Mitchell Street State Bank v. Schaefer

Winslow, C. J. It seems plain to us that a verdict for the defendant should have been directed in this case. A man acting in good faith is entitled to deal with the cashier of a bank in the usual course of banking business in entire confidence that the acts and statements of the cashier in the course [546] of such dealing are in legal effect the acts and statements of the bank. The defendant here was dealing with the bank acting through its cashier and manager. He proposed to borrow $5,000 from the bank on his note, loan the amount to a business corporation in which he was interested (receiving from the .cashier, who was also a trustee of the corporation, $5,000 worth of its trust-deed bonds for his loan), and to deposit the bonds with the bank as collateral security for his note, with the understanding that the bank should sell the bonds as soon as possible and apply the proceeds to the payment of the note. There was nothing in this outside of the usual course of the banking business; such transactions are occurring every day, and we think the business public would be greatly surprised to know that in such a transaction the acts and declarations of the cashier were not binding on the bank. Were it otherwise there would be no safety in dealing with any banking official or officials short of the board of directors in regular meeting assembled. When, in the present case, the cashier, after producing the bonds which he held as trustee up to that time, accepted the defendant’s note to the bank and informed him that the bonds would remain with the bank as collateral security for the note, the transaction was closed, the bonds had in legal effect passed into the possession of the bank as completely as if they had been-placed in the vault, and the defendant was not obliged to see that the cashier did not thereafter convert them to his own use. It is argued that the defendant could not treat the statements of Edgerton as the statements of the bank because he knew that he (Edgerton) had a personal interest in the transaction apart from his interest or duty as an officer of the bank; but it is only when the statement is made in the agent’s own interest and against the interest of his principal, to the knowledge of the party with whom the agent is dealing, that this exception to the general rule applies. [547] There was no such case here. Edgerton’s personal interest in the transaction as stockholder and trustee was simply to get par value for the company’s bonds. That having been accomplished, he had no further legitimate personal interest in the matter, and hence no interest contrary to the interests of the bank or adverse to the hypothecation of the bonds with the bank to secure the defendant’s note. As cashier he had full authority to receive the bonds as collateral on behalf of the bank, and he assumed to exercise that authority and thereby bound the bank. The defendant was entitled to rely upon his acts as the acts of the bank, and cannot be held responsible for his subsequent breach of duty to the bank in converting the bonds to his own use. First Nat. Bank v. Sing Sing G. M. Co. 120 App. Div. 542, 104 N. Y. Supp. 1040, affirmed 194 N. Y. 580. This view of the case renders it unnecessary to treat any other questions. It being undisputed that the bonds have been converted and that they were worth par, the counterclaim offsets the amount due on the'notes. By the Court. — Judgment reversed, and action remanded with directions to enter judgment dismissing the complaint.