Court Opinion

ID: 9640637
Source: CourtListenerOpinion
Date Created: 2023-08-22 17:10:29.539812+00
Date Added: 2024-06-11T18:10:31.287591
License: Public Domain

SIBLEY, Circuit Judge
(dissenting).
The president is no doubt liable to the bank both because he was a secret partner in the transactions and because he failed in the duty of diligence he owed the bank’s business. But I tliink this case against the Maryland Casualty Company fails for want of proof. That company under its contract is no guarantor of the diligence or of the debts of the president, but only agrees to indemnify the bank for direct loss from the dishonest acts of its employees, including the president. The declaration does not even mention his failure more promptly to close out these loans whereby the bank suffered losses. There is room to claim that that failure was dishonest, in that his interests were then secretly opposed to the bank’s, and there is evidence that he then concealed it though knowing that in the collection of the loans the bank was relying on his judgment. But the declaration alleges as the only acts of dishonesty the obtaining of the loans. It charges that the president himself advanced the bank’s moneys, and that the borrowers were then financially irresponsible and known so to be to the president, who willfully withheld the information from his fellow directors. These charges are not proven. In granting the loans the bank acted, not by its president, but through a discount committee composed of three directors, the president being one. Neither of the three was sworn as a witness. There is not a syllable of proof that the president recommended the loans, that he made any representation about them, or was even present when they were, passed on. For all that appears, the other two membprs, being a quorum of the committee, may have *140authorized each loan on its merits. The loans were of ordinary amounts. The borrower in eaeh case was no dummy, but a business man in business. One was working for the bank in its real estate department. Another was a dealer in securities earning about $2,000 per year. The third was a man of substantial property earning from $8,000’ to $10,000 per year. The loans were not for gambling on margins, but in each ease for the purchase of a stock named in the tendered demand note, to be attached as security with power to sell it at any time. Such a transaction is as legitimate as to borrow money to buy real estate. This purpose was well understood at the time, for the bank’s teller, who is not charged with any collusion, testifies that he himself took the proceeds of the loan in each ease, paid for the stock, and received it .from the seller for the bank. Bach loan was régularly entered with its security on the bank’s records, and was approved by the board of directors at their next meeting. The dividends on the stocks were received by the bank and applied to the interest. The president did not get and was not to get a dime of money until the bank was paid, nor was the maker of any note to do so. The loans were good loans in the atmosphere of 'July, August, and September of 192-9, and some of them were closed out at a profit. That the president was secretly interested in anticipated profits did not make them any the worse as loans, though, as already stated, it did make him an improper person to handle their collection. There is no evidence that the bank would have considered them bad, or would have refused them because of the president’s ultimate interest. Certainly no one intended any injury to the bank or any benefit to the president or to the borrowers at the bank’s cost. The transactions as respects the president were not ingenuous, they were not proper, but it seems to me they were not originally dishonest in any fair sense. If the president did not use his influence or his vote on the committee to procure the loans, his mere hope of profiting by the transactions openly carried on with the bank is hardly dishonest. The bank’s president and its directors on the committee cannot, as they are doing/ by all holding their peace as to what actually transpired in procuring the loans, put the loss on this insurer by innuendo -and suspicion. The burden of proof is on the bank.. The loans were good enough until thei stock market crash in October, 1929,'reduced the value of the collateral and broke the makers, of the notes, and then only did any one express any dissatisfaction. I cannot make a dishonest act out of the secret interest in the profits on property to be openly bought with a loan made by others, if that was the only dereliction of this president. I am putting out of mind his concealment of his interest and what may have been the bad faith of his acts as collector of the paper after the crash, with the losses resulting from that, for they are not sued for, and would not uphold so large a judgment if they were. The judgment ought to be reversed.