Auten v. United States National Bank of New York
That the receiver, being an officer of the United States, the action against him was one arising under the laws of the United States, and this court had jurisdiction; [p126] 
 That it was competent for the directors of the Arkansas bank to empower the president, or cashier, or both to indorse the paper of the bank, and that, under the circumstances, the New York bank was justified in assuming that the dealings with It were authorized, and were executed as authorized;
 That the set-off having been allowed by the New York bank in account, the receiver was entitled to no other relief.

 Statement of the Case 
Two of the parties to this action in the court below were national banks,—one located at New York; the other located at Little Rock, Ark. Sterling R. Cockrill, as receiver of the latter bank, was also a party. He resigned, and plaintiff in error was appointed. The banks will be denominated, respectively, the New York bank and the Little Rock bank.

The complaint contains the necessary jurisdictional allegations, and that "on December 7, 1892, the City Electric Street Railway Company, a corporation organized and doing business under the laws of Arkansas, in the city of Little Rock, Arkansas, executed and delivered to G. R. Brown and H. G. Allis, citizens of the state of Missouri, its three promissory notes, each for five thousand dollars, payable four months after date, with interest at the rate of ten per cent. per annum from maturity until paid. Said Brown and Allis afterwards indorsed and delivered said notes to the defendant, First National Bank, and said bank, before maturity and for a valuable consideration, indorsed, rediscounted, and delivered said notes to plaintiff. That on December 7, 1892, the McCarthy & Joyce Company, a corporation resident in the city of Little Rock, Pulaski county, Arkansas, and organized and doing business under the laws of Arkansas, executed and delivered to James Joyce, a citizen of the state of Missouri, its two promissory notes, each for five thousand dollars, payable to his order at four and five months, respectively, after date, with interest from maturity at the rate of ten per cent. per annum until paid. Said Joyce afterwards indorsed said notes to the defendant, First National Bank, and said bank, before maturity and for a valuable consideration, indorsed, rediscounted, and delivered said notes to plaintiff. Said notes were each at maturity presented at the First National Bank in Little Rock, Arkansas, [p127] for payment, and, payment being refused, they were each duly protested for nonpayment; the fees for which, amounting to twenty-five dollars, were paid by plaintiff. Copies of said notes, with the indorsements thereon, are hereto attached, marked 1 to 5, inclusive, and made part hereof. No part of said notes has been paid, and the same have been presented to the receiver of said bank for allowance, which he has refused to do."

Judgment was prayed for the debt and other relief.

Three of said notes are in the following form:

The following indorsement appears on each: "Geo. R. Brown, H. G. Allis, First National Bank, Little Rock, Arkansas; H. G. Allis, P't.

Two of the notes were in the following form:

They were indorsed as follows: "James Joyce; H. G. Allis; First National Bank, Little Rock, Ar., H. G. Allis, Pt." 

[p128] The receiver only answered, and his answer, as finally amended, denied that "either of the notes described in the plaintiff's complaint was ever indorsed and delivered to the First National Bank; he denies that either of said notes was ever the property of, or in the possession of, said bank, and denies that the said bank ever indorsed or delivered either of said notes to the plaintiff; he denies that said bank ever received any consideration from said plaintiff for any indorsement or delivery of said notes to it"; and averred "that the name of the defendant bank was indorsed on said notes by H. G. Allis for his personal benefit, without authority from said bank; that the said Allis, assuming to act for defendant bank, procured the plaintiff to advance or loan upon said notes a large sum of money, which he appropriated to his own use; that said Allis had no authority from said bank to negotiate said loan or to act for it in any way in said transaction; if said transaction created an indebtedness against the defendant bank, then the total liability of said defendant bank to the plaintiff by virtue thereof exceeded one-tenth of the plaintiff's capital stock, and the total liability of the defendant bank thereby exceeded the amount of its capital stock actually paid in; that the plaintiff knowingly permitted its officers to make such excessive loan under the circumstances aforesaid; that the transaction aforesaid was not in the usual course of banking business, which either the plaintiff or the defendant bank was authorized to carry on; that the plaintiff is not an innocent holder of either of said notes; that the defendant bank received no benefit from said transaction; that it had no knowledge thereof until a few days prior to its suspension; that no notice of the dishonor of said notes was ever given to the defendant bank." Also that "at the date of the suspension of the First National Bank the United States National Bank was indebted to it in the sum of $467.86, that sum then being on deposit in the said United States National Bank to the credit of the First National Bank of Little Rock, and that the same has never been paid."

The receiver prayed that "he be discharged from all liability upon the notes sued on herein, and that he have judg- [p129] ment against the plaintiff for the said sum of $467.86, and interest from the 1st day of February, 1893."

The plaintiff bank denied the indebtedness of $467.86, and averred "that at the time said First National Bank failed it was indebted to plaintiff in a large amount, to wit, the notes sued upon herein, and plaintiff applied said $467.86 as a credit upon said indebtedness."

The issues thus made up were brought to trial before a jury. Upon the conclusion of the testimony, the court, at the request of the plaintiff bank, instructed the jury to find a verdict for it, and denied certain instructions requested by the defendant. The jury found for the plaintiff, as instructed, for the full amount of the notes sued, less the amount of the set-off, and judgment was entered in accordance therewith.

A writ of error was sued out to the circuit court of appeals, which affirmed the judgment, and the case was brought here.

There had been two other trials, the rulings in which and the action of the circuit court of appeals are reported in 27 U.S. App. 605 [64 F. 985] and 49 U.S. App. 67 [79 F. 296].

The defendant assigns as error the action of the circuit court in instructing the jury to find for the plaintiff bank, and in refusing the instructions requested by the defendant. The latter were 19 in number, and present every aspect of the defendant's defense and contentions. They are necessarily involved in the consideration of the peremptory instruction of the court, and their explicit statement is therefore not necessary.

The evidence shows that the New York bank solicited the business of the Little Rock bank by a letter wrtten by its second assistant cashier, directed to the cashier of the Little Rock bank, and dated June 21, 1892.

Among other things, the letter stated: "If you will send on $50,000 of your good, short-time, well-rated bills receivable, we will be pleased to place them to your credit at 4 per cent."

The reply from the Little Rock bank came, not from its cashier, but from its president, H. G. Allis, who accepted the offer, and inclosed notes amounting to $50,728, among which [p130] were three of the City Electric Railway Company, the maker of three of the notes in controversy. When first forwarded, they were not indorsed, and had to be returned for indorsement. They were indorsed, and the letter returning them was signed by Allis. To the letter forwarding them the New York bank replied as follows:

The notes were enumerated, their amounts calculated and footed up, and discount at 4 per cent. deducted, and the proceeds, amounting to $50,216.48, placed to the credit of the Little Rock bank.

On July 6, 1892, the following telegrams were exchanged: 

In accordance with the proposition thus made and accepted, H. G. Allis, as president, wrote on the 9th of July, 1892, to the New York bank a letter, inclosing what he denominated "prime paper, amounting to $50,301.88," and requested proceeds to be placed "to our credit, and advise." Thses notes were discounted and acknowledged. Their proceeds, less discount, amounted to $49,641.68.

On July 26, 1892, the New York bank telegraphed:

To this H. G. Allis, as president, answered as follows:

In the list of notes were two by the City Electric Street Railway Company and two by the McCarthy & Joyce Company, who were the makers of two of the notes in controversy. There was one by N. Kupferle for $5,000, "due Nov. 8, 1892." The significance of this will be stated hereafter.

These notes were discounted, and the fact communicated to H. G. Allis, Esq., president, Little Rock, Ark.

The next letter contains notes for discount from the Little Rock bank, sent by its cashier, W. C. Denney. The proceeds amounted to $24,413.05, acknowledgment of which was made.

The next communication was about the notes in controversy. it was dated November 25, 1892, and was signed by W. C. Denney, cashier. The letter, however, inclosing the notes, was sent by H. G. Allis, as president. The correspondence is as follows:

In the subsequent correspondence Allis takes part but once, and sent the following telegram, December 21, 1892:

Henry C. Hopkins, cashier of the New York bank, was called as a witness in its behalf, and, after explaining the letters and telegrams which were sent by the banks, and the transactions which they detailed, testified that the dealings between the banks were such as take place between banks carrying on legitimate banking business, in the usual course of business, and that the notes were not discounted in any other way, and that the bank had no notice or intimation that the notes had not been regularly received by the First National Bank, or offered by it in the regular course of business, or for the benefit of any person other than the bank, or interested in the proceeds; and that the United States National Bank, in its correspondence and dealings, did not recognize H. G. Allis, W. C. Denney, or S. S. Smith personally or in any capacity than as representing the First National Bank; and that the transactions were solely with the First National Bank; and that the correspondence and transactions were usual for the president and cashier of a United States [p135] national bank to carry on; and that the proceeds of the various discounted notes were withdrawn by the Little Rock bank in the regular course of business by its officers.

There was a detailed statement of the transactions between the banks attached to Hopkins' deposition, which is not in the record, but instead thereof there appears the following:

"The account current here referred to began June 27, 1892, and continued until the suspension of business of the First National Bank It shows almost daily entries of debit and credit. It shows that the several notes discounted by the United States National Bank, and referred to in the depositions of the officers of that bank, being forty-nine in number, were charged against the account of the First National Bank by the United States National Bank at the several dates of their maturity. In two-thirds of the instances where such charges were made the balance to the credit of the First National Bank on the books of the United States National Bank was sufficient to cover the charge. In other instances the balance to the credit of the First National Bank was insufficient to meet the charge at the time of the entry, and in the other instances the account of the First National Bank was in overdraft, as shown by the books of the United States National Bank at the time the charge was made.

"The account shows that at the time of the suspension of the First National Bank the latter bank had a credit of $467.86 upon the books of the United States National Bank. Against this balance the notes in suit, with protest fees, were charged on the account April 17 and May 15, 1893, making the account show a balance in favor of the United States National Bank of $24,558.03.

"This is the paper marked '77,' referred to in the depositions of Henry C. Hopkins, James H. Parker, Joseph W. Harriman, and John J. McAuliffe, hereto annexed."

The record also shows that "J. H. Parker, president, Joseph W. Harriman, second assistant cashier, and John J. McAuliffe, assistant cashier, each testified to identically the same facts in the identical language as Henry C. Hopkins, and it is agreed that the depositions of Hopkins shall be treated as the deposi- [p136] tion of each of the said witnesses, without the necessity of copying the deposition of each witness."

There was proof made of the protest of the notes.

There was testimony on the part of the plaintiff showing that it was the custom of the banks at Little Rock to rediscount, through their presidents and cashiers, until after a decision in the National Bank case of Cincinnati, in January, 1893. After that it was done by resolution of the board of directors, and the banks of New York and other commercial cities commonly require that now.

By a witness who was cashier of the Little Rock bank from November, 1890, to October, 1891, Allis then being president, it was shown that it was the custom of the bank, as to rediscounting notes, for the cashier or assistant cashier to refer them to the president, and the president generally directed what amount and where to send them. Whether they were referred to the board of directors, the witness was unable to say.

On cross-examination the witness testified that, when the discounts were determined on, the cashier or assistant cashier transacted the business. He, however, only remembered sending off one lot of discounts; Mr. Denney, the assistant cashier, usually carrying on the correspondence. He did not remember that the president ever did anything of that kind. "Either Mr. Denney or I would say to him that something of the kind was needed, and he would direct the quantity and what correspondents usually to send to."

There were introduced in evidence "the reports or statements by the bank to the comptroller of the currency, showing the rediscounts and business of the bank, of date May 17, 1892, and July 12, 1892, as follows: The report of May 17th was sworn to by W. C. Denney, cashier, and attested by James Joyce, E. J. Butler, and H. G. Allis, directors, and showed 'notes and bills rediscounted, $16,132.40.' The report of July 12th was sworn to by H. G. Allis, president, and attested by Charles T. Abeles, E. J. Butler, and John W. Goodwin, directors, and showed, "Notes and bills rediscounted, $81,748.80."

The testimony on the part of the plaintiff in error showed [p137] (we quote from brief of defendant in error) that "the notes never belonged to the First National Bank; that the three notes of the Electric Street Railway Company were executed to Brown and Allis for accommodation of Allis, and the two notes of McCarthy & Joyce Company were executed and delivered to Allis for the purpose of raising money for the company, to be placed to its credit with the First National Bank, to which McCarthy & Joyce Company was indebted; that neither of the notes was ever passed upon by the di count board of the bank, or appeared on the books of the bank; that, after the bank was notified that the notes had been discounted and placed to its credit, Allis directed the proceeds of the notes ($25,000) to be placed to his credit on the books of the bank, at which time there was an overdraft against him of $10,679.44; that Allis was at that time indebted to the Little Rock bank on individual notes for at least $50,000, and was continuously thereafter indebted to the bank until its failure."

As to the power of the president to direct rediscounts or to indorse the notes of the bank, E. J. Butler, N. Kupferle, and C. T. Abeles, who were directors of the bank at the time of the transactions between it and the New York bank, testified, respectively, as follows:

"(Butler): Was a pretty regular attendant at the board meetings during the year,—at nearly all the meetings.

On cross-examination he testified that he did not recollect of Allis asking for authority; that the question never came before the board as to discounts. He knew that there were dis- [p138] counts made, but did not recollect any particular ones, but in case there were he would suppose they were on the authority of the board, given in his absence, but did not remember that the question was brought up at all.

Mr. Denney was cashier in 1892, and he supposed that Denney transacted the business as to indorsements and rediscounting, but did not know and did not recollect that Allis did. Did not hear of him indorsing the notes in suit until after the bank failed.

"(Kupferle): Mr. Allis did not have the power from the board of directors of the bank to indorse its paper for rediscount."

"Cross-examination: There was nothing said in the board about such power. The question was not brought before the board. The bank during that time rediscounted paper. The cashier generally attended to that. I knew that the bank was discounting paper. I recall once where the president requested of the board that the bank should borrow some money. That was in the fall of 1892. I knew that the bank had been discounting paper long before that, and borrowing money before [p139] that, and no authority had been asked of the board to do it. I knew that they were borrowing money and rediscounting paper continually."

"Redirect: We had eleven or thirteen members of the board of directors; I forget which. Never less than eight or nine. There was seldom a meeting when all were present—a majority present.

Did not know of Mr. Allis indorsing the name of the bank upon the paper for the purpose of rediscounting it.

"Cross-examination:

"(Abeles): Not while I was there (at the meetings of the board) was authority given to Allis, as president, to indorse or rediscount the notes of the bank. I do not think it was ever mentioned. I knew of the bank rediscounting paper, and [p140] somebody was transacting that part of the business. I think I inquired of some of the directors who it was, and was told that the authority vested in the cashier. I do not recollect that I inquired of Allis or Denney."

"[Cohn] was not a director in 1892—was for ten years prior to that time, and Allis was president in 1891, but did not recollect that he had authority from the board to indorse its paper or to rediscount it."

"Cross-examination: Knew that rediscounting was being done, but supposed it was being done by the cashier—didn't stop to inquire."

"Redirect:

"Cross-examination:

Other facts are stated in the opinion of the court.

Upon filing the record, the defendant in error made a motion to dismiss, which was postponed to the consideration of the merits.

Mr. Sterling R. Cockrill, for plaintiff in error.

Mr. John Fletcher, for defendant in error. Mr. W. C. Ratcliffe was on his brief.

MR. JUSTICE McKENNA, after making the above statement, delivered the opinion of the court.
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