Kean v. National City Bank

• Citation: 294 F. 214
• Decision Date: 12 November 1923
• Docket Number: 3797.
• Parties: KEAN et al. v. NATIONAL CITY BANK.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

294 F. 214

KEAN et al. v. NATIONAL CITY BANK.

No. 3797.

United States Court of Appeals, Sixth Circuit.

November 12, 1923

[Copyrighted Material Omitted]

Wm. H Fitzhugh, of Memphis, Tenn. (Carter, Ledyard & Milburn, of New York City, and Fitzhugh, Dixon & Osoinach, of Memphis Tenn., on the brief), for plaintiffs in error.

A. L. Heiskell and T. K. Riddick, both of Memphis, Tenn. (A. W. Ketchum and Anderson & Heiskell, all of Memphis, Tenn., on the brief), for defendant in error.

Before DENISON and DONAHUE, Circuit Judges, and HICKENLOOPER, District judge.

HICKENLOOPER District Judge.

The only question presented by the record is the alleged error of the court below in directing a verdict for the defendant at the close of plaintiffs' evidence. The plaintiffs in error were therefore plaintiffs below.

It appears from the evidence that in November, 1920, $466,000 par value of Liberty Bonds, the property of the plaintiffs, were stolen from an employe of the plaintiffs in the city of New York. The bonds involved in this case were part of those so stolen. Thereafter, in January, 1921, one H. Diggs Nolen, of the city of Memphis, Tenn., a depositor at the National City Bank of Memphis, defendant herein, and a man of apparently bad reputation, called at the bank and stated that he desired to sell $100,000 of Liberty Bonds. He was told that the bank did not buy or sell bonds, and was referred to the Bank of Commerce & Trust Company, of Memphis, where a list of the bonds was left for investigation of title; but, no purchase being made, the bonds were then returned to Nolen. A request for a loan of $80,000 upon the bonds was also refused by the defendant. These transactions all took place on Saturday afternoon, January 15, 1921, during the absence of W. L. Huntley, Jr., the active vice president of the defendant bank.

On Monday, January 17th, Huntley returned to his duties and was at once cautioned by the president of the bank to have nothing to do with the bonds, should Nolen again offer them for sale. Shortly after this caution Huntley instructed the teller at the bank to prepare to cash a draft for between $80,000 and $90,000 with currency of large denomination, and shortly before the hour of closing Huntley presented to the teller a draft for $85,000 drawn by the Union & Planters' Bank & Trust Company, of Memphis, Tenn., on its New York correspondent, payable to the order of A. K. Tigrett & Co. and indorsed in blank by that firm and by Nolen. The teller, who was also an assistant cashier, cashed the draft for its face value, less $56.70 exchange charged by the bank. This draft was given in payment of the purchase price of bonds sold to the Union & Planters' Bank & Trust Company by Tigrett & Co., presumably for the account of Nolen, and the draft was cashed by Huntley, through the bank, for Nolen.

Nine days later, or on January 26th, Huntley procured a personal friend of his, one M. B. Joseph, to sell $65,000 par value of Liberty Bonds through Priddy & Williams, dealers in securities, cautioning Joseph not to disclose his (Huntley's) connection with the transaction, and telling him that the sale was made on behalf of a friend or client. These bonds Priddy & Williams likewise sold to the Union & Planters' Bank & Trust Company, and delivered to Joseph a draft payable to Joseph-Myers, Inc., for $54,000. Joseph then took this draft to Huntley, and indorsed it, 'Joseph-Myers, Inc., by M. B. Joseph, Pres.,' and Huntley immediately presented it to the teller, requesting that it be cashed, and the teller delivered to him the currency for the face of the draft, less exchange in the amount of $33.

On the same day, January 26, 1921, a sale of $10,000 par value of similar Liberty Bonds was made by Huntley to the firm of H. & B. Beer, of New Orleans, La., through E. Perkins, of Memphis, a correspondent of the purchaser. In completion of this sale Huntley drew the draft of the defendant bank upon H. & B. Beer, of New Orleans, for the purchase price, $9,202.76, attached $10,000 par value of Liberty Bonds thereto, and, the draft being to drawer's order, the indorsement of the bank was stamped upon the back. This draft Huntley presented to the teller, who then paid him the face value thereof in currency.

There were other facts presented, such as the attempt of Huntley to procure the sale of some of the bonds through one C. Samuel Black, and an introduction of Mr. Black as 'Mr. Wood,' and Black's subsequent refusal to have anything to do with the bonds, because of this, and because of the apparent secrecy or mystery surrounding the sale, and the fact that the bonds sold by Joseph were sold for almost $4,000 less than the market price, with an apparent indifference upon Huntley's part as to details of price. Evidence was also introduced to the effect that H. Diggs Nolen was known generally in the city of Memphis as a man of bad reputation, a frequent violator of the Harrison narcotic law and the liquor laws, and an associate of men of ill repute. These and other incidental facts were introduced, and tended to prove that the circumstances surrounding the sales by Nolen were such as would place a reasonably prudent man upon inquiry, and, for the purposes of the motion involved, must be considered as having this effect.

As has been stated, it subsequently developed that the bonds sold in the foregoing transactions were part of the bonds originally stolen from the plaintiffs, and on January 11, 1922, the plaintiffs filed their declaration, seeking to recover from the defendant bank upon three grounds, namely: (1) That the defendant bank had participated in a conspiracy to defraud the plaintiffs by disposing of these stolen securities to innocent purchasers for value and without notice, after notice to the bank of plaintiffs' equities; (2) that the several drafts were purchased by the defendant bank mala fide and with notice; and (3) that in these transactions the bank converted the property of the plaintiffs to its use, and that plaintiffs might recover as for a conversion.

Treating these several alleged grounds for recovery in their inverse order, and considering for the present only the first two drafts, the proceeds of bonds sold to good-faith purchasers, the third ground may be disposed of by the observation that the plaintiffs were not parties to the several bills of exchange, and under the most favorable view cannot be said to have had more than an equitable right in the drafts. We have been cited to no case, and we know of none, in which a mere equitable title has been held sufficient to sustain an action for conversion. If, under such circumstances, the party has a remedy, it is in a court of equity. Gilmore v. Watson, 23 Ga. 63; Farrow v. Wooley & Jordan, 149 Ala. 373, 377, 43 So. 144; Baker v. Seavey, 163 Mass. 522, 525, 40 N.E. 863, 47 Am.St.Rep. 475. The case of Newton v. Porter, 69 N.Y. 133, upon which plaintiff somewhat relies, is an action in equity, and the case at bar is clearly distinguishable from actions in trover, based upon a conversion of chattel property in its changed or improved form, or actions, as for conversion, against a former holder of a note or draft, who negotiates it to an innocent purchaser, contrary to the purposes for which it was placed in his custody. As was held in Metropolitan Elevated R.R. Co. v. Kneeland, 120 N.Y. 134, 24 N.E. 381, 8 L.R.A. 253, 17 Am.St.Rep. 619, the essential injury, common to all such latter class of cases, is the fraudulent imposition of liability upon a party to an instrument who would not otherwise have been liable. Here no such liability fraudulently imposed upon any party to the several bills is shown, or at least no previous party in any way complains of the imposition of such liability. There can be no liability at law, as for a conversion, either as to the draft for $85,000, or as to the one for $54,000.

The second contention of the plaintiffs, namely, that the bank purchased, and subsequently collected the proceeds of, these drafts, in bad faith, with notice that they represented the purchase price of stolen bonds, would seem to be but another method of stating the contention of plaintiffs that the bank was liable as for conversion. Here, too, the remedy, if any, would seem to be in equity to follow such proceeds. The mere receipt of the proceeds derived from the sale by another of property which had been converted by him has never been held sufficient to sustain an action in trover. Leuthold v. Fairchild, 35 Minn. 99, 27 N.W. 503, 28 N.W. 218; Pierce v. O'Keefe, 11 Wis. 188; Walker v. First National Bank, 43 Or. 102, 72 P. 635. Nor, because of the absence of notice to be hereafter discussed, is there any such apparent liability in equity as would make it obligatory to transfer this cause to the equity side, under section 274a of the Judicial Code (Comp. St. Sec. 1251a).

Unless, therefore, the knowledge of, and notice to, the bank was such as to amount to a participation in a conspiracy to defraud, it would seem that the plaintiffs had no such interest in or to the drafts under consideration as would justify an action arising from their purchase. If, on the other hand, the bank purchased in bad faith, with notice of the fact that the drafts were given by good-faith purchasers of stolen securities, then there would be presented the first count of the plaintiffs' declaration, namely, participation in a conspiracy to defraud the plaintiffs, by disposing of their bonds to innocent purchasers, and by converting the drafts given in payment into currency, which it would be impossible to follow from hand to hand.

This brings the court to the consideration of the matter chiefly argued on presentation of the case. Upon this charge of conspiracy, the liability of the bank--...