Simons v. Fisher

ACHESON, Circuit Judge. This was a suit brought by the receiver of the Spring Garden National Bank against the firm of Simons, Bro. & Co. upon a promissory note dated Philadelphia, February 18, 1891, at three months, for f5,000, made by the defendants to their own order, and by them indorsed. At the trial the plaintiff, instead of relying upon the presumption arising from the mere possession of the note that the bank was a bona fide holder for value, for the purpose, evidently, of anticipating and precluding the defense, examined, as part of his case in chief, the note clerk of the baiik, who testified to entries on the discount book indicating that the note in suit was discounted by the hank on February 17,1891. He then stated: “The account of the proceeds — $4,940.67—was handed to President F. W. Kennedy, who put his signature on it, making it an order on the teller for that much money. After the president had put his signature on this O. K, [907] alip, it was returned to me with his own check for $59.3,3, the two together mailing it §5,000. It was used to pay a former note of Simons, Bro. & Co. of §5,000.” Touching the former note which bore date October 15, 1890, this witness testified to entries on the discount book indicating that it was discounted by the bank on November 20, 1890, and he stated that for the proceeds “an O. K. slip was issued and deposited to the credit of F. W. Kennedy in Ms ledger account.” F. W. Kennedy was the president of the bank. Such being the plaintiff’s case, the defendants’ counsel made the following offers, one of the defendants being on the witness stand: First. “I offer to show that this note, dated October 15,1890, at four months, for $5,000, was delivered to the president of the Spring Garden National Bank on or about November 20, 1S90, which note was the first of a series of four notes given by the firm to the president, and taking from Mm at the time an acknowledgment in writing, signed by him as president of the bank, that he received this note for the use of the bank, and to be paid by it at maturity; and saying also at the same time to the witness that he desired to use this note in the clearing house; that he had a large quantity of small mercantile paper that he did not care to put through the clearing house, as it would look better for the bank to have a large note of a responsible firm like Simons, Bro. & Go. to go into the clearing house, and that ho would retain those small mercantile notes to protect Simons, Bro. & Oo. I propose to show that the receipt was given, by the president in the banking house.” Second. “I offer to show that on the 8th of December, 1890, the witness, having been called upon by the president of the bank to give two additional notes to the one of October, 1890, visited the banking house, and there had a conversation with the president, in which he stated that it was necessary for the bank to have large promissory notes of a firm of the standing of Simons, Bro. & Oo. for use in the clearing house; that the bank was entirely solvent, that they had a quantity of mercantile paper of small amounts, which the president would lay aside for the protection of Simons, Bro. & Go. if they would loan them the use of their credit by giving the notes he asked for,— four in all; and that at the date of this interview, December 8, 1890, at the banking house, the president gave the witness the receipt dated December 8, 1890.” Each of these offers was overruled. The defendants’ counsel then recalled the note clerk, and made the following offer: “I recall the witness for the purpose of showing that in the actual management of the business of the Spring Garden National Bank the president was the sole managing officer; that the cashier occupied the position more of a clerk than of actual cashier in the sense in which that word is used In the authorities cited by my friend.” This offer was also overruled. In connection with the above offers of evidence, the defendants offered receipts given them by the president of the bank, of which the following are copies: “Dec. 8/90. Received of Simons, Bro. & Oo. their four promissory notes for $5,000 each, dated as follows: No. 1,151, Oct. 15/90; No. 1,152, Oct. 31/90; No. 1,172, Nov. 15/90; and No. 1,174, Dec. 8/90; all at four months,— which notes are for the use of the bank and to be paid by it. “Francis W. Kennedy, Pt” “February 24/91. Received of Simons, Bro. & Oo. their note 1,231, dated February 13/91, 3 mos., $5,000, which note is for the use of the bank, and to be paid by it Francis W. Kennedy, Pres’t” [908] By direction of the court the jury rendered a verdict for the plaintiff. In dealing with this case we must at the outset assume two things: First, the actual good faith of the plaintiffs in error in the transactions between them and the president of the bank; and, second, that they could have shown the facts to be as set forth in their offers. Were those offers properly rejected? In answering this question it is first to be noticed that Simons, Bro. & Co. were not in court as plaintiffs seeldng to enforce as against the bank a contract made in its behalf by its president. They were defending against a note, for which they had received no consideration, made for the accommodation of the bank at the instance of its president, and delivered to him in his official capacity for the use of the bank in its clearing house business. How, it is a familiar principle that in an action by the indorsee against the maker of a promissory note proof by the defendant that the note was fraudulently obtained from him puts the plaintiff to proof that he is a bona fide holder for value. Lerch Hardware Co. v. First Nat. Bank of Columbia, 109 Pa. St. 240; Stewart v. Lansing, 104 U. S. 505. The evidence here made the ground for excluding the defendants’ offer strikes us as very meager and inadequate. The circumstances connected with the alleged “regular discount” of the paper were not shown. Whether the paper came before the board of directors at all was left to mere inference from book entries. Indeed, the testimony of the note clerk rather suggests that in this matter Francis W. Kennedy, the president of the bank, was permitted to exercise unlimited control. Hor did it appear that the bank directly paid any money to Kennedy. The most shown was that a credit was entered in his account with the bank, but the state of that account then or afterwards was not disclosed. How, if a bank, or its receiver, can successfully maintain an action against an innocent maker of a promissory note which came to it by the hands of its own president, who, acting in its behalf, and as its representative, procured the note for the accommodation of the bank in the course of its regular business, surely it can only be upon fuller proofs than this record discloses that the bank became a bona fide holder of the note for value. But the defense did not rest alone upon Kennedy’s official character as president of the bank. The defendants’ counsel offered to show that “in the actual management of the business of the Spring Garden national Bank the president was the sole managing officer; that the cashier occupied the position more of a clerk than of actual cashier in the sense in which that word is used in the authorities cited by my friend.” The latter clause of this offer does not weaken what immediately precedes. Evidently it was intended to meet authorities which had been cited to show the powers with which the cashier of a bank is ordinarily invested, virtute officii, as distinguished from those usually appertaining to the office of president. The fair meaning of the offer, as a whole, was to show that, as the affairs of the Spring Garden national Bank were ac [909] tually conducted, the president was “the sole managing officer,” performing, among other functions, those of a cashier. Assuming the president to have been “the sole managing officer” of the bank in the conduct of its business, can the bank, or its receiver, recover against the defendants upon a note procured from them by its president in the manner, for the purpose, and under the arrangement set forth In the defendants’ offers? We think not. It is, indeed, urged that the transaction which the defendants proposed to show was ultra vires. But, if it were, it does not follow that the bank can set up its want of legal capacity to compel Simons, Bro. & Co. to pay their accommodation note, made solely for the benefit of the bank itself. Bank v. Case, 99 U. S. 628; Bank v. Graham, 100 U. S. 699. The transaction, however, v.as not ultra vires. It was a loan io the bank of an accommodation note apparently for JegiUiuate use at the clearing house in lieu of mercantile paper of small amounts, which was to be set apart and held by the bank for the protection of Simons, Bro. & Co. In Morse, Banks, § 160, it is said, (and the text seems to be well supported by the cited authorities:) “The cashier has inherent power to borrow money in the regular course of the business of the bank, and may secure the loan by note or pledge of the bank’s property.” In Coats v. Donnell, 94 N. Y. 168, 176, the court of appeals said: “The cashier of a, bank is Us executive; officer, and it is well settled that as an incident of his office; lie has authority, implied from Ms official designation as cashier, to borrow money for and to bind the bank for its repayment; and the assumption of such authority by die cashier will conclude; the bank as against third persons who have no notice of his want of authority in the particular transaction, and deal with him on the basis of its existence.” But if the cashier as the executive officer possesses such authority, why not a president, who, “in the actual management of the business” of a bank, is also its “sole managing officer?” The case of Coats v. Donnell, supra, had features very like those appearing here. The cashier of a bank orally agreed with a firm that if the latter would accept certain drafts negotiated by the bank, it would keep on deposit with the firm until their maturity n balance equal to the amount of the draff:;, upon which the firm should have a lien; the firm to be kept informed of the condition of the bank, which (he cashier stated to be embarrassed, but, with certain expected aid, aide to continue business. The agreement was held to be valid, and within the power of the cashier to make, both under his general authority and by virtue of a bylaw which gave Mm supervision of the bank, with the duty to attend to the making of loans, discounts, and other active business transactions of the bank. In Merchants’ Bank v. State Bank, 10 Wall. 604, 644, the supreme court said: “Where a party deals with a corporation in good faith, the transaction is not ultra vires, and he is unaware of any defect of authority or other irregularity on the part of those acting for the corporation, and there [910] is nothing to excite suspicion of such defect or irregularity, the corporation is-bound by the contract, although such defect or irregularity in fact exists. If the contract can be valid under any circumstances, an innocent party in such a case has a right to presume their existence, and the corporation is estopped to deny them. * * * Smith was the cashier of the State Bank. As such he approached the Merchants’ Bank. The bank did not approach him. Upon the faith of his acts and declarations it parted with its property. The misfortune occurred through him, and, as the case appears in the record, upon the plainest principles of justice the loss should fall upon the defendant. The ethics and law of the case alike require this result. Those who created the trust, appointed the trustee, and clothed him with the powers that enabled him to mislead, if there were any misleading, ought to suffer rather than the other party.” This language was used with reference to the cashier of a national bank. We think it has great pertinency here, where the receiver of the Spring Garden National Bank is attempting to compel Simons, Bro. & Co. to pay a promissory note, with no consideration behind it, made by them for the accommodation of the bank in its clearing house business, upon the solicitation of its president, who, (as the defendants proposed to show,) “in the actual management of the business” of the bank, was “the sole managing officer.” We have only to add that if the president of the bank wrongfully appropriated the note or its proceeds to his individual purposes, Simons, Bro. & Co. are not to be prejudiced by the fraud he perpetrated upon his principal. Bank v. Armstrong, 50 Fed. Rep. 798. We are of the opinion that the evidence under all of the defendants’ offers should have been received. The judgment is reversed, and the record is remanded to the circuit court, with directions to set aside the verdict and grant a new trial.