Thompson v. Sioux Falls National Bank,
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150 U.S. 231 (1893)
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U.S. Supreme Court
Thompson v. Sioux Falls National Bank, 150 U.S. 231 (1893)
Thompson v. Sioux Falls National Bank
Argued October 24-25, 1893
Decided November 20, 1893
150 U.S. 231
In an action at law against a bank to recover on a cheque drawn and issued by its cashier, if it be admitted that the cheque was obtained without consideration and was invalid in the hands of the immediate payee, the plaintiff must prove either that he was a bone fide holder or that the person from whom he received the paper had taken it for value without notice of defect in its inception.
A bank, knowing that the county treasurer of the county had not sufficient county foods in his hands to balance its official accounts, consented to give him a fictitious credit in order to enable him to impose upon the county commissioners, who were about to examine his accounts. They accordingly gave him a "cashier's check" for $16,571.61, which he endorsed and took to the commissioners. They received it, but refused to discharge him or his bondsmen, and placed the cheque and such funds as he had in cash in a box and delivered them to his bondsmen. The latter deposited the money and the cheque in another bank in the same place, which bank brought suit against the bank which issued the cheque to recover upon it.
(1) That the circumstances under which the cheque was issued were a plain fraud upon the law and also upon the county commissioners.
(2) That their receipt of it and turning it over to the sureties was a single act, intended to assist the sureties in protecting themselves, and was inconsistent with the idea of releasing them from their obligation.
(3) That the question whether the evidence did or did not establish the fact that the county was an innocent holder should have been submitted to the jury.
This was an action brought by the Sioux Falls National Bank, defendant in error, against the First National Bank, to recover the amount of the following cashier's check, issued by an officer of the defendant bank:
"No. 91 Sioux Falls, Dak., Jan. 12, 1886"
" The First National Bank of Sioux Falls"
"Pay to the order of C. K. Howard, Co. Treas., sixteen thousand five hundred and seventy-one and 61-100 dollars."
"$16,571.61. [Signed] W. F. Furbeck, Cash."
Across the face of this was printed "Cashier's check." It was endorsed, "C. K. Howard, County Treasurer."
The complaint alleged in substance that the check was issued for value received, delivered to Howard, endorsed by him, and that "it came lawfully into the possession of the plaintiff, in the usual course of business," on January 13, 1886, and that the "plaintiff is now the legal owner and holder of the same."
The bank answered, admitting the drawing of the check, and alleged in substance that the check did not come lawfully into the possession of the bank in the usual course of business, and that its acquisition by the bank was ultra vires.
The action was begun January 14, 1886, two days after the check was drawn, against the then sole defendant, the First National Bank, and about six weeks thereafter, namely, March 1, an attachment was issued, upon the ground that the defendant had or was about to assign and dispose of its property with intent to defraud its creditors, and levied upon the moneys, notes, drafts, stock, and other assets of the bank, in the aggregate estimated value of over $120,000. Of this property, the sheriff returned or tendered to the defendant, on March 5, all, except assets of the estimated value of $27,541.21, consisting of coin, notes, etc.
The issue of this attachment was followed by the failure of the bank, and the Comptroller of the Currency appointed Thompson, plaintiff in error, receiver, on March 11. On March 31, 1886, the sheriff delivered to Thompson, as receiver, the assets remaining in his hands, in the above amount of $27,541.21. Acting under advice of the Comptroller, on December 28, 1886, the receiver applied to the court for an order substituting him as party defendant in the place of the bank, and the court thereupon made him an additional party. The receiver excepted to the order, claiming the absolute right of substitution.
Upon the trial, evidence was introduced tending to show the following facts: on January 12, 1886, the date of the check, Charles K. Howard was County Treasurer of the County of Minnehaha, an office which he had held for several years, and
was having his semi-annual settlement as such county treasurer with the board of county commissioners. From the time of its organization to the date of this settlement, Howard had kept his official deposit as treasurer with the First National Bank of Sioux Falls, of which J. B. Young and H.L. Hollister, down to a short time before the issue of this check, had been president and cashier, respectively, and at the time of this settlement, Young and Hollister, together with C. G. Coats and W. H. Corson, were the sureties of Howard upon his official bond.
Howard was confessedly a defaulter -- that is, he had not funds of the county sufficient to meet his liabilities -- and to enable him to make his settlement with the commissioners, he had applied to the defendant bank for assistance. After he had checked over his accounts with the commissioners, he went to the defendant bank for $16,571.61, the amount needed. He had about $12,000 on hand in a box in the treasurer's vault, which, with the $16,571.61, would balance his accounts. He had nothing deposited to his credit at the bank. To make up the required amount, he gave the bank three drafts upon Chicago, aggregating $15,000, telling the cashier, however, that he had no credit there which would obtain the payment of them. The bank thereupon gave him a deposit book, showing a deposit to his credit of $15,625.01, which he exhibited to the commissioners, who said that no doubt that was all proper, but they would like to have some little further assurance that he had the money. He then went to the bank, procured and exhibited to the commissioners a letter, of which the following is a copy:
"First National Bank, Sioux Falls, Dak.,"
"January 12, 1886"
"The books of the bank show a credit in favor of the county of $15,625.01. If you wish, you have the privilege of examining the books."
"R. J. Wells, P't."
"W. F. Furbeck, Cas."
The board would not make a settlement without the money or a certified check. Howard returned to the bank, and asked the cashier for a certified check, but was refused. The cashier thereupon gave him the check in suit, with the condition that he would retain possession of it, deliver it to no one, and return it in twenty minutes, and would also place to the credit of the county in the bank what money he had in his possession, as county treasurer, some twelve or fourteen thousand dollars. This was after the closing of the bank for the day's business.
Howard gave nothing for this check, nor was it charged to anyone on the books of the bank. He did not return the check, nor make any deposit whatever, but took it to the board of commissioners then in session, and endorsed it at the request of the board. That, with the county money he then had in his possession, was sufficient to balance his account, and discharge his obligation to the county. Thereupon Hollister, Coats, and Corson, three of the four sureties upon his bond, through one Bailey, their attorney, demanded that they be released from further liability upon Howard's official bond.
On the following morning, namely, January 13th, the board of county commissioners, deeming Howard's sureties insufficient for the protection of the county because one of the sureties, Young, had removed from the state, adopted a resolution requiring the treasurer to furnish additional freehold sureties in the penal sum of $50,000, and at the same time at the request of the three remaining sureties, resolved that the funds presented to the board of county commissioners by the treasurer in settlement of his accounts be turned over to his bondsmen, and the bondsmen put in charge of the office of county treasurer until the additional bond was furnished, the funds to be deposited and remain the funds of Minnehaha County.
The funds of the treasurer, including this check, were then placed in a tin box and delivered into the hands of the bondsmen, who took them in the box to the Dakota National Bank in the City of Sioux Falls, and offered the same for deposit. In going to the Dakota National Bank, they passed the First National Bank, which was located on the opposite side of the street. The Dakota National Bank refused to receive, give
credit, or purchase the check without the endorsement of the bondsmen or indemnity from them. The check, was at the request of the bondsmen, presented to the First National Bank for payment, which was refused. The box containing the funds was left at the Dakota National Bank by the bondsmen during the noon hour. While the bondsmen and officers of the Dakota National were at dinner, or soon after this, Bailey, on behalf of the bondsmen, called at the plaintiff bank and had an interview with McKinney, its president, in which Bailey said he had been engaged on behalf of the bondsmen of Mr. Howard; that Young had left, and they wished to be released, and that the office had been turned over to the bondsmen with the money. In this conversation, McKinney expressed the wish to obtain the deposit for his own bank. Prior to this conversation, he had made some inquiries of different parties about the county treasurer's deposit and about the settlement and the check, and had asked if it was a straight cashier's check. Receiving a reply in the affirmative, he said: "I would like to have it. They would either pay it or close their doors." About 2 o'clock, the bondsmen Hollister, Coats, and Corson went back to the Dakota National Bank; took the box and money, including this check; went out of the back door of the bank (which was in the same block and on the same side of the street as the plaintiff bank), and, following along the river bank behind the buildings which border the river, entered the plaintiff bank through the back door, and passing through a sort of storeroom to the directors' room or private office, back of the main office, and in the presence of McKinney, emptied on the table the contents of the box, saying, "I have brought you the deposit," or "here it is." McKinney and Hollister began counting the deposit of $27,236.63, and, after the money was counted, the cashier, at the suggestion of Bailey, made out a deposit book in the name of "H.L. Hollister, C. G. Coats, and W. H. Corson, bondsmen," and credited them with the amount of the funds. McKinney knew at this time that these were the county funds, and that the depositors were the treasurer's sureties, in charge of his office and funds while he was getting an additional bond.
The check was not endorsed by the bondsmen, and they had no account at that bank. Hollister endorsed several other checks making up the deposit, but was not asked to endorse this one. Bailey then said to McKinney: "That is a pretty good size check -- you had better go and get your money on it." McKinney said that he would collect it, or see that their doors did not open the next morning. Twice that afternoon, plaintiff presented the check to the First National Bank for payment, which was refused upon the ground that plaintiff had no right to the check, and that it was given without consideration. In the evening, a conference was held at the plaintiff bank between its officers and attorney and those of the First National Bank, at which the plaintiff was again notified that the check was without consideration, and had been fraudulently diverted from the purpose for which it was issued, and was urged to charge the same back to the bondsmen. This the plaintiff bank refused to do, the plaintiff's cashier remarking that if the bank did not pay it, they knew a way to make it.
The next morning, January 14, the plaintiff commenced this action. On January 18, the board of county commissioners, having found the treasurer's account correct, by resolution approved the same, and thereupon Howard tendered his resignation as treasurer, and C. L. Norton, cashier of the plaintiff bank, was appointed his successor. On the next day, January 19, by further resolution of said board, the bondsmen were required to turn over to the county commissioners all the evidences of deposit and all funds belonging to the county, and thereupon the check of the bondsmen in the sum of $27,236.63, certified by McKinney, president of the plaintiff bank, was accepted of the county commissioners in full discharge of the bondsmen for the funds received of the county January 13, and Norton, as county treasurer, receipted to the commissioners for that sum of money in currency. Prior to taking possession of Howard's funds and the check in suit by the county commissioners, there was evidence tending to show that the board was notified by one Wilkes not to take the check under consideration; that the payment of the check would be resisted. This testimony was disputed.
The case was removed for trial to Moody County, and the court, upon motion of the plaintiff at the close of the defendant's testimony, directed a verdict for the amount of the check, upon which judgment was rendered by the district court for $18,417.24. The case was appealed to the supreme court of the territory, where the judgment below was affirmed, and the defendant sued out a writ of error from this Court.