The Freedman's Savings and Trust Company, chartered by an Act of
Congress approved March 3, 1865, 13 Stat. 510, being, during a
financial crisis pressed for means, its agent, with the knowledge
and consent of its trustees, borrowed of A. moneys which were
applied to its use. A note therefor was signed by the actuary of
the institution, who subsequently transferred to A., in
satisfaction thereof, certain securities belonging to the company.
That officer was held out to the public as competent to make such
an exchange, and there was no departure in this instance from the
established usage. No fraud was committed, and the transaction was
advantageous to the institution. On the failure of the company,
the, commissioners appointed to wind up its affairs filed their
bill, praying that A. be decreed to deliver to them said
securities.
Held that the commissioners are not entitled
to relief.
The Freedman's Savings and Trust Company, and John A. J. Crewell
and others, its commissioners, filed, June 26, 1875, two bills in
equity in the court below against Thomas M. Lanahan and others. One
bill charges that Juan Boyle, on or about July 31, 1871, being
indebted to the company in the sum of $2,500, for which it held his
note of that date, payable in one year, executed and delivered to
Eaton and Stickney to secure its payment, a deed of trust of the
same date (duly recorded), with the usual power of sale, conveying
certain real estate in Washington.
It further charges that the note held by the company as part of
its assets was, June, 1874, unlawfully, and to the prejudice of its
depositors and creditors, taken from its assets, and delivered to
Lanahan, who is now holding it in his possession and pretending to
be the owner of it. The delivery and transfer of the note to him
are then charged to have been unlawful and void, upon the ground
that the Act of Congress of March 3, 1865, 13 Stat. 510, organizing
the company, requires the affirmative vote of at least seven
members of the board of trustees to transfer any securities or
assets belonging to the corporation, and the complainants charge
that the note was transferred without any vote whatever, and
without the knowledge and consent of any of the trustees.
The prayer of the bill is for general relief, and specially,
that the pretended transfer of the note to Lanahan be declared
null
Page 101 U. S. 348
and void; that he be directed to bring it into court to be
disposed of according to law; and that the trust property be sold
and the proceeds applied to the payment of the note, for the
benefit of the company and its creditors.
The other bill makes the same averments and claims the same
relief as to a note for $8,000, executed to the company by Anna E.
Boyle and others, secured in the same manner as the note of Juan
Boyle, and transferred to Lanahan in the same way.
Lanahan answered, stating the circumstances under which he came
into possession of the notes in question, and setting up a title
thereto. They and so much of the charter of the company as relates
to the case will be found in the opinion of the Court.
The bill in each case, was, on final hearing, dismissed, and the
commissioners appealed.
MR. JUSTICE SWAYNE delivered the opinion of the Court.
Several of the documents referred to by the witnesses in one of
the cases have been lost or destroyed, and there is some
uncertainty and conflict in the testimony with respect to them and
the transactions to which they relate. The discrepancies are not
material, and the substantial facts appear with sufficient
clearness to enable us satisfactorily to dispose of the
controversy. A statement, somewhat condensed, will be sufficient
for the purposes of this opinion.
In 1873, the Freedman's Savings and Trust Company, the
corporation represented by the appellants, found itself seriously
embarrassed for the want of means to meet its current daily
liabilities. In November or December of that year, it borrowed from
the appellee Lanahan the sum of $10,000, for which it gave its
note, payable at sixty or ninety days, probably bearing a high rate
of interest, and secured by $20,000 of the improvement bonds of the
District of Columbia at their par value. The note was executed by
the actuary of the company. The loan was negotiated by the
appellee, Juan Boyle, who acted as the agent of the company, by
virtue of a written document under the hand of its president and
its corporate seal. The money was applied in payment of depositors.
The institution was
Page 101 U. S. 349
suffering from the financial revulsion initiated and
precipitated by the failure of Jay Cooke & Co., which swept
over the entire country. It was deemed better to make loans at the
interest paid, whatever it was, than to sell securities at the
rates which then ruled in the markets.
About the 1st of May, 1874, it was agreed between Lanahan and
Boyle that the former should lend the latter $21,000, including the
note of the company for $10,000, and that Boyle should procure the
company to transfer to Lanahan a note of Anna E. Boyle and others
to the company for $8,000, secured by deed of trust to Eaton and
Stickney, and the note of Juan Boyle to the company for $2,500,
secured by another deed of trust to the same parties. Other
collaterals, with which the company had nothing to do, were also to
be delivered by Boyle to Lanahan. Boyle thereupon delivered the
note for $10,000 to the company, and the company transferred and
delivered to Lanahan the two notes of $8,000 and of $2,500. Both
these notes were then overdue. This terminated Lanahan's dealings
with the company, and these are the notes involved in this
controversy. The bill, without imputing fraud, avers that Lanahan
is not entitled to hold them, and prays that he may be decreed to
deliver them to the complainants.
At the same time that Boyle delivered to the company is note for
$10,000, he made a full and final settlement with it of all the
liabilities of himself and of Juan Boyle & Co. He was found
indebted to the company, after deducting the note of $10,000, in
the sum of $28,522.38. Boyle thereupon gave the note of Juan Boyle
& Co. for $28,000, secured it by certain collaterals, and paid
the balance in cash. Subsequently the collaterals proved to be
worthless, the firm became insolvent, and the debt is hopelessly
lost to the company. It was considered safe by the actuary at the
time of the transaction. Eaton, one of the trustees in the deeds of
trust, died, and by proper proceedings the respondent Cull was
substituted for him and Stickney. The third section of the act of
Congress chartering the institution is as follows:
"The business of the corporation shall be managed and directed
by the board of trustees, who shall elect from their number a
president and two vice-presidents, and may appoint such other
officers
Page 101 U. S. 350
as they may see fit; nine of the trustees, of whom the president
or one of the vice-presidents shall be one, form a quorum for the
transaction of business at any regular or adjourned meeting of the
board of trustees; and the affirmative vote of a least seven
members of the board shall be requisite in making any order for, or
authorizing the investment of any moneys, or the sale or transfer
of any stock or securities belonging to the corporation, or the
appointment of any officer receiving any salary therefrom."
On the 18th of September, 1873, the board of trustees authorized
and empowered the officers of the company to assign and transfer
any of the registered stock of the United States standing in its
name.
On the 13th of December in that year, the same board directed
the finance committee to authorize those officers to negotiate the
securities of the company in such manner as to relieve the bank
from its embarrassment.
There was no formal order touching either of the transactions of
Lanahan with the company, but they were communicated, as were all
others, daily to the individual members of the board. There is no
proof that any objection was ever made. Several of the trustees
expressed an earnest desire that the company should escape from the
embarrassments by which it was surrounded, and be able to avoid
bankruptcy. The threatened catastrophe proved inevitable. On the
29th of June, 1874, the company closed its doors, and a few days
later went into liquidation. In the transactions with Lanahan in
making the loan and giving the note in one case, and in
transferring and handing over the two notes in the other, the
actuary was governed by the settled usage of the bank in all such
cases.
It is a striking fact that there is nothing in the record which
casts the slightest shadow of bad faith upon either of the
respondents, or upon the president or actuary of the company. It
does not appear that a dollar of its means went fraudulently into
the pockets of either of those parties.
The case naturally divides itself into two parts, each of which
requires separate consideration:
1. As to the loan of $10,000, and the note given to the
lender.
2. The transfer of the two Boyle notes.
Page 101 U. S. 351
The question presented as to the first point is easy of
solution. The money was fairly borrowed. The note was given for it,
and the fund was honestly applied in payment of pressing
liabilities of the company. The trustees individually were advised
of the transaction and made no objection. It would be a perversion
of the plainest principles of reason and justice to permit the
validity of such a security to be effectually denied. It cannot be
done.
De Groff v. American Linen Thread Co., 21 N.Y. 124;
Parish v. Wheeler, 22
id. 494;
Bradley v.
Ballard, 55 Ill. 413;
Steamboat Company v. McCutchen &
Collins, 13 Pa.St. 13.
Courts do not look at such transactions with the microscopic
eyes of a special demurrer.
The second point hardly admits of more doubt than the first
one.
The company took up its note given to Lanahan, and gave him in
place of it the two notes of the Boyles, amounting together to
$10,500. When this was done, Juan Boyle paid the company $522.38.
This was more than the difference in amount between the note first
named and the other two. Certainly the company could sustain no
possible injury from this exchange. It paid a debt overdue, and
took up its note by parting with two of its securities. With the
residue of the settlement between Boyle and the company Lanahan had
nothing to do. He was neither a party nor privy. As to him it was
res inter alios acta. It cannot in any wise affect his
rights, and may properly be laid out of view.
If the two notes which he received can be wrested from him, the
company will have had the full benefit of the loan, and have got
back its note without paying any thing, while he will have lost the
entire amount. This is a suit in equity. It would be a singular
equity that could work out such a result.
But further, the actuary who made the exchange of securities was
held out to the world as competent to do what he did. It was done
in conformity to the established usage of the company in all such
cases. Under such circumstances, the institution cannot be
permitted to deny that he had all such powers as he habitually
exercised, and thus assumed to have.
Merchants'
Bank v. State Bank, 10 Wall. 604.
Page 101 U. S. 352
The transaction, like all others, was made known to the trustees
individually, and they never objected. This intelligent
acquiescence was a binding ratification.
Kelsey v. National
Bank of Crawford County, 69 Pa.St. 426;
Hillard v.
Goold, 34 N.H. 230;
Christian University v. Jordan,
29 Mo. 68;
Sherman v. Fitch, 98 Mass. 59.
The arrangement was first challenged after the company became
bankrupt and went into the hands of the appellants.
The company was concluded, and the appellants can be in no
better position. They, like assignees in bankruptcy, can have no
rights, legal or equitable, but those of the insolvent party whom
they represent.
Gibson v.
Warden, 14 Wall. 244.
The appellants are not entitled to any relief.
Other legal views which are applicable lead to the same
conclusion, but it is unnecessary to pursue the subject
further.
This opinion disposes also of the second case. The two cases are
the same,
mutatis mutandis.
Decrees affirmed.
