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of the bank, and the failure to enter the certificate of deposit on the certificate of deposit account, were a mere device whereby Hays intended to conceal from the directors of the bank, or the bank examiner, or both, the fact that such note had been taken or such certificate issued; that the certificate was intended to be used temporarily; and that, when returned, or taken care of otherwise than by the bank itself with its own funds, the Flickinger note and the certificate could be destroyed, and thus all knowledge of the existence of the transaction be obliterated.
The amount of this being $10,000, it was an amount in excess of 10 per cent. of the capital stock of the bank, and therefore illegal, but not criminal; that is to say, the law forbids the liability of any one person to the bank, for money borrowed, in excess of one-tenth of the capital stock actually paid in. Now, was this certificate of deposit issued by Hays without authority of the directors, and with intent to injure or defraud the bank? Under all the evidence bearing on this branch of the case, do you believe that Hays in good faith believed that he was authorized by the board of directors to issue a certificate of deposit for $10,000 in return for Flickinger's note of a like amount, due in six months, the certificate to be used as collateral security for Hays' note in the Sandusky bank, and the proceeds to be credited to the account of the Flickinger Wheel Company? If you believe that Hays did so believe that he had authority from the board of directors to issue such a certificate of deposit, then he would not be guilty of the offense charged in counts 1, 2, and 3 of this indictment. In answering that question, you may consider whether or not the defendant Hays then had any opinion, belief, or conviction as to what would be the action of the board of directors if this proposed transaction had been called to their attention, together with a knowledge of all of the business of these concerns of which Hays had knowledge. If Hays believed that, if the board of directors was in possession of all the information which he possessed about the Flickinger Wheel Company and the bank, they would not have consented to the issue of this certificate of deposit, then I say to you that the certificate was not issued with the authority of the board of directors; and if the natural and necessary consequence of the act of issuing it was to injure or defraud the bank, then I say to you that he would be guilty of the offense charged in counts 1, 2, and 3.
It is not absolutely required that the proof should show as to any particular count in the indictment, that the exact amount charged in such count as having been misapplied was in fact misapplied; but, if all the other elements necessary to constitute the offense are present, proof of the misapplication of less than the full amount charged is sufficient. It is your duty as jurors to try the defendants on the charges made against them in the indictment, and to determine their guilt or innocence from the testimony. You should not be moved from your duty by any sympathy, either for the defendants or for their respective families, however natural it may be for you to feel sympathy for the persons most nearly concerned with the result of your verdict. Nor should you, by any impulse to perform a public duty, be led to bring in any verdict which is not fully justified by the evidence. You will consider this case wholly without regard to the consequences of your verdict. You are here to determine this case according to the law and the evidence, and according them alone.
I have already called your attention to the fact that counts 1, 2, and 3 refer to the same transaction, and that, if you find the defendants guilty of the crime therein charged, a verdict of guilty as to one of such counts is sufficient. So, also, you will discover, when you examine the indictment, that some of the counts duplicate the offense; that is to say, certain notes or other instruments may be separately the subject of certain counts, and later on all of the notes of a certain class may be joined in a single count of the indictment. It will not be necessary for you to return verdicts of guilty both upon the counts based upon the separate instruments and upon those based upon the instruments where all are joined in a single count.
If you should find the defendants guilty on all of the counts of the indictment, it will be sufficient for you to return a verdict that they are guilty as they stand charged in the indtiment. If you find the defendant Hays only guilty on all of the counts of the indictment, then you should find a general verdict of guilty against Hays, and a general verdict of not guilty against Flickinger. If you find them, or either of them, guilty on some counts, and not guilty on others, you will so indicate your finding by your verdict.
As I have heretofore said, you cannot find the defendant Flickinger guilty on any count, unless you shall also find the defendant Hays guilty on the same count.
AMERICAN BONDING CO. OF BALTIMORE . PUEBLO INV. CO.
(Circuit Court of Appeals, Eighth Circuit.
November 7, 1906.)
1. PRINCIPAL AND SURETY-SURETYSIIIP AND GUARANTY-CHARACTER OF CON
The contract of suretyship is not that the obligee will see that the principal obligor pays his debt or fulfills his contract, but that the surety will see that the principal pays or performs.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 40, Principal and
Surety, & 1.] 2. SAME-CONTRACTS OF, CONSTRUED BY SAME RULES AS OTHER AGREEMENTS.
Written language has the same significance, and its meaning is to be ascertained by the same rules of law where it is found in the con
tract of a surety as where it appears in other agreements. 3. SAME--OBLIGATION OF SURETY NEITHER EXTENDED NOR REDUCED BY CON
STRUCTION OR IMPLICATION, BUT TO HAVE RATIONAL INTERPRETATION.
The obligation of a surety may not be extended or reduced by construction or by implication beyond the true meaning expressed by the contract.
His agreement, like other contracts, must have a rational interpretation, which, while it carefully restricts his liability to that which he agreed to undertake, does not fail to hold him to that liability which by the plain terms of his agreement he promised to assume.
[Ed. Note.--For cases in point, see Cent. Dig. vol. 40, Principal and
Surety, $$ 103, 108.]
Tenants agreed by a written lease to put into the premises a heating plant, to renew the plumbing, to make other improvements, and to pay taxes and the premiums on insurance in lieu of rent, and to give a bond conditioned for their performance of their contract and to pay for the work and material used in the improvements, to the end that no liens should be fastened upon the property by their creditors. They gave a bond with a surety conditioned that they would perform all the obligations assumed by them by virtue of the lease, but this bond contained no additional condition that they would pay for the work and material. Held, the lease and the bond evidenced an express agreement of the lessees and the surety that the lessees would not only furnish the heating plant and the plumbing, but that they would pay for the work and material employed therein, to the end that no lien of any creditor of theirs should be fastened upon the property, and the surety was liable to the lessor for the amount the latter necessarily paid to re
lieve its property from a lien for this labor and material. 5. SAME-ALTERATION OF GUARANTIED CONTRACT WITHOUT HIS CONSENT DISCHARGES SURETY.
Any material alteration of the contract guarantied, without the consent of the surety, discharges him.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 40, Principal and Surety, 88 169, 170.
Discharge of surety on alteration of contract, see note to Zeigler v. Hallahan, 6 C. C. A. 6.]
6. SAME-WRONGFUL SURRENDER OF SECURITY DISCHARGES SURETY PRO TANTO.
The wrongful surrender by the obligee of security for the performance of the obligation guarantied, without the knowledge of the surety, discharges him from liability entirely or pro tanto, according to the value of the security surrendered.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 40, Principal and
Surety, 88 244–268.] 7. LANDLORD AND TENANT-LEASE-SURRENDER TERMINATES AND DESTROYS
RIGHTS CONDITIONED ON CONTINUANCE.
The surrender of leased premises by the lessee and their acceptance by the lessor during the term closes the term and the lease, and destroys all rights conditioned on its continuance thereunder.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 32, Landlord and
Tenant, $ 368.] 8. SAME-SURRENDER RELEASES FROM RENT NOT DUE, ACCRUING AND TO AC
CRUE, BUT NOT THAT ACCRUED AND DUE.
Such a surrender releases the lessee froin liability for rents accruing, but not yet due, from rents to accrue, and from immature obligations, but leaves him liable for all rent accrued and due and for all obligations whose performance is due.
[Ed. Note. For cases in point, see Cent. Dig. vol. 32, Landlord and
Tenant, SS 788, 789.] 9. PRINCIPAL AND SURETY-DEFAULT OF PRINCIPAL.
There was a lease for a term of 30 months, which expired on September 12, 1905, in which the lessor granted to the lessees the option to purchase the leased premises during the lifetime of the lease, and the lessees agreed that upon their default the lessor might terminate the lease and take possession as of its former estate. They gave a bond with a surety for the performance of all their obligations under the lease, made default, and the surety was notified thereof in August, 1904. The defaults continued, and on December 27, 1904, the lessees, without notice to the surety, surrendered the leased premises and the lessor accepted them. Held this surrender terminated the lease, but it did not relieve the surety from liability for the matured obligations of the lessee, because it did not constitute an alteration, but an enforcement of the terms of the lease.
The option to purchase ceased with the lease, but the surrender did not wrongfully deprive the surety of its right to subsequently exercise this option, because that right was conditioned by the performance by the lessees of their obligations guarantied by the surety, and the lessees
and the surety were both in default. 10. LANDLORD AND TENANT-SURRENDER-EFFECT ON LIABILITY FOR RENT AC
CRUED AND RENT ACCRUING.
The lien for the work and material used in the heating plant and plumbing was fastened upon the property more than a year before the surrender, but the suit to foreclose it was pending, and did not ripen into a decree which determined its amount until a few days thereafter.
Held, the obligation to pay for this labor and material, as for rent accrued, matured before the surrender, which did not release the lessees nor the surety from liability therefor.
[Ed. Note.-For cases in point, see Cent. Dig. vol. 32, Landlord and
Tenant, $$ 788, 789.] 11. SAME.
The lessees agreed to pay the taxes of 1904 when they became due and payable. One half of them became due and payable on the last day of February, 1905, and the other half on the last day of July, 1905. The surrender was on December 27, 1904.
Held the obligation to pay these taxes, as for rent accruing, but not completely accrued nor due, had not matured at the time of the surrender, and by that act the lessees and the surety were released from liability therefor.
12. SAME-SURRENDER BETWEEN RENT DAYS RELEASES FOR CURRENT PERIOD.
A surrender between rent days releases the lessees and their sureties from liability for the rent for the current period between them.
[Ed. Note.-For cases in point, see Cent, Dig. vol. 32, Landlord and Tenant, $S 788, 789.]
(Syllabus by the Court.)
In Error to the Circuit Court of the United States for the District of Colorado.
The American Bonding Company of Baltimore, a corporation, was a surety upon a bond of R. C. Miller and H. G. Bahne, lessees, which was conditioned that they would perform the obligations by them assumed under the lease. They made default and a judgment was rendered against the surety, upon a directed verdict in the court below, for the sum of $10,000, the penalty of the bond. This writ of error was sued out to reverse that judgment.
The lease was dated March 9, 1903. The Pueblo Investment Company, a corporation, was the lessor, and Miller and Bahne were the lessees. The term of the lease was 30 months, from March 12, 1903, to September 12, 1905. The property was a hotel building and the grounds upon which it stood. The lessor demised the premises to the lessees for the term of the lease, and also granted to them an option to purchase the property for $120,000 at any time within the lifetime of the lease. In lieu of a cash rent for the property, the lessees agreed to make certain improvements and repairs, to pay certain premiums for insurance and certain taxes upon the premises. They covenanted that they would, as rent for the premises, at once upon taking possession of the property, "put steam heat in the said hotel including seventy-one (71) guest rooms, the said steam-heating plant to be in all respects first class, competent and sufficient properly to heat said rooms, replace the present bath tubs and closets throughout the hotel except in the mineral baths with the latest modern tubs and closets, renew the plumbing in said hotel in first class shape,” recarpet the halls and such of the rooms as might reasonably need it, pay the premiums upon $70,000 of insurance upon the hotel property during the term of the lease so as to keep it insured for that amount, pay the taxes assessed against the property for the years 1903, 1904, and the first half of the taxes for the year 1905, and that they would perform various other acts not material to this action which are specified in the lease. One of the terms of the lease was that if default should be made in any of the covenants or agreements to be kept by the lessees, except as to such matters as might be under arbitration at the time of such default, it should "be lawful for the party of the first part, its successor, agent, or assigns or attorney, at its election, to declare said terms of lease ended and to enter upon said premises or any part thereof, either with or without process of law, to re-enter and to expel, remove and put out, using such force as may be necessary, the said parties of the second part, or any other person or persons occupying or upon said premises, and re-gain, re-possess and enjoy said premises as in its first and former estate, and shall not in such action be liable to, or indebted for any cause of action or damages upon the part of the parties of the second part, their executors, administrators or assigns.” Another paragraph of the lease read in this
“In case the said parties of the second part fail to purchase or sell the said property at a cash price of one hundred and twenty thousand dollars within the lifetime of this lease, they will, at its expiration, turn back the said property to the party of the first part or its assigns, with all additions thereto made by them in the way of furniture, fixtures, equipment; and, upon the signing of these presents, they will give a good and satisfactory bond to the party of the first part in the penal sum of ten thousand dollars ($10,000) conditioned upon the faithful performance of this contract on their part and of all the provisions therein contained by them to be done and performed; and that they will justly pay for all material and labor used or employed in the betterment or repair of said property
and to the end that no liens of any character shall be placed against the said property by any creditor of the parties of the second part.”
On March 12, 1903, the lessees, as principals, and the bonding company, as surety, gave a bond to the investment company in the sum of $10,000, which recited that the investment company had executed the lease with the option to the lessees of purchasing at a certain cash price, and that "in and by said lease the said lessees in lieu of a fixed rental for the said property are to do and perform certain things in the way of putting the said hotel in first class repair, adding steam-heating and electric light plant thereto, and make certain payment of taxes and insurance, to which said lease reference is hereby made for the purpose of ascertaining in detail the exact obligations assumed by the said lessees thereunder,” and covenanted that, if the lessees should "well and truly perform the obligations by them assumed under the said lease to the true intent and meaning thereof, then this obligation to be void and of no effect, otherwise to remain in full force and virtue."
The lessors entered into possession of the property at the commencement of the term, and remained in possession until December 27, 1904. Prior to that date they had made default in the payment of the taxes assessed for the year 1903 upon the property and the furniture, in the payment of insurance premiums provided in the lease to the amount of $416, in the recarpeting of the hotel, halls, etc., to the damage of the plaintiff in the sum of $446.40, and, although they had installed a heating plant and renewed the plumbing, they had failed to pay therefor, so that a lien for a large amount on account thereof had been fastened upon the property by the contractor, and he had brought a suit against the investment company to enforce this lien. The investment company had notified the bonding company that the lessees had failed to pay the taxes for the second half of the year 1903, due on August 1, 1904, that they had failed to pay the insurance premium on policies of fire insurance which the lease required them to satisfy, and that this suit to enforce this lien had been commenced. But the bonding company paid no taxes or premiums for insurance, and did nothing to discharge the lien or to defend against it. On December 26, 1904, the lessees notified the lessor that they could not continue to operate the hotel, and that they wished to turn the property over to it on the next day. On December 27, 1904, they refused to continue to operate the hotel under the lease, surrendered the property to the lessor, and it accepted it. The investment company sued the bonding company on the bond for the damages It sustained by reason of the failure of the lessees to keep their covenants and recovered the judgment assailed.
John M. Waldron (R. D. Thompson and Peete & Abrahams, on the brief), for plaintiff in error.
Robert S. Gast and Chas. E. Gast, for defendant in error.
Before SANBORN and VAN DEVANTER, Circuit Judges, and PHILIPS, District Judge.
SANBORN, Circuit Judge, after stating the case as above, delivered the opinion of the court.
A surety who guaranties by his bond the performance by his principal of the latter's contract with the obligee is bound for the fulfillment of no new or modified agreement, and any material alteration of the bonded contract without his consent releases him from liability for its fulfillment. The wrongful surrender by the obligee in the bond of security for the performances of the guarantied obligation, without the knowledge of the surety, discharges him from liabilty therefor entirely or pro tanto, according to the value of the security thus surrendered. Brown v. First National Bank, 66 C. C. A. 293, 298, 132 Fed. 450, 455; Brown v. First National Bank, 112 Fed. 901, 904, 50 C. C. A.