Westwater v. Lyons
| Decision Date | 23 February 1912 |
| Docket Number | 87 (1,564). |
| Citation | 193 F. 817 |
| Parties | WESTWATER v. LYONS. |
| Court | U.S. Court of Appeals — Third Circuit |
James G. Westwater (Burleigh & Challener and E. Y. Breck, on the brief), for plaintiff in error.
John S Wendt, for defendant in error.
Before GRAY, Circuit Judge, and BRADFORD and YOUNG, District Judges.
This action was originally brought by the defendant in error, as receiver, against Westwater, the plaintiff in error, to recover the sum of $37,500 on a promissory note. The case was pleaded to issue and tried in the court below. At the conclusion of the hearing, the court took the case from the jury and instructed them to find a verdict for the defendant reserving for further consideration the question of liability. Thereafter the court denied a motion by the plaintiff for judgment, non obstante veredicto, for the full amount of the note sued on. 173 F. 111. The receiver thereupon sued out a writ of error, and this court reversed the judgment of the court below, with a venire de novo, on the ground that there were disputed questions of fact which should have been submitted to the jury. 181 F. 681, 104 C.C.A. 663. The cause then came on for trial for the second time before the court below and a jury, which resulted in a verdict for the receiver, and judgment was entered in his favor in the sum of $43,425. On a writ of error sued out by Westwater, the defendant below, the case is again before this court.
The material facts disclosed by the record are as follows:
About January 1, 1905, the Cosmopolitan National Bank decided to increase its capital stock from $200,000 to $500,000, said increase consisting of 3,000 shares of the par value of $100 each, which were offered to subscribers at $125 per share. After all but 300 of the said 3,000 shares had been subscribed for, F. H. McKinnie, who was second vice president of the bank, procured one J. D. Lyon to make his promissory note for $37,500 (the value of 300 shares at $125 per share) dated July 5, 1905, and payable on demand to the order of said McKinnie, who indorsed the note and delivered it to the said bank, which discounted it, and the proceeds thereof having been credited on its books to F. H. McKinnie, were then applied to the bank's increased capital stock account. Thereupon the bank in due course issued certificates for the said 300 shares of its stock to certain of its directors, to which of them does not clearly appear from the record. On July 13, 1905, a report was made by the bank to the Comptroller of the Currency, that the increased capital stock, amounting to $300,000, had been paid in, and the Comptroller then issued his certificate to that effect and the bank thereupon commenced and thereafter continued to do business on the basis of a paid-up capital stock of $500,000. (See section 5142 of the Revised Statutes (U.S. Comp. St. 1901, p. 3462) providing that 'no increase of capital stock shall be valid until the whole amount of such increase is paid in. ') After the 300 shares of stock had been issued, it was transferred to and held by McKinnie, McClurg and Richmond, members of the board of directors of the bank, who agreed among themselves and with the cashier, D. J. Richardson, that the certificate for the said 300 shares should be so held for sale to such persons as might be induced to purchase them. As a matter of fact, no purchasers were ever found for this stock. The said note of J. D. Lyon for $37,500 was regularly discounted and entered on the books of the bank and carried as an asset until February, 1907, when the bank examiner and the Comptroller of the Currency objected to the same as an asset, because Lyon had failed in business and McKinnie's credit was not good. They therefore required the directors of the bank to have Lyon's note paid or some good commercial paper substituted therefor.
McKinnie, after testifying that he was a director and vice president of the bank at the time of all these transactions, says:
'The cashier asked me if I could procure him a note for $37,500 for the bank's use; to use in place of a note for $37,500 made by J. D. Lyon for 300 shares of stock, as the bank examiner had requested him to take the Lyon note out or have it stiffened up.'
That his friend, Westwater, from Columbus, Ohio, then happened to be in town, and he thought he would try to get him to make a note for the purpose. According to Westwater, he and McKinnie were great friends. McKinnie testifies that he asked him as a personal favor to make the note for $37,500, as the bank wanted to use it in place of a note that had been taken out; that Westwater asked, 'What assurance have I that I won't be held responsible?' and that he said:
He then testifies that he, McKinnie, went to the bank and told the cashier and president, and they agreed to give him a letter. He says, also, that he told Westwater that 300 shares of stock were lying in the bank, 'that we were selling it, or endeavoring to sell it, in order to take this note up. ' Richardson, the cashier, and McClurg, the president, seem to have authorized this statement by McKinnie to Westwater, that the note was for the bank's use, without stating what use, and that he would not be called upon to pay it. Westwater's testimony was to the same effect. He testifies at some length, and with some conflict with his testimony in the former case, that McKinnie did not tell him anything, except that he wanted that piece of paper for the bank, and that he was not to be held responsible on the note. When asked if it were made as an accommodation to McKinnie, he answered 'No,' that it was for an accommodation to the bank that he made the note and delivered it to McKinnie, and on the understanding that he was not to be held responsible for it, he told him that he would do it for them, and the note was made payable to Mr. Bean, the uncle of McKinnie, and there is evidence tending to show that Bean indorsed it and that McKinnie delivered the same to the bank in lieu of the Lyon note.
This was substantially the evidence in the former trial, at the conclusion of which, as we have said, the court below instructed the jury to render a verdict in favor of the defendant, which this court reversed on the ground that the liability was not a question of law for the court, but a question of fact for the jury, depending largely upon whether Westwater, the maker of the note, made it for the accommodation of McKinnie or of the bank. Judge Lanning, who , used the following language:
This was said without special reference to the letter which McKinnie promised Westwater, as a condition of his signing the note, the cashier would send him, corroborating his (McKinnie's) statement that the note was for the bank's use, and that Westwater would not be called upon to pay it. McKinnie's testimony is, as above stated, that, after his interview with Westwater, he reported the same to Richardson, the cashier, and McClurg, the president, who both assented to the giving of the letter which was accordingly sent the next day to Westwater at his home in Columbus, Ohio. The note is as follows:
D. J.
D. J. Richardson, Cashier.'
Westwater renewed this note from time to time until the note in suit was given. He paid no interest at renewals, and the bank applied the dividends on the 300 shares of its own stock held by it to such interest payment. There is no direct evidence that Westwater knew of the precise character of the transaction between McKinnie and the officers of the bank, or of the deception practiced by McKinnie and his associates upon the Comptroller of the Currency, by which the latter was induced to believe that the whole of the $300,000 of increased capital...
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