Bank of Owensboro v. Western Bank

76 Ky. 526 | Ky. Ct. App. | 1877

Lead Opinion

JUDGE GOFER

delivered the opinion óp the court.

The appellant and appellee are both incorporated state banks, •doing a general banking business, the former in Owensboro, and the latter in Louisville.

July 17, 1872, the appellant had money on deposit with the appellee, and, on that day, by its cashier, W. K. Anderson,, wrote to Henry Hurter, appellee’s cashier, as follows:'“'We would like to have you invest some means for us, if you can, in good paper at thirty, sixty, ninety, or one hundred and twenty days’ time.”

July 24, 1872, Hurter, in a letter signed “Henry Hurter, cashier,” wrote to appellant’s cashier that he had, on that day, loaned for appellant, to Robert Atwood, $5,000 on his note at ninety days, secured by seventy shares of Bank of Louisville stock, certificates for which, indorsed by Atwood, he then held, and would forward to appellant if desired. In the afternoon of the same day Hurter wrote a second letter in which he said, “I omitted to inquire in m’y letter of this morning whether you wish the collaterals transferred on the books of the Bank of Louisville to your name and certificates issued.” In reply to the first of these letters appellant wrote, acknowledging the receipt of Atwood’s note, and returning it for collection, and also that the investment was entirely satisfactory; and in reply to the second, “We do not care to handle at all the collaterals on any paper you may discount for us. Do by them as you would if yours.”

• About August 15 Atwood failed, and Hurter wrote to the appellant as follows: “At the time I loaned Mr. Atwood $5,000 of your funds on Bank of Louisville stock as collateral security, I went to the Bank of Louisville and ascertained from Mr. Morgan, the cashier, that the bank held no lien upon that stock, and informed'Morgan, as there was no encumbrance on the stock, I would make a loan thereon. Yesterday it was rumored on the street that Mr. Atwood had failed, and I went to the Bank of Louisville to have the stock transferred to you, which the cashier refused to do. I thought it my duty to inform you of this, so that you can take such steps as your attorney may advise.”

Some time afterward the appellant’s vice-president, in company with Hurter, called at the Bank of Louisville and demanded a transfer of the stock into the name of appellant, which was refused on the ground that Atwood was indebted to the Bank of Louisville, and that it had a charter lien on its stock for the indebtedness of stockholders to it.

In that interview Hurter stated in substance, that before making the loan he had called on the president and cashier of the Bank of Louisville, and they both told him the bank had no lien on the stock. This they both denied in the presence of appellant’s vice-president.

When the note matured the appellant brought suit upon it against Atwood, and it also brought suit against the Bank of Louisville to compel it to transfer the stock. Judgment was recovered against Atwood, on which an execution issued, which was returned “ no property found.” The Bank of Louisville answered, and set up its lien on the stock, which was adjudged superior to the lien of appellant, and the stock was sold, and failed to satisfy the prior lien, whereby the loan made for the appellant became a total loss.

This action was then brought against the appellee to recover damages for failing to take sufficient security for the loan.

The appellee, in its answer, denied all charges of negligence, and averred that it had acted with due caution and circumspection in making the loan, and also set up and relied upon a ratification of its acts in the matter after the appellant was in possession of all the facts and circumstances connected with the transaction.

A trial resulted in a verdict and judgment for the appellee.

The only ground urged for a reversal is, that the court erred in instructing the jury in respect to the alleged ratification. The evidence showed, without contradiction, that before the appellant received the note and collaterals, and brought suit against Atwood' and the Bank of Louisville, it knew that the latter claimed a lien on the stock pledged, to secure Atwood’s note for an amount exceeding its value. But it also showed that the appellee’s cashier informed the appellant, that before the loan was made the Bank of Louisville agreed to release its lien, or, what was the same thing, to transfer the stock on its books into appellant’s name.

That the appellee’s cashier knew, before he made the loan, that the Bank of Louisville had a lien on its stock for debts due the bank by the holders thereof, and that Atwood was then indebted to the bank in a sum greatly exceeding the-value of the stock, was not at any time disputed, the sole matter in dispute being whether it had agreed to waive its lien when called on by Hurter before he made the loan. That question was never finally settled until the judgment in favor of the Bank of Louisville was rendered.

Upon this evidence the court instructed the jury that if the appellee fairly and fully communicated to the appellant all the facts and circumstances connected with the loan which were known to the appellee or its agent, Hurter, and that the appellant knew of the insolvency of Atwood and the claim asserted by the Bank of Louisville, and thereafter adopted the transaction, and l’eceived the note and .collaterals and treated them as its own, the law was for the appellee, although it might have been guilty of such negligence as would otherwise have rendered it liable.

The doctrine that, if an agent has, by a deviation from his orders, or by any other misconduct or omission of duty, become responsible to his principal for damages, he will be discharged therefrom by the ratification of his acts or omissions by the principal, if made with a full knowledge of all the facts, is elementary. But the' instructions given in this ease went further, and held that if the principal, at the time of accepting the note and collaterals, knew all the facts touching the loan and affecting the value of the security, which were then known to the agent, and with such knowledge received them and treated them as its own, the agent was discharged from liability. We have examined many authorities,, both elementary and judicial, in which the doctrine of ratification, as between principal and agent, is discussed, but we have not found one which considered the good faith of the agent as an element in deciding whether or not there had been a ratification; but, on the contrary, whenever the good faith of the agent has elicited remark, it has been to the effect that it could have no weight in the decision of this question. “ Indeed, in all such cases the question is not, whether the party (agent) has acted from good motives and without fraud, but whether he has done his duty and acted according to the confidence reposed in him.” (Story on-Agency, sec. 192.)

Nor do we find any authority for exonerating a delinquent agent from liability if he communicates to the principal all the facts known to him at the time and the principal ratifies the delinquency, and it afterward turns out that the facts as communicated were not the real facts of the case. In such a case the assumed condition is not that claimed to have been ratified.

It was the duty of the appellee to loan appellant’s money on good security, or such as a person of common prudence and skill in business would have esteemed good. It did loan it upon a security confessedly sufficient if unencumbered, but which, as the event has proved, was encumbered to its full value, and therefore was no security at all. The appellee, through its cashier (for whose acts we assume for the present it was liable), represented that the stock was not in lien to the Bank,of Louisville; in other words, that the security was good. To know whether the representation was true, was necessary to enable the appellant to make an election. It is true it knew that the Bank of Louisville asserted a lien, but whether that lien was superior to the appellant’s or had been waived as appellee represented, it did not and could not know until the dispute was settled. We have therefore a case in which, when the alleged ratification was made, both the principal and agent were necessarily ignorant of the most material fact in the whole case, and consequently there could not have been such a ratification as would release the agent from liability, if its conduct had been such that it was otherwise liable. The gravamen of the appellant’s complaint is, that the appellee negligently failed to take sufficient security for the loan; and the defense is, that the alleged negligence has been ratified; and yet the uncontradicted evidence is, that at the time of the supposed ratification Jit was not know;n that there had been the slightest negligence, or that the security was insufficient. It was not the act of making the loan that needed to be ratified; that was expressly authorized. Nor did the acceptance of the bank-stock as security need ratification. The stock was confessedly worth more than the loan. That which needed ratification was the acceptance of the stock subject as it was to the lien of the Bank of Louisville as security for the loan. If, as the appellee affirmed, it was not subject to the asserted lien, there had been no negligence, and there was nothing to ratify. Whether it was subject to that lien was never known until the suit to test the question was decided; and then, and not until then, did the appellant obtain a knowledge of the facts necessary to make an election whether to adopt or repudiate the acts of its agent.

We have found no case, the facts of which are sufficiently like the facts of this, to make the decision rendered a controlling precedent in this case; but assuming the two fundamental rules of the law of agency, (1) that -when the agent has deviated from his duty he becomes liable to his principal for such losses as are the direct and natural consequence of such deviation, whether his motives were good or bad; and (2) that he is only released from that liability when the principal, with a knowledge of all the facts, ratifies his departure from his duty, and we think there can be no doubt of the correctness of the conclusion we have reached.

There was not only no evidence that the appellant knew at the time of the alleged ratification that the appellee had taken insufficient security, but, on the contrary, the evidence was uncontradicted and conclusive that it did not, and there was therefore no evidence upon which to base an instruction on the subject of ratification.

None of the cases cited by appellee’s counsel are like this. We can not undertake to review them one by one, and point out the distinction between them and this case; but an examination of them will show that in every one in which the agent; was held to be discharged from liability for deviations from orders or duty, the principal knew at the time of the ratification that the agent had not done his duty; whereas, in this case, as we have already seen, the appellant did not and could not know that the appellee had not taken ample security until it was decided that the Bank of Louisville had not waived its lien on the stock. This conclusion is sustained by the cases of Bank of St. Marys v. Colder (3 Strobh. 403); Walker v. Walker (5 Heiskell, 425); and by Wharton on Agent and Agency, sec. 67.

It is next contended that Hurter, the cashier, and not the appellee, was appellant’s agent, and made the loan, and that therefore the appellee is not responsible. It is a sufficient answer to this to say, that no such issue was presented by the answer, and that it is there distinctly averred that the appellee made the loan and took the security.

It is also claimed that the appellee had no authority to act as agent in loaning money, and is therefore not liable even if guilty of negligence in the matter.

The appellee is an incorporated bank, and we are unable to discover in its charter any thing which prohibits it from engaging in any business incident to general banking. The answer presented no issue upon the point, and we can'not say as matter of judicial knowledge, that the loaning of money for a customer is not a part of the legitimate business of general banking. Whether it is or not, is a question of fact depending upon the custom of banks, and if it was intended to rely that such business was ultra vires the bank, the issue should have been made in the answer in order that the appellant might offer evidence to show that it was incidental to the business of banking, and therefore within the implied powers of the appellee.

It seems to us therefore that on the pleadings and evidence embodied in the record, the only question involved was, whether the appellee used that care and skill in taking security which, under the circumstances, it was its duty to use.

If, in view of the character and standing of Atwood at the time the loan was made, the knowledge the appellee (or what is the same thing, its cashier) had of the lien on the collaterals given to the Bank of Louisville by its charter, what took place between the appellee’s cashier and the officers of the Bank of Louisville, and his information as to Atwood’s indebtedness to it, the loan would not have been made on the security taken by a person of ordinary prudence and skill in banking, the appellee is liable, otherwise it is not.

Judgment reversed, and cause remanded for a new trial upon principles not inconsistent with this opinion.

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Rehearing

To THE PETITION OE COUNSEL EOR APPELLEE EOR A REHEARING,

Judge Coeer

delivered the eollowing ' response oe the court:'

We have carefully re-examined the grounds upon which the opinion already delivered herein is based, and the authorities relied on by the learned counsel for the appellee to show that the conclusion then reached was erroneous, but have failed to detect any error in the reasoning by which we reached that conclusion, or any conflict between the opinion and the cases cited by counsel. ¥e have, however, concluded that one portion of the opinion was not necessary to a decision of this case, and it has been stricken out.

We said in the opinion that we could not undertake to review all the cases cited by counsel, and point out the distinction between them and this case, and therefore contented ourselves with saying that there was such a distinction.

In the petition counsel have cited only a portion of the oases cited on the hearing, and we deem it due to them, as well as ourselves, to indicate the distinction between those cases and this case. The cases cited are Courcier v. Ritter (4 Wash. 549); Cairnes v. Bleecker (12 Johns. 300); Pickett v. Pearson (17 Vt. 470); and Hanks v. Drake (49 Barb. 202).

The facts in Courcier v. Ritter were these: In October, 1812, Ritter, a merchant of Philadelphia, consigned to Courcier, a merchant of Bordeaux, forty bags of coffee, with instructions to sell immediately on arrival, and forward to him by the same vessel the articles mentioned in the letter of advice. The coffee was not landed until March, 1813, but Courcier had previously written that as soon as it was landed he should use his best endeavors to effect an advantageous sale, and would ship by the return of the vessel the articles ordered. April 28 he again wrote to Ritter as follows: “ I have not been able yet to procure a sale of your coffee, but no exertions will be wanted to avail myself of the first favorable change in the market.” Courcier did not again write to Ritter until May 21, 1815, when he inclosed an account of sales, by which it appeared that the coffee had not sold for enough to reimburse the advance made by the shipment of articles ordered by Ritter, and the suit was brought to recover the balance due thereon. Ritter defended on the ground that his instructions to sell immediately had not been obeyed, and he had been damaged by the holding of the coffee by Courcier; to which Courcier replied, that by accepting the return cargo (which was procured by an advance made by him, and was not purchased with the proceeds of the outward cargo), and by not promptly objecting to the alleged violation of his orders, of which the letter of April 28 informed him, Ritter had ratified what was done.

In considering this part of the defense, Mr. Justice Washington said: “If the principal, being informed by his agent of the deviation from his orders, makes no objection to his conduct, the law construes his silence into a tacit recognition of the act or omission, against which he will not be permitted afterward to complain. The reason is obvious. He shall not by his silence place his agent in the predicament of losing all the gain which may result from his well-intended disobedience, and yet be exposed to sustain the loss which a mistaken judgment or unforeseen circumstances may produce.”

This principle we recognize fully. “If,” says the learned judge, “the principal, being informed hy his agent of the deviation from his orders, makes no objection to his conduct, the law construes his silence into a tacit recognition,” etc. But suppose he, as the appellee did in this case, fails to notify his principal that he has deviated from his orders, what then does the law imply from the silence of the principal? The same learned judge, in the same case, referring again to the letter of April 28th, says: “ He does not say that he has declined selling on account of the low price of coffee, which would subject his correspondent to a loss, but that the sale of it is impracticable. .....He discloses no breach of orders whatever, if the fact was that no sales could be made; and consequently the defendant’s silence had no known violation of duty to recognize or ratify

Such is precisely the case here. The appellee did not disclose that it had violated its orders, but affirmed that it had not, and “there was no known violation of duty to recognize or ratify.”

Cairnes v. Bleecker is a very long case, but may, for the purposes of this case, be briefly stated as follows: Bleecker received from Cairnes certain goods marked M. Gillett, and was instructed to deliver them to Gillett whenever he deposited with him (Bleecker) property amply sufficient to secure certain drafts drawn by Gillett on Bleecker in favor of Cairnes. In July, after the goods were deposited with Bleecker, he wrote to Cairnes informing him that a certain quantity of ashes had been deposited by Gillett to secure the drafts, and that the goods received for Gillett had been delivered to him. The ashes then held by Bleecker seem to have been understood by both parties not to be “ amply sufficient to secure the drafts,” for in the same letter, informing Cairnes of the delivery of the goods to Gillett, he was notified that Gillett promised more ashes by the next trip of the vessel by which the first lot was shipped. In October Cairnes wrote to inquire of Bleecker what other property, besides the ashes shipped as above stated, Gillett had placed in his hands when he took away the last of the goods. November 1st Bleecker informed Cairnes that Gillett had deposited no property besides the ashes already shipped. On the 12th of the following February Cairnes informed Bleecker by letter that he should look to him for the value of the goods left with him, and which he, in violation of his instructions, had delivered to Gillett without the required deposit of “property amply sufficient to secure the drafts.” That letter was not answered, and August 3d following formal demand was made upon Bleecker for the goods, which he refused to deliver.

In commenting on these facts the court said: “On the 18th of July, 1811, the defendant informed the plaintiff that he had, on the 17th day of that month, delivered to Gillett the last parcel of the goods, and that he (defendant) had received from him twenty-six casks of ashes......The plaintiff rests satisfied until October the 29th, and then, for the first time, asks for information what other property Gillett had placed in his hands when he took the last of the goods.” The duty and instructions of Bleecker were not to deliver the goods to Gillett until he should deposit with him “property amply sufficient to secure the drafts.” Those instructions were violated, and Cairnes was distinctly informed of the fact by letter dated July 18, and with that information he remained silent until October 29. It was held he could not recover.

The statement of facts in Pickett v. Pearson is very long ; but the point decided in the case may be shown by the following statement: The defendant undertook to collect money for the plaintiff who resided in Vermont, from debtors residing in the then territory of "Wisconsin, and was instructed to receive from one of them only gold and silver or bank-notes at par in Vermont; but the defendant disobeyed his orders, and received for a portion of the debt bank-bills not worth more than twenty cents on the dollar, and for the residue he took the note of the debtor. On his return he delivered the bills and note to the plaintiff, who said he did not know the value of the bills, but would see what he could do with them. He received them November 14, and during the ensuing winter learned they were only worth twenty cents on the dollar, and as soon as he ascertained their value, he notified the defendant, and requested him to make up the money as good as the plaintiff had instructed him to receive, but he did not offer to return the bills until after he had sued the defendant, and it does not appear that he ever offered to return the note of hand taken by the defendant for a part of the debt. The defendant at the time of receiving the bank-bills from Chickering, the debtor, took from him a guaranty with surety that the bills were good, and that also was delivered to the plaintiff with the bills, and was retained by him until .after suit was commenced.

In commenting on the facts, the court said: “It seems very plain to us that the plaintiff’s taking the money and guaranty, and keeping them for months, fully exonerated the defendant. The plaintiff received of the defendant all that the defendant received of Chiekering, and all that belonged to him under protest, to be sure, that he would see what could be done with the money. How long a time is to be allowed him to ascertain that fact? It could hardly be pretended that two or three months were necessary to ascertain that fact. It could just as well be done in as many weeks, and very likely in as many days.”

The case was made to turn upon the delay to return the bills after the plaintiff had learned they were not such as he had directed to be received. He knew then that his instructions had been violated, and then, and not until then, or until he might by proper diligence have learned the fact, did he become bound by a ratification.

The case of Hanks v. Drake is thus correctly stated by counsel: “The principal employed the agent to sell stocks for him at a particular time. The agent sold them prematurely, whereby loss was occasioned to the principal. The agent rendered an account to the principal of what he had done. The principal remained silent for four months, then received the proceeds of the sale, and sued the agent for damages for the difference. The court held that' the right of action was lost by ratification, saying: ‘"When they sold the stock and rendered the account, it was the duty of the plaintiff to have dissented at once. Had the plaintiff so dissented, the defendants could have replaced the stock without loss’; and saying further: ‘The plaintiff, however, claims that such acts are not a ratification unless he had full knowledge of his rights. I do not understand such to he the rule; but the party must have full knowledge of the facts and circumstances of the transaction.’ ” Here was four months of silence after the principal knew his instructions had been violated.

It thus appears that between each of the cases cited in the petition (and we assume they are as pertinent as any counsel .have been able to quote) and the case at bar, there is the clear and marked distinction, that in the former the principal knew at the time of the alleged ratification that his instructions had been disobeyed, while in the latter the principal not only did not know that his orders had not been obeyed, but the agent insisted there had been no disobedience.

It is also urged that a considerable time elapsed after the final decision of the suit against the Bank of Louisville before this- suit was brought, and that that delay amounted to a ratification. It is sufficient for this case to say, that no such issue was raised by the pleadings. The simple acceptance of the note and collateral, with alleged knowledge of all -the facts, were the only acts relied on as a ratification.

But we are referred to our opinion in Trigg v. The Second National Bank, as inconsistent with the opinion in this case. The following extract from the opinion in that case will be sufficient to distinguish it from this, and to show that it belongs to the same class with the cases cited by counsel, and which we have just reviewed. We said, “The evidence showed that the note was delivered to appellants in December, and that they then hnetw the facts in regard to the financial condition of the parties to the note, and the value of the col-laterals.” In other words, the appellants in that case knew when they accepted the securities taken by the appellee the value of those securities, and if their agent had deviated from its duty, they then knew the facts.

The petition must be overruled.

Case Details

Case Name: Bank of Owensboro v. Western Bank

Court Name: Court of Appeals of Kentucky

Date Published: Dec 18, 1877

Citation: 76 Ky. 526

Court Abbreviation: Ky. Ct. App.