McShane v. Howard Bank
| Decision Date | 14 November 1890 |
| Citation | 20 A. 776,73 Md. 135 |
| Parties | MCSHANE ET AL. v. HOWARD BANK. |
| Court | Maryland Court of Appeals |
Appeal from superior court of Baltimore city.
N R. Gill and Wm. A. Hammond, for appellants.
S.D. Schumucker, Geo. Whitelock, and W.H Bayless, for appellee.
The Howard-Street Savings Bank of Baltimore was incorporated in 1847 by the general assembly of Maryland, and by subsequent legislation its powers were enlarged, and its name was changed to the Howard Bank. By the third section of its charter, (the act of 1847, c. 88,) it was empowered to take bonds for the corporation from all or any of the officers, agents, or servants appointed by the directors, with security conditioned in such form as they shall approve, "for the faithful execution of the duties of such officers, agents, or servants, and to secure said corporation from loss;" and by the third article of section 7 it was enacted that "the president, treasurer, directors, and other officers and servants, before entering upon the duties of their respective offices, shall take an oath or affirmation before some justice of the peace of the city of Baltimore to discharge their several trusts diligently, honestly, and impartially." Section 8, Act 1854, c. 222, prohibited officers from borrowing from the bank, and made it a penal offense for them to do so. In March, 1879, Thomas S. Ridgaway was made cashier, and he held that position until May, 1889, when he was removed. On the 26th of June, 1879, he delivered to the bank a bond, the condition of which is in the words: "The condition of the above obligation is such that if the above-bound Thomas S. Ridgaway do and shall well and faithfully discharge the duties imposed upon him as the cashier of said bank by the charter and by-laws thereof, and all other duties which may hereafter be thereby imposed upon him as the cashier of said bank, then this obligation to be void," etc. There were no by-laws ever adopted, and the charter does not particularly describe the cashier's duties. Henry McShane, whose executors are the appellants in this proceeding, was one of the sureties on this bond. Between April, 1881, and February 17, 1883, Ridgaway, in violation of his duty, took from the bank and applied to his own use the sum of $8,133, and never restored or returned it or any part of it. To recover this sum the pending action was brought in July, 1889. To conceal this defalcation, and a very much larger one on the part of Samuel Edmonds, the then president of the bank, a memorandum showing the exact amount of each default as well as other items was kept in the drawer of the paying teller, and counted as cash. This system was practiced, apparently without the knowledge of the directors, until about March, 1885, when a different scheme was devised and put into operation by Ridgaway. At that time the bank, desiring to become a member of the clearing-house, was required by the rules of the latter to submit to an examination by an expert. It then became necessary to get this memorandum out of the apparent cash, and this is how it was done: The cashier procured accommodation promissory notes amounting to some forty odd thousand dollars made by some of the directors and customers of the bank, and caused them to be entered on the discount book, but deducted no discount. He then carried the apparent proceeds of this fictitious discount, aggregating the full face of the notes, to the credit of the transient discount account, which is checked out usually by the cashier. He then delivered to the paying teller sundry checks drawn by himself and the makers of these accommodation notes against this apparent or fictitious discount, and those checks produced a credit sufficient to take up the cash items represented by the memorandum. In other words, when the checks drawn against the transient discount passed into the paying teller's hands, he paid them by merely taking the memorandum out of the drawer. When the accommodation notes matured, cashier's checks were drawn, and the notes were taken up in that way, but not paid, and an entry was made in the deposit ledger to the debit of an account called "Sundry Accounts," which was not, however, the regular sundry account. In 1889, the bank, being cramped, was notified by the clearing-house that it must submit to another examination, and the same scheme of borrowing notes, this time amounting to $100,000, was resorted to. These notes were passed through the same process, and only apparently discounted. The bank examiner rejected these notes as assets, and a reorganization of the bank followed, its stockholders surrendering one-half of its capital to make good its heavy losses. The new board of directors caused suit to be brought on the bond of Ridgaway. In 1885 the finance committee, consisting of three of the directors, became aware of Ridgaway's defalcations, but the other members of the board of directors do not appear to have been apprised of it until the reorganization in 1889. During the time that Ridgaway was cashier, he was regularly paid his salary, and upon his removal he delivered to the new president some certificates for shares of Baltimore & North Carolina Gold & Copper Mining Company. This stock the bank still holds. It is worth from 5 to 35 cents per share. In January, 1886, Mr. McShane addressed a letter to Ridgaway requesting to be released from the bond, and a few days later he received a reply inclosing the following letter from Edmonds, viz.: After the reorganization, the directors settled with Edmonds, receiving from him a small percentage of the amount he owed, and executing to him a release under seal of the corporation.
There are several questions arising out of these facts and others to be noted hereafter, and they are relied on by Ridgaway's sureties to defeat a recovery on the bond. The first of these is presented by the demurrer filed to the replications assigning breaches. The plaintiff declared generally on the bond. The defendants craved oyer of the bond and charter of which the plaintiff made profert. The defendants then pleaded general performance, to which plea the plaintiff filed four replications assigning breaches, and to these the defendants demurred. The superior court overruled the demurrer, whereupon rejoinders were filed, and issues were joined thereon. The first replication avers that the charter of the bank imposed upon Ridgaway the duty of discharging diligently, honestly, and impartially the trusts of his office as cashier, but that he did not so discharge them, in that he wrongfully converted and applied to his own use divers sums of money in his custody and under his control belonging to the bank. The second avers that he did not diligently, honestly, and impartially discharge the trusts of his office as cashier in that, upon ceasing to be cashier on May 1, 1889, he failed to account for, or turn over to the bank, $8,133 of its moneys which had come into his custody and under his control as cashier, since April, 1881. The third avers that by the charter of the bank it was provided that no officer of the bank should borrow money from it, and that, while Ridgaway was cashier, he had under his control divers sums of money which he has ever since retained pretending that he had borrowed the same from the bank. And the fourth avers that he did not diligently, honestly, and impartially discharge the trusts of his office as cashier in that he wrongfully withdrew by drafts and checks divers sums of money, though he had no money on deposit with the bank, and to conceal his fraudulent doings made or caused to be made false and deceptive entries in the books of the bank in violation of his duty. Were these acts breaches of the obligation sued on? Now, the argument shortly stated is this: The condition of the bond provides that Ridgaway shall well and faithfully discharge the duties imposed upon him as cashier by the charter and by-laws. There are no by-laws, and the charter imposes no duties upon him. Therefore, no act that he did of those set forth in the replication was a breach of the condition of the bond, and consequently no liability has attached to his sureties. The obligation of a surety is to be strictly construed, and his liability is not to be extended by mere implication beyond the letter of his contract. Upon that contract he has a right to stand, and nothing can be lawfully imported into its terms to enlarge his responsibility. "But still the bond constituting the contract must have such construction given to it as to carry out the intention of the parties thereto." Engler v. Insurance Co., 46 Md. 322. While the particular duties of the cashier are not set forth or described in the charter of the bank, there are at least two distinct duties imposed upon him thereby, the faithful observance of which was guarantied by the obligation of the sureties. The third article of the seventh section required him as one of the officers of the bank to make oath that he would discharge his trusts diligently, honestly, and impartially; and a subsequent statute expressly prohibited him from borrowing any money from the bank. However undefined his general duties might have been, that of being honest in his position was explicitly enjoined by the very terms of the charter. By those terms, he was forbidden to avail himself of his official position to misapply or embezzle the funds of the bank, or to resort to any unlawful or dishonest device inconsistent with the diligent, honest, and impartial performance of his trust. The charter exacted honesty of the officers,...
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