Solomon Etting v. President, Directors and Company of the Bank of the United States

Decision Date16 March 1826
Citation24 U.S. 59,11 Wheat. 59,6 L.Ed. 419
PartiesSOLOMON ETTING, Plaintiff in Error , v. The PRESIDENT, DIRECTORS AND COMPANY OF THE BANK OF THE UNITED STATES, Defendants in Error
CourtU.S. Supreme Court

bank, had contracted a debt to the bank to the amount of 3,497,700 dollars. The directors at Philadelphia, in consequence of some information which they had received respecting it, passed a resolution, on the 19th of February, 1819, calculated to draw forth a complete statement of the case, with all its circumstances. This resolution brought the papers it required, and, also, brought the president and cashier to Philadelphia, who attended for the purpose of making verbal explanations. These were received, and the case was referred, on the 16th of March, to a committee, whose report was made on the 30th of the said month. It appeared by this report, that the securities offered for the debt consisted of 20,848 shares of the stock of the bank, of 26,550 shares previously pledged for very large sums in London, Liverpool, New-York, and Boston, the amount of which was not stated, and the personal liability of the debtors themselves. The report stated, 'As the result of many conferences, and a good deal of deliberation,' an offer on the part of the debtors to give additional security for 900,000 dollars, payable in five years by annual instalments. A part of the proposed arrangement was, that the shares previously pledged in London, and elsewhere, should be liberated from the claim of the bank, and that the separate liability of each for 300,000 dollars, should be received, instead of the joint liability of all for 900,000 dollars. This offer, with some modifications, was accepted by the bank. A part of the security offered by M'Cullough, were sixteen merchants of Baltimore, who were to become bound for 12,500 dollars each. The committee recommended the acceptance of these terms, and also recommended, that the sufficiency of the security offered by Williams, and M'Cullough, including the sixteen sureties proposed by M'Cullough, should be referred to the members of the board residing in Baltimore. This course was adopted by the bank, and the committee of members residing in Baltimore reported on the whole subject. Of the sixteen names proposed for their consideration, three were withdrawn, and three were objected to. Among those who were accepted was Etting, the plaintiff in error. The negotiations, investigations, and arrangements, for the completion of the business, were some time in progress. Propositions were made for changes of the securities, and, on the 10th of May, the president of the bank addressed a letter to the committee in Baltimore, urging them to bring it to an immediate close. On the 14th of May, the committee at Baltimore reported the documents which had been executed in pursuance of previous arrangements made with the debtors, a report of which was made by the committee at Philadelphia, on the 17th of the same month, and, on the 18th, M'Cullough was removed from the office of cashier, which he had held from the first establishment of the bank. It was admitted, that he was a young man worth nothing, who had a family, and whose salary as cashier was 4,000 dollars.

When the note endorsed by Etting, the plaintiff in error, fell due, he refused to pay it; on which it was protested for non-payment, and this suit was brought by the bank. At the trial in the Court below, the whole matter was given in evidence, and the Court was moved to instruct the jury on the law which would arise on the facts of the case, and the inferences which the jury might draw from those facts. The counsel for the plaintiffs moved the Court to instruct the jury, that if they should be of opinion, from the evidence, that the defendant, Etting, without any communication with the plaintiffs, but on the application of M'Cullough only, agreed to become his endorser, under the arrangement made between him and the plaintiffs, although they should be satisfied, from the evidence offered by the defendant, that the said M'Cullough deceived the said Etting; that it was known to the bank before, or pending the negotiation, that the debt from M'Cullough, or the greater part thereof, had grown out of his unauthorized and fraudulent appropriation of their funds to his own use, which knowledge the bank did not promulgate, though they contemplated his removal as soon as the securities should be given, in conformity with the arrangement which had been made; that the defendant endorsed the note in ignorance of any fraud on the bank, or of any abuse of his office of cashier, or of any probability of his removal from the said office; that, had the defendant known these circumstances, he would not have endorsed the said note; and that the bank fore-bore to promulgate either the information they possessed, or their intention to remove the said M'Cullough, under the impression, that the disclosure would increase the difficulty of the said M'Cullough in procuring security, if not render it impossible for him to procure it; yet, if they shall also be of opinion, that the defendant, without making any inquires of the plaintiffs on the subject of such information and intention, or holding any communication with them on the subject of his intended endorsement, did, of his own accord, on the application of the said M'Cullough, and for the purpose of giving effect to the said arrangement, endorse the said note on which this action is brought, that there was nothing in the evidence so given by the defendant, to affect the plaintiff's right of recovery in this action. That, in order to vitiate the said note and endorsement in law, and to bar the plaintiff's right of recovery thereon, on the ground of a fraudulent misrepresentation, or fraudulent concealment of circumstances known to them, and unknown to the defendant, it was incumbent on the defendant to show that he applied to the plaintiffs for information, or held some communication with them for the purpose of receiving such information, and that on such application or communication, the plaintiffs either misrepresented or concealed such circumstances; and that, in the absence of such proof, there was nothing in the facts so given in evidence by the defendant, to affect the right of recovery in the action.

The Court gave the instruction as asked, to which an exception was taken.

The counsel for the defendant then moved the Court for instructions, that if the jury should draw from the evidence certain inferences which were stated, the plaintiffs were not entitled to recover. These inferences were, that the bank was fully informed in March, 1819, of the fraudulent conduct of M'Cullough, the extent of his misapplication of their funds, and of his insolvency; that on receiving this information, they became satisfied of his unfitness to continue in office, and determined to remove him. That, however, they continued him in office until the 18th of May, carefully concealing the circumstances, and their determination, for the purpose of obtaining security of the debt due to them from the said M'Cullough, one of which so contemplated securities was the note in question. That the defendant was, to the knowledge of the plaintiffs, ignorant of M'Cullough's breach of duty, and of the determination to remove him, and endorsed the note by reason of that ignorance.

The Court refused to give this instruction, unless the jury should be further of opinion, that the defendant was led into this state of ignorance in consequence of inquiries made by him of the plaintiffs, or of some previous communication between them and him.

On the farther application of the counsel for the defendant, praying the Court to instruct the jury, that on the statement and evidence contained in the bills of exceptions, if the jury believed the same, the plaintiffs were not entitled to recover; the Court refused to give the instruction asked, and directed the jury, that on the evidence aforesaid the plaintiffs were entitled to recover.

Judgment was rendered for the plaintiffs in the Court below, and the cause was brought by a writ of error to this court.

March 9th and 10th.

The cause was argued by Mr. Webster and Mr. Taney, for the plaintiff in error, and by the Attorney General and Mr. Emmett, for the defendants in error. The discussion took a wide range upon the doctrine of misrepresentation and concealment in contracts; but as that point was not determined by the Court, it has not been thought necessary to report any thing more than a concise summary of the arguments of counsel.

The following points were made for the plaintiff in error, upon the instructions given and refused by the Court below.

1. That the concealment of the facts and circumstances above mentioned, or the concealment of any one of them, whereby the plaintiff in error was induced to enter into the contract in question, was a fraud upon him, and vitiated the contract.

2. That if the mere omission to communicate the said facts and circumstances would not be a fraud, yet, the act of the defendants in error, of continuing M'Cullough in office, in order to give him credit, and thereby to procure the security in question, by which means the plaintiff in error was deceived, and induced to endorse the said note, was a fraud upon him, and vitiated the contract.

3. That the continuance of M'Cullough in the office of cashier, from the 16th of March, 1819, (when his misconduct in office came to the knowledge of the president and directors of the...

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