First Nat. Bank v. Mayor and City Council

• Citation: 27 F. Supp. 444
• Decision Date: 25 April 1939
• Docket Number: No. 27.,27.
• Parties: FIRST NAT. BANK OF BINGHAMTON, N. Y., v. MAYOR AND CITY COUNCIL OF BALTIMORE.
• Court: U.S. District Court — District of Maryland

27 F. Supp. 444

FIRST NAT. BANK OF BINGHAMTON, N. Y., v. MAYOR AND CITY COUNCIL OF BALTIMORE.

No. 27.

District Court, D. Maryland.

April 25, 1939.

COPYRIGHT MATERIAL OMITTED

Edgar Allan Poe (of Bartlett, Poe & Claggett), of Baltimore, Md., and Hinman, Howard & Kattell, of Binghamton, N.Y., for plaintiff.

Chas. C. G. Evans, City Sol., Allen A. Davis, Asst. City Sol., Walter L. Clark, and Roszel C. Thomsen, all of Baltimore, Md., for defendant.

CHESNUT, District Judge.

In this non-jury law suit the First National Bank of Binghamton, New York, is suing Baltimore City to recover the principal payable May 1, 1933 upon two certificates of so-called Baltimore City "Stock", each for the sum of $5,000, with unpaid interest thereon from November 1, 1926. Although currently called "stock" the certificates are really promissory notes under seal. Both were issued October 6, 1925, and recited indebtedness to L. F. Rothschild & Co. Each of the certificates contains on the back a printed simple form of assignment which at the bottom bears the signature of L. F. Rothschild & Co. who are stock brokers in New York City. The plaintiff asserts that it is the holder in due course for value of both certificates; but the City denies liability because of equities in its favor arising before notice to it of the assignment; and also denies that the plaintiff has good title to the certificates.

From the testimony submitted at the trial of the case I find the following facts. Both certificates were issued in due course for value by the City to L. F. Rothschild & Co. on October 6, 1925. Before December 17, 1925 Rothschild & Co. sold and delivered the certificates for value to Redmond & Co., also brokers of New York City. At that time Rothschild signed or endorsed the certificates in blank. Thereafter on or about December 17, 1925, Redmond & Co. re-sold said certificates and delivered them in the same form back to Rothschild & Co.

The delivery was made in the following way. The office of Redmond & Co. in New York City was only a short distance from the office of Rothschild & Co. The latter was situated on the fifth floor of the Equitable Trust Building, 120 Broadway, New York City. The duly constituted agent of Redmond & Co. called the Wall Street Messenger Service for a messenger to make the delivery. The messenger sent was a sixteen-year old boy who at the time was attending high school in Brooklyn, but acting as a messenger in the afternoons. His name was Daniel Lame. He is now thirty years of age, and at the trial testified positively and definitely as to the circumstances of making the delivery. He said that on receiving the certificates from Redmond & Co. with instructions as to the delivery, he took them at once to the office of Rothschild & Co., entered the outer door to the office before three P. M., and pushed the certificates through a receiving slot in the partition in the inner office marked for "delivery" of securities, and called out at the time "delivery". He did not ask for or receive a receipt for the delivery then made which consisted of the two certificates sued on and others of a similar nature aggregating $40,000 of principal. He then left the office of Rothschild & Co. to attend to some other business but returned in less than an hour to get the check from Rothschild & Co. for Redmond & Co. in payment for the certificates; but on asking for it in the usual way he was told that the delivery had not been received. He insisted that it had been made, and thereupon the cashier of Rothschild & Co. called the office of Redmond & Co. and in a few minutes the adjuster of the National Surety Co., the insurer of Redmond & Co. with respect to security losses, and two detectives came to the office of Rothschild & Co. and made a very thorough search of the immediate premises and of the clerks of Rothschild & Co. who presumably might have had access to the securities, but without success in finding them. The messenger Lame was detained and very thoroughly questioned for several hours but no charges were ever preferred against him. He subsequently studied law and has not been directly impeached or contradicted in any way as a witness. Lame's testimony, corroborated in this respect by other witnesses, was to the effect that in the very busy securities and exchange business prevailing in the Wall Street district in New York in 1925 and 1926, it was very customary to make deliveries of securities in the loose and informal way which he described. Some brokerage firms required at least informal receipts but possibly so many as forty per cent. of them did not, and made deliveries in the general way described by the witness.

Redmond & Co. or Rothschild & Co. immediately by telegram and letter advised the office of the City Register of Baltimore City that the certificates in the amount of $40,000, giving their numbers, had been lost or stolen and the certificates if presented for transfer should not be transferred. Local ordinances of Baltimore City, provide in substance that upon the reported loss of certificates for Baltimore City stock the City may properly, after affidavit and advertised publication of the loss and the expiration of the period of sixty days, issue new certificates in place thereof with or without the delivery of an indemnity bond. In accordance with this statute the loss of the certificates was duly advertised and on May 17, 1926 the City, after taking an indemnity bond, issued three new certificates, each for $5,000, payable to L. F. Rothschild & Co., which certificates thereafter were transferred on the books of the City to other holders and the current semi-annual interest accruing thereon was paid up to and including the maturity date of May 1, 1933, when the principal was then paid to the then holders. The other missing certificates were recovered.

In the meantime on February 8, 1926, one Cronemeyer, then apparently a man engaged in a substantial business and a property owner living near Binghamton, N. Y., personally known to the cashier of the First National Bank of Binghamton, applied to the latter for a loan of $8,000 on the security of the two Baltimore City certificates here sued on. The bank made the loan and took the certificates in the form above described as security for a sixty-day note for $8,000. On May 24, 1926 Cronemeyer obtained an additional loan of $20,000 from the bank, merging the new loan with the old, and giving a note for $28,000 and pledging as additional collateral $24,000 Buffalo General Electric Bonds represented by interim receipts therefor in favor of the bearer. When the latter note matured but was not paid, the Bank placed the whole collateral in the hands of a broker for sale, but was unable to effect it because delivery was refused by the purchaser on the ground that it was claimed the securities had been stolen. It was said that Cronemeyer shortly went into bankruptcy.

It developed at the trial that the circumstances affecting the title to the $24,000 Buffalo General Electric interim receipts were as follows. Before their possession by Cronemeyer these securities were in the possession of Rothschild & Co. who had bought them from another broker. Delivery had been made prior to the stated time therefor, and upon demand for payment by the vendor, Rothschild & Co., acting by its receiving and delivery clerk, one Arthur T. Krisch (now deceased) declined to make payment but offered to return the bonds temporarily. Shortly thereafter a person appearing to be a messenger called at Rothschild & Co.'s office and received the securities from Krisch; but they never were in fact returned to the vendor; and nothing was known as to their subsequent possession until they were pledged by Cronemeyer with the bank. Rothschild & Co. brought suit in New York against the Bank for the recovery of these interim receipts for bonds and prevailed in the suit. Rothschild & Co. v. First National Bank of Binghamton, 140 Misc. 499, 251 N.Y.S. 25, affirmed without opinion by the Appellate Division, 237 App.Div. 808, 260 N.Y.S. 974, also affirmed without opinion by the Court of Appeals of New York, 262 N.Y. 559, 188 N.E. 63.

The $40,000 par value of Baltimore City stock above referred to was represented by six different certificates, two for $10,000 each and four for $5,000 each. Shortly after their loss on December 17, 1925, the adjuster for the National Surety Company succeeded in recovering three of the certificates aggregating $25,000 par value, from a member of the "underworld", as he put it, but without the particular circumstances thereof appearing in the testimony. The remaining certificates were numbered 639, 640 and 642, the two here sued on being numbered 639 and 640. As already stated the City issued new certificates therefor in the name of Rothschild & Co. on May 17, 1926, the new certificates being numbered 751, 752 and 753, each for $5,000 of principal. These certificates were duly assigned by Rothschild & Co. and delivered to the National Surety Company who had paid the loss of Redmond & Co. On August 2, 1926 certificate No. 753 was duly transferred on the books of the City Register of Baltimore City to the Jackson Lumber Co.; and on August 12, certificates Nos. 751 and 752 were likewise duly transferred to Curtis L. Burnam; and the City thereafter paid the interest thereon to the registered holders from time to time and paid the principal thereof at maturity on May 1, 1933.

Nothing was learned by Rothschild & Co. or Redmond & Co. or the adjuster of the National Surety Company of the whereabouts of certificates Nos. 639, 640 and 642, until the early part of August 1926, when for the first time the adjuster learned from a Mr. Clark, attorney of Binghamton, New York, for the Bank, that it held these certificates. Certificate No. 642 has never been located.

The City received no notice of any kind from any one as to the existence or possession of certificates Nos. 639 and 640 until...