[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 522 The Oliver Lee Co's Bank, at the times the defendant acquired titles in his individual capacity to the several parcels of real estate in question, had no board of directors, and it does not appear that it had, at any time since its organization, any such directors. The defendant was one of its stockholders, its president, and general managing agent and financial officer, during the period covering and including all the transactions mentioned in the pleadings and evidence in this case. He occupied, therefore, the place and possessed all the powers of such directors, and could legally do and perform all acts which they, at a regular meeting, had power to transact. It is to be intended that he derived these powers from the shareholders. The general banking law confers upon associations formed under it the powers, among other things, to carry on the business of banking,c., by discounting bills, notes, and evidences of debt; by receiving deposits; by loaning money on real and personal security; and by exercising such incidental powers as shall be necessary to carry on such business; to choose one of their number as president, and to appoint such other officers and agents as their business may require, c. (Laws of 1838, ch. 260, § 18.) It is proper, therefore, to consider the questions presented in the same light as if there had been a regular board of directors, and the acts done by the *Page 523 defendant had been done in pursuance of resolutions of such directors, adopted at a regular meeting thereof.
Suppose, then, that this bank had been managed by a board of directors, and, at a regular meeting, such directors had adopted a resolution authorizing their president to apply for and receive on deposit any portion of the revenues of the State, and had authorized him to procure other persons to join with him in a bond to the State conditioned to account for and pay over the moneys so deposited; and, in pursuance of such resolution, the president had become personally liable, by a proper bond, to account and pay over, c., and had procured others, not connected with the bank as officers or stockholders, to become jointly bound with him as obligors in such bond, and the bank had thereupon received and used the moneys of the State: can there be any doubt that the bank would have been legally bound to indemnify and save harmless the obligors in such bond from loss or damage in consequence of their becoming parties to it? It seems to me not. And it seems equally clear that it would have been competent in such case for the bank, at any time after such bond had been given, to assign or transfer to the president, or to him and the other obligors so procured by and bound with him, any property or means in their power, sufficient for that purpose, to indemnify him or them against such bond, provided such assignment or transfer was not made in contemplation of insolvency. The same would be true, as it seems to me, if, instead of the president, with others not connected with the bank, becoming personally obligated, the directors had all united in a like personal obligation to secure the State, and had, at the same time, or afterwards, and while the bank was solvent, by resolution duly made, set apart in due form any of the assets or securities belonging to the bank, to a reasonable amount or value, for their indemnity against such personal liability. If provision could thus be made, through the action of a board of directors, for the security of depositors in a bank, and for indemnifying the sureties to such depositors, it is difficult to perceive why the same things might not be done by and through the agency of a president, clothed *Page 524 with powers equal to such as are possessed by a board of directors, especially in the case of a bank which has no board of directors. If the defendant, in the case at bar, had been obliged, in order to protect the other obligors in the bonds, to pay any portion of the moneys deposited by the State with the bank, from his individual resources, there could be no question of his right to take and retain, upon the first opportunity, from the cash funds of the bank, sufficient to reimburse himself. Such a case might well occur with a bank having large transactions with the public, discounting freely upon the basis of such deposits and the reasonable expectation of prompt payments by its debtors, should the deposits be afterwards suddenly demanded, and there be a general failure on the part of such debtors to meet their engagements. It is not, perhaps, extravagant to suppose a banking institution, in a perfectly sound and solvent condition, finding itself unable to meet the demands made upon it at a time of a sudden commercial panic; but, as soon as public confidence, which is the soul of our banking system, should be restored, be able to resume its accustomed course of business and transactions.
It is insisted, however, on the part of the plaintiff, that the character and position of the defendant, as agent and financial officer of this bank, was incompatible with his right to purchase the property in question in his own name, with the purpose of holding the same for his individual security or benefit. It is, undeniably, a well settled general rule that where one acts as agent, trustee, guardian, executor or administrator, in the purchase or sale of property, or in the transaction of other business, in a fiduciary relation, the law will not permit him, in such purchase, sale or transaction, to act in his own name and for his individual benefit. This rule has been established in consequence of the liability of mankind to be influenced by the motive of selfishness, which would, in most cases, lead the agent, c., to give an undue prominence to his own interest, to the injury of that of his principal, c. "This rule," says Judge STORY, "is founded on the plain and obvious consideration that the principal bargains, in the employment, for the exercise *Page 525 of the disinterested skill, diligence and zeal of the agent, for his own exclusive benefit. It is a confidence necessarily reposed in the agent, that he will act with a sole regard to the interests of his principal, as far as he lawfully may; and, if impartiality could possibly be presumed on the part of the agent, where his own interests were concerned, that is not what the principal bargains for; and, in many cases, it is the very last thing which would advance his interests." (Story on Agency, §§ 210, 211, and authorities there cited.) In the case of Moore v.Moore (1 Seld., 256), Judge GARDINER uses the following language: "The law does not stop to speculate upon the probabilities that the agent has resisted temptation; it removes the temptation by proclaiming in advance that he shall not acquire the property." The rule is a most reasonable and wholesome one, and has been too long settled to require the approbation of this court to commend it to the judgment and conscience of every intelligent mind for its support." If, therefore, the present case falls within the influence of this principle, the judgment of the general term of the Superior Court should be affirmed.
In my opinion, however, the case can be extricated from the force and operation of the rule. The question is not embarrassed by any consideration of fraud or want of good faith on the part of the defendant, nor of the contemplation of insolvency on the part of the bank, in the acquisition by the defendant of the property in question. Neither of these is averred in the complaint, proved on the trial, or found by the justice before whom the cause was tried. I think it cannot be maintained that the plaintiff, under the facts found, is entitled to have the property in question conveyed to him, as receiver of the effects of the bank, without relieving the defendant from his liability on his bonds to the People and to the savings bank, if the bank itself would not be entitled to the same judgment, provided there had not been a receiver appointed, and on the supposition that it is now, and had always been, in successful operation as a banking association. All the transactions involved in the question under consideration took place before the failure of the bank, and at times when, for aught that *Page 526 appears, it was solvent and prosperous; and the receiver could acquire no claim or right, by virtue of his appointment, as against the defendant, which the association could not, at those times, have enforced against him. The defendant and his co-sureties had paid and were liable to pay, at the time of the trial, upon the three bonds to the People of this State, and the bond to the Western Savings Bank, over and above what they had received in dividends or otherwise, by way of reimbursement, an amount in the aggregate exceeding $48,000. The three parcels of real estate mentioned in the first three counts of the complaint, and which is the property now in controversy, were worth, at the time of the trial, in the aggregate, the sum of $24,000. This property is all the defendant has to indemnify himself and his co-sureties for such payments and liabilities. The sureties in each of the bonds were procured by the defendant, as president and managing agent, for the benefit of the bank; and the deposits could not have been obtained without giving security, c. The co-sureties with the defendant became obligated with him at his request; and he is, therefore, bound to protect them. The complaint alleges that the defendant was a stockholder in the association to a considerable amount, and he is liable, to the amount of his stock, for the payment of the debts due by the bank. It was lawful and proper that he and his co-sureties should have put into his or their hands, by the association, means for their protection and indemnity against the large liabilities which they incurred by the execution of the several bonds mentioned; and this could not be done except by the defendant's own action, as he was the only organ through and by which the association could transact that or any other business. The association have received the direct benefit of the several amounts of money to secure which the bonds were given, and the creditors have indirectly had the benefit of the same by the consequent increase of the assets of the association. The defendant acquired title in his own name to the several parcels of real estate, and continues to hold the same, for the purpose of securing himself and his co-sureties from and against their liability on the several *Page 527 bonds referred to. Upon these facts — all of which are either stated in the complaint or found by the judge before whom the cause was tried — a strong equity in favor of the defendant is presented. He has the legal estate in the lands in question, and the plaintiff comes with an appeal to the equitable powers of the court, and asks to have the defendant divested of such legal estate and have it vested in himself unconditionally for the benefit of the creditors of the association, which, with such creditors, have, directly and indirectly, enjoyed the fruits of the transactions out of which the claim of the plaintiff, their representative, arose.
If this is equity, it must be by reason of the stern, unbending character and extended application of the principle before referred to. That principle, in its proper, just and equitable application, I am ready to stand by and enforce. But I do not believe it requires the sacrifice of substance to form, nor the prostration of plain and manifest justice, under the guise of equity or public policy.
It should be remembered that, in the present case, it is no part of the object of the action to set aside and vacate the sales of the several parcels of real estate in question by which the defendant obtained title thereto: on the contrary, the action is brought in affirmance of such sales, and the plaintiff's claim is that, in equity and conscience, the defendant has no right to retain the title for any purpose. If there had been a board of directors, and the defendant, possessing no greater power than is ordinarily incident to the office of president, had purchased the property and taken the title in his own name, without authority from the board of directors, the association would have had its election, within a reasonable time, either to disaffirm the sale and have a resale, or to affirm it and call upon the defendant to account for the moneys of the bank appropriated by him in making the purchase, together with the profits, if any, which he had made in the purchase; or the defendant might be required to convey the property purchased. The illegal act, in such case, would have been done and completed, and in calling upon the defendant to account or convey, the *Page 528 title of the defendant would be necessarily assumed. In the latter case, the defendant would, of course, be entitled to the benefit of any equities in his favor connected with or growing out of the transaction. Upon the same principle, the defendant in the present case, under the facts as disclosed, should be permitted to set up any equities which exist, entitling him to retain the property, either absolutely or as security for the moneys advanced and the liabilities incurred for the association. The acts of infidelity to his principal, if any has been committed by him, are done and past, and the plaintiff does not seek to invalidate them. The defendant is liable to account or convey, and the only question is, upon what terms. Those terms should be, simply and only, those of equity and justice, which can only be by refunding to him the moneys paid for the association, and protecting him against the liabilities he has incurred for it.
But I am not willing to rest my conclusion on the grounds just stated. No wrong has been done by the defendant. Neither the association nor its creditors have been injured by him. As heretofore remarked, he stood in the place of a board of directors, with all the powers which the shareholders were able to delegate to him, which were no less than all they themselves possessed, so far as respected the corporate transactions of the association. It was not only lawful for him to apply for and receive the moneys in question, but his duty to do so, if he supposed they could be used to advantage in the business of the association. These moneys could not be obtained without security beyond the corporate responsibility of the association. He was, then, bound to furnish such security, if in his power; and, in doing so, it was lawful for him to pledge the property of the association to indemnify the sureties. It would have been lawful, if the canal board and savings bank would have been satisfied with it, for him to have given his own individual bonds, without any other sureties, and to have taken a like pledge for his own individual indemnity. But he procured others to unite with him in the bonds. He had, therefore, a direct interest and a clear right to indemnify himself and his *Page 529 co-sureties, through the property and means of the association, against his and their liabilities so incurred. That he did not take such indemnity at the times the liabilities were respectively incurred, is of no consequence to the question under consideration. He had the sole control and management of the institution, and could do it as well afterwards as at the time. When the bonds to the people were respectively executed, it was probably quite uncertain what the deposits would amount to. There was, therefore, a manifest propriety in delaying it for a time in order to be able to approximate to the amount for which a reasonable indemnity should be taken. Neither is the form and manner in which it was accomplished, of any importance. The object and purpose were the material things.
To secure indemnity against these liabilities was a duty the defendant owed, not only to himself, but preëminently to the sureties whom he had procured to be bound with him. It is perceived, therefore, that one prominent position which the defendant lawfully occupied in regard to these transactions was that of security for the association. As such, he had a right to purchase the property, and, as president of the association and its managing agent and financial officer, to take its funds to pay the purchase money; and it being necessary to act in both characters in order to effectuate a lawful and justifiable end, his different acts must be referred to his rights and duties in each capacity, in the same manner as if some other person had been present as the financial officer of the bank, assenting to what was done, while he was attending to his individual rights merely. (Commercial Bank of Buffalo v. Kortright, 22 Wend., 348-355.)
I am of the opinion, for the foregoing reasons, that the judgment of the general term of the Superior Court should be reversed, and that of the special term of the same court affirmed, with costs of the appeals to the general term and to this court, to be paid by the plaintiff out of the effects of the association in his hands, or to come into his hands, as receiver. *Page 530