Case ID: serg-rawl_12/html/0306-01.html
Source: Caselaw Access Project
Author: {"author": "DukcaN. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

[Philadelphia,
    April 4, 1825.]
    The BANK of the NORTHERN LIBERTIES against CRESSON.
    ÜVhere an act of assembly, incorporating a bank, gives it power to make by-laws for the government and regulation of the corporation, to appoint a cashier and .other officers; and makes it the duty of the board of directors to take a bond of the oashier, with two or more sufficient sureties, for the faithful "execution of his duties, and to take such security for the good behaviour of the other officers as the by-laws should prescribe; and by a by-law, it is directed, that the cashier shall give bond to the bank, in a certain sum, with one or more sureties to be approved by tire board, and the first book keeper in a certain other sum, a bond given by two sureties for the good behaviour of the first book keeper, is binding on the obligors, without that officer’s being joined in the instrument, or executing any other bond.
    The Bank of the Northern Liberties brought an action of debt in this court against James Cresson, the defendant, upon a joint and several bond given to the bank, by the said James Ct'esson find Frederick Feering, for six thousand dollars, conditioned, that Benjamin Williams, during the time he should hold the office of first book keeper, should execute the duties thereof with integrity and fidelity, and faithfully perform and fulfil the trusts thereby reposed in him.
    The defendant put in seven pleas; on the first four of which issue ■was joined to the country. To the last three, the plaintiffs demurred. They were as follows:—
    <£5. And for further plea in this behalf, by leave of the court, the defendant says, that the said Bank of the Northern Liberties buight not to have or maintain its aforesaid action thereof against him, because he says, that the said Bank of the Northern Liberties is a body politic and corporate in law, and was incorporated by an set of the general assembly of the commonwealth of Pennsylva
      nia, passed the twenty-first day of March, one thousand eight hundred and fourteen, entitled “An act regulating banks;” which act is in the following words, that is to say — (prout act.) And the said body, being so incorporated, the said board of directors afterwards, and before the sealing and delivery of the said supposed writing obligatory, to wit, on the eleventh day of June, in the year one thousand eight hundred and sixteen, ordained certain bylaws, or rules and regulations for the government of the said bank, and, among others, a certain rule and regulation in the following words, that is to say, “Security required of officers. Section 4. The securities which shall be required of the cashier, and the inferior officers, clerks, and servants of the bank, on entering upon the duties of their respective offices, shall be as follows; viz. The cashier shall give bond to The Bank of the Northern Liberties, with one or more sureties, to be approved by the board, in a sum not less than forty thousand dollars, conditioned for good beha-viour and faithful performance of duty; the first teller, fifteen thou-? sand dollars; the second teller, twelve thousand dollars; the first book keeper, six thousand dollars; the second book keeper, five thousand dollars; the discount clerk, five thousand dollars; the as?" sistan-t clerk, five thousand dollars; the runner, four thousand dollars; the porter, two thousand dollars; and the watchman, one thousand dollars: which bonds shall be kept in the eustody of the president.” And the said James Cresson saith, that the said supposed writing obligatory was required and taken by the said Bank of the Northern Liberties, under colour and by pretence of the said act of the general assembly, and of the said rule and regular tion; but the said supposed writing obligatory was not taken, pur? suant to the said act of the general assembly, and to the said rule and regulation, but contrary thereto in this, to wit, that the surety and sureties in the said supposed obligation bound, was and were not approved, according to the said rule and regulation. By reason whereof, the said writing obligatory is void and of no effect in law. And this he is ready to verify. Wherefore, &c.
    “G. And for further plea in this behalf, by leave of the court obtained, the defendant saith, that the said, The Bank of the North.? ern Liberties, ought not to have or maintain its aforesaid action thereof against him, because he says, that the said Bank of the Northern Liberties is a body politic and corporate in law, and wa$ incorporated by an act of the general assembly of the commonwealth of Pennsylvania, in the said fifth plea recited. And the said body being so incorporated, the said board of directors after-? wards, and before the sealing and delivery of the said supposed writing obligatory, to wit, on the eleventh day of June, 1816, or-? daineS, certain by-laws, or rules and regulations for the government of the said bank; and, among others, a certain rule and regulation in the said fifth plea recited. And the said James Cres-son saith, that the said supposed writing obligatory was required and taken by the said, The Bank of the Northern Liberties, under colour and by pretence of the said act of the general assembly, and. of the said rule and regulation; but the said supposed writing obligatory was not taken, pursuant to the said act of the general assembly, and to the said rule and regulation, but contrary thereto in this, to wit, that the said Benjamin Williams was not party to the said writing obligatory, and did not seal and deliver the same as his act and deed. By reason whereof the said supposed writing obligatory is void and of no effect in law. And this he is ready to verify. Wherefore, &c.
    “7. And for further plea in this behalf, by leave of the court obtained, the defendant saith, that the said, The Bank of the Northern Liberties ought-not to have or maintain its aforesaid action thereof against bim, because he says that the said Bank of the Northern Liberties is a body politic and corporate in law, and was incorporated by an act of general assembly of Pennsylvania, in the said fifth plea recited. And the said body, being so incorporated, the said board of directors afterwards, and before the sealing and delivery of the said supposed writing obligatory, to wit, on the eleventh day of June, 181G, ordained certain by-laws, or rules and regulations for the government of the said bank, and, among others, a certain rule and regulation in the said fifth plea recited. And the said James Gresson saith, that the said supposed writing obligatory was required and taken by the said, The Bank of the Northern Liberties, under colour and by pretence of the said act of the general assembly, and of the said rule and regulation; but the said supposed writing obligatory was not taken pursuant to the said act of the general assembly, and to the said rule and regulation, but contrary thereto in this, to wit, that the said Benjamin Williams did not seal and deliver to the said bank any bond conditioned for his good behaviour and faithful performance of duty, as first book keeper of the said bank, after his said appointment to, and during his continuance in the said office, alleged in the said declaration; and that the only bond given to the said Bank of the Northern Liberties, after the said appointment, and during the said continuance in office in the said declaration mentioned, conditioned for the good behaviour and faithful performance of duty of the said Benjamia Williams, in the said office of first book keeper, is the said supposed writing obligatory, to which the said Benjamin is not a party, and did not seal and deliver the same as his act and deed. Wherefore the said supposed writing obligatory is void and of no effect in law. And this he is ready to verify. Wherefore, &c.”
    The fifth article of the seventh section of the “ Act regulating banks,” passed on the 21st of March, 1814, (6 Laws of Pennsylvania, 162,) enacts, that “The board of directors ih each district shall have power to make by-laws for the regulation and government of the corporation, to appoint a cashier and all other officers, clerks, or other persons necessary for executing the business of the company; and it shall be the duty of such board to take a bond of the cashier, with two or more sufficient sureties to the satisfaction of such board, for a sum not less than five thousand, nor more than one hundred thousand dollars, conditioned for the. faithful execution of the duties of his office or appointment; nor shall he be allowed to carry on any other husiness, either directly or indirectly, than that of the bank, unless by permission of the president and board of directors, under the penalty of five thousand dollars, to be recovered by the directors for the use of the bank; and the board shall take such security of their other officers, clerks, or other persons, respectively, as the by-laws shall prescribe,” &c.
    
      J. R. Ingersoll, in support of the demurrers,
    1. By the averment contained in the fifth plea, that the securities of Benjamin Williams, the first book keeper, were not approved by the board, is meant, a formal approbation by a vote of the board. But this was not necessary. A by-law was made, in pursuance of the act of assembly, and this bond was taken under the by-law. The bond was valid, upon general principles of law, without approbation. It might have been taken, without having been directed by the act of assembly; and the defendant is estopped from controverting the validity of an instrument to which he has put his seal. But the acceptance of the bond, preserving it, and bringing suit upon it, amount to approbation.
    [After having proceeded thus far in his argument, Mr. Ingersoll moved for leave to withdraw' his demurrer to the fifth plea.]
    
      2. and 3. The power of taking security was incident to the corporation, and was not restrained by the mode prescribed by the charter. The power to make by-laws is implied without a grant, for a corporation has general powers in relation to every thing connected with the objects of its creation, and necessary to carry on its business. 1 Kyd on Corp. 70, 71. Co. Litt. 264. 1 Burr. 517. 1 Bl. 475. The charter of the Bank of Pennsylvania contains no authority to take security from any other officer than the cashier, yet they have always taken bonds from the clerks; and the same remark applies to the old Bank of the United States. Two years and three months elapsed from the date of the charter of the bank now in question, before the enactment of the by-law under which this bond was taken; yet, during that interval, they always took security. No express power is given by the charier to take security from any other than the cashier, yet the right to demand it from the other officers of the bank, is not disputed. It is true, that a corporation chartered for one purpose cannot go into a different kind of business. Thus, a bridge company cannot carry on the banking business. But this bears no analogy to taking security from officers whose services are necessary to carry on the business of the institution, and whose fidelity should be secured, This is one of those powers implied in the grant of the charter, as necessary to the operations of the company. The term necessary, is not however to be confined to cases of absolute necessity, but extends to cases of convenience also. People v. Utica Ins. Co. 15 Johns. 338. MiCullough v. State of Maryland, 4 Wheat. 413. Utica Ins. Co. v. Scott, 19 Johns. 1. New York Firemen Ins. Co. v. Sturgis, 2 Cowen, 664. Same v. Ely, 2 Cowen, 678. Leazure v. Hillegas, 7 Serg. & Rawle, 320. Methodist Epis. Church v. Jacques, 17 Johns. 548. The direction of the by-law, that the bond of the officer shall be taken with sureties, does not render a bond by sureties alone, void. A bond voluntarily given under a by-law, is valid, though not strictly conformable to the law. 1 Kyd on Corp. 70, 71. So, a recognizance taken by a jus* tice out of his county is good. 2 Hale, 50, 51. 2 Hawk. 37. Harrison v. Hundred of Backhurst, Cro. Car. 212, 213. A voluntary bond by bail in error is binding, though bail was not necessary. Johnson v. Laserre, 2 Lord Raym. 1459. And a V0t luntary bond given in the'spiritual court is good, though the court has no power to take it. Folkes v. Boeminique, 2 Sfr. 1137. Thus, too, an instrument intended to be a statute staple or a statute merchant, though void as sueh, may be sued as a bond at law. Cro. Eliz. 355, 461, 494, 544. The same principle is established by Murray y. Wilson, 1 Wils. 318. Armstrong v. United States, 1 Peters’ Rep. 46. Smith v. Pillars, 1 Salk. 3. Cromwell v. Grunsdall, 2 Salk. 462. S. C. 5 Mod. 281. Goddard’s Case, 2 Co. 5. The act of assembly regulating arbitrations, directs a bond with sureties to be taken from the appellant, yet this court has decided that the appeal is good, though the appellant be not bound. Cavence v. Butler, 6 Binn. 52. Boyce v. Wilkins, 5 Serg. & Rawle, 329. Where the mode pointed out by the charter trader which the plaintiffs were incorporated is intended to be exclusive, it is expressly said so. For example, the transfer of stock is directed to be made in a certain manner.only. But the power to take bond with sureties is cumulative, not exclusive. A corporation may sue by its name of creation, though an express power may be given by the charter to sue by another name. Prest and College of Physicians, v. Talbois, 1 Lord Raym. 153. Same v. Salmon, Id. 680. A statute in the affirmative, without a negative, express or implied, does not take away the common law. 19 Pin. 510, pi. 1. Id. 513, pi, 1, 2, 3, (notes.) Id. 513, pi. 22.
    
      Binney and Chauncey, contra.
    A corporation has not an unlimited power of action. It has no capacity except what is conferred by law. Leazure v. Hillegas, 7 Serg. & Rawle, 318. Head v. Providence Ins. Co. 2 Crunch, 167. 7 Crunch, 299. 4 Serg. & Rawle, 16. The powers of this company are expressly given by the fourth section of the act of incorporation, and all powers affirmatively given, imply a negative as to every other power, 2 Kyd, 100. Green v. Mayor of Bur-
      
      ham, 1 Burr. 127. Bex v. Head, A Burr. 2515. Child v. Hudson Bay Co. 2 P. Wms. 209. Phillips v. Bury, Skinner, 513. Beatty v. Marine Ins. Co. 2 Johns. 109. 19 Vin. 511, pi. 7, 9. Slack v. Drinker, Hob. 298. Within v. Baldwin, Sid. 56. Bex v. Staunton, 2 Shower, 30. The power of taking security is very important to banks, and is always particularized in the charter among the fundamental articles. It is declared to be the duty of this corporation to take bond in a certain way, which necessarily negatives any other way. The by-laws are made by the board of directors; but, when made, the board is bound by them. If the directors were permitted to act out of the path prescribed by law, the consequence would be injurious. The defendant had a right to expect that a bond would be taken from the principal, and it might be of great importance to have it taken. The eases cited on the other side of voluntary bonds, not in accordance with a statute, are not in point, because they were between parties capable of giving and receiving the bonds. But here, there was no obligee capable of receiving the bond in question. Our corporations are all special, the time of their duration fixed, and their mode of acting prescribed. The powers necessary for effecting the purposes of the corporation, it is true, are implied, but there can be no implication contrary to the mode of acting pointed out by the charter. A bond made under a statute, but not agreeably to it, is void. 20 Johns. 74.
   The opinion of the court was delivered by

DukcaN. J.

This is an action of debt, on the bond of James Cresson and Frederick Foering to the Bank of the Northern Liberties, as securities of Benjamin Williams, first book keeper of the bank.

There are several pleas on which issues have been joined to the country. To the sixth plea, which alleges that the bond was taken by the bank, under colour and pretence of an act of assembly of the 21st of March, 1814, for regulating banks, and that the bond is not in conformity to the act nor the by-law of the corporation, inasmuch as Benjamin Williams was not a party to the bond, nor bound in any bond to the bank, the plaintiffs have demurred, so that the question is, Is the writing binding? has it any obligatory force on the person who executed the instrument, or void on account of that non-conformity? This depends on the fifth article of the banking act, and the by-law of the 11th of June, 1816. That article directs, that “ The board of directors of each bank shall have power to make by-laws, for the government and regulation of the corporation, to appoint a cashier and all other officers, clerks, and other persons, necessary for executing the business of the bank, and it shall be the duty of such board to take a bond of the cashier, with two or more sureties, for such sum as shall be determined by the board, conditioned for the faith» ñü execution of the duties of his ofSce or appointment, and the said board shall take such security for the good behaviour of . the other officers, &c. as the by-laws prescribe, and shall establish the compensation to be paid to the president, cashier, and other officers.” The by-law directs, that the security which shall he required of the cashier, clerks, and other inferior officers, &c. on entering on the duties of their office, shall be as follows; viz. The cashier shall give bond to the bank, with one or more sureties, to be approved by the board, in a sum not less than forty thousand dollars; the first book keeper, in six thousand dollars. That this bond does conform to the exact letter of the by-law, it will be difficult to maintain; for the book keeper was to be bound, in a bond with one or more sufficient sureties. Now, he is not bound in any bond. But whether this non-conformity vitiates the instrument, either as a statutory instrument or a binding stipulation at common law, is a very different question. The act does not direct the giving any bond, nor its form, except in the case of the cashier. Whether that provision, making it the duty of the board to take bond in a prescribed form would be imperative, and render the obligation taken in any other form void, or would be merely directory, is not necessary now to decide; for the act is silent as to any other officer than the cashier. The act gives very ample powers to the board of directors, to make by-laws for the government of the bank. It confers a general power on the board to appoint a cashier and all other officers necessary for executing the business of the bank, but does not require the appointment of officers, to be by virtue of any by-law. It is a general power of appointment. The directors are left to their own discretion, as to the sureties of all other officers. The act of incorporation, gives authority to make by-laws for their own regulation and government; but it is not required that the whole business of the bank should rest in by-laws, but the whole business of the bank is confided to their directors, and of course it would rest upon them to fix the duties, the salary of officers, and their security. By the acceptance of the bond, the directors required no other security, and the acceptance amounts to a ratification. The. obligors have become bound to the bank for Williams, and the bank has accepted that security'; and therefore, the maxim of om~ nis ratihahitio retrotrahitur, et mandato priori equiparatur will fully apply. It does as well apply to the bank directors as to individuals. Fleckner v. U. S. Bank, 8 Wheat. 356. The act, as to other officers than cashiers, prescribes no specific security. The common law mode of acting must be inferred, whether it is by bond or mortgage. The ancient doctrine of the common law, that a corporation can only act through the instrumentality of a common seal is applied to common law corporations, and even that has been broken in upon by modern authorities. It has no application to corporations created by statute, whose charters contemplate the business of the corporation to be transacted exclusively by a spc-.cial body or board of directors. Whatever controversy, in fact, as to the delivery by the obligors and acceptance by the bank, may hereafter occur on the trial of the issues in fact, these facts in this plea must be taken for granted.

The making of by-laws is incident to every corporation, for, as is said by Lord Honbart, (Hob. 252, 2 Kyd on Corp. 97,) though power to make by-laws, be given by a special clause in the charter of a corporation, yet that it is needless; for it is necessarily incident to every corporation. Where a corporation is created by statute for a particular purpose, and .the power to make by-laws relative to .the objects of the institution, is expressly given, this neither .enlarges nor abridges the power they would have without such .express clause, 2 Kyd, 503. It would seem to follow, as a necessary consequence from these undoubted positions, that. the board of directors intrusted generally with the concerns of a banking institution, the appointment, suspension, and removal of officers, .and with a discretionary power to appoint on any security they might think .proper, could have taken security in a less sum, or .could have dispensed with it altogether; for a deficiency of duty in not taking the security required by the by-law, and any loss sustained in consequence of it, I thiiTfc was a matter between the directors and the stockholders; and that the obligors, who-have .voluntarily entered into the stipulation, cannot withdraw themselves from their obligation. The act of incorporation left the matter of surety entirely to the discretion of the directors. Whether they have exercised that discretion properly or improperly, whether, if the stockholders have sustained an injury by their gross negligence, they, would not be responsible to the stockholders, are foreign questions to the present inquiry; and if any possible injury could be sustained by the sureties, in taking the bond without joining the book keeper, the law would not consider .that .as absolving them from their own voluntary act — volenti non fit in-juria. The corporation had capacity to take a bond from the officers of .their appointment, either '.with or without sureties,— could take a bond from their friends for the faithful performance of the officer. Thi.s is a power necessarily incident to the general power of conducting the affairs of a monied institution, without any special authority. The effect of the by-law could not prevent them from taking security from the officers in any form .they pleased. They might increase ,or diminish the s.um they would require; they might take new and additional securities, in addition to a bond given by the officer and his sureties. I cannot see any thing, in reason, in law, or in .equity, to absolve these obli-gors from their bonds, or dissolve their contract. They have voluntarily .entered into it; it was not prohibited by any law, or against any general policy. Courts cannot indulge their private feelings syhe.re loss has happened to a surety; for it would be idle ¡Lo take security in any case, if hardship could be a reason for not giving it its full effect. Beyond the letter of the obligation, it is not to be strained by any equity; but, so far as they have bound themselves, courts cannot unbind them. For I understand the law to be this: if it was a bond which no lawdemánded, or, if demanded, it had not strictly conformed to the law; where the bond was given under no deception, under no mistake of the obligor, it is good as a bond at common law; and the inclination of my mind is, that where a statute gives a particular form, makes it the duty of- officers to take a bond in that form, and there is another form which is to produce the same effect, this changes not the obligation required, though it differ in circumstances, in sum, in the number of sureties, and the nature of the security, and there is no provision in the act declaring it to be void, unless the prescribed form is pursued. It is a valid obligation at the common law. Nothing can more strongly illustrate this distinction than the statute 23 Hen. 6, restricting bail bonds to be taken by sheriffs. Without burdening the case with a reference to particular authorities, I shall refer to the valuable note of Serjeant Williams to Posterne v. Hanson and Hooker, in 2 Saund. 60, a. No. 3. The nature and form of the security is given by the statute; it is to be by bond, and therefore an agreement in writing made by a third person, is void, because the statute giving the bail bond declares, “that if the sheriff takes an obligation in any other form, it shall be void; but if a bond is given to the plaintiff, in another form than that which the statute prescribes, it is valid. Maleverer v. Redshaw, 1 Mod. 35. The bond is void by the express words of the statute, and Justice Twisdeií said, “ I have heard my Brother Hobart say upon this occasion, that because the statute would make sure work of it, and not leave it to exposition what bonds should be taken, therefore it was added, that bonds taken in any other form should be void. ‘For,’ said he, ‘the statute is like a tyrant, — when he comes, he makes all void; but the common law is like a nursing father, — makes void only that part where the fault is, and preserves the rest.’ ”

There is a known difference between circumstances which are the essence of a thing required to be done by a statute, and clauses merely directory. Rex v. Loxdale and others, 1 Burr. 447. Under our land laws, the act of assembly directs the surveyor to run and mark the lines on the ground, and further enacts, that all surveys made before the warrant authorizing it comes to his hands, shall be accounted clandestine, and shall be void and of no effect. The first injunction is-directory, the latter provision is imperative and peremptory. This distinction has long prevailed, and is not only the ancient but the modern doctrine of the law. The board of directors had an inherent power to require security from their officers, by the very nature of the institution, without any special authority either from the statute or by-laws. If both had-been silent, they still had this authority.

I am therefore of opinion, that the demurrer be overruled, and judgment entered for the plaintiffs on that plea.