Cherry v. City Nat. Bank of Kansas City
| Decision Date | 04 April 1906 |
| Docket Number | 2,296. |
| Citation | 144 F. 587 |
| Parties | CHERRY V. CITY NAT. BANK OF KANSAS CITY, MO. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Charles B. Ames and W. C. Scarritt (Dennis T. Flynn, on the brief) for plaintiff in error.
Charles A. Loomis and John A. Eaton, for defendant in error.
Before SANBORN, HOOK, and ADAMS, Circuit Judges.
This was a suit brought by the receiver of the Capitol National Bank of Guthrie, Okl. T., plaintiff in error, against the City National Bank of Kansas City, Mo., to recover money alleged to have been standing to the credit of the Guthrie Bank in the Kansas City Bank and by the latter unlawfully appropriated to the payment and satisfaction of personal notes held by it and made by one Billingsley, the president of the Guthrie Bank. A jury was duly waived. The court tried the action, made a special finding of facts and rendered judgment in favor of the defendant. It appears that the business of the Guthrie Bank with defendant bank and others had for a long time been conducted and largely controlled by Billingsley, its president; that he had taken special charge of negotiating and making loans for his bank; that for nearly two years before the occurrence of the transaction involved in this case the Guthrie Bank had been a borrower of money obtaining it by issuing and selling its certificates of indebtedness to other banks and taking credit therefor in account current with the banks buying them, and also by executing and selling its promissory notes. The proceeds of all notes so negotiated were kept and handled by the bank in the individual name of its president. This was done to obviate the appearance of a bills payable account. Some time before September, 1903, a National bank examiner had made an examination of the Guthrie Bank and had condemned three certain loans, each for $10,000, as excessive, within the meaning of section 5200 of the Revised Statutes. Thereupon on September 4, 1903, Billingsley wrote Mr. Strean, the cashier of defendant bank, the following letter:
'Capitol National Bank, Guthrie, Okla., September 4, 1903.
Chas. E. Billingsley.'
By letter dated September 5th, the cashier acknowledged receipt of Billingsley's letter, and informed him that his board was unwilling to accommodate him as requested, but inasmuch as his bank paid 2 per cent. on current balances it would have to charge Billingsley 5 per cent., the usual interest on the loan.
On September 8th, Billingsley, as president of his bank, wrote and sent defendant bank the following letter:
Chas. E. Billingsley, Prest.'
The Guthrie Bank had for some time been keeping a large balance in its current account with the defendant bank. The note for $30,000 referred to in the correspondence was discounted, as requested, and its proceeds were placed to the credit of the Guthrie Bank in a second or special account, as contemplated by the correspondence, not subject to check. At the end of each month, and until the maturity of the note, The guthrie Bank was credited in the special account with 2 per cent. interest on the special deposit of $30,000, and at the maturity of the note, it, with interest at 5 per cent. per annum, was charged to the Guthrie Bank in this same account. This last charge absorbed the entire credits and somewhat more. Son thereafter, another note for $25,000 was negotiated by Billingsley with defendant bank on practically the same terms, and subject to the condition as expressed in the letter of Billingsley to the defendant, dated November 23, 1903, wherein, after notifying the defendant of the inclosure of his demand note for that sum, Billingsley said:
Accordingly the special account was credited with the proceeds of that note, and with interest monthly thereafter, until April 4th, the date of the failure of the bank, when the note, without interest, was charged against the account, entirely absorbing it. It is for the return to the Guthrie Bank of these two sums of $30,000 and $25,900 that the receiver institutes this suit. The Guthrie Bank kept in its books only one account with defendant bank, aggregating the amount of the general and special accounts kept by the defendant, but the reconcilement statements exchanged between the banks monthly, and sometimes daily, showed the existence of the special account in favor of the Guthrie Bank as forming a part of what its books treated as the general current account. The Guthrie Bank also kept a book called 'its reconcilement book.' This was one of its permanent records in which the special account was also recognized and treated as forming a part of the general account which its ledgers showed it kept in the defendant bank. Some incorrect entries were first made in the books of the defendant bank arising from the fact that its cashier, with whom the transaction had been negotiated, was temporarily absent, but they were quickly corrected on his return, and the special account was opened according to the agreement of the two banks. The check of Billingsley for $30,000, referred to in his letter of September 8th, was duly honored, and the amount ultimately charged to the general account of the Guthrie Bank, and its proceeds, when received or made available at Guthrie, were employed in taking up or charging out the three excessive loans complained of by the examiner.
There is much detail of fact consisting of entries in the books of the bank stated in the special finding of the court, but it is not deemed necessary to complicate this opinion with such details. The ultimate facts are clear, showing that pursuant to the correspondence between the two banks the proceeds of Billingsley's two notes for $30,000 and $25,000 respectively, were entered to the credit of the Guthrie Bank in the special account to meet the payments of the notes at maturity, and the fact is clear that at their maturity the proceeds of the notes were appropriated for that purpose, and were never used for any other purpose. By reason of the failure of the Guthrie Bank to recognize in its bookkeeping, the existence of the special account in the defendant bank, as separate from its general account there kept, the books of the Guthrie Bank at all times showed that it had a general credit in the defendant bank aggregating the amount of both the general and special accounts. This method of bookkeeping no doubt served the purpose which inspired it, to deceive the comptroller or the bank examiner. The Guthrie Bank appeared to have, according to its books, at first $30,000 and later $25,000 to its general credit in the defendant bank more than it really had. In this way...
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