CHAPTER IV. OFFICIAL BONDS. THE custom of requiring bonds from the various officers may probably be considered as universal among banking institutions. Usually they are taken only from the executive officers; most frequently from the cashier and tellers, sometimes from the book-keepers; and there are instances, though these are comparatively rare, in which they have been taken even from the president and directors. Nearly all the questions which have arisen in litigation upon these bonds may be divided into four classes, to wit: I. Where it is denied that the particular act, which constituted the default of the officer, was of such a description as to be covered by the language of the bond setting forth the peculiar species of misconduct insured against. II. Where it is doubted how long the liability of the sureties should be construed to continue, and therefore whether the default fell within the period of their liability. III. Whether the bond can be avoided on the ground that it did not conform to the requirements of the charter or of the general organic law under which the institution came into existence. IV. Cases in which fraud or other illegality, charged to have been attendant upon the execution of the bond, are adduced as cause for invalidating it. Phraseology of the Bond. Of course considerable variety is found to exist in the form and language of the bonds used by different corporations, and especially in those portions wherein is described the species of Very com good and satisfactory conduct which is insured. monly only general phraseology is used. It is stipulated simply that the officer shall "well and faithfully," or "faithfully," or "well and truly," discharge and perform his duties. Practically it may be considered that these phrases are equivalent each to either of the others. For though a finical linguist might seek to draw some delicate distinction between the signification of the word "well" on the one side, and the words "faithfully" and "truly " on the other, yet such over-nicety is not encouraged by the law which has been laid down in the premises; and it is safe to say that these words may be used interchangeably. The better rule of construction, which is to be applied to all alike, seems to be that they are designed not only to guaranty honesty and obedience, but also reasonable skill, competence, and diligence. The reason for taking the bond is by no means limited to the narrow object of protecting the banking-house only against loss arising from embezzlement or other species of criminal conversion and misappropriation, but also against the equally mischievous danger of carelessness, thoughtlessness, and ignorance. The security for the "faithful discharge" of duties would be rendered " utterly illusory," if its import were to be narrowed to a guaranty against personal frauds only. Duties performed negligently and unskilfully, or violated from want of capacity or want of care, can never be said to be "well and truly " executed.2 In Massachusetts a bond calling only for "faithful" performance was declared to bind the obligors not only for the honesty of the officer but also for his "faithful execution of the duties of his office, which embraces competent skill and due diligence." It must certainly be considered that these two cases, one of which was decided in the highest tribunal in the land, establish the correct rule of law. Yet in New York there is a well-known cause in which precisely the opposite doctrine was laid down. The bond of a teller was conditioned that he should "well and faithfully perform the duties," &c. The court declared that 1 Rogers v. Kelly, 2 Camp. 123. 2 Minor v. Mechanics' Bank, 1 Pet. 46. * American Bank v. Adams, 12 Pick. 303. this was security solely for his honesty in his trust, and not for his competency. Yet it is very curious to note that, though the conflict between the abstract statement of law in New York and in Massachusetts could not well be more direct and apparently irreconcilable, nevertheless both courts, having substantially like facts to deal with, might not improbably come to very nearly the same practical results. In New York, it was said that an over-payment by mistake, honestly made, was a matter of incompetency, and was not insured against in the bond. In Massachusetts, it was an obvious inference from the language of the court that, if the fact was that the deficiency was caused by an over-payment, made honestly and through a simple mistake, then evidence that experienced and able tellers were liable occasionally to make such mistakes would have been admitted for the purpose of showing that at least this fact did not of itself suffice to prove incompetence. It is not to be supposed that ample evidence of this description could ever be found inaccessible. Whence it might not improbably occur that, upon diametrically opposite doctrinal bases, the same conclusion of acquitting the sureties might be arrived at. If the two above-cited decisions are the only ones which directly and in terms run counter to the New York decision, there is yet a decision in the Pennsylvanian Reports, which fails to do so only because it goes much farther, though in the same direction, than either the Supreme Court of the United States or the bench of Massachusetts. In this case the bond was conditioned that "J. B., the cashier, shall well and truly perform the duties of cashier of the bank aforesaid, to the best of his abilities." The italicized words certainly ought to have sufficed to exclude from the operation of the guaranty acts of simple incompetency or ignorance, if any language short of an exclusion in terms could do so. The defendant's counsel argued thus, and urged that the insurance of the bond was restricted to the cashier's fidelity and honesty; the degree of his ability might be considered as expressly exempted, provided his best ability, such as it might prove to be, was uniformly 1 Union Bank v. Clossey, 10 Johns. 271; 11 id. 182. used. Certainly these arguments were not devoid of force. The court complimented them as ingenious, but declared them unsound. The opinion held, substantially, that the covenant was that the cashier should discharge the duties of his appointment, that is to say, that he should do so with competent skill and ability. It was said that one who accepts an office or trust of any kind contracts to execute it with competent skill and ability; his sureties, who are bound that he shall execute it according to his skill and ability, warrant for the performance of this contract of the officer. His undertaking is to act according to the duties of his station. So, if by his act of honest intention, but in excess of his authority, the bank suffers a loss, it must be reimbursed by the obligors in the above bond. This is subtle and not altogether unanswerable reasoning. It proceeds on the basis of what it is supposed that the bond would naturally be designed to contain, rather than upon the basis of what it really does contain. There is a little confusion, moreover, between the undertaking of the cashier, implied by his entry into office, and that of the sureties, actually expressed in the instrument; between the liability of the cashier at common law, and that which exists under and by virtue of the stipulations of the bond. It is true that the cashier by the acceptance of the trust impliedly contracted to exercise it with due skill and ability; but it was by the acceptance of the trust, strictly and literally, and not at all by the execution of the bond, that he thus contracted. It is possible that his acceptance of office may have placed him under obligations greater than those named in his bond. But to say that the sureties in the bond, who defined in perfectly intelligible language the extent to which they consented to become guarantors, could have the same extended until it became commensurate with a liability of another person, their principal, rising from an entirely alien. origin, seems to us hardly a tenable position. It is not a logical sequence, but a verbal illusion, to say that because the cashier, by accepting office, binds himself to use due skill in its functions, therefore his bondsmen, expressly guarantying only that 1 Barrington v. Bank of Washington, 14 Serg. & R. 405. he shall use skill" to the best of his abilities," impliedly assume and guaranty that the skill thus described is due skill. This is to read their contract by the light of his; to embody his individual and implied undertaking, arising from his individual act, into their specifically-worded and independent undertaking; to substitute the measure which a legal implication applies to his contract for skill, in place of the measure which they in their contract have taken pains to provide in exact phraseology. But, though the original soundness of this opinion may be thus criticised, yet it must be acknowledged to be the law. It has stood for long years unchallenged, and perhaps it would now be foolish to change it. It teaches one practical precaution that no general form of words in a bank-officer's bond can be relied upon as sufficient to restrict the guaranty of the bondsmen to the mere personal honesty and integrity of the officer, unless these words, or their plain equivalents, are distinctly used, and are stated to constitute the limits of the intended insurance. But, though an over-payment by mistake may be set up, and often successfully, in defence to a suit upon a bond, it is necessary that the officer should have acted honestly, not only in the transaction of over-payment, but equally in reference to all matters which, however remotely, concern it or are connected with it. If he subsequently commits any deceit or fraud, or makes false entries in the books, for the purpose of concealing the deficiency, his dishonest dealing in this particular will suffice in the eye of the law to give the coloring of guilt to the entire affair from the very outset. It may still remain true that the actual loss of the money was caused wholly and solely by the innocent over-payment; and that the subsequent misconduct could not aggravate the injury, as subsequent good conduct could not have remedied it. Still the acts resorted to for securing concealment are a suggestio falsi; the concealment itself is a suppressio veri. Each is an unfaithfulness and will, as a rule, be assumed to have contributed to the injury suffered by the bank.1 1 Union Bank v. Clossey, 11 Johns. 182; Rochester City Bank v. Elwood, 21 N. Y. 88. |