Chemical Nat. Bank of New York v. Armstrong
Decision Date | 13 October 1896 |
Citation | 76 F. 339 |
Parties | CHEMICAL NAT. BANK OF NEW YORK v. ARMSTRONG. |
Court | U.S. District Court — Southern District of Ohio |
Wm Worthington, Roosevelt & Kobbe, and Geo. H. Yeaman, for complainant.
John W Herron, for respondent.
Upon complainant's appeal the decree of this court in its favor was affirmed as to the amount due as principal, but modified as to the interest. Before the decree of the appellate court was entered, the case of Bank v Armstrong, 152 U.S. 346, 14 Sup.Ct. 572, was decided. Thereupon the defendant, in view of that decision, petitioned for a rehearing, on a ground of error assigned, but not pressed upon the attention of the court, not referred to in its decision, to wit, that the court below erred in finding that the Fidelity Bank was indebted to the complainant. The rehearing was granted, and resulted in a reversal of the decree below, 'with leave to parties to adduce further evidence upon the issue whether the Fidelity Bank owes anything to the Chemical Bank by virtue of the alleged loan. ' The loan, which was of $300,000, was made by complainant March 2, 1887, upon an application in writing, over the signature 'E. L. Harper, Vice President,' and a letter-head sheet of the Fidelity Bank, and dated and mailed at Cincinnati February 28, 1887, as follows:
On the 2d of March the cashier of the Chemical Bank wrote and mailed a letter acknowledging receipt of the above, and adding, 'We credit Fidelity National Bank $300,000, and shall be considerate as to rate when the loan is paid. ' The transaction was entered in the call loan book of the Chemical Bank as--
The directors of the Fidelity Bank did not authorize or consent to, or until the failure of the bank know of, this loan. It was not entered on the books. The bookkeeper and general accountant first knew of it after the failure of the Fidelity Bank. On the 2d of March, the date when the loan was made, Harper gave to the general bookkeeper a charge ticket, and directed him to place it to his credit, which was done. That ticket read as follows: At the same time the charge of $300,000 was made against the Chemical Bank. The entire transaction was fraudulent and criminal on the part of Harper, who was then engaged in wrecking the bank for his own speculative purposes.
By the evidence adduced upon the rehearing it is established that, prior to the decision of Bank v. Armstrong, it was customary and usual for one national bank to borrow money from another, and that it was regarded by bankers as legitimate and in the line of banking business to do so, without any special authority from the board of directors by resolution or otherwise, nor was such authority ever required by the bank making the loan. The president, vice president, and cashier severally were treated as having authority to make loans on behalf of the bank; in other words, such transactions were recognized as being within the scope of their general duties. Transactions taking the form of the loan involved in this case, some covering large amounts, but none so large as this, are referred to by officers of banks, in their testimony, as not infrequent. The cashier of the Chemical Bank, in his deposition in this clause, given March 12, 1891, years before the decree of Bank v. Armstrong, testified that it was customary for one bank to borrow money from another bank in that way, and that such transactions were quite common. His language was:
'It is a customary way for banks in the West and South to borrow in that manner, for several reasons: First, it increases their deposit line; and, in the second place, they do not have to show a rediscount on a loan; and hence it is a very common thing for loans to be made of that character,-- a certificate of deposit with a mass of collaterals attached.' The president of the Chemical Bank, having had 40 years' experience, testifies that prior to Bank v. Armstrong it was a usual thing for one bank to borrow money from another bank; that loans were effected by rediscount of bills receivable, or by the bank's note secured by collateral, or by a certificate of deposit; that the president, vice president, or cashier acted for the borrowing bank; that no special authority from the directors was ever required; and that the decisions of the courts in that state were specific on that point; also that it made no difference as to the amount of the loan. To the same effect is the testimony of the president of the American Exchange Bank of New York, speaking from 33 or 34 years' experience; also the testimony of the president of the Third National Bank, an ex-comptroller of the currency at Washington, ex-superintendent of the bank department of the state of New York, and an ex-bank examiner; the cashier of the Importers' & Traders' Bank, the president of the First National Bank, and the president of the Gallatin National Bank,-- all of the city of New York. All this testimony is uncontroverted, and it is quite significant that, although Receiver Armstrong was himself an old and experienced banker, it was not until after the decision of Bank v. Armstrong that the point was made that the negotiation of the loan upon which this suit is based was outside the ordinary course of business in banking, and not within the authority or the line of the duties of the vice president of the Fidelity Bank.
In Bank v. Armstrong the answer denied that the complainant had loaned the sum claimed or any other sum to the Fidelity Bank; averred that the notes mentioned in the bill made by Gahr and indorsed by Harper were discounted by the complainant for Harper by whom the proceeds of the discount were received; that the discounted notes were at no time the property of the Fidelity National Bank, and that that bank never had any interest in the transaction, and was in no way responsible therefor. Upon the hearing the bill was dismissed by the court below, and the dismissal was affirmed by the supreme court. The opinion begins with the statement that 'whether the transaction of May, 1887, was a discount by the Western National Bank of New York in favor of E. L. Harper of the four notes made by A. P. Gahr and indorsed by Harper, or was a loan by said bank to the Fidelity National Bank, is the question principally discussed in the briefs and oral arguments of the respective parties. ' Justice Shiras, speaking for the court, proceeded:
The letter of application for the loan was written on the letterhead paper of the Fidelity Bank, and the proceeds of the discount were placed to its credit and drawn out by its drafts. It appeared that it was understood by the New York bank that the application came from the Fidelity Bank. But it further appeared that the drafts against the proceeds, although in the name of the bank, were drawn, some by Harper, others by his direction, and appropriated by him to his own use, or at least it did not appear 'that the bank ever got a penny of the borrowed money, or any benefit or advantage whatever by reason of the transaction. ' The court said that 'it could not be pretended that Harper, as principal executive officer of the bank, had power, without authority from the board, to bind the bank by borrowing $200,000 at four months' time. ' The court continued:
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