Hindman v. First Nat. Bank of Louisville

TART, Circuit Judge (after stating the facts as above). The so-called reformed petition and its amendment are inaHJiie¡ally drawn, and are full of redundancy and evidential averments, but we think that they state with sufficient clearness the following case: Several of the defendants'other than the bank organized a lire insurance company under the laws of Kentucky. Before the, company could do business under the laws of Kentucky, it ivas necessary for it to procure a license from the state insurance commissioner. The license could only issue upon proof that the capital ($200,000) of the insurance company had been paid in in cash. But a little over $100,000 of the capital had been paid in cash and deposited in the defendant bank. To make up the needed remainder, the defendant bank accepted notes of various subscribers to the stock for the amount of their respective subscriptions, with the stock pledged as collateral therefor. The notes were indorsed by the insurance company. Though the proceeds of the notes were credited to the latter on the books of the bank, the amount of them was not, according to the understanding between the bank and the insurance company, subject' to check. In order to start the insurance company in business, and thereby secure for itself a large deposit account, and for the further purpose of selling the stock of the insurance company pledged to it as collateral, the defendant bank, through its board oí directors, assisted the insurance company to obtain a license by directing its cashier to certify to the insurance commissioner that the insurance company had on deposit with it, subject to check, $200,000 paid-up capital and $48,000 net surplus. The license was issued upon the faith of this certificate. In further pursuance of its purposes the defendant hank united with the other defendants in procuring the publication in newspapers of general circulation in Kentucky and elsewhere of statements similar to those contained in the cashier’s affidavit. The plaintiff, induced by such publications and by the statements in the cashier’s affidavit, and relying thereon, bought 80 shares of the stock of the insurance company, which the bank then held as collateral security for a note of one of the defendants given for his stock subscription. Plaintiff paid $10,000 for the stock. The stock was worthless when he bought it, and has never been worth anything since. The insurance company, owing to the fact that it never had the amount of capital required by law, became wholly insolvent, and was wound up under the laws of Kentucky. The statement of the cashier was plainly false, and known to he so by the bank, for it clearly implied that the capital and surplus were in cash over and above all liabilities. The argument of counsel for the defendant in error is: First. That the statement of the cashier, in so far as it certified that the insurance company’s deposit was for capital and net surplus, was ultra vires, and could not he made ground for holding the bank for deceit. Second. It is contended that neither the cashier’s affidavit — 566 — nor the newspaper publications were addressed to the plaintiff, and he had no right to rely on them; that the former was directed to the insurance commissioner only, and the latter to the possible subscribers to the stock, and not to one who, like the plaintiff, bought stock already issued. First, it is to be observed that the question here is not of the authority of the cashier, as was the case in First Nat. Bank v. Marshall & Ilsley Bank, 54 U. S. App. 510, 28 C. C. A. 42, 83 Fed. 725. The petition specifically avers that the certificate was made by order of the board of directors. This was the governing body of the bank, and although, of course, in a certain sense, it- is an agency or representative of the bank, it is for all practical purposes the bank. Goodspeed v. Bank, 22 Conn. 530, 540, 541; Burrill v. Bank, 2 Metc. (Mass.) 163; Bank Com’rs v. Bank of Buffalo, 6 Paige, 502; Pollard v. Vinton, 105 U. S. 7, 12, 26 L. Ed. 998; Railway Co. v. Prentice, 147 U. S. 101, 114, 13 Sup. Ct. 261, 37 L. Ed. 97; Railway Co. v. Harris, 122 U. S. 597, 610, 7 Sup. Ct. 1286, 30 L. Ed. 1146. The question here, therefore, is whether a national bank can make itself liable in an action for deceit by causing a knowingly'false statement to be made concerning the financial condition of one of its customers. In England it is said that a corporation may be held liable for the commission of any wrongful act within the scope of its incorporation. Green v. Omnibus Co., 7 C. B. (N. S.) 290; Edwards v. Railway Co., 6 Q. B. Div. 287; Clerk & L. Torts, 49. By this is meant, not that the, charter must specifically authorize the wrongful act, but only that it must be committed by the corporation in pursuance of a power lawfully conferred, though wrongfully and tortiously exercised. The same view is taken by Mr. Justice Campbell, speaking for the supreme court of the United States, in Railway Co. v. Quigley, 21 How. 202, 16 L. Ed. 73, as follows: “The result of the case is that for acts done by the agents of a corporation, either in contractu or in delicto, in the course of its business and of their employment, the corporation is responsible, as an individual is responsible under similar circumstances.” The limits of a corporation’s liability for a wrong are somewhat less strictly laid down in later cases in our supreme court. In Bank v. Graham, 100 U. S. 699, 702, 25 L. Ed. 750, Mr. Justice Swayne, speaking for the supreme court, said: “Corporations are liable for every wrong they commit, and in puch eases the doctrine of ultra vires has no application.” “An action may be maintained against a corporation for its malicious or negligent torts, however foreign they may be to the object of its creation, or beyond its granted powers. It may be sued for assault and battery, for fraud and deceit, for false imprisonment, for malicious prosecution, for nuisance, and for libel." In Salt Lake City v. Hollister, 118 U. S. 256, 260, 6 Sup. Ct. 1055, 30 L. Ed. 176, Mr. Justice Miller, speaking for the court, said: “The truth is that with the great increase in corporations in very recent times, and in their extension to nearly all the business transactions of life, it has been found necessary to hold them responsible for acts not strictly within their corporate powers, but done in their corporate name, and by corporation officers who were competent to exercise all the corporate powers. When — 567 — such acts aro not founded on contrae), but are arbitrary exorcises of power, in tiie nature of torts, or are quasi criminal, the corporation may be held to a pecuniary responsibility for them to the party injured.” The latest expression of the court on this subject is found in Gaslight Co. v. Lansden, 172 U. S. 534, 544, 19 Sup. Ct. 296, 43 L. Ed. 543, in which it is said: “The result of the authorities is, as we think, that, In order to hold a corporation liable for the torts of any of Its agents, the act in question must be performed in the course and within the scope of the agent’s employment in the business of the principal. The corporation can be held responsible for acts which are not strictly within the corporate powers, but which were assumed to be performed for ihe corporation and by the corporate agents who-were competent to employ the corporate powers actually exercised.” It is not necessary for us to consider or discuss the difference, if any, between these measures of corporate liability for torts, because we think that the case made by the petition is within the most conservative of them. It is a part of a bank’s business to secure as large deposits as possible. It is also part of a bank’s business to sell at as high a price as may be the collateral held by it to secure its bills receivable. If the bank, in order to increase its deposits or to sell its collateral, makes or causes to be made false statements concerning the financial condition of one of its customers and depositors to a third person, for the purpose of misleading that person to his injury, we think the bank is liable in deceit if loss ensues. The relation of a. bank to its depositors and customers is one which gives it exceptional opportunity to acquire most reliable information of their business and financial affairs. It is a common practice for the cashier of one bank to apply to the cashier of another to learn the financial standing of customers of the latter bank, or, indeed, of any person doing business in the city of the latter bank. When the answers made are not made for the benefit or in the business of the second bank, but are merely matters of courtesy between the two cashiers, the second bank is not responsible for their inaccuracy or falsity. This was found to be the state of the case in First Nat. Bank v. Marshall & Ilsley Bank, 54 U. S. App. 510, 28 C. C. A. 42, 83 Fed. 725. But the ratio decidendi of that case was that if the false answer to the query liad been made by the cashier, with the privity of the president, in the business and for the benefit of the bank, the bank would have been liable. It is the usual practice for depositors and customers of a bank to refer others to the bank for information as to their financial responsibility. To give such information to third persons or to the public at the instance of the customer or depositor is certainly not beyond the scope of banking powers. It is argued (hat, while the hank might properly certify to the amount on deposit to the credit of one of its depositors, it has no power to certify how much of the deposit is for capital and how much for net surplus. This is too refined. The bank’s relation to the insurance company as a customer might very well enable it to learn with reasonable certainty how and for what purpose the money deposited luid been paid in, and whether it was net capital or surplus, or was likely to be reduced by outstand — 568 — ing liabilities, and to give tbis information to whom it might concern, with the consent of the depositor. It certainly had the amplest knowledge of the fact that the insurance company was a large debtor of the bank, — so large as'to make the statement that it had a paid-in cash capital and net surplus of $248,000 utterly false. If it made such a statement to the insurance commissioner to obtain a license, and was privy to the publication of the same statement in the public press, as is alleged, all for the purpose of securing a large bank deposit and of selling stock held by it as collateral, it seems to us that this was done in the course of the business of the bank, and was "within the scope of its incorporation.” In Barwick v. Bank, L. R. 2 Exch. 259, the action was for deceit against a bank. The plaintiff furnished feed to the horses of a government contractor, who was a customer and depositor of the bank, on the written assurance of the manager of the bank that if the'plaintiff would do so the bank would pay him out of the first money received by the contractor from the government after the bank had satisfied any claim of its own. The bank then held a note of the contractor for £12,000, but the manager did not disclose this. The court held that the case should be left to the jury to say whether the manager had not given the plaintiff to understand that there was a probability that out of the government payment there would be enough to pay -plaintiff, when he knew there was not. This case shows clearly that a bank’s statement concerning the financial condition of its customer is an act within its corporate capacity, at least when made to further the business interests of the bank. The petition charges the bank not only with falsely making the false statement to the insurance commissioner, but also with conspiring with the other defendants to repeat the statements to the public in the newspapers in furtherance of the two purposes already stated. It is now well settled that a corporation may be held for torts in which express malice or intent to defraud is a necessary element. Barwick v. Bank, L. R. 2 Exch. 259; Goodspeed v. Bank, 22 Conn. 530; Railway Co. v. Quigley, 21 How. 202, 16 L. Ed. 73; Railway Co. v. Prentice, 147 U. S. 101, 114, 13 Sup. Ct. 261, 37 L. Ed. 97; Railway Co. v. Harris, 122 U. S. 597, 610, 7 Sup. Ct. 1286, 30 L. Ed. 1146. It is a necessary corollary from these cases that a corporation may be held for a conspiracy with others resulting in injury to a third person. The point is expressly adjudged by the court of appeals of New York in Buffalo Lubricating Oil Co. v. Standard Oil Co., 106 N. Y. 669, 12 N. E. 825; same case in supreme court, 42 Hun, 153. See, also, to same effect, Moores v. Bricklayers’ Union, 23 Cin. Law Bul. 48, affirmed by supreme court of Ohio, without report, 31 Cin. Law Bul. 208; Dodge v. Bradstreet Co., 59 How. Prac. 104. If a bank may make a false statement concerning the financial condition of one of its customers for its own benefit, and may conspire with another to accomplish its business purposes, it follows that it may conspire with others to circulate the statement already made by it to deceive the public, and that any one of the public to whom the statement is addressed, and who acts upon it to his injury, may hold the bank for his loss. — 569 — The second ground urged in favor of the demurrer was that the statements concerning the financial condition of the insurance company were not addressed to the plaintiff, but only to the insurance commissioner, on the one hand, or to the probable subscribers to the stock of the insurance company, on the other. The plaintiff, it is said, was not the insurance commissioner, and was not a subscriber to the stock, but was a purchaser from an original subscriber. In the case of Peek v. Gurney, L. R. 6 H. L. 877, one who, misled by false statements in a prospectus issued by the directors of an intended company, had bought shares therein from an original allottee and suffered severe losses, attempted to hold the directors for his injury. It was held that a prospectus was addressed to the original allottees; that when the allotment was completed the office of the prospectus was exhausted, and one purchasing from an original allottee could not rely on it and hold those issuing it for his loss. The case has not met with entire concurrence by the courts of this country. Dissent from its conclusion is based on the view that one issuing a prospectus or statement calculated to mislead others to their injury ought to be charged with liability to any person or class of persons whose action on the faith of it he might reasonably and naturally anticipate, and that purchasers from original allottees are quite as likely to act on the prospectus as the allottees themselves. We do not find it necessary, however, to discuss the principles of Peek v. Gurney in deciding this case, for we think it clear that the averments of the petition make it unnecessary. The newspaper statements of the condition of the insurance company, repented from the cashier’s statement to the insurance commissioner, to all of which the bank is alleged to have been privy, were not issued or addressed to original subscribers to the stock. The petition and its amendment in effect aver that the original subscriptions were made by defendants and others engaged in promoting the company, and that the purpose of the company and the bank was not so much to secure original subscribers, as to sell the stock which, had been pledged to the bank to secure payment of the original subscriptions, and which the bank was therefore especially interested in selling. The false statements are thus averred to have been made for She very purpose of reaching and influencing purchasers like the plaintiff, and Peek v. Gurney has no application. See Andrews v. MoCkford [1896] 1 Q. B. 372. Even if it be conceded that the plaintiff had no right to rely on the certificate to the insurance commissioner, the repetition of the contents of the certificate in newspaper publications by the bank and others for the very purpose of misleading probable purchasers of the stock is quite sufficient to hold the bank and the other defendants. A third objection to the sufficiency of the petition and its amendment is that it shows no damage to plaintiff, and fraud without damage gives no action. The contention is that the measure of the recovery in such a case is the difference between the price paid and the value of the stock when bought (Peek v. Derry, 37 ch. Div. 591), and that there is no averment in the petition that the stock was not worth what plaintiff paid for it when he bought it. Por subsequent losses due to misfortune or mismanagement defendants can — 570 — not, it is said, be made responsible in this action. This objection must fail for the reason that the petition expressly alleges that the stock was worthless when plaintiff bought it. The judgment of the circuit court is reversed, with directions to overrule the demurrer to the reformed petition and its amendment, and to require the defendants to answer. The costs of the proceeding in error should be paid by defendants.