Keyes v. First Nat. Bank

• Decision Date: 29 March 1928
• Docket Number: No. 7957.,7957.
• Citation: 25 F.2d 684
• Parties: KEYES v. FIRST NAT. BANK OF ABERDEEN, S. D.
• Court: U.S. Court of Appeals — Eighth Circuit

25 F.2d 684 (1928)

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

No. 7957.

Circuit Court of Appeals, Eighth Circuit.

March 29, 1928.

Frank McNulty, of Long Beach, Cal. (R. F. Williamson, St. Clair Smith, and Alan Williamson, all of Aberdeen, S. D., on the brief), for plaintiff in error.

John Junell, of Minneapolis, Minn (L. W. Crofoot and E. C. Ryan, both of Aberdeen, S. D., and J. H. Colman and Lancaster, Simpson, Junell & Dorsey, all of Minneapolis, Minn., on the brief), for defendant in error.

Before WALTER H. SANBORN and LEWIS, Circuit Judges, and PHILLIPS, District Judge.

LEWIS, Circuit Judge.

This is an action on the common counts for money had and received. Plaintiff here, who was plaintiff below, sues as receiver of the First National Bank of Eureka, South Dakota, claiming that defendant, First National Bank of Aberdeen, South Dakota, received moneys from the First National Bank of Eureka and from its predecessor, German Bank of Eureka, in payment of obligations for which neither of those banks was liable, and that it is bound on an implied promise to make restitution to plaintiff. The facts on which defendant's claimed liability is bottomed are set out in the complaint in this way:

For a long time prior to 1916, and thereafter continuously until November 18, 1919, the German Bank of Eureka was a corporation under the laws of South Dakota and engaged in the banking business. On the latter date it was converted into a national banking association as the First National Bank of Eureka. In August, 1920, it became insolvent and plaintiff was appointed receiver by the Comptroller. Christian Vorlander was president of the German Bank of Eureka for many years, and when it was converted into a national banking association he continued as president until his death in August, 1920. While president he had in his possession and under his control the funds of these banks and by virtue of his office and stock ownership he had entire management of them and of their business. The First National Bank of Aberdeen was at all times a correspondent bank of the German Bank of Eureka and its successor. One Pufahl was cashier of the German Bank. About June 25, 1917, Vorlander became indebted to defendant bank upon two promissory notes, each in the sum of $5,000, whereby he personally promised and agreed to pay the defendant bank the sums therein named within 30 days thereafter with interest, which notes were signed by Vorlander and Pufahl. About June 25, 1917, defendant credited the German Bank of Eureka with the sum of $10,000 on account of said notes, which sum was charged to the personal account of Vorlander on the books of the German Bank. Thereafter about July 25, 1917, the defendant bank, acting under the request and instructions of Vorlander, charged the account of the German Bank with the sum of $10,050 in payment of said two notes and interest, and on July 31st the German Bank credited the defendant bank with said sum on its books and charged "interest and discount," $50, and Vorlander's personal account $10,000, that on June 25, 1917, and for a long time prior and subsequent thereto, and continuing up to the time of the death of Vorlander, he had no funds or money in the German Bank or its successor, the First National, but he had misappropriated the funds of said banks for a large amount and was in truth and in fact at all times prior and subsequent to June 25 heavily overdrawn in the German Bank of Eureka and its successor, that his personal account in said banks was kept and maintained to show a balance of credit in his favor by false entries upon the books of said bank and by spurious items of credit, and his overdraft was kept concealed from the other officers and directors, that the payment of said notes out of the funds of the German Bank to the defendant was wrongful and unlawful. The board of directors and other officers had no notice or knowledge of the misappropriation, they never authorized the payment or approved or ratified it, and defendant well knew at the time it received said $10,050 it was the money of the German Bank and was being used by Vorlander in payment of his personal obligations. Like allegations are made as to a note for $10,000 given to defendant, signed by Vorlander and Pufahl, on August 11, 1917, which with interest, amounting to $10,058.33 was paid by the German Bank in the following month. Another note for $10,000 was given to defendant bank by Vorlander, Sprick and Schafer, officers in the German Bank, about June 12, 1919, and after renewals it and the accrued interest were paid in the same way by the First National Bank of Eureka in December, 1919. Another note for $5,000 was given to the defendant about May 1, 1920, signed by Vorlander, Sprick and Pufahl, which with interest was paid by the First National Bank on June 6, 1920. It is alleged that during all of these transactions the personal account of Vorlander in the Eureka banks showed a balance in his favor, when in truth and in fact he was heavily overdrawn, that his account was made up with false entries and spurious credits. In each instance it is alleged that the defendant bank gave on its books the Eureka Bank credit for the amounts represented by the four notes. Another and fifth note here involved was given to the defendant bank by Vorlander on September 16, 1917. That note was renewed from time to time but has never been paid. It is charged that eight interest payments, amounting to $1,962.18, were made on that note out of the funds of the German Bank of Eureka and its successor, the First National Bank, and that they were received by the defendant with full knowledge that the obligation of Vorlander was being paid out of the funds of the banks, that the banks received no consideration therefor, that the board of directors had no knowledge that they were being made and never ratified those payments.

The answer admitted that the last note mentioned above was the personal obligation of Vorlander. It denied, however, that any of the other four notes were given for the personal indebtedness of the makers, but alleges that on the dates named in them the defendant made temporary loans to the Eureka Bank for the amounts stated, that the defendant during all of those times and for many years theretofore had been a regular correspondent bank of the German Bank of Eureka and its successor and that during all of said time those banks kept and maintained with defendant an account for the deposit of its moneys and other funds which were used in the transaction of its banking business and for the purpose of paying drafts and other obligations upon its order and for the transfer of funds and clearances, which funds constituted a part of the cash reserve of said banks, that the loans were made to the Eureka banks in accordance with general usage or custom whereby local banks frequently borrowed money for their own use from their correspondent banks upon the security of the individual notes of the officers, directors and stockholders of such local banks, payable directly to their correspondent bank without such local bank executing any note for such loan or endorsing the individual notes given as security therefor, that such loans were obtained from correspondent banks in order to maintain an account with the correspondent to be used in the usual course of business for the transfer of funds, clearances, payment of drafts and other obligations of the local bank upon its order, and to constitute a part of the cash reserve of such local bank. The defendant denied any knowledge as to how the Eureka Bank kept account of the transactions upon its books; it alleged that the notes were paid upon the order and direction of the Eureka banks by the defendant bank charging upon its books, to the account of the Eureka banks, the amount of the notes and interest, and thereupon it returned to the Eureka banks in regular course the notes thus paid; it denied any information or knowledge as to whether Vorlander had funds or money in the Eureka banks and as to whether or not his account was overdrawn or contained false entries and spurious items; it admitted that the money paid to it on these notes prior to the conversion of the Eureka Bank from State to National organization was the money of the German Bank of Eureka and that the money thereafter paid to it on said notes was the money of the First National Bank of Eureka. As to each transaction, except the note last mentioned given about September 16, 1917, by Vorlander, which was for his personal indebtedness, it is alleged in the answer that application for a temporary loan to the amount stated in the note was made to it by the Eureka Bank, that in each instance the Eureka Bank was given credit on the books of the defendant bank for the amount of the loan and that each amount so credited was used by the Eureka Bank in the usual course of its banking business for the transfer of funds, clearances, payments of drafts and other obligations of the Eureka Bank upon its order, that as to each transaction the defendant bank, in due course and in a short time after the note had been paid, rendered to the Eureka Bank an itemized statement of the account of the Eureka Bank with the defendant, showing that the amount of the respective notes and accrued interest had been charged to the Eureka Bank in payment of the loan, and that thereupon the account between them covering the transactions was settled without any claim or charge on the part of the Eureka Bank that the payment of the loan and interest was erroneously or improperly charged against it, that the loans were all made in accordance with said general usage or custom existing and in force throughout the state of...