Frank Aldrich v. Chemical National Bank

• Decision Date: 05 March 1900
• Docket Number: No. 58,58
• Citation: 176 U.S. 618,20 S.Ct. 498,44 L.Ed. 611
• Parties: J. FRANK ALDRICH, Receiver of the Fidelity National Bank of Cincinnati, Ohio, appt. , v. CHEMICAL NATIONAL BANK of New York
• Court: U.S. Supreme Court

176 U.S. 618

20 S.Ct. 498

44 L.Ed. 611

J. FRANK ALDRICH, Receiver of the Fidelity National Bank of Cincinnati, Ohio, appt.,

v CHEMICAL NATIONAL BANK of New York.

No. 58.

Argued October 20, 1899.

Decided March 5, 1900.

Messrs. F. W. Oldham and John W. Herron for appellant.

Messrs. George H. Yeaman, William Worthington, and George C. Kobbe for appellee.

Mr. Justice Harlan delivered the opinion of the court:

This litigation has extended over many years, and the case as now presented will be best understood if a statement be made showing the proceedings in the circuit court and circuit court of appeals.

In its bill in this case the Chemical National Bank alleged that on the 2d day of March, 1887, it loaned to the Fidelity National Bank the sum of $300,000 which the latter bank promised to repay on demand with interest from the date of the loan, and at the same time delivered as collateral security therefor a certificate of deposit for the above amount together with sundry promissory notes.

The certificate referred to was in the following form:

Certificate of Deposit.

This certificate is not subject to check, but must be presented to draw the money.

No. 345.

The Fidelity National Bank.

Cincinnati, Feb. 28, 1887.

E. L. Harper has deposited in this bank three hundred thousand dollars ($300,000), payable to the order of himself on return of this certificate in current funds. $300,000.

Ammi Baldwin,

Cashier.

Indorsed: 'E. L. Harper.'

It was alleged that the signature of Baldwin as cashier was used as the signature of the bank by its authority.

The bill then stated that on May 21st, 1887, the Chemical Bank at the request of the Fidelity Bank returned some of the notes delivered as collateral security, and received in substitution therefor other notes. The latter notes were described in a schedule attached to the bill, and it was alleged that the bank was still the owner and holder of them, except three executed by J. W. Wilshire for $25,000 each, which had been paid at maturity by John V. Lewis, the indorser thereof, the money so paid being held in lieu of the notes delivered as collateral security for the loan.

After setting forth the appointment on the 21st day of June, 1887, of Armstrong as receiver of the Fidelity Bank, as well as the subsequent proceedings by which on the 12th day of July, 1887, that corporation was dissolved, the bill alleged that the Fidelity Bank never repaid the loan nor any part thereof; that the Chemical Bank presented to the receiver proof of its claim, and requested him to submit it to the Comptroller of the Currency in order that a dividend might be paid to it from the assets of the bank equal in ratio to the dividends paid to other creditors, and that it might thereafter receive further dividends until its claim was paid; but that the Comptroller and the receiver had refused to allow it to be enrolled as a creditor.

The receiver, without explicitly responding to the allegations of the bill as to the making of the loan, said that he was unable to state whether or not the plaintiff loaned to the Fidelity Bank the sum of $300,000. In an amended answer he specifically denied that the Chemical Bank loaned to the Fidelity Bank the sum named, or that any such loan was made by the former to the latter on the faith and credit of the alleged certificate of deposit, or that such certificate was executed and delivered by the cashier of the Fidelity Bank as its act and by its authority.

The answer averred that on the 2d day of March, 1887, and prior thereto, Harper was the vice president of the Fidelity Bank, and engaged in speculations in which he used its funds; that in the use of those funds he was assisted by Baldwin, but that such use was not known to the other directors of the bank, was not authorized by it, and was a fraudulent and illegal appropriation of its funds for the personal use of Harper; that a paper was signed by Baldwin, as cashier of the Fidelity Bank, which was believed to be the same paper alleged to be a certificate of deposit of the Fidelity Bank; that such certificate was not entered upon the books of the bank, nor taken from the book from which, if regular, it should have been taken; that its execution was unknown to the other officers of the bank, and was unauthorized by it; and that no consideration was received for it by the Fidelity Bank from Harper, or from any other person, nor was money deposited in the bank as the basis of the certificate.

Continuing, the defendant averred that the certificate of deposit and the promissory notes described in the bill were forwarded to the Chemical Bank by Harper, and the sum of $300,000 was received by him from that bank; that he represented to the officers of the Fidelity Bank that the money was received from a loan made to him, and by his direction was credited on his personal account, and was thereupon drawn out and used for his individual purposes, and that the other officers of the bank had no knowledge that the facts were otherwise than as represented by him. It was also averred that a large portion of the promissory notes delivered as collateral security for the loan was the personal property of Harper in which the Fidelity Bank had no interest.

The answer, after reciting the fact of the payment by the indorser Lewis of the three notes made by Wilshire for $25,000 each, alleged that the fourth note of Wilshire for the same amount, also indorsed by Lewis, was not presented for payment by plaintiff at maturity, in consequence whereof that note was not paid and the indorser was discharged. It was also averred that the Chemical Bank credited the payment of the above three sums of $25,000 upon the alleged loan of $300,000, reporting the same to the defendant as payments on that account, and treated them in all respects as proper credits on such loan. Payment of certain other notes since the bringing of the action was also alleged to have been made to the Chemical Bank.

The defendant therefore claimed that the Fidelity Bank was not liable to the Chemical Bank for the amount of the loan, but if it were otherwise adjudged, the defendant asked that all payments made to the plaintiff upon the collateral paper forwarded by Harper as security for the loan should be credited thereon; that the above note of Wilshire, indorsed by Lewis, not having been paid in consequence of plaintiff's neglect to present the same for payment, should be also credited; that the balance of the collateral paper should first be exhausted and the proceeds credited; and that the plaintiff should be permitted to prove only the amount found due after such credits had been made.

To the answer as amended the plaintiff filed a general replication.

In deciding the case the circuit court, among other things said: 'Conceding that the transaction of $300,000 loan was fraudulent as between E. L. Harper and the Fidelity Bank, and that he appropriated the entire proceeds to his individual use, the claim of the Chemical Bank, which dealt in good faith in the transaction, and was innocent of any knowledge or participation in the fraud, is not affected thereby. The negotiation of the loan was within the authority of Harper as vice president of the Fidelity Bank, and if he used that authority fraudulently for his own advantage, the bank that enabled him to commit the fraud must suffer from the consequences, and not the bank that made the loan and advanced the money, under the representation and in the belief that it was conducting a fair, legitimate business transaction with the Fidelity Bank.' But the court held that all collections made prior to the filing of the claim upon the collaterals held by the Chemical Bank as security for the loan should be deducted therefrom. 50 Fed. Rep. 798, 802.

From this decision both parties appealed to the circuit court of appeals. That court reversed the decree, holding upon an extended review by Judge Taft of the adjudged cases that creditors of an insolvent national bank could not be required in proving their claims, to allow credit for any collections made after the declared insolvency of the bank from collateral securities held by them. 16 U. S. App. 465, 59 Fed. Rep. 372, 8 C. C. A. 155, 28 L. R. A. 231. $The Chemical Bank filed a petition for rehearing upon the ground that the court had erred in fixing the amount of interest to be allowed the bank on the dividends declared.

While that petition was under consideration by the circuit court of appeals, this court decided the case of Western Nat. Bank v. Armstrong, 152 U. S. 346, 38 L. ed. 470, 14 Sup. Ct. Rep. 572, which related to a transaction between that bank and Harper. Thereupon the receiver filed a petition for rehearing, upon the question as to the validity of the loan involved in the present suit.

The above petitions for rehearing having been granted, the cause was again heard in the circuit court of appeals, and it was there decided that under the special facts disclosed by the evidence, and in view of the decision in Western Nat. Bank v. Armstrong, the parties should be allowed an opportunity to introduce further evidence 'upon the issue whether the Fidelity Bank owes anything to the Chemical Bank by virtue of the loan.' The former order of the court was therefore modified, and the decree of the circuit court was reversed and the cause remanded, with leave to the parties to adduce such additional evidence. 31 U. S. App. 75, 83, 65 Fed. Rep. 573, 577, 13 C. C. A. 47, 28 L. R. A. 239.

The cause was again heard in the circuit court, which said: 'Upon the evidence, the finding of this court is that the power of the Fidelity to borrow money by conducting such a transaction as is involved in this case is established, and that the same is legitimately within the business of banking under the national bank act.' It found for the Chemical Bank on the issue defined in the mandate of the appellate court. 76 Fed. Rep. 339, 345, 347. The decree was in these...