State Sav. Bank of Ionia v. Montgomery

• Court: Michigan Supreme Court
• Writing for the Court: MOORE, J.
• Citation: State Sav. Bank of Ionia v. Montgomery, 126 Mich. 327, 85 N.W. 879 (Mich. 1901)
• Decision Date: 25 April 1901
• Parties: STATE SAV. BANK OF IONIA v. MONTGOMERY.

85 N.W. 879

126 Mich. 327

STATE SAV. BANK OF IONIA v. MONTGOMERY.

Supreme Court of Michigan

April 25, 1901

Error to circuit court, Ionia county; Frank D. M. Davis, Judge.

Action by the State Savings Bank of Ionia against Alexander T Montgomery. From a judgment in plaintiff's favor defendant brings error. Affirmed.

John Nichol and R. A. Hawley, for appellant.

George E. M. A. Nichols, for appellee.

MOORE J.

The plaintiff sued defendant to recover the amount due on two notes reading as follows:

'$1,500.00. Ionia, Mich., Nov. 20th, 1897. Ninety days after date I promise to pay to the order of State Savings Bank of Ionia Michigan, fifteen hundred and 00/100 dollars, at the State Savings Bank of Ionia, Michigan, with 7 per cent. interest after date. Value received. A. T. Montgomery.'

'$1,000.00. Ionia, Mich., Nov. 20, 1897. Ninety days after date I promise to pay to the order of State Savings Bank of Ionia, Michigan, one thousand ond 00/100 dollars, at the State Savings Bank of Ionia, Michigan, with 7 per cent. interest after date. Value received. F. A. Sessions.'

On the back of the last note is written, 'A. T. Montgomery.' The circuit judge directed a verdict in favor of the plaintiff. The defendant has brought the case here by writ of error, asserting the case should have been submitted to a jury.

The predecessor of the plaintiff bank was the First National Bank of Ionia. Mr. Sessions was a cashier of this bank from 1880 until the plaintiff bank became its successor, when he became the cashier of the plaintiff bank, and continued to be so until the last of March or the first of April, 1898, at which time it was learned that he was in debt to the bank in a large amount, and was insolvent. The notes sued upon were given for the benefit of Mr. Sessions. Mr Montgomery was an accommodation maker of one note, and an accommodation indorser of the other. When he attached his name to these notes, he knew they were to be discounted by the plaintiff bank. The bank had a discount committee, whose duty it was to pass upon original loans; and an examining committee, whose duty it was to look after the paper taken by the bank. The members of both of these committees testified they had no knowledge the first note was made for the accommodation of Mr. Sessions, but supposed it a note given by Mr. Montgomery in the due course of business. The discount committee knew the $1,000 note was indorsed by defendant as accommodation indorser, but the members of the committee all deny them knew there was any defect in the paper. The record shows defendant was a customer of the bank, and had been for some time. The discount committee had fixed his line of credit at from $3,500 to $4,000. Outside of the two notes in question, the defendant was a borrower in small amounts, for which he put collateral securities in the hands of the cashier. It is claim of the bank officers that they supposed all his notes were secured by these collaterals, and that when the examining committee questioned Mr. Sessions why the paper was not paid when it was due they were assured by him that defendant was shipping horses at the time, and needed the money in his business, but the paper was secured by collaterals. When the pleadings in the case were first put in, the defendant gave notice that he would show he received no consideration for the notes, but they were made for the benefit of Mr. Sessions; that on the 15th of March, 1898, he intended to require of Mr. Sessions, who was then solvent, indemnity against loss on the notes, but was informed by him that the $1,500 note had been paid, and, relying upon this statement, he renewed the $1,000 note; that he would not have done so if he had not believed the statement to be true. It was the claim of defendant that the notes in controversy were given by him he supposing they were renewals of notes which had been given before, the proceeds of which were used by Sessions. Upon the trial of the case some of the books of the bank were introduced in evidence, and it is claimed by defendant they showed that when the two notes in controversy were made the two notes of like amount, for which Mr. Sessions said the notes in controversy were given as renewals, had in fact been paid. The defendant obtained leave to amend his plea according to his understanding of the facts. It is the claim of the bank that, though the books show Mr. Sessions gave a check for the amount of the notes, and the notes were charged to him upon the books of the company, they were not in fact paid. It is also the claim that, whether this was so or not, as the cashier of the bank was acting in his own interest when the notes were discounted, his knowledge of his fraud in procuring the paper is not to be imputed to the bank, and that, as the bank discounted the paper without any knowledge by any other officer of the bank of any fraud in its procurement, the bank was entitled to recover the full amount of the notes. In directing a verdict for the plaintiff, the circuit judge expressed himself in part as follows: 'My view of the law is, the right to borrow funds from the bank on accommodation paper was not within the scope of Mr. Sessions' authority as the cashier, under the law. It appears from the evidence that Montgomery knew of the character of the paper that was given, and its purpose, and that it was to be used for the private benefit of Mr. Sessions, made payable to the bank, and in law was presumed to know that Mr. Sessions had no authority to loan the money in this way without authority derived expressly from the board of directors. It was a transaction that, to bind the bank, in my judgment required specific authority on the part of the directorate; and, when dealing with the cashier under the circumstances shown here, must, before he can secure the benefit of his defense interposed here, show that such authority was conferred; otherwise, it will be held not to be done with authority. The cashier, in law, has no legal right to make notes running to the bank to pay private debts. A private maker or indorser lending his name for such a purpose is participating in the act of the cashier, and, unless the same was by authority and knowledge of the directorate, was ratified. In this case no such sufficient knowledge exists, and no such authority to bind the bank; hence his defense is not a sufficient one. The directorate are in law bound to protect the funds of the bank, not for their own benefit, but for the benefit of those doing business with them in the regular way; and they are not in law bound to inquire into every transaction to see that no fraud is committed upon parties who have assisted the cashier in diverting funds from their proper place to his own credit. It must be supposed that the party intended to be what he appeared on the paper, without it was brought to their knowledge, and, knowing it, they permitted the cashier to handle it as he saw fit. It is to be regretted in this case that Montgomery must lose through the fraud and wrong of the cashier, and innocently on his own part; but, if he lends his name in prejudice of the rights and interests of the bank, although ever so innocently, and as a result, without knowledge on the part of the directorate, a wrong was done to him by the party for the benefit of whom he lent his name, he cannot now complain. It must be considered he lent his name to be used on the paper of the bank in a transaction in which the cashier had no right to act without authority, and where he was acting for himself; and this put him upon his inquiry if he desired to hold the bank for any wrong or fraud he claims had been perpetrated by the cashier, for, without express notice or authority from the directorate, Mr. Sessions could not release him. It is a rule of law that persons dealing with an agent, knowing that he acts by delegated authority, must, at their peril, see in each case that the facts upon which they rely come within the power delegated. Upon the other question, I think the evidence does not clearly show such a change of position on the part of Montgomery as to make the defense in this case available.' It is the claim of defendant, through his counsel, that there is reversible error: 'First. Because the notes in question were procured by means of the false representations of said Sessions, relied on by the defendant; and that Sessions, as plaintiff's cashier, having acted for the plaintiff in accepting said notes on the part of the bank, the plaintiff became and was chargeable with Sessions' knowledge of the fraud used by him in procuring such notes to be signed by defendant. Second. Because the plaintiff had notice or knowledge of the accommodation character of said notes, so far as defendant's connection therewith is concerned, and was chargeable with the knowledge possessed in that regard by its cashier, Mr. Sessions, who acted on the part of the bank in accepting such notes, and was bound by Mr. Sessions' statement made by him to the defendant on March 15, 1898, that the fifteen hundred dollar note had been paid; particularly, if the jury found such statement was made, and the defendant was misled by it to his injury.' It is very clear from the record that, unless the knowledge Mr. Sessions possessed is to be imputed to the bank, the latter had no knowledge of any want of consideration for the notes. If the knowledge of the cashier is to be imputed to the bank, then it had full knowledge that Mr. Montgomery received nothing for the notes. It is said by the defendant that the cashier is the executive officer of the bank, and is held out as its general agent in the negotiation and disposal of the notes, securities, and other funds of the bank; that it is his duty to receive payment of the notes held...