122 F.2d 765 (6th Cir. 1941), 8567, Federal Deposit Ins. Corp. v. Vest

Docket Nº:8567.
Citation:122 F.2d 765
Party Name:FEDERAL DEPOSIT INS. CORPORATION v. VEST.
Case Date:May 14, 1941
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 765

122 F.2d 765 (6th Cir. 1941)

FEDERAL DEPOSIT INS. CORPORATION

v.

VEST.

No. 8567.

United States Court of Appeals, Sixth Circuit.

May 14, 1941

Rehearing Denied Oct. 10, 1941.

Baldwin C. Burnam, of Louisville, Ky. (Wilson W. Wyatt, Baldwin C. Burnam, and Peter, Heyburn, Marshall & Wyatt, all of Louisville, Ky., and Francis C. Brown, of Washington, D.C., on the brief), for appellant.

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Charles S. Adams, of Covington, Ky. (Rouse, Price & Adams, of Covington, Ky., on the brief), for appellee.

Before HICKS, ALLEN, and MARTIN, Circuit Judges.

HICKS, Circuit Judge.

Bill in equity by appellant as receiver of The Taylor National Bank, against appellee, on two promissory notes. The principal question here is, whether appellee is liable to the receiver upon a note for $10, 000 executed to the bank by appellee on January 12, 1937. The District Court made accurate and complete findings of fact which we reproduce in the margin. 1 Upon these findings the court decided, -- '(2) That in making the loan upon the note which

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he induced Vest to sign, Morton was acting within the scope of his authority. Morton, being the Bank's sole representative in procuring the note, it cannot claim any right to it except such as it acquired through him, and it cannot take the benefit of his act without taking also the burdens resulting from the agreement which he made and under which he procured the note to be executed and the withdrawal of the collateral pledged with the original note. The evidence clearly showing a breach of the contract, pursuant to which the note was executed, notice of which, under the 'sole actor' doctrine, is imputed to the Bank, recovery on the note of $10, 000.00 is thereby precluded.

We entertain a contrary view.

On June 16, 1933, Congress, as an addition to the Federal Reserve Bank Act of 1913, enacted a provision that 'no executive officer of any member bank shall borrow from or otherwise become indebted to any member bank of which he is an executive officer, and no member bank shall make any loan or extend credit in any other manner to any of its own executive officers. ' This provision was in effect on January 24, 1935, when the original transaction between appellee and Morton took place and has continued as the law. 12 U.S.C.A. § 375a. One of its principal purposes was to decrease the hazard of one-man-bank control.

The act was violated. Morton got $10, 000.00 from the bank upon appellee's note. The defense, as averred in the answer to the bill and as set up in the proof, was, that by virtue of an agreement between Morton and appellee, the original note and its various renewals were nullities. We think the defense must fail. Morton had no authority from the bank to make such an agreement. His role was that of borrower and not as representative of the lending bank. He was the only bank official active in the transaction and he obviously did not, nor could, represent the bank, since he was dealing with himself. It was positively

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forbidden to make such a loan. Morton took the money in violation of law and appellee's part in the transaction was to permit his notes to be carried by the bank as a screen to conceal the violation.

It is a criminal violation for any person with intent to defraud or injure, to aid or abet any officer of a bank in the wilful misapplication of its money. 12 U.S.C.A. § 592. It is also provided (Title 18 U.S.C.A.Ch. 15, Sec. 550) that 'whoever directly commits any act constituting an offense defined in any law of the United States, or aids, abets, counsels, commands, induces, or procures its commission, is a principal.'

Curiously enough, these statutes were not presented to the District Court for consideration. We must consider them here.

Appellee, by active connivance with Morton, permitted his note and its renewals to remain as receivables among the assets of the bank for more than two years for the admitted purpose of concealing the fact that Morton was a borrower from his own bank. The bank examiners naturally were deceived. Had the truth become disclosed the Comptroller of the Treasury would no doubt have taken corrective measures at once.

It is urged that appellee as a matter of fact did not know that the statute prohibited Morton from borrowing the bank's money. The record does not disclose whether this is true or not, but it is of course immaterial as a matter of law. Appellee cannot avoid the rule that he intended the natural consequences of his...

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