State Nat. Bank of St. Joseph v. Newton Nat. Bank

THAYER, Circuit Judge. The sole question presented by,this record is whether an answer filed by the Newton National Bank, the defendant in error, to a suit brought against it by the State National Bank of St. Joseph, Mo., the plaintiff in error, stated a good defense [692] to the action. The question arises in the following manner: The State National Bank of St. Joseph, Mo., hereafter termed the “St. Joseph Bank,” sued the Newton National Bank, hereafter termed the “Newton Bank,” in the circuit court of the United States for the district of Kansas, to recover the amount due on two promissory notes, each for the sum of $10,000, which were executed on July 21, 1890, and were afterwards sold to the plaintiff bank. Both notes were payable to the order of the McLain Live-Stock & Investment Company. One of them was executed by A. H. McLain, Horace McLain, C. R. McLain, and A. O. McLain. The other was executed by A. H. McLain, E. S. McLain, C. R McLain, and A. O. McLain. The makers of these notes owned all the stock of the McLain Live-Stock & Investment Company, and constituted the board of directors of that company. C. R McLain, one of the makers of said notes, was also cashier of the Newton Bank, while A. H. McLain and A. O. McLain were, respectively, vice president and assistant cashier of said bank. The St. Joseph Bank alleged in its complaint, in substance, that it had discounted these notes at the request of the Newton Bank, and for its benefit; that the proceeds of the discount had been received by the Newton Bank, and had been used by it in the ordinary course of its business; that, although the Newton Bank did not indorse the notes at the time they were discounted, yet that the notes were in fact executed by the makers thereof, and were indorsed to the St. Joseph Bank by the payee, solely for the accommodation of the Newton Bank,— the latter bank agreeing, by means of a letter written by C. R Mc-Lain, its cashier, that at the maturity of said notes they might be charged to the Newton Bank, if arrangements were not made in the meantime for the renewal of the paper. The plaintiff' bank also alleged that no arrangement for a renewal of the paper was in fact made before maturity, that the notes were overdue, and that the payment thereof had been demanded from the defendant bank, wherefore it prayed judgment against it for the amount due on said notes. The answer of the defendant bank to said complaint admitted the execution and sale of the notes to the St. Joseph Bank, but it alleged the fact to be that said notes were executed for the accommodation of the payee therein named, to wit, the McLain Live-Stock & Investment Company, in pursuance of an arrangement between said payee and the St. Joseph Bank whereby the latter was to discount, and did in fact discount, the notes for the sole benefit of the payee, and not for the benefit of the Newton Bank. The answer further averred, in substance, that the letter written by C. R. McLain, the cashier of the defendant bank, authorizing the notes to be charged to it at maturity, was written wholly without the knowledge or sanction of the Newton Bank, or of its board of directors; that neither said bank nor its board of directors had authorized the writing of such letter by its cashier, or had ratified,his action in so doing; and that the bank had received no consideration for the promise therein contained, that the notes might be charged to its account at maturity. The answer also contained the following averments: [693] “That if plaintiff did discount said notes upon the strength of the said Charles R. McLain’s direction to it to charge the same to defendant at their maturity, which this defendant denies, plaintiff well knew at the time that said Charles It. McCain was one of the makers of said notes, and was individually interested in the McLain Live-Stock & Investment Company, the indorser * * * thereof, as a stockholder, director, and oilieer therein, and that, being so interested, he, the said McLain, was in no position to fairly and honestly act for, represent, and bind defendant bank in and about the matters in which he was so individually interested, and it became and was the duty of plaintiff, before accepting the promises and acting on the directions of the said McLain, as cashier of defendant, in and about the matter aforesaid, to make inquiry as to his authority, as cashier or otherwise, to so bind the defendant, which inquiry plaintiff did not make, but with full notice of the said McLain’s individual interest, therein, as aforesaid, acted as it did in the premises; * * * that the said C. It. McLain, in writing and sending the letter, * * * "was not aciing altogether for defendant bank, as its cashier, but was also acting for and representing himself and the Mc-Lain Live-Stock Investment Company, which plaintiff at the time well knevr, and the said McLain, in requesting the plaintiff to place the proceeds of said notes to the credit of defendant bank, as set up in the petition, made such request and gave such directions as the agent and representative of the said McLain Live-Stock & investment Company, and for it and on its behalf, all of which the plaintiff understood and well knew at the time: * «• * that it was with such knowledge, and in compliance witli such direction of said C. II. McLain, acting as the representative and agent of said McLain Live-Stock & Investment Company, that plaintiff placed such proceeds to the defendant’s credit; * * that the McLain Live-Stock & Investment Company directed, plaintiff hank to place the proceeds of said notes to the credit of defendant, as aforesaid, as a more matter of convenience to it, and not as a matter of any convenience or accommodation to defendant, and defendant had no notice or knowledge of such direction being given until after such credit ivas given as aforesaid; that, in giving such direction 1o plaintiff to credit this defendant with the proceeds of said notes, the said McLain Live-Stock & Investment Company, as plaintiff well knew, did so merely for the purpose of facilitating the transmission to it of the proceeds of said loan.” The plaintiff bank subsequently filed a reply to said answer, wherein it denied all of the allegations contained in the answer. It afterwards filed a motion for a judgment in its favor upon the pleadings, which motion the court overruled. Thereafter, the plaintiff bank announced that it would rest the case on its motion for a judgment upon the pleadings. The circuit court thereupon entered a judgment in favor of the defendant. To reverse that judgment the pi a,intiff bank has removed the record to this court by writ of error. It it manifest that the aforesaid motion filed by the plaintiff proceeded upon the theory that the admissions contained in the answer were sufficient to warrant a judgment in favor of the plaintiff, irrespective of all other allegations in said answer contained. The motion admitted all of the affirmative allegations contained in the answer which were at first put in issue by the reply. By filing-said motion the plaintiff, in effect, asserted, and rested Us ease on that assertion, that, notwithstanding all of the facts stated in the answer, it was nevertheless entitled to a judgment. We think that this position was untenable. In view of the motion for a judgment on the pleadings, it stood admitted of record that the notes in suit were discounted for the sole benefit of the McLain Live-Stock & Investment Company, in pursuance of a previous agreement between [694] it and tbe plaintiff bank; that tbe proceeds were received and used by tbe investment company, and not by tbe Newton Bank; that they were placed to tbe credit of tbe Newton Bank, on tbe books of tbe plaintiff bank, merely as a convenient mode of transmitting tbe same to tbe investment company; and that tbe plaintiff was well advised of that fact when it made tbe discount. It also stood admitted that tbe letter signed by C. K. McLain, as cashier of tbe Newton Bank, authorizing said notes to be charged at maturity to that bank, bad been written by said McLain of bis own motion, without tbe knowledge or sanction of said bank or its board of directors, and that the plaintiff bank bad caused no inquiries to be made as to tbe extent of McLain’s authority, although it well knew that by writing said letter be bad assumed to bind tbe bank, of which be was cashier, to pay bis individual notes to the- amount of $20,000. Tbe contention that tbe letter written 'by tbe cashier of the Newton Bank bad tbe effect of binding that bank to pay tbe notes in suit, notwithstanding the admitted facts that it was written without any actual authority, and that the bank bad not received tbe proceeds of the discount, must rest upon the assumption that it is within the scope of tbe ordinary duties of a bank cashier to bind bis bank by an agreement to discharge obligations whicbbebas himself contracted for tike accommodation of a third party. It is hardly necessary to observe that tbe making of an agreement of that nature is wholly outside of the ordinary functions of a cashier, and that persons dealing with such officers have no right to presume that they have been vested with authority to make agreements of that character. Upon the state of facts disclosed by tbe answer and admitted by tbe motion, tbe case presented for decision was not one in which a bank cashier had assumed to borrow money for the use and benefit of his bank, but it was one in which he had attempted to pledge tbe credit of tbe bank to secure a discount of bis own notes for tbe benefit of a third party. It is clear, we think, that McLain, as cashier, bad no implied power to bind the defendant by a transaction of that kind; for, even if the board of directors of the bank could make such use of the bank’s credit, — a proposition which we need not discuss, — it would not be within the scope of the ordinary duties of a cashier to thus pledge its credit and funds. West St. Louis Sav. Bank v. Shawnee Co. Bank, 95 U. S. 557; Bank v. Armstrong, 152 U. S. 346, 14 Sup. Ct. 572. We conclude, therefore, that the answer of the defendant bank stated a good defense to the action, and that the motion for a judgment on the pleadings was properly overruled. The judgment of the circuit court is accordingly affirmed.