Source: https://caselaw.findlaw.com/us-supreme-court/303/471.html
Timestamp: 2019-04-21 17:12:19+00:00

Document:
[303 U.S. 471, 472] Messrs. George P. Barse, of Washington, D.C., and Robert E. Goodwin, of Boston, Mass., for petitioner.
Messrs. Frederic H. Chase and Raymond P. Baldwin, both of Boston, Mass., for respondent.
The Boston-Continental National Bank, established in December, 1930, through consolidation of Boston National Bank and Continental National Bank, became insolvent. December 17, 1931, a receiver appointed by the Comptroller of the Currency took charge of its affairs. Petitioner is his successor. Among the bank's effects were four 'Note-Guaranty' Bonds-$40, 000, $52,000, $20,000, and $20,000-alike in form, dated in August and December, 1930, and June and July, 1931, with certain 'endorsements' showing extensions. Each purported to be executed by the maker of a described note as principal with respondent as surety, and was conditioned to pay to the bank the amount of the note upon default, etc.
In the event of default on the part of the principal on any note the obligee shall notify the home office of the Surety Company at 80 John Street, New York City, New York, within ten (10) days by registered mail, of such default, and the Surety Company shall pay any liability hereunder, not exceeding the amount still unpaid on any or all of the aforesaid notes and in no event exceeding forty thousand dollars ($40,000.), said payment to be made by the Surety within thirty days after maturity of the final note.
Witness our hands and seals, and dated this 20th day of December A.D. 1930.
Westchester Discount Corporation, (Seal.) By Joseph Stone, Treas. Standard Surety & Casualty Company of New York By Percy G. Cliff, Attorney-in-Fact. [303 U.S. 471, 475] Answering, the company denied liability and alleged that, as the bank well knew, the bond was executed without authority, had been fraudulently obtained, was invalid.
___ 3. As to the allegations contained in the third paragraph of the bill of complaint, they say that the instrument, a copy whereof is attached to the bill of complaint marked 'A,' was duly executed by Westchester Discount Corporation by Joseph Stone, its treasurer, and was duly executed by the plaintiff, by Percy G. Cliff, its attorney-in-fact, and that an attested copy of said Cliff's general power of attorney was attached to the original instrument; that thereafter the plaintiff duly executed the instruments entitled 'Endorsements' by said Cliff, its attorney-in-fact, copies of which endorsements are attached to the bill of complaint marked 'C' and 'D'; that if a purported release was delivered to said Cliff by Continental National Bank by Terrell M. Ragan in the form attached to the bill of complaint marked 'B,' such purported release was delivered without authority of the board of directors of said Continental National Bank, was executed without consideration and is voidable and void. Except as aforesaid, they deny the allegations contained in said paragraph 3 of the bill of complaint.
4. They deny the allegations contained in the fourth paragraph of the bill of complaint.
5. They deny the allegations contained in the fifth paragraph of the bill of complaint.
6. Further answering they say that the condition of said instrument, copy of which is attached to the bill of complaint marked 'A' as extended by instruments, copies of which are attached to the bill of complaint marked 'C' and 'D,' has been broken in that Westchester Discount Corporation, the principal named in said instrument, has not paid the notes described therein according to their terms, but on the contrary has failed, refused and declined to pay said notes and still continues so to refuse, notwithstanding the fact that all times have elapsed and all conditions have been fulfilled necessary to entitle Boston-Continental National Bank and John B. Cunningham, receiver of said bank, the successors to the obligee described therein, to payment in full of said notes; that the plaintiff was duly notified of the default in accordance with the provisions of said instrument; that the damages sustained by these defendants on account of the default of said Westchester Discount Corporation are in excess of $40,000.
1. That the court determine the amount due from the plaintiff to Boston-Continental National Bank and John B. Cunningham, its receiver, and order the plaintiff to pay the same with interest.
2. For such further relief as the court finds meet and just.
We agree with the conclusion reached by the Circuit Court of Appeals. Its judgment must be affirmed.
An examination of the pleadings makes it quite clear that the receiver undertook to set up rights acquired by the insolvent bank through duly executed contracts between it and the surety company. He makes no suggestion of a purpose attributable to the company to mislead creditors or others; makes no allegations of damage, except that sustained by the bank. He sets up no facts which would render unconscionable a denial of liability upon the bond because of the agent's fraud obviously induced by the president of the bank. In this state of the pleadings the receiver may not have judgment; he cannot rely on something not complained of; nor can he have damages because of supposed deceptions which the pleadings fail to suggest.
In Rankin v. City National Bank, 208 U.S. 541, 545 , 546 S., 28 S.Ct. 346, 348, a suit by the receiver of the Capitol National Bank of Guthrie to recover the amount of an alleged deposit where it appeared 'that the whole business, from beginning to end, was and was intended to be, a mere juggle with books and paper to deceive the bank examiner,' this Court denied the receiver's claim and said: 'If the Guthrie bank had sued while it was a going concern, it could not have recovered, and the receiver stands no bet- [303 U.S. 471, 481] ter than the bank.' We adhere to the doctrine there approved and regard it as decisive of the present cause.
When two or more persons have jointly perpetrated a fraud with intent to injure others, justice and law combine to entitle injured parties to recover from any or all of the conspirators. Corporations can act only through agents. When, as here, two corporations, acting through authorized agents, have jointly perpetrated a fraud which was intended to-and did- injure others, a just rule of law should likewise hold both corporations jointly and severally responsible for the damages inflicted by them upon innocent parties.
The duly licensed agent of the surety company (respondent) conspired with the president of the bank to [303 U.S. 471, 482] supply indemnity bonds guaranteeing the payment of certain notes held by the bank, which bonds were to be placed among the assets of the bank for the purpose of deciving federal bank examiners, the bank's directors, and all others entitled to inquire as to the soundness of the notes; the surety company's agent also personally assured the examiners that the bonds were all right; no premium was paid the surety company and the bonds were intended by the respondent's duly authorized agent and the president of the bank to be valueless and used as 'window dressings' to accomplish deceptions; respondent's duly licensed agent had a power of attorney 'to make, execute and deliver ... for and on its behalf as surety, and and all bonds ... undertakings, or anything in the nature of any of them , ... to all intents and purposes as if same had been duly executed and acknowledged by the regularly clected officers of the company ...'; a copy of the power of attorney was attached to the bonds and the examiners inspected public records and verified the authenticity of this power of attorney; these bonds were executed after the examiners had notified the bank to make good an impairment of capital and the execution of these bonds caused the Comptroller to withdraw his order to make good the impairment, and as a result the bank continued to remain open, assumed additional obligations, and accepted further deposits in large amounts.
The receiver filed suits at law side to recover on the several indemnity bonds. The surety company proceeded in equity praying cancellation of the bonds. All actions were tried on evidence before a master and auditor 'under a stipulation that findings of fact shall be final.' These findings set forth all of the rights of the receiver as the representative of the creditors, the stockholders, and the bank.
In this case, the principles involved are of great importance. The decree below adjudged the indemnity bonds to be void and unenforceable. Since I believe the receiver was entitled under these actions to enforce the bonds and to protect the innocent victims of fraud, I would reverse the decree below.
Mr. Justice REED concurs in this opinion.
[ Footnote 1 ] Declaration.
Now comes the plaintiff in the above-entitled action and says that on December 22, 1931, he was appointed receiver of Boston-Continental National Bank by the Comptroller of the Currency of the United States, that he duly qualified and is now acting as such receiver.
that the damages sustained by the plaintiff on account of the default of said Westchester Discount Corporation are in excess of forty thousand dollars ($40,000).
Wherefore, the defendant is indebted to the plaintiff in the penal sum of said bond with interest from December 20, 1931.
And the plaintiff says that this is an action at law arising under the Constitution and laws of the United States and is a case for winding up the affairs of said Boston-Continental National Bank; and the District Court of the United States for the District of Massachusetts has original jurisdiction under Section 24 of the Judicial Code of the United States.
(Signed.) By his Attorneys, _ _, _ _.
[ Footnote 2 ] Copy of Bond.
Know all Men by these Presents, That we, Westchester Discount Corporation of Mount Vernon, New York, as Principal, and the Standard Surety & Casualty Company of New York, a corporation organized and existing under the laws of the State of New York and having an usual place of business in Boston as Surety, are held and firmly bound and obliged unto the Continental National Bank of Boston, a banking corporation duly organized under the laws of the Commonwealth of Massachusetts and having an usual place of business in Boston in the County of Suffolk, in the full and just sum of forty thousand dollars ($40,000.) to be paid to said Continental National Bank of Boston as hereinafter provided to which payment we bind ourselves, our heirs, executors, administrators firmly by these presents.
The condition of this obligation is such that if the said Westchester Discount Corporation shall upon the due dates as hereinafter indicated make to the Continental National Bank of Boston full and true payment of a schedule of four notes as listed below then this obligation shall be void, otherwise shall remain in full force and effect.
[ Footnote 3 ] Bill of Complaint.
[ Footnote 1 ] The plaintiff is a corporation legally established and existing under the laws of the State of New York, having a usual place of business in Boston in the County of Suffolk in this Commonwealth.
[ Footnote 2 ] The defendant Boston-Continental National Bank formerly called Continental National Bank of Boston, is a national bank association, legally established and existing under the laws of the United States of America, having its usual place of business in said Boston. The defendant Westchester Discount Corporation is a corporation established and existing under the laws of the State of New York having its usual place of business in Mount Vernon in the County of Westchester and State of New York.
[ Footnote 3 ] The plaintiff is informed and believes and therefore avers that on or about December 20th, A.D. 1930 the defendant Westchester Discount Corporation and one Percy G. Cliff executed an instrument a copy of which is hereto annexed marked A and made a part hereof, and at the same time the defendant bank executed and delivered to said Cliff an instrument entitled 'Release' a copy of which is hereto annexed marked B and made a part hereof.
Thereafter, so the plaintiff is informed and believes and therefore avers, the said Cliff executed the instruments entitled 'Endorsements' copies of which marked respectively C. and D. are hereto annexed and made parts hereof.
[ Footnote 4 ] The plaintiff is informed and believes and therefore avers that all of the instruments aforesaid marked A.C. and D. were executed by said Cliff at the request and solicitation of the defendants without any consideration or security, without premium charged or paid or intended to be charged or paid therefor, upon the understanding between the defendants and said Cliff that said instruments were not binding obligations of the plaintiff, and upon the assurance and promise given by the defendants to said Cliff and upon the understanding that said instruments would not be used or enforced by said bank against the plaintiff, that the plaintiff should never be informed of the existence thereof, and that after remaining in the custody of the defendant bank for a short time they should be returned to said Cliff.
4This footnote can be found on p.476.
[ Footnote 5 ] All of the instruments above described copies of which are hereto annexed marked A.C. and D. were executed by the said Cliff without authority from the plaintiff and without its knowledge or consent, as both defendants well knew. The plaintiff has only recently learned of the existence of said instruments which are now in the possession of the defendant bank.
[ Footnote 1 ] That the defendants be enjoined from enforcing or attempting to enforce the said instruments marked A.C. and D. or any of them by suit or otherwise.
[ Footnote 2 ] That the said instruments marked A.C. and D. be declared null and void and that the defendant bank be ordered to deliver them up to be cancelled.
[ Footnote 3 ] For such other and further relief as may be necessary and proper.
(Signed.) By its Attorney, _ _, _ _.
[ Footnote 4 ] Answer of Boston-Continental National Bank and John B. Cunningham, Receiver of Boston-Continental National Bank.
[ Footnote 1 ] They admit the allegations contained in the first paragraph of the bill of complaint.
[ Footnote 2 ] They admit the allegations contained in the second paragraph of the bill of complaint.
[ Footnote 1 ] Case v. Terrell, 11 Wall. 199, 202; High, 'On Receivers', 4th Ed., 314, 320; In re Pleasant Hill Lbr. Co., 126 La. 743, 757, 52 So. 1010; Duke v. L. Y. Stayton Co., 132 Wash. 69, 77, 231 P. 171; Atlantic Trust Co. v. Dana, 8 Cir., 128 F. 209, 221; De Stefano v. Almond Co., 107 N.J.Eq. 156, 159, 152 A. 2; Industrial Mutual Deposit Co. 's Receiver v. Taylor, 118 Ky. 851, 854, 82 S.W. 574; Iglehart v. Todd, 203 Ind. 427, 440, 178 N.E. 685.
[ Footnote 2 ] See Kennedy v. Gibson and others, 8 Wall. 498, 75 U.S. 498 , 506.
[ Footnote 3 ] See Easton v. Iowa, 188 U.S. 220, 238 , 23 S.Ct. 288.
[ Footnote 4 ] 12 U.S.C. 264 et seq., 12 U.S.C.A. 264 et seq.

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