This case has been here before. The defendant and appellee the State Savings Bank demurred to the bill. .The demurrer was sustained. Judgment was entered dismissing the bill as to the State Savings Bank. The plaintiff and appellant, the National Surety Company, appealed to this court. The judgment was reversed. National Surety Co. v. State Savings Bank, 156 Fed. 21, 84 C. C. A. 187, 14 L. R. A. (N. S.) 155, 13 Ann. Cas. 421. After the case had been remanded, the defendants answered. The case was tried by Judge Lochren upon the admissions in the pleadings and upon an agreed statement of facts. Judgment was rendered in favor of all of the defendants except Johnson, and the plaintiff has again appealed.
Upon that appeal the court, after referring to section 5951, Gen. St. Minn. 1894, which provides that the bond of the county auditor shall stand as securit3>- for any person injured by his official delinquency, and to section 710 of the same statutes, which gives an action to any person injured by misconduct in office of the auditor, said:
“Accordingly, if the bank had been injured by reason of its purchase of the orders from 'Bourne, and that injury had been occasioned by Bourne’s official delinquency or misconduct in office, it might have recovered its loss from the Surety Company. If, by virtue of these statutes, the bank could have recovered from the Surety Company, as a matter of course the Surety Company cannot now recover from the bank. AVe are therefore to impure whether, if the bank had failed to secure payment of its refunding orders from the county treasurer, its loss or injury would have been so produced by the misconduct in office of Deputy Auditor Bourne as to subject the surety of the auditor to liability for it.”
After considering this question the court held that the Surety Company would not be liable. The court so held because it was of opinion that the negligence of the bank prevented a recovery. That this is so plainly appears from the opinion.
•‘On the contrary, the noimegotiability of the orders, and possibly the intervention and activity of Bourne, as shown by the hill, should have attracted the attention of the bank and warned it against purchasing the orders without making diligent inquiry concerning their validity.”
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“Itight here is the radical and decisive difference between tlie position ot the comity and that of the hank. While the payment by the comity was, in the ordinary course of business, reasonable and probable, the purchase of the orders by the bank on the assignments made in the name of myths by "Bourne was not the natural or probable consequence of their issue. No one could have reasonably anticipated that a bank or any rational person would disregard the law which makes a nonnegotiable chose in action in the hands of an assignee subject to every defense existing in favor of the maker against the assignor, purchase a nonnegotiable order'of the kind in question, and pay the purchase price thereof to one who was not the payee named therein, without inquiring into tlie genuineness of the assignment and ihe genuineness Of its execution. Such a purchase would be out of the ordinary course of business, unnatural, Improbable, incapable of anticipation, and in no legal sense the natural and probable consequence of the issue of the orders.”
And again on the same page:
“Talcing an assignment of nonnegotiable security, it was bound to inquire, not only whether all steps had been taken to create a legal liability against: the county, but also as to the genuineness of the assignment of the right of the original payees. If such inquiry liad been made at the places and of the officers plainly suggested on tlie face of tlie securities themselves, the bank would liave unquestionably learned the fact that they were bogus and fraudulent, and saved itself from any possible loss. In such circumstances failure to make inquiry was culpable negligence.”
And again at page 28 of 156 Fed., at page 194 of 84 C. C. A., 14 L. R. A. (N. S.) 155, 13 Ann. Cas. 421:
“The bank inay not have been morally culpable; but its failure to discharge the duty of making inquiries suggested by the nonnegotiable character of tlie orders which it purchased, and by other circumstances attending the transaction. was an act, of omission equally as effective to occasion injury to the county as many affirmative acts of commission could have been. Such inquiry at the auditor's or treasurer's office would have quickly disclosed that the payees were entitled to nothing, that they were myths, and that misrepresentation, fraud and forgery were being practiced upon tlie county. Ignorance in fact occasioned by indulging indifference to almost obvious danger and negligence of tlie grossest sort is entitled to little consideration by a court of conscience. The bank's negligence operated as effectually to defraud the county as any willful or intentional participation in the fraudulent sclieme could have done.”
If nothing more appeared upon this appeal than appeared upon tlie former appeal, this judgment would have to be reversed. But more does appear. The only allegations in the bill relating to the State Savings Bank were to the effect that Bourne having made these documents and having written thereon a transfer thereof to the bank and having signed such transfer with the name of the fictitious payee delivered the papers to the bank and received from it its check for $7,352.49. There was nothing to show that this
But it now appears, in the agreed statement of facts, that:
“For many years before said purchase by said Savings Bank said system of issuing refunding orders bad been in operation in said Kamsey county, and they had been frequently bought and sold and transferred as in this case, and the said State Savings Bank had upon several other occasions purchased such refunding orders in the same' way, and that no question had ever been made by anybody as to the validity of said orders or the method of purchasing them, and all of such refunding orders issued prior to the one hereinbefore admitted to be unauthorized were in fact authorized and valid.”
It also now appears that at the time the Savings Bank bought these orders Bourne was of good reputation in the community where he lived and in St. Paul, Minn., trusted, and believed to be honest.
So skillfully was the work of Bourne done, and so strong was the belief in his honesty, that these papers and all the fraudulent papers involved in this case were, after they had been paid by the county treasurer, credited to him, and his accounts which included these papers and payments were audited by the board of auditors of Ramsey county at the times and in the manner provided by statute without the fraud being discovered. This fact appears for the first time upon this appeal.
It will have been noticed that the court upon the former appeal laid great stress upon the fact that no inquiry was made by the Savings Bank at the auditor's or treasurer’s office before its purchase of the documents. It now appears, however, in the agreed statement of facts and for the first time, that these orders were prior to the purchase by the Savings Bank presented to the county treasurer who then and there indorsed them as follows:
“St. Paul, Minn., Apr. 12, 1899.
“No funds to the credit of this account. Will be paid as soon as there is money in the treasury, for that purpose, with interest at the rate of 1% from date of this indorsement. O. H. Arosin, Co., Treas.,
“Per. H. Mayer, Cashier.”
It is true that it does not affirmatively appear that the Savings Bank took the papers to the treasurer’s office. -Nor does it appear that it did not. But it is immaterial who took them there. The information contained on the indorsement was all the information which the bank could have obtained if one of its officers had himself presented the papers to the treasurer.
As the case now appears, there was nothing in the transaction to excite the suspicion of the bank. It purchased these orders as it and others had purchased them before. Bourne was a man of good character. It is entirely consistent with the facts agreed upon to infer that some of the valid orders theretofore purchased by the Savings Bank had been purchased from Bourne himself. The law of Minnesota expressly authorized the Savings Bank to pur
Upon the case now presented we agree with the court below that there was no negligence on the part of the Savings Bank and that the plaintiff is not entitled to recover as against it.
The plaintiff seeks to hold the defendant Arosin and the defendant and appellee the United States Fidelity & Guaranty Company surety on Arosin’s official bond, on the ground that the law required the treasurer to pay only by check and that when he made some payments to Bourne in cash over the counter he violated this law.
It seeks to hold the National German-American Bank on the ground that it wrongfully paid out money of the county on forged indorseménts.
The same rule, however, must be applied to these three defendants as was applied to the State Savings Bank. The primary cause of the loss was the manufacture by Bourne of the false warrants and orders. For his official misconduct the plaintiff was liable. The evidence does not show any negligence on the part either of Arosin or of the National German-American Bank. There can be therefore no recovery against either of them.
The decree of the court below is affirmed, with costs.