Hanover Nat Bank of City of New York v. First Nat Bank of Burlingame

• Decision Date: 06 May 1901
• Docket Number: 1,487.
• Citation: 109 F. 421
• Parties: HANOVER NAT. BANK OF CITY OF NEW YORK v. FIRST NAT. BANK OF BURLINGAME, KAN.
• Court: U.S. Court of Appeals — Eighth Circuit

109 F. 421

HANOVER NAT. BANK OF CITY OF NEW YORK v. FIRST NAT. BANK OF BURLINGAME, KAN.

No. 1,487.

United States Court of Appeals, Eighth Circuit.

May 6, 1901

Caldwell Circuit Judge, dissenting.

Syllabus by the Court

The president of a national bank, who has the actual management of its operations, is authorized to procure the discount of its paper.

A national bank may make a binding oral agreement to repay money it borrows, and to pay notes it procures to be discounted.

An action cannot be maintained on a contract that is illegal or against public policy, where both parties are equally culpable.

A contract in whose consideration and performance nothing illegal or against public policy inheres may be enforced although it may incidentally aid one in evading or violating a law.

Where a statute commands certain parties to do, or prohibits them from doing, certain acts, and prescribes the penalties for their violation of its commands, courts may not inflict other penalties for its violation upon other parties not named in the law by the avoidance of their contracts.

One who has received the benefits of the performance by the plaintiff of a contract which was neither malum in se nor malum prohibitum cannot successfully defend an action for the payment of his indebtedness arising therefrom on the ground that he intended to do some illegal act, which was neither a part of the consideration or of the performance of the agreement.

Edwin A. Austin and F. F. Prigg (C. M. Williams and C. N. Sterry on the brief), for plaintiff in error.

Elijah Robinson and J. T. Pringle, for defendant in error.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

SANBORN Circuit Judge.

The Hanover National Bank of the City of New York, the plaintiff in error, discounted the note of C. M. Sheldon for $5,000 due December 24, 1890, and paid the proceeds of this discount to the defendant in error, the First National Bank of Burlingame, Kan. When that note fell due, Sheldon failed to pay it, and the New York bank charged it up against the Kansas bank, but the latter refused to allow or pay any part of this charge, and insisted that the note had been discounted for Sheldon, and not for it. In this way the issue arose whether this note for $5,000 was discounted for Sheldon or for the Kansas bank, and when this case came to trial that issue was properly presented by the pleadings. At the close of the plaintiff's evidence the court instructed the jury to return a verdict for the defendant, and the only question for consideration here is whether or not there was any evidence which would have sustained a verdict for the plaintiff.

The defendant admitted in its answer that it received from the plaintiff the proceeds of the discount of the Sheldon note, but alleged that it immediately turned them over to Sheldon pursuant to an understanding between the plaintiff and Sheldon. At the former trial of this case, which was reviewed by this court in First Nat. Bank of Burlingame v. Hanover Nat. Bank of New York, 13 C.C.A. 313, 66 F. 34, there was evidence that the Kansas bank placed the proceeds of the note to the credit of Sheldon, and that he used them; but no such evidence was introduced at the trial now under consideration. There was no proof of the averments of the answer in this respect, but the defendant left the proceeds where the plaintiff's evidence placed them, in the Kansas bank, and there was no evidence that Sheldon ever received the possession or use of one dollar of them. These were the facts of which there was evidence at the trial we are now reviewing: Sheldon was the president of the Kansas bank, and managed and controlled its operations. For all business purposes he was the bank. In the first part of September, 1889, he called upon the cashier of the New York bank, and negotiated with him for the discounting of promissory notes for the Kansas bank. In this interview he said that he did not want to put the name of the Kansas bank on the notes it wished to have discounted, because he did not wish to state the bank's indebtedness on account of these notes in the reports to the comptroller of the bank's financial condition, but that his bank would transfer its New York account from the Chemical National Bank to the plaintiff, and would authorize the latter to charge these notes to its account as they matured, and, in addition to this security, Sheldon would sign or indorse the notes individually before they were discounted. The New York bank accepted this proposition. It agreed to discount for the Kansas bank notes signed or indorsed by Sheldon individually, and the Kansas bank agreed to authorize the New York bank to charge these notes to its account as they matured. The officers of the New York bank never had any conversation with Sheldon about discounting notes or loaning money to him individually. Immediately after this agreement was made, and pursuant thereto, the New York bank, on September 6, 1889, discounted for the Kansas bank a note for $2,500 made by J. A. Finch & Co., and indorsed by Sheldon without the indorsement of the Kansas bank. This note was subsequently twice renewed, and it was finally paid by the Kansas bank. On October 10, 1889, a note of the East Kansas Loan & Investment Company for $11,663.35, but without the indorsement of the Kansas bank, was discounted for the latter, and the proceeds paid to its in the same way. On February 24, 1890, a note of the same company for $4,828.32, indorsed by Sheldon, but without the indorsement of the Kansas bank, was discounted, and the proceeds were paid over in the same way. All these notes were charged to the Kansas bank, and were paid by it without objection. On September 23, 1890, Sheldon's note for $5,000, in controversy in this case, was discounted by the New York bank, and its proceeds were paid over to the Kansas bank in the same. The first reference to this discount in the correspondence from Kansas is in a telegram of September 8, 1890, concerning the bank's matters, which reads:

'Hanover National Bank, New York: What about five thousand discount? Can you take it? Answer. Charge up twenty-five hundred due tenth. Answer.

C. M. Sheldon, Pt.'

The second reference to it in that correspondence is in a letter of September 11, 1890, signed in the same way. The third communication from Kansas concerning it is dated September 20, 1890, and requests the cashier of the New York bank to 'place proceeds to our credit,' if he can use it, and is signed 'C. M. Sheldon.' The correspondence from Kansas is signed indifferently 'C. M. Sheldon' and 'C. M. Sheldon, Pt.,' but refers alike to bank matters. The answer to this letter of September 20, 1890, was:

'New York, Sept. 23rd, 1890.

'C. M. Sheldon, Prest., Burlingame, Kansas: Letter twentieth received. Note credited your account.

Jas. T. Woodward, Prest.'

-- And the proceeds of the note were on that day credited to the Kansas bank, and not to Sheldon. There is much more testimony in this record, but enough has been recited to show that there was ample evidence here to warrant a finding by a jury that Sheldon's note was discounted for the Kansas bank, and not for him, under the agreement of September 6, 1889. This issue must be examined and determined in the light of the prior transactions and the course of business between the banks and in view of the fact that the New York bank had the right to rely upon these, and, in the absence of notice to the contrary, to presume that the same course of action was continuing. The Kansas bank had the right to borrow money, and to procure a discount of its notes. It had the same right to borrow money and to procure a discount of its notes upon its oral as upon its written promise, and its oral agreement to pay the notes it procured to be discounted when they matured, together with the fact that it received their proceeds, charged it with as conclusive a legal liability as its promissory note or its indorsement would have created. Sheldon was the president and the actual manager of the bank. He had ample authority from it, by virtue of his official position, to borrow money, to procure a discount of its notes, to agree on its behalf to repay the money borrowed, and to contract on its behalf to pay the discounted notes as they matured. Auten v. Bank, 174 U.S. 125, 149, 19 Sup.Ct. 628, 43 L.Ed. 920; United States Nat. Bank v. First Nat. Bank of Little Rock, 24 C.C.A. 597, 600, 79 F. 296, 299, 49 U.S.App. 67, 72; Bank v. Smith, 23 C.C.A. 80, 77 F. 129, 135; Fleckner v. Bank, 8 Wheat. 338, 360, 5 L.Ed. 631; Wild v. Bank, 3 Mason, 505, Fed. Cas. No. 17,646; Bank v. Perkins, 29 N.Y. 554, 569, 86 Am.Dec. 332; Cooke v. Bank, 52 N.Y. 96, 114, 115, 11 Am.Rep. 667; Bank v. Wheeler, 21 Ind. 90; Merchants' Bank v. State Bank, 10 Wall. 604, 650, 19 L.Ed. 1008. There was evidence in this case for the consideration of the jury which tended to prove that the Sheldon note was discounted for the Kansas bank, and that that bank agreed with the plaintiff that it would pay it at its maturity.

It is said that the agreement was not that the New York bank might charge the discounted notes to the Kansas bank as they matured, but that in the case of each discount the Kansas bank would give such authority, and that, while it did so in every other instance, it failed to do so in the case of the Sheldon note, because the authority is signed by C. M Sheldon individually. The correspondence clearly indicates that Sheldon's individual signature was often made when he was acting and writing for the bank. Whether or not this was true in this particular instance is not material, because an agreement to authorize a charge of a note to be discounted constitutes as effective a creation of a liability to pay it...