1. It is not an offense under § 5209 Rev.Stat., which forbids
the willful misapplication of the moneys of a national banking
association by a president of the bank, for such officer to procure
the discount by the bank of
a note which is not well secured and of which both maker and
endorser are, to the knowledge of the president, insolvent when the
note is discounted, and to apply the proceeds of the discount to
his own use.
2. Assuming that it was the duty of a president of a national
banking association to prevent the withdrawal of deposits while the
depositor is indebted to the association, he is nevertheless not
liable for a criminal violation of § 5209 Rev.Stat., forbidding the
willful misappropriation of the funds of the bank, solely by reason
of permitting a depositor who was largely indebted to the bank to
withdraw his deposits without first paying his indebtedness to the
bank.
Indictment against the president of a national banking
association. The indictment contained three counts. It was found by
the same grand jury as the indictment in case No. 406, just
decided, and was remitted and transferred to the circuit court in
like manner.
The first count charged that the defendant, James H. Britton, on
March 24, 1877, within the Eastern District of
Page 108 U. S. 194
Missouri, being the president and a director of the National
Bank of the Missouri, the same being a national banking association
organized under the act of Congress,
"did cause and procure to be then and there received and
discounted by said association a certain promissory note, which
said note was then and there in the words and figures
following:"
"$20,835 ST. LOUIS, March 24, 1877"
" Four months after date, I promise to pay to the order of Geo.
F. Britton, negotiable and payable at the National Bank of the
Missouri, in St. Louis, twenty thousand eight hundred and
thirty-five dollars, for value received, without defalcation or
discount, with interest, after maturity at the rate of ten percent
per annum."
"J. H. BRITTON"
That the note was endorsed as follows: "Geo. F. Britton;" that
the defendant converted to his own use the proceeds of the discount
of said note, to-wit, the sum of $20,251.63; that said note, when
so discounted, was not well secured; that said
"James H. Britton, and the said payee and endorser of said note,
to-wit, one George F. Britton, were then and there insolvent, as
he, the said James H. Britton, as president and director as
aforesaid, then and there well knew,"
and that said James H. Britton, by procuring said note to be
discounted, and by applying the proceeds of said discount to his
own use, willfully misapplied the said sum of $20,251.63 of the
money and funds of said association, with intent then and there to
defraud said association and certain persons to the grand jurors
unknown.
The second count charged that on June 2, 1877, within the
Eastern District of Missouri, one George F. Britton was indebted to
said association in the sum of $79,480.23, as the maker of five
promissory notes then unpaid; that said indebtedness of George F.
Britton was known to James H. Britton, president and director of
said association; that on said June 2, 1877, said notes were not
well secured and said George F. Britton was insolvent, both of
which facts said James H. Britton then well knew. Nevertheless,
said James H. Britton,
Page 108 U. S. 195
as president and director of said association, did then and
there receive and discount a note for $800, dated June 2, 1877, due
and payable on August 5, 1877, signed by the said George F. Britton
as maker, and endorsed by him, the said James H. Britton, he being
then insolvent, as he then well knew; that said James H. Britton
did then and there pay out of the moneys and funds of said
association, as the proceeds of said discount, to the said George
F. Britton, the sum of $780.45, contrary to the form of the
statute, etc.
The third count charged that on May 18, 1877, within the Eastern
District of Missouri, said James H. Britton was president and a
director of said banking association; that from April 12, 1873, to
May 18, 1877, one Alfred M. Britton had been continuously indebted
to said association in the sum of $37,122.67, as maker of a certain
promissory note during said period, owned and held by said
association, and was then indebted to said association for interest
past due on said note in the further sum of $4,529.01; that said
Alfred M. Britton was on said May 18, 1877, insolvent; that on the
day and year last named there was in the moneys and funds of said
association to the credit of said Alfred M. Britton the sum of
$36,860.45; that said James H. Britton, well knowing the said
indebtedness of Alfred M. Britton to said association and his said
insolvency, failed and neglected to cause to be applied to the said
indebtedness of said Alfred M. Britton the said sum of $36,860.45,
so as aforesaid in the moneys and funds of said association to the
credit of said Alfred M. Britton, and did then and there willfully
permit said Alfred M. Britton, while so indebted, to transfer and
assign said sum of $36,860.45 to the credit of the City National
Bank of Fort Worth, Texas.
"And so the said James H. Britton did willfully misapply the
said sum of $36,860.45 of the moneys of said association, with
intent to injure and defraud said association and certain persons
to the grand jurors unknown, contrary,"
etc.
Upon demurrer to the indictment, the judges of the circuit court
were divided in opinion upon the question whether the several
counts charged with sufficient certainty an offense
Page 108 U. S. 196
under § 5209 of the Revised Statutes. The case comes to this
Court upon this certificate of division.
MR. JUSTICE WOODS delivered the opinion of the Court.
It is not alleged in the first count that the J. H. Britton,
maker of the note discounted, was the James H. Britton who was
president and a director of the association, and the defendant in
the indictment, and consequently there is no averment that the
maker of the note was insolvent. Passing by this defect, and
assuming that the maker of the note is the defendant in this case,
the gravamen of the charge is that defendant, being president and a
director of the association and being insolvent, procured to be
discounted his own note, the same not being well secured, the payee
and endorser thereof being also insolvent, which he, the defendant
well knew. The incriminating facts are that the note was not well
secured and that both the maker and endorser were, to the knowledge
of the defendant, insolvent when the note was discounted. The
question is therefore presented whether the procuring of the
discount of such a note by an officer of the association is a
willful misapplication of its moneys within the meaning of the law.
We are clearly of opinion that it is not. It is not even
necessarily a fraud on the association.
One branch of the business of a banking association is the
discounting and negotiating of promissory notes, and this is to be
done by its board of directors or duly authorized officers or
agents. Sec, 5136 Rev.Stat. There is no provision of the statute
which forbids the discounting of a note not well secured, or both
the maker and endorser of which are insolvent. It is within the
discretion of the directors, or the officers or agents lawfully
appointed by them, to discount such a note if they see fit, and it
might under certain circumstances tend to the advantage of the
association. This count does not charge that the
Page 108 U. S. 197
note of the defendant was discounted at his instance, without
the authority of the board of directors. On the contrary, the
charge is that he caused and procured it to be discounted. This
implies that it was done by the directors, or other duly authorized
officers or agents. It is not alleged that the discount was
procured by any fraudulent means. From all that appears, the board
of directors, or the officer or agent by whom the note was
discounted may, upon knowledge of all the facts, in the utmost good
faith and for the advantage of the association, have decided to
discount the note. The discount may have turned out to be a benefit
to the association, for there is no averment that the note was not
paid at maturity or that the association suffered any loss by
reason of its discount.
But whether the discounting of the note was an advantage to the
association or not, and whether the note was paid or not, are
immaterial. If an officer of a banking association, being
insolvent, submits his own note, with an insolvent endorser as
security, to the board of directors for discount, and they, knowing
the facts, order it to be discounted, it would approach the verge
of absurdity to say that the use by the officer of the proceeds of
the discount for his own purposes would be a willful misapplication
of the funds of the bank, and subject him to a criminal
prosecution. The count under consideration charges nothing more
than this against the defendant. We are of opinion, therefore, that
it does not charge an offense under § 5209 of the Revised
Statutes.
What we have said in reference to the first count of this
indictment also applies in all respects to the second. We are
therefore of opinion that it also does not charge an offense under
§ 5209.
In respect to the third count, we observe that the statute,
section 5130, clause 7, places the conduct of the business of
banking associations with its board of directors, or its duly
authorized officers or agents. Section 5145 provides that the
affairs of each banking association shall be managed by not less
than five directors, to be chosen by the shareholders. It is
alleged in this count that the defendant was the president and one
of the directors of the association. But he was only one
Page 108 U. S. 198
of at least five directors. The only duties imposed on him as
president were to certify payments on the capital stock of the
association, sec. 5140, to cause to be kept in the office where the
business of the association was transacted a list of the
shareholders, sec. 5210, and to verify by his oath the general
reports made by the association to the Comptroller of the Currency,
sec. 5211, and the reports of dividends declared, sec. 5212. It is
nowhere averred in this count that the defendant was the duly
authorized officer or agent of the association, whose duty it was
to look after the accounts of depositors, to apply the sums
standing to their credit to the payment of their obligations to the
association, or to prevent the withdrawal or transfer of their
deposits while they continued indebted to the association, or that
he was even charged with a general superintendence of the affairs
of the association. Until it is shown that some officer or agent of
the bank was duly authorized to take charge of this branch of the
business of the association, the presumption is that it was the
duty of the board of directors; and, if such was the fact, the
defendant was powerless to prevent the transfer of the deposits of
Alfred M. Britton to the credit of the City National Bank of Fort
Worth. At all events, it is not charged that it was his duty to
prevent such transfer, and this constitutes a fatal defect in the
indictment.
But even if the defendant had been charged with the duty of
looking after the deposits of debtors of the association and of
applying their deposits to the payment of their debts, we do not
think that the fact that he permitted Alfred M. Britton while
indebted to the association to withdraw and assign to the City
National Bank of Fort Worth his deposit would constitute a criminal
misapplication by the defendant of the funds of the
association.
The count charges neither application nor misapplication by the
defendant of the funds of the association. It merely charges that
he failed to apply certain funds standing to the credit of Alfred
M. Britton to the payment of Britton's debt. It charges that he
permitted Alfred M. Britton to do a perfectly lawful act -- namely
to withdraw his own funds from the association and transfer them to
another bank.
Page 108 U. S. 199
This might be an act of maladministration on the part of the
defendant. It might show neglect of official duty, indifference to
the interests of the association, or breach of trust, and subject
the defendant to the severest censure and to removal from office;
but to call it a criminal misapplication by him of the moneys and
funds of the association would be to stretch the words of this
highly penal statute beyond all reasonable limits.
In our judgment, the count under consideration, as well as the
first and second, is bad.
We therefore answer the first, third, and fourth questions
submitted to us by the judges of the circuit court in the
negative.
