Mechanics' Bank v. Schaumburg

• Decision Date: 31 March 1866
• Citation: 38 Mo. 228
• Parties: THE MECHANICS' BANK, Respondent, v. ORLEANA C. SCHAUMBURG AND MARTHA ANN WILLS, Appellants.
• Court: Missouri Supreme Court

38 Mo. 228

THE MECHANICS' BANK, Respondent,

v.ORLEANA C. SCHAUMBURG AND MARTHA ANN WILLS, Appellants.

Supreme Court of Missouri.

March Term, 1866.

Appeal from St. Louis Court of Common Pleas.

Sharp & Broadhead, Glover & Shepley, and Holliday, for appellants.

I. Notice to the president was notice to the bank; or to state the proposition more broadly, the fraud of the president, in matters which came within the line of his business as an officer of the bank, was the fraud of the bank.

It was to the interest of the bank to secure the debt due by Wills to the corporation. It was the duty of the president, in his general surveillance of the affairs of the bank, to see that all debts due the bank were secured, and if, in attempting this, he practiced a fraud upon the defendants, it is the fraud of the bank, because it is done by its own trusted officer, for its benefits and advantage.

A bank is liable for the fraud or mistakes of its cashier or clerk in the entries in its books, &c. and generally, as natural persons are liable for the wrongful acts and neglects of their servants and agents done in the course and within the scope of their employment, so are corporations, upon the same ground, in the same manner, and to the same extent--Ang. Corp. 302-3.

Corporations can only act through their agents. If notice can be brought to the bank at all, it must be, and can only be, through the agents of the bank. It is contended that the directors having the general control of the business of the bank, the notice must be to the directors in order to make it binding on the bank. The president was the head of the directory; but he was more than that; he was empowered by the rules and by-laws of the corporation to exercise a general supervision “over all the affairs of the bank.” It would be a monstrous proposition to say that the bank is not bound by his knowledge as well as his acts.

“It is well settled, that notice to an agent of a party whose duty it is as such agent to act upon the notice, or to communicate the information to the principal, in the proper discharge of his trust as such agent, is legal notice to the principal; and this rule applies to the agents of corporations as well as others”--Fulton Bk. v. N. Y. & S. Canal Co., 4 Pai. 137; Boyd v. Chesapeake & O. Canal Co., 17 Md. 195.

One of the grounds for charging the principal with knowledge possessed by the agent is, because the latter is bound to communicate the fact to the former, and is liable for any prejudice that may arise from a neglect in this respect; and hence the law presumes that the principal has had actual notice--Bk. of U. S. v. Davis, 2 Hill, 464; Sandford v. Handy, 23 Wend. 260.

II. But in the absence of any question of fraud, it is submitted that the plaintiff has never complied with its contract with the defendants.

The agreement on the part of the bank was, that it would lend the money on the notes secured by deeds of trust on land. The notes were given not for money advanced, but to be advanced by the bank. The defendants complied with the contract on their part; but the fact was that the Bank never did comply with its part of the contract; it never paid the money to the defendants.

The facts as they appear by the record show that the directors knew that the money was wanted for the defendants; that they agreed to let the defendants have it; that the money was then placed to the credit of the cashier, to whose order the notes were made payable, to be checked out by him for the parties asking the discount; that he, instead of giving the defendants a check for the money, gave the check in the name of John W. Wills, and placed the amount to his individual credit, although he knew, and the directors knew, and the president (Mr. Wills) knew, that the money was not intended for him, but for the defendants. The cashier was the agent of the bank specially entrusted with the business of paying over the money to the parties in whose favor the discount had been ordered. If he failed to obey his orders, or discharge his duties, it is certainly not the fault of the defendants. The notes are evidence of an executory, not an executed contract. It could only be executed, and the contract made binding upon the defendants, by the payment of the money to them. It may be answered that it was paid to their agent for them; but this is not true, because it was paid to the agent for his own use, and placed to his individual credit; and this by the act of Wills and the cashier. The act of the cashier was the act of the bank--Foster et al. v. Essex Bk., 17 Mass. 496. If the cashier could pay the money to Wills, he could pay it to any one else, a perfect stranger to the transaction, and the defendants could be held on notes for which they received no consideration whatever.

The declarations of Wills as to his purposes, and as to the disposition he made of the money, are not to be taken as any evidence against the defendants. It is true, he was the agent of defendants, as he was also the agent of the bank. But what he said in his own interest, and in reference to his own affairs, are not to be taken as evidence against any one but himself. No principle is better settled in the law of agency than this--Sto. Ag. 156 et seq.

III. The power of attorney to Wills did not authorize him to make the notes sued on: they are joint notes; that is, each defendant is jointly as well as severally bound for the whole debt, according to the face of the notes. The powers of attorney are separate, and there is no authority vested in Wills by either one of the instruments to bind one of the defendants for the debt of the other, to make one security for the other, or to involve either one in liabilities other than those which related to her own business. The evidence shows that their accounts were kept separate; their property was separate.

Cline & Jamieson, for respondent.

I. Notice can alone affect or even reach the principal, when the knowledge is brought home to, or at least possessed by, the agent when he is in the actual performance of some act or duty for and in behalf of his principal, and must be concerning the business in which the agent is then engaged--Ang. & A. Corp. § 307; Washington Bk. v. Lewis, 22 Pick. 24; Bk. of Pittsburg v. Whitehead, 10 Watts, 397; Caster v Tompkins Co. Bk., 9 Barr., Pa. 27; Farrell Foundry v. Dart, 26 Conn. 376; Farmers' & Cit. Bk. v. Payne, 25 Conn. 448; Gen. Ins. Co. v. U. S. Ins. Co., 10 Md. 517.

It is a principle universally admitted, that in all cases where an officer of a corporation acts for himself and not for the company in any given transaction, his knowledge or fraudulent purposes can in no case affect the corporation, unless communicated to its managing agent at the time of the transaction, or at least prior thereto, because in all such cases the officer deals with the corporation as though he had no connection with it, and becomes the contracting party on one side, while the corporation is the contracting party on the other. It would indeed be a strange fiction of the law, calculated to work ruinous consequences to corporations, if the knowledge and fraudulent purposes of a president or cashier, locked up in their own breasts, are, under the circumstances, to be deemed as constructively known to the corporation at the time it deals with them--Ang. & A. Corp., 7th ed., § 308; Seneca Co. Bk. v. Neass, 5 Denio, 337; Winchester v. Balt. & Susq. Co., 4 Md. 231.

Neither the acts nor the knowledge of the officer of a corporation will bind it in a matter in which he acts for himself, and deals with the corporation as if he had no official relation therewith.

In order to affect a company by reason of the knowledge of one of its directors of a fact, it is necessary that he should have such knowledge of such facts while acting officially in the business of the corporation and in behalf of the company--Farrell Foundry v. Dart, 26 Conn. 376. Therefore, when a defective deed had been recorded, and one of the directors went to the office to see the condition of the property, and was not charged with the business in any way, except that he was a director, and never communicated the fact to any one of the company's agents, it was not notice to the corporation.

II. Notice which a director of an insurance company receives privately, or by rumor, and does not communicate to the board, is not binding on the company-- Gen. Ins. Co. v. U. S. Ins. Co., 10 Md. 517.

If a director of a bank is acting in behalf of the bank in a transaction notice at the time to such director of any fact material to the transaction is notice to the bank--Smith v. South Royalton Bk., 32 Vt. (3 Shaw), 341; Hoffman & Co. v. Cumberland Ins. Co., 16 Md. 456. In this case the law of notice is reviewed, and many former leading cases on that subject referred to and discussed.

The knowledge of a director of a bank as to the object for which certain bills were delivered to a party applying to a bank for a discount thereof, such director not being present at a meeting of the directors at which such application was made and such bill discounted, and not having communicated his knowledge to any other director or officer of the bank, is not to be regarded as notice to the bank--Farmers & Cit. Bk. v. Payne, 25 Conn. 444; Ang. & A. Corp. §§ 306, 308; 22 Pick. 24; 24 Pick. 270; 3 Day, 491; 11 Conn. 388; 13 Conn. 173; 22 Conn. 335; 1 Hill, 578; 3 Hill, 274.

For further authority on the question of notice to corporations through agents and officers, we refer the court to the following authorities: Bank v. Whitehead, 10 Watts, 397; Ewing v. Montgomery Co. Ins. Co., 5 Hill, 101; Como v. Port Henry Ins. Co., 12 Barb., 27; Cumberland Coal Co. v. Sherman, 20 Barb., 553; Trenton Banking Co. v. Woodruff, 1 Green, N. J., 115; 27 Eng. Law & Eq. 140; U. S. Ins. Co. v. Scheeren, 3 Md. Ch. Dec. 381; Gen. Ins. Co. v. U. S. Ins. Co., 10 Me. 517; 24 Pick. 270; 3 Hill, 274-5; Ang. & A. Corp. § 247; Manhattan Co. v....