United States Nat. Bank v. First Nat. Bank, 823.

• Decision Date: 01 March 1897
• Docket Number: 823.
• Parties: UNITED STATES NAT. BANK v. FIRST NAT. BANK OF LITTLE ROCK et al.
• Court: U.S. Court of Appeals — Eighth Circuit

79 F. 296

UNITED STATES NAT. BANK v. FIRST NAT. BANK OF LITTLE ROCK et al.

No. 823.

United States Court of Appeals, Eighth Circuit.

March 1, 1897

John Fletcher (W. C. Ratcliffe with him on the brief), for plaintiff in error.

Sterling R. Cockrill (Ashley Cockrill with him on the brief), for defendants in error.

Before SANBORN and THAYER, Circuit Judges, and LOCHREN, District judge.

THAYER Circuit Judge.

This is the second writ of error which has been sued out in this case by the United States National Bank of New York, the plaintiff in error, hereafter termed the 'New York Bank.' When the case was here formerly (13 C.C.A. 472, 64 F. 985), we decided that the notes on which the suit is brought were in such form, and were so indorsed, when they were tendered to the New York Bank for discount, as to create the presumption that they were the property of the First National Bank of Little Rock, the defendant in error, hereafter termed the 'Little Rock Bank,' and that they had been acquired by the latter bank in the usual course of business, for value. We further held that this presumption was confirmed by the correspondence between the two banks relative to the discount of the notes, and that an instruction given by the trial court on the first trial was erroneous which told the jury, in substance, that the notes bore upon their face evidence which should have satisfied the New York Bank that they belonged to H. G. Allis, the president of the Little Rock Bank; that he was discounting paper which belonged to himself, and was using the name of the Little Rock Bank as an indorser for his own accommodation.

The facts proven on the second trial do not differ in any material respect from those proven on the first trial, and do not alter the conclusions announced in our former opinion. The New York Bank was the Eastern correspondent of the Little Rock Bank. Between June 21, 1892, when business transactions between the two banks commenced, and December 13, 1892, when the notes in suit were tendered for discount, the New York Bank had discounted, from time to time, for the Little Rock Bank, as the necessities of its business required, paper to the amount of about $175,000, the proceeds of which the Little Rock Bank had received and used. The application for the discount of the notes in suit was made both by W. C Denney and H. G. Allis, who were, respectively, the cashier and the president of the Little Rock Bank, in letters which clearly showed that the discount was sought for and in behalf of the bank; and the reasons stated for asking the discount were such as would naturally disarm suspicion, namely, that the bank's customers were not shipping and selling their cotton, but were waiting for higher prices, which compelled the bank to rediscount some of its bills receivable. Besides the cashier of the Little Rock Bank acknowledged the receipt of the proceeds of the notes in suit when they had been placed to the bank's credit by its Eastern correspondent. It must be held, therefore, that the record made on the last trial discloses no defense which should preclude the New York Bank from recovering against the Little Rock Bank as an indorser of the notes in suit, notwithstanding the fact that H. G Allis, the president of the latter bank, did wrongfully appropriate the proceeds of the rediscount, unless it be true, as contended, that the plaintiff bank could not lawfully deal with the officers above named in the matter of rediscounting paper without first ascertaining that they had been authorized by the board of directors to rediscount the notes in controversy, and that the president had been authorized to indorse them.

The second trial of the case was conducted on the theory, which was embodied in the charge of the trial court, that a rediscount by a bank of its bills receivable, where the paper is indorsed, constitutes a borrowing of money by the bank; and that the president of a national bank, by virtue of his office, has no power to indorse its commercial paper, or to rediscount its bills receivable. Proceeding from these postulates, the trial court further instructed the jury, in substance, that there was no evidence that the president of the defendant bank had any actual authority to indorse and rediscount the notes in suit; and that, before there could be a recovery, the plaintiff bank must show affirmatively that the board of directors of the defendant bank either knew that its president had previously exercised the power of indorsing and rediscounting its bills receivable, or that he had been permitted, without their actual knowledge, to exercise such powers, through a series of transactions such as would amount to a custom to do so, or else that the board of directors had negligently permitted him to carry on such a course of dealing with the plaintiff bank as to induce the latter to believe that the board of directors of the defendant bank had conferred upon the president thereof the power to indorse and rediscount its bills receivable. To all of these instructions exceptions were taken, and they constitute the errors to be reviewed.

We are of opinion that that part of the aforesaid charge which declared that a rediscount by a bank of its bills receivable if it indorses the same, is a borrowing of money, and that part which declared, in substance, that the president of a national bank has no implied power to indorse its commercial paper, were erroneous. There is an obvious difference between a transaction where a bank goes into the market as a borrower, giving its own notes, bills, or other obligations for the money borrowed, and a transaction where it disposes of the notes and bills of third parties which it has previously discounted. In the former case it becomes primarily bound; it is the principal debtor; while in the latter, even if it indorses the paper, it only incurs a contingent liability, which may never ripen into an absolute obligation to pay. The latter transaction has more, if not all, of the characteristics of a sale, and it is generally regarded as a sale whereby assets of a certain kind are converted into cash. It may be said that a bank or an individual borrows money when they execute their own notes or bills, and receive the money thereon from a third party, even though the interest to accrue is deducted in advance, in the form of a discount. But we can see no propriety in characterizing the transaction as a borrowing of money, when a person or a corporation sells commercial paper made by third parties, which they happen to own. There are some authorities, it is true, which maintain that the president of a bank has no implied power to bind the bank by an indorsement of commercial paper, and that, when an indorsement by the president is relied upon as transferring a title thereto, a special authority to indorse must be shown. Smith v. Lawson, 18 W.Va. 212, 228; Bank v. Hamlin, 14 Mass. 178, 180; Gibson v. Goldthwaite, 7 Ala. 281, 293. But we think the weight of reason and authority is in favor of the view that it is within the scope of the implied powers of the president of a bank to indorse negotiable paper in the ordinary transaction of the bank's business, and that a special authority to that end need not be conferred by the board of directors. Such implied power is generally conceded to bank cashiers, and we know of no sufficient reason why the implied powers of the chief executive officer of a bank should be more limited in this respect than those of its cashier. Bank v. Smith, 23 C.C.A. 80, 77 F. 129, 135; Fleckner v. Bank, 8 Wheat. 338, 360; Wild v. Bank, 3 Mason, 505, Fed.Cas.No. 17,646; Bank v. Perkins, 29 N.Y. 554, 569; Cooke v. Bank, 52 N.Y. 96, 114, 115; Bank v. Wheeler, 21 Ind. 90; Merchants' Bank v. State Bank, 10 Wall.604, 650. It can hardly be expected that the cashier of a bank will be in attendance on all occasions when it becomes necessary for the bank to indorse notes and bills, draw drafts and checks, certify checks, or issue certificates of deposit. Such transactions as these are of hourly occurrence in all banks located in large business centers, and the exigencies of business demand that the power to perform such acts should be vested in some other officer as well as in the cashier. Our observation teaches us that such power is very generally exercised by bank presidents; and in ordinary transactions, no layman, we think, would hesitate to accept negotiable paper which had passed through a bank, because it was indorsed by the president, rather than by the cashier. In its practical operation the rule that a bank president has no implied power to indorse commercial paper for and in behalf of his bank would...