United States v. Morse

• Decision Date: 29 April 1908
• Citation: 161 F. 429
• Parties: UNITED STATES v. MORSE et al.
• Court: U.S. District Court — Southern District of New York

161 F. 429

UNITED STATES v. MORSE et al.

United States Circuit Court, S.D. New York.

April 29, 1908

[Copyrighted Material Omitted]

Henry L. Stimson, U.S. Atty.

Wallace Macfarlane, for defendant Morse.

William M. K. Olcott, for defendant Curtis.

HOUGH District Judge.

The 29 counts of this indictment may be conveniently divided into (1) Misapplication counts (21-29, inclusive), charging defendants with willful misapplications of the funds of the National Bank of North America, in violation of Rev. St. Sec 5209 (U.S. Comp. St. 1901, p. 3497). (2) Count No. 1, charging a conspiracy to defraud the United States in respect of its sovereignty or power. (3) Counts 2 to 11, inclusive, charging conspiracies under Rev. St. Sec. 5440 (U.S. Comp. St. 1901, p. 3676), to make false entries in books and reports in violation of Rev. St. Sec. 5209 (U.S. Comp. St. 1901, p. 3497). (4) False entry counts (12-20, inclusive), charging substantive violations of Rev. St. Sec. 5209, by making false entries in bank reports made to the Comptroller of the Currency.

1. The Misapplication Counts.

The important words (so far as these counts are concerned) of section 5209 are as follows:

'Every president, director * * * or agent of any association who * * * willfully misapplies any of the moneys, funds or credits of the association * * * with intent * * * to injure or defraud the association * * * or any individual person, * * * and every person who with like intent aids or abets any officer * * * in any violation of this section shall be deemed guilty of a misdemeanor.'

All these counts are alike in their method of stating the alleged offense. Each in the same form of words alleges the willful misapplication of a specific sum of money in substantially the same way. Reduced to its simplest form, by omitting formal words and many epithets and adjectives common in all pleadings, the material parts of the twenty-first count are as follows:

Morse and Curtis, being officers of the banking association, willfully and fraudulently and with intent to injure and defraud the association for the use, benefit, and advantage of Morse, did misapply certain moneys of the association, viz., $126,000.

This is the charging part, and follows substantially the language of the statute. Then is declared the manner and means by which the alleged violation occurred. And, again omitting repetitions, legal verbiage, and condemnatory adjectives, the story is as follows:

Morse made a certain check on the Bank of North America, payable to the order of Augustus Heinze, for $126,000, and delivered the same to Heinze, Morse at the time knowing that he did not then have on deposit with said association the amount specified therein; and Morse as vice president and Curtis as president caused to be paid upon said check $126,000 of the moneys of the association, in excess of all amounts which Morse was then entitled to draw out of the moneys, funds, and credits of the association. Morse and Curtis then intended that Morse should appropriate and convert to his own use said $126,000, although they then well knew said $126,000 so paid as aforesaid was not on deposit with the association by Morse, and was not due and owing by and from the association to Morse. Repayment thereof to the association was not in any way secured, and Morse had no right and title to the same.

The wording of this count is very different from that of the indictment lately considered by this court in United States v. Heinze, 161 F. 425, in that it does not expressly charge that the transaction complained of was without the knowledge or consent of the national bank or its directors, does not assert that the money paid on the check was wholly lost to the banking association, and does not totidem verbis allege an actual conversion by the accused of the moneys, funds, and credits of the bank at the time of the payment of the check. The demurrer, therefore, raises the inquiry whether an indictment which in substance alleges an overdraft, asked and granted with intent to defraud the paying bank, and with intent that the person receiving the overdraft should convert the proceeds thereof to his own use in fraud of the bank, constitutes a legal statement of the crime of willful misapplication under section 5209.

The position of defendants is that the absence of allegations (a) that the overdraft payment was unauthorized, or (b) that there was an actual conversion of the amount paid, or (c) that the money was in some way absolutely lost to the bank, renders the indictment insufficient, because it does not properly negative the presumption of law that a mere overdraft is not an illegal transaction and cannot of itself constitute a willful misapplication of the paying bank's resources. This form of indictment under section 5209 has been repeatedly used in this district. It follows (mutatis mutandis) several of the counts in United States v. Fish (C.C.) 24 F. 585, and is also in legal effect identical with the ninety-ninth count in Evans v. United States, 153 U.S. 584, 14 Sup.Ct. 934, 38 L.Ed. 830; in both which cases indictments were found and convictions had, subsequent to the decisions in United States v. Britton, 107 U.S. 655, 2 Sup.Ct. 512, 27 L.Ed. 520, and 108 U.S. 192, 2 Sup.Ct. 525, 27 L.Ed. 703.

However unfortunate, if not unnecessary, was any departure from the plain rule that a statutory misdemeanor is sufficiently alleged in the language of the statute, the Britton decisions are plain that not every misapplication is a crime under the act, and that the test (or at least a test) of criminal misapplication is that there must be a conversion of the moneys, funds, or credits of the association by the accused, either for his own use or that of some person other than the injured bank. This is more than a rule of pleading. Unless such conversion be shown in evidence there can be no conviction; but it follows from this substantive law that an indictment alleging willful misapplication must show upon its face the criminality of the transaction described and negative an innocent interpretation, if one be possible. 107 U.S. 669 et seq., 2 Sup.Ct. 512, 27 L.Ed. 520. The Britton decisions, however, do not declare any hard and fast method of pleading under section 5209, as is abundantly shown by the later decisions in the same court.

The Fish Case, supra, was decided in the light of the Britton opinions, and the judgment of Benedict, J., on this point was concurred in by Judges Wallace and Brown-- a concurrence in my opinion of the greatest weight. The count considered was in form exactly like the one at bar, and this court decided that the Britton discount indictment (108 U.S. 192, 2 Sup.Ct. 525, 27 L.Ed. 703) was held bad only because it was not charged that the discount was originally procured by fraudulent means, and the stock purchase indictment (107 U.S. 655, 2 Sup.Ct. 512, 27 L.Ed. 520) was bad because of total failure to charge any criminal misapplication at all; the implication being (continued Benedict, J.) that, had the act of discount 'been done in bad faith and with intent to defraud,' it would have been punishable under section 5209 .

In the Fish indictment and the count at bar bad faith and intent to defraud are charged in general terms and with respect to the original creation of the overdraft. It was therefore held that the indictment against Fish was good, and it follows that that decision is an authority directly opposed to defendant's contention in this case.

Two years after the Fish decision, U.S. v. Northway, 120 U.S. 327, 7 Sup.Ct. 580, 30 L.Ed. 664, was decided. I have not been able to examine the indictment therein, and the question certified was not one of pleading; but the court (after reiterating the rule in Britton's Case) said:

'When it is charged * * * that the defendant did willfully misapply certain funds of the association by causing them to be paid out to his own use and benefit in unauthorized and unlawful purchases, without the knowledge and consent of the association and with intent to injure it, this completed the offense of willful misapplication.'

This reference to the knowledge and consent of the association, and its possible authority to do the act complained of, must be read in connection with Evans v. U.S., 153 U.S. 584, 14 Sup.Ct. 934, 38 L.Ed. 830, and, as so read, the Northway decision is not opposed to that in Fish's Case.

In 1893, with the Britton and Northway Cases before him, Judge Benedict decided United States v. Eno (C.C.) 56 F. 218. The Eno indictment had been found in 1884, and reasons for hearing a demurrer thereto in 1893 do not appear on the record. Contemporary local history may furnish some excuse for perfunctory argument, but the judgment requires respectful attention. Eno was charged with causing a payment to be made to Dyett of moneys of the Second National Bank, of which he was president. The court held that the indictment did not charge that the money was paid to or received by Dyett to Eno's use, nor that such payment to Dyett was really a payment to Eno, wherefore it was not shown that the payment was unlawful as to Dyett, and the count was bad under the rule in Britton's Case. This as a statement of general law need not be here disputed, but it is inapplicable to this indictment without departing from the Fish Case, which as a pronouncement of the full court is of superior authority. The further ruling of the Eno Case that allegations of 'intent to defraud' or 'intent to injure' are mere surplusage is opposed to the later decision in Evans v. U.S., 153 U.S. 584, 14 Sup.Ct. 934, 38 L.Ed. 830, and must be disregarded.

The Evans Case contains, as above noted, an overdraft count legally identical with the one at bar. Evans had...