Davenport v. Stone

• Decision Date: 02 April 1895
• Court: Michigan Supreme Court
• Parties: DAVENPORT ET AL. v. STONE.

62 N.W. 722

104 Mich. 521

DAVENPORT ET AL. v. STONE.

Supreme Court of Michigan

April 2, 1895

Error to circuit court, Ingham county; Rollin H. Person, Judge.

Action by William H. Davenport and another against George W. Stone receiver. There was a judgment for plaintiffs, and defendant brings error. Affirmed. M. V. Montgomery, for appellant.

Smith Lee & Day, for appellees.

GRANT, J. (after stating the facts).

1. It is claimed that this note was not in fact rediscounted paper. The note was presented to the Central Michigan Savings Bank by Mr. Bush in renewal of his former note. It was indorsed by the same party as the other. Bush paid the discount. It was tendered to and accepted by the bank as a renewal of the other note, and in its place. The new note became thereby the property of the bank. It was sent to plaintiffs, as the note of the bank, for rediscount, under a parol understanding that they would rediscount paper for it. The money was forwarded to the bank and it got the benefit of it. The acceptance of the new note and the discount constituted a new and binding contract between Bush and the bank. The latter could not maintain suit upon the old note, nor transfer it so as to give it any validity in the hands of the transferee. The facts that it was not surrendered,-the reason for which is wholly unexplained,-and that the new note was not entered upon the books of the bank, do not change the nature of the transaction. To hold that this is not rediscounted paper, and that plaintiffs are not entitled to protection as bona fide holders of such paper, would be a reproach upon our jurisprudence.

2. The directors intrusted the entire management of the bank to the cashier, Mr. Bradley. Therefore, neither the bank nor its assignee can now be heard to deny the authority of the cashier to do any of those acts which it or its directors might lawfully authorize the cashier to do. The rule is stated by Mr. Morse as follows: "If the directors have for many years allowed the cashier to do, without interference, all the business of the bank, they are held thereby to have conferred upon him authority to do anything and everything on the corporate behalf which the charter or law does not absolutely prohibit and forbid a cashier to do, and so render illegal under all circumstances." 1 Morse, Banks, p. 343, � 165. In such cases the authority of the cashier will be presumed when the paper is in the hands of a bona fide holder for value, without notice of any defect in his authority. Id. � 165, par. b; Kimball v. Cleveland, 4 Mich. 606; Smith v. Lawson, 18 W.Va. 212, 227. In this last case many authorities are cited. Wild v. Bank of Passamaquoddy, 5 Mason, 505, Fed. Cas. No. 17,646; Houghton v. Bank, 26 Wis. 663, 670. And the indorsement by the cashier for the bank, though wrongful, will bind the bank, and estop it to deny his authority. 1 Morse, Banks, � 115, par. d; Bird v. Daggett, 97 Mass. 494; Robb v. Bank, 41 Barb. 586; Bank of New York v. Muskingum Branch of Bank of Ohio, 29 N.Y. 619; Monument Nat. Bank v. Globe Works, 101 Mass. 57; Merchants Bank v. State Bank, 10 Wall. 604, 644.

3. It is claimed that the rediscount of paper is, in effect, a sale of the property of the bank, and that the cashier cannot do this except on extraordinary occasions, and when the requirements are such as do not admit of delay. Two authorities are cited to support this proposition. Bank v. Armstrong, 152 U.S. 346, 14 S.Ct. 572. It is there said: "The business of the bank is to lend, not to borrow, money; to discount the notes of others, not to get its own notes discounted." One Harper was vice president and general manager of the Fidelity National Bank, who negotiated a note made by one Gahr for $200,000, and indorsed by Harper. Complainant sought to charge the bank, although the money was used by Harper, and the bank received no benefit from the loan. Neither in fact nor in principle is that case similar to the one now before us. The other case is Lamb v. Cecil, 25 W.Va. 288, which was again before the court in 28 W.Va. 653. In that case, Cecil was a director of the bank, and had a deposit. It became hopelessly insolvent, and, with full knowledge of the condition of the bank, the cashier, acting fraudulently with Cecil, turned over to him some discounted paper in payment of his deposit. Such transfer was held void. Both the cashier and Cecil, a director, occupied positions of trust towards the depositors and stockholders. If that case is construed to hold that a cashier has no presumed authority to turn out the notes and assets of a bank in payment of its debts, it...