaction should be had with the association aforesaid. Emerson thereupon procured an assignment of the mortgage to the association to be made and executed by Abbott & Thomas, and procured Abbott to go with him to the count ing-room of the bank and association. The officers of the association declined to take the assignment and to make the advance of $3,000; whereupon Emerson arranged with the defendant to make the advance, and as a part of the arrangement and as inducement thereto made the oral agreement, above referred to, that the bank should hold said mortgage as security as well for the three notes amounting to $911.21 already held and due to said bank, as for the $3,000 then to be advanced. To carry this arrangement into effect, Thomas not being present, an assignment from the association to the bank was thereupon prepared and executed; the bank advanced $3,000 to Emerson; he paid over the same sum, with $1,500 more which he had Upton v. National Bank of South Reading. procured elsewhere, to Abbott for Abbott & Thomas, adjusted the interest to that date, which last was indorsed upon the note, and the note, with no payments indorsed except of the interest, together with the mortgage thus assigned, were delivered to the defendant. Upon the foregoing facts and the finding of the jury upon the issue submitted to them as above stated, the judge ruled and held that the defendant was entitled to hold the mortgage for security of the three notes aforesaid, as well as for the $3,000 advanced; and ordered a decree to be entered for redemption upon payment of the amount now remaining due of said two sums, and costs for the defendant; and reported the case for the consideration of the full court. If the ruling were wrong, and the bank was entitled to hold only for what remains due of the $3,000 so advanced, the decree was to be modified accordingly, with costs for the plaintiff, or such other disposition of the case was to be made as should to justice and equity appertain. C. P. Judd, for plaintiff. C. W. Eaton & S. K. Hamilton, for defendant. DEVENS, J. While it is not lawful for banking associations, established under the United States Statutes of 1864, chapter 106, to purchase, hold and convey real estate except in certain specified cases, among these exceptions are included such real estate "as shall be mortgaged to it in good faith by way of security for debts previously contracted; such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; such as it shall purchase at sales under judgments, decrees or mortgages held by such association, or shall purchase to secure debts due to said association." Under the latter clause it cannot be deemed that the only authority given to such associations is to purchase only to the exact amount of the debts which may be owing to them, but they are entitled to purchase such real estate as may be necessary in order to secure the debts due to them so long as the security of such debts is the real object of the purchase. Upon advancing $3,000 for the purchase of the mortgage which had been assigned to the South Reading Agricultural and Mechanic Association, Emerson himself paid $1,500 of the debt of $4,500 |