Source: https://supreme.justia.com/cases/federal/us/130/267/
Timestamp: 2019-04-25 04:31:11+00:00

Document:
A state bank gave a receipt or certificate, stating that J., agent for W., had placed with it, on special deposit, $5,200 of railroad mortgage bonds, and a note for $5,000. The receipt was sent by the bank by mail directly to W. on the request of J. At the same time, the bank entered the note and the bonds in its special deposit book as deposited by J., agent for W. Afterwards, with the concurrence of J. but without authority from W., the bank discounted the note and applied its avails to pay a debt due to it from a firm whose business J. managed, and delivered up the bonds to J., knowing that he intended to pledge them as security to another bank for a loan of money to the same firm. The bank also knew that J. held the note and bonds as investments for W., and that it was not a safe investment to lend their avails to the firm. Held that the bank was liable to W. for the amount of the note and the value of the bonds.
A suit in equity by W. against the bank for the return of the property or the payment of its value, would lie, as it was a suit to charge the bank, as a trustee, for a breach of trust in regard to a special deposit.
This is a suit originally brought in the Chancery Court of Shelby County, Tennessee, by Eliza Walker against the Manhattan Bank of Memphis, a Tennessee banking corporation. The suit was removed by the plaintiff into the Circuit Court of the United States for the Western District of Tennessee. The bill of complaint and the answer were both of them put in before, and the replication was filed after, the removal of the cause.
for the interest payable thereon at certain stated periods; that the defendant gave its obligation in writing, as evidence of the receipt, on special deposit, from the plaintiff, of the said securities, and was bound to deliver them to the plaintiff on demand, and that the stock of the People's Insurance Company, and the $325 of notes, were returned to her, but the bonds and the coupons attached thereto, and the note of Goldsmith, and the bank stock, were never returned to her, although she made demand upon the defendant for them. The bill prays for a decree for the return of the property, and for the amount of the decline in its value from the time when she demanded it until the time when it shall be restored, and, if not restored, then for a personal decree against the defendant for the highest value of it at any time since she first made demand for it to the date of the decree, with interest.
those securities and notes; that the defendant gave to him a receipt as such agent; that after the receipt was given, some of the notes described in it were paid while they were on deposit with the defendant, and the said Judah, as agent of the plaintiff, drew out the money in the ordinary way, and from time to time, as agent of the plaintiff, withdrew from the custody of the defendant the items mentioned in the receipt, until he had withdrawn them all, when he gave to the defendant a receipt for them, in which he acknowledged having received them as agent for the plaintiff; that if the plaintiff owned the items, Judah had authority from her to control and manage them as fully as she could have done as owner if they had been in her actual possession, instead of in his possession as her agent; that he was her general agent with reference to them, and had power not only to deposit them, but also to withdraw them from deposit if he saw fit; that when he demanded them from the defendant, his agency was still in force, and the defendant could not legally have refused to give them up to him as the agent of the plaintiff; that upon returning them to Judah as such agent, all liability of the defendant with reference to them ceased, and that the defendant is not indebted to the plaintiff on account of said securities.
Proofs were taken on both sides, and the cause was heard, and the court made a decree adjudging to the plaintiff a recovery against the defendant of $5,000, being the amount of the Goldsmith note, with $1,175 interest thereon from the date of its maturity, November 1, 1881, on the ground that the defendant had collected the amount of that note and appropriated the same to its own use, and further decreeing that the defendant was not liable to the plaintiff for any of the other items mentioned in the bill, and that neither party should recover costs from the other. Each party has taken a separate appeal to this Court.
that the Memphis and Charleston Railroad bonds bore seven percent interest, payable semiannually, and evidenced by interest coupons maturing January 1st and July 1st in each year, the bonds maturing on the 1st of January, 1885, and that the Mississippi Central Railroad bonds bore eight percent interest, payable semiannually, and evidenced by coupons maturing February 1st and August 1st in each year, the bonds maturing on the 1st of February, 1885. The suit is plainly one of equitable cognizance, the bill being filed to charge the defendant, as a trustee, for a breach of trust in regard to a special deposit.
showing the special deposit, to send to the plaintiff. The bank was not in the habit of giving receipts or certificates for these special deposits, but kept them noted by numbers in a book used for that purpose. Maas wrote a receipt on a sheet of the bank's letter paper, and, according to his and Judah's testimony, placed it in one of the bank's envelopes, addressed to the plaintiff, and put it with the bank's mail. The plaintiff and her daughter swear that it was accompanied by a letter from Maas. What was in the letter does not appear, and, not being preserved, it has not been produced, but is supposed to have been burned as useless. The routine of the bank was that Goldsmith, the cashier, personally signed and inspected every letter, and himself enveloped and addressed them. This letter he did not see or sign, and it was never copied into the letter-press. The receipt was as follows:"
"L. Levy, president; L. Hanauer, Vice-president; E. Goldsmith,"
"Cashier; M. Maas, Asst. Cashier"
"MEMPHIS, TENN., November 27, 1880"
"G. H. Judah, Esq., agent for Mrs. Eliza Walker, of Philadelphia, has placed with us on special deposit:"
"$3,000, Memph. and Charl. R. Co. 2d Mtg. Bonds"
"$2,200, Miss. Central R. Co. 2d Mtg. Bonds"
"$1,100, People's Insurance Co. Stock"
"$5,000, Note E. G., and collateral attached, $6,000 M. Bank Stock"
"$325, Interest notes (4 at $81.25)"
partner, but afterwards stated she was informed he was not. He says he was only a salaried manager. The members of the firm were inexperienced, and Judah was in fact the almost sole manager of all its affairs, the master spirit of the concern. It is not shown that the young men took any part, except one of them kept the books after Maas had opened them."
"The plaintiff, in October, 1880, lent to her son (the firm being also responsible) $10,000, as his capital in the concern, derived from the life insurance of her husband. Judah also appropriated or lent to the firm, from time to time, sums amounting to over $9,000, from his collections in behalf of plaintiff on the old books. The interest on these sums and on the special deposit funds were remitted by the firm (not always promptly) to the plaintiff at Philadelphia, by exchange or checks, and sometimes the coupons were sent by express to her. When remittances were delayed, she wrote or telegraphed the firm. She never communicated with the bank in any way. The remittances were nearly always in letters by her son, and they contained apologies and explanations for delays."
scheme was trumped up to defeat plaintiff of her advantage and enable Judah to continue business on the assets at Indian Bay, Arkansas."
The circuit court held that the defendant was liable for the amount of the Goldsmith note and interest from the date of its collection, because it had collected the money and never paid it to the plaintiff, but had, without due authority, appropriated it to its own use on account of the debt due to if from Walker, Sons & Co. As to the $5,200 of bonds, the court held that knowledge by the defendant of the intended breach of trust by Judah did not make the defendant privy to it and liable for it, as the defendant did not participate in the profits of the fraud; that the receipt given by the defendant did not change the relation of Judah to the property and to the defendant, as it was not a receipt to the plaintiff, but one to Judah, and that it did not satisfactorily appear that the defendant received any part of the money advanced on the bonds.
who was its acting cashier during the period of the transactions in question, was, before his connection with the defendant, the confidential bookkeeper of the prior firm of Walker Bros. and Co., of which Judah was a member, and had a close personal intimacy with Judah. When the book accounts of Walker Bros. and Co. were sold, Maas bought them on behalf of the plaintiff and her sister, and the funds realized from that purchase were in part deposited in the name of Maas with the defendant, and Maas, on the request of Judah, opened the books of Walker, Sons & Co., when that firm was formed. Judah promised Maas that he would certainly protect the defendant in case of disaster to the firm of Walker, Sons & Co.
At the time the Goldsmith note was thus converted, the condition of Walker, Sons & Co. was precarious, if the firm was not insolvent. Before the conversion of the railroad bonds, Judah pledged to the defendant certain stocks belonging to himself for the debt due to it by Walker, Sons & Co., and it is apparent that Judah was constantly being pressed by the defendant to make payments on the firm's debt to it, and that Maas, being the acting cashier of the defendant, knew, from the state of the account which the firm kept with the defendant, that it was substantially without available funds. In none of the transactions between the defendant and Judah in regard to the Goldsmith note and the bonds was the receipt or certificate which had been sent to the plaintiff redelivered to the defendant, and the defendant knew that it had gone into the hands of the plaintiff, because it had been sent to her by mail directly from the defendant.
"If a bank be accustomed to take such deposits as the one here in question, and this is known and acquiesced in by the directors, and the property deposited is lost by the gross carelessness of the bailee, a liability ensues in like manner as if the deposit had been authorized by the terms of the charter."
In support of this proposition, the Court cited the cases of Foster v. Essex Bank, 17 Mass. 479; Lancaster Co. Bank v. Smith, 62 Penn.St. 47; Scott v. Bank of Chester Valley, 72 Penn.St. 471; Bank of Carlisle v. Graham, 79 Penn.St. 106; Turner v. Bank of Keokuk, 26 Ia. 562; Smith v. Bank, 99 Mass. 605; Bank v. Schley, 58 Ga. 369.
We are of opinion that the execution of the receipt or certificate in question, and its transmission by mail directly by the defendant to the plaintiff, created the relation of bailor and bailee between her and the defendant, and made it an act of gross negligence for the defendant to deliver or dispose of or appropriate the securities in question on the sole request of Judah and without her direct authority. Under the circumstances of the case, the receipt having been made out by Maas, the assistant cashier, and sent by him to the plaintiff on the request of Judah made on her behalf, the statement in the receipt that Judah, agent for the plaintiff, had placed the securities with the defendant on special deposit, must be regarded as virtually a statement that the plaintiff, by Judah, as her agent, had placed the securities with it on special deposit.
"and said he wanted a receipt, or a statement, rather, of what securities he had there on special deposit, to sent to Mrs. Walker in Philadelphia. . . . He said Mrs. Walker wanted to know what she held. . . . About that time, on our special deposit book, these bonds and note and stock mentioned in said receipt were entered as deposited by G. H. Judah, agt. Mr. Eliza Walker."
Maas further states that Judah never exhibited any authority to him or to the bank to dispose of the note and the bonds and securities mentioned in the certificate which was sent to Mrs. Walker.
Judah testifies that the instructions of the plaintiff to him did not, directly or indirectly, authorize him to pledge any bonds or securities obtained with her money for his own debts or the debts of others, and that his power was limited to invest her moneys for her exclusive benefit and use.
It is very clear that Judah had no power, either in fact or in law, to pledge the Goldsmith note as security for an existing debt of Walker, Sons & Co. to the defendant. Such act was not an investment of the trust fund, and the officers of the defendant knew that it was not. Duncan v. Jaudon, 15 Wall. 165; Smith v. Ayer, 101 U. S. 320; National Bank v. Insurance Co., 104 U. S. 54; Shaw v. Spencer, 100 Mass. 382; Loring v. Brodie, 134 Mass. 453.
were completed, and no argument can be drawn from them in support of any implied authority to Judah or to the defendant to divert or appropriate the principal of the securities.
The views above stated, as applicable to the Goldsmith note, apply also, very largely, to the $5,200 of bonds. Under the terms of the receipt, the plaintiff was the bailor and the defendant was the bailee in respect of the bonds, equally with the note. The defendant was not the bailee of Judah, so as to be authorized to deliver the bonds to Judah without the authority of the plaintiff. The defendant had no right to deliver the bonds to Judah when it knew that Judah intended to deliver them to the Bank of Commerce as collateral security for a loan of money to be made by that bank to Walker, Sons & Co., and this without regard to the question whether or not the defendant was to receive or did receive any part of the money borrowed from the Bank of Commerce. Judah applied to the defendant for a loan of money for Walker, Sons & Co. on the bonds. Maas, representing the defendant, declined to make the loan. On receiving such refusal, Judah stated to Maas that he could probably get the money at the Bank of Commerce. Afterwards, he called upon Maas for the bonds, and told him he had got the money at the Bank of Commerce, and Maas knew when he handed the bonds to Judah that Judah received them with a view to a loan to be made by that bank to Walker, Sons & Co., and Mass also knew at that time that Judah was the agent of Walker, Sons & Co. By the face of the receipt, the defendant recognized the plaintiff as the true owner of the bonds, her name being mentioned in it, and it was capable of no other construction than that the plaintiff owned the securities mentioned. Knowing, from what passed between Maas and Judah, that the bonds were to be used to raise money for the benefit of Walker, Sons & Co., and knowing that such use was an improper disposition of the bonds unless the transaction were affirmatively and directly sanctioned by the plaintiff, the defendant became a party to the misappropriation of the bonds. It is immaterial in this view whether or not the defendant received any portion of the money loaned by the Bank of Commerce on the security of the bonds.
The decree of the circuit court must be reversed, and the case be remanded to that court with a direction to enter a decree in favor of the plaintiff not only for the amount of the Goldsmith note, namely, $5,000, with interest from November 1, 1881, but also for the proper value of the $5,200 of bonds, with proper interest, such value and interest to be ascertained by the circuit court, and the plaintiff to recover costs in this Court on both appeals, and costs in the circuit court.

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