Stearns v. Lawrence

• Decision Date: 07 December 1897
• Docket Number: 523.
• Citation: 83 F. 738
• Parties: STEARNS v. LAWRENCE.
• Court: U.S. Court of Appeals — Sixth Circuit

83 F. 738

STEARNS v. LAWRENCE.

No. 523.

United States Court of Appeals, Sixth Circuit.

December 7, 1897

The defendant in error, as receiver of the Northern National Bank, of Big Rapids, Mich., brought this suit by bill in the court below to recover from the appellant damages for alleged breach of trust and negligence on his part while the active managing officer and president of that bank. The original capital stock of the bank was fixed at the sum of $150,000 but was subsequently reduced, under the direction of the comptroller, to $100,000. The bank having failed and closed its doors to business, the appellee was, on the 5th of August 1893, appointed receiver of the bank by the comptroller of the currency, and entered upon the discharge of his duties as such receiver. The case as stated in the bill is as follows:

The appellant was president of the bank from its organization to about the 3rd of August, 1891, and La Fore S. Baker, his nephew, was cashier from the organization of the bank to January, 1887. After Baker ceased to be cashier, the entire control and management of the bank was in the hands of the president, exercising thereafter practically the powers previously exercised by both officers. On the 22nd of January, 1888, the bank held paper made by Baker, and indorsed by the Baker Lumber Company, to the amount of $15,000, and paper to the same amount made by the Baker Lumber Company, and indorsed by Baker. It was charged that the Baker Lumber Company was organized for the purpose of carrying on Baker's business, and to be used merely as a cover under which to obtain loans from the bank in excess of the amount permitted by law. Baker owned all the stock in the Baker Lumber Company, except a nominal amount, say one or two shares. It is charged that Stearns knew all of these facts and that the corporation had been organized merely for the purpose of obtaining a loan in excess of the amount allowed by law, and that, with knowledge of such facts, he made the loan above stated, making in the aggregate $30,000. On the 22nd of March, 1886, Baker sold to Anderson and Griffin certain pine lands for the sum of $50,000,-- $5,000 in cash paid down, and the note of Anderson & Griffin taken for the remainder, $45,000, payable at two years, with interest at 7 per cent. This note was secured by a mortgage upon the property sold, and Baker at the same time gave to Anderson &amp Griffin a written guaranty that the lands, together with some other logs mentioned, would produce 13,000,000 feet of pine lumber, and agreeing to refund, at the rate of $3.50 per M., for any number of feet short of that amount. The bill further charged that the defendant, Stearns, had full knowledge of all of the particulars of this entire transaction, including the guaranty against shortage or deficiency. On the 9th of February, 1887, Baker transferred the note and mortgage to Palmer & Brown, as security for a loan of $20,000, which they had made to him, upon his note indorsed by Stearns. Anderson & Griffin made payments upon the note and mortgage to Palmer & Brown, so that January 22, 1888, there remained a balance due to Palmer & Brown of $4,508.56, leaving still due at that time, on the Anderson & Griffin note, a balance of $23,089.12. On the 3rd of August, 1887, Stearns, acting for the bank, pursuant to an understanding with Baker, bought the Anderson & Griffin note and mortgage from Palmer & Brown, the transaction being closed the 22nd of January, 1888, on which date Stearns, acting for the bank, paid the balance due Palmer & Brown of $4,508.56, this being the balance on the note of Baker, indorsed by Stearns. Stearns took the assignment of the note and mortgage to himself, and at once transferred the same to the bank in payment of the note of the Baker Lumber Company, indorsed by Baker, of $7,500, and two notes of $5,000 each, made by Baker, indorsed by the Baker Lumber Company, these being parts of the indebtedness of the lumber company and Baker to the bank, previously referred to. The notes were canceled and delivered up, and the Baker Lumber Company given credit upon the books of the bank from the sum of $1,080.56, this being the balance of the whole sum due upon the Anderson & Griffin note. The $1,080.56 thus placed to the credit of the Baker Lumber Company was afterwards checked out. It was further charged that this purchase for the bank of the Anderson & Griffin note and mortgage was without the knowledge of the directors or other officers of the bank, and that Stearns conducted the same personally, with full knowledge of the guaranty made by Baker against any shortage in the pine lumber. The quantity of pine on the lands turned out to be below the number of feet guarantied by Baker, and bill was subsequently filed in the state court by Anderson & Griffin against the bank, Stearns, and Baker, for the purpose of obtaining an abatement or credit for the deficiency on their note then held by the bank, and charging knowledge on the part of the bank of the rights of Anderson & Griffin under the contract. Baker made no defense, but Stearns, who was charged with having full knowledge of the guaranty when he purchased the note and mortgage for the bank, conducted the defense for the bank, and also answered for himself. In both answers it was denied that Stearns or the bank had knowledge of the Baker guaranty at the time Stearns purchased the note and mortgage and paid Palmer & Brown. On final hearing, the court found that the bank and Stearns did in fact have knowledge of the guaranty, and decree went in favor of the complainant. The bank and Stearns both appealed to the supreme court, and the decree below, with a modification not affecting the present discussion, was affirmed. 57 N.W. 808.

It was decreed that, upon the payment by Anderson & Griffin to the bank of the amount paid by it to Palmer & Brown, Anderson & Griffin were entitled to have the note canceled and the mortgage discharged, it being found that there was a deficiency under the Baker Guaranty which entitled Anderson & Griffin to a credit of $19,250,-- a sum larger than the amount sufficient to discharge the balance due on the note at the time of its purchase by Stearns for the bank, after deducting the sum paid to Palmer & Brown, as to which sum it was held that the bank was an innocent holder. In this way the entire sum of the balance on the Anderson & Griffin note was discharged, and this sum, together with the credit checked out as before stated, was lost to the bank.

In his answer in this case, Stearns practically admits all the allegations of the bill except the charge that at the time he took the Anderson & Griffin note, and surrendered the paper of Baker and the Baker Lumber Company, he had any knowledge of Baker's guaranty. This is the only material thing denied in the answer, Stearns further setting up the statute of limitations in bar of the suit. The case is thus stated with reference to the substance and effect of the evidence, and such conclusions on the facts as the evidence taken as a whole fully warrants. It is not regarded as necessary or serviceable to refer to the proof in detail. The case was disposed of by the circuit court in a written opinion, with a full discussion of the facts and citation of authorities. The opinion is now published in Lawrence v. Stearns, 79 F. 878. Decree was rendered against appellant for $28,958.36, the damages sustained by the bank in consequence of the purchase of the Anderson & Griffin note, from which decree Stearns appealed, and has assigned error.

Albert Crane, Mark Norris, and Frederick W. Stevens, for appellant.

Niram A. Fletcher and George P. Wanty, for appellee.

Before TAFT and LURTON, Circuit Judges, and CLARK, District Judge.

CLARK District Judge, after stating the case, .

The discussion of the case at bar in this court has not taken so wide a range as it apparently did in the court below. In the brief and argument in this court, counsel for appellant have urged two principal objections as grounds for reversal: (1) It is insisted that the proof does not sustain the charge that appellant, Stearns, at the time the Anderson & Griffin note was taken, and other paper of the bank surrendered, had knowledge of the existence of the Baker guaranty, on account of which the balance of this note was subsequently lost to the bank; and (2) the statute of limitation is relied on. This second defense was briefly disposed of by the court below by stating that all knowledge of the real facts of this transaction was concealed by Stearns from the bank until a time clearly short of the time prescribed by the statute of limitation, which has been suggested as applicable to the case.

The precise language in which the appellant undertakes to avail himself of the statute of limitation, as stated in the answer, is this:

'And this defendant avers that if said transaction was a violation of sections 5137 and 5200 of the Revised Statutes of the United States, which this defendant does not admit, but expressly denies, then that all right of action for such violation, if any exists, has been and is barred by the statute of limitations.' In regard to this point, counsel in the brief say:

'This suit is for the statutory penalty, and therefore is barred by the United States statute of limitations. Rev. St. Sec. 1047. No suit * * * for any penalty or forfeiture, pecuniary or otherwise, accruing under the laws of the United States, shall be maintained, unless the same is commenced within five years from the time when the penalty or forfeiture accrued.'

It is obvious without further statement that the supposed application of the statute of limitation to this case grows out of a total misconception of the character of the suit and the ground on...