Armstrong v. Chemical Nat. Bank of New York

TAFT, Circuit Judge (after stating the facts). Can the case before us be distinguished on any satisfactory grounds from that of Western National Bank v. Armstrong, 152 U. S. 346, 14 Sup. Ct 572? If not, the decree of the circuit court must be reversed. In the Western Bank Case it appeared that by a letter of May 16, 1887, Harper asked for a loan from the Western Bank of $300,-000, and inclosed four notes, for $50,000 each, due in four months, signed by A. Is. Gahr, and indorsed by Harper, and secured by 1,600 shares of Fidelity Bank stock. The letter, though written on a letter head of the Fidelity Bank, was signed by Harper in his own name, without any official designation, but contained a request that the proceeds of the loan be put to the credit of the Fidelity Bank on the books of the Western Bank. This credit was, in a short time, exhausted by drafts drawn in the name of the Fidelity Bank, and signed, some of them by Hopkins, the assistant cashier, and the remainder by Harper himself. The money thus drawn was appropriated by Harper to his own use, and never came into the actual possession or use of, the Fidelity Bank, and was not applied in any way for its benefit There was evidence that Harper- was vice president and general manager of the business of the Fidelity Bank. The only question argued by counsel in the supreme court was whether Harper and Jordan, who made the loan for the Western’ — 566 — Bank, intended a loan to Harper or to the Fidelity Bank. The. supreme court based its decision upon a ground not advanced or discussed, and held that, even if Harper intended to bind his bank by this loan, he had no general authority, as its vice president and principal executive officer, to do so, and that the record did not show any special authority conferred by the directors upon him for the purpose. The court further held that there was no evidence of a subsequent ratification of the loan by the directors, or of a receipt of the proceeds by the bank to its use and benefit. Upon the question of the power'of Harper and the directors, the court, speaking by Mr. Justice Shiras, used the following language: ‘‘The most that can be claimed, in this case is that Harper acted as the principal executive officer of the bank. It cannot be pretended that, as such, he had power, without authority from the board, to bind the bank by borrowing $200,000'¡at four months’ time. It might even he. questioned whether such a transaction would he within the power of the hoard of directors. The powers expressly granted are stated in the eighth section of the national hank act (Rev. St. § 5136, par. 7): ‘A national hank can exercise, hy its hoard of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall he necessary to carry on the business of banking, by discounting and negotiating promissory notes, drafts, hills of exchange and other evidences of debt; hy receiving deposits; hy buying and selling exchange, coin and bullion; hy loaning money on personal security, and hy obtaining, issuing and circulating notes.’ The power to borrow money or to give notes is not expressly given hy the act. The business of the hank is to lend, not to borrow, money; to discount the notes of others, not to get its own notes discounted. Still, as was said hy this court in the case of First Nat. Bank v. National Exch. Bank, 92 U. S. 122, 127, ‘authority is thus given in the act to transact such a banking business as is specified, and all incidental powers necessary to carry it on are granted. These powers are such as are required to meet all the legitimate demands of the authorized business, and to enable a bank to conduct its affairs, within the general scope of its charter, safely and prudently. This necessarily implies the right of a hank to incur liabilities in the regular course of its business, as well .as to become the creditor of others.’ Nor do we doubt that a hank, in certain circumstances, may become a temporary borrower of money. Yet such transactions would he so much out of the course of ordinary and legitimate hanking as to require those making the loan to see to it that the officer or agent acting for the bank had special authority to borrow money. Even, therefore, if it be conceded that it was within the power of the board of directors of the Fidelity National Bank to borrow $200,000 on time, it is yet obvious that the vice president, however general his powers, could not exercise such a power unless specially authorized so to do. and it is equally obvious that persons dealing with the bank are presumed to know the extent of the general powers of the officers.” The reasoning of the court is here based upon two propositions: First, that the borrowing of money hy a hank is not within the ordinary business of the hank; and, second, that because it is of an extraordinary character, it is not within the scope of the power of the chief executive officer of the bank, without special authority conferred by the governing body of the hank, — the hoard of directors. The court does not hold that the national banking act either expressly or impliedly forbids a hank to borrow money, but only that the power to do so is not expressly given bv the act. The court concedes that, among the incidental powers necessary to carrv on the banking business, is the power, under certain circumstances, temporarily to borrow mónev, but says, in effect, that it is so much out of the course of ordinary and legitimate hanking that the executive — 567 — officers of the bank, who have only authority to transact the ordinary business of the bank, could not exercise the power to borrow money without special authority from the directors. No special authority appears by the record to have been conferred on Harper to borrow the money here in question, but complainant below sought to establish the necessary authority bv evidence that in New York and Cincinnati the executive officers of the bank were, by a general banking custom, accorded authority to borrow money on behalf of their banks. Two questions arise upon this evidence: Does it establish the custom? If it does, can the proof of the custom supply the place of the special authority decided by the supreme court to be necessary? We have set out in the statement of the case, at perhaps too great length, a résumé of the evidence as to usage, because its sufficiency luis been vigorously attacked by the counsel for the appellant. We think that the evidence establishes, in a most satisfactory way, that in 1887, when the loan at bar was made, and for many years previous, it was the frequent practice of banks in the interior to borrow money of their New York correspondents; that a similar practice prevailed in Cincinnati between the country hanks in the neighboring territory and their Cincinnati correspondents, and ¡hat the borrowing was always done by one of the executive officers of the borrowing bank, and usually by letter; that no special authority from his board of directors was ever required; and that by the usage of banks in those two cities, at least, he was treated as having adequate authority for the purpose, as between his own bank and the lending bank. The only witness whose statement may be considered as falling short of this is W. A. Goodman, of Cincinnati, and he seems to have had little, experience in transactions with country banks, and none in borrowing money for his own bank. It does not militate against our conclusion that several of the witnesses testified that it was usual and proper for the borrowing officer to consult his directors before obtaining the loan, or to report it to them afterwards. There are many important transactions of the bank concededlv within the power of the executive officers, concerning which they consult their directors or of which, they make report. The question here is not what is the customary duty of a cashier or oilier executive officer in keeping his directors informed of what he is doing, but it is, what is his customary authority in acting on behalf of Ids bank and borrowing money from other banks? It does not detract from the weight of the evidence that the banks of a majority of the witnesses do not borrow money. It is the lending bank who has to decide in such cases upon the question of ap pearance of authority, and their officers are best able to say what; is the authority, in the matter of borrowing, which well-known usage gives to the executive officers of the borrowing bank. Moreover, three of the Cincinnati witnesses had borrowed money for their banks, and their evidence was like that of the others. Nor do we see how it affects the question of authority of the borrowing officer that collateral is usually demanded from the borrowing bank, and that the proceeds are credited in the books of the lending — 568 — bank to the borrowing bank, to be drawn out in due course on drafts of the latter. This course of business, which operates as a check upon possible fraud by the officer assuming authority to borrow, does not indicate that he is not given, by custom, the requisite apparent authority to contract the loan on behalf of his bank, but, on the contrary, suggests a reasonable explanation why a custom, by which banks of the borrowing class might otherwise be prejudiced and exposed to risk of loss by the frauds of their executive officers, has been accepted and acquiesced in by them. The failure of the defendant to call witnesses to contradict the evidence of the complainant upon the question of usage lends most significant support to the view that it was well known and generally acquiesced in. Sumner v. Tyson, 20 N. H. 384-387; Insurance Co. v. McLaughlin, 53 Pa. St. 490. The New York and Cincinnati witnesses strongly corroborate each other as to the usage prevailing in both places; for it is well settled that the existence of a well-known usage in one place, or in one trade, has a tendency to establish the same usage in the same trade in another place similarly situated, or in a. closely-allied but different trade. Insurance Co. v. McLaughlin, 53 Pa. St. 490; Falkner v. Earle, 3 Best & S. 360; Fleet v. Murton, L. R. 7 Q. B. 126. The next question is whether the usage proven can make up for the absence of proof of Harper’s and Baldwin’s special authority to contract this loan. The theory upon which it is offered is that bank directors in Cincinnati, who committed to their executive officers authority to conduct the business of their bank with a New York correspondent bank, were presumed to know the apparent authority which Néw York usage in the banking business would attribute to those officers, and are estopped, in the absence of special notice to such correspondent bank, to deny that those officers had actual authority equivalent to their customary authority. We think this, theory to be sound. The borrowing was done in New York, and it is New York usage which is important here. Bank directors in Cincinnati, doing business in New York, are presumed to know the usages in that city, at least so far as they affect out of town banks. Goodenow v. Tyler, 7 Mass. 36-47; Dwight v. Whitney. 15 Pick. 179-183; Lewis v. Marshall, 7 Man. & G. 729-744; Leach v. Beardslee, 22 Conn. 404; Cropper v. Cook, L. R. 3 C. P. 194; Bibb v. Allen, 149 U. S. 481, 13 Sup. Ct. 950. The presumption of knowledge by the bank directors of the Fidelity Bank of the New York usage is greatly strengthened in this cause by proof that the same usage prevails with respect to the officers of banks bearing the same relation to Cincinnati banks which Cincinnati banks bear to New York banks. Well-established usages of a trade are presumed to be known to all persons engaged in that trade. Carter v. Coal Co., 77 Pa. St. 286. It is noteworthy that the receiver did not call a single witness from the directors of the Fidelity Bank to rebut this presumption as to their knowledge .of the usage. But it is said that to give such effect to the usage is, in effect, to refuse to follow the authority of the Western Bank Case. We cannot understand why. Usage is a matter of fact until it becomes so — 569 — general and well known to courts, and is so often recognized by them, as to be crystallized into law. There was no evidence of usage adduced or considered in the Western Bank Case. That makes a broad distinction between that case and the one at bar. Again, it is said that the usage is illegal, because contrary to the-law of the Western Bank Case. The court in that case did not decide that it was .unlawful to intrust the vice president or cashier with power to borrow money for his bank; it only held that in the absence of special authority, conferred either by by-law or resolution of the directors, such authority did not appertain to the office of cashier or vice president, but remained with the directors. The manifest infer-, ence, from the language of the opinion, is that, if the directors chose to do so, they might expressly confer such authority by a by-law. If they could do this by a by-law, why may they not by acquiescence in a well-known usage effect the same result? Can, therefore, a usage which assumes the conferring of authority be unlawful? We think not. It cannot affect the validity of the usage that it may have derived strength from, or even had its origin in, decisions of the state courts which differ from ihe decision in (he Western Bank Case. It is undoubtedly true that there were decisions in the state courts of New York, Pennsylvania, Missouri, Wisconsin, and Ohio (Barnes v. Bank, 19 N. Y. 152; Bank v. Sullivan, 11 Wkly. Notes Cas. 362; Donnell v. Bank, 80 Mo. 165; Sturges v. Bank, 11 Ohio St. 153, 167; Rockwell v. Bank, 13 Wis. 653; Ballston Spa Bank v. Marine Bank, 16 Wis. 120-134) which take a different view of the implied authority of the cashier to borrow money for his bank; but if these decisions have given rise to a usage in New York and Cincinnati well known and recognized by bankers in both places, and having only tiie same result which might lawfully he brought about by express action by each hoard of bank directors, it is difficult to see why, because the origin of ihe usage may have been in an erroneous view of the law of implied authority of a cashier, it should not be binding on those who engage in business with a knowledge of and acquiescence in it. In Merchants' Bank v. State Bank, 10 Wall. 604, a suit between two national hanks, the question was whether the cashier of one of them had authority to certify three checks, amounting in all to $600,000, to pay for certain gold coin bought of the other. It did not appear that the cashier had ever certified checks before or bought: gold. Evidence by the officers of 22 banks in Boston ivas admitted to show a usage by which, without by-law or vote, powers were intrusted to cashiers of such banks to borrow and lend the money of their banks of and to each other, to buy and sell exchange of and to each other, and in all such transactions to pledge the credit of their respective hanks, — usually by cashiers' checks, sometimes by certificates of deposit or memoranda; that these transactions were frequent, involving large sums of money; and that they were uniformly conducted in faith of the implied powers of cashiers, without inquiry. The supreme court held the evidence competent for the jury to consider on the issue whether the cashier had power to buy gold and certify checks without special authority from the board of directors. The ruling in this case certainly upholds the view that a well-known usage, by which an executive — 570 — officer of a bank exercises authority to do acts on its behalf, which otherwise could only be done by the directors, is equivalent to a specific delegation of authority by the board. It is worthy of note that the usage, which was here held admissible to show apparent authority, was one by which cashiers were permitted to borrow large sums of money for their banks without receiving special authority from their directors. It is liai'dly conceivable that the supreme court would have held such usage admissible in evidence if it was illegal or unreasonable. Our conclusion is that the complainant, by its proof of usage, has taken this case out of the rule laid down by the supreme court in the Western Bank Case, and has shown thereby that Harper and Baldwin had apparent authority to make this loan for the Fidelity Bank. ^ ^ 2. The conclusion just reached, based upon the usage of banks,_ is greatly strengthened when we come to consider the actual authority exercised by Harper in the affairs of the Fidelity Bank. It is evident, from the facts set forth at length in the statement of the case, that the board of directors was practically chosen by Harper for the very purpose of giving him free rein in the management of the bank, and in the use of its funds and its credit to carry on enormous wheat gambling transactions on the Chicago market. He selected as directors for this purpose, in addition to himself, Baldwin, the cashier, and Hopkins, the assistant cashier, who had previously been engaged in a similar transaction with him at the Third National Bank, and who were privy to his present plans; and two of his own employés, Mathews and G-ahr, whom he had qualified by gifts of stock, and who confessedly were only his representatives on the board, and quick to do his bidding. When a director manifested any desire to look into his management, he dropped him from the board at the first opportunity. That Harper in this way succeeded in having the whole power of the board of directors delegated to him, in fact, is clearly manifest from what he did in the bank. The indifference of the directors is most emphatically shown by a failure of a quorum to attend the regular monthly meetings for five months, and by the perfunctory and merely formal matters passed upon by the board when a sufficient number did meet. The subordinates' in the bank, whose assistance was necessary to Harper in making the transfers of funds to his credit, and in carrying in the cash account worthless checks aggregating three times the capital of the bank, recognized Harper as the manager, not only of the bank, but of the directors. The slightest questioning of one of them at any time during the last six months would have developed the peculiarities of Harper’s control. Indeed, it is quite clear that the flagrant violation of one of their by-laws by Harper, in respect to “cash items,” was well known to more than the majority of the board. In order to effect the loan here in question, and other loans, he took from the bank large quantities of the bank’s bills receivable, to be used as collateral, without registering any explanation of their whereabouts, and without arousing the slightest inquiry, either by the president or any of the directors. When, near the close, a loan had to be secured in a fruitless effort to save the bank, he negotiated one, and sent away a million dollars’ worth of bills receivable, without any authority from the board. We think that, for practical purposes, Har — 571 — per was the bank, and ibat tiie directors recognized liim as such, and that, included in such a delegation of authority as this condition of affairs implies, was the power to borrow money, if, as held in the Western Bank Case, that power rests with the directors. We reach this result, not only on the direct: evidence, but also upon the bill of the appellant herein filed against the directors, in which the averments paint, in the strongest colors, the supreme authority over hank and directors which Harper was allowed to exercise, and which does not lose evidential force from the fact that the receiver obtained, in compromises, §450,000 from the solvent directors on the character of his averments and the strength of the proof adduced by him in support of them. In Martin v. Webb, 110 U. S. 7, 3 Sup. Ct. 428, the issue was whether a bank was bound by the act of its cashier in having canceled obligations of its debtor, secured by a first lien on his property, in exchange for a partial payment on them and new obligations secured by a second lien. It was conceded by the court that the ordinary powers of a cashier do not include the release of security and the canceling of any obligation due the bank, except upon payment; but Mr. Justice Harlan, delivering the opinion of the court, set out at some length the circumstances, to show that, in fact, the whole business of the bank had been delegated to the cashier by the directors, whose supervision over him was- most perfunctory, and who were very little in the bank, and that, if the directors did not abdicate all authority as such, they acquiesced in the cashier’s assumption of exclusive management of the bank’s business, and held that the directors and the bank could not be heard to deny the requisite authority in the caw? in hand. Mr. Justice Harlan’s language, in closing his opinion, was as follows: “It is quite true, as contended by counsel for appellants, that a cashier of a bank has no power, by virtue of his office, to bind the corporation except in Ihe discharge of his ordinary duties, and that the ordinary business of a bank does not. comprehend a contract: made by a cashier — without delegation of power by the hoard of directors — involving the payment: of money not loaned by the hank in the customary way. Bank v. Dunn, 6 Pet. 51; U. S. v. City Bank of Columbus. 21 How. 356; Merchants’ Bank v. State Bank, 10 Wall. 604. Ordinarily, he has no power to discharge a debtor without payment, nor to surrender the assets or securities "of the bank. And. strictly speaking, he may not, in the absence of authority conferred by the directors, cancel its deeds of trust given as security for money loaned, — certainly not, unless the debt secured is paid. As ihe executive officer of the bank, he transacts its business under the orders and supervision of the board of directors. He is their arm in the management of its financial operations. While these propositions are recognized in the adjudged cases as sound, it is clear that a banking- corporation may be represented by its cashier — at least where its charter does not otherwise provide — in transactions outside of his ordinary duties, without his authority to do so being in writing, or appearing upon the record of the proceedings of the directors. His authority may he by parol and collected from circumstances. It may be inferred from the general manner in which, for a period sufficiently long to establish a settled course of business, he lias been allowed, without interference, to conduct the affairs of the bank. It may be implied from the conduct or acquiescence of the corporation as represented by tbe board of directors. When, during a series of years, or in numerous business transactions, he has been permitted, without objection and in his official capacity, to pursue a particular course of conduct, it may be presumed, as between the back and those who, in good faith, deal — 572 — with it -upon the basis of his authority to represent the corporation, that he has acted in conformity with instructions received from those who have the right to control its operations. Directors cannot, in justice to those who deal with the bank, shut their eyes to what is going on around them. It is their duty to use ordinary diligence in ascertaining the condition of its business, and to exercise reasonable control and supervision of its officers. They have something more to do than, from time to time, to elect the officers of the bank, and to make declarations of dividends. That which they ought, by proper diligence, to have known as to the general course of business in the bank, they may be presumed to have known in any contest between the corporation and those who are justified by the circumstances in dealing with its officers upon the basis of that course of business.” Now, it is quite true that the holding out in the case at bar was of a somewhat different character from that in the case cited. Here the power to transfer the bank’s collateral, the acquiescence in the accounts current based on the loan for three successive months, the interchange of collateral, the negotiation by Harper of a second loan for $1,000,000, and the transfer of the requisite collateral, were all circumstances reflecting on Harper’s authority, upon which the Chemical Bank might rely in either making the loan or not compelling its payment by those contracting it before the failure. In Davenport v. Stone, 104 Mich. 521, 524, 62 N. W. 722, 723, the principle is stated as follows: “Tbe directors intrusted tbe entire management of tbe bank to Mr. Bradley [the cashier]. Therefore neither tbe bank nor its receiver can now be beard to deny the authority of the cashier to do any of those acts which it or its directors might lawfully authorize the cashier to do.” The act in question in that case was the rediscount of a renewal note. _ In Wing v. Bank, 103 Mich. 565, 61 N. W. 1009, the same principle was recognized, where the act of the cashier, the validity of which was in issue, was the release of a surety from a note held by the bank. In Bank v. Perkins, 4 Bosw. 420, the issue was, like that at bar, as to the binding effect upon a bank of a loan contracted in its name by one of the executive officers. In that case the cashier had had exclusive control of the bank for several years, without any supervision or interference by the directors. This particular loan the cashier had taken to himself after its proceeds came to the bank. The superior court of New York, made up of Chief Justice Bosworth and Judges Woodruff and Moncrieffi, stated, as the principle which led them to hold the bank, that where directors of a bank allow its cashier for several years in succession, without interference or inquiry by them, to transact the business of the bank in such maimer as, in his judgment, may be' proper and for its interest, they thereby, in effect, authorize him to make all and any contracts which he deems expedient in relation to its business that the directors might lawfully make, and such contracts will conclude the bank, as between it and a party who has dealt with it through such cashier, and, on .the faith of his having authority to make such contracts, has loaned money to such bank, provided the charter of the bank does not prohibit it from making such contracts through its cashier. The case was affirmed by the court of appeals on another ground. Bank v. Perkins, 29 N. Y. 554. See, also; to the same point, Cox v. Robinson, — 573 — 82 Fed. 277, a decision'by ike circuit court of appeals for the Ninth circuit. 8. Another distinction between the Western Bank Case and the one at bar grows out of the relation which existed between the Chemical Bank and the Fidelity Bank as correspondent banks exchanging monthly statements of the account between them for the prior month. In the Western Bank Case there was no such relation between tlie two banks involved. This difference has an important bearing on the question of notice to the directors and ratification by them of the loan. The supreme court, in the Western Bank Case, in effect says that when the loan was made to the Fidelity Bank, at tlie instance of an unauthorized agent, the lending bank could not predicate ratification of the loan by the Fidelity Bank without bringing knowledge of tlie same home to the directors, the only body in the bank with authority to make the loan. The general rule as to ratification is, as we conceive it, that a failure to repudiate the unauthorized act of an agent can never work a ratification of the act, unless the principal either has actual knowledge, or, by tlie exercise of due diligence, would have liad knowledge, of the act. Now, due diligence presupposes an affirmative duty owing from the principal to tlie other party to advise himself of the fact. In the case of a stranger seeking relations with a principal through an unauthorized agent, no duty arises on tlie part of the prineii>al towards the stranger to inform himself of an agent’s unauthorized acts, because he lias tlie right to assume that the agent will not attempt to exercise authority not intrusted to him, and that a stranger will not credit the agent with greater authority than he has. Such was the Western Bank Case, and so the principie stated by the court had full application there. But where there is an existing relation between tlie principal and the other parly, imposing on the former a duty of knowledge in respect of a class of facts which embraces the unauthorized act, then a neglect by the principal to discharge the dutv and inform himself wTill have the same effect as actual knowledge upon the issue of ids ratification of the unauthorized act by estoppel. To illustrate by the case of Leather Manufacturers’ Bank v. Morgan, 117 U. S. 96, 6 Sup. Ct. 657: There a depositor in a bank was held to ratify, by estoppel, his agent’s forgeries in raising checks by failure to repudiate them, not because of his knowledge, but because his relation to tlie bank as a depositor bound, him to advise himself, from the statements sent by the bank to him, as to the condition of Ms account, and the validity of the checks, payment of which was noted therein. Had the forgeries been passed upon a stranger, the principal could not have been held to ratify them in favor of tlie stranger on the ground that he had been careless in not supervising his agent in the drawing of checks. He would, in that case, have owed no duty to the stranger of which his careles? confidence in Ms agent would have been a violation. In the case at bar the Fidelity Bank bore much the same relation to the Chemical Bank that an individual depositor does to his bank. The Chemical Bank submitted monthly statements of the current account between It and the Fidelity Bank to the latter bank, and in due course the latter bank re — 574 — turned a .reconcilement sheet, showing discrepancies, if any existed, and correspondence continued until the differences were explained and reconciled. This was the regular course of business between the two banks from the organization of the Fidelity till its close. The affirmative duty was thereby imposed upon the Fidelity Bank to inform itself of the correctness of the items therein charged, and to object to the same if unwarranted or erroneous. Negligence in doing so was a failure of duty towards the Chemical Bank, and was the equivalent of actual knowledge of those things which proper inquiry would have developed. Notice through such accounts was notice to the directors of the items therein contained, because it was notice to the Fidelity Bank bv- the course of business between the two banks. The directors cannot rid themselves of such notice by saying that their agents failed to communicate the facts to them. As between them and the Chemical Bank, they were under an affirmative duty to examine into the accounts, and so a neglect by the agents to discharge this duty was their negligence. Now, it might be that, if the agent who committed the fraud originally was the only person to make the examination, his failure to report it could bo considered so much a part of his scheme to defraud that notice to him would not be notice to the bank. But here no such difficulty arises. The account current for March and the books of the Fidelity Bank differed in this: that the account current showed the source of a credit to the Fidelity Bank of $300,000, of the date of March 2, 1887, to be a temporary loan from the Chemical Bank to the Fidelity Bank. The books of the Fidelity Bank showed the source of the same credit to be a deposit in the Chemical Bank by Harper to the credit of the Fidelity. The bookkeepers of the Fidelity negligently overlooked the discrepancy, and, by sending a reconcilement sheet calling attention to other items, in effect reported to the Chemical Bank that the item of $300,000, as contained in the account current, was correctly set forth therein. They were not privy to the fraud, and, if they had discovered the difference, it would have been their duty to prepare a letter to be forwarded to the Chemical Bank calling attention to it, and to have told the executive officers of the bank of it. The general bookkeeper savs that he would have reported it to the cashier, but one would think that a discrepancy so vitally concerning the personal account and integrity of the vice president would be reported to the president. In any event, we can not presume that such a discrepancy would have been suppressed, if the president, who was certainly not privy to the fraud, had been exercising any care. If our theory of notice to the directors by the monthly accounts current is correct, then this case cannot be distinguished from the Leather Manufacturers’ Bank Case, already cited. The grounds for an equitable estoppel, based on the delay in repudiating the loan, are clearly shown. It appears that, more than a month after the acquiescence by the Fidelity Bank in the account containing the item of the $300,000 loan, the Chemical Bank, on the faith that the loan was a loan to the Fidelity Bank, consented to a substitution of worthless collateral for good collateral at the instance of Harper, as — 575 — vice president. It is also quite probable that, had the Chemical Bank known that there was any doubt as to Harper's authority in April, it would have saved itself from loss by recourse to Harper. The effect of notice through monthly statements made in due course by one bank to another of unauthorized transactions of agents is clearly shown in the case of Kissam v. Anderson, 145 IT. 8. 435, 12 Sup. Ct. 960. In that case the cashier of á country bank drew bank drafts on its New York correspondent bank in favor of New York brokers, who were conducting a speculation for him. The country hank failed, and its receiver sued the brokers for the money of the bank, because received by them on these drafts with knowledge that the cashier was using the funds of his bank for private speculation. The brokers sought to have the claim reduced by deposits which they had made to the credit of the country bank with its New York correspondent by direction of their client. It appeared that the New York correspondent sent regular monthly statements of the deposit account to the country bank showing these credits, hut they were not transferred to the books of the country bank, and some of the accounts thus sent were not even opened. The cashier drew new drafts on these deposits, and squandered the money elsewhere. The circuit court held that unless it appeared that these deposits actually reduced the sum total of the cashier’s total defalcations, by whatever means, below the amount of the drafts received by defendants, they could not set off the deposits returned by them. The supreme court, in an opinion by Mr. Justice Brewer, reversed the judgment of the circuit court. lie said: “Defendants returned this money to the Albion Bank. They deposited it with the Third National Bank, the correspondent of the Albion Bank, and the bank from which they received the money on the checks from the Albion Bank. In fact, therefore, the money was placed where it was before it was taken,— in the possession and under the control of the Albion Bank. Not only that, the Third National Bank, in its due course of business, by monthly reports, informed the Albion Bank that they had received this money, and held it subject to its order: and it was subsequently used by the Albion Bank in drafts drawn by it in favor of other parties. If it he said that no oflieer of the Albion Bank knew- of these deposits except Warner, the wrongdoer, and that he subsequently drew out most of these moneys in drafts to further other wrongs, the reply is that the other officers and directors of the Albion Bank were chargeable with knowledge of these deposits. If, through their negligence, they did not in fact know, that is a matter for which the Albion Bank, and not the defendants, were responsible. Kissam, Whitney & Co. had no supervision over its affairs, — no knowledge as to how those affairs were managed. They were not called upon to go to Albion and hunt up the various officers and directors, and inform them, one by one, personally, that these moneys had been deposited to their credit in the Third National Bank. It was enough that they deposited them, and that that bank, in the regular course of business, by monthly statements, informed the Albion Bank that it received and held those moneys. * * * It will not do to say that they put the money where he could check It out, and therefore are responsible for what he did with it. They deposited it to the credit of the Albion Bank, and it was for the officers and directors of that hank to take care of its deposits. The rule might be different if Warner, the cashier of the Albion Bank, was the only officer authorized to draw on the Third National Bank, or charged with knowledge of the state of the account; but the president and teller had equal authority, and were equally chargeable with knowledge. In fact, it appears that these officers did draw-drafts on the New York bank, and thus diminished the total amount of deposits, and the other directors, also, were under some obligation to know the affairs — 576 — of the bank; and it will not do to sny that the bank can ignore the negligence of all its officers and profit by their omission of duty.” The same effect was given by Judge Drummond to monthly accounts current between correspondent banks in Burton v. Burley, 13 Fed. 811, where a bank president had paid his personal debts by directing charges to be made upon the correspondent bank’s books' against his own bank. á. Another distinction said to exist between the case at bar and that of the Western National Bank is that there the money borrowed from the Western Bank was at once drawn out by drafts payable to Harper, and not a penny of it went to the benefit of the Fidelity, while here the credit of $300,000 obtained by the loan was drawn out on drafts issued to meet legitimate obligations of the Fidelity Bank. Upon the day upon which the credit was given in New York to the Fidelity Bank by the Chemical Bank for the loan, however, Harper directed a credit to be made in his favor on the Fidelity books of $300,000, and a charge of that amount to the Chemical Bank, and he afterwards checked out this credit. Under the circumstances, can the Chemical Bank hold the receiver as for money had and received? The question is not free from difficulty, and as the members of the court might not be able to agree in their conclusions upon the same, and as the' grounds already stated are quite sufficient to require the court to affirm the judgment of the circuit court, we do not decide the point. The decree of the circuit court is affirmed, with costs.