Peterson v. Tillinghast

• Decision Date: 05 December 1911
• Docket Number: 2,138.
• Citation: 192 F. 287
• Parties: PETERSON v. TILLINGHAST.
• Court: U.S. Court of Appeals — Sixth Circuit

192 F. 287

PETERSON v. TILLINGHAST.

No. 2,138.

United States Court of Appeals, Sixth Circuit.

December 5, 1911

Aaron A. Ferris (M. M. Riley, on the brief), for plaintiff in error.

C. B Wilby (Philip Tillinghast, on the brief), for defendant in error.

Before WARRINGTON and KNAPPEN, Circuit Judges, and HOLLISTER District judge.

PER CURIAM.

This action was brought by Tillinghast, as receiver of the First National Bank of Ironwood, Mich., to recover upon two promissory notes made by Peterson. All questions concerning one of the notes were eliminated in the court below, and the present controversy relates only to the other. It is a demand note, dated October 1, 1908, payable to the order of the bank for $2,500, with 6 per cent. interest. At the close of all the evidence offered, a motion to direct a verdict for the full amount of the note with interest was granted; and the amount was subsequently reduced to the extent of a deposit existing in the bank in favor of Peterson. Judgment was thereupon entered for the balance due, $2,693.75, with interest from the date of the verdict.

To the declaration a plea of the general issue was interposed, with notice of special defense that the note was executed solely for the accommodation of the bank, and upon an express agreement that the bank would provide for its payment and never call upon Peterson to pay the note. Special instructions to the jury were requested in Peterson's behalf and refused; and under the assignments of error several questions of law are presented, which, so far as necessary to pass upon, will be stated as we progress. The main complaint of error concerns the instruction to the jury to return a verdict in favor of the receiver.

Peterson testified that the cashier of the bank asked him if he would sign a note for the bank for $5,000, to which Peterson replied that he did not think his note for that amount would look well in the bank, because he had some paper there already. The cashier then stated 'that he did not propose to have it in the bank,' indeed, that he did not know whether he would use the note at all, but that, if he did, he would use it 'for the purpose of raising money from some outside bank. ' Peterson told him that he 'might sign a note for half that amount to accommodate them, if he thought that that would do them any good;' and, further that the cashier told him that, if he gave a note, he 'should never have to pay, because that would be taken care of by the bank. ' Peterson testified, also, that he had known the bank since 1890, that he had several deposits there, and that 'the reputation of the bank for solvency and prosperity was first class;' also, that the president and cashier 'were considered among our best men and were considered wealthy. ' It was admitted by the receiver as a fact:

'That this bank was then (at the date of the transaction) of high reputation, and that Mr. Peterson had entire confidence in its solvency and responsibility, and that he had no reason to have any suspicion on that subject.'

Peterson was asked on cross-examination whether he had been requested to sign the note 'for the Harqua Hala Mining Company so the money could be raised to pay its floating debt,' and also whether he had not repeatedly admitted that the note was given in the interest of that company; but he denied that he had been so requested or that he had made any such admission. He did admit, however, that at the date of the note he was interested in the company to the extent of 110 shares of the par value of $10 each, and that he had about the same amount of its bonds. The receiver gave proof on rebuttal by himself and two other witnesses tending to show that Peterson stated to them:

'That he gave the $2,500 note in question at the request of Mr. Larson (the bank's cashier) for the benefit of the Harqua Hala Mining Company * * * for the purpose of having such note discounted by the bank, to raise money for the mining company.'

In the course of Peterson's testimony this occurred:

'The Court: And your understanding was that he (Larson) was to send it; if he used it (the note), he was to send it to a bank at Milwaukee, or somewhere else, to be discounted? A. That was his statement that, if he used it at all, he would use it outside of the city, and I think he mentioned Milwaukee, but that I am not sure of. The Court: Did you ever understand that it might be discounted at some bank away, whatever one he selected? A. Yes, sir.'

It was stipulated that at the time of the failure the bank's books showed a capital of $50,000 and a surplus of $20,000; that claims had at the time of the trial been allowed for $614,000; and that, including the proceeds of 100 per cent. assessment, the bank will not pay more than 30 per cent. to 35 per cent. of its liabilities; that 'the bank was insolvent at all times from and after October 1, 1908'-- the date of the note. It appeared by the books of the bank that this $2,500 note was passed into its assets in October, 1908; and it was conceded by Peterson's counsel that a national bank examiner on November 20, 1908, 'found among the assets of the bank the $2,500 note in question, and in his examination treated it as part of the assets of the bank.'

The learned trial judge reached the conclusion that:

'In the ordinary case of an accommodation note given to a national bank, it is against the theory and policy of the law and against the proper rules of public policy to permit the giver of the note to deny liability upon such note.'

And later the court stated that since it--

'appears by Peterson's statement that this note was given by him as an accommodation to the bank, and, for the purpose of becoming a part of the assets of the bank, I direct you that he cannot now be permitted, against the receiver of the bank, under the circumstances of insolvency here existing, to deny liability; and you will, therefore, render a verdict in this case for the sum,' etc.

We think the action of the court below must be tested by the decision in Rankin v. City National Bank, 208 U.S 541, 28 Sup.Ct. 346, 52 L.Ed. 610, affirming that of the Circuit Court of Appeals of the Eighth Circuit in the same case, though appearing in that court in the name of the predecessor of Rankin as receiver, viz.: Cherry v. City Nat. Bank, 144 F. 587, 75 C.C.A. 343. The controversy in that case had its origin in a complaint of a bank examiner of excessive loans made by the Guthrie Bank (Oklahoma Territory). The Guthrie Bank, through its president Billingsley, entered into an arrangement with the City Bank (Kansas City) under which the City Bank accepted a note in its favor for $30,000 signed by Billingsley, and opened on its books a special account for that amount in the name of the Guthrie Bank. The City Bank had been advised of the purpose of this transaction by letter from Billingsley stating (208 U.S. 542, 28 Sup.Ct. 347, 52 L.Ed. 610): 'My reason for wanting this is that I have that amount of excessive loans that the department is kicking about. * * * You will not be out any money and loan and deposit will offset each other on your books. ' The Guthrie Bank had a general deposit with the City Bank, but it was agreed that the Guthrie Bank should not check against the special deposit account; the arrangement was characterized by Mr. Justice Holmes as 'a scheme for a separate paper transaction. ' Billingsley subsequently sent a letter, with his note, to the City Bank stating that he had given the...