Burrowes v. Nimocks

• Decision Date: 15 October 1929
• Docket Number: No. 2848.,2848.
• Citation: 35 F.2d 152
• Parties: BURROWES v. NIMOCKS, County Treasurer.
• Court: U.S. Court of Appeals — Fourth Circuit

35 F.2d 152 (1929)

BURROWES v. NIMOCKS, County Treasurer.

No. 2848.

Circuit Court of Appeals, Fourth Circuit.

October 15, 1929.

J. O. Carr, of Wilmington, N. C., R. W. Herring, of Fayetteville, N. C., and George Rountree, of Wilmington, N. C. (Rountree & Carr, of Wilmington, N. C., on the brief), for appellant.

Robert H. Dye and J. Bayard Clark, both of Fayetteville, N. C. (V. C. Bullard and Dye & Clark, all of Fayetteville, N. C., on the brief), for appellee.

Before PARKER and NORTHCOTT, Circuit Judges, and SOPER, District Judge.

PARKER, Circuit Judge.

This was a suit instituted by the receiver of the National Bank of Fayetteville, N. C., against the treasurer of Cumberland county, N. C., to determine the right to certain notes which had been transferred by the bank to the treasurer as security for the deposit of county funds. The transfer was attacked on two grounds: (1) That it had been made without authority from the board of directors of the bank; and (2) that it had been made in contemplation of insolvency and with a view of giving a preference to the treasurer, in contravention of section 5242 of the Revised Statutes, 12 USCA § 91. From a decree in favor of the treasurer, the receiver has appealed.

There is no controversy as to the material facts in the case. The National Bank of Fayetteville, for some time prior to May 1927, had carried funds on deposit for the treasurer of Cumberland county, but during that month the deposit was very small. Some time during the month, the treasurer notified one Tucker, the vice president of the bank, who was actively in charge of its affairs, that under a recent act of the Legislature a bond would be required to secure the county deposit. Tucker agreed that the bank would give the bond, but asked the treasurer to accept temporarily the transfer of notes as security until the bond could be obtained, promising to put up sufficient of these to give the treasurer a margin of 40 or 50 per cent. On account of the deposit being very small at that time, however, neither bond nor other security was given until some time later.

During the month of May, the county was negotiating the sale of a bond issue, and the directors of the bank, at a meeting held about May 20th, decided to try to obtain the proceeds of the bonds as a deposit. Tucker told them of the law requiring a bond to cover the deposit, and they sought same with knowledge of this requirement. The bond issue having been sold, the proceeds thereof, amounting to $1,109,951.25, were deposited in the bank on June 3d, and shortly thereafter, the treasurer again approached Tucker and requested that the security bond be given. Tucker took this up with some of the directors of the bank, and was instructed by them to see if he could not satisfy the treasurer by putting up notes as security for the deposit, being told to handle the matter in the best way that he could. He thereupon took the matter up with the treasurer, who agreed to accept the notes pending the obtaining of a bond. As it was understood that a large part of the deposit would be withdrawn within a very short while, it was thought that a considerable amount could be saved the bank in bond premiums if the giving of the bond were delayed. On July 11th, the board of county commissioners passed a resolution designating the bank as a county depository and requiring a bond of it, and shortly thereafter this resolution was called to the attention of the directors of the bank at one of their meetings. Tucker reported to this meeting that he had satisfied the treasurer temporarily by putting up notes as security; and, while the matter was not formally passed on by the board, no disapproval was voiced as to what had been done and no action was taken towards giving a bond in lieu of putting up the notes.

Pursuant to his agreement with the treasurer, Tucker instructed the assistant cashier of the bank to get out notes and set them aside as security for the county deposit, and this was accordingly done. The notes so selected were put in a package to themselves with the name of the county treasurer placed thereon and with a rubber band around them. They were kept in the note file, but in a compartment separate from the other notes of the bank, and the assistant cashier was instructed to let the treasurer have them at any time he might ask for them. The treasurer saw them placed in a package and kept in this way with his name on them, but agreed that they might be kept at the bank for greater convenience in the transaction of its business. He also agreed that it might withdraw any of the notes at any time for collection or renewal on condition that others of equal value be substituted. Tucker instructed the assistant cashier to make a list of the notes thus set aside, and the work of listing them was commenced early in July and continued, as the assistant cashier had time to devote to the matter, until they were removed from the bank on August 4th and 8th. There is no evidence that the bank was insolvent or was thought to be insolvent at the time the notes were set aside under this agreement; and no contention is made that the notes were not set aside in good faith, that there was any fraud in the transaction, or that this setting aside was in contemplation of insolvency.

On August 4th, the treasurer came to the bank and demanded the securities which had been set aside for him; and all which had been listed at that time, amounting to $426,631.86, were turned over to him. Others, amounting to $40,189.79, were listed and delivered to him on August 8th. Shortly after this last transaction, the bank closed its doors. The deposit standing to the credit of the treasurer at that time was $341,000.24. On the question of the solvency of the bank, as heretofore stated, there is no evidence showing that it was insolvent at the time the securities were set aside for the treasurer. As to its solvency at the time of the actual delivery of the securities, it appears that some time in July the treasurer had notified it that he would withdraw $200,000 of his deposit on August 3d, and it had arranged to meet this withdrawal. A few days beforehand, however, he discovered that other obligations of the county would mature on August 3d, amounting to around $180,000, and notified it that the withdrawal would be $380,000 instead of $200,000. The bank thereupon had him obtain an extension of this $180,000 until August 8th, and endeavored to secure the funds to meet same. The $200,000 withdrawal was met on August 3d, but funds to meet the $180,000 could not be secured, and failure to secure same caused the closing of the bank on the 8th. This failure to meet the withdrawal of funds is the only evidence of insolvency, other than the testimony of the receiver that the bank was insolvent when he took charge; and the fact that the officers of the bank must have known that it would be obliged to close its doors unless funds were raised to meet the withdrawal is the only evidence which would justify a finding that there was any contemplation of insolvency at any time prior to the actual closing.

The first contention of the receiver is that the setting aside or pledging of the notes as security for the county deposit was void because not authorized by the directors and beyond the power of the vice president. We do not think, however, that this position can be sustained either on the facts or as a matter of law. The deposit of county funds was not an ordinary general deposit, but one which under the law must be secured. It was more nearly analogous to a call loan than to an ordinary deposit. The vice president was expressly authorized to seek it; and this authority carried by necessary implication the power to give the security necessary to obtain it. It seems clear that the pledging of notes as temporary security pending the reduction of the deposit so as to save premiums on a large bond, for which indemnifying security would in all probability have been required in any event, was a reasonable exercise of the authority. At all events, the acquiescence of the board of directors in what had been done, when the matter was called to their attention at a meeting of the board, was a sufficient ratification, if ratification were needed. Armstrong v. Chemical National Bank (C. C. A. 6th) 83 F. 556, 574, 575; Kissam v. Anderson, 145 U. S. 435, 12 S. Ct. 960, 36 L. Ed. 765; 7 C. J. 538.

In addition to this, the active vice president, as managing officer of the bank, had the authority within himself, without special authorization, to obtain what was in effect a loan to the bank, and to pledge notes which it held, as security therefor. The rule is well settled that the executive officer of a bank may, in the usual course of business, and without special authority, rediscount its paper or otherwise borrow money for its use. Cherry v. City Nat. Bank (C. C. A. 8th) 144 F. 587, 590; Page Trust Co. v. Rose, 192 N. C. 673, 135 S. E. 795, 798; Citizens' Bank v. Bank of Waddy, 126 Ky. 169, 103 S. W. 249, 11 L. R. A. (N. S.) 598, 128 Am. St. Rep. 282; Davenport v. Stone, 104 Mich. 521, 62 N. W. 722, 53 Am. St. Rep. 467; Richards, County Treasurer, v. Osceola Bank, 79 Iowa, 707, 45 N. W. 294; Ward v. Johnson, 95 Ill. 215, 3 R. C. L. 450.

The case of Page Trust Co. v. Rose, supra, is practically "on all fours" with the case at bar. In that case county funds were deposited in the bank and a bond required. To obtain the bond, the vice president and cashier, without special authority from the board of directors, assigned certain notes of the bank to the sureties on the bond, to secure them for signing same. The bank became insolvent, and a controversy arose as to whether the sureties or the receiver of the bank was entitled to the notes so assigned; the assignment being attacked on the ground that the vice president and cashier was without authority to make same. The court, speaking through Mr. Justice Connor,...