On June 14, 1887, the Fidelity National Bank of Cincinnati drew
a draft for $100,000 on the Chemical National Bank of New York
City, payable to the order of the American Exchange National Bank
of Chicago, and put it into the hands of one W., who delivered it
for value to K. & Co. They endorsed it for deposit to their
account in the Chicago Bank, which credited its amount to them and
paid their checks against it. It was not paid.
Held that
the draft was a foreign bill of exchange; that W. did not act as
the agent of the Cincinnati Bank, and that in a suit by the
Chicago
Page 133 U. S. 434
Bank against the receiver of the Cincinnati Bank, which had
failed, to recover the amount of the draft, the Chicago Bank was a
bona fide holder and owner of it for value, and want of
consideration could not be shown by the receiver.
The fact that the draft was payable to the order of the
plaintiff was not notice to it that W. was not its purchaser or
remitter, and the Cincinnati Bank had represented to the plaintiff
that W. was a
bona fide holder of the draft, for his use
in making good trades of his with K. & Co.
An instrument signed by the Cincinnati Bank, dated June 14,
1887, addressed to the Chicago Bank, stating that W. & Co. had
deposited $200,000 to the credit of the latter bank for the use of
K. & Co. was put by the former bank into the hands of W. &
Co., who delivered it to K. & Co., who deposited it with the
Chicago Bank, which gave credit for its amount to K. & Co, as
cash, and paid with a part of it an overdraft of K. & Co. and
honored their checks against the rest of it. In a suit by the
Chicago Bank against the said receiver to recover the $200,000,
held that the instrument was in its legal character a
certificate of deposit; that the plaintiff was an innocent
purchaser of it for value; that, as the Cincinnati Bank had
represented to the plaintiff that it had received from W. & Co.
consideration for the paper, it was estopped from setting up the
falsity of such representation; that the plaintiff did not take the
paper under such circumstances as would put a man of ordinary
prudence on inquiry, and that there was nothing to lead the
plaintiff to suspect that the money represented by the paper was
that of the Cincinnati Bank.
A defense set up to the suit on the certificate of deposit was,
that H. (the vice-President of the Cincinnati Bank), its assistant
cashier, and W., of W. & Co., conspired to defraud that bank by
using its funds in speculating in wheat in Chicago, through K.
& Co., so as to make a "corner" in wheat.
Held that
rumors on the board of trade and in the public press that H. was
the real principal for whom W. was acting could not affect the
plaintiff, and that the plaintiff could not refuse to honor the
checks of K. & Co. against the deposit on the ground that K.
& Co. intended to use the money to pay antecedent losses in the
gambling wheat transactions.
The statute of Illinois, 1 Starr & Curtis, Stat. 1885, pp.
791, 792, §§ 130, 131, and the case of
Pearce v. Foote,
113 Ill. 228, do not apply to the present case.
Where losses have been made in an illegal transaction, a person
who lends money to the loser with which to pay the debt can recover
the loan notwithstanding his knowledge of the fact that the money
was to be so used.
An obligation will be enforced, though indirectly connected with
an illegal transaction, if it is supported by an independent
consideration, so that the plaintiff does not require the aid of
the illegal transaction to make out his case.
It does not appear that the plaintiff had knowledge or notice
that the paper in suit was delivered to it to be used through it by
K. & Co. in connection with an attempt to corner the
market.
Page 133 U. S. 435
Where a dividend was declared by the receiver in October, 1887,
the plaintiff is entitled to interest on the amount of his dividend
from the time it was declared.
In equity. Decree in favor of the complainant. The defendant
appealed. The case is stated in the opinion.
Page 133 U. S. 436
MR. JUSTICE BLATCHFORD delivered the opinion of the Court.
These are appeals by David Armstrong, receiver of the Fidelity
National Bank, of Cincinnati, Ohio, from decrees rendered against
him by the Circuit Court of the United States for the Southern
District of Ohio in two suits in equity brought against him in that
court by the American Exchange National Bank, of Chicago, Illinois.
The first case will be referred to as "No. 1,110," and the second
case as "No. 1,111."
No. 1,110 was commenced on the 5th of November, 1887, by a
petition, which was demurred to by the defendant. The demurrer was
overruled, the defendant answered the petition, and there was a
replication to the answer. Then, by leave of
Page 133 U. S. 437
the court, a bill in equity was filed in place of the petition.
The bill sets forth following facts: the plaintiff is a corporation
under the laws of the United States, doing a general banking
business in Chicago, Illinois. The defendant is the receiver of the
Fidelity National Bank, of Cincinnati, Ohio, a corporation created
under the laws of the United States, which did a general banking
business in Cincinnati, Ohio. On the 15th of June, 1887, the
plaintiff became the owner and holder of a draft drawn by the
Fidelity Bank on the Chemical National Bank, of the City of New
York, a copy of which, with all credits and endorsements thereon,
is as follows:
"
The Fidelity National Bank"
"
$100,000.00 Cincinnati, June 14, 1887 No. 16,412"
"Pay to the order of American Exch'ge Nat. B'k, Chicago, one
hundred thousand dollars."
"BENJ. E. HOPKINS"
"
As. Cas. Cashier"
"To the Chemical National Bank, New York City"
Endorsed:
"Without recourse. A. L. Dewar, Cashier. Dep. acct. C. J.
Kershaw & Co. C. J. Kershaw & Co. Pay American Exchange
Nat. Bank, New York, account of American Exchange Nat. Bank of
Chicago, 15 June, 1887. A. L. Dewar, Cash."
At the time the draft was drawn, Benjamin E. Hopkins was the
assistant cashier of the Fidelity Bank, and by its authority the
signature, "Benjamin E. Hopkins, As. Cas.," was used for the
signature of that bank. Within a reasonable time after the
plaintiff became the owner of the draft, to-wit, on June 17, 1887,
it was presented to the drawee for payment, which was refused. It
was protested for nonpayment, and notice of the demand, refusal,
and protest was forthwith given to the Fidelity Bank, and thereupon
that bank became liable to the plaintiff in the sum of $100,000,
with interest from June 17, 1887. After the draft was drawn, and
the plaintiff had become its owner, the Fidelity Bank, without the
knowledge
Page 133 U. S. 438
of the plaintiff, ordered the drawee not to pay the draft, and
the drawee, in refusing to pay it, was acting in accordance with
such instructions. On the 27th of June, 1887, the Comptroller of
the Currency of the United States, acting under the statute,
appointed the defendant receiver of the Fidelity Bank. On the 12th
of July, 1887, a decree was rendered by the Circuit Court of the
United States for the Western Division of the Southern District of
Ohio, in a proceeding instituted by such Comptroller against the
Fidelity Bank, adjudging that its franchises had been forfeited,
and declaring it to be dissolved. In September, 1887, the claim of
the plaintiff was presented to the receiver in due form, but he
rejected it.
The prayer of the bill is for a decree that such claim for
$100,000, with interest from June 17, 1887, to June 27, 1887, is a
valid claim against the estate in the hands of the defendant as
receiver, and that he be directed to satisfy it by paying dividends
upon it from the assets of the Fidelity Bank, and for general
relief.
The defendant answered the petition; and, after the bill was
filed, it was ordered that such answer stand for an answer to the
bill, and that the replication which had been filed to it stand
also.
The defense set up in the answer is that the plaintiff is not
the owner of the draft; that it was signed by Hopkins, and came
into the possession of the plaintiff, without any consideration
paid for it by the plaintiff to the Fidelity Bank, and that that
bank never received any consideration from any person for it, and
is not indebted to the plaintiff on account of it.
It was admitted of record that the draft was presented to the
drawee within the reasonable time allowed by law; that payment was
refused; that it was protested for nonpayment, and that notice of
demand, refusal, and protest was given in due time to the Fidelity
Bank, and also that the defendant, on October 31, 1887, declared
and has paid a dividend of 25 percent on all claims against the
Fidelity Bank and the receiver, approved or adjudicated as valid
claims.
Page 133 U. S. 439
Besides cases Nos. 1,110 and 1,111, a third suit was brought,
and testimony was taken in all three of them at the same time. It
was stipulated of record that all depositions taken or to be taken
in one of the three cases might be read by either party in all of
them.
After a hearing on pleadings and proofs, a decree was entered on
the 3d of December, 1888, in No. 1,110 setting forth that, on the
15th of June, 1887, the plaintiff became, and had ever since been,
the owner of the draft in question; that it was duly presented to
the drawee and payment refused, and the Fidelity Bank had due
notice; that the claim was duly presented to the receiver and
rejected; that it is a just and valid claim, and should have been
allowed by him; that the plaintiff is a
bona fide holder
of the draft for a valuable consideration before maturity, without
notice of any want of consideration, free from all equities or
defenses whatsoever, and directing the defendant to allow the claim
as one for the full amount of $100,000 against the assets in his
bands as receiver, to satisfy it by paying such dividends as had
been made theretofore, and as should be made thereafter, from the
assets of the Fidelity Bank in due course of administration, and to
pay the dividend of 25 percent already declared October 31, 1887,
with interest from that date until the date of payment, and also
the costs of the suit. From that decree the defendant has
appealed.
No. 1,111 was commenced by a petition filed on the 5th of
November, 1887, which was demurred to, and the demurrer was
overruled. The defendant then answered the petition, a replication
was filed to the answer, and then leave was granted to the
plaintiff to file a bill in equity instead of the petition. That
bill sets forth as follows, in addition to the same formal matters
set forth in the bill in No. 1,110: on the 14th of June, 1887, the
Fidelity Bank issued a certificate of deposit, or letter of advice,
addressed to the plaintiff, of which the following is a copy:
Page 133 U. S. 440
"Briggs Swift, President; E. L. Harper, vice-President; Ammi
Baldwin, cashier; Benj. E. Hopkins, ass't cashier"
"U.S. depository. The Fidelity National Bank. Capital,
$2,000,000.00; surplus, $400,000.00."
"Cincinnati, June 14th, 1887"
"The American Exchange National Bank, Chicago, Illinois"
"Gentlemen: Messrs. Wilshire, Eckert & Co. have deposited
two hundred thousand ($200,000.00) dollars to your credit for the
use of C. J. Kershaw & Co."
"Respectfully yours,"
"BENJ. E. HOPKINS,
As. Cas."
At the time this certificate of deposit was issued, Benjamin E.
Hopkins was the assistant cashier of the Fidelity Bank, and his
signature, "Benj. E. Hopkins, As. Cas.," was used as the signature
of that bank. The certificate was delivered by it to the plaintiff
on the 15th of June, 1887, and the plaintiff has owned it ever
since. On the faith thereof, the plaintiff at the request of said
C. J. Kershaw & Co., on said 15th of June, paid to said C. J.
Kershaw & Co., and upon their orders, the full amount of
$200,000, and by means thereof became entitled to recover from the
Fidelity Bank the full amount of the certificate. On June 18, 1887,
the plaintiff presented the certificate to the Fidelity Bank at its
banking office in Cincinnati, and demanded payment thereof, which
was refused. The plaintiff became indebted to the Fidelity Bank in
the sum of $1,302.77, for a balance on general account. After
deducting such balance, there was due from the latter to the
plaintiff at the time of such demand, $198,697.23, which amount is
still due, with interest from June 18, 1887. In September, 1887,
that claim was presented to the defendant for allowance, but he
rejected it.
The prayer of the bill is for a decree that the claim, amounting
to $198,697.23, with interest from June 18, 1887, to June 27, 1887,
is a valid claim against the assets in the hands of the defendant
as receiver, and that he be directed to satisfy it by paying
dividends upon it from the assets of the Fidelity Bank in due
course of administration.
Page 133 U. S. 441
The answer to the petition and the replication thereto were
ordered to stand in respect to the bill, and like stipulations were
made as in case No. 1,110.
The defense set up in the answer is as follows: one Joseph
Wilshire was a member of the firm of Wilshire, Eckert & Co. E.
L. Harper, Benjamin E. Hopkins, the assistant cashier of the
Fidelity Bank, and Wilshire conspired to defraud the Fidelity Bank.
Harper, Hopkins, and Wilshire, with other persons, were at and
before the 14th of June, 1887, engaged in what is called "a deal"
in wheat, which is speculating in wheat, in Chicago, by buying very
large amounts of wheat on paying a margin or percentage of the
purchase price, and entering into contracts for future delivery to
them of wheat in large quantities, upon which contracts they were
advancing and paying a margin, or part of the price of the wheat.
The object of the speculation and purchase under the contracts was
to enable said parties to own and control all the wheat then in
Chicago, or to arrive within the time of the performance of the
contracts, and thereby to create what is called a "corner" in the
market -- that is to say, by contracting for the purchase and
delivery of more wheat than exists and can by any possibility be
delivered, to create a fictitious value or price therefor, effect
an advance in the market price of wheat in Chicago, and realize a
profit thereon to Harper, Hopkins, and Wilshire, and such other
persons as might be engaged with them in the speculation. Harper,
Hopkins, and Wilshire conspired together unlawfully to abstract
from the Fidelity Bank its money and to embezzle its funds in the
possession or control of Harper and Hopkins as its officers, and,
by drawing bills of exchange and other evidences of indebtedness in
the name of the bank, to use its credit and resources for their own
benefit not in the prosecution of its legitimate business, but in
the purchase of wheat in Chicago, and contracts for the future
delivery of wheat, in the prosecution of said unlawful speculation.
The letter of advice addressed to the plaintiff, set forth in the
bill, was signed by Hopkins and delivered by Harper to Wilshire in
the execution of the scheme to abstract the funds of the bank and
unlawfully use its credit in the speculation in wheat, and for
no
Page 133 U. S. 442
other purpose. Wilshire, Eckert & Co. did not deposit any
part of the $200,000 mentioned in the letter of advice in the
Fidelity Bank to the credit of the plaintiff for the use therein
expressed. The letter was unlawfully and fraudulently addressed to
the plaintiff when in fact no money had been deposited by any
person to the credit of the plaintiff with the Fidelity Bank and in
the execution of said scheme. At the time of the alleged delivery
of the letter of advice to the plaintiff, it had notice that
Harper, Hopkins, and Wilshire were engaged in said speculation, and
were using the credit and funds of the Fidelity Bank unlawfully for
such purpose, and that the letter of advice was written and signed
for such purpose, and delivered to Wilshire, and by him to the
plaintiff, to be used by and through the plaintiff, and by C. J.
Kershaw & Co., who were, and to the plaintiff were well known
to be, brokers, in the purchase of wheat for the account of
Wilshire and his confederates, and had full knowledge that the
purchases were in the execution of an unlawful combination to
control the market for wheat and thereby enhance the value thereof
in Chicago. The terms of the agreement between Wilshire,
representing the firm of Wilshire, Eckert & Co., and his
confederates, and the circumstances connected therewith, were such
that the plaintiff was put upon inquiry, and could not and did not
bona fide make advances to C. J. Kershaw & Co., nor
become entitled to receive from the Fidelity Bank any part of the
amount of such advances, and if made by the plaintiff, they were
not made in the regular course of business, but in bad faith and
with such notice. The Fidelity Bank did not become indebted to the
plaintiff in any amount, and the claim is not a valid one, and
ought not to be allowed.
On the 3d of December, 1888, after a hearing on pleadings and
proofs, a decree was made setting forth that on the 15th of June,
1887, the plaintiff became the owner of the certificate of deposit
or letter of advice set out in the bill; that, on the faith
thereof, and without notice of the matters set forth in the answer,
the plaintiff, on the 15th of June, 1887, advanced to C. J. Kershaw
& Co. the full amount of $200,000, and by reason thereof then
became entitled to recover from the Fidelity
Page 133 U. S. 443
Bank the full amount of the certificate; that on the 18th of
June, 1887, the plaintiff presented the certificate to the Fidelity
Bank, and demanded payment thereof, which was refused; that after
the Fidelity Bank became indebted to the plaintiff in said sum of
$200,000, the plaintiff became indebted to the Fidelity Bank in the
sum of $1,302.77, being a balance due on general account; that
after deducting such balance, there was due from the Fidelity Bank
at the time of such demand, $198,697.23; that the claim therefor
was presented to the defendant and rejected, and that the plaintiff
is a
bona fide holder of the certificate for valuable
consideration, without notice of any want of consideration and free
from any equities or defenses whatsoever. The decree adjudges that
the claim is a valid claim for $198,697.23 against the assets in
the hands of the defendant as receiver, and directs him to satisfy
the same by paying thereon such dividends as had been made
theretofore, and should be made thereafter, from the assets of the
Fidelity Bank, in due course of administration, and to pay the
dividend of 25 percent already declared, October 31, 1887, with
interest from that date until the time of payment, and also the
costs of the proceeding. From this decree the defendant has
appealed.
Case No. 1,110 will be first considered. The receiver contends
that the draft is not a valid claim against the funds in his hands;
that there was no endorsement of it by the plaintiff, which was the
payee, to a
bona fide holder; that the draft came into the
possession of the plaintiff without any consideration's being paid
therefor by it to the Fidelity Bank, and that bank never received
any consideration from any person for it, and that the plaintiff
does not occupy the position of an endorsee of it for value.
The facts in evidence, as we understand them, are these: the
draft numbered 16,412 was deposited with the plaintiff by one of
its regular customers, C. J. Kershaw & Co., on June 15, 1887,
and was endorsed by the plaintiff's cashier and by that firm for
deposit, thus: "Dep. acct. C. J. Kershaw & Co. C. J. Kershaw.
& Co." This draft was endorsed over on the same day by the
plaintiff to the American Exchange National Bank of
Page 133 U. S. 444
New York, for collection for account of the plaintiff, and was
duly presented to the drawee on the 17th of June, 1887. Payment was
refused, the draft was duly protested and returned to the
plaintiff, and notice of protest was duly given to the drawer.
Another draft for $100,000, numbered 16,413, and not involved in
either of the suits Nos. 1,110 and 1,111, was drawn by the Fidelity
Bank on the Chemical National Bank of New York City to the order of
C. J. Kershaw & Co., and was endorsed and deposited with the
plaintiff by that firm on June 15, 1887. It also was sent forward,
payment was refused, it was protested, and notice was given to the
drawer. A claim for its amount having been rejected by the
receiver, a suit was brought on it by the plaintiff against the
receiver, and a decree was rendered in favor of the plaintiff for
its full amount. The third suit was No. 1,111.
The plaintiff and the Fidelity Bank were corresponding banks,
and made collections for each other. The co-partnership of C. J.
Kershaw & Co. was composed of Charles J. Kershaw and Hamilton
Dewar, as general partners, and Charles B. Eggleston, as special
partner. It was engaged in the grain commission business on the
board of trade in Chicago, and kept its sole bank account with the
plaintiff. In March, 1887, and before that time, it began to
purchase wheat on orders from Wilshire, Eckert & Co., who were
commission merchants in Cincinnati, and it was buying wheat also
for J. W. Hoyt, another commission merchant in Cincinnati. It did
not know the principals for whom Wilshire, Eckert & Co. and
Hoyt were acting, and did not know until the 30th of May that they
were acting for the same principal. It was the custom of Wilshire,
Eckert & Co. to transfer money to Kershaw & Co., for such
purchases, by advising the latter that a certain sum had been
deposited in bank in Cincinnati to their credit, and Kershaw &
Co. then drew a draft against such deposit, and deposited the draft
to their own credit with the plaintiff. Kershaw & Co. selected
the Fidelity Bank as the bank in which they wished the funds to be
deposited. After the two banks became correspondents, money was
transmitted also by certificates of deposit substantially like the
one in No. 1,111, and prior to the
Page 133 U. S. 445
15th of June, 1887, the Fidelity Bank had issued and sent to the
plaintiff, four such certificates, on printed forms, reading as
follows, the written portions being in italics:
"
The Fidelity National Bank"
"Cincinnati, April 28th, 1887"
"
A. L. Dewar, Esq., Cashier
American Exchg. Nat.,
Chicago, Ills."
"Dear Sir: We credit your account twenty-five thousand dollars,
received from
Wilshire, Eckert & Co., for the use of
C. J. Kershaw & Co."
"Respectfully yours,"
"
$25,000 Ammi Baldwin, Cashier"
"[On the margin:] Letter of advice"
"[Written across the face:]
Same telegraphed this
date"
"
The Fidelity National Bank"
"Cincinnati, Apl. 28th, 1887"
"
A. L. Dewar, Esq., Cashier
American Ex. Natl. Bk.,
Chicago, Ills."
"Dear Sir: We credit your account
one hundred and three
thousand dollars, received from
C. J. Kershaw & Co.,
$50,000 wired, $53,000 wired, for the use of
C. J. Kershaw
& Co."
"Respectfully yours,"
"
$103,000.00 E. L. Harper V. P."
"[On the margin:] Letter of advice"
"
The Fidelity National Bank"
"Cincinnati, April 29th, 1887"
"
A. L. Dewar, Esq., Cashier
American Exchg. Nat.
Bk., Chicago, Ills."
"Dear Sir: We credit your account twenty-five thousand dollars,
received from
Wilshire, Eckert & Co., for the use of
C. J. Kershaw & Co."
"Respectfully yours,"
"
$25,000 Ammi Baldwin, Cashier"
Page 133 U. S. 446
"[On the margin:] Letter of advice"
"[Written across the face:]
Same telegraphed you this date,
under our special telegraphic code"
"
The Fidelity National Bank"
"Cincinnati, April 30th, 1887"
"
A. L. Deware, Esq., Cashier,
Chicago,
Ills."
"Dear Sir: We credit your account one hundred thousand dollars,
received from
Wilshire, Eckert & Co., for the use of
C. J. Kershaw & Co."
"Respectfully yours,"
"
$100,000 Ammi Baldwin, Cashier"
"[On the margin:] Letter of advice"
"[Written across the face:]
Same telegraphed you this
date"
These certificates were issued for five different deposits made
with the Fidelity Bank to the credit of the plaintiff, for the use
of Kershaw & Co. The Fidelity Bank sent to the plaintiff a
telegram announcing each of such deposits, the telegrams being as
follows:
"Cincinnati, O., 28"
"
To Am'n Ex. Nat. Bk."
"Wilshire, Eckert & Co., deposit with us for your credit,
use C. J. Kershaw & Co., twenty-five thousand dollars."
"FIDELITY N. BANK"
"4-28"
"
To American Ex. Nat. Bank."
"Kershaw & Co. have placed to your credit fifty thousand
dollars."
"FIDELITY NATIONAL BANK"
"Cincinnati, O., 28"
"
To American Ex. Nat. Bank."
"Kershaw & Co. have placed to your credit fifty-three
thousand additional."
"FIDELITY NAT. BANK"
Page 133 U. S. 447
"Cincinnati, O., 29"
"
To Am. Ex. Nat. Bk."
"Wilshire, Eckert & Co. deposit to your credit, for the use
of C. J. Kershaw & Co., $25,000."
"FIDELITY N. BANK"
"Cincinnati, O., 30"
"
To American Exchange Natl. Bank, Chicago."
"Wilshire, Eckert & Co. deposit to your credit, for the use
of C. J. Kershaw & Co., $100,000."
"FIDELITY NATL. BANK"
On the second of May, 1887, the Fidelity Bank sent another
telegram to the plaintiff announcing that Wilshire, Eckert &
Co. had deposited with it, to the credit of the plaintiff, for
account of Kershaw & Co., $100,000.
The Fidelity Bank therefore had advised the plaintiff, prior to
June 15, 1887, that it had received six different deposits to the
credit of the plaintiff for the use of Kershaw & Co., amounting
in the aggregate to $353,000, and that four of those deposits,
amounting to $250,000, had been made by Wilshire, Eckert & Co.
It was the custom of the plaintiff, on receiving such certificates
of deposit, to place the amount of the same to the credit of
Kershaw & Co., and allow them to check against the same as
deposits of money, and the four certificates were all paid by the
Fidelity Bank. It was also the custom of the plaintiff to place to
the credit of Kershaw & Co., as cash, any drafts which they
drew on Cincinnati, and deposited with it.
On the 13th of June, 1887, Wilshire was in Chicago, and promised
Kershaw & Co. that he would deposit on the next day $200,000
for their use in the Fidelity Bank. Wilshire returned to Cincinnati
that night, and on June 14th, Kershaw & Co., in anticipation of
that deposit, left their draft for $200,000 with the plaintiff,
asking the latter to find out by telegram if the deposit had been
made, and if so to forward the draft for collection. The plaintiff
telegraphed to the Fidelity Bank on June 14th as follows: "Has two
hundred thousand been placed with you for C. J. K. & Co.?"
The
Page 133 U. S. 448
Fidelity Bank on the same day replied "Not yet made," and the
draft was not sent forward. In consequence of this promise of
Wilshire and the previous course of dealing between the two banks,
the plaintiff was prepared to receive on the morning of June 15th,
as hereafter mentioned, the certificate of deposit for
$200,000.
The state of the account of Kershaw & Co. with the plaintiff
on the morning of June 14, 1887, was this: they owed the plaintiff
$380,378.37 overdraft, and $280,000 in notes, against which the
plaintiff held as collateral security 692,688 bushels of wheat,
5,000 bushels of corn, and certain wheat then being loaded for
shipment. The total value of such collateral on the morning of that
day was $736,000, and the total indebtedness of Kershaw & Co.
to the plaintiff was $660,378.37. During that day, there was a
panic in wheat, and the price fell from 92 cents to 74 3/4 cents a
bushel. The security of the plaintiff fell in value at a
corresponding rate, and at 1 o'clock in the afternoon was worth
only $544,894. Kershaw & Co. then owed the plaintiff
$525,477.01 -- namely, $280,000 in notes, and $245,477.01
overdraft. Thereupon the plaintiff stopped paying the checks of
Kershaw & Co., the amount of the checks refused being about
$60,000.
The State of the account between the Fidelity Bank and the
plaintiff on the 14th of June, 1887 was as follows: the former owed
the latter a balance of something over $100,000, consisting in part
of a draft drawn on the former by Wilshire, Eckert & Co. to the
order of Kershaw & Co., on the 13th of June, and deposited by
Kershaw & Co. with the plaintiff on that day. The plaintiff, in
accordance with its custom, had treated such draft as a cash item,
and had paid the checks of Kershaw & Co. against it on the
14th. On the night of the 13th, that draft had been sent by the
plaintiff to the Fidelity Bank for payment, and on the 14th the
latter telegraphed the plaintiff that it was paid. Payment was made
by placing the amount to the credit of the plaintiff on the books
of the Fidelity Bank. On the same day, June 14th, the plaintiff
telegraphed to the Fidelity Bank; "Remit at once hundred thousand,
clearing house currency or gold," in
Page 133 U. S. 449
response to which it received, on the morning of the 15th,
$50,000 in currency by express, and a draft for $50,000 drawn by
the Fidelity Bank on the Chemical National Bank, of New York, which
was duly paid by the drawee. At the close of business of the 14th
of June, the plaintiff had security enough to make itself whole as
respected Kershaw & Co., and it had called upon the Fidelity
Bank for substantially the whole balance of account due from that
bank, and the same had been sent on. The plaintiff had therefore no
inducement to take any unusual risk in regard to the transactions
now to be stated.
Just after the plaintiff had closed its bank for business on the
14th of June, it received the following telegram:
"Cincinnati, O., 6-14, 1887"
"
Am. Ex. Nat. Bank:"
"Joseph Wilshire will be at your bank tomorrow morning with six
hundred thousand dollars to make his trade with Kershaw and others
good, if they are protected until he arrives."
"FIDELITY NAT. BANK"
The cashier of the plaintiff sent for Kershaw & Co., showed
them this telegram, and told them that while the plaintiff wanted
to do everything in its power to assist them, it could not agree to
protect them in any manner. Kershaw & Co. replied in substance
that if Wilshire came from Cincinnati that night, he would arrive
about 8 o'clock the next morning, and that they needed no
protection for the time before his arrival. Kershaw & Co. then
suggested and dictated the following telegram, which was sent by
the cashier of the plaintiff.
"Chicago, 14 June, 1887"
"
Fidelity National Bank, Cincinnati, Ohio:"
"If Wilshire is here tomorrow morning with six hundred thousand
currency, the deal will be safe. Answer quick."
"AM. EXCH. NAT. BANK"
Page 133 U. S. 450
The same night, two telegrams were received by the plaintiff,
which read as follows:
"Cincinnati, Ohio, June 14, 1887"
"
American Exchange Natl. Bank:"
"Wilshire will be there on the morning train."
"FIDELITY NATL. BANK"
"Cincinnati, Ohio, 6-14, 1887"
"
American Exchange National Bank, Chicago:"
"Have already wired you that he will be there with six hundred
thousand in the morning."
"FIDELITY NAT. BANK"
Kershaw & Co. were also advised by telegram from Cincinnati,
the same afternoon, that $600,000 would be sent to Chicago that
night.
Wilshire arrived in Chicago on the morning of June 15th, and
went to the plaintiff's bank, where he had an interview with
Kershaw, Dewar, and Eggleston -- all the members of the firm of
Kershaw & Co. Kershaw and Dewar figured up how much money they
needed, and estimated that they needed $68,000 to settle up trades
through the clearing house of the board of trade, $90,000 to
deposit for additional margins, and $60,000 to make good the checks
which the plaintiff had refused to pay the day before, making a
total of $218,000. The cashier of the plaintiff took down those
figures at the time. Wilshire went out, and shortly afterwards
returned with an envelope from which he took four drafts (one of
which was the draft in suit in No. 1,110), and the certificate of
deposit in suit No. 1,111. Each of the four drafts was for the sum
of $100,000, dated June 14, 1887, and drawn by the Fidelity Bank on
the Chemical National Bank, of New York. One was payable to the
order of Wilshire, Eckert & Co., one to the order of J. W.
Wilshire (not sued on), one to the order of C. J. Kershaw &
Co., and the other (in suit in No. 1,110) to the order of the
plaintiff. The four drafts and the certificated of deposit made up
the sum of $600,000.
Page 133 U. S. 451
The two instruments involved in suits Nos. 1,110 and 1,111 were
taken by Wilshire from the envelope and delivered by him to Kershaw
& Co. The plaintiff took them on deposit from Kershaw &
Co., and placed the amounts of them to the credit of the latter, in
accordance with the usual course of business, together with another
of the drafts, for the sum of $100,000. Kershaw & Co. thus
received $400,000 of the paper, Irwin, Green & Co. receiving
the remainder, $200,000. The evidence shows that the two drafts and
the certificate of deposit were taken by the cashier of the
plaintiff on its behalf, and placed to the credit of Kershaw &
Co. by the plaintiff, without any agreement or arrangement on the
part of the plaintiff except to credit them to Kershaw & Co. as
cash.
Before the plaintiff received this $400,000, the account of
Kershaw & Co. with it was overdrawn $245,477.01, as before
stated. On receiving the deposit, the plaintiff placed to the
credit of Kershaw & Co. as cash, in a single item, $399,200,
the full amount of the deposit less $800 charged for exchange. This
was according to the usual course of business between the plaintiff
and Kershaw & Co., and according to the understanding of the
parties at the time. This deposit cancelled the overdraft of
$245,477.01 and left a balance to the credit of Kershaw & Co.
on the morning of June 15th, of $153,722.99. As soon as the
plaintiff opened its bank on that day, there was a run upon the
account of Kershaw & Co., and before 11 o'clock in the morning,
the plaintiff had paid or certified their checks to the amount of
$239,930.78. Meanwhile the plaintiff received on deposit
$25,249.40, but this was a draft drawn against a shipment of wheat
which the plaintiff had held as collateral security, and the
plaintiff's condition was not bettered thereby. The plaintiff
therefore, in reliance upon such deposit of $399,200, not only
cancelled Kershaw & Co.'s overdraft of $245,477.01 but also
gave them $239,930.78 of fresh money, making a total of
$485,407.79. By crediting the paper as cash and using it to cancel
the overdraft, the plaintiff also waived its right to sell for that
purpose the grain which it held as collateral security. The result
was that when the plaintiff did sell the grain after the
Page 133 U. S. 452
paper of the Fidelity Bank was dishonored, it realized only
$449,194.88 for the same grain which, when the plaintiff stopped
paying Kershaw & Co.'s checks, on June 14th, was worth
$544,894, being a shrinkage of $95,699.12.
When the plaintiff had paid Kershaw & Co.'s checks to the
amount of $239,930.78, their account was overdrawn $60,958.39, and
when it was found by Kerhsaw & Co. that it would take $200,000,
instead of $68,000, to pay their differences in the board of trade
clearing house, the plaintiff refused to certify their checks for
$200,000, and they therefore suspended payment.
The Fidelity Bank placed the amount of the certificate of
deposit involved in suit No. 1,111 to the credit of the plaintiff,
and the latter charged the same on its books to the Fidelity Bank,
as a cash deposit and notified the Fidelity Bank that it had done
so. From the 28th of April, 1887, when the Fidelity Bank sent the
first certificate of deposit to the plaintiff, down to the 15th of
June, 1887, the Fidelity Bank had represented that Wilshire, Eckert
& Co. were depositing funds with it which it was remitting to
the plaintiff, and the telegrams of June 14, 1887, from the
Fidelity Bank, held out Wilshire as the owner of the $600,000 which
he was to take to Chicago to protect the trades. During the six
days while the Fidelity Bank remained open after the paper in
question was taken by the plaintiff, the Fidelity Bank made no
complaint that the plaintiff had not acted in all the transactions
in an honest manner and in accordance with the instructions of the
Fidelity Bank.
What took place between the officers of the Fidelity Bank and
Wilshire, which the receiver alleges in his answer amounted to a
conspiracy to embezzle the funds of that bank, was not revealed to
the plaintiff until it was disclosed by the evidence taken in the
suits.
In regard to No. 1,110, it is contended by the receiver that the
draft could not take effect until it was delivered to the
plaintiff; that such delivery must have been made by the Fidelity
Bank; that therefore Wilshire was acting for that bank in
delivering the draft, and that, as between the Fidelity
Page 133 U. S. 453
Bank and the plaintiff, want of consideration may be shown. The
draft in question was drawn in Ohio, upon a bank in New York, and
was payable in New York. It was therefore a foreign bill of
exchange. Where there are four parties to such a bill, namely, the
drawer, the drawee, the payee, and the remitter or purchaser, the
usual course of business is for the drawer to deliver it to the
remitter or purchaser, and for the latter to deliver it to the
payee. In such a course of dealing, the remitter does not act as
the agent of the drawer, but acts for himself, and in a suit on the
bill by the payee against the drawer, want of consideration cannot
be shown if the payee is a
bona fide holder for value.
Munroe v. Bordier, 8 C.B. 862;
Watson v. Russell,
3 B. & S. 34;
Iron Co. v. Brown, 33 Me. 139;
Horn
v. Fuller, 6 N.H. 511; 1 Daniel on Neg.Inst. § 178; 1 Parsons
on Notes & Bills 181, 199.
When Wilshire went to the plaintiff's bank on the morning of
June 15, 1887, he came duly accredited by the Fidelity Bank as the
purchaser of the $600,000 of paper which he brought, and he acted
as such in delivering the draft in suit in No. 1,110. The fact that
the draft was payable to the order of the plaintiff was not
inconsistent with the representation that Wilshire held it as
purchaser and remitter. Wilshire received value for it from Kershaw
& Co., and acted with them in getting the draft placed to their
credit as cash by the plaintiff, so that the plaintiff became the
holder of the draft for value. Wilshire gave to Kershaw & Co.
the $400,000 on account of the indebtedness of Wilshire, Eckert
& Co. to them. As Wilshire delivered the paper to Kershaw &
Co. with the knowledge of the plaintiff, and with the understanding
that the plaintiff was to take it, and place it to the credit of
Kershaw & Co., the past indebtedness of Wilshire, Eckert &
Co. to Kershaw & Co. was a sufficient consideration to give to
the plaintiff a good title to the paper for the use of Kershaw
& Co., and it is manifest that the inducement to Wilshire to
give the paper to Kershaw & Co. was chiefly the consideration
that the plaintiff would give credit at once to
Page 133 U. S. 454
Kershaw & Co. for the amount. This credit was given, and on
the faith of it the plaintiff paid to Kershaw & Co., on their
checks, $239,930.78. The plaintiff thus became the owner of the
paper which it received on deposit.
Clark v. Bank, 2 N.Y.
380;
In re Franklin Bank, 1 Paige 249;
Platt v.
Beebe, 57 N.Y. 339;
Metropolitan Nat. Bank v. Loyd,
90 N.Y. 530;
Bank v.
Millard, 10 Wall. 152;
Brooks v. Bigelow,
142 Mass. 6;
Bank v. Miller, 77 Ala. 168;
Ayres v.
Bank, 79 Mo. 421;
Flannery v. Coates, 80 Mo. 444;
Titus v. Mechanics' Bank, 35 N.J.Law 588;
Terhune v.
Bank, 34 N.J.Eq. 367;
In re Carew's Estate, 31 Beavan
39;
Ex Parte Richdale, 19 Ch.D. 409.
We do not think that the fact that the draft was payable to the
order of the plaintiff was notice to the plaintiff that Wilshire
was not its purchaser or remitter or that the manner in which the
plaintiff acted after taking the draft for deposit shows that the
plaintiff was not a
bona fide holder for value. The draft
for $100,000, in suit in No. 1,110, and the draft for $100,000 to
the order of Kershaw & Co., showed a difference in form, which
was noticed by the assistant cashier of the plaintiff, who feared
that the Fidelity Bank might claim subsequently that the draft
payable to the order of the plaintiff was a part of the $200,000
mentioned in the certificate of deposit in suit in No. 1,111. He
therefore sent to the Fidelity Bank this telegram:
"Chicago, 15 June, 1887"
"
Fidelity National Bank, Cincinnati, Ohio."
"Your draft on New York, number sixteen four twelve, delivered
us this morning, is made payable to our order. Why was this done,
and is the amount charged against us, or is it intended for use of
W., as he may direct? Answer quick."
"AMERICAN EXCHANGE NATIONAL BANK"
This telegram was sent, as the cashier says, "as an extra
precaution;" but, without waiting for a reply to it, the plaintiff
paid the checks of Kershaw & Co. until their account was not
only exhausted, but was overdrawn $60,958.39, when further
Page 133 U. S. 455
payment of their checks was stopped. This was two hours before
any reply by telegram was received from the Fidelity Bank. When the
reply came, it did not disavow the authority of Wilshire to use the
draft No. 16,412 as a part of the $600,000, the reply being as
follows:
"Cincinnati, Ohio, June 15, 1887"
"
American Exchange National Bank, Chicago."
"We want number sixteen four twelve to apply on your account,
and have wired parties. Please send all drafts to us, and order
Cincinnati National to deliver one today. Party that controls
special account out of city. Answer."
"FIDELITY NATIONAL BANK"
The inference to be drawn from this telegram was that draft No.
16,412 had been given to Wilshire for his use, but that since it
had been issued, something had occurred which made the Fidelity
Bank desire to withdraw it, if it could obtain the consent of the
parties in interest, to whom it had wired. The telegram from the
plaintiff was sufficient to notify the Fidelity Bank that Wilshire
was using draft No. 16,412 as a part of the $600,000, and it gave
the Fidelity Bank an opportunity to "answer quick" that Wilshire
had no right to use that draft in that way, if such were the fact.
There was nothing in the reply telegram from the Fidelity Bank,
even if it had been received in time, to warn the plaintiff not to
place that draft to the credit of Kershaw & Co., and nothing to
discredit Wilshire's title to it. After that, and until the time
when the Fidelity Bank closed its doors, it made no claim that the
draft No. 16,412 was not issued in good faith as a part of the
$600,000, or that the plaintiff had applied it wrongly to the
credit of Kershaw & Co. While the plaintiff was paying the
checks of Kershaw & Co., the two drafts fro $100,000 each, and
the certificate of deposit, were in the hands of its assistant
cashier, on the way to be entered upon its books, and while they
were in his hands he made out the following deposit ticket:
Page 133 U. S. 456
"
American Exchange National Bank, Chicago"
"Deposited for account of C. J. Kershaw & Co., June 15,
1887. Checks and drafts on other towns and cities:"
Cincinnati . . . . . . . . . . . . . . 200,000
" N.Y. . . . . . . . . . . . 100,000
*Fidelity . . . . . . . . . . . . . . 100,000
-------
400,000
800
-------
399,200
"* Credited subject to advice from the Fidelity Nat. that draft
is for Kershaw account. We have wired for advice."
This ticket was handed to the teller with the deposit before the
note at the bottom was put upon it, but immediately afterwards the
assistant cashier went back to the teller and added the note. This
deposit ticket was not made out when the deposit was made.
It appears that when the deposit was taken, the cashier of the
plaintiff made out a deposit ticket showing one item of $400,000
deposited by Kershaw & Co., which ticket was made out at their
request when they handed the deposit to the cashier, and told him
to place it to their credit. That deposit ticket did not come to
the hands of the assistant cashier, and he made out the above
deposit ticket; but there is no evidence to show that the latter
deposit ticket was ever seen or assented to by Kershaw & Co.,
or by Wilshire. It appears that Kershaw & Co. did not know that
the plaintiff had not placed the deposit at once to their credit on
its books, although they did know of the telegram which the
plaintiff sent to the Fidelity Bank. The above deposit ticket was
thus made out by the assistant cashier of the plaintiff, for the
use of the plaintiff, and it did not change in any way the terms of
the deposit as between the plaintiff and Kershaw & Co., being
only a private memorandum for the guidance of the paying teller.
The credit on the books of the plaintiff was not made in accordance
with the terms of that ticket, the
Page 133 U. S. 457
credit being in one item, of $399,200, and unconditional, the
note at the bottom of the ticket not being carried into the books
of the plaintiff.
These words in the telegram of June 15th from the Fidelity Bank:
"Please send all drafts to us, and order Cincinnati National to
deliver one today. Party that controls special account out of
city," are explained thus: on the 14th of June, Irwin, Green &
Co. deposited with the plaintiff a draft of theirs on the Fidelity
Bank for $217,862.50, which the plaintiff sent to the Cincinnati
National Bank for collection. It was presented on the 15th of June
to the Fidelity Bank, which refused to pay it, alleging that the
deposit against which the draft was drawn had not been made. Irwin,
Green & Co., however, held a certificate of deposit issued by
the Fidelity Bank, and their draft was drawn against that deposit.
The party, Hoyt, who controlled the special deposit, was out of the
City of Cincinnati; but he was in Chicago, and said that the draft
was all right, and ought to be paid. The telegram from the Fidelity
Bank contained also the request that the plaintiff should order the
Cincinnati National Bank to turn over to the Fidelity Bank, without
payment, such draft for $217,862.50, and should send directly to
the Fidelity Bank all drafts upon the latter.
On the 16th of June, four telegrams passed between Wilshire and
the plaintiff, which show that the plaintiff did not suspect that
Wilshire had any connection with the Fidelity Bank or its officers.
The first was as follows:
"Cincinnati, Ohio, 6-16, 1887"
"
To Am. Ex. Bank:"
"After yesterday's understanding Kershaw must be protected
today. Should this be done, all is well. If not, fear trouble to
all."
"WILSHIRE"
The plaintiff replied as follows, under date of June 17th:
"Chicago, June 17, 1887"
"
Wilshire, Cincinnati, Ohio:"
"Do not admit any understanding, but if you will deposit three
hundred thousand to the credit of this bank with the
Page 133 U. S. 458
First National Bank, Cincinnati, and have that bank wire to
their correspondents here by cipher that this has been done, and to
advise us, and also have Chemical, New York, telegraph us, through
American Exchange National Bank, that the drafts for two hundred
thousand which will be presented by American Exchange National Bank
for our account and use of Kershaw will be paid, we will protect
Kershaw up to four hundred thousand dollars. He claims three
hundred thousand will see him through."
On the 16th of June, the plaintiff received the following letter
from the Fidelity Bank:
"Cincinnati, June 15, 1887"
"
American Exchange National Bank, Chicago,
Illinois:"
"Gentlemen: We charge your account $100,000 New York exchange to
your order, sent you by messenger today."
"Respectfully yours,"
"E. L. HARPER,
V.P."
The plaintiff thereupon sent to Wilshire the following telegram,
and Wilshire replied by telegram as follows:
"June 16, 1887"
"
Wilshire, Cincinnati:"
"Fidelity advises us this morning by letter that they have
charged to our account New York exchange for one hundred thousand,
payable to our order, and left with us by you yesterday. This must
be reversed, and Chemical instructed to wire us they will pay same.
Also Fidelity wire us direct that they have reversed the charge,
and authorize us to use this item for Kershaw. Otherwise, you must
deposit four hundred thousand, instead of three hundred thousand,
in the bank we have already designated. Rush."
"AMERICAN EXCHANGE NATIONAL BANK"
"Cincinnati, 16"
"
To American Exchange Natl. Bank:"
"Your telegram received at eleven three. Will go to work at
once, and arrange matter, but you must see Kershaw through without
fail. You should have wired us sooner, and would have fixed you up
as desired."
"J. W. WILSHIRE"
Page 133 U. S. 459
The telegram dated June 17th from the plaintiff to Wilshire
shows that the plaintiff was determined to avoid trouble over draft
No. 16,412, which it had credited to Kershaw & Co., but which
the Fidelity Bank had charged to the plaintiff.
Wilshire left Chicago during the night of June 15th knowing the
exact condition of things between Kershaw & Co. and the
plaintiff. He reported to Harper at Cincinnati the next morning,
and at the very time when he was sending his two telegrams of June
16th to the plaintiff, he and Harper were arranging further to
defraud the plaintiff, by stopping payment of the drafts which
Wilshire took to Chicago. They telegraphed the Chemical National
Bank not to pay them, and when the four drafts were presented, it
refused to pay them. Harper and Hopkins, on the 16th of June,
charged draft No. 16,412 to the plaintiff on the books of the
Fidelity Bank; but they entered it in the transactions of June 15th
and changed the footings of the column in which the entry was
made.
In reply to the suggestion that the plaintiff took the draft No.
16,412 as collateral security, and therefore was not a
bona
fide holder of it, it is to be said that the plaintiff took
the deposit as a cash deposit, and that there was no agreement with
Kershaw & Co. that the deposit should be held only as security,
because the amount of the deposit was credited as cash on the books
of the plaintiff at or about 11 o'clock on the morning of June
15th, and the plaintiff paid the checks of Kershaw & Co. on the
faith of the deposit of the draft.
The conclusion of the whole matter is that the Fidelity Bank
represented to the plaintiff that Wilshire was a
bona fide
holder of draft No. 16,412, for his use in making good his trades
with Kershaw & Co.; that the plaintiff, relying on such
representations, took the draft on deposit from Kershaw & Co.,
placed it to their credit, and paid their checks, and that under
those circumstances, the Fidelity Bank was estopped from showing
that Wilshire was not a
bona fide holder of the draft, and
the receiver stands in no better position than the Fidelity
Bank.
The decree of the circuit court in No. 1,110 was therefore
right.
Page 133 U. S. 460
As to No. 1,111, the paper in question was in its legal
character a certificated of deposit.
Hart v. Life
Association, 54 Ala. 495;
Long v. Straus, 107 Ind.
94;
Lynch v. Goldsmith, 64 Ga. 42, 50;
Howe v.
Hartness, 11 Ohio St. 449;
Miller v.
Austen, 13 How. 218.
The certificate stated that Wilshire, Eckert & Co. had
deposited so much money. The Fidelity Bank telegraphed to the
plaintiff that Wilshire would come with so much money. It intended
that the plaintiff should take the paper as money. The plaintiff
did take it as money, and the Fidelity Bank entered the paper on
its books as being its own check upon itself. Wilshire went to the
plaintiff on the morning of June 15th as the purchaser and
controller of the certificate, in like manner as he went as the
purchaser and controller of draft No. 16,412. At the request of
Wilshire, Eckert & Co., the Fidelity Bank issued the
certificate directly to the plaintiff. What has been said before in
relation to the claim of the plaintiff as the holder of the draft
No 16,412 applies with equal force to its claim as the holder of
the certificate. It was a purchaser and an innocent purchaser for
value of both pieces of paper. There is no question of
negotiability, because the suit is brought by the original payee,
and the paper was applied by the plaintiff for the use of Kershaw
& Co., as directed by the certificate.
As soon as the paper was delivered to and accepted by the
plaintiff, the Fidelity Bank had entered into a contract with it to
pay $200,000. The suit is for the amount which the Fidelity Bank
agreed to pay, and not for damage sustained by the plaintiff
through the misrepresentation of that bank. The plaintiff accepted
the contract in good faith by placing $200,000 to the credit of
Kershaw & Co., and it also charged $200,000 to the Fidelity
Bank, and notified that bank that it had done so. The Fidelity Bank
acted on that contract, after it was notified of its acceptance by
the plaintiff, by placing $200,000 to the credit of the plaintiff
and charging that amount to Wilshire, Eckert & Co. The
plaintiff was not required to pay the Fidelity Bank anything upon
the contract, because the Fidelity Bank represented that Wilshire,
Eckert & Co. had paid for it.
Page 133 U. S. 461
The plaintiff was required, if it accepted the contract, to give
the benefit of it to Kershaw & Co. It did that by at once
giving Kershaw & Co. credit for $200,000, and that amount still
stands on its books to the credit of Kershaw & Co. The
defendant cannot escape the consequences of the contract of the
Fidelity Bank by saying that the statement of that bank that it had
received from Wilshire, Eckert & Co. the consideration for the
contract was false, because he is estopped from setting up for his
protection the falsity of that statement after the plaintiff has
acted upon it. The plaintiff is seeking to recover upon a contract,
and the receiver is defending by setting up the false
representation of the Fidelity Bank.
The suggestion is not a sound one that the plaintiff took the
paper under such circumstances as would put a man of ordinary
prudence upon inquiry. The Fidelity Bank, prior to June 14, 1887,
had notified the plaintiff of four deposits made with the former by
Wilshire's firm, for the use of Kershaw & Co., in April and
May, 1887, amounting together to $250,000. For each of those
deposits the Fidelity Bank had issued paper similar to that in suit
in No. 1,111. The amounts were placed to the credit of Kershaw
& Co. by the plaintiff, and were paid by the Fidelity Bank to
the plaintiff in the due course of business. Nothing passed between
the two banks to indicate that the Fidelity Bank knew what
Wilshire's firm was doing with the money until the telegram of June
14th, from the Fidelity Bank to the plaintiff, was received by the
latter. The plaintiff was banker for Kershaw & Co., and had
that day stopped payment of their checks. Kershaw & Co. were
the brokers of Wilshire's firm, and had bought a large quantity of
wheat for them for future delivery which needed immediate
protection by the deposit of margins. The Fidelity Bank was the
banker in Cincinnati of Wilshire's firm, and the two banks were
regular correspondents. It was natural for Wilshire to ask his bank
to send the telegram to Kershaw & Co.'s bank, and there was
nothing in that to put a prudent institution upon inquiry. It was
natural that the cashier of the plaintiff should understand that
the two banks were carrying on the telegraphic correspondence
solely for the benefit of their respective customers, and the
Page 133 U. S. 462
plaintiff was led to expect that Wilshire would arrive the next
morning with $600,000 of his own money to use in making good his
trades with Kershaw and others. There was nothing in the telegram
to lead the plaintiff to understand that Wilshire would be in
Chicago with $600,000 of the money of the Fidelity Bank to make
good trades of his for that bank. The appearance of Wilshire the
next morning with $600,000 would naturally lead the plaintiff to
believe that it was his own money, and the same money spoken of in
the telegram of the day before from the Fidelity Bank.
There was nothing in the paper brought by Wilshire to lead the
plaintiff to suspect that the money was the money of the Fidelity
Bank. The paper was all in proper form to be controlled by
Wilshire, and to be used by him to protect his trades with Kershaw
and others. The cashier of the plaintiff had suggested, by telegram
to the Fidelity Bank on the 14th of June, that Wilshire should
bring currency. As he brought paper which, if the plaintiff took
it, must be treated as money, and as the plaintiff had another
draft on the Fidelity Bank for $217,862.50, deposited by Irwin,
Green & Co., which was then in Cincinnati for collection, the
cashier of the plaintiff, before finally taking the paper, asked
Wilshire if the Fidelity Bank was solvent. This indicated no
suspicion of the true state of facts as they were subsequently
disclosed, and the question was a natural one to be put to a person
who was having large money transactions with the Fidelity Bank, and
who had just endorsed its two drafts for $100,000 each. The
attorney of the plaintiff was at the bank, and before its cashier
took the paper, he told the attorney what Wilshire had said, and
that everything appeared perfectly straight. He would not have
taken the paper, and paid out nearly $240,000 on the faith of it,
if he had suspected that it was otherwise than the
bona
fide paper of the Fidelity Bank, issued for a like amount of
money received by that bank.
When the plaintiff learned that the Fidelity Bank had refused to
pay the Irwin, Green & Co. draft for $217,862.50, and when it
had received the telegram of the Fidelity Bank asking that that
draft be turned over to it without payment,
Page 133 U. S. 463
it lost confidence in the solvency of the Fidelity Bank; but it
still believed Wilshire to be the true principal, and telegraphed
him to put his money in another bank. Wilshire replied by telegram,
on June 16th:
"Will go to work at once, and arrange matter; but you must see
Kershaw through without fail. You should have wired us sooner, and
would have fixed you up as desired,"
thus keeping up the deception.
The rumors on the board of trade and in the public press that
Harper was the real principal for whom Wilshire was acting cannot
affect the plaintiff. There is no evidence that any officer of the
plaintiff ever heard any rumor connecting Harper's name with the
purchases of grain. Even if the plaintiff had learned as a fact
that Harper was buying wheat through Wilshire, that would not have
been notice that the statement in the certificate of deposit, that
Wilshire, Eckert & Co. had deposited $200,000, was false; nor
would it have been notice that Harper was using the funds of the
Fidelity Bank. The drafts and the certificate of deposit were all
of them signed by Hopkins, the assistant cashier of the Fidelity
Bank. Nothing occurred to make the plaintiff suspicious of the
bona fide character of the paper, and Wilshire, by
delivering the paper, affirmed the statement of the Fidelity Bank
that his firm had deposited $200,000 to the credit of the
plaintiff. Wilshire was concerned in concealing the truth. He had
come for the express purpose of deceiving the plaintiff, and the
latter cannot be charged with negligence in not asking for
information from him. There is no evidence tending to show that the
plaintiff had any suspicion that Harper, Hopkins, and Wilshire had
conspired together to embezzle the funds of the Fidelity Bank or
that the paper was signed by Hopkins and delivered by Harper to
Wilshire to be used in purchasing wheat. The success of the
conspiracy depended on the concealment of the fact that Wilshire,
Eckert & Co. were not depositing with the Fidelity Bank the
amounts for which it was issuing its paper. There was authority to
issue the paper if Wilshire, Eckert & Co. made the deposit, and
the consequence of the fraud must fall upon the Fidelity Bank, and
not upon the plaintiff.
Page 133 U. S. 464
As to the suggestion that the plaintiff was not warranted in
giving an immediate credit of $200,000 to Kershaw & Co. on the
faith of the certificate of deposit, it is to be said that so far
as the face of the paper is concerned, it was left to the option of
the plaintiff either to give Kershaw & Co. the immediate use of
the money, or to await the collection of the money on the
certificate. It is apparent that the Fidelity Bank, in issuing the
paper, intended that the plaintiff should use it as money, and the
emergency upon Kershaw & Co. required such use of it.
In reply to the claim on the part of the receiver that if the
plaintiff can recover at all, it can recover only the money which
it paid out in reliance on the certificate, it is to be said that
that instrument is a contract by the Fidelity Bank offering to the
plaintiff to become its debtor in the sum of $200,000, and asking
it to become a creditor of the Fidelity Bank, for the benefit of
Kershaw & Co., the object being to convert a credit in
Cincinnati, for which Wilshire, Eckert & Co. had paid, into a
credit in Chicago with the plaintiff, as the banker of Kershaw
& Co., for the use of that firm. The plaintiff accepted this
offered contract, assumed the relation of creditor to the Fidelity
Bank for the use of Kershaw & Co., and at once gave them credit
for $200,000, thus fully complying with the contract. When the
plaintiff placed $40,000 to the credit of Kershaw & Co., it
paid them that amount, and the legal effect of the transaction was
the same as if the plaintiff had given $400,000 in currency to
Kershaw & Co. and they had deposited it to their credit in some
other bank.
The plaintiff held Kershaw & Co.'s check for $256,878.18,
which it was carrying. The check was regular, and the plaintiff had
a right to have it paid at once. It had not been charged up, for
there was only $11,401.17 in Kershaw & Co.'s account against
which to charge it; but, in stating the overdraft on the evening of
June 14, we have treated it as if it had been debited. That check
was paid by the plaintiff, and charged to Kershaw & Co., on the
morning of June 15, in reliance upon the deposit of the Fidelity
Bank paper for $400,000. The plaintiff had the right to apply the
deposit of Kershaw & Co.
Page 133 U. S. 465
to the payment of their indebtedness to it which was due. It was
the understanding of Kershaw & Co. that all of their
outstanding checks should be paid from the deposit. In addition to
canceling the check for $256,878.18, the plaintiff paid out
$239,930.78 on June 15. It therefore fore paid out during that day
$496,808.96. It received on deposit $399,200 in Fidelity Bank
paper, and $25,249.40 in a draft drawn against a shipment of wheat,
and there was a credit upon its books of $11,401.17 at the
beginning of business on that day. The debit side of the account
was therefore $496,808.96, and the credit $435,850.57, being an
excess of debit of $60,958.39.
The plaintiff also forbore to sell the grain which it held as
collateral security for Kershaw & Co.'s indebtedness, and which
was worth on June 14 at the lowest market price of that day,
$544,894. After payment of the Fidelity Bank paper was refused, the
plaintiff sold the grain for $449,194, a shrinkage of $95,700.
There was no agreement that the plaintiff should hold the grain,
but the deposit of $400,000 made it unnecessary to sell it, and
good faith toward Kershaw & Co., under the circumstances,
required that that should not be done. The plaintiff therefore, in
reliance upon the paper of the Fidelity Bank, paid the check of
Kershaw & Co. for $256,878.18, gave them $239,930.78 of further
money, and suffered a loss of $95,700 on the collateral security
which it held.
We do not think that the matter of the application of the
proceeds of the collateral security has anything to do with either
of the cases.
As Kershaw & Co. deposited, and the plaintiff credited, the
three pieces of Fidelity Bank paper as a single cash item, whatever
the plaintiff did on the faith of the deposit of $400,000 was done
on the faith of each piece of paper which went to make up that
deposit. When the plaintiff accepted the certificate of deposit, it
was at liberty to use the credit for $200,000 in any manner which
it and Kershaw & Co. might agree upon, the only requirement
made by the Fidelity Bank being that the credit should be applied
to the use of Kershaw & Co. It was applied to such use as much
by paying their indebtedness to the plaintiff as by paying what
they owed to
Page 133 U. S. 466
any other party. As the plaintiff is seeking to recover on a
contract with which it has fully complied on its part, the receiver
must fully comply with the other part of it, and if Wilshire,
Eckert & Co. did not put $200,000 in the Fidelity Bank to the
credit of the plaintiff, as that bank declared they had done, the
receiver must make good the representation by placing a like amount
to the credit of the plaintiff.
As to the defense that Harper, Hopkins, and Wilshire, with other
persons, on and before June 14, 1887, were engaged in purchasing
wheat on contracts for future delivery and otherwise with the
object of creating a "corner" in the market, that at the time of
the delivery of the paper to the plaintiff, it had notice that they
were engaged in such speculation, and that the certificate of
deposit was delivered to Wilshire, and by him to the plaintiff, to
be used, through the plaintiff and by Kershaw & Co., who were,
and were well known to the plaintiff to be, brokers engaged in the
purchase of wheat, in such speculation, for the account of Wilshire
and his confederates, the defense amounts to this: that if the
plaintiff received money from the Fidelity Bank to be transferred
to Kershaw & Co., it could refuse to pay over the money to the
latter if it knew that they intended to use the money to pay a
gambling debt which the Fidelity Bank had contracted. When the
plaintiff received the deposit from Kershaw & Co., it was bound
to honor their checks against it, and it could not refuse to pay
them on the ground that Kershaw & Co. intended to make an
improper use of the money. If Wilshire, Eckert & Co. and
Kershaw & Co. were engaged in gambling, and the former had
deposited money in the Fidelity Bank to be transferred to the
plaintiff in order that Kershaw & Co. might check out the
amount from the plaintiff's bank in payment of losses sustained in
the gambling transactions, and both banks knew that the money was
to be so used, still the Fidelity Bank, having received the
deposit, could not refuse to pay it over to the plaintiff, and the
plaintiff, having received it, could not refuse to honor the checks
of Kershaw & Co. drawn against it.
Tenant v. Elliott,
1 B. & P. 3;
Farmer v. Russell, 1 B. & P. 296;
Sharp v. Taylor, 2 Phillips Ch. 801;
Armstrong
Page 133 U. S. 467
v. Toler, 11 Wheat. 258;
Kinsman v.
Parkhurst, 18 How. 289;
Brooks v.
Martin, 2 Wall. 70;
Planters'
Bank v. Union Bank, 16 Wall. 483;
McMicken
v. Perin, 18 How. 507.
Nor do we think that the statute of Illinois, 1 Starr &
Curtis Stat. 1885, pp. 791, 792, §§ 130, 131, or the case of
Pearce v. Foote, 113 Ill. 228, has any application to the
present case. That statute makes it an offense to "corner" the
market or to attempt to do so, and makes void all contracts to
reimburse or pay any money or property knowingly lent or advanced
at the time an place of any play or bet, to any person gaming or
betting. The two banks were not attempting to corner the market in
wheat. Whether Wilshire and his confederates were engaged in
attempting to do so, and had made purchases for that purpose
through Kershaw & Co. as brokers, is another question. This is
not a suit by Kershaw & Co. against Wilshire or his firm, or
against the Fidelity Bank. It is a suit on a contract made by the
Fidelity Bank with the plaintiff, and the receiver cannot defend it
on the ground that the plaintiff knew that, if it paid over the
money to Kershaw & Co. as the Fidelity Bank requested, the
money would be used in an illegal transaction.
In
Pearce v. Foote, supra, Foote made an express
agreement with certain commission men to trade exclusively in
differences in options, declaring that he did not want to buy any
provisions, but simply to speculate and settle on differences. He
lost a large sum in such transactions, and endorsed over to the
commissionmen certain notes. The court held that such options were
gambling contracts, and that, as the statute of Illinois provided
that any person who should lose in a gambling transaction might
recover back from the winner whatever he should pay on account of
such loss, Foote could recover the value of the notes from the
commissionmen. But the plaintiff is not the winner in any gambling
transaction. The purport of the decision in
Pearce v.
Foote is that, as the commission men participated in the
illegal transaction, they could not take the ground that their
interest was only that of a commission. The plaintiff is not in the
situation of the commissionmen, and the receiver is not in the
situation of Foote.
Page 133 U. S. 468
The cases which have been decided in regard to the statute of
Illinois arose between brokers and principals, or between winner
and loser, and do not apply to the case at bar.
It is contended, however, by the receiver that the money
advanced by the plaintiff to Kershaw & Co. an the 15th of June
was advanced knowingly at the time in the course of an attempt to
corner the market and to aid Kershaw & Co. in doing so. The
statute of Illinois makes void any contract
"for the reimbursing or paying any money or property knowingly
lent or advanced at the time and place of such play or bet to any
person or persons so gaming or betting."
This is not a suit against Kershaw & Co. to recover money
lent to them, nor is it true that the plaintiff advanced money to
them to assist them in attempting to corner the market. It is not
averred in the answer nor proved that Kershaw & Co. were
engaged in such an attempt. The averment of the answer is that
Harper, Hopkins, Wilshire, and other persons to the defendant
unknown, were engaged in such an attempt, and that Kershaw &
Co. were acting as brokers, but it is not averred that the brokers
had any knowledge of the object of their principals, and the
evidence shows that they had no such knowledge. The money which the
plaintiff advanced to Kershaw & Co. on the 15th of June was not
lent to them on an agreement by them to repay it, but it was
advanced to then in consideration of the deposit with the plaintiff
of the $400,000 of Fidelity Bank paper. Nor is there any proof that
any of the money paid by the plaintiff to Kershaw & Co. on the
15th of June was paid out for wheat purchased for Wilshire, Eckert
& Co. The burden was on the receiver to show clearly that the
money paid out was upon illegal transactions. He fails to do so,
and much more does he fail to show that the money was paid for
present purchases -- that is, in the language of the statute, that
it was advanced "at the time and place" of the purchases, and not
to pay debts incurred in the making of past purchases. If it were
shown that the plaintiff advanced money to Kershaw & Co. on the
15th of June to be used in paying for wheat which Kershaw & Co.
had purchased at some time in the past in an attempt
Page 133 U. S. 469
to corner the market, it would not follow that the plaintiff
could not collect from them such advances.
Where losses have been made in an illegal transaction, a person
who lends money to the loser with which to pay the debt can recover
the loan notwithstanding his knowledge of the fact that the money
was to be so used.
Armstrong v.
Toler, 11 Wheat. 258;
Kimbro v.
Bullitt, 22 How. 256,
63 U. S. 269;
Planters' Bank v. Union
Bank, 16 Wall. 500;
Tyler v. Carlisle, 79
Me. 210;
McGavock v. Puryear, 6 Cold. 34;
Waugh v.
Beck, 114 Penn.St. 422.
It is not shown, as is claimed by the receiver, that in
advancing the money to Kershaw & Co., the plaintiff became a
participator in an illegal attempt to corner the market, or that it
had aided in such an attempt by previously advancing money to them
upon a part of the wheat as collateral security. Although the
plaintiff had advanced money from time to time to them upon wheat
as collateral security, there is no evidence that it knew or had
any reason to suspect that the wheat was purchased in an attempt to
corner the market.
An obligation will be enforced, though indirectly connected with
an illegal transaction, if it is supported by an independent
consideration, so that the plaintiff does not require the aid of
the illegal transaction to make out his case.
Armstrong
v. Toler, 11 Wheat. 258;
Faikney v.
Reynous, 4 Burrow 2069;
Petrie v. Hannay, 3 T.R. 418;
Farmer v. Russell, 1 B. & P. 296;
Planters'
Bank v. Union Bank, 16 Wall. 483;
McBlair v.
Gibbes, 17 How. 232,
58 U. S. 236;
Brooks v.
Martin, 2 Wall. 70;
Bly v. Bank, 79
Penn.St. 453.
Although the contract between the two banks was made in the
State of Illinois, it was to be performed in the State of Ohio,
and, the receiver being estopped from saying that Wilshire, Eckert
& Co. did not deposit the $200,000 in the Fidelity Bank to the
credit of the plaintiff, it is the law of Ohio (
Ehrman v.
Insurance Co., 35 Ohio St. 324) that he cannot be heard to say
that the plaintiff acquired the certificate of deposit in
connection with an illegal transaction.
The result, however, of the evidence is that it does not appear,
as alleged in the answer of the receiver, that the
Page 133 U. S. 470
plaintiff had knowledge or notice that the paper in suit was
delivered to it to be used through it by Kershaw & Co. in
connection with an attempt to corner the market. A detailed
discussion of the evidence would not be profitable.
We think therefore that the circuit court was right in making a
decree against the receiver in No. 1,111.
In both of the cases, it is claimed that the court erred in
adjudging that the plaintiff was entitled to interest on the 25
percent dividend on its claim from October 31, 1887, until the time
the dividend should be paid. As authority, the receiver cites the
case of
White v. Knox, 111 U. S. 784, but
we do not think it applies. In that case, a judgment was obtained
for a claim by White in June, 1883, which included interest on his
claim to that time. While the claim was in litigation, the receiver
had paid ratable dividends of 65 percent to other creditors. After
the judgment in favor of White, the Comptroller of the Currency
calculated the amount due him as of December 20, 1875, the time
when the bank failed, and paid him 65 percent on that amount. He
contended that the dividend should be calculated on his claim with
interest to the time of the judgment, but this Court sustained the
action of the Comptroller. In the present case, the claims of the
plaintiff, as allowed, do not include interest beyond the date when
the bank failed. Interest upon the dividend which it ought to have
received on the 31st of October, 1887, is a different matter. The
allowance of that interest is necessary to put the plaintiff on an
equality with the other creditors. That point was not decided in
White v. Knox, and we think the circuit court did not err
in allowing such interest.
It results that the decrees in both cases must be
Affirmed.
MR. CHIEF JUSTICE FULLER did not take any part in the decision
of this case.