Bensinger v. Wren , 100 Pa. 500 ( 1882 )

Mr. Justice Trunkey

delivered the opinion of the court October 5th 1882.

On the 19th day of October, 1871, certain citizens agreed to form themselves “into an association for the purpose of engaging in the banking business, with all the rights and privileges of a chartered banking company, said business to be carried on in the borough of Mahanoy City,” in the name of The Citizens’ Bank of Mahanoy City. The rules and regulations contained in this agreement were to be binding until the charter could be procured. “Said charter to be procured by the board of directors at as early a date as possible after their election.” “The stock of said bánking company to be one hundred and fifty thousand dollars, to consist of fifteen hundred shares of one hundred dollars each, but no more than five hundred shares to be subscribed until further action of the board of directors.” “ Any stockholder having ten shares of stock in this company, shall be eligible as a director.” “ Said directors or a majority of them shall meet once in each week at the banking house for the purpose of transacting any and all business of said banking company. The object of this association shall be to transact all business which may come under the head of private banking companies.”

In November 1867 a corporation was organized under an Act entitled: “ An Act to incorporate the Enterprise Mutual Life Insurance and Trust Company,” and the name was changéd by the court to “ The Safe Deposit Bank of Mahanoy City.” This corporation was authorized to purchase and hold land and sell the same from time to time, the clear yearly value of its land not to exceed two thousand dollars; to insure the lives and health of its stock-holders, as well as of other persons; to receive and execute trusts, to make endowments, and to grant and purchase annuities; to receive moneys in trust or other property, and invest its capital stock and the moneys received in trust and for premium on assurances, in the funded debt of the United States, or of Pennsylvania, and in bonds and mortgages, notes and other personal securities; and to transact its business at such place in Pennsylvania as the directors may designate. Its capital stock, not to exceed one hundred thousand dollars, nor be less than fifty thousand dollars, was divided into shares of fifty dollars each, and a person owning five shares of said guaranty capital stock, was eligible to the office of director, secretary, treasurer or actuary. It was expressly prohibited the exercise of any banking privileges.

A glance at the articles of association reveals that the solo object was the transaction of banking business, and that no other business was in contemplation. The charter of the corporation authorized the business of life and health insurance, the performance of trust duties, with full powers for securing, investing and disposing of its receipts for insurance and trust moneys; but the exercise of banking business was prohibited. It is probably true that the corporation’s place of business was at Mahanoy City, that being expressly or impliedly designated as the place by the directors; that it actually did a banking business, the very thing it had no right to do; and that it did little, if any, business which the charter authorized.

This action is upon the bond given to the unincorporated banking company, wherein is recited that David Philips had been elected cashier of the bank, and by reason of such election will receive divers sums of money, funds and valuables, tbe property of the said bank, and “ the conditions of this obligation are such, that if the said David Philips shall honestly discharge the duties of cashier, and shall faithfully apply and account for all such moneys, funds and valuables, and deliver the same on proper demand to the order of the board of directors of the aforesaid bank, or to the person or persons authorized to receive them, then this obligation to be void.” The plaintiffs are assignees of the Citizens’ Safe Deposit Bank of Mahanoy City, the corporation, and claim to recover of the sureties on that bond for default of the cashier of the corporation; not for any default of the cashier of the unincorporated company.

Philips acted as cashier of the corporation. The plaintiffs say that office was created under the provision of the charter which declares that the corporate powers “ shall be exercised by a board of directors, and such officers and agents as they may appoint;” and that the directors shall annually elect a president, and a secretary, treasurer and actuary. A treasurer never was elected, unless the officer called cashier be considered the same.

It is not denied that the bond is valid for the purpose for which it was given ; but the denial is, that it was given to a life insurance and trust company. The plaintiffs contend that it was given in view of an organization under a charter, and that the defendants are liable as if it was executed after the incorporation. Whether the principle for which they contend applies to such a bond, we shall not stop to inquire, — the authorities they cite relate to other sorts of contracts. 'Nor will we remark the conduct of the corporation in unlawfully conducting a banking business, for that is unnecessary for the determination of the defendants’ liability. It is not to be presumed that the parties to the bond, at the time of its execution, contemplated a corporation under a charter wholly foreign to banking. Though some of the sureties on the bon'd afterward actually engaged in procuring that charter and participated in the abuse, there is no evidence of their consent that the bond should be held for any other purpose than appears on its face. Knowledge and participation of that kind did not change the bond. The corporation which was contemplated, was for the purpose named in the articles of association.

Wore it conceded that the corporation had banking powers, it also had lax’ge powers to transact other business, and the duties of its cashier were more, and different, than the duties of the cashier of a bank. The liability of the defendants depends on the fact whether they gave the bond to the plaintiff’s assignor; not upon the fact that the corporation did the thing forbidden, and left undone the privileges granted. A cashier or treasurer for a company under tlie charter was not an officer of a banking concern. The bond was to secure the faithful performance of an officer of a bank.

Any alteration of a contract by the principal parties, without the assent of the surety, is fatal to its validity, as against the surety. Even if he sustains no injury by the change, or if it be for his benefit, he has a right to stand upon the very terms of his obligation and is bound no further. Any unauthorized variation in an agreement which a surety has signed, that may prejudice him, or may substitute an agreement different from that which he came into, discharges him : Miller v. Stewart, 9 Wheaton 680 ; Smith v. United States, 2 Wall. 219. It is an established rule of law that a party to a contract like that of these defendants shall not be bound beyond the extent of the engagement, which appears, from the terms of the contract and the nature of the transaction, to have been in his contemplation at the time of entering into it, and that his liability cannot, without his consent, be extended or enlarged either by the obligee or by operation of law. Hence, an increase of the capital stock of a bank was held to discharge the sureties of the cashier from liability for any misconduct or mistake of the cashier, committed after any part of the increased capital was paid into the bank: Grocer’s Bank v. Kingman, 16 Gray 473.

This bond was actually determined when the unincorporated company ceased to do business, for that company was not incorporated as had been contemplated. Had it been so incorporated, perhaps a new bond would have been necessary; this we do not decide. There was no new delivery to the corporation, and it is immaterial whether both parties, or either, supposed it continued as a security. Silence of the sureties did not mislead the directors. The sureties were not 'bound at their peril to give notice to the corporation; it had the same knowledge as they.

We are of opinion that the defendant’s first point should have been affirmed, namely, “ That the bond in suit was not given to any incorporated company, but to a private association of persons that organized as a private individual banking company, and which intended thereafter to acquire a charter with banking privileges, and there can be no recovery in this suit.”

Judgment reversed.