The herald., 1895-08-13
A RASCALLY TRANSACTION
Another San Diego Bank Case
Decided by Judge Ross
PLAIN TALK FROM THE BENCH
The Rotten Methods OF the Defunct
Corporation Outlined
Statements Which Were Too Much Of Tax
on His Honor's Creduiity-A
Fraudulent Showing

In the United States circuit court yes
terday Judge Ross gave decision in the
case of Frederick N. Pauley, receiver.
etc., vs.. J. Il. O'Brien, one of the nu-
merous suits growing out of the failure
of the California National hank OF San
Diego. In his decision Judge Ross goes
into the rotten methods of the defunct
concern, and gives free expression 10 the
judicial opinion in nmistakable terms.
The decision, which is Of general interest
as indicating the methods by which the
institution in question was wrecked, is
as follows:
'"This is another OF the rascaly trans
actions di.closed in suits brought before
this court in connection with the insolv-
ent California National bank of San
Diego. The action is upon promissory
note executed by the defendant to the
bank, and is subm tilted to tho court upon
an agreed statement of facts which shows,
first, that the facts alleged In the COM
plant, which is in the ordinary torn in
such actions, are true; ana. second. the
purpose of the note and the crcum-
stances under which it was executed,
which ure, in substance, as follows: On
the 18th day OF November, 1889. one Nay.
lor was indebted to the bank in the sum
of So. 7l440, evidenced by his promissory
note. secured by the deposit with the
bank of lot of jewelry as collateral.
Naylor was insolvent. and on the day
named the bookkeeper OF the bank, who
was brother of the defendant. at the
instance of its vice-president, one d. d.
Dare, asked the defendant to give his
note to the bank in place of and to take
up that OF Naylor. at the time stating
that Navlor's note was past due and was
QacuroJ hu Iloto Uh ba.
lieved to be ample to pay the note and
that the bank wanted to get the note out
of the past due notes and that the Nay
lor note and collaterals were to be collat-
eral to the note to be given by him and
would wipe his note out when the collat
erals we're disposed OF. assuring him that
the bank held jewelry as collateral sutfic-
lent to pay it, The defendant consented
to this request and pursuant thereto exc
Cuted his note to the bank of the sum Of
$37l4.40. and the Naylor note was entered
as paid on the books of the bank and the
O'Brien note was entered as a discount
for its face. Thereafter the bank sold
some or all of the Jewelry for the sum
of $3.50 and credited that amount on the
note, given by the defendant Subse-
quently on tine 2lst of March. 1891, the
bank informed the defendant of the sale
at which Time lie executed to tie bank
new note for the amount of the first one
the jewelry and still Later, to-wit, OIL the
2lst day OF July. 1891. the defendant ex-
ecuted to the bank in renewal of the last
mentioned the note sued on herein, the
amount Of which was the amount of the
note Of March 81, 1891, without interest.
Each and all of the notes executed by
the defendant, proceeds the agreed state-
ment were given without any ether con-
si1eTation than here stated, and that the
only knowledge said Naylor had OF the
matter was that Dare told him that the
iewelry bad been sold. and applied on the
note. The Naylor note had been carried
ard each OF the O'Brien notes were
carried among the assets OF the bank
upon its books and in its statements to
the com ptroller as an asset for their face.
Upon these f1cts | think it clear that
the plaintiff is entitled to judgment. 1t
is said for the defendant that the note
sued on was without consideration. Not
81, according to the agreed statement OF
the facts. for iE is there stated that it was
executed IN place OF and to take up the
nute of Naylor. then represented by the
bank officers to be past DIE and to be &C.
cured by collaterals which were believed
to be ample to paw it, and which they rep
resented tie bank wanted to set ''out Of
the past due notes." and which. together
with the collaterals, were to stand as COL
lateral to the note executed by tho defend
ant, upon the execution OF which the
Naylor note was entered as paid on the
books of the bank, and the defendants
note was entered thereon as a discount
for its face 1t thus appears that the de-
fendant executed his first note, subse-
Quently renewing it from time to time,
and ultimately by the note in the sui for
the purpose Of having it take the place of
the Naylor note. which, together with the
collaterals, were to be collateral to the
note given by him. If, however, this
was not really the case, but that. in truth,
the transaction was mere trick to make
it appear TO the government and to the
creditors and stockholders of the bank,
that it had valuable note when in fact
it did not have one, the result must be the
same, for, when parties employ legal in
struments of an obligatory character for
fraudulent and deceitfnl purposes, it is
sound reason. as well as pure Justice, to
leave him bound who has bound him self
1t will never do for the courts to hold that
the officers of bank by the connivancs
of third party. can give to it the SEM
blance of solidity and security. and, when
its Insolvency is disclosed, that the third
party can escape the consequence of his
fraudulent net. Undoubtedly, the trans
action in question originated with the
officers of the bank, but to it the defend
ant became willing party. 1t would re-
lieve that tho defendant. when his
brother, who was the book-keeper OF the
bank, came to him with the proposition
of its vice-president. in its every sugges.
tion and essence deceptive and fraudulent,
did not know its true character and pur-
pose. So far as it appears, Naylor was a
total stranger to him. Why should he ex-
ecute his note to bs take up the note of
Naylor? What moved him to do it, ex
cept to enable the officers OF the bank to
supplant the overdue note of Nayior with
a live note. which he now insists was
without consideration and purely volun-
tary. but which enabled the bank officers
to make deceptive, and. therefore, fraud
ulent showing of assets? Obviously,
nothing.
There will he judgment for the plant
iff for The amount due upon the note sued
upon, according to its terms. with costs :"
The circuit court trial calender was also
called, and the various cases set for trial,
after which court adjourned until this
morning.
A Railroad Man