First National Bank v. Reed

Cooley, Ch. J: In a suit brought by Eeed against the bank to recover [266] for dividends due him on stocks, the bank sought to set off certain sums which he, when acting as president of the bank some years ago, had paid out or directed to be paid out to one Bennett under circumstances which it is claimed should render him personally liable. It was shown very clearly that while Reed acted as president he took general charge of the business, and that the cashier obeyed his directions. The first item in dispute was two hundred dollars drawn by Bennett, Dec. 16th, 1809. The cashier’s testimony was, that this was paid to Bennett by Reed out of banking hours when the witness was not present, and that when he came in and inquired about it, he told Reed the directors would not like to open an account with Bennett, as he was insolvent, but Reed told him to charge it to Bennett, and he, Reed, would see it paid; that Bennett was-to use the money in buying potatoes, and would send the money received therefor to the bank. The- next item was one of five hundred dollars which Reed allowed Bennett to draw in the cashier's absence, December 27th, 1869. In respect to this the cashier testified that when it was brought to his attention he- objected to it, but Reed directed him to charge it to Bennett, and said that he, Reed, would see it paid, and added that he was interested with Bennett in the profits of the potatoes. The cashier also gave evidence that Reed at various times requested him to say nothing about these transactions to the directors, and he would settle the matter. This statement of evidence is perhaps sufficient to admit of a proper understanding of the legal questions. The set off which was- claimed, embraced the two items mentioned, and a further sum of five hundred dollars which Bennett was allowed to draw a little- later. Reed was sworn on his own behalf, and his attention being called to the sums drawn out by Bennett, he denied having told the cashier he was interested with Bennett, and also denied having agreed to see the amounts repaid. He was then asked this question: “ Did you ever regard yourself as liable?” and was allowed against objection, to reply: [267] “I never did.” This question and answer were manifestly objectionable. They put before the jury no fact beyond the state of mind of the witness at the time, and that had no necessary bearing on the case. He might have promised to see the moneys repaid, and yet haye believed he was not liable to do so; or he might have so believed because he had never promised. The answer, therefore, gives us no information of any value whatever, and the- purpose could only have been to influence the jury with the witness’ opin-" ion respecting his legal liability; an opinion with which they had no concern. The judge, in submitting the cause to the jury, was requested to instruct them that “if the jury find from the evidence that the plaintiff at the time he was president of the defendant, took and delivered or caused to be taken and delivered to Bennett, without the knowledge of the defendant, in the months of December, 1869, and January, 187.0, the three several sums- of money testified about in this cause, he, the plaintiff, knowing or having- good reason to know that the said Bennett was insolvent, then the defendant should be allowed the amount of the moneys as a set off.’’ This request was refused, and in stead thereof the judge-instructed the jury that “if the money paid on Bennett’s, check and telegram was on Bennett’s account, if the credit, was given to him originally, and not to Keed, then and in that case it cannot be made- a charge against Keed by reason or because of any interest which Keed may or may not have-had in the potato business with Bennett.’’ The instruction refused and that which was given must, be considered in the light of the- evidence which showed that the original transaction- with Bennett was one in which no one participated but Keed himself; that it was in effect a loan to a person supposed at the time to be irresponsible, without taking any security, and that it was charged to Bennett only on Keed’s- authority. We do not think such a charge would necessarily determine the transaction as a loan from the bank to. Bennett;, on the- contrary, we think [268] that the bank, independent of any subsequent act of ratification or acquiescence, would have had a right to repudiate it as a transaction'with Bennett, and to insist on repayment ¡by Reed ; especially if it should appear that Reed was interested with Bennett in the business for which the money was ■obtained. Taking the statement of the cashier as true, the act of Reed in allowing Bennett to draw moneys from the bank was wholly irregular and unwarranted. It was without the knowledge of the proper financial officer of the bank, — the ■cashier, — and without taking security. These facts, in connection with the supposed insolvency of Bennett, made it a gross breach of trust. It is not to be suggested that the directors had in law notice of the transaction, for it is shown that no one knew of it but the president himself. We therefore regard the case as within the decision in Austin v. Daniels, 4 Denio, 299, in which it was held that bank officers who abuse their powers must personally account to the bank for what it shall suffer thereby. See also, Commercial Bank v. Ten Eyck, 48 N. Y., 305. This is fundamental law, and only applies to officers of corporations the same rules which are applicable to the agents of individuals. A loan by the president under the circumstances indicated would be a fraud on the bank; and the president, if he persuaded the cashier not to make known the facts to the directors, could claim nothing because of the cashier’s knowledge; that officer’s silence might make him accessory to the fraud, but could not tend to excuse the principal. We cannot undertake on this record to determine what effect should be given to the long silence of the bank directors after the Bennett account was entered on the books. As before stated, the question is one of ratification, and should be submitted to the jury as such. The judgment must be reversed, with costs, and a new trial ordered. The other Justices concurred.