Lead Opinion
These are appeals from the District Court, in a suit’ in equity by the receiver of the National City Bank of Cambridge, brought: in 1910 under section 24, par. 16, of the Judicial Code (Act March 3, 1911, c. 231, 36 Stat. 1092 [Comp. St. 1916, §■ 991(16)]). Each of the five defendants named in the bill w^as a director of said bank during the whole or some part of the period between November, 1906, and February, 1910. The defendants Edwin Dresser, Sumner Dresser, and George W. Gale were directors, and Edwin Dresser was president, during the whole of said period, and for some years prior thereto. The defendants David A. Barber and George E. Richardson were directors from January, 1907, during the remainder of said period. By the defalcations during said period of one Coleman, employed in the bank in various capacities, the bank lost $310,143.02 in all. The defendants Edwin Dresser and George E. Richardson died after the suit was begun, but before the final decree. The defendant Gale has died pending these appeals. The District Court has held the said surviving defendants, and the estates of those deceased, liable for $283,218.20 of said total amount, that having been the amount of Coleman’s defalcations after September 30, 1907, and lost to the bank, as the court found, through negligence on their part as directors, from which decree these appeals are taken.
The evidence in the case was heard by a special master. It consisted largely of oral testimony before him bearing upon the question of negligence. It came before the District Court, in connection with exceptions to his final report, upon a printed record containing, among other things, the report of the oral testimony so given. The master expressly found no negligence proved and -none of the defendants liable for any part of said total defalcations.
The^ opinion of the District Court (229 Fed. 772) sets forth ‘fully the principal facts involved, with the court’s reasons for rejecting in part the conclusions reached by the master, and the different conclusions adopted by it. Although the plaintiff receiver recovers less than he claimed by the decree below, he has not appealed therefrom.
When Coleman began his depredations in November, 1906; he was acting as bookkeeper, and also as paying and receiving teller. He had been bookkeeper since January, 1904, and had held both the above, positions since October, 1905. He continued to hold them both until November, 1907. In that month a separate teller Was-employed, and. Coleman was thereafter bookkeeper only. Erom January, 1904, the individual or depositors’ ledger, important in this case, was in his sole- charge. While bookkeeper only he did not, but while-teller also he did, have the handling of the money coming into the bank day by day.
The methods whereby he accomplished and concealed his thefts are set forth in the opinion below, and need not be here restated in detail. They were ingenious, and appear to have been altogether novel. Earl, the cashier, had habitually let him keep the depositors’ ledger, without verifying his work thereon at any time, and had also let him deal unsupervised with checks on the bank presented day by day in envelopes received at the bank from the clearing house or from certain banks not acting through that institution. Earl had habitually accepted as correct the total amounts called for from the bank in settlement by the slips received with each envelope and presented to him by Coleman as correct, v?ithout himself verifying the slips by the checks in the envelope before Coleman could remove therefrom and suppress his own fraudulently drawn checks. Earl had kept the cashier’s ledger according to- said slips, and had made the remittance's called for by them as if correct in amount, with no attempt at any -time to see for himself whether they were in fact correct or not. T¡o the routine thus established Coleman had adapted his methods, of depredation and concealment, and to its deficiencies their success was due. There is little or no controversy as to the material facts regarding these matters. . ■
That it was not due to any negligence chargeable to the defendant directors that Coleman was enabled to put his method of stealing into operation, and to keep it from being detected up to the end of September, 1907, may now be taken as established. If the bank’s losses thereby, prior to that time, can be attributed to negligence on the part of any official connected with the bank, Earl, its cashier throughout said period, is the only official so negligent. As to Earl, the court said in its opinion:
“Possessed of his knowledge and intelligence, it would seem that, if he had exercised the slightest care in supervising Coleman in the handling of the clearing-house checks and in the keeping of the depositors’ ledger, the greater portion of the defalcation never would have taken place.”
But the court, here agreeing with the master, expressly declined to find the bank’s directors negligent in employing Earl originally, as they had done in 1903, and it nowhere overruled or disturbed findings by the master that they had not been negligent in retaining him in office. The court regarded the question whether or not they were so negligent as of little importance, in view of the findings made by it.
As to Edwin Dresser, the bank’s president and executive head, he appears without dispute to have taken, throughout the period in question and for many years before, a part in its daily operations not taken by any other director, which brought him much more closely than any of them into connection with said operations, and afforded him constant opportunities, not possessed by them, for observing the methods followed in conducting said operations and the manner in which the various employés were performing their duties.
It is undisputed that he had regularly been at the bank every morning for an hour or two, to consider with the cashier questions relating to investment of the bank’s funds, and again for an hour or so every afternoon, to ascertain what had gone on during the day; that he had been accustomed to deal personally with matters such as shortages of tellers’ cash, or their discharge when found by him incompetent
It is also undisputed that he was one of the largest stockholders of the bank, and one of tl\e largest depositors therein; that his personal deposit account ran from $35,000 to $50,000 all the time, and was an inactive one; also that he was president and principal owner of a company which was also a large depositor. In filling, vacancies on the board of directors his influence appears to have been controlling.
To the extent above stated, he had, with the acquiescence of the other directors, 'exercised immediate supervision over matters connected with the administration of the bank, to which they had given consideration only when brought before them at their regular weekly meetings.
The negligence of the defendant directors, because of which the court has found them liable, is therefore not. any failure in duty on their part before September 30, 1907. It consists wholly in their failure, on or after that date, to discover that Coleman was practicing his method' of stealing the bank’s funds, and was so manipulating the entries on its depositors’ ledger from time to time, as to prevent their showing what he had done or was doing, except by resort to a more thorough and searching examination and checking of said entries than -any which had ordinarily been made by the directors. By said method, as is undisputed, he successfully ^concealed his thefts, not only from the cashier, but also from the national bank examiners at their semiannual examinations of the bank and its books. Two such examinations were made during the above .period before September 30, 1907, viz. in December, 1906, and June, 1907, and five after that date, viz. in December, 1907, June and December, 1908, and June and December, 1909. These examinations were made alternately by two different examiners.
The appellants contend that the evidence did not warrant the court in treating the master’s finding that the charge of negligence on their part was not sustained by the evidence, as either clearly against the weight of evidence, or as so inconsistent with his other findings that it could not properly stand.
If negligence, as above appears, is not chargeable to the directors in respect of any of Coleman’s stealings before September 30, 1907, it follows that they cannot be held responsible merely because of the deficiencies permitted by Earl to exist in the methods or routine followed in conducting the bank’s regular operations or in recording them on its books, notwithstanding that it was by taking advantage of such deficiencies that Coleman was enabled to accomplish and conceal his stealings. They were entitled to rely, as they did, upon Earl to guard against any such deficiencies, and until some special necessity, for such action was brought to their attention they were under no duty to inquire or interfere independently of him. Briggs v. Spaulding, 141 U. S. 132, 165, 166, 11 Sup. Ct. 924, 35 L. Ed. 662; Warner v. Penoyer, 91 Fed. 587, 590, 591, 33 C. C. A. 222, 44 L. R. A. 761.
The court found that, if they had then made such an examination as -article 19 of the bank’s by-laws required, they would have compared the bank’s liabilities, as shown on the depositors’ ledger, with the cashier’s ledger (on which alone they had been accustomed to rely), in order to ascertain whether the bank’s books were being' correctly kept; that such comparison required them to add the balance footings or the balance columns as then found on the depositor’s ledger, whose totals either did not appear therefrom at all, or appeared incorrectly; that if the true total of the balance footings had then been so ascertained, the fact that it was $20,000 larger than the sum due depositors on the cashier’s ledger would have been disclosed, and if the true total of the balance columns had been so ascertained, the fact that it was $27,000 larger than the amount shown due depositors on the cashier’s ledger would likewise have been, disclosed; that if they, had added only the balance footings, and compared the total with the cashier’s ledger, they would have ascertained Coleman’s irregularities; and that, not having done so, they were chargeable with negligence and liable for his defalcations after that date.
Discovery of the fact that the bank really owed its depositors $27,-000, or even $20,000, more than its cashier’s ledger showed on the date referred to, would no doubt have led to an ascertainment by the directors of Coleman’s irregularities, as the court found. After such a discovery the directors could not, without unquestionable negligence, have omitted an immediate and thorough audit of the bank’s books and accounts, going to the extent necessary for a full and complete explanation of the discrepancies found and the causes thereof.
The only ground for holding such examination necessary on the particular date of September 30, 1907, is that the directors then declared the regular dividend, payable October 1, 1907. Dividends were regularly declared as of April 1 and October 1, and there were four later dividend declarations: On March 23 and September 28, 1908, and March 30 and September 27, 1909. For the examinations required as above by article 19 no dates were expressly fixed by the by-laws or otherwise, but the court found that they “were intended to take place •before the dividends were declared.” Of the two examinations appearing from the records, however, only the second (March 30, 1909) was made on or just before the date of the dividend declaration; the first (November 16, 1908) came six weeks after the October, 1908, dividend.
Article 19 of the bank’s by-laws, quoted in the opinion below, provided that a committee should be appointed by the directors every six months—
“to examine into the affairs of the bank, to count its cash, and compare its -assets and liabilities with the balances on the general ledger, for the purpose of ascertaining whether or not the books are correctly kept and the condition of the bank in a sound and solvent condition, the result of which examination shall be reported to the board at their next regular meeting,”
The directors’ records show only two examinations by them during the period here in question. In neither instance do they expressly show the appointment of a committee to examine. They show only that, on November 16, 1908, the directors examined the bank and found the cash balance correct. This record is attested by Edwin Dresser, Gale, and Barber as directors. They also show that on March 30, 1909, a special meeting of the directors was held for the purpose of examining the bank, the president presiding; members present, Gale, S. Dresser, and Barber.
Although the records show no other examinations, the master found from the evidence that others were in fact made by the directors as a board. When, or by whom, said other examinations were made, the master did not find; there being no evidence before him sufficient for the purpose.
As to such examinations as were made, whether by committees or by the board itself, the master’s finding is undisputed that they were never carried to the extent of examining the individual (i. e., depositors’) ledger, arid comparing it with the general (i. e., cashier’s) ledger.
The court found that no examinations, except the two shown by the records as above, were made in 1907, 1908, or 1909. Whether or not this was a finding clearly required by the weight of the evidence, we need not consider. . No directors’ examination, whenever or however made, having before extended to such verification of the figures found on the depositors’ ledger as’, in the view of the court, was necessary to an adequate performance of the directors’ duties, it results that the real inquiry is whether their failure to make tHe kind of examinations and comparisons deemed necessary by the court on September 30, 1907, was a failure in duty on their part so clearly negligent as to warrant the court in rejecting the master’s findings, and to render the directors all responsible for the subsequent losses by Coleman’s steal-ings. If not so liable as of that date, it is plain that they are not so liable for the subsequent failures to make like examinations before each dividend subsequently declared.
To hold all the directors chargeable with negligence rendering them all so responsible, merely because they failed to make the additions and comparisons held necessary by the court, requires, in our opinion, the application of a standard of diligence more exacting than any heretofore applied in the case of national bank directors; nor cán we regard the application of such a rule as justified by the circumstances here shown.
We do not think it can be said that there would necessarily have been a negligent breach of duty on the part of every director, had examinations in accordance with article 19 of the by-laws been wholly omitted during the period here involved ; no special reason tending to forbid such omission being shown.
In the present case the court treated article 19 of the by-laws as evidence in the nature of an admission by the directors as to what they considered themselves called upon to do in the performance of their duties. They had, indeed, left the by-law unrepealed, and the testimony of one of them (Sumner Dresser) was that the usual times for making examinations of some sort had been March and September. But no committee to examine had ever been appointed as called for by the by-law, such examinations as were made were by all the directors who happened to be present, and no such verification of balances on the general ledger by verification of the figures on the depositors’ ledger had ever been contemplated or recognized as a required feature of the examinations to be made. The by-law does not expressly require that method of verification; it leaves the choice of methods to the examiners. Taking it and the directors’ practice under it together, we cannot regard them as clear and unmistakable evidence that the directors had considered themselves called upon to follow the process thought necessary by the court in making their examinations.
Nor can we find negligence on the directors’ part clearly and unmistakably shown merely by the fact that they omitted to make the examination in the particular way which the District Court regarded as a necessary test required by ordinary considerations of precaution. It is difficult to see upon what principle a director can be held negligent merely for omission to perform an act not usual, and not known by him to be necessary or important, especially in the absence of anything suggesting inquiry as to its necessity or importance. What
“They toot the amount due depositors upon the cashier’s ledger as correct, which was, in fact, inaccurate by the amount of Coleman’s stealing.”
Speaking generally of the directors, there had been nothing to put them on inquiry or cause them to suspect that the amount shown by the cashier’s ledger as due depositors might be inaccurate, and might therefore require verification by such additions, of figures on the depositor's’ ledger, and we cannot hold their reliance upon the cashier and his ledger for a correct showing of said amount to have been clear and unmistakable negligence. • The amount so taken by them as correct, as the master found, “would he and apparently was verified by [the cashier’s] showing of expenses paid, investments made, cash o'n hand and deposited with other banks.”
As, in view of Briggs v. Spaulding, 141 U. S. 132, 11 Sup. Ct. 924, 35 L. Ed. 662, above cited, we could not hold mere nonobservance of the by-law to be a proved failure in performance of a duty required of the defendants as directors so we cannot hold the above failure on their part to go behind the figures given them by the cashier on his ledger of itself to be a proved negligent failure in due performance of their duties. Such action on their part would have been a “measure of unusual precaution, not imperative when there was no reason to distrust the integrity or efficiency of the cashier”; and directors, as has been held, are “not to be deemed remiss because they did not resort to exceptional methods, or because they relied on the cashier’s supervision over the books and accounts, or because they reposed confidence in his reports of the amount and other clerical details of the assets and liabilities.” Warner v. Penoyer, 91 Fed. 587, 591, 33 C. C. A. 222, 44 L. R. A. 761.
Neither the master nor the court below have found, nor does anything in the record indicate, that on or before September 30, 1907, there had come to the notice of the president or of any other director anything tending to arouse in their minds any suspicion or distrust of the cashier’s efficiency, or of the reliability of the books and accounts kept under his supervision.
In view of the subtlety of the wrongdoer’s system for covering and concealing his speculations and embezzlements, we are also unable to accept as clearly warranted by the evidence the conclusion reached by the District Court that due diligence on the directors’ part in comparing the bank’s assets and liabilities with the cashier’s ledger would have resulted in discovery by them of the discrepancies found by the court to have existed on that date between it and the cashier’s ledger.
Coleman’s manipulations of the depositors’ ledger succeeded in concealing his methods from the national bank examiners, as stated below. But the court had before it the results of six months’ scrutiny of both ledgers by an expert accountant, who had also examined in
If it can be said that Edwin Dresser, the president, though neither an accountant or bookkeeper, nor familiar with banking methods of keeping either individual or general accounts, had, or should have had, sufficient familiarity with this particular book because of his long-continued daily opportunities for becoming familiar with the method of bookkeeping followed in his bank, we find no sufficient ground for supposing sufficient familiarity or bookkeeping knowledge to that end on the part of any of the other four directors. Richardson, it is true, had been for years paying teller in a Boston trust company, a fact which we can hardly regard as sufficient for the purpose in his case, there being nothing to show that he had ever had to deal with such a book as this. The occupations of the remaining directors still less appear to have been such as would have been likely to qualify them in any respect for such an inquiry.
A further consideration seems to us important in this connection. Coleman not infrequently resorted to methods for concealing the fact that the entries on the depositors’ ledger did not really correspond with the cashier’s ledger, as they were supposed to do, other than that method which might have been detected by addition of his balance footings or balance columns. He adapted his methods of concealment to the varying danger of detection as it appeared from time to time. In particular, he had on many days so raised or lowered the amounts shown as balances due individual depositors as to leave a correct addition of the footings or columns in agreement with the cashier’s ledger and to require ascertainment of the true balances due depositors in order to detect the shortage. To this method he appears to have resorted when any examination by others of his depositors’ ledger seemed likely to be impending. By resort to it he succeeded in preventing discovery by the national bank examiners at any of their examinations — in one instance (December, 1909) while their examination was proceeding and detection had appeared in
If any examination of the bank by the national examiners has since been made to appear in any respect inadequate, in the light of the discoveries made as above by the expert accountant, each of them appears to have been at any rate much more thoroughgoing than any of the directors could have been expected to make without expert assistance. That such examinations were regularly made twice in each year, and without discovering anything wrong in the bank’s condition or bookkeeping, the directors knew, and that fact affords still another reason for believing that they were going along under a feeling of security, and with no cause to suspect wrongdoing or irregularities; a reason which tends to forbid the conclusion that the directors are shown to have clearly and unmistakably failed in the ordinary care due from them, merely by their omission as above to make more regular and more searching examinations themselves.
Nothing in'the evidence tends to show that examinations of the kind held necessary by the court are or have ever been usually recognized or understood as part of the regular duties which directors of such a bank as this are expected to perform, nor is any such duty required by any rule of law. Judging these directors, as they are entitled to be judged in the light of all the circumstances present to their minds at the time, as business men of average business abilities and accomplishments, with no pretensions to instinctive foresight, or expert training in respect to bank bookkeeping, we are unable to believe that their omission to make such examinations on September 30, 1907, or thereafter, in the absence of notice of special necessity therefor, clearly proves negligence on their part. To this extent we think the master’s findings should have been confirmed. Under a familiar principle, in determining the question whether the evidence was'so clear as to justify rejecting the master’s findings against negligence, reference must be had to the situation which surrounded the directors at the time of the alleged omissions of duty and before the wrongs of Coleman had been discovered and exposed, rather than by reference to a situation afterwards discovered and exposed by experts. 1 Thompson on Taw of Negligence, § 28. The character of after-discovered conditions might be such, in a given case, as to tend to show negligence, yet fall far short of making it clear and unmistakable; and, again, they might be such as to have very little, if any tendency to show negligence.
Fillmore was a resident of Cambridge, and a responsible person so far as appears. As a depositor in the bank he had an interest with whose protection Dresser was charged, so far as reasonable diligence in performing the duties of president and a director could secure it. ■ Whether or not Fillmore’s claim had any justification that his package of money left in the bank’s safe had been taken by some one in the bank, his statement that he believed Coleman was “living a pretty fast pace,” his statement that he “had good authority for believing that Coleman was supporting a woman,” and his advice to Dresser, “Look after Coleman,” seem to us, as they did to the District Court, notice to Dresser calling for immediate action on his part, such as he coul'd disregard only at his peril.
At the time of these warnings Coleman had in fact been speculating for nearly a year through Boston brokers, having begun such speculations about the time he began taking the bank’s money in November, 1906; and he thereafter, in fact, continued them until February, 1910, in which month his stealings were discovered.
He had also, during the same period in fact, been spending money freely in Boston hotels and restaurants, and generally leading a fast life, as the court’s opinion states.
He does not appear to have taken any pains to conceal either his speculations or his other doings in Boston outside bank hours. They had been going on long enough to prevent any reasonable doubt that prompt and appropriate inquiry in the proper quarters would have shown that Fillmore’s statements and warning had ample foundation in fact. Had the other directors been informed of them, the duty of the board would have been to inquire at once as to their truth, and, having learned that there was a substantial basis for them, their duty to end Coleman’s connection with the bank and institute an immediate and searching scrutiny of all his doings therein would have been plain.
It cannot he said that there was nothing regarding Coleman within Dresser’s knowledge at the time which should have led a bank president in his position to suspect that there might be truth enough to need investigation in what Fillmore had said, or should have led him to apprehend danger in wholly disregarding and neglecting it.
The bank never paid Coleman more than $12 a week; yet.since 1907 he had been running an automobile which cost $800, even coming to his work in it and leaving it standing in front of the bank. We cannot doubt that Dresser knew the fact that Coleman was using the machine as its owner, because this was a fact generally known to the
There was evidence that before the fall of 1908, and in fact ever since 1904, it had .been Coleman’s frequent practice to give orders to brokers for the purchase or sale of stocks, over a telephone in the bank within a few feet of the cashier’s desk, and in the next room to that occupied by Dresser when present at the bank. There was also evidence that Coleman had talked on more than one occasion with Dresser about stocks. That he once spoke about a purchase or sale of copper stocks intended by him Dresser admitted, in testimony given before the master. The date of this last occurrence did not appear; but if Dresser is to be credited with entire ignorance in the fall of 1908, that Coleman was interested in the stock market, he must be supposed to have paid no attention whatever to what went on in his immediate presence.
If what had been brought to- Dresser’s notice about Coleman’s automobile, and his dealings in stocks, would not of itself have been enough to call upon him for active inquiry and investigation, we think it clear that after Fillmore’s statements, tending to confirm an apprehension of danger to the bank which facts already within his notice tended to suggest, he could no longer remain inactive, and still be entitled to say that he was doing,his full duty.
Under a familiar rule, in view of Dresser.’s relations to the bank and the other directors, it was his plain duty, not only to know the character and habits of the bank’s employés and exercise reasonable supervision over them, but to use reasonable diligence in respect to all matters bearing- upon the question whether they should be retained in positions of trust.
Notice sufficient to attract attention, and put a party on his guard and call for inquiry is notice of everything to which such inquiry might have led. Wood v. Carpenter, 101 U. S. 135, 141, 25 L. Ed. 807; Shauer v. Alterton, 151 U. S. 607, 622, 14 Sup. Ct. 442, 38 L. Ed. 286.
The correctness of Coleman’s entries on the depositors’ ledger might have been tested by Dresser more readily than by any of the other directors. Means for detecting errors in them were more constantly and more readily available to him than to them, because of his daily presence in the bank as its executive head, and the fact that his own personal deposit account and that of the company controlled and managed by him were two of the largest on the bank’s books. They were the two more frequently manipulated by Coleman than any others on the depositors’ ledger, when it suited his scheme of concealment to charge the sum taken by him to an individual account as if drawn by the depositor-, or to drop an individual depositor’s apparent balance without entering any charge to justify the drop.
Although Dresser kept no check book showing by its stubs what checks had been drawn, he had data enabling him to tell at any time how much ought to be standing to his credit on the bank’s books, and the occasions were numerous and common upon which any examination of either account as shown on Coleman’s ledger must have shown him gross error in the balance there appearing. Examination enough for this purpose he might have made at any time in a few minutes, on his own statement. He never attempted anything of the kind, but remained content with the monthly showing of his passbooks, which Coleman took care to have always correct. In Dresser’s testimony he admitted that he knew the way the depositors’ ledger was kept, and had occasionally looked it over; but he never had done so to see whether it was correctly kept.
Examinations of Coleman’s figures as above by Dresser in October and November, 1908, would have compelled further investigation, and such investigation, properly conducted, would have shown Dresser that what he had been told about Coleman’s speculative habits and fast life was true. If, with this knowledge, he had let Coleman continue iu the bank as before, without full inquiry into all his previous dealings with its funds or books, Dresser would have failed in his duty toward the depositors, and would thereby have become liable for sub
Moreover, and by way of illustration, it appeared from Coleman’s-.testimony in the trial of this cause before the master that during this-period he was engaged in faro bank gambling in New York, and we think it quite within the realm of probabilities that, if reasonable circumspection had been exercised and reasonable inquiries and investigations made as to his habits and doings, his frequent journeys to New York on the afternoon trains, returning in the morning, and the stupendous losses at faro would have been uncovered and the bank’s-money saved. It is true that the frequency of these journeys and the extent of the losses were not disclosed until the trial of Keliher (193 Fed. 8, 12, 16-18, 114 C. C. A. 128), who was associated with Coleman in these swindlings -and gamblings; but, it appearing in this litigation that these doings were at a period closely connected with the time of the disclosures to Edwin Dresser as to Coleman’s habits, we think it is something which we may consider on the question as to what reasonable circumspection and investigation on Mr. Dresser’s part would probably have discovered at a time to save the bank.
In view of Dresser’s position as president, of all his previous knowledge regarding Coleman, and of all that due use of means constantly at his command would have afforded him, we are unable to find reasonable excuse for his total disregard of what Fillmore had said to him. We cannot avoid the conclusion that reasonable diligence in discharging the duties of his office required him to report what Fillmore had said to the directors, and to see that steps were taken without delay to find out how far those statements were founded on fact. For his failure to take any action of the kind no excuse is shown.
Because of his failure to take any steps himself regarding what Fillmore had told him, and because of his failure to inform the directo^, thus affording them an opportunity of then putting a stop to-Coleman’s frauds, we are of opinion that the responsibility for losses due to their further continuance must rest upon him. If, as we think, the opportunity of then arresting the course of Coleman’s depredations-was lost by Dresser’s neglect,.what the bank lost by their continuance was lost through his neglect. We therefore find no error in the District Court’s conclusion to this effect.
It appears without dispute that a decline in the total amounts due depositors, as shown by the cashier’s ledger and his statements presented each week to the directors, began to show itself in September, 1909, that it later became more rapid and more serious in amount than at first, and that this continued until the failure. It was noticed by the cashier and the directors, and led them to discuss its probable cause, to go over the cashier’s ledger in search of possible errors, and to count the cash and securities. The only result of the consideration they gave to the matter was a conclusion, accepted by them all, that the decline must be due to general business conditions, and to* competition of newer institutions offering greater attractions to depositors. With this they remained content, taking no steps to find other explanations for the shrinkage, either by having an audit of the bank, or an examination of the depositors’ ledger, or a scrutiny of the checks and clearing house slips, kept in the bank each month until the passbooks were balanced at the end thereof.
The court held that reasonable care on the directors’ part required them, in September, 1909, when they knew the shrinkage in deposits to be abnormal, to cause an audit to be made, or at least an examination of the checks then in the bank, in addition to such examination of the depositors’ ledger as it had held necessary to be made by them twice a year, as above, beginning with September, 1907,'and therefore also in September, 1909. Resort to these measures, as the court found, would have revealed Coleman’s defalcations; a reasonable time for such examination and discovery had expired at the end of September, 1909; and the directors’ liability for all the subsequent losses was therefore held established.
There had in fact been no real falling off, either in the number of depositors or in the average daily amounts then being deposited. This was apparent from the cashier’s ledger, which correctly set forth the amount of each day’s deposits. The total amount which ought to have been in the bank to the credit of the depositors was over $400,000. The previous normal average of total deposits had been about $300,000, rising above or falling below that figure by about $25,-000. Coleman’s takings, at first comparatively small in amount, had not for some time offset the actual increase in deposits; and his metN ods of concealing them had meanwhile prevented their effect in reducing the totals due depositors from becoming noticeable in the showings of the cashier’s ledger. But, having by the fall of 1909 come to offset said increase, and becoming thereafter larger in amount and more frequent, the reduction they were effecting necessarily began to be disclosed by said ledger, and it rapidly became more and more apparent therefrom.
We do not think the directors can fairly be charged with knowledge that the shrinkage in deposits was “abnormal” at so early a date as that adopted by the court in the above findings.
The master found the time when a decline was noticed and considered by the directors to have been “in September or the early fall of 1909.” Sumner Dresser’s testimony that it was “about the last of October” was not contradicted, and, in view of the figures, seems to fix a time more in accordance with probability. The date fixed by the court as that whereon a reasonable time for taking the measures held necessary in view of the shrinkage expired seems to us in any event at least a month earlier than the evidence warrants.
From our conclusion that Edwin Dresser’s negligence in disregarding , Fillmore’s statements about Coleman had made him responsible for the failure to discover and stop the stealings ever since the end of November, 1908, it follows that he, at least, is also responsible for the failure to discover' and stop them, when the above apparent abnormal shrinkage in deposits was under consideration by the directors. To him alone had come notice of facts which ought to have led him to suspect the need of complete investigation as to Coleman’s doings in the bank; and it had ever since been in his power to use those'Jnethods of inquiry which, as above stated, were more readily and constantly available to him than to any other director. Here was additional reason, brought to his notice in September, 1909, for suspicion that something wrong might be going on within the bank, and a reason which should have had especial force with him, “because of the notice received by him months before, but nevfer imparted to his fellow directors.
As to the other four directors, to whom.no such notice had come, in 1908 or subsequently, as had come to the president, the question is whether or not the evidence clearly shows their omission to take, in the fall of 1909, the measures held then necessary by the District Court, because of the apparent drop in deposits, to have been a failure in reasonable care on their part.
We agree with the District Court that, if such measures had then been taken, they would have revealed Colem'an’s defalcations. Not only is it true that verification of the totals on the depositors’ ledger
We further agree with the District Court that the drop in deposits, as apparent from the cashier’s ledger, called for investigation as to withdrawals from the money on deposit, rather than as to any supposed falling off in number of depositors or in amounts deposited. While the apparent shrinkage did not necessarily indicate that the bank’s funds were being stolen, it did indicate that moñey was being withdrawn at a rate faster than that at which it was being intrusted to the bank’s care, and that this was happening to an unprecedented extent.
But the evidence by no means shows that inquiry as to withdrawals of deposits was wholly neglected, or that the directors’ adoption of a mistaken explanation as accounting for the shrinkage was altogether without excuse. They were told by the cashier that the depositors were drawing out their money. He specified several large accounts from which considerable withdrawals had recently been made. They were also told by the teller that, while no account was being lost, the accounts were being largely reduced by the depositors themselves. That all this did not go far enough to account for all the shrinkage is true, yet we do not see how the directors, other than Edwin Dresser, could reasonably have been expected to find out of themselves that it was true, and, in view of the rule that the conclusion of negligence must be clearly and unmistakably established in order to reject the findings of the master, we cannot find warrant for sustaining the finding of the District Court that they were so far culpable as to make them chargeable with individual liability upon the ground of negligence in f ailing to do more than they did.
The measures which would have led to discovery of the truth about the shrinkage, had they been taken at the time, appear simple and obvious, now that all the facts then existing have been brought to light. It is true, also, that such discovery, when made in the following February, was effected by means of those measures, and at a cost of comparatively little time or labor.
It was so effected, however, not by persons without special skill or knowledge, but by the president and treasurer of a different bank, examining the accounts of this bank with a view to its purchase. Both were possessed of a knowledge of banking methods of accounting, and
No complete audit of the bank had been made since the summer of 1903, just before Earl assumed his duties as its cashier. The only effectual step which these directors could have taken toward finding the true reasons for the shrinkage noticed in the fall of 1909 would have been to order another,complete audit made by competent experts.
We cannot regard it as clearly shown, however, that their failure to take this course was a negligent failure in the reasonable care required of them. No such action was recommended, or even suggested, by the cashier or by the president; nor is any sufficient ground found for the conclusion that the directors ought then to have known that they could no longer safely rely upon the cashier, or his methods, or his representations regarding the bank’s condition, but were called upon to take action independently of him. Except the drop in deposit totals, which he accounted for as above, nothing appears to have been brought to their notice in the fall of 1909, any more than in September, 1907, tending to suggest a necessity for .such action on their part.
It is true that the auditor’s report of 1903 had called attention to the danger of letting the depositors’ ledger “go a day with errors not found.” Not only the president, but Sumner Dresser and Gale also, must be supposed to have known this fact when the report was made. The other two defendants were not directors at that time. But to keep this book free from error was part of the cashier’s work, and the responsibility for having it so kept was upon him, and until some failure on his part in that respect had been brought to their notice the directors might reasonably assume that this part of his work was being properly done, without giving it their personal supervision.
On December 3, 1909, the next examination of the bank by á national examiner was made. By that time the deposit totals had further declined to $151,506.30, a decline since the June examination- which must have attracted tire examiner’s notice. Yet neither in his report, nor to the directors^ did he suggest that anything had been found by him requiring correction or investigation, in the bank’s condition at that time. Though they knew that his examination was by no means a complete audit, the circumstance that he had found nothing wrong might justly tend to confirm the directors in their reliance upon the cashier.
Barber, so far as appears, had at the time no other reason for suspecting that Coleman might be the person intended, except that during the preceding summer a Dr. Wetherbee, living near the bank, had told him “he did not think it looked very well to have the automobile in front of the bank so much.” Barber’s testimony, given in person before the master, was that Bullard’s statements directed his mind, not to Coleman (who was only the bookkeeper), but to the officers of the bank. This seems to us the impression most likely to be given by what Bullard said. He did not suggest any belief of his own that the reports he -referred to were true, or 'even that they called for action on Barber’s part. In view of Barber’s testimony, we cannot consider it proved that they constituted a warning against Coleman which Barber could not neglect without becoming responsible.
Various other questions are raised by the assignments of error, which the conclusions above stated render it unnecessary to decide.
The decree of the District Court, except as against Edwin Dresser’s administrator, is reversed. The case is remanded to that court, with directions to dismiss the bill as against the other defendants, and to modify the decree against said administrator by reducing the damages awarded to the amount of Coleman’s defalcations from December -1, 1908, to the close of the bank. So modified, said decree is affirmed. The appellants recover their costs of appeal.
Dissenting Opinion
(dissenting in part). While I fully agree with the careful opinion of the majority of the court as to the defendants other than the administrator of Edwin Dresser, I am unable to agree with a finding that by reason of special negligence on the part of Edwin Dresser his estate should be held responsible in damages to to full amount of Coleman’s defalcations from December 1, 1908, to the close of the bank.
I am especially of the opinion that what may be termed the “Fillmore warning” has been given undue and artificial importance as a notice putting Edwin Dresser on guard against Coleman as an untrustworthy person, whose conduct should have been brought to the attention of the other directors and made a subject of investigation.
The special master, experienced in judicial work, had before him the witnesses in person, and upon this matter, depending so much upon oral testimony and upon the circumstances under which Fillmore’s statement was made, found no negligence. I am of the opinion that this finding of the master should stand.
“I told him that it was very evident there was a thief in the bank; that the money had been stolen. I said, ‘I would advise you to look after Coleman, for I believe that he is living a pretty fast pace, and X have pretty good authority for believing that he is supporting a woman.’ That is about what I said to him.”
Upon cross-examination he testified;
“X-Q. 3. Give the whole of that conversation again. A. I said to him it'was very evident there was a thief at the bank; that X was satisfied that my package had been stolen, and advised him to make inquiries about Coleman; that I believed he was living a pretty fast pace, and I was informed by pretty good authority that he was supporting a woman.
“X-Q. 4 Is that the whole of it? A. Well, I told him who my authority was; I told him who had told me what Coleman was doing.
“X-Q. 5. How long was the conversation? A. About three minutes.
“X-Q. 6. He was waiting to take the car, was he? A. Tes, sir.
“X-Q. 7. He made no reply ? ■ A. No; he made no reply. It might have been a five minutes’ talk.”
■ From this testimony it appears that the charge that there was a thief in the bank related to the disappearance of a special package containing $150, which Fillmore had left with Davis,' a former cashier, for safe-keeping some 15-years before, and which could not be found. It had no relation to any business of the bank, or to any matter of accounts or of bookkeeping, or to the disappearance of any funds of the bank.
There is no evidence that Coleman had anything to do with the disappearance of this box, and he denied that he did, though testifying freely as to his. defalcations. There appears no sufficient ground for Dresser’s accepting Fillmore’s conclusion that the box had in fact been stolen, and that for this reason there was, at the time of this conversation, “a thief in the bank,” or that Coleman was a just object of suspicion on that account. ' '
There is, however, evidence in the .record of doubt in Dresser’s mind as to the facts. Fillmore testified that Dresser, in a previous conversation, had asked him if Fillmore had a receipt for the box, that he replied that he had not, and that Dresser wanted to know why he did not put it'in the savings bank. There is no evidence that Dresser had any personal knowledge of the existence of the box; and Earl, the cashier, .testified that he did not remember seeing a box' that answered the description of the one that Fillmore testified to as being lost.
The expression, there is “a thief in the bank,” made in this connection, contained no suggestion or implication of Fillmore’s knowledge of tire abstraction of any funds of the bank. It suggested suspicion of Coleman, based upon disappearance of the package. How far Fillmore’s grounds of suspicion of a theft were the basis of the advice to look after Coleman, and what weight Dresser should have
This brief street conversation, which is now given such grave importance, was preceded by a formal letter from Fillmore to Dresser, as president, dated September 29, 1908, and relating to the loss of the package; a matter which was not new at the bank, but which previously had been under discussion with Dresser, with Earl, the cashier, and the subject of correspondence with Davis, the former cashier, with whom the package had been left many years before.
Though in his letter Fillmore says that the package was once handed to him, “I think, by Mr. Earl,” Earl testified that he did not remember seeing a box that answered the description of the one Fillmore testified to as being lost. Whether the box had ever been in Earl’s possession, or had disappeared during the time of Coleman’s employment at the bank, rather than during a previous period of eight years, is a matter of dispute upon the briefs.
But, whatever the fact, there was at least substantial reason for doubt in Dresser’s mind as to the justice of Fillmore’s grounds for suspicion of Coleman, and as to their weight.
The letter concludes as follows:
“WMle tho National City Bank may not be legally bound to make this loss good, at the samo time I consider it under moral obligation to reimburse me for this loss. As I never had it in my hands but at the times above-mon-tionod, and never removed* it from the bank, I can come to but one conclusion: That it has been destroyed or removed by some one connected with the bank. I hope you will bring this matter before the board of directors of your bank, and inform me of the result at as early a date as convenient.”
In this formal communication Fillmore makes no charge of theft, and no allusion to Coleman, and suggests no suspicion of him." The matter which he desires to be brought before the board of directors, and to be informed of the result, is a request for reimbursement of ?1'S0.
Fillmore received no reply to this request, and had no further conversation with Dresser, except the short street conversation above set forth.
That there was neglect by Dresser of the bank’s interest in not submitting this request for reimbursement to the board of directors does not appear. If the letter could be regarded as notice of a loss of a package, this might have led to a further inquiry as to that loss. Such inquiry, so far as appears, would have amounted to nothing, and would not have affected Coleman; certainly there was no reason for examining the books of the bank in this connection.
Nor does the street conversation gain any weight when coupled with this letter. On the contrary, when preparing a formal communication for the consideration of the board, of directors, Fillmore makes no charge or implication of theft by any one, and, though a de-
After the lapse of about a month without a response to his request, and’ upon a casual meeting on the street, in a very brief conversation he first suggests his- suspicions of Coleman. At no time, either by his letter or orally, did he suggest bringing before the board the question of an inquiry into Coleman’s conduct.
That Fillmore’s suspicions were of serious weight, even with himself, se'ems doubtful from the fact that he did not withdraw his deposit, but, like Dresser, remained a depositor in the bank until it closed.
To take the statement, “there is a thief in the bank,” away from its connection with the unexplained disappearance of Fillmore’s package of $150 at some indefinite date, a matter having no connection with the business and books of the bank, and to convert it into- a warning connected with a great loss of $300,000, more or less, through an unprecedented manipulation of the credits and books of the bank, seems unjustifiable. An inquiry into this matter, which already had been inquired into, would not naturally have led to an investigation of Coleman’s bookkeeping.
Should Fillmore’s statement, not of facts, but of suspicions, have led to an investigation of Coleman’s life out of the bank?
It should not be left out of account that Coleman was daily at the bank, where he was under observation of Dresser, and especially of Earl, the cashier. He was well behaved, industrious, and courteous, and was well liked. There was no evidence that he was criticized by any one in the bank because of anything in his conduct or bearing. He was known to be.the son of a reputable father, who was in business in Cambridge, and a man of some financial standing.
How far Dresser’s own knowledge of Coleman, and his judgment from personal observation of Coleman, justified him in attaching no weight to Fillmore’s suspicions, is especially a question of fact upon which thé master, who had Coleman under close observation as a witness, as he did also the other witnesses who testified as to Coleman’s conduct, was much better qualified than judges who have only a printed record. That Dresser had complete confidence in Coleman is manifest. That this confidence was not in fact disturbed by Fillmore’s statement is manifest. Should it have been ? Our own knowledge of men constantly leads us to discredit and instantly reject rumors and suspicions concerning them. There is no rule of law that determines when it is reasonable and when it is unreasonable to do so. The master has found in favor of Edwin Dresser upon this point.
The practical rules which determine the weight to be attached to a master’s report are especially applicable on just such a question as this, and for sound reasons weigh heavily in favor of this defendant.
It was not unnatural that Dresser should have regarded the advice to look after Coleman as based principally upon the disappearance of the box. The record does'not contain an explanation by Dresser
If Dresser erred in considering all that Fillmore said as a mere incident to his claim for reimbursement for the loss of the package, and should have made inquiry into the statement as to Coleman’s supporting a woman, the inquiry would probably have led then, as it did later, to the explanation that the woman was engaged to Coleman, that she had occasionally called at the bank, and that she was a "ladylike and well-appearing young woman.”
Another and distinct “warning” is found in Coleman’s ownership of an automobile — “A clerk at $12 a week with an automobile!” Dike the expression, “There’s a thief in the bank,” this is given a false value, if dissociated from the rest of the facts.
The master had before him evidence that Coleman, after bank hours, was engaged in the- automobile business, had sold a number of automobiles, one to a director of the bank; that the young man, though working at a small salary, lived at home with his father, who was reputed to be of good financial standing, and the testimony of a witness who said that Coleman’s father was reputed wealthy and that it did not surprise him to see the son have an automobile; also testimony that the price of the automobile — $800—was paid for in part by commissions on sales of other machines, and that Coleman made no concealment of the machine, but invited persons connected with the bank, including Dresser, to ride with him.
There is also meager evidence that Coleman had discussed copper stocks with Dresser.'1 The master specifically found that Dresser had no knowledge that Coleman was speculating in stocks, and it is evident that a contrary finding, or a finding that Dresser had reasonable cause to suspect Coleman of stock gambling, could not justly be based upon the very meager evidence on this point.
It seems erroneous to assume that all of these so-called warnings, or grounds for suspicion, were ever assembled in Edwin Dresser’s mind in the form in which they are assembled in the appellee’s brief.
( We should also take into full account the fact that the. cashier, Earl, as executive officer of the bank (Merchants’ Bank v. State Bank, 10 Wall. 604, 650, 19 L. Ed. 1008), had full opportunity to observe Coleman, and that Dresser was reasonably entitled to rely greatly
We are not informed that any of the bank’s money was spent upon Coleman’s automobile, or upon a woman whom he was supporting, or to what extent, if at all, it was spent in stock gambling.
■ Upon the theory that the principal negligence was the failure of the directors to make such examinations of the books as were required of them, this might'perhaps have been regarded as a subordinate matter. But upon the reversal of the District Court on this point the question how far the loss of the bank’s money was in fact due to matters of which Dresser had notice enough to put him on inquiry seems of special importance.
If it be conceded that the proofs are sufficient to show that Edwin Dresser was negligent-in failing to heed warnings of Coleman’s un-trustworthiness, and if we apply the rule that notice sufficient to put one' on inquiry is notice of everything to which inquiry might have led, this, in my opinion, should lead not to the affirmance of the judgment against Dresser for the full amount of Coleman’s defalcations, but rather to sending the case back to the District Court for a reassessment of damages.
The plaintiff’s evidence fails to show to what extent Coleman’s appropriation of the bank’s funds was due to any of the matters of which it is claimed Dresser had notice.
It must be borne in mind that this is not an action of tort. In view of the decision of the District Court that the action against Dresser’s administrator survives because the cause of action is ex contractu rather than ex. delicto (229 Fed. 798), there is special force in the defendant’s argument that the liability' is only for such loss as was the natural and probable consequence of negligence, and which ought to have been foreseen in the light of attending circumstances. Negligence is a failure to take reasonable precautions against that which is reasonably to be. apprehended.
This case presents the remarkable feature that there was no reasonable cause for apprehension that a bank could be reduced to a mere shell by the unprecedented method adopted by Coleman. It is also remarkable, in that the causes which led to such large misappropriations by Coleman were in a great part equally outside the bounds of reásonable anticipation.' That this large loss of The bank was due to any causes operating upon Coleman which, upon the most favorable view of the plaintiff’s evidence, should have been investigated is not proved in this récord, which, though it sets forth slight evidence concerning the purchase of stocks, extravagances in mode of life, etc., is yet very meager as to the causes which led Coleman to his large defalcations.
In considering, however, the question whether the present judgment should be affirmed, or whether the case should be sent back for further proceedings to determine the damages, we cannot indulge in any presumption that the matters in respect to which negligence is charged were the causes which led him to ruin the bank. We cannot disregard the fact that, from our own records and from the reported decision of
If Coleman had associated himself with a band of burglars, and admitted them to blow the safe locked against him, it would seem quite clear that this would be so remote a cause of loss that the defendant Dresser could not be responsible for it by reason of the evidence in this case.
We cannot ignore the fact that upon the records of this court is something quite analogous to such a case, and it is not improper, in the interests of justice, to take judicial cognizance of facts appearing upon our own records and of great notoriety in this community, although, of course, we give weight to these only upon the question of affirmance or retrial of the question of damages. In Keliher v. United States, 193 Fed. 8, 12, 114 C. C. A. 128, appears the following;
“Therefore the United States, proved by Coleman, apparently without objection, that he misapplied approximately §211,000 on anid after the 2d day of .Tune, 1909, and that of this amount all but a sum not exceeding in the whole $50,000 was lost through his connection with the plaintiff in error”— i. e., Keliher.
In Spade v. Lynn & Boston Rd., 168 Mass. 285, 47 N. E. 88, 38 L. R. A. 512, 60 Am. St. Rep. 393, it is said:
“Rules of law respecting the recovery of damages are framed with reference to the just rights of both parties; not merely what it might be right for an injured person to receive, to afford just compensation for his injury, but also what it is just to compel the other party to pay.”
A court of equity called upon to measure a just compensation for breach of a contractual duty is not required to apply the rule of damages applicable in cases of wanton or willful wrong. The damage to be recovered should be the natural and proximate consequence of the act complained of, and those results considered proximate which the wrongdoer from his position must have contemplated as the probable consequence of his breach of contract. Smith v. Bolles, 132 U. S. 125, 130, 10 Sup. Ct. 39, 33 L. Ed. 279; Globe Refining Co. v. Landa Cotton Oil Co., 190 U. S. 540, 23 Sup. Ct. 754, 47 L. Ed. 1171; Pollock on The Law of Torts (10th Eng. Ed.) pp. 582, 583; Id. p. 41; Milwaukee & St. Paul R. R. Co. v. Kellogg, 94 U. S. 467, 475, 24 L. Ed. 256; Atchison, etc., Ry. Co. v. Calhoun, 213 U. S. 1, 7, 29 Sup. Ct. 321, 53 L. Ed. 671.
That Coleman, a bookkeeper constantly under the supervision of a cashier, and whose fidelity bond was fixed at the sum of $5,000, as a reasonable measure of the risks incident to his position, would have either the opportunity or the temptation to do what the appellee’s brief characterizes as “the seemingly impossible,” was far outside
I feel constrained to dissent on the grounds:
First. That the master’s report should be adopted, and should not be set aside.
Second. That, assuming negligence as found by the majority, the amount of damages is not justified by the evidence.
On Motion to Amend Decree.
The motion to amend the decree of this court of March 5, 1918, by adding the words “interest on the said amount to run from February 1, 1916, the date of the final decree in said District Court,” is denied.
In equity the rule likewise applies, in terms, only to decrees which are affirmed, and not to substantially modified decrees. But, recognizing the idea of the existence of inherent discretion, the general rule in equity that interest shall be .calculated upon decrees which are affirmed is subject to the important qualification that it may be otherwise ordered. It being thus assumed, by such express qualification, that reasons may exist which would make it inequitable to allow interest, even where the decree is in all respects affirmed, it may safely be assumed, we think, that more and stronger reasons may be found for doing the same thing, where the decree below is not affirmed in full, or in fact, but subjected to substantial modifications under a decretal order which directs -how the modifications shall be made, and which, by its terms, becomes operative as an affirmance only upon the modified creation. Under such circumstances, the plaintiff’s right to recover is not established by the original decree, but by a modified one, upon which the affirmance operates when the modification is made as directed.
It is probably quite correct to say, especially in equity cases, that it is reasonably within the realm of discretion — in cases where the recovery relates to unliquidated damages and to situations where recovery is not for money misappropriated and used by the defendant, but where he is sought to be charged upon the ground of negligence or the wrongdoing of another, and where the appeal is not for delay, but prosecuted in good faith upon substantial and close lines of controversy in respect to liability — for the court to say, if it finds equitable grounds for saying it, that interest ought to follow, or that it ought not to follow, and this without regard to whether the decree is affirmed in whole or in part. Steel Co. v. New York City
The decision here did not hold Edwin Dresser for the amount decreed below, nor did it hold him upon the ground that he was negligent and liable in respect to the whole period covered by the District Court. The directed decree and the modified recovery are based upon only a part of the time covered by the findings and the decree of the District Court. Consequently, in quite a substantial sense the directed decree will become an original one, and the plaintiff’s right of recovery is thus to be established by a decree which is to be made in accordance with the mandate of this court based upon different facts and different findings than those involved in the first decree of the District Court.
The District Court says nothing about interest. Neither does the decree of this court.
The reason for not allowing interest in equity, and under such circumstances, resides largely in the fact that the damages are unliquidat-ed and must, in a sense, remain so1 until liquidated under the directions of the mandate; and it is because of this that the liquidated sum, as finally ascertained, is often adopted as the amount for which the right of recovery should be established through the instrumentality of the directed decree. The view that damages, as finally ascertained and decreed, often become the amount of -recovery, and that interest, something in the nature of damages, remains in abeyance until the right is established by the decree, in accordance with the mandate is accepted by the Supreme Court as so far conclusive that it is said that, where the decree of the appellate court does not expressly carry interest, none can be awarded by the court to which the decree is directed. Himely v. Rose, 5 Cranch, 313, 316, 3 L. Ed. 111; Boyce v. Grundy, 9 Pet. 275, 289, 290, 9 L. Ed. 127; In re Railroad Co., 140 U. S. 91, 96, 11 Sup. Ct. 673. 35 L. Ed. 339.
There would seem to be no principle upon which to ground interest upon unliquidated damages, or upon judgments and decrees for unliquidated damages, until they are determinate in every substantial sense.
Interest upon judgments and decrees which are affirmed is upon the idea that they were fixed and distinct muniments of right which the appellate court approves, as something which should stand, not only in substance, but in terms. Where a decree is modified or reconstructed upon different lines, the right was not defined and established by an original judgment or decree, but is defined and established by another,- a later, and a different muniment; consequently the reason for interest upon affirmed judgments and decrees does not exist in the latter circumstances. Doubtless the directed decree might be so closely like the original one as to justify an order for interest upon equitable grounds, but it would not come under any rule of strict right.
■ Where the right of interest is not established by contract, by statute, or by judgment, it ordinarily comes as an allowance in the nature
On the whole, and under the circumstances of this case, we incline to the view that there are no sufficient equitable reasons for allowing interest upon the unliquidated damages which resulted from losses, the amount of which is to be hereafter ascertained, in order that the measure of the plaintiff’s right of recovery may be known and established by a modified decree to be hereafter formulated by the District Court.
Where damages are unliquidated, there is usually no interest until the right to the principal is established or, in other words, until judgment or decree. It is understood that when the District Court has made the ascertainments directed by the decree of this court of March 5, 1918, and entered a decree thereon, that the decree of March 5 will then operate in áffinnance thereof and as of the date of its entry. It is not, however, in fact, an affirmance of the old decree, bet of the reconstructed one. It was not intended in any other sense. It is one of those, not unusual, cases where certain things are directed to be done, and when done, the decree of affirmance, though earlier, is made to operate upon the perfected condition, without" again coming to the appellate court.