Webster v. Jossman

165 N.W. 802, 199 Mich. 98, 1917 Mich. LEXIS 950

• Court: Michigan Supreme Court
• Decided: December 27, 1917
• Docket: Docket No. 83
• Status: Published

Opinion

Fellows, J.

(after stating the facts). There are many assignments of error, but counsel for the appellants have very properly confined their discussion in the briefs and upon the oral argument to the controlling questions, as the case in the court below resolved itself finally into questions of law, pure and simple.

On behalf of appellants it is insisted that the bond is not a continuing one; that the office of cashier was an annual one, and was so made in the by-laws, and that the enactment of such by-laws was within the power of the corporation; that the cashier was elected annually, and the bond only covered ah annual period, and ended when the cashier was elected for a new term, and, inasmuch as the defalcations of the cashier did not commence until 1905, they may not be held.

On the other hand, counsel for the receiver insists that this is a continuing bond; that the office of cashier is not an annual office, but by the statute his term is at the pleasure of the board; that, his term being so fixed by the statute, it was inadmissible for the board to enact a by-law in conflict with the statute; that when the cashier was first selected it was for an indefinite term, and that his bond is so conditioned as to render the sureties liable for such indefinite term; and that in any event the subsequent adoption of the by-laws did not change the liability of the sureties theretofore undertaken.

The specific questions here involved have not been settled by the former adjudications of this court. Stadler v. City of Detroit, 13 Mich. 346, and Dunphy v. Whipple, 25 Mich. 10, cited to us, are not decisive. In the first of these cases the salary of the city marshal of the city of Detroit was involved, and the question for decision was the length of term of that office. In the second case the action was on the bond of the sheriff of St. Clair county, conditioned for the faithful performance of his duties as such during his continuance in office by virtue of-his election for a term of two years. Under a statute then in force (section 415, 1 Comp. Laws. 1857) he' was required to renew his bond within 20 days after the first of January in each succeeding year. This he failed to do, but continued to act de facto, and his sureties were held liable. The bond was broad enough to cover the entire term.

The case of Lord Arlington v. Merricke, 2 Saunders Rep. 411a, was an action brought by the postmaster general upon the bond of one Thomas Jenkins, who had been appointed a deputy postmaster on April 30, 1667, for a term of six months, and had given the bond upon which the action was brought. The bond contained a recital of the term of the appointment, and its terms of liability were very broad. The breach was alleged to have been committed September 22, 1669, nearly two years after the term had expired, although Jenkins had continued as a deputy postmaster. It was held that the surety was not liable, and that the recitals in the bond of the term of the appointment limited the general language of the bond to that period, and, as the breach did not occur during the term of the appointment, there was no liability. From the time of this decision in 1671, and frequently citing it as authority, ■ the general trend of decision has been that, where a public officer is elected or appointed for a definite term, and gives a bond in which the liability of the sureties is couched in general terms, the liability of the sureties is co-extensive with the term, and ceases upon the beginning of another term by the same person. Among the many cases upon this question see Peppin v. Cooper, 2 Barn. & Ald. 431; Mayor, etc., of Cambridge v. Dennis, El., Bl. & El. 660 (120 Eng. Rep. Full Reprint); Hassell v. Long, 2 M. & S. 363; Thomas v. Summey, 46 N. C. 554; Banner v. McMurray, 12 N. C. 219; Hubert v. Mendheim, 64 Cal. 213 (30 Pac. 633). We have stated the general tendency of decision. We are aware that it is not universal, but are satisfied that the great weight of authority is as stated. This general rule does not prevent liability being extended a reasonable time after the date fixed for expiration, if the term fixed has connected with it the words “or until his successor shall be elected and qualified,” or words of similar purport. Under such circumstances the liability on the bond will continue a reasonable time for the election and qualification of the successor. Chelmsford Co. v. Demarest, 7 Gray (Mass.), 1; Mutual Loan & Building Ass’n v. Price, 16 Fla. 204 (26 Am. Rep. 703); People’s Building & Loan Ass’n v. Wroth, 43 N. J. Law, 70; O’Brien v. Murphy, 175 Mass. 253 (56 N. E. 283, 78 Am. St. Rep. 487).

Nor does this put aside the rule that bonds are contracts between the parties, and that, if sureties engage by the language of the bond to become liable for any future term the principal may be elected or appointed for, they will be held liable upon their contract. People’s Building & Loan Ass’n v. Wroth, supra; Shackamaxon Bank v. Yard, 143 Pa. 129 (22 Atl. 908, 24 Am. St. Rep. 521); Ulster County Savings Inst. v. Young, 161 N. Y. 23 (55 N. E. 483). And where, by the terms of the bond their liability is limited to only a portion of the term, such limitation will be recognized.

With the growth of corporations and the. necessity of electing officers for their management, the question of liability of sureties on the bonds of corporate officers has arisen, and the general trend has been to follow the authorities having to deal with official bonds, and to give the same effect to a term of a corporate officer as is given to a term of a public officer, and to limit liability of sureties correspondingly. South Carolina Society v. Johnson, 1 McCord (S. C.), 41 (10 Am. Dec. 644); Kingston Mutual Ins. Co. v. Clark, 33 Barb. (N. Y.) 196; Citizens’ Loan Ass’n v. Nugent, 40 N. J. Law, 215 (29 Am. Rep. 230); Fresno Enterprise Co. v. Allen, 67 Cal. 505 (8 Pac. 59); Ulster County Savings Inst. v. Ostrander, 163 N. Y. 430 (57 N. E. 627); First Nat. Bank v. Samuelson, 82 Neb. 532 (118 N. W. 81); Welch v. Seymour, 28 Conn. 387.

The result of these cases will be found to be that, where the office, whether public or corporate, is held for a fixed term, and the obligation of the surety is couched in general language, or refers to the term, the surety contracts for such term, and he contracts for no more, excepting only where the term may be extended for the election or qualification of his successor a reasonable time, as we have shown; and, as a necessary corollary, it follows, and the cases so hold, that where the term is for an indefinite period, or during the pleasure of the appointing power, and the obligation of the surety is couched in general language, the surety contracts for such indefinite term or during the pleasure of the appointing power, and he contracts for no less. ,

We now come to the crucial question in the case: “Did Jossman hold the office of cashier for an indefinite term or for an annual one?” This question requires for its answer the splution of two other questions, viz.:

(1) Was the office an annual one under the statute?

(2) Was it within the power of the corporation to make the term an annual one ?

1. It is pointed out that the directors of a bank are elected annually, and it is urged that this fact should have force upon this branch of the case. Section 6407, 3 How. Stat. (2d Ed.), 2 Comp. Laws 1915, § 7979, provides, so far as important here, as follows:

“The affairs of each bank shall be managed by a board of not less than five directors, who shall be elected by the stockholders and hold office for one year, and until their successors are elected and have qualified.” * * *

' The provision of the law in force during the period covered by this transaction is found in section 6399, 3 How. Stat. (2d Ed.), 2 Comp. Laws 1915, § 7970, in the section defining the powers of the corporation. It reads as follows:

“Upon making and filing the articles of incorporation required by this act the bank shall become a body corporate, and as such shall have power: * * *

“Fifth. To elect or appoint directors, who shall choose from their members a president and one or more vice presidents, and shall have power to appoint and employ a cashier or treasurer, and other officers, define their duties, require bonds from such officers and clerks, dismiss such officers so elected or appointed, or any of them, at pleasure, and elect or appoint others to fill their places.” * * *

It will therefore be seen that the cashier serves at the pleasure of the board. The fact that the appointing power was chosen annually does not change the situation. The cashier was chosen to serve the corporation, not the individuals who may, for the time being, hold the office of directors. Louisiana, State Bank v. Le Doux, 3 La. Ann. 674, is directly in point. It was there said:

“The argument presented is mainly deduced from the provisions of the charter with regard to the election of directors. It provides that the directors of the bank shall be annually elected, and forbids the reelection of more than two-thirds of the directors in office at the time of each annual election, permitting no director to hold his office more than three years out of five in succession. But it does not follow from this legislation with regard to the board of directors that the mere clerks and servants of the corporation should hold their appointments by the same tenure. If these clerks and servants were to-be considered the mere clerks and servants of the directors who appoint them, the conclusion might be a reasonable one. But we do not so regard them. They are the clerks and servants of the corporation; and the limited term of service of the directors does not control the duration of such appointments.”

See, also, Merchants’ Bank of Ellis v. Honey, 58 Kan. 603 (50 Pac. 871); Union Bank of Maryland v. Ridgely, 1 Har. & G. (Md.) 431, 432; Anderson v. Longden, 1 Wheat. (U. S.) 85.

2. The authorities directly in point upon this branch of the case are not so numerous as those upon the subjects heretofore discussed, and they are not harmonious. It must be patent to counsel that a résumé of all cases which the industry of counsel on both sides of the case has brought to our attention is out of the question. They have all been examined, those directly in point, and those which are thought by analogy should apply. We shall first consider those urged by appellant’s counsel to be especially in point upon this branch of the case. The supreme court of Iowa must be held to have sustained counsel’s contention without reserve. Ida County Savings Bank v. Seidensticker, 128 Iowa, 54 (102 N. W. 821, 111 Am. St. Rep. 189, 5 Am. & Eng. Ann. Cas. 945), and Wapello State Savings Bank v. Colton, 133 Iowa, 147 (110 N. W. 450, 11 L. R. A. [N. S.] 493), are in point. An examination of the statutes of Iowa, with reference to the organization and management of savings banks (chapter 10, tit. 9, Code of Iowa 1897) does not disclose a wide divergence from the language found in our own act, although the provision in the Iowa act with reference to the election of a cashier is not found in the section defining the power of the corporation as it is in our act.

The facts in First Nat. Bank of Brandon v. Briggs’ Assignees, 69 Vt. 12 (37 Atl. 231), are somewhat dissimilar from those in the instant case. There a bylaw had been adopted providing that the cashier should hold at the pleasure of the board. The cashier, however, was elected “for the year ensuing,” and under such election gave the bond sued upon. Here the cashier was originally elected for an indefinite period before any by-laws had been adopted. His bond was given to qualify him on that election. In that case there was no testimony of infraction of the rules by a long usage, and the court said:

“The case cannot be put on the ground that the corporation had, by long and uniform practice, made the office an annual one, notwithstanding the provision of its by-law. This bond was given at the cashier’s first election, and the case does not show what the previous course of the corporation had been. But, irrespective of any previous action of a similar charactér, we think the liability of the surety is to be determined with reference to the appointment as made.”

Should we follow this expression to its logical sequence, might we not say in the instant case that the liability of the bond sued upon had reference to such original appointment for an indefinite period? But we prefer not to give too narrow a construction. This case cannot be regarded as forceful for appellant’s claim as are the Iowa cases.

When we read the section of the statutes of Missouri having reference to the officers of banks (section 3, p. 330, Wagner Rev. Stat. Mo.), it becomes readily apparent that the case of Savings Bank of Hannibal v. Hunt, 72 Mo. 597 (37 Am. Rep. 449), is clearly distinguishable from the instant case. The section of the Missouri statutes referred to reads as follows:

“3. The affairs and business of any such association shall be managed and controlled by a board of directors, not less than five nor more than thirteen in number, from whom there shall be designated by themselves a president, a cashier and a secretary, who shall hold their office for one year, and until their successors are duly elected and qualified.”

It will therefore be seen that the term of the office of cashier was there fixed by the statute as an annual term, and the case is not authority on the question now under discussion.

The case most strongly relied upon by counsel for the receiver is Westervelt v. Mohrenstecher, 76 Fed. 118 (22 C. C. A. 93, 34 L. R. A. 477). It is urged that this case should control from the fact that the provision under consideration, found in our banking act, was taken literally from the National bank act (Rev. Stat. U. S. § 5136, p. 993 [U. S. Comp. Stat. 1916, § 9661]), and it is urged that we are bound by construction placed upon it by the Federal courts. But counsel overlooks the fact that the case in question was decided after our banking law was enacted and does not come from the court of last resort. The case.therefore is controlling.only so far as its reasoning is persuasive. The case, however, is so like the instant case in its facts, and so cogent in its reasoning, that it is most persuasive. As we have stated, the provisions of the National bank act there under consideration were adopted in the section of our banking law above quoted. In that case, as here, by-laws had been adopted making the term of the cashier an annual one. The cashier there, as here, gave a bond upon his first appointment and gave no further bond. There, as here, the board of directors annually reelected him cashier. It was there held that, the congress having fixed by the National bank act the term of the cashier as an indefinite one, subject to the pleasure of the board, it was beyond the power of the board to pass a by-law in conflict with the act of congress, and that the purported annual elections of the cashier were nullities, and the bond liable for defaults during the occupancy of the office by the principal. It was said:

“The act of congress under which this bank was organized provided that its board of directors might appoint a cashier, require bonds of him, and fix the penalty thereof, and dismiss him at pleasure, and appoint another to fill his place. Its articles of association provided that the board might appoint a cashier, fix his salary, and continue him in office, or dismiss him, as in the opinion of a majority of the board the interests of the association might require. It is plain that, in the absence of any other regulations, a cashier once appointed under this act of congress and these articles of association would hold his office until he resigned, or until the board of directors of the bank dismissed him. A subsequent appointment of the same man to the same office would have no more effect upon him, or upon the term of his office, than a second deed of the same property by one who had already conveyed it to the same grantee would have. The only act of the board of directors that could effect the tenure of his office, under the act of congress, would be his dismissal. It is, however, contended that the by-laws (which provided that the cashier should be elected at the annual meeting in January4 in each year, should give a bond in the sum of $10,000, and should hold his office for one year, and until his successor was elected and qualified) made this an annual office, and limited the term of the office of this cashier to the unexpired portion of the year for which his predecessor, Vieths, was elected. But how could the by-laws of this bank repeal or modify the act of congress and the articles of association under which they were enacted? The act of congress expressly fixed the tenure of office of the cashier of this bank. It expressly provided that the board of directors might dismiss the cashier and certain other officers ‘or any of them at pleasure and appoint others to fill their places.’ It provided that this cashier should always hold his office subject to instantaneous removal at the pleasure of the board of directors. * , * * In our opinion, the provision of the act of congress to which we have referred was inserted ex industria to provide for this very contingency. In any event, it is there, and it clearly provides that the cashier of a National bank may be dismissed at the pleasure of the board of directors, and that it may appoint, not the same man again, but another in his place. National banks are the creatures of the act of congress. Under familiar principles, they have no powers beyond those expressly granted and those fairly incidental thereto. The Omaha Bridge Cases, 10 U. S. App. 98, 174 (2 C. C. A. 174, and 51 Fed. 309); Union Pac. R. Co. v. Railway Co., 2 C. C. A. 174, 230 (51 Fed. 309, 316). It follows from this principle that, since the act of congress expressly provides that the cashiers of National banks should hold their offices subject to the pleasure of the board of directors, neither the bank nor its board can make time contracts or appointments in violation of that provision. Harrington v. National Bank, 1 Thomp. & C. [N. Y.] 361; Boone, Banking, § 353; Ball, National Banks, p. 65. What, then, is the effect of these established rules upon the by-laws of ‘this bank? It is that that part of these by-laws which provides that the cashier shall hold his office for one year, and that he shall be elected annually, must fall, and the cashier of the bank must hold his office under the act of congress, subject to immediate removal at the pleasure of the board of directors, until he resigns or is removed.”

A much-cited Case and one quite in point is Amherst Bank v. Root, 2 Metc. (Mass.) 522. In this case the cashier was elected “for the year ensuing” and gave the bond in suit. He was re-elected the succeeding year, but gave no new bond. The default in the bond occurred after the first year. The act of the legislature under which the bank was organized made the term indefinite. It was held that the act under which the cashier was elected controlled, Chief Justice Shaw saying:

“We think, therefore, that when Luther Root was elected cashier, in October, 1881, even if it was entered in the directors’ minutes as an election for the year ensuing, it not being by law an annual office, he held it by force of the provision of the general law above stated, until another was chosen in his stead.”

After discussing the matter somewhat, he concludes:

“But another and perhaps more satisfactory answer is that the directors are presumed to know the general law; that they consequently know, when they come into office, that the cashier, whom they find there, will by law continue in his office, unless they think fit to remove him. Their act is to be taken in connection with their presumed knowledge of the law in this respect. But it may be satisfactory to them, constituting in theory, and. sometimes in fact, a new board of directors, and also satisfactory to, the cashier, that they should express their will and. intention upon the subject. Under such circumstances the election of the cashier to an office which he already holds, and would hold without election, must be regarded as a manifestation of their will and intent that he should continue to hold the office for another year, unless there should be cause afterwards to remove him. That such an election is considered by the directors themselves as the continuance of an existing office, and not the commencement of a. new one, is manifest from the fact that they require no new bonds.”

Stevens v. Orton, 18 Misc. Rep. 538 (43 N. Y. Supp. 792), is similar to the present case, except that the by-law there involved followed the Federal statute, the bank being a National bank. This is not important, because, if the bank had the power to fix the term by the enactment of a by-law, it would likewise have the power to fix the term by action taken at the time of the election. In that case the cashier was first elected without fixing his term, and he gave his bond upon such first appointment, as did the cashier in the instant case. Thereafter annually he was re-elected. At times the proceedings showed that he was elected for the ensuing year, and at times this was omitted. The same defense was there made as is here insisted upon; but the bond was held to be a continuing one, and the sureties liable for breaches, of the bond occurring after the cashier’s re-election.

The following cases will be found to sustain the plaintiff’s contention, either because in point, or because by analogy they are persuasive: Elam v. Commercial Bank, 86 Va. 92 (9 S. E. 498); Dedham Bank v. Checkering, 3 Pick. (Mass.) 335; Union Bank of Maryland v. Bidgely, supra; Commonwealth v. Reading Savings Bank, 129 Mass. 73; Coplin v. McCalley, 1 Leigh (Va.), 308 (19 Am. Dec. 748); Exeter Bank v. Rogers, 7 N. H. 21; Amicable Mut. Life Ins. Co. v. Sedgwick, 110 Mass. 163; Ulster County Savings Inst. v. Ostrander, supra; Louisiana State Bank v. Le Doux, supra. We are persuaded that the weight of authority, in point and by analogy, is with the plaintiff.

Upon principle the contention of the plaintiff must prevail. A savings bank is a creature of the statute, and has the powers expressly granted to it, and such as are fairly incidental thereto. It has power to elect a cashier, and the term of such officer is fixed in the same section as the grant of power. It cannot be said that it is an incident to such granted power to fix a different term than that fixed by the statute to pass a by-law in conflict with the act granting the power. Such action in conflict with the act granting the power cannot be said to be incidental to the power granted. The position of cashier is a most important one. His standing and reputation in the community is of vital importance to confidence in and success of the bank. A breath of suspicion, founded or unfounded, affects not only him, but the institution with which he is'connected. The legislative wisdom has therefore made his tenure at the pleasure of the board. The legislature, and the legislature alone, can change that tenure. We therefore conclude that the by-law fixing the term of the cashier different than the provisions of the statute was ultra, vires and void. The cashier held at the.pleasure of the board. His bond was a continuing one, and the sureties are liable in this action.

The judgment is affirmed.

Kuhn, C. J., and Stone, Ostrander, Bird; Moore, Steere, and Brooke, JJ., concurred.