Bank of Owensboro v. Western Bank

• Decision Date: 18 December 1877
• Parties: Bank of Owensboro v. Western Bank.
• Court: Kentucky Court of Appeals

76 Ky. 526

Bank of Owensboro v. Western Bank.

Court of Appeals of Kentucky.

December 18, 1877

APPEAL FROM JEFFERSON COMMON PLEAS COURT.

JAMES S. PIRTLE, G. W. CARUTH, AND THOMAS SPEED FOR APPELLANT.

1. The issue of ultra vires --that is, whether or not the Western Bank exceeded its power in making the loan for the appellant--was not raised in the pleadings in the court below, and can not be considered by this court.

That banking corporations may have powers not expressed in their charters, but incidental thereto, is clearly shown by the cases relied on by counsel for appellees. (See also Foster, & c. v. Essex Bank, 17 Mass. 479.)

If this court can determine without proof what powers are incidental to the grant of general banking powers by the creation of a bank with power to deal in money and discount bills and notes, it can have no difficulty in deciding that the act done by the Western Bank, of which complaint is made in this case, was not ultra vires.

2. In the ratification of the unauthorized acts of an agent--

" The person ratifying must have had knowledge of all essential facts, for otherwise the ratification, though applicable to an assumed condition, is not applicable to that claimed to be ratified." (Wharton on Agents and Agency, sec. 65; see also Ib. sec. 67; Walker v. Walker, 5 Heiskill, 425; Story on Agency, sec. 243; Richmond Manf. Co. v. Starks, 4 Mason, 296.)

In this case the appellant was never advised of the real state of the facts until the final decision of its suit against the Bank of Louisville, and not till then did it know that the representations made by its agent, the appellee, were untrue. All its acts prior to that time were based upon the assumption of a different state of facts from those really existing, therefore none of those facts can have any bearing on the case, and none of those acts can be taken as a ratification of the unauthorized course of the appellee.

By instituting the suit against the Bank of Louisville appellant did not ratify the acts of appellee in loaning the money and taking the collateral, because until the final determination of that suit the true facts were not known in reference to the negligence of appellee in making the loan and taking the collateral. (Bank of St. Marys v. Colder, 3 Strobh. (S. C.); Mechanics Bank v. Merchants Bank, 6 Met. (Mass.) 25; Park v. Hammond, 6 Taunton, 495.

MUIR BIJUR & DAVIE FOR APPELLEE.

1. The first and second instructions given at the instance of appellant, as to the care and diligence required of appellee in loaning appellant's money without compensation, were more favorable to appellant than was correct. ( Sodowsky's ex'r v. McFarland and wife, 3 Dana, 204; Green v. Hollingsworth, 5 Dana, 173; Bakewell v Talbot, 4 Dana, 218.)

2. Every one who takes the stock of a bank is affected with notice of the charter lien of the bank on it. (Bank of America v. McNeil, 10 Bush, 54; Sanford v McArthur, 18 B. Mon. 422; Acts 1871, vol. 1, p. 18); and it was the fault of appellant that the stock in this case was not transferred to it on the books of the bank. (Turton v. Dufief, 6 Wallace, 420.)

3. An agent will be released from any claim against him for damages by any act of his principal which amounts to a confirmation of what he has done. As to this, and what constitutes or amounts to a ratification or confirmation, the following cases are cited: Livermore on Agency, edition of 1818, pp. 50 and 391; Paley on Agency, pp. 4, 31, 171; Clark v. Ferry, 2 Frieman, 48; Story on Agency, secs. 243, 250; Courcier v. Ritter, 4 Washington C. C. R., 549; Cairnes v. Bleecker, 12 John. 300; Vrainer v. Barclay, 3 Cowen, 283; Towle v. Stevenson, 1 Johns. Cases, 110; Pickett v. Pearson, 17 Vermont, 470; Smith v. Cologan, 2 Durnford & East, 188; Hanks v. Drake, 49 Barb. 202; Morris v. Cook, 1 Curtis, 464; Howatt & Co. v. Davis, 5 Munf. 38; Ward v. Warfield, 3 La.Ann. 471; Flower v. Downs, La.Ann. 538; Oliver v. Johnson, 24 La.Ann. 460; Hazard v. Spears, 4 Keyes (N. Y.) 485; Woodward v. Seydam, 11 Ohio 363; Green v. Clark, 5 Denio, 503; New Hope Co. v. Phœ nix Bank, 3 Comst. 156; Skinner v. Dayton, 19 Johns. 554; Foster v. Rockwell, 104 Mass. 172; Clay v. Spratt & Co., 7 Bush, 335.

4. This court takes judicial notice of the chartered powers of a bank. (Lackey v. Richmond T. P. R. Co., 17 B. Mon. 47.)

As to the powers of appellee, see the following acts: Act of January 26, 1865, incorporating Western Insurance Company; act of February 28, 1865; Acts of 1865, vol. 2, p. 66; act of March 21, 1870 (Sess. Acts 1869-70, vol. 2, p. 681); act of February 6, 1869; Acts 1869, vol. 1, p. 278; act of February 1, 1872; Acts 1871-2, vol. 1, changing name to " The Western Bank."

The power to loan out money gratuitously is not among the powers of appellee. (See Wiley v. First Nat. Bk., 47 Vt. 546; 2 Cen. Law Journal, 271; American Law Reg., June, 1875; New York Ins. Co. v. Ely, 2 Cowen, 711; Meckler v. First Nat. Bk., 2 Cen. Law Journal, 472.)

5. A corporation can make no contracts and do no acts except such as are authorized by its charter, either expressly or as incidental to its existence. (Bank U. S. v. Dandridge, 12 Wheat. 68; First Nat. Bank v. Ocean Bank, 2 Cen. Law Jour. 270; Wiley v. Bank of Brattleboro, 47 Vt. 546; First Nat. Bank v. Citizens Bank, 2 Cen. Law Jour. 757; New Hope v. Phœ nixBank, 4 Comst. 167.)

SAME COUNSEL IN PETITION FOR REHEARING.

With full knowledge of all the facts in reference to the loan, the insolvency of Atwood, and of the dispute as to the waiver of the Bank of Louisville of its charter lien on the stock collateral, it was the duty of appellant--

1. To announce to the Western Bank that there had been no loan made on " good paper," as authorized, and to disclaim the transaction, and refuse to accept the note or certificates of stock of the Bank of Louisville taken as collateral; or,

2. To adopt the transaction, demand of the Western Bank the note and certificates of stock, and to take and hold them as its own.

Appellant deliberately adopted the latter course, and having adhered to it for two years before bringing this action, must rest contented with the consequences of its own voluntary election.

And it is contended that the authorities referred to and cited fully sustain this view.

OPINION

COFER JUDGE:

The appellant and appellee are both incorporated state banks, doing a general banking business, the former in Owensboro, and the latter in Louisville.

July 17, 1872, the appellant had money on deposit with the appellee, and, on that day, by its cashier, W. K. Anderson, wrote to Henry Hurter, appellee's cashier, as follows: " We would like to have you invest some means for us, if you can, in good paper at thirty, sixty, ninety, or one hundred and twenty days' time."

July 24, 1872, Hurter, in a letter signed " Henry Hurter, cashier," wrote to appellant's cashier that he had, on that day, loaned for appellant, to Robert Atwood, $5,000 on his note at ninety days, secured by seventy shares of Bank of Louisville stock, certificates for which, indorsed by Atwood, he then held, and would forward to appellant if desired. In the afternoon of the same day Hurter wrote a second letter in which he said, " I omitted to inquire in my letter of this morning whether you wish the collaterals transferred on the books of the Bank of Louisville to your name and certificates issued." In reply to the first of these letters appellant wrote, acknowledging the receipt of Atwood's note, and returning it for collection, and also that the investment was entirely satisfactory; and in reply to the second, " We do not care to handle at all the collaterals on any paper you may discount for us. Do by them as you would if yours."

About August 15 Atwood failed, and Hurter wrote to the appellant as follows: " At the time I loaned Mr. Atwood $5,000 of your funds on Bank of Louisville stock as collateral security, I went to the Bank of Louisville and ascertained from Mr. Morgan, the cashier, that the bank held no lien upon that stock, and informed Morgan, as there was no encumbrance on the stock, I would make a loan thereon. Yesterday it was rumored on the street that Mr. Atwood had failed, and I went to the Bank of Louisville to have the stock transferred to you, which the cashier refused to do. I thought it my duty to inform you of this, so that you can take such steps as your attorney may advise."

Some time afterward the appellant's vice-president, in company with Hurter, called at the Bank of Louisville and demanded a transfer of the stock into the name of appellant, which was refused on the ground that Atwood was indebted to the Bank of Louisville, and that it had a charter lien on its stock for the indebtedness of stockholders to it.

In that interview Hurter stated in substance, that before making the loan he had called on the president and cashier of the Bank of Louisville, and they both told him the bank had no lien on the stock. This they both denied in the presence of appellant's vice-president.

When the note matured the appellant brought suit upon it against Atwood, and it also brought suit against the Bank of Louisville to compel it to transfer the stock. Judgment was recovered against Atwood, on which an execution issued, which was returned " no property found." The Bank of Louisville answered, and set up its lien on the stock, which was adjudged superior to the lien of appellant, and the stock was sold, and failed to satisfy the prior lien, whereby the loan made for the appellant became a total loss.

This action was then brought against the appellee to recover damages for failing to take sufficient security for the loan.

The appellee, in its answer, denied all charges of negligence and averred that it had acted...