Federal Reserve Bank of Richmond v. Crothers

• Decision Date: 16 May 1923
• Docket Number: 2050.
• Citation: 289 F. 777
• Parties: FEDERAL RESERVE BANK OF RICHMOND v. CROTHERS.
• Court: U.S. Court of Appeals — Fourth Circuit

289 F. 777

FEDERAL RESERVE BANK OF RICHMOND v. CROTHERS.

No. 2050.

United States Court of Appeals, Fourth Circuit.

May 16, 1923

W Thomas Kemp, of Baltimore, Md. (Keech, Deming, Kemp & Carman of Baltimore, Md., on the brief), for plaintiff in error.

Walter L. Clark, of Baltimore, Md. (Isaac Lobe Straus and Soper Bowie & Clark, all of Baltimore, Md., on the brief), for defendant in error.

Before TAFT, Circuit Justice, WOODS, Circuit Judge, and GRONER District Judge.

WOODS Circuit Judge.

In this action on a promissory note for $6,000, given by the defendant to the Second National Bank of Elkton, Md., and rediscounted by the Baltimore Branch of the Federal Reserve Bank of Richmond, the District Court directed a verdict for the defendant for failure of consideration, on the authority of Rankin v. City National Bank, 208 U.S. 541, 28 Sup.Ct. 346, 52 L.Ed. 610.

In 1921 Second National Bank of Elkton, Md., was in good credit and high repute; its apparent capital, surplus and undivided profits aggregating $71,000. William T. Warburton, its president, had a high reputation in the community for honesty and business capacity. He was the largest stockholder and in absolute control of the bank. In April, 1921, Johnson, the cashier, became alarmed by information imparted to him by other officials that the bank was carrying as assets a number of forged notes. On his insistence Warburton withdrew notes questioned by Johnson as forged to the amount of $141,450, and substituted for them $125,000 bonds of Gilpin Falls electric light plant, owned by Warburton, paying the difference in cash. As required by law, the bank examiner objected to the excess of investment in the bonds. In October, 1921, Warburton appealed to J. W. McAllister to aid him in meeting the objection to the amount of the electric light plant bonds by giving his note for $6,000, payable to the bank at 30 days, to take the place of an equivalent amount of bonds. McAllister gave the note, taking as his protection the personal note of Warburton to him, on the assurance that the electric light plant had been sold and all of the bonds would be taken up in a few days.

Warburton, having failed to sell the electric light plant, did not pay into the bank the money to take up the McAllister note on November 13, 1921, the date of its maturity. On November 17 he asked McAllister to let the note stand for 10 days longer, giving as a reason that the arrangement by which he would get the money for the bonds could not go through before the expiration of that time. McAllister agreed, and at the end of 10 days the McAllister note to the bank and Warburton's note to McAllister were surrendered. Warburton had not sold the electric light plant, but was able to take the McAllister note out of the bank by obtaining from defendant, Crothers, a note for $6,000 on the same representation that he had made to McAllister.

The details of this transaction are given by Crothers. On November 29, 1921, Warburton sought a private interview with him and told him he was expecting the bank examiner, who had objected to $125,000 of bonds of the Gilpin Falls electric light plant owned by the bank as a loan too large for the size of the bank. Warburton asked Crothers for his note for $6,000 at 30 days payable to the bank, to be used to take up some of the bonds to satisfy the examiner. Crothers gave the note for that purpose, and at the same time gave his check on the bank, payable to the order of the bank, at the request of Warburton, for $6,000, on Warburton's statement that it might be necessary to use the check to pay off some of the bonds.

Warburton had the proceeds of the note, $6,000, credited to Crothers on the books of the bank, and on the same day charged against the account the check, which he used for the retirement of the McAllister note for the same amount. At the maturity of Crothers' note, Warburton returned the note to him at his request. The check, having been used to take up the McAllister note, was not returned to Crothers.

On January 14, 1922, two weeks after the return of the first note, Crothers gave the note now in suit for the same amount and the same purpose, namely, to take the place of an equivalent of electric light plant bonds for the...