Black Hills Nat’l Bank v. Kellogg

• Decision Date: 24 November 1893
• Citation: 56 N.W. 1071,4 S.D. 312
• Parties: BLACK HILLS NATIONAL BANK OF RAPID CITY, Plaintiff and appellant, v. KELLOGG et al., Defendant and respondent.
• Court: South Dakota Supreme Court

4 S.D. 312

56 N.W. 1071

BLACK HILLS NATIONAL BANK OF RAPID CITY, Plaintiff and appellant,

v.

KELLOGG et al., Defendant and respondent. South Dakota Supreme Court Appeal from Circuit Court, Pennington County, SD Hon. William Gardner, Judge Affirmed Schrader & Lewis Attorneys for appellant. G. C. Moody and J. W. Fowler Attorneys for respondents. Opinion filed Nov. 24, 1893

CORSON, J.

This was an action to recover the principal and interest claimed to be due on a promissory note executed by the respondent and one Kellogg to the plaintiff. The defendant Kellogg did not answer, and the respondent served a separate answer, in which he set up in substance, as a defense, that the note in controversy was the renewal of a note executed by himself and said Kellogg to H. S. Hall, and that the only consideration for said note was an agreement executed by said Hall, of which the following is a copy:

“Rapid City, Dakota, December 30, 1885.

“Received of Frank J. Washabaugh the sum of five hundred dollars cash, and his promissory note for the sum of five hundred dollars, bearing even date herewith, and drawing interest at the rate of ten per cent per annum, which said cash and note are full payment for a 1/16 interest in and to the southwest ¼ of section 25, township 2 north, range 7 east, B.H.M., provided Herbert S. Hall, to whom the cash is paid and the note is delivered, shall perfect title to same above-described lands in himself within sixty days from the date hereof; otherwise to be refunded and returned to the said F. J. Washabaugh. H. S. Hall.”

That said Hall has failed and neglected to obtain a good title to the property described in the said contract, and to convey the same to the respondent. That demand has been duly made upon said Hall for the performance of the contract on his part, and that he has neglected and refused to perform the same. That said Hall was, at the time of the execution of said original note and contract, cashier of said plaintiff bank, and was such cashier when the renewal note was executed, and that he transacted the business as such cashier in taking the renewal note sued on in this action, and that, by reason thereof, the said bank had full notice of all the facts relating to the execution of said note and contract. A trial was had before a jury, and a verdict in favor of the respondent was directed by the court. A motion for a new trial was made and denied, and judgment was thereupon entered in favor of said respondent. From the judgment and order denying the motion for a new trial the plaintiff appeals.

The record discloses the fact that the original note was executed to said H. S. Hall in consideration of the stipulations in the agreement executed by him; that the said original note was transferred to the bank by Hall, indorsed by him; and that, as such cashier, he procured the respondent to execute the renewal note in the name of the bank as payee, and that he, as such cashier, surrendered up the original note held by the bank. It further appears that 80 acres of the land described in the contract was patented by the United States to one J. Carlos Stevens, an orphan minor of Silas B. Stevens, deceased, and that the only title that Hall had to the said 80 acres was by deed from the guardian of said minor, by her attorney in fact, and which respondent claims was insufficient as a deed of conveyance of said minor’s interest, and was made without the authority of any court having jurisdiction over the estate of said minor. A large number of errors are assigned, but, as the counsel for the appellant have stated in their brief the points upon which they rely for a reversal, it will not be necessary to set out in full the errors assigned.

1. The learned counsel for the appellant contend that when the respondent and Kellogg executed the renewal note to the plaintiff, and obtained from the plaintiff an extension of time and a surrender of the original note, indorsed by Hall, they received a valid consideration for the renewal note, without regard to any equities between Hall and the respondent on the original note. Possibly this would be true where a new note was given by a third party upon the surrender of an existing note, and there is no question as to the nature of the transaction between the original parties, notice, etc. Such was the case of Wilton v. Eaton, 127 Mass. 174, cited by counsel for appellant. In that case defendant’s intestate had executed a note to the plaintiff, and the defendant had taken it up, and given a new note executed by herself. It was held that the surrendering up of the old note was a sufficient consideration for the new note. The cases of Whitney v. Clary, (Mass.) 13 N.E. 393; Churchill v. Bradley, (Vt.) 5 Atl. 189; and Bromley v. Hawley (Vt.) 12 Atl. 220, cited by the counsel for the appellant, were decided upon similar principles. But in these cases the only question involved was whether or not the surrender of the old note was a sufficient consideration for the new one, as between the holder and another party, not the original maker. In the case at bar, however, a very different question is presented. It appears that Hall, the payee in the original note, was the cashier of the bank, and transacted all the business pertaining to the renewal of the note to the bank, as such cashier. His knowledge of the contract and of its terms, upon which the note was executed, was the knowledge of the bank. Stebbins v. Lardner,(1891); Farmers & Traders Bank v. Kimball Milling Co.,(1890). In First National Bank v. Town of New Milford, 36 Conn. 93, the doctrine as to knowledge of the cashier being the knowledge of the bank is clearly stated. In that case the cashier was town treasurer of the defendant town, and, as such treasurer, he executed a note in behalf of the town, which by custom he was authorized in certain cases to make, and discounted it as cashier of the bank and with bank funds, but applied the money to his own use. The bank brought suit against the town to recover the amount of the note, and it was held that the bank could not recover. The court (Butler, J.) says:

“Assuming, however, that there was a contract of loan, it was made by Conklin as agent of the town; with Conklin as agent of the bank. If Conklin, as agent of the town, had applied to the directors for a loan offering the note, and telling them he had drawn it, not for the benefit of the town, but for his own benefit, without consulting the officers of the town, and when there was a sufficient supply of money in the treasury, it must be conceded that the board would, in making the loan, have been particeps criminis in the fraud, and the bank could not recover in this action. We cannot perceive that that case would differ from this. The contract, if any was made, was made by Conklin on behalf of the bank. No other mind but his met the mind of the agent of the town in making the contract. He, as as agent of the bank, had full knowledge, therefore, of the fraud; and now the bank, if they ratify his contract, and confirm his agency, must accept his knowledge, and be bound by it, precisely as if the loan had been made and the knowledge had by the board of directors. We think it very clear, therefore, in whatever aspect the case may be viewed, that the note in question is not a valid note against the town in the hands of the plaintiff, and judgment must be advised for the defendants.”

The law as to the knowledge of the cashier being the knowledge of the bank is also clearly stated by the supreme court of Massachusetts in Loring v. Brodie; 134 Mass. 453. In that case one Brodie had been accustomed to obtain loans from the bank for his own individual use, through its then cashier, upon trust stocks and bonds as collateral security. The then cashier had full knowledge that the stocks and bonds were held by Brodie in trust, as he had acted as the attorney of Brodie in the management of the trust property. In an action to recover these trust documents from the bank and the proceeds of those disposed of by the bank, the only notice relied on to hold the bank was the knowledge of its former cashier, while he was acting as such cashier, that the stocks and bonds were trust funds, and therefore were illegally used by Brodie as collateral for his individual loan. Mr. Justice Devens, in delivering the opinion of the court, says:

“The cashier of a bank is its executive officer. It is under his directions that its moneys are received and paid out; that its debts are collected and paid; that its securities are kept and transferred. Such powers as are habitually exercised by cashiers must be held, so far as the public are concerned, to have been conferred on Fuller (the former cashier of the bank) by his election to the office. Merchants Bank v. State Bank, 10 Wall. 604. Whether he was or was not entitled, by authority of the bank, to make loans or...