Live Stock State Bank v. First Nat. Bank of Fairfield, Idaho
| Decision Date | 29 February 1924 |
| Docket Number | 1038. |
| Citation | 300 F. 945 |
| Parties | LIVE STOCK STATE BANK v. FIRST NAT. BANK OF FAIRFIELD, IDAHO, et al. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Carey & Kerr, of Portland, Or., Karl Paine, of Boise, Idaho, and Charles A, Hart, of Portland, Or., for plaintiff.
Sullivan & Sullivan, of Boise, Idaho, and J. W. Edgerton, of Pocatello, Idaho, for defendants.
The plaintiff prays judgment against the defendants for approximately $17,000. Defendants resist, and in turn ask judgment against the plaintiff for approximately $3,000. The controlling question is the liability of the defendant bank upon an outstanding note for $20,000 given by the Rocking 'H' Live Stock Company to the plaintiff bank. The plaintiff has credited upon this note approximately $3,000 the amount due the defendant bank upon an open account, and now seeks to recover the balance. Defendants deny all liability upon the note and demand the amount of their open account. Jury is waived.
The plaintiff is a state bank, organized under the laws of Oregon, and doing business at Portland. It has a capital stock of $100,000, and during the period in question had a surplus of approximately $25,000. Under the law it could legitimately loan to a single person or corporation not to exceed 20 per cent. of its capital and surplus. Closely allied to it was the Portland Cattle Loan Company, a corporation; its president was also president of the loan company, and its cashier was a vice president of that company, and apparently there were other interlocking relations.
The defendant bank was a national bank doing business at Fairfield, Idaho, having a capital stock of $25,000 and a surplus of approximately $12,000. Its active executive head was one G. A. Horal, for a while its cashier and later its president. Extensively engaged in cattle raising in the same community was the Rocking 'H' Live Stock Company, a corporation, owned by three persons, including Horal, who was its secretary and treasurer, and its responsible financial manager. One of the other two owners was, during a part of the period in question, also the president of the defendant bank. The Live Stock Company was a heavy borrower from the Portland Cattle Loan Company, the amount of the borrowings in 1917, the beginning of the period under consideration, being approximately $190,000, and this was secured by a chattel mortgage upon the debtor's cattle herds. The Fairfield bank carried an account with the plaintiff bank. At all times Horal's interest in and relation to the Rocking 'H' Company was fully known to the plaintiff bank. Though borrowing heavily from the cattle loan company, the Rocking 'H' Company was short of funds for current expenses in running and feeding its herds, and accordingly early in 1918, a loan of $30,000 was arranged with the plaintiff bank. For some reason, not entirely clear, but apparently for the purpose of avoiding the appearance of an excess loan, the loan was split so that one note was taken directly from the Rocking 'H' Company for $20,000, and another note from Housman and Rubottom, two of the owners. The note from the company was also indorsed and guaranteed by Rubottom and Horal. But, as was understood upon all hands, the transaction was a single one and the entire $30,000 was for the benefit of the Rocking 'H' Company, and was in fact used by it in running and caring for its live stock, upon which, as we have seen, the Portland Loan Company had a chattel mortgage. There were three or four renewals, but the form and purpose of the loan remained without substantial change. All the notes were on forms of the plaintiff bank, and were payable to its order. Neither upon their face, nor by indorsement, did they disclose any connection whatsoever with the Fairfield bank.
The Fairfield bank closed for business on June 19, 1920, and in due time the defendant Sill became and now is receiver thereof, engaged in winding up its affairs under the direction of the Comptroller. In the meantime apparently the note for $10,000 was paid. The other note for $20,000, signed by the Rocking 'H' Company, and guaranteed by Rubottom and Horal, fell due on June 18 1920, and, not being paid, the plaintiff charged it to the account of the Fairfield Bank and sent it to that bank, after having indorsed it without recourse. Disclaiming liability, the Fairfield bank declined to accept it, and returned it to the plaintiff. Also disclaiming liability, the receiver rejected the plaintiff's claim, and hence this suit.
Admittedly, plaintiff's contention that the Fairfield bank is liable rests upon no indorsement or written agreement or other undertaking signed by that bank. True, plaintiff offered in evidence a letter written by Horal, president of the Fairfield bank, of date January 9, 1920, purporting to authorize it to charge at maturity any note that it was 'carrying for us'; but, even if it should be conceded that the terms of this letter are broad enough to embrace such a note as this, in which the Fairfield bank had no interest (a construction difficult to adopt), for various legal reasons such an agreement or undertaking would be unenforceable against the Fairfield bank, and when the letter was offered counsel for the plaintiff expressly disclaimed reliance upon it as a substantive agreement. It is also conceded that the note was not held as 'rediscount paper'; it was executed and delivered directly to the plaintiff, the payee named therein.
Plaintiff relies upon some sort of a secret oral understanding had, in the fall of 1917, between Horal, who, as we have seen, was the active head of both the Fairfield bank and the Rocking 'H' Company, and T. J. Mahoney, who was both cashier of the plaintiff bank and a vice president of the Portland Cattle Loan Company, and also upon the 'course of dealing' between the two banks, as disclosed by correspondence and other records, particularly the books of the plaintiff bank. Briefly stated, its position is that for certain general considerations the Fairfield bank agreed and undertook that, upon the maturity of these as well as other notes referred to in the record, the plaintiff might charge them to its account. Of the voluminous correspondence, it must suffice to say generally that if we were to put aside the fact of Horal's relation to the Rocking 'H' Company, there is much in it tending to support this position. The books of the bank are highly equivocal. The only heading of the so-called liability account is 'Fairfield Notes,' and while these notes, together with numerous others coming from Fairfield, were entered under this heading, for some reason, not satisfactorily explained, they were the subject of a measure of distinctive treatment. Turning to the records of the Fairfield bank, we find no entries whatsoever referring to the notes; and the correspondence in question was largely with Horal, and handled by him alone. No one connected with this bank, either as an officer or employee, other than Horal, ever knew that it was interested in or had any responsibility touching the notes. No one connected with the Rocking 'H' Company, unless it be Horal, had any knowledge or information or thought that the defendant bank had any interest or responsibility, or that the Portland bank was making such a claim.
For its proof of the alleged agreement between Horal and Mahoney plaintiff relies upon the somewhat vague and unsatisfactory testimony of the latter, and even he does not expressly testify that the understanding covered notes such as the ones in controversy; and strangely enough, if there was such an agreement, Horal's letter of January 8, 1918, apparently confirmatory of such oral agreement as had been had, fails to mention this feature. And again, if such an agreement was had in the fall of 1917, as claimed, and it was consistently acted upon thereafter, why did plaintiff insist upon the Horal letter or agreement of January 9, 1920, which purports to be a new undertaking, and not the confirmation of a pre-existing one? But even more significant, if not conclusive against the plaintiff's contention, is a report made by plaintiff's cashier in June, 1919, while a note, of which the one in controversy is but a renewal, was outstanding. This report was made to the chief National Bank Examiner at San Francisco, in response to an inquiry sent out for the purpose of enabling his department to check up the affairs of the Fairfield bank. Among the written questions submitted to the plaintiff bank were the following:
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