State of Nebraska v. First Nat. Bank

• Decision Date: 08 August 1898
• Citation: 88 F. 947
• Parties: STATE OF NEBRASKA v. FIRST NAT. BANK OF ORLEANS et al.
• Court: U.S. District Court — District of Nebraska

88 F. 947

STATE OF NEBRASKA v. FIRST NAT. BANK OF ORLEANS et al.

United States Circuit Court, D. Nebraska.

August 8, 1898

C. J Smyth, Atty. Gen., and Ed. P. Smith, Dep. Atty. Gen., for State of Nebraska.

Cobb &amp Harvey, for defendants.

MUNGER District Judge.

This action was commenced in the district court of Harlan county and removed into this court. By the pleadings it is shown That the First National Bank of Orleans is a corporation organized under the laws of the United States. That in September, 1895, said bank, for the purpose of becoming a state depository under the laws of the state of Nebraska, and for the purpose of enabling it to receive on deposit from the state treasurer of the state of Nebraska certain public moneys belonging to the state, and which said treasurer was authorized to deposit in depository banks, made, executed, and delivered to the state of Nebraska its obligation in writing, a copy of which is attached to the petition. Said bond was executed by the said band as principal, and by the defendants, John M. Burton, George W. Burton, Pat Gibbons, John O. Hoffman, and M. F. Burton, as sureties, which bond was duly approved and filed by the proper officers of the state. The said bond was in the penal sum of $25,000, and provided that, in consideration of the depositing of the moneys of the state of Nebraska for safe-keeping in said bank by the state treasurer, said bank, in consideration of said deposit and for the privilege of keeping the same, agreed to pay 3 per cent. per annum, the same to be computed and paid quarterly upon the daily average of the sum of such amount as the bank should have deposited to the credit of the state for the quarter, or any fraction thereof, next preceding the payment of said per centum. Said bond contained a condition that if said bank 'shall well and truly keep sums of money so deposited or to be deposited as aforesaid, subject to the check and order of the state treasurer as aforesaid, and shall pay over the same, and each and every part thereof, upon the written demand of the state treasurer, and shall estimate, calculate, and pay said per centum as aforesaid, and to his successor in said office as shall be by him demanded, and shall in all respects save and keep the people of the state of Nebraska and the said treasurer harmless and indemnified for, and by reason of the making of said deposit or deposits, then this obligation shall be void and of no effect; otherwise, to be and remain in full force and virtue. ' After the execution and delivery of said bond, the treasurer deposited in said bank certain moneys of said state, and there was at the time of the commencement of the action so on deposit in said bank the sum of $20,000, the moneys of the state of Nebraska. That said bank became insolvent, and P. O. Hedlund, one of the defendants, was appointed, by the comptroller of the currency, receiver thereof. Of said defendants, the bank and receiver have answered in said action. The other defendants, the sureties, have filed a general demurrer to plaintiff's petition, which is now to be disposed of.

In support of the demurrer it is contended that the transaction was one of borrowing money on the part of the bank, not in the usual and ordinary course of banking business; that such borrowing was in violation of the national banking act, and not within any of the powers conferred upon the bank, and illegal, the bond or obligation given void, and for such reason the sureties are not liable. It is not claimed in support of the demurrer that every borrowing of money on the part of a national bank is prohibited; but it is contended the fact that, under the depository law of Nebraska, the bank is required to make a bid for the deposit, agreeing to pay interest on the daily balances at a rate of not less than 3 per cent. per annum, and to execute a bond with sureties for the faithful payment of the amount of such deposit, with the interest thereon, that such a transaction is not a deposit in the ordinary sense, but a borrowing of money in a manner not in the usual and ordinary course of the business of banking. In support of their contention, counsel cite Bank v. Armstrong, 152 U.S. 346, 14 Sup.Ct. 572; Bank v. Kennedy, 167 U.S. 362, 17 Sup.Ct. 831; Armstrong v. Bank, 27 C.C.A. 601, 83 F. 556; Id., 31 U.S.App. 75, 13 C.C.A. 47, and 65 F. 573.

Bank v. Armstrong was an action brought by the Western National Bank of New York against Armstrong, as receiver of the Fidelity National Bank of Cincinnati, Ohio, to recover the sum of $207,290, on account of a loan made by the New York bank to the Ohio bank. There was no evidence that the vice president of the Ohio bank, who acted for said bank in the transaction, had received special authority from the board of directors to borrow the money. Justice Shiras, speaking for the court, said:

'It might even be questioned whether such a transaction would be within the power of the board of directors. The powers expressly granted are stated in the eighth section of the national bank act (Rev. St. Sec. 5136, par. 7): A national bank can 'exercise by its

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