Noyes v. Crandall

Fuller, J. In the village of Hartford, on the 20th day of February, 1893, the defendants were, and for a few months prior thereto had been, engaged in the banking business as co-partners, under the firm name and style of Merchants’ Bank of Hartford, and during all such time F. S. McAllister, the cashier of said bank, was carrying on a retail drug business in the same town, under the firm name of F. S. McAllister & Co. On the above mentioned date the following bill of exchange was drawn by the Bank .of Hartford on its correspondent, the Merchants’ Bank at Sioux Falls, of which the defendant Crandall was at the time president: ‘‘Merchants’ Bank of Hartford. 462 No. 486. Hartford, S. D., Feb. 1893. Pay to the order of F. S. McAllister, or order, $800.00 (eight hundred dollars). Duplicate unpaid. F. S. McAllister, Cashier. To Merchants’ Bank, Sioux Falls.” Plaintiffs are a copartnership engaged in the wholesale drug business at the city of St. Paul, and during all the time F. S. McAllister was cashier of the Merchants’ Bank of Hartford, and for more than a year prior thereto he had been and was a customer of plaintiffs, and frequently made remittances to them for goods purchased for the purposes of his retail drug trade in the village of Hartford. . While defendants were operating their bank, and. prior to the 25th day of February, 1893,. numerous drafts of the Merchants’ Bank of Hartford, on the Merchants’ Bank at Sioux Falls, payable to the order of plaintiffs and signed “F. S. McAllister, Gashier,” were sent by McAllister in payment of goods, and were all honored by said correspondent as soon as presented. On the day and date last above mentioned, and at the request of defendant McAllister, made in person at the office of plaintiffs, in the city of St. Paul, he received from plaintiffs $539.87 in cash and a credit of $260.13 on account, and indorsed and transferred to them in consideration therefor the above-mentioned bill of exchange, which was presented and protested for nonpayment three days thereafter, and this action was instituted by plaintiffs to recover from the defendants the amount of said draft, together with protest charges and the costs of the suit. There being no service of summons .upon defendant McAllister, the action proceeded against the defendant Crandall, a,nd at the conclusion of plaintiffs’ evidence a verdict on motion was directed in favor of the defendant served and against the plaintiffs for costs. From a judgment entered thereon, and from an order overruling a motion for a new trial, plaintiffs appeal. With great confidence counsel for respondents maintain that a draft drawn by a cashier to his own order is not negotiable, that a purchaser thereof for value is not an innocent holder without notice, and that the same is utterly void 463 as against the bank. As no evidence was offered on the part of defendants, and in the absence of ' anything in the record tending to show that the draft was not in fact paid for by or charged to the account of the cashier at the time he drew the same, the foregoing position must be justified in order to sustain the judgment from which the appeal is taken. The trial court excluded and withheld from the jury the evidence of numerous persons of extensive experience in the banking business, both in this state and in the monetary centers of other states, who testified, in effect, that it was, under certain circumstances, usual and customary for cashiers to make drafts like the one in suit to their own order upon correspondent banks, and that such drafts are received by bankers without hesitation on that account, and are treated in the course of business as current funds; and the rulings' of the learned court upon the offer of this evidence are assigned as error. If a partnership created for and engaged in the banking business appoints, designates and holds out to the world a member thereof as cashier it thereby authorizes such person to transact on its behalf all business within the inherent powers of a bank cashier; but, in order to ascertain the scope and extent of his authority to bind his bank, we must look to and be governed by the law and the decisions in determinging whether a particular act has received judicial sanction, and is justified and sustained by the courts. That the draft ' was made payable to the individual who signed it as cashier, though sufficient to put third persons upon inquiry, and raise a presumption that he was attempting to appropriate to his private use money belonging to the bank, might not be sufficient to relieve defendant Crandall from all liability in case it should clearly appeared that he had authorized McAllister to pay his individual debts to the plaintiffs out of the funds of the bank, or had sanctioned such conduct by habitually and knowingly permitted' him to make drafts from time to time to their order, and for :that purpose, upon the Merchants 464 Bank at Sioux Falls, of which bank said Crandall was president, and by which bank sucti drafts were promptly honored when presented for payment; and thus the question might become one of fact as well as of form. It appears from the evidence that plaintiffs knew that Mc-Allister was cashier of the Merchants’ Bank of Hartford, and that he had frequently made remittances to them for goods which he had purchased by drafts issued by the Merchants’ Bank of Hartford to the Merchants’ Bank of Sioux Falls, signed “F. S. McAllister, Cashier,” and that such drafts were in every instance promptly honored when presented for payment. If plaintiffs then knew, or, under the circumstances, ought to have known, that by using his official character McAllister was paying his personal obligations out of the funds of the bank deposited with the Merchants Bank at Sioux Falls, the fact that the drafts were made by McAllister payable to their order, instead of being made to his own order, and indorsed over to plaintiffs, would not be material. If they were made for his own personal use, without authority, their payment in either case could be enforced; and, as the drafts so drawn, paid, and canceled were in the possession of the defendant Crandall, who produced and offered them in evidence at the trial in obedience to an order of court, we are disposed to believe - that such evidence, together with other facts and circumstances bearing upon the question of authorization, should have been submitted to the jury for its determination. Mr. Morse, in the first volume of his treatise on Banks and Banking, at page 98, says: “If A. openly and for a long time does certain things without special authority, and there is no objection from the directors, C. properly infers A.’s authority; for, if the directors knew of A.’s conduct, it is a clear case of estoppel, and, if this action was so open and long continued that they would have known of it by reasonable diligence, the bank cannot take advantage of the neglect of its agents in their duty as against one misled and injured thereby.” In Anderson v. Kissam, 35 Fed. 699, cited 465 by respondent’s counsel as a case in point, the court says: “The facts in evidence certainly justified the submission of the question to the jury whether the defendants did not have notice that Warner was availing himself of fiduciary powers to use the funds of the corporation for unauthorized purposes. As the checks were made payable to the order of the defendants for Warner’s individual use, in legal effect they were made payable to Warner’s own order. The defendants knew that he was not acting within the scope of any ordinary agency when he made checks officially for use in his private transactions. ” A course of dealing between McAllister and the plaintiffs through the bank owned by Crandall and himself might be of such a character as to establish an obligation on the part of the partnership to pay the draft in suit, and, conceding that its recitals were prima facie sufficient to raise a presumption that he was attempting to defraud his- copartner, such presumption would not be conclusive, and plaintiffs would be entitled to prove that McAllister was in fact authorized to make the draft as he did, or that he had in fact paid for the same at the time it was drawn. 1 Morse, Banks, 27; Hotchkiss v. Bank, 42 Barb. 517; Rutledge v. Squires, 23 Iowa, 53; Hickman v. Kunkle, 27 Mo. 401; 1 Lindl. Partn. 171. The case of Anderson v. Kissam, supra, to which counsel for respondents direct our attention, nas been carefully examined. In- that case defendants knew that the numerous checks drawn by the cashier in his official capacity upon the correspondents of his bank were so drawn for his personal use, and as defendants drew the money on their checks, and used it for the cashier in his speculations upon Wall street, the court held, in an action against the defendants by a receiver of the cashier’s bank, brought to recover such money, that it was proper for the jury to ascertain from the evidence whether the directors of the bank were ignorant of the fact that the cashier was so using the funds of the bank', and that the jury was fully warranted in finding that the directors 466 of the bank were entirely ignorant of the cashier’s acts, and that defendants knew, or had reason to believe, when they took the checks, that the cashier was not authorized by his co-managers to make them. These facts, together with other circumstances offered on the part of the defendants, and bearing upon the question of the knowledge of the directors and the authority of the cashier to speculate on his own behalf with the funds of the bank, having been submitted to the jury, and found adversely to the defendants, the court, on appeal, sustained an order denying a motion for a new trial. While the fact that the draft in suit, viewed in the light of the law, raises a presumption that it was drawn without authority, we think there were facts and circumstances in evidence tending to overcome this presumption, and bearing upon the question of knowledge and acquiescence on the part of defendant Crandall, which were sufficient to go to the jury under proper instructions relating to the subject of authority; and the judgment is therefore reversed, and a new trial is ordered.