Merchants' Bank v. Rudolf

Lake, Cii. J. It is very clear that this judgment is erroneous and should be reversed. According to the most favorable view that could possibly be taken of the case, for the defendants, as made by the pleadings and evidence, the jury should have returned a verdict against the defendants in error for at least the sum of seven hundred dollars. — 536 — It was not alleged, nor was there any evidence to show, that any payment had been made upon the note; and the jury, as to Lewis & Marsh, the principals, found there was not. If the note as to Lewis & Marsh had not been paid either in whole or in part, the same was true, also, as to the other defendants. The truth is, that the verdict can be accounted for only on the theory advanced by Eudolf and Deck in their answer, that they were released from their obligation to pay the note by the promise of Eaton, the cashier of the bank, that he would look alone to other securities which he held for payment, and that they “need take no further trouble, and feel no apprehension in reference to said note.” But, conceding that this assurance was given, it cannot avail these defendants. It is well established law, that the cashier of a bank has no authority by virtue of his office to rélease a surety upon a promissory note' or bill, without payment, unless specially empowered to do so. Cochecho National Bank v. Haskell, 51 N. H., 116; Bank of United States v. Dunn, 6 Pet., 51. And this authority will not be presumed, but must be established by affirmative proof. Therefore, there being no testimony tending to show that Eaton had any such authority from the board of directors, this pretended release was unavailing. Another theory advanced in support of the verdict is, that Eudolf and Deck were led to believe by the statements of the cashier that the note was paid, whereby they were induced to part with securities which they would otherwise have held on to for their protection. But, unfortunately for the defendants, this theory is not supported by the facts. All that they claim in their answer on this score is that Lewis & Marsh having requested them to become sureties “upon other notes, which these defendants would not do unless said note here in suit had been paid, and inquired of said Eaton, — 537 — then being cashier as aforesaid, relative thereto, * * said Eaton informed these defendants that all of said note, but about the sum of seven hundred dollars had been paid by said Lewis & Marsh, and that plaintiff had good collateral security for the balance thereof, to which it would look for payment.” Thus, it is clearly conceded, that as to at least the sum of seven hundred dollars the note had not been satisfied; therefore, even upon the theory that the bank is liable for the loss occasioned by the deception practiced by its cashier, still they were liable for the amount which they must have known was unpaid.' The fact that the bank held other security, in addition to their indorsement, would not release them from liability for this portion of the amount called for by the note. But, even under the facts established by the testimony, independently of the defendants’ answer, there is no reason why they should be released entirely from liability. Although deprived of the testimony of the cashier, as against the defendants, by reason of his impeachment, still there is nothing in the testimony produced on the part of the defendants themselves, as to the declarations made concerning the payment of the note, which, in reason, could have justified the belief that it had been paid in full. Rudolf, one of the defendants, first took the witness stand and testified that Lewis & Marsh having told him that the note was paid, in order to satisfy himself of the truth of the statement, he went over to the bank and made inquiry of Eaton, who told him “that Lewis & Marsh had paid into his hands, as cashier of the bank, drafts on the Washington County Bank of Iowa, in the neighborhood of $5,000.00 to be placed on the credit of this note which is now in suit.” Again, on cross-examination, he says: “ I asked Geo. P. Eaton whether this first note was paid, and he said it — 538 — was; that Lewis & Marsh had handed into him drafts upon the Washington Bank, Iowa, to be placed to the credit of this note. I asked George P. Eaton in these words: Well, Mr. Eaton, that does not liquidate the whole amount? George P. Eaton answered in these words: I have sufficient collaterals in my hands. I think he said mortgages in my hands, sufficient to cover the whole amount of that note.” ITe further testified in answer to the question as to where Eaton got the money. “He did’nt get the money, he only got the drafts. It was during the time of the great financial panic.” This is the substance of the testimony given by Rudolf, who seems to have been the chief actor in this business on the part of the defendants in error. It is clear from this testimony, that they not only had no reason to believe, but that they did not understand at the time this conversation took place that the note had been satisfied nor, indeed, that any payment had been actually made thereon. Rudolf was at this time the vice president and one of the directors of the bank, and he must have understood from the conversation, simply, that these Washington County Bank certificates had been received for collection merely, and the proceeds when collected to be credited upon the note on which his firm was surety. At all events this was all he had a right to infer from what he swears Eaton told him. Mr. Deck, the other defendant, testified on this point that, “ On or about the 15th of November, 1873, I went to Mr. Eaton’s bank and asked of George P. Eaton, about this note, if it was not paid; and that I wanted to make some arrangement for the payment of the note if it was not paid. He told me the note was all paid except $700.00; that he had perfect security for the payment of the note that was given, and for us to have no fears.about the payment of it, and that we would not be called upon to pay the note. I asked him for the note — 539 — to see the indorsement, and he said it was not at hand.” Again, on cross-examination he said: “ I went in there and asked him (Eaton) if the note was paid, and he told me the note was paid except the seven hundred dollars.” It is apparent from this that even Mr. Deck understood that his firm was still liable on the note for the balance of seven hundred dollars, but rested easy under the assurance of Eaton that the bank would not look to his firm, but to other securities which it held, for payment. But, as before stated, this was a promise which Eaton had no power to make, and by which the plaintiff was not bound. Two or three of the witnesses testify of statements made by Eaton, at casual meetings, away from the bank, to the effect that the note was paid, or at least nearly so. But statements of a cashier, under such circumstances, have never been held to bind a bank. But a still more important and difficult question remains to be disposed of, and that is, whether, under any circumstances, Rudolf and Deck can be released from liability on the note for the full amount that may be found to be due, in consequence of .any statements that the cashier made to them. There is testimony tending strongly to show that, on making inquiry at the bank, of the cashier, they were told by him that all of said note but about the sum of seven hundred dollars was actually paid, and that, in consequence of this assurance, they were induced to go upon other notes, as surety for Lewis & Marsh, to a large amount, which they were compelled to pay. Also, that they surrendered to Lewis & Marsh a large quantity of property from which they would, have fully indemnified themselves against loss in consequence of being compelled to pay the note, but for the belief induced by the false statements of the cashier that all but about seven hundred dollars had been paid. Although there is some — 540 — conflict in the authorities, it seems to be pretty well established that, in general, under such circumstances, the loss, if any, must fall upon the bank rather than upon the surety. The bank would be estopped from denying the truth of the statement of its cashier, when to do so would entail a loss upon the surety which he would have guarded against had it not been made. Drew v. Kim-ball., 43 N. H., 282. Claflin v. Farmers' Bank, 36 Barb., 540. But while this is conceded to be the general rule, it is urged on the part of the plaintiff that these defendants are not in a situation to claim its protection in consequence of the relations which Rudolf bore to the bank, and also to his co-defendant, Deck. It is insisted that, being the vice-president, and one of the directors of the bank, he was in a situation which required him to know the condition of its business, and must be conclusively presumed to have known whether said note had been paid or not. No case directly in point has been cited, but we apprehend that the rule contended for is the correct one. In Morse on Banks and Banking, 90, 91, it is said that “ The general control and government of all the affairs and transactions of the bank rest with the board of directors. For such purposes the board constitutes the corporation,” and, “ uniform usage imposes upon them the general superintendence and active management of the corporate concerns. They are bound to know what is done, beyond the merest matter of daily routine, and they are bound to know the system and rules arranged for its' doing.” Again, on page 115: “ Whatever knowledge a director has, or ought to home, officially, he has, or will be conclusively presumed at law to have, as a private individual^ In any transactions with the bank, either on his own separate account, or where others are so far jointly interested with him that his knowledge is their knowledge, he and his joint con — 541 — tractors will be affected by this knowledge which he has or which he ought, if he had duly performed his official duties, to have acquired.” Lyman v. United States Bank, 12 How., 225. Tested by this rule, how stand these defendants? Eudolf and Deck were co-partners, and as such signed the note in question. It is a settled rule that notice to one member of a firm is sufficient to bind all the other members. Eudolf was also an active member of the board of directors of the bank, and it was his duty to know whether this note was paid or not. The conclusive presumption is that, as a director, he knew it was not paid, and this knowledge is chargeable to him as a private person, and also as a member of the firm of A. C. Eudolf & Oo. When Eudolf testifies that he did not know that this note had not been paid “ until the early part of October, 1874,” about a year after its maturity, we think he shows an inexcusable carelessness and want of attention on his part, as a member of the board. The books and papers of the bank were subject to his inspection, and a proper examination of these could not have failed to disclose the deplorable condition of its finances, and that this very note was among its uncollected assets. We are of the opinion, therefore, that any defense founded upon the statements of the cashier, as to the payment of said note, is entirely unavailing to these defendants, and that the several rulings of the district court which conflict with these views are erroneous. The judgment is reversed and the cause remanded for a new trial. Eeversed and remanded.