Western National Bank v. Armstrong
152 U.S. 346 (1893)

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U.S. Supreme Court

Western National Bank v. Armstrong, 152 U.S. 346 (1893)

Western National Bank v. Armstrong

No. 251

Argued February 2, 1893

Decided March 12, 1893

152 U.S. 346

Syllabus

The borrowing of money, by a bank, though not illegal, is so much out of the course of ordinary and legitimate banking business as to require those making the loan to see to it that the officer or agent acting for the bank had special authority to borrow money.

Whether a vice-president of a national bank who had, without authority from the board of directors, paid into the bank a large sum of money and received certificates of paid-up stock for a still larger amount could, on the subsequent insolvency of the bank without ratification of such

Page 152 U. S. 347

increase, recover back his subscription money, or was to be treated as a general creditor, is a question which a court cannot settle in an action to which he id not a party.

In December, 1888, the Western National Bank of New York, organized under the laws of the United States, and having its place of business in the City of New York, filed a bill of complaint in the Circuit Court of the United States for the Southern District of Ohio against David Armstrong, as receiver of the Fidelity National Bank of Cincinnati, Ohio. The bill alleged that the Fidelity National Bank was indebted to the complainant bank in the sum of $207,290 on account of a loan made on May 28, 1887, by the New York bank to the Ohio bank "at the special instance and request of E. L. Harper, who was then the vice-president and general manager of the said Fidelity National Bank, with full authority to make said loan on its behalf." The bill further alleged that said loan was secured by collateral notes, signed by one A. P. Gahr, and endorsed by said E. L. Harper, and by the endorsement and delivery to the complainant by E. L. Harper of certificates for 1,600 shares of the capital stock of the said Fidelity National Bank; that said notes were, when they fell due, and still are, entirely worthless by reason of the insolvency of said Gahr and Harper; that said stock certificates did not do not represent stock of the Fidelity National Bank, but were wholly invalid and void because they did not constitute a part of the original and authorized stock of said bank, but were a part of a proposed increase of the capital stock of said bank, on account of which E. L. Harper had paid into the bank upwards of $180,000, but which increase had never been voted for by the stockholders of said bank, nor had notice of said intended increase of said capital, with a certificate that the full amount of the same had been fully paid in, ever been sent to the Comptroller of the Currency of the United States, nor had the Comptroller ever assented to such increase of capital, as required by law, but that nevertheless said Harper had procured from the president and cashier of said bank the certificates of stock so as aforesaid pledged with the complainant; that when said certificates were so issued to

Page 152 U. S. 348

Harper, the stock of the Fidelity National Bank had an established market value of $153 per share, and that the complainant bank relied on said certificates as one of the securities for said loan when it made the same; that said moneys, so paid in by Harper on account of proposed stock, were held by said Fidelity National Bank on special deposit, and in trust for said Harper until such increase of stock should be duly authorized. The relief prayed for was that David Armstrong, receiver of the Fidelity National Bank, which had become insolvent, should allow the claim for said loan, and pay, out of the assets in his hands, dividends, the same as to other creditors of said bank, and that the complainant bank should be subrogated to the rights of Harper on account of the moneys so paid in for stock proposed to be issued, and which the complainant alleged to constitute a preferred claim.

Armstrong, receiver, entered an appearance and demurred to those portions of the bill in which were alleged the facts respecting the proposed issue of additional stock, and in which the complainant prayed to be subrogated to Harper's supposed rights in respect to the same. The alleged grounds of the demurrer were a want of necessary parties, in that the Fidelity National Bank and E. L. Harper were not made parties to said bill, and for multifariousness.

Subsequently, in November, 1889, the court below sustained the demurrer to so much of said bill as was recited therein, being the said allegations seeking subrogations, and gave leave to answer the remainder of said bill.

An answer was duly filed denying that the Fidelity company was indebted to the complainant bank; that the complainant had, on May 28, 1887, or at any time loaned the Fidelity National Bank the sum of $200,000 or any other sum, and alleging that the notes mentioned in the bill, made by A. P. Gahr and endorsed by E. L. Harper, were discounted by the complainant bank for said Harper, and that the proceeds of such discount were received by said Harper; that the said notes were at no time the property of the Fidelity National Bank, and that the Fidelity National Bank

Page 152 U. S. 349

never had any interest in said transaction, and was in no way responsible therefor.

The cause was put at issue, evidence taken, and on April 8, 1890, a final decree was entered dismissing the bill at the cost of the complainant. The case comes to this Court on appeal from said decree.

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