Walker v. Manhattan Bank of Memphis

• Decision Date: 01 October 1885
• Parties: WALKER v. MANHATTAN BANK.
• Court: U.S. District Court — Western District of Tennessee

25 F. 247

WALKER v. MANHATTAN BANK.

United States Circuit Court, W.D. Tennessee.

October 1, 1885

This was a bill to charge the defendant bank as a trustee, and for a breach of trust concerning a special deposit. The court preceded the opinion with the following statement of facts:

The firm of Walker, Sons, & Co., composed of the plaintiff's husband, his brother, and G. H. Judah, was a large mercantile house in Memphis that disastrously failed and made an assignment. The plaintiff and the wife of the other brother being creditors of the firm for large amounts due them for loans to the firm, owned the book accounts, which were bought for their use by Judah in the name of Maas, the book-keeper at the assignee's sale, the husband of plaintiff paying for her share. These books, with the knowledge and consent of plaintiff and her husband, who afterwards died,-- but it seems without any specific instructions of any kind,-- were left with Judah to collect the debts and manage the fund for the two beneficiaries, who resided in other cities. His control over the funds was of the most plenary character. He married a sister of the two brothers, and had been the most active member of the firm, and was best acquainted with its business. The collections were deposited with the defendant bank in his name as 'guardian,' or in the name of Maas, the former book-keeper of the firm, who became the book-keeper and assistant cashier of the defendant bank. Prior to November 27, 1880, Judah had purchased certain securities with the funds, which he kept on special deposit with the bank or in the name of Maas. On that day he came to the bank and asked Maas for a receipt showing the special deposit, to send to the plaintiff. The bank was not in the habit of giving receipts or certificates for these special deposits, but kept them noted by numbers in a book used for that purpose.

Maas wrote a receipt on a sheet of the bank's letter-paper and, according to his and Judah's testimony, placed it in one of the bank's envelopes addressed to the plaintiff and put it with the bank's mail. The plaintiff and her daughter swear that it was accompanied by a letter from Maas. What was in the letter does not appear, and, not being preserved, it has not been produced, but is supposed to have been burned as useless. The routine of the bank was that Goldsmith, the cashier, personally signed and inspected every letter and himself enveloped and addressed them. This letter he did not see or sign, and it was never copied into the letter-press. The receipt was as follows:

'MANHATTAN BANK OF MEMPHIS.

'L. LEVY, President.

'L. HANAUER, Vice-president.

E. GOLDSMITH, Cashier.

M. MAAS, Ass't Cashier.

'MEMPHIS TENN., November 27, 1880.

'G. H. Judah, Esq., agent for Mrs. Eliza Walker, of Philadelphia, has placed with us on special deposit:

'$3,000, Memph. & Charl. R.R. 2d Mtg. Bonds.

'$2,200, Miss. Central R.R. 2d Mtg. Bonds.

'1,100, People's Insurance Co. Stock.

'$5,000, Note E.G., and collateral attached, $6,000 M. Bank Stock.

'$325, Interest notes, (4 at $81.25.)

'MAURICE MAAS, Asst. Cashier.'

Sometime in 1880, the son of the plaintiff, and a son of the other Walker, both young men, commenced business at Memphis as Walker, Sons & Co. This firm kept an account with the defendant bank, and later with the Bank of Commerce. It was 'never very strong' financially, and its business was cotton factorage. Judah was thought by Goldsmith to be a partner, and the plaintiff at one time swore he was a silent partner, but afterwards stated she was informed he was not. He says he was only a salaried manager. The members of the firm were inexperienced, and Judah was, in fact, the almost sole manager of all its affairs,-- the master spirit of the concern. It is not shown that the young men took any part, except one of them kept the books after Maas had opened them.

The plaintiff in October, 1880, lent to her son, the firm being also responsible, $10,000, as his capital in the concern, derived from the life insurance of her husband. Judah also appropriated, or lent to the firm from time to time, sums amounting to over $9,000 from his collections in behalf of plaintiff on the old books. The interest on these sums and on the special deposit funds were remitted by the firm-- not always promptly-- to the plaintiff at Philadelphia, by exchange or checks; and sometimes the coupons were sent by express to her. When remittances were delayed she wrote or telegraphed the firm. She never communicated with the bank in any way. The remittances were nearly always in letters by her son, and they contained apologies and explanations for delays.

The defendant bank made large advances to the firm, generally by discounts on the security of the firm's 'country paper' due from its customers. Judah promised the bank to always protect it, as far as in his power, and the relation was very confidential. The bank began to urge him for a reduction of the account, and, not being willing to accommodate him fully, he opened an account with the Bank of Commerce. The Goldsmith note maturing November 1, 1881, he notified Judah that he should not longer need the loan. Maas and Judah say that 'a few days' before the note matured, Judah, being unable to continue the loan to Goldsmith, determined to lend the money to Walker, Sons & Co.; and to accomplish that purpose the note of Goldsmith was discounted by the bank, and the proceeds placed to the credit of Walker, Sons & Co. As a fact, this discount was as early as July 5th, for there is in the bank's account no discount of that amount, or anything like it, later than that date and prior to December 30th. Possibly, the note was taken as absolute payment without going into the discount account, as there was on October 22d a payment of $6,000, and a discount of $1,500, which Maas says accompanied the Goldsmith note transaction; but I do not see that this is very material, for there is no doubt Judah was being pressed by the bank for money, and that the Goldsmith note was so used.

At the same time Judah urged a loan on the other securities of plaintiff on special deposit, but the bank declined this on the ground that cotton factors' accounts were not desirable to a bank with so small a capital. The securities were above par and abundantly safe for the loan, and it is one of the facts left unexplained by this testimony why the bank would be willing to appropriate the Goldsmith note and refuse to appropriate the other securities. The explanation given that cotton factors' accounts were not desirable is not satisfactory when the money would have gone still further to reduce the indebtedness. It could not have been a fear of the transaction because of plaintiff's rights in the premises, for the Goldsmith note was taken and the liability to pay back would have been as well risked in one case as the other; the larger amount making no difference, since the money itself would be on hand to pay back, and at least it was no worse off with the whole than a part. I think it a fair inference that the fact was that Judah was unwilling then to appropriate the whole fund to liquidate the old indebtedness of Walker, Sons & Co., and wanted cash in hand for the remaining securities, which the bank was unwilling to give. He used the collaterals released by the Goldsmith payment to secure a loan through a relative of the other young Walker in New York,--that is, I infer this from the circumstances detailed in proof in the Arkansas law suit over those collaterals,-- and was evidently hard pressed and not willing then to sacrifice everything to pay the defendant bank, and it was unwilling to let him have any more money. I call attention to this, because I think it explains the transaction, and shows that the bank was not then shrinking from a guilty knowledge that Judah was about to commit a breach of trust, or that while it was willing to make a little breach, it was not willing to make a big one. The proceeds being in its own hands to meet any demand of the plaintiff in that behalf, there was no sense in refusing to lend the money on that account. The bank did not make the loan because Judah was unwilling to pay the money on the old account. He could get the money at the Bank of Commerce. He told the officers of the defendant bank so, and they delivered the securities to him, fully knowing that he was going to make that use of them. Maas consulted the president and the attorney whether he should deliver the securities to Judah, and they directed him to do so. He had forgotten, however, giving him the receipt and sending it to plaintiff, and neither the president nor the attorney knew that fact. Goldsmith, the regular cashier, was absent in New York, but he never knew that fact. Maas never mentioned it, because he says he deemed it unimportant at the time, and forgot it afterwards. The securities were pledged to the Bank of Commerce, except the People's Insurance stock, which was on the books in plaintiff's name and could not be used by Judah. They were sold by that bank to satisfy the loan, and are lost to plaintiff.

The firm of Walker, Sons & Co. soon after failed disastrously owing defendant bank a balance of over $5,000, notwithstanding Judah, according to his promise, appropriated to the debt certain stocks of his own, and his diamonds. After the failure, Kramer, a son-in-law of plaintiff and a lawyer, came to Memphis and presented the receipt, and then the plaintiff learned, for the first time, that the securities had been so used by Judah and the bank. Kramer secured the delivery to himself of certain 'country paper' and mortgages to secure notes that were then first taken for the $20,000 lent by plaintiff to the firm, not including, however, the...