Newton Nat. Bank v. Newbegin

• Decision Date: 17 April 1896
• Docket Number: 712.
• Parties: NEWTON NAT. BANK et al. v. NEWBEGIN.
• Court: U.S. Court of Appeals — Eighth Circuit

74 F. 135

NEWTON NAT. BANK et al. v. NEWBEGIN.

No. 712.

United States Court of Appeals, Eighth Circuit.

April 17, 1896

C. S Bowman (Charles Bucher was with him on the brief), for plaintiffs in error.

S. R Peters and Henry Newbegin (John C. Nicholson was with them on the brief), for defendant in error.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

THAYER Circuit Judge.

This case was here at a former term, on a writ of error that was sued out by Henry Newbegin, the present defendant in error. Newbegin v. Bank, 27 U.S.App. 712, 14 C.C.A. 71, and 66 F. 701. After the reversal of the former judgment, it was tried a second time before a jury; and Newbegin, who was the plaintiff below, recovered a verdict and judgment. To reverse that judgment, the Newton National Bank of Newton, Kan., and John Watts, its receiver, who were the defendants below, have brought the case here by a second writ of error. In his complaint or petition, which was filed November 9, 1891, the plaintiff charged, in substance, that the defendant bank was indebted to him in the sum of $6,683.60 for money lent and advanced to it at its request, the same being a deposit made with said bank on May 26, 1890, which sum it had promised and agreed to repay to the plaintiff on demand; that a demand for the return of said money was made prior to November 1, 1891 and that the defendant bank had failed and refused to comply therewith. The defendant filed the following answer to said complaint:

'Now comes the defendant the Newton National Bank, * * * and, for its answer to the petition of the plaintiff, denies each and every allegation, matter, and thing therein contained. Said defendant, further answering, says that on or about May 26 1890, said plaintiff did deposit $6,683.60 with said defendant for a special purpose, to wit, to purchase and pay for 62 shares of the capital stock of said bank, and that afterwards said sum of money so deposited as aforesaid was, at the special instance and direction of said plaintiff, and with his assent and approval, disposed of and appropriated by said defendant in payment for said 62 shares of the capital stock of the defendant bank. Wherefore said defendant prays for a judgment for costs.'

To the foregoing answer the plaintiff replied, in substance, that about the month of May, 1890, the defendant bank, being then in embarrassed circumstances, invited subscriptions to a proposed increase of its capital stock from $100,000 to $200,000; that such subscriptions were invited for the fraudulent purpose of replacing a portion of the original capital of the bank that had become greatly impaired; that the plaintiff was a resident of the city of Defiance, state of Ohio; that he was induced to subscribe for 62 shares of said increased stock, and in payment therefor to deposit the sum of $6,683.60 with the defendant bank, by means of certain false and fraudulent representations that were made to him by the cashier of said bank touching its financial condition and solvency. The representations so made were set forth in detail in the reply. The plaintiff averred that he made the deposit aforesaid on May 26, 1890; that 62 shares of stock in said bank were issued to him on July 22, 1890; that he did not discover the fraud that had been perpetrated until late in the fall or early winter of the year 1890, whereupon he demanded from the defendant bank a return of the money that had been deposited with it, which demand was refused; that he subsequently returned to said bank the certificates of stock that had been issued to him, indorsing thereon that they were 'returned for cancellation'; that the defendant bank received and accepted said certificates; and that it thereby became estopped and precluded from asserting that the plaintiff had assented to the appropriation of said money so deposited in payment for stock, as was alleged in its answer. On these issues the case was tried to a jury, which returned a verdict in the plaintiff's favor for the full amount claimed in his petition.

The defendants below, who are the plaintiffs in error here, have conceded in this court that the plaintiff was induced by false and fraudulent representations to become a purchaser of 62 shares of stock in the defendant bank. No controversy, therefore, arises over that issue. The defendants contend, however, that the plaintiff cannot recover, and that the court should have directed a verdict in their favor on the following grounds: First, because the plaintiff was not diligent in discovering the fraud that had been practiced, and because he was not sufficiently prompt in rescinding his subscription after discovering the fraud; and, second, because the insolvency of the bank is a bar to a recovery for the fraud practiced upon the plaintiff in inducing him to become a subscriber for stock. These are the main propositions on which the defendants below appear to have relied to defeat a recovery, and they are the principal questions that have been discussed on the present appeal.

The first of these propositions, in our judgment, is untenable. The plaintiff had no reason to suppose that a fraud had been perpetrated until the bank failed, on November 25, 1890; and it is most likely, we think, that some time elapsed after the failure before he was fully advised of the financial condition of the bank in May, 1890, when he was induced to make his subscription. The plaintiff resided in Ohio, and much, if not all, of the information which he sought to obtain relative to the affairs of the bank in May, 1890, had to be acquired by correspondence. In the course of his inquiries relative to the condition of the bank, he learned for the first time that the stock certificates which he held had been issued before the corporation had acquired the requisite authority from the comptroller of the currency to increase its stock. This information led him to make a prolonged effort to obtain a decision from the comptroller of the currency to the effect that he was not a stockholder, and that the stock standing in his name was utterly void. After the comptroller had declined to thus decide, the plaintiff took immediate steps to bring a suit against the defendant bank for the purpose of rescinding his stock subscription on the ground of fraud, and for the purpose of recovering the amount of his deposit. A bill of that character was prepared in Ohio, and was sent to Kansas some time in May, 1891, to be there filed. Before it had been filed, however, representations were made to the plaintiff by Messrs. Ives and Philbrick, who represented other stockholders of the bank, to the effect that his attitude with respect to the shares of stock then standing in his name upon the books of the bank was preventing a reorganization of the bank and a resumption of business. When such representations were made in behalf of the other shareholders, a scheme to reorganize the bank with a reduced capital of $100,000 was then well advanced, and was subsequently consummated. The bank resumed business on July 1, 1891, with a reduced capital of $100,000, but failed a second time on December 15, 1892. When the plaintiff was appealed to by other shareholders to take no action that would prevent a reorganization of the bank by them, he supposed that a suit had been commenced by his attorney in Kansas to cancel his subscription. He accordingly replied to Messrs. Ives and Philbrick as follows:

'Defiance, Ohio, May 29, 1891.

Ives & Philbrick, Washington, D.C.: The 62 shares may be taken out of court on express condition that I am held free from all liability, and suit go on without prejudice to my recovery as a depositor against the bank, which shall appear in the suit ahead of the receiver, if all cannot agree on other terms hereafter.

Henry Newbegin.'

Subsequently on July 27, 1891, the plaintiff transmitted the certificates representing the 62 shares of stock now in question to the president of the defendant bank. The stock was so transmitted to the bank at its instance, to enable it to perfect the scheme of reorganization. It furthermore appears that the stock was delivered to the bank under an agreement that it should be accepted and canceled without prejudice to the plaintiff's right to maintain a suit against the bank on account of the alleged fraud whereby he had been induced to become a subscriber for the same. During the period which elapsed between the first failure of the bank and the commencement of this suit, in November, 1891, the plaintiff, on several occasions, notified the officers of the defendant bank that he was not a stockholder therein, that he declined to be treated as a stockholder, and that he should hold the bank responsible for the fraud that it had perpetrated in inducing him to become a subscriber to its stock. Moreover, the testimony shows that he took no part in the scheme to reorganize the bank, and that he notified...