Kissam v. Anderson - 145 U.S. 435 (1892)
U.S. Supreme Court
Kissam v. Anderson, 145 U.S. 435 (1892)
Kissam v. Anderson
Argued March 11, 14, 1892
Decided May 16, 1892
145 U.S. 435
The 3d National Bank in New York was the correspondent of the Albion Bank, a country bank. W., during part of the time in which the transactions in controversy took place, was cashier, and during the remainder was president of the Albion Bank. During all the time, W. practically managed that bank, and his co-directors and other officers had little or no oversight of its affairs. He was engaged in stock speculations on his own account in New York, and drew from time to time for his own purposes in favor of K. & Co., his brokers, on the bank balance with the 3d National Bank. K. & Co. from time to time returned to that bank sums to be credited to the Albion Bank. The latter bank eventually became insolvent, being ruined by fraudulent operations of W., who disappeared, and was put in the hands of a receiver, who brought suit against K. & Co. to recover the sums so paid to them by W. out of the balance to the credit of the bank with the 3d National. K. & Co. claimed to offset the return payments made by them to the 3d National, but the trial court ruled that they were not entitled to do it, and no question in respect of them was submitted to the jury. Held, that the defendants were entitled to have it submitted to the jury whether the other directors and officers of the Albion Bank might not, in the exercise of reasonable and proper care, have ascertained that these moneys had been deposited to the credit of the Albion Bank, and whether they would or would not have accepted such deposits as the return of the moneys to the bank.
The case, as stated by the Court, was as follows:
The First National Bank of Albion was organized under the National Banking Law December 22, 1863, with a capital stock of $50,000, consisting of 500 shares of $100 each, with a privilege of increase, and in fact afterwards increased to $100,000. It was reorganized under the Act of July 12, 1882, by amended articles of association filed January 12 and approved February 24, 1883. On August 21, 1884, it closed its doors, and the defendant in error was appointed receiver, and took possession August 28, 1884. On January 7, 1885, as such receiver, he commenced this action against the plaintiffs in error in the Circuit Court of the United States for
the Southern District of New York. On April 25, 1888, the case was tried before a jury and a verdict rendered in favor of the plaintiff for $147,759.71. A judgment was rendered on the verdict, and to reverse such judgment defendants sued out this writ of error.
The proposition upon which this suit was maintained was that A. S. Warner, the cashier of the Albion Bank, wrongfully withdrew the funds of that bank for the purpose of a personal speculation in stocks, and that the defendants, Kissam, Whitney & Co., received those moneys with knowledge that they were thus withdrawn, and used them for the benefit of Warner in his stock speculations. The defendants, among other things, pleaded that the most of the money received from Warner had been returned to the bank, and herein lies the principal question for our consideration, and, to a clear understanding of all that is involved in it, a detail of the facts is necessary.
Prior to March 29, 1879, R. S. Burrows was president of the Albion Bank; Alexander Stewart, his son-in-law, vice-president, and Warner, cashier. At that date, Burrows died. Stewart became president, and so remained until he died, November 20, 1881, Warner in the meantime remaining cashier. Thereafter Warner became president, and W. R. Burrows, a son of R. S. Burrows, cashier, and both continued as such until shortly before the failure of the bank. The bank really belonged to R. S. Burrows in his lifetime, he owning all but twenty shares. The directors, pending the transactions hereafter to be reviewed, were L. Burrows, Alexander Stewart, W. R. Burrows, Louise C. Burrows, and Warner. With the exception of L. Burrows, who was a brother of R. S. Burrows, the other four were the executors and executrix of R. S. Burrows, Warner, as appears, being the managing executor as well as the real official head of the bank. Through his defalcations, which ran up into the hundreds of thousands, the bank ultimately failed, and a receiver was appointed. The firm of Kissam, Whitney & Co., the defendants, was formed in May, 1880. Prior to that time, the firm of Chase & Atkins had been in existence for some years, and that firm had bought and sold
stocks for Warner. Whitney and Washburn, who, with Kissam, composed the firm of Kissam, Whitney & Co., had been clerks in the employ of Chase & Atkins, and a few months before had received small interests therein as partners. Kissam had no connection with that firm. When Chase & Atkins sold out to Kissam, Whitney & Co., the latter took, among other things, the account with Warner. At that time, and among the assets transferred, were stocks to the amount of $348,086.19, held for Warner, and for which Kissam, Whitney & Co. paid Chase & Atkins. Thereafter, and between that time and August 26, 1881, Warner sent to defendants 12 checks, the dates and amounts thereof being as follows:
May 11, 1880 . . . $10,000
June 9, " . . . 5,000
Dec. 23, " . . . 8,000
Jan. 10, 1881 . . . 5,000
" 11, " . . . 10,000
" 13, " . . . 15,000
" 17, " . . . 10,000
" 24, " . . . 10,000
Feb. 1, " . . . 5,000
Mch. 25, " . . . 5,000
Aug. 9, " . . . 10,000
" 26, " . . . 10,000
. . . -------
Total . . . . . . $103,000
These checks were drawn by him as "cashier," on the Third National Bank of New York city, the regular correspondent of the Albion Bank, the first check being in this form:
"No. _____ New York, May 11, 1880"
"Third National Bank of the City of New York pay to the order of Kissam, Whitney & Co. ten thousand dollars."
"$10,000 A. S. WARNER"
"Cash. First Nat. B'k of Albion, N.Y."
and the others substantially like it. The Albion Bank was a country bank, with, as heretofore stated, a capital stock of $100,000 and an average deposit of about $200,000. On these checks, Kissam, Whitney & Co. drew from the Third National Bank the sums named, and used the same in their customers' stock transactions. Afterwards, and from time to time, they returned to the Third National Bank certain sums of money, which were entered by that bank to the credit of the Bank of Albion, and notice thereof was sent in the regular course of business by the former to the latter bank; but, by reason of facts hereafter to be noticed, not all of these deposits were entered on the books of the Albion Bank. The following is a statement of the details of such deposits:
Date Entered in Ledger Not Entered in Ledger
of Albion Bank of Albion Bank
April 4, 1881 . . . . . . . . . . . $ 8,000.00
" 14, " . . . . . . . . . . . 5,590.00
" 23, " . . . . . . . . . . . 9,200.00
April 3, 1882 . . . . . . . . . . . 10,000.00
March 7, 1883 . . . . . . . . . . . 5,000.00
April 17, " $6,000.00
November 15, " 4,000.00
" " " . . . . . . . . . . . 5,000.00
" 21, " 8,000.00
December 31, " 7,850.00
March 7, 1884 . . . . . . . . . . . 5,000.00
April 11, " . . . . . . . . . . . 5,000.00
July 28, " . . . . . . . . . . . 8,000.00
" " " . . . . . . . . . . . 2,562.50
Totals . . . . 25,850.00 $63,352.50
It will be noticed that three of these deposits were made before the last two checks were sent to defendants. It will be noticed also that the moneys represented by these various deposits were returned to the same place from which the
money was received on the checks sent to the defendants, to-wit, the Third National Bank. In other words, the defendants received money belonging to the Albion National Bank from the Third National Bank; they returned to the Third National Bank a large portion of the money they had received. That money was accepted by the Third National Bank, passed to the credit of the Albion Bank, and the latter notified thereof in the regular way, to-wit, by monthly statements. It is true that many of these credits were not entered by the latter on its books. The Albion Bank was at that time managed by Warner, he being the cashier. There was a bookkeeper in constant attendance, the president occasionally present, and five directors to supervise, but the active man was Warner, who was also the real manager of the Burrows estate, which owned substantially all the stock. The monthly reports from the Third National Bank, when opened at all, were apparently opened by Warner alone. Indeed, after the receiver was appointed in 1884, some of these monthly reports were found in the vaults of the banks till unopened. There was no direct evidence of any conspiracy between defendants and Warner to take money from the Albion Bank. On the contrary, it appears that the defendants bought out the business of Chase & Atkins, at that time buying as a part thereof stocks to the amount of over $300,000 held for Warner, and it was in carrying on this business already established, and to make good the required margins, that Warner sent these checks to defendants. His account was a steadily diminishing account from the time they bought out Chase & Atkins. The court held them responsible for the amounts thus obtained from the Albion Bank on the ground that a cashier has no right to use the funds of the bank of which he is cashier for his private business, and that, under the circumstances and in view of the size of the account and the form of the checks, the defendants must have known that he was using the funds of the bank for his private business.