Ohio Valley Banking & Trust Co. v. Citizens' Nat. Bank

• Decision Date: 02 February 1917
• Parties: OHIO VALLEY BANKING & TRUST CO. v. CITIZENS' NAT. BANK.
• Court: Kentucky Court of Appeals

191 S.W. 433

173 Ky. 640

OHIO VALLEY BANKING & TRUST CO. v. CITIZENS' NAT. BANK.

Court of Appeals of Kentucky.

February 2, 1917

Appeal from Circuit Court, Henderson County.

Action by the Citizens' National Bank against the Ohio Valley Banking & Trust Company. Judgment for plaintiff, and defendant appeals. Reversed.

Yeaman & Yeaman and Montgomery Merritt, all of Henderson, for appellant.

John C Worsham, of Henderson, O. W. McGinnis, of Evansville, Ind and Henson & Taylor, of Henderson, for appellee.

MILLER J.

On December 22, 1913, Ingram Crockett, of Henderson, Ky borrowed $5,800 from the Bankers' National Bank of Evansville, Ind. On January 19, 1914, Crockett borrowed the further sum of $1,950 from the same bank. To secure the payment of his notes given for these loans, Crockett pledged as collateral security stock certificate No. 457 for 30 shares, and certificate No. 458 for 25 shares of the capital stock of the Planters' State Bank of Henderson, which stood in Crockett's name. For brevity, the Planters' State Bank of Henderson will be called the Henderson Bank and the Bankers' National Bank of Evansville will be designated as the Evansville Bank in this opinion.

At the time these loans were made to Crockett he was the cashier of the Henderson Bank. These transactions were, however, the individual contracts of Crockett, in which the bank had no interest or concern.

On February 3, 1914, Crockett wrote to the Evansville Bank as follows:

"Henderson, Ky. February 3, 1914.

Bankers' National Bank, Evansville, Ind.--Dear Sirs: Will you kindly send me my bank stock for reissue of several certificates. I hope to make you a payment on my note.

Yours very truly, Ingram Crockett."

To this request the Evansville Bank answered as follows:

"Evansville, Ind., February 4, 1914.

Mr. Ingram Crockett, Cashier Planters' State Bank, Henderson, Kentucky--Dear Sir: As per your request of the 3d we inclose to you herewith certificates No. 457 and No. 458 for 55 shares of the capital stock of the Planters' State Bank of Henderson, Ky. to be reissued and returned to us, or if part or all of the stock be disposed of, proceeds of same returned to us in lieu of stock.

Very truly yours,

Sam T. Heston, President."

The envelope in which this letter of February 4th was inclosed was addressed to "Ingram Crockett, Cashier, Henderson, Ky." The letter was sent registered and was delivered to Carl Selle, a 19 year old clerk in the Henderson Bank, on February 5, 1914. Selle delivered the letter by immediately placing it upon Crockett's desk in the bank. Crockett surrendered stock certificate No. 458 for 25 shares of the capital stock of the Henderson Bank, and in lieu thereof there was issued to him, on February 14, 1914, certificate No. 474 for 15 shares, and certificate No. 475 for 5 shares. The remaining 5 shares called for by certificate 458 he had issued, with another share of stock, to Strachan Barret in certificate No. 473 for 6 shares. In this way Crockett caused 26 shares of stock to be surrendered and reissued, although only 25 of them had been pledged to the Evansville Bank. The new certificates were signed by the president and cashier of the bank, in the ordinary course of business.

On February 19, 1914, five days after the stock was reissued as above set forth, Crockett returned original certificate No. 457 for 30 shares to the Evansville Bank, and paid $1,500 upon his indebtedness to that bank, by paying that amount to the Henderson Bank and having it credited to the account of the Evansville Bank. It does not appear what Crockett said to the Evansville Bank in his letter returning the certificate for the 30 shares. On March 15, 1914, Crockett absconded, and the details of the transaction as above set forth gradually became known. No one in either bank, except Crockett, had any knowledge of his misapplication of the stock or its proceeds until after his flight.

On March 18, 1914, the Evansville Bank wrote the Henderson Bank, inquiring about the 25 shares of stock which Crockett had converted to his own use, whereupon the new cashier of the Henderson Bank answered as follows:

"Henderson, Ky. March 20, 1914.

Mr. Sam T. Heston, President, Bankers' National Bank, Evansville, Ind.--Dear Sir: Your letter of the 18th inst. received. I do not know anything about the stock transaction with Mr. Crockett. I have examined your account and find you have credit for $1,500, by Crockett.

Yours truly, Fred P. Geibel, Cashier."

In June, 1914, the Ohio Valley Banking & Trust Company of Henderson was consolidated with and became the successor of the Planters' State Bank of Henderson, and the owner of its assets. Likewise, on August 15, 1914, the Bankers' National Bank of Evansville and the Citizens' National Bank of Evansville were consolidated; the Citizens' National Bank succeeding to all the assets of the Bankers' National Bank of Evansville.

On December 24, 1915, the Citizens' National Bank of Evansville brought this action against the Ohio Valley Banking & Trust Company of Henderson to recover $4,500, the value of the 25 shares of stock which it alleged that Crockett, as cashier of the Henderson Bank, had converted to the use of that bank. To this claim, however, the defendant was entitled, under any view of the case, to a credit of $1,500 paid by Crockett at the time he converted the stock. This credit is not disputed. Upon a trial there was a verdict and judgment against the Henderson Bank for $2,625, and it appeals.

The jury fixed the value of the converted stock at $165 per share, of $4,125; and, after giving credit thereon for the $1,500 paid by Crockett, there was left the balance of $2,625 fixed by the verdict. The Evansville Bank rests its case upon the proposition that where a cashier of a bank receives funds, checks, or other instruments, as the representative of the bank, and misapplies them, his bank is liable. On the other hand, the Henderson Bank insists that one who deals with the cashier of a bank, or other agent, about a matter personal to the agent, and in which the principal is not interested, cannot look to the principal for any default of the agent; and, in applying that doctrine to the facts of this case, it is insisted the proof shows, beyond a doubt, that the Evansville Bank dealt with Crockett in his individual capacity, and not as cashier of the Henderson Bank, and that the Henderson Bank is therefore not liable for Crockett's fraudulent acts, and its motion for a directed verdict should have been sustained.

It will be noticed that there are no disputed facts in this case in so far as they relate to the liability or nonliability of the Henderson Bank; the parties differ merely as to what is the law under the uncontroverted facts, as above stated. The value of the converted shares was the only controverted question of fact, under the proof.

Plaintiff's first proposition, that when the cashier of a bank receives funds, checks, or other instruments as the representative of the bank, and misapplies them, his bank is liable, begs the question at issue in this case, since it is based upon the assumption that Crockett received the certificate of stock in question as the representative of the Henderson Bank. That, however, is the question in issue; and the determination of that question will necessarily operate as the decision of this case.

Plaintiff's second proposition, that when an officer of a corporation does an act which constitutes a fraud upon a third person, or upon another corporation of which he is an officer, the first-mentioned corporation where the officer also represents it in the transaction is chargeable with notice of the nature of the transaction, although the fraud is perpetrated for the officer's own benefit, is, in so far as it can be applied to this case, but a repetition of its first proposition, since it is based upon the assumption that Crockett perpetrated the fraud as the cashier of the Henderson Bank. But, as above stated, that is the very question in issue.

Finally plaintiff insists that where stock comes to the hands of an agent, in the usual course of business, his principal is chargeable with notice of the purpose for which the stock was so delivered, and if it be fraudulently diverted by the agent from the purpose for which it was received, the principal is liable. This proposition, however, is likewise based upon the theory that when Crockett received the certificates of stock from the Evansville Bank, he received them as agent for the Henderson Bank, when, in fact, the whole controversy turns upon the fact whether Crockett received the certificates of stock in his own right, or as cashier for the Henderson Bank.

Consequently, plaintiff's argument, under every view of it, comes back to the single proposition that Crockett received the certificates of stock as the agent of the Henderson Bank, and not in his individual right. The defendant controverts this proposition, and correctly insists that the general law of agency applies as between a cashier and his bank and third parties; and that whenever one deals with an agent, in his own right and about his own business, whether the agent be a cashier or acting in some other capacity, the person so dealing with the agent is put on notice that the agent is not acting for his principal, but is acting for himself. Unquestionably, the Henderson Bank is liable if Crockett was acting as its agent in the transaction with the Evansville Bank. In 7 Corpus Juris, p. 543, the elementary rule is thus stated:

"Wrongful acts of an officer of a bank done in the interest of the bank or in the course of dealings of the officer as representative of the bank may be attributed to the bank; but a bank cannot be held

...