Keyes v. First Nat. Bank

• Decision Date: 30 June 1927
• Parties: KEYES v. FIRST NAT. BANK OF ABERDEEN, S. D.
• Court: U.S. District Court — District of North Dakota

20 F.2d 678 (1927)

KEYES v. FIRST NAT. BANK OF ABERDEEN, S. D.

District Court, D. South Dakota.

June, 1927.

McNulty, Williamson & Smith, of Aberdeen, S. D., for plaintiff.

Crofoot & Ryan, of Aberdeen, S. D., and Lancaster, Simpson, Junell & Dorsey, of Minneapolis, Minn., for defendant.

ELLIOTT, District Judge.

I have reviewed the record and briefs in the above-entitled matter and find the facts in this record undisputed. I find no contention on the part of counsel as to any material facts in the record.

Plaintiff states its five separate causes of action as receiver of the First National Bank of Eureka, successor to the German Bank of Eureka, and against the First National Bank of Aberdeen, to recover $37,466.70, which plaintiff alleges was paid to the defendant bank by the First National Bank of Eureka and the German Bank of Eureka, which the former succeeded, in payment of the personal indebtedness of one Christian Vorlander, president of the said German Bank and thereafter of the First National Bank of Eureka. The first four causes of action are, for practical purposes, alike, and the fifth is for interest paid upon what is conceded to have been a personal obligation of said Vorlander, president of the Eureka Bank, to the defendant bank.

While the facts are undisputed, counsel for the respective parties do not agree with the inferences naturally and legitimately to be drawn from the undisputed facts, and therefore disagree as to the conclusions of law applicable thereto. In my view of the situation presented, in the light of the uniform decisions of the courts, not only in this judicial circuit, but of the different circuits and the United States Supreme Court as well, the rights of the parties are determined largely by a proper interpretation of the real intent and purpose of the parties to the transactions made the basis of plaintiff's causes of action.

Plaintiff urges a recovery upon the theory that Vorlander was indebted to the Eureka Bank by reason of hidden defalcations, and urges that he gave his personal and individual note to, and borrowed money from, the defendant bank which he placed to his credit in the Eureka Bank, and urge further that this credit was applied by operation of law upon the existing indebtedness of Vorlander to the Eureka bank. It is further urged that upon maturity of the notes so given upon the authority of Vorlander the defendant bank charged the amount of the notes, respectively, with interest, against the account of the Eureka bank, there being at the time a credit balance in favor of the Eureka bank on the books of the defendant bank which was a depository of the Eureka bank. Upon this situation it is urged by the plaintiff that the defendant bank thereby took funds of the Eureka bank in payment of Vorlander's personal obligation, knowing the funds to be the property of the Eureka bank.

The defendant urges as a defense to the first four causes of action of the plaintiff:

(1) That the loans were made to the Eureka bank, in the first instance, secured by notes of Vorlander, and in the other transactions by other officers of the bank, and that in each of these transactions the note was given by, and the credit extended to, the Eureka bank and the money credited to its account, and thereafter paid out upon the checks and drafts and for the benefit of the Eureka bank.

(2) That the Eureka bank having obtained and used the proceeds of the loans, respectively, was liable for money had and received.

(3) That the Eureka bank, accepting the charges against its account by its postcards assenting to such charges, and by permitting payments of such obligations to be made by bank funds over a period of years, including a time long prior to the transactions named in plaintiff's complaint, during all of which time the defendant bank was the depository of the Eureka bank, the Eureka bank thereby represented that the transaction was a bank obligation, and further represented thereby that Vorlander had authority to use bank funds in the payment of such obligations; that the defendant bank relied upon these representations to its prejudice; that it made the loans involved upon the strength of these representations and did not pursue its remedies against Vorlander or the other signers of the different notes, and defendant urges that the Eureka bank is therefore estopped from showing that the obligation is not a bank obligation, or that the use of bank funds was not authorized in payment of these obligations.

(4) That by its reconcilement sheets, approval of cash letters, and the entire correspondence between the defendant bank and the Eureka bank whereby the defendant bank sent to the Eureka bank monthly statements of the account of the Eureka bank as it appeared upon its books, obtaining a reconcilement from the Eureka bank, the latter forwarding to the defendant bank in each instance a statement admitting the correctness of the account, except for discrepancies noted thereon, there was an account stated between the banks; that this course of dealing had for its intent and purpose and actually constituted an account stated between the banks, and in the absence of fraud or mutual mistake this account stated cannot be impeached.

(5) Defendant urges that upon the undisputed facts in this case, considering the correspondence which was the basis of each of the transactions in the first four causes of action stated in the complaint, considering the long course of dealing between the defendant, as the depository, and the Eureka bank as the depositor, involving similar loans that had been paid by the Eureka bank, not only to the defendant bank but to other banks to the knowledge of the defendant bank, the directors of the Eureka bank were and are chargeable with notice of this course of dealing, first, because it had continued over such a long period, and, second, because of the knowledge of other officers, particularly of those officers, including the cashiers, who had the entire charge and management of the business of the Eureka bank, and there was conferred upon Vorlander apparent authority to use bank funds in payment of these obligations.

(6) Defendant urges that, even though the obligations set forth in plaintiff's first four causes of action were personal obligations of Vorlander, and conceding that the defendant bank knowingly received the Eureka bank's funds in payment, notwithstanding all of this, upon the face of this record, as between the defendant bank and Vorlander, it was Vorlander's primary obligation to the Eureka bank, and it was his duty to pay the amount of money so used. Defendant urges that Vorlander did so by applying a part of his credit on the books of the Eureka bank in payment of these obligations.

(7) The defendant further urges that, assuming that the defendant bank took funds belonging to the Eureka bank, knowing them to be bank funds, in the transaction of all of the business between the Eureka bank and the defendant bank, it was the practice, and in each instance, as a matter of fact, the defendant bank did charge against the account of the Eureka bank, in the transaction of their business and in the regular course of their dealing, certain items, including items within the causes of action set forth in the complaint, which charges on the books of the defendant bank were only tentative, and a cash letter was in every instance at once mailed by the defendant bank to the Eureka bank notifying it of the charge, and which said charge on the books of the defendant bank was made subject to the approval and consent and ratification of the Eureka bank, and only became a permanent charge against the said Eureka bank when acknowledgment was received from the Eureka bank, whereupon all items not objected to were permanent charges; that in each instance where an item was charged to the account of the Eureka bank by the defendant bank, and there was objection to it, or it had not been collected, upon receipt of notice thereof, the same was credited back by the defendant bank to the Eureka bank; that, as a matter of fact, therefore, considering the method and manner of dealing, in each and every instance where charges were made to the account of the Eureka bank by the defendant bank, it was only a conditional charge and in effect the claim involved in such charge was in fact, by the cash letter, sent as an item to the Eureka bank for collection, and thereupon the Eureka bank, by acknowledging the charge as a proper one, represented to the defendant bank that the items had been collected by it, and that the charge should be made permanent.

Upon a review of the record in the case, in the light of the claims and arguments presented by counsel for plaintiff, together with those of counsel for defendant, I am impressed that there is little room for controversy, other than an interpretation of the letters constituting the four separate transactions set forth in plaintiff's complaint, viewed in the light of the intent and purposes of the defendant bank and the officers of the Eureka bank as affected by existing conditions and relations that then and for a long time had existed between them, the knowledge or lack of knowledge of the defendant bank of the course of dealing of Vorlander, president of the Eureka bank, with that bank.

Counsel for plaintiff starts out with the proposition that of course these were personal obligations of Vorlander, for himself, understood by the defendant bank to be his own loans and to be used for his own purposes. Counsel urge that this was the understanding of the defendant bank, and that with this knowledge they loaned him the money for his own purposes and permitted him to take the funds of the bank to pay his own obligations. This is denied by counsel for defendant bank, and they refer to the record, and urge that the entire transaction was in writing, and there is, therefore, no room for dispute. This I find to be the fact.

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