
    The German-American Bank of Tonawanda, New York, Plaintiff, v. Christoph Schwinger, Defendant.
    
    
      Bequest for a verdict by both parties—power of a bank cashier to accept a new bond and cancel an existing one—consideration for its cancellation—cancellation by operation of law.
    
    The effect of a request by both parties to an action tried before a jury for the direction of a verdict is to clothe the trial court with the functions of a jury in respect to all controverted and inferable facts.
    
      Semble, that a cashier of a bank, whose duties embrace the terms, conditions and all other details pertaining to discounts made by the bank, has power to accept, in lieu of a bond given to the bank to secure a line of discounts, ano.ttier bond in a larger amount and to cancel and surrender the original bond and release the sureties thereon from liability.
    The fact that the substituted bond is not enforcible because it was executed upon the express condition, which was known to the bank, that the cashier of the bank should become a party thereto, which condition was not complied with, does not establish an absence of consideration for the surrender and cancellation of the original bond with respect to a party who was a surety upon both bonds.
    The consent by the surety to the continuance of the line of discounts after the execution of the second bond and the waiver of his right to insist upon a settlement of such discounts furnished an adequate consideration for the surrender and cancellation of the original bond.
    
      Quaere, whether, the substituted bond having been quite different in its conditions, parties and extent of indemnity, the sureties on the original bond were not released by operation of law from liability thereunder even if it had not been surrendered and canceled.
    
      Motion by the plaintiff, The German-Ameriean Bank of Tonawanda, New York, for a new trial upon a case containing exceptions, ordered to be heard at the Appellate Division in the first instance upon the verdict of a jury in favor of the defendant rendered by direction of the court, after a trial at the Erie Trial Term.
    This action, which was commenced on the 9th day of January, 1901, was brought to recover the sum of $10,000 on a bond for that amount executed by the defendant and others on the 31st day of January, 1895, and delivered to the-plaintiff as a continuing security for the payment, at their maturity, of all promissory notes and bills of exchange made, drawn and indorsed or accepted, or which should thereafter be made, drawn,' indorsed or accepted, by the Busch Brewing Company of Tonawanda, N. Y., and held or discounted by the plaintiff in an amount not exceeding the sum specified in the bond. * .
    At the time, this bond was executed the plaintiff held seven notes which it had theretofore discounted, for the brewing company, • at its request and for its benefit. These notes had been-renewed from time to time as they fell due, and after deducting some partial payments made thereon, they amounted in the aggregate at the time this action was brought to about $9,100, exclusive of interest.
    The defendant, while admitting in his answer certain formal allegation^ of the complaint, denied that the plaintiff is the owner and holder of the bond in suit and alleged that the same was delivered up and canceled by the plaintiff on or about the 24th day of February, 1896, at which time a new bond in the sum of $15,000, executed by" the defendant and certain other persons, was delivered to the plaintiff in exchange for the one upon which this action is brought.
    The issues raised by the pleadings came on for trial at a Trial Term held in Erie county on the 30th day of October, 1901, and at the ■close of the- evidence a motion for the direction of a verdict was made by each party, without any request by either to go to the jury. The court thereupon directed a verdict in favor of .the defendant and ordered exceptions to be heard by this court in the first instance.
    
      JSicha/rd Growley, for the plaintiff.
    
      Nathaniel W. Norton, for the defendant.
    
      
       This case was decided at the September Term, 1902.
    
   Adams, P. J.:

The effect of the request made by both parties for the direction of a verdict was to clothe the trial court with the functions of a jury, and as a consequence all controverted and inferable facts must, for the purposes of this review be deemed established in favor of the defendant. (Thompson v. Simpson, 128 N. Y. 270; Westervelt v. Phelps, 171 id. 212.)

It so happens, however, that in this particular case there is but little controversy respecting its leading facts, which so far as essential to the disposition of the legal questions involved may be thus stated:

Edward G. Riesterer, one of the obligors on the bond in suit, was also cashier of the plaintiff from the time of its incorporation down to January 1, 1897. He was also a stockholder and director of the Busch Brewing Company. Some time in the forepart of the year 1896 he informed the directors of the brewing, company that their line of discounts was in excess of the amount secured by their bond, and- that it was the wish of the bank officials that a new bond should be given as security for $15,000 of paper, instead of $10,000, .as provided in the existing bond. A new bond was thereupon prepared and the same was subsequently signed by all the parties to the original bond, except three, one of whom was Riesterer himself, who promised to sign it but failed to do so.

The $15,000 bond bore date February 14, 1896, and when executed was delivered to Riesterer by a clerk of the brewing company. Riesterer took the bond and placed it in the bank vaults, and thereupon delivered the original bond to the brewing company’s clerk, having first made the following indorsement thereon, viz.:

“ February 24, 1896.— We do hereby release the above named from any and all liabilities on the foregoing bond in .consideration of a new bond dated February 14, 1896, signed by Jacob Busch, Fred Busch, Frederick A. Busch, August J. Simon, C. Schwinger and D. Grieser, which was this day delivered to this bank.
“ E. G. RIESTERER, Cashier.”

The bank thereupon continued to discount paper for the brewing company until November, 1898, when it brought an action upon the second bond to enforce payment of such of the paper as it was supposed to secure, and which had then matured and was unpaid.

That action was defended by the several sureties to the bond, and this defendant ■ in his verified separate answer alleged that he was induced to execute the-bond upon the express condition that Riesterer should unite in its execution as a co-obligor; - that it was well understood that the bond should not be delivered to the bank nor become operative and binding upon the obligors therein named until executed by Riesterer; that Riesterer did not join in its execution ■; that the bank had knowledge of the conditions upon which the bond was executed and took the same with such knowledge.

Upon the issues- thus raised a trial was had which resulted in a dismissal of the plaintiffs complaint, whereupon-the present action was brought with the result already stated.

For the purpose of this review, and in support of the plaintiffs motion for a new trial, the following propositions are submitted for óur consideration, viz.:

“First. That Edward G. Riesterer had no power or authority to accept the $15,000 bond in the place of the $10,000 bond, and cancel and surrender the same, and release the obligors thereon from liability, and his act in assuming to do so was and is, null and void.
“Second. That the" assumed cancellation, release and surrender was not executed in conformity with the State Banking Law, and Was and is, a nullity.
“ Third. That the assumed cancellation, release and surrender was without "consideration and is void.
Fourth. That the act of Riesterer and notice to him, and knowledge of his part of the conditional agreement was not notice to" the bank or knowledge on the part of the bank.
Fifth. That the Judge erred" in the admission and exclusion of. evidence on the trial.”

In discussing these several questions we think it will be found that, with the exception of the last one, "they are all more" or less involved in and dependent upon the first; and as regards the fifth,, it is only necessary to say that having examined the various éxceptions to the admission and rejection of evidence, we find none which presents error so prejudicial as to render a new trial necessary.'

We pass, therefore, to the crucial question in the case and that is, has the defendant been legally released from all liability upon the bond in suit; or, in other words, was the written release drawn and signed by the plaintiff’s cashier binding upon the plaintiff, by reason of authority conferred upon Riesterer to execute the same, or by a subsequent ratification of his act 2

Generally speaking, the cashier of a bank is its chief executive officer, through whom and by whom the operations of the bank in paying or receiving moneys, or in discharging or transferring securities, are usually conducted. (Angelí & Ames Corp. [4th ed.] §§ 299, 300.)

His relations to the bank whose officer he is are virtually the same as those of an agent to his principal; and if he acts within the scope of his authority the bank is responsible for such acts, as is also the case if it affirms', or with knowledge omits to disaffirm, acts which are unauthorized. (Second National Bank v. Burt, 93 N. Y. 233; Story Agency [4th ed.], § 114.)

The full measure of a cashier’s authority is frequently defined by the by-laws of the bank; and in this instance we find-that by one of the plaintiff’s by-laws, which had been adopted and was in force at the time when it is claimed the bond in question was canceled and surrendered, it was declared that “ the cashier shall have the general charge of the books, papers and property of this association, subject to the control of the officers, and shall, in the" transaction of all business, be subject to their direction. He shall also be ex officio secretary of the Board of Directors, countersign all stock certificates, keep its minutes.”

It is to be observed, however, that this definition of Riesterer’s duties and powers is somewhat general in its terms, and for that reason it will probably furnish but little aid in our attempt to determine their real scope. This may perhaps be more satisfactorily ascertained by inquiring what duties were imposed upon him by the bank, and what authority in respect of its business operations he was permitted by custom or express direction to exercise.

The plaintiff’s president was one Martin Riesterer, the father of the cashier. He was called as a witness for the plaintiff and upon his cross-examination testified that while he had general supervision ■ over, the affairs of the bank, bis son usually determined the rates of discounts; that he looked after the securities, .and when securities were given for notes discounted he had authority to deliver them up when the notes were paid; that the business was done in this way and that if a customer had furnished security for his paper and more security was wanted, “ Edward had charge of that and asked for the greater security.”

Another witness, by the name of Oelkers, who in .1896 was one of the plaintiff’s directors and a member of its discount committee, and in 1897 its cashier, testified that when Riesterer was cashier the taking of paper, discounting paper, lending money by the bank * * * was done by the cashier,” and that the discount committee rarely troubled itself with such matters. So it appears that the duties of the cashier of this bank were practically the same as those of any other .bank, and they apparently embraced the terms, conditions and all other details pertaining to the loaning of money. If a customer applied for a discount the cashier granted or refused such application, subject in some instances, no doubt, to the approval of the discount committee; and when bank paper was paid he was empowered, as we have seen, to cancel the same and deliver up any security therefor which the bank might happen to have in its possession. In fine, he was the bank’s chief executive officer, and as such he doubtless possessed greater power and author-. ity than any other official connected with the- bank.

Such being the case, we do not see why, upon the evidence to which we have adverted, the learned trial justice was not warranted in finding that in delivering up and canceling the $10,000 bond Edward G. Riesterer was acting within the scope of his authority. But, conceding for the moment that we are wrong in this .conclusion, and that the cashier acted outside of the scope of his authority, we think it quite plain that the plaintiff, with knowledge of his alleged unauthorized acts, ratified and confirmed the same.

It is true that the president and one of his codirectors testified that they did not know that the new bond had been accepted by the cashier as a substitute, for the old one, but they did know, as did all the other bank officials who were sworn in the case, that the brewing company’s discounts were in excess of the amount secured by the first bond, and that a new bond in the sum of $15,000 had been accepted by and was in the possession of the bank. Indeed, Oelkers, the cashier who succeeded Edward G. Riesterer, testified that when he discounted paper for the brewing company he did not rely upon the first bond for security, and that on one occasion “ they ” got the bond out of the safe and went over the names that were on it, and that upon another occasion he' took it out and showed it to the defendant. Moreover, when in due course of time the bank sought to enforce the payment of the brewing company’s paper held by it, it resorted to the second b'ond instead of the first, and its verified complaint in that action alleged that the $15,000 bond was received and accepted by the bank at or about the time it bears date. With all these facts before it, how was it possible for the trial court to reach any other conclusion than that a perfect and unqualified ratification had been established %

We are not unmindful of the situation in which the decision of the trial court leaves the parties; apparently the defendant escapes all liability upon either bond, and the plaintiff is deprived of its security so far as the defendant is concerned. This result, while it is to be deplored, is one which is' clearly attributable to the fraudulent acts of the plaintiff’s agent, for which the defendant is in no sense responsible; and inasmuch as the plaintiff has invoked a remedy which is purely legal in its nature, we cannot see why the defendant should not be allowed to rest upon his strict legal rights.

In this connection it will be proper to refer briefly to the plaintiff’s claim that the release and cancellation of the first bond were without consideration. This contention would undoubtedly possess much force, if the only consideration to be regarded was the second bond, which, as it turned out, was of no real value whatever. But the circumstances under which that bond was given must likewise be borne in mind. The defendant Schwinger was under no obligation to sign it and refused absolutely to do so unless it was also signed by Edward G. Riesterer, who had promised to sign it. At first he declined to attach his name to it until Riesterer had done so, but, upon the assurance that Riesterer would sign it, he did attach his signature and then sent word to Riesterer that he wished his name taken off unless he (Riesterer) joined in its execution. When the bond was delivered to Riesterer at the latter’s office in the bank he was informed of what Schwinger had said, to which he replied: “ That’s, all right,” and Schwinger thereupon inferred, as he had the right to do, that his directions would be' complied with. In this manner he was induced to assume an attitude which amounted virtually to a consent that .the brewing company’s line of discounts might be increased and the payment, thereof deferred indefinitely. It is fair to assume that had he known that Riesterer intentionally omitted to sign the new bond he would have taken his name off, in which event he would have been in a position to insist that the brewing company, whose credit was becoming somewhat impaired, should be compelled to make some sort of a settlement with the bank. The surrender of this privilege and the loss of opportunity to assert it by reason of the fraud' and deceit practiced by the plaintiff’s agent, it seems to us, furnished adequate consideration for the cancellation of the original bond.

In our consideration of the ease thus far we have followed the reasoning of the learned trial justice as indicated in his elaborate decision, which resulted in the direction of the verdict for the defendant; but there is another aspect in which the case may be considered, and it is one which is pressed upon our attention by the defendant’s counsel with much emphasis. His contention, as we understand it, is that the bank, being chargeable with knowledge of the conditional agreement under which its cashier received the substituted bond, and of the fraud by which the defendant’s éxecution was induced, is responsible for the act of its cashier in subsequently discounting and reiiewing notes without the consent of the defendant "and in derogation of his rights.

That there is much force in this contention we think must be conceded, for it stands uncontradicted that but for Edward' G. Ries.terer’s fraud the defendant would not have joined in the execution of the new bond; and it has been adjudicated that for that or some other reason it possessed no validity as to him; and yet the plaintiff’s cashier, who succeeded Riesterer, testified that it was upon the faith of this substituted security, which was quite different in its conditions, parties and extent of indemnity from the original one, that he discounted the brewing company paper which the plaintiff is seeking fo collect in this- action. In these circumstances it is by no means certain- that within the rule that a surety is entitled to a strict construction of the bond under which it is sought to make him liable, the defendant was not released, by operation of law, from all liability incurred by him upon the original bond, even if the same had not been surrendered and canceled. (John Hancock M. L. Ins. Co. v. Lowenberg, 120 N. Y. 44; Powers v. Silberstein, 108 id. 169; Brown v. Mason, 55 App. Div. 395; Antisdel v. Williamson, 37 id. 167; Reed & Barton v. Ashe, 18 id. 501; Shipman v. Kelley, 9 id. 316.)

But whether our decision is made to rest upon this ground or the one first considered, or upon both, we must hold that a proper disposition of the case was made at the Trial Term.

McLennan, Spring, Williams and Hisoock, JJ., concurred.

Plaintiif’s exceptions overruled, motion for a'new trial -denied and judgment ordered' for the defendant upon the verdict, with costs. - 
      
      Laws'of 1892, chap. 689, § 54.---[Rep.
     
      
       Sic.
     