Skud v. Tillinghast

• Decision Date: 02 April 1912
• Docket Number: 2,144.
• Citation: 195 F. 1
• Parties: SKUD v. TILLINGHAST.
• Court: U.S. Court of Appeals — Sixth Circuit

195 F. 1

SKUD v. TILLINGHAST.

No. 2,144.

United States Court of Appeals, Sixth Circuit.

April 2, 1912

[Copyrighted Material Omitted]

The judgment in this case was entered upon a directed verdict the direction having been given at the close of all the evidence, and the failure to submit the case to the jury is distinctly assigned as error. The basis of the suit is a promissory note. The form of the note as contained in the notice given under the money counts of the declaration and as received in evidence is that of an ordinary demand note bearing date October 1, 1908, payable to the order of the First National Bank of Ironwood, Mich., for $2,500, with interest at 6 per cent. per annum, and signed by Skud. The defendant, Skud, pleaded the general issue, and in the detailed notice and an affidavit presented thereunder charged material alteration of the note, and denied that the note sued on was executed by him. The charge is that, when the note was executed and delivered, it contained on its left margin these figures and words, '(200) Butte-Balaklava (100) Shattuck,' and that there was attached to the note certificates representing 200 shares of the capital stock of the Butte-Balaklava Copper Company, a corporation of Arizona, and 100 shares of the capital stock of the Shattuck-Arizona Copper Company, a corporation of Minnesota, but that after its delivery and prior to the commencement of this suit, without Skud's knowledge or consent, the note was altered by cutting off the figures and words mentioned and removing the certificates of stock. The value of the stock seems to be equal to, if not in excess of, the amount of the note. Skud gave further notice that upon the trial he would recoup and set off as against plaintiff's cause of action a claim for damages in the sum of $3,000, or so much thereof as would be sufficient, arising and growing out of the alteration of the instrument and failure safely to keep the original note and pledged securities, which in substance and effect represented the transaction into which the bank, through its president and cashier, and Skud entered.

The president, Jahn, and the cashier, Larson, had a controlling interest in the bank, and seem, in fact, to have been the active managers of the bank's entire business. Larson requested Skud to sign a note for him for $2,500, and Skud refused. Larson told him later that he would secure him by the stock before mentioned; and Skud upon conversing with Jahn was induced to sign the note in the presence of Jahn and Larson, and to leave it with either Jahn or with Jahn and Larson, but not until on Skud's demand the figures and words before mentioned had been entered in typewriting on the margin and the certificates representing the stock had been attached to the note by pinning the certificates thereto or fastening them to it by rubber bands. The note thus secured was given for Larson's accommodation, and to take the place of money that Larson then owed the bank. No question is made as to the good faith of Skud in this transaction, nor is it claimed that he ever received any of the money. Skud testifies that Larson threatened to call an unmatured loan of his unless he would sign the note; but Skud at once paid the substantial part of his loan, and seems ti have been influenced at last to sign the note by the memorandum entered on its margin, the securities attached (which he regarded as having greater value than the face of the note), and the request of Jahn. The evidence clearly shows that the marginal figures and words of the note were clipped off, and the certificates of stock removed from the note after they were turned over as before stated.

Although the note bears date of October 1st, it was not executed until some time between the 8th and 15th of the month; and on November 20th following the bank was examined. The examiner testifies that he made a list of the notes, and that this note appears as an unsecured demand, though he could not remember the particular paper. Another examination was made June 12, 1909, and on the 21st the bank was closed. The receiver took possession on the 24th. There is testimony that the note was found in its present condition at the later examination, and also at the time the bank was closed. Larson testifies that the memorandum was on the note and the stock in possession of the bank when he left. Larson was displaced as cashier on June 17, 1909, and he with Jahn and Beddow, assistant casher, were charged with embezzling the assets and collateral securities of the bank, and making false entries in its books. Larson pleaded guilty, and was sentenced to imprisonment. Jahn committed suicide. The receiver testifies that securities were converted by Larson, but that the records do not indicate any conversion by Jahn. Skud, in substance, testified without apparent contradiction that in answer to the receiver's request of him to pay the note he said that he would if it were presented in its original condition with the collaterals attached.

Julius J. Patek, for plaintiff in error.

C. B. Wilby (Philip Tillinghast, of counsel), for defendant in error.

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

WARRINGTON Circuit Judge (after stating the facts as above).

The record requires us to consider the proposition, in substance urged on behalf of the receiver, that the action can be sustained on the promissory note in its present form, without reference alike to the receiver's inability to produce the abstracted securities and his refusal to account for any portion of their value upon payment of either the note or judgment, and also without recognizing the defense of alleged wrongful conversion of the pledged securities and the resulting damages.

It must be conceded that, as a general rule, as between a pledgor of his own securities and the pledgee, the latter is not bound to resort to the collaterals before suing upon his principal claim, though he may be compelled to release or reassign the securities when his claim is satisfied. This rule, of course, proceeds upon the theory that the pledgee is in possession of the collaterals, and is entitled to retain them until his claim is paid.

However, when the pledgee has converted the pledge, he has to the extent of its value in effect discharged the debt; and the same result must follow where the pledgee has through fault of his failed to preserve the pledge. The contention is that no rule of this character can be applied in this case, because the note in its original form and the securities were not delivered to the bank, and, further, the securities did not belong to Skud. The reasons assigned for nondelivery are that both Jahn (the president) and Larson (the cashier) were in their dealings with Skud engaged in the commission of a fraud upon the bank, and consequently that their knowledge was not imputable to the bank, and their acts were not binding upon it. It is not claimed that Skud was cognizant of the alleged fraud, or that he derived any benefit from the transaction. The claim is that he gave the note for the accommodation of Larson, and that, since the securities belonged to Larson, Skud must look alone to him for either their return or their value. This gives no effect to the refusal of Skud to sign the note unless and until the marginal memorandum was made on it and the securities were attached; nor to the evidence that the note and collaterals were obtained to secure the bank upon a debt then owing to it by Larson. The position the receiver is thus forced to assume is that he may disregard the benefit that would through the securities have inured to Skud, and still claim the advantage that inured to the bank through Skud's promise alone. It is to be observed that Skud is not suing the bank or its receiver for the stock; nor is it suggested that the transaction (apart from the question of fraud of the bank's officers) was not within the authority of the president and cashier. Skud is urging by way of defense that the receiver cannot through affirmative action claim the benefit of his (Skud's) promise, and at the same time deny that the bank was affected by the knowledge of its president and cashier concerning the eliminated memorandum and securities on the faith of which the promise was obtained. It results that, in order to sustain the directed verdict, the receiver must show that the evidence justifies the conclusion, as matter of law, that the note in its present form was alone delivered to the bank, and that Skud must be restricted to the idle ceremony of pursuing Larson for either the eliminated stock or its value.

We are thus brought to the inquiry whether the evidence presents a question of fact for the jury, or merely a question of law, touching delivery of the instrument.

In considering this inquiry, it is to be observed, in the first place, that in Peterson v. Tillinghast, 192 F. 287, 290, 112 C.C.A. 545, we held, following the decision in Rankin v. City Nat. Bank, 208 U.S. 541, 546, 28 Sup.Ct. 346, 52 L.Ed. 610, that 'the receiver stands no better than the bank. ' Fourth Street Bank v. Yardley, 165 U.S. 653, 17 Sup.Ct. 439, 41 L.Ed. 855. If it were necessary to state a reason for this, it is because a receiver cannot lawfully appropriate to the use of the bank or its creditors any seeming asset that in equity and good conscience belongs to another or ought not to be enforced against him. Fairfield v. Southport Nat. Bank, 80 Conn. 92, 106, 67 A. 471.

Next it is urged, in substance, that Larson and Jahn were as to this transaction hostile in interest to the bank and acting outside the scope of their agency, and so their knowledge was not imputable to the bank and their acts not binding upon it. This is one of the recognized...