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Craigie v. Smith.

The finding of the referee that the bank acquired the draft by fraud is sufficiently supported by the evidence. On April 13, in the forenoon, Lee, the president, then in New York, found out, if he did not know it before, that the bank could not go on. He telegraphed his cashier not to make drafts but did not countermand his previous order to keep open the bank. Although the fraudulent practices charged were those of the president of the bank, nevertheless, under the decisions in this State, it would seem they are imputable to the bank.

Whether as a matter of law the fraud of its agent is, strictly speaking, chargeable to the bank or not it is permissible so to regard it and plead it for the sake of the remedy by action, for it comes to the same thing when a party seeks to recover from a corporation property obtained by fraud, whether the fraud was that of an agent or his principal. The party's right is to recover to the extent which the corporation has received.

The plaintiffs, when they deposited the drafts, transferred title to the bank. This question is, whether the transfer is revocable. Generally, contracts obtained by fraud are voidable at the election of the party deceived. The abstract right is however sometimesdefeated and from various circumstances, as for example, the delay of the party injured, his inability to restore what he obtained on the contract, or because other persons have innocently acquired interests that depend on the contract. But here, no circumstances have been proved that can take away the plaintiffs'. right to rescind. The plaintiffs moved promptly to recover their drafts; they had received neither bill, certified check, nor any thing else on the credit of the deposit, and had nothing for which substantial restitution was to be made to the bank, as a preliminary to their action; nor, as I think, had any other person acquired any interest under the contract, or in the drafts or the deposit, that should prevent rescission. The plaintiffs were able to follow, identify and recover the drafts or proceeds, separate from other funds of the bank, and free from specific claims of individuals. The plaintiffs deposited the drafts on April 13, about half an hour before the bank finally closed its doors. On April 14 the bank remained closed, and its actual condition was that of such utter insolvency that from that time it existed for purposes

Craigie v. Smith.

only of liquidation. And here the defendant makes the important objection to the plaintiffs' recovery that the rights of all parties upon the insolvency of the bank became fixed; that the law under which the bank had existence forbids every kind of preference, and that consequently the plaintiffs must be left to share equally with the other creditors. U. S. R. S., § 5242. It is unquestionably the policy of the National Banking Law, since all the creditors cannot be paid in full, to preserve the entire assets of an insolvent bank for equitable distribution, and this policy would itself have the force of law sufficient to enable and require the courts to declare against any transaction or proceeding that tends to defeat the object of the statute, although it may not violate the letter. The Banking Law however does not declare that all property in possession of the defaulting bank shall be kept for distribution, but that the assets belonging to the bank shall be so preserved. It is urged by the defendant that if the respondents can succeed upon the ground of fraud, then the other creditors who placed sums of money with the bank after acts of insolvency can also recover their deposits. Other customers doubtless made deposits on the same day, some of paper and some of money, and it would appear to be no greater hardship for the plaintiffs to contribute to the general loss than for them.

The question however is not one as to hardships, but the question is, whether there exists any reason why a person who deposits in a National bank that is at the time insolvent, and who had been induced to place his money there by a fraudulent holding out of the bank by its officers as sound, may not rescind. Is there any thing in the policy of the laws of Congress, or in the nature and constitution of the bank, and the relations of customers who mutually contribute to sustain the business of the bank, that prevents a rescission by a customer for fraud? Many persons may make the bank their common depository, and do that in view of the law that in case of insolvency all deposits shall be kept for ratable division, and that every creditor is to contribute to the loss in proportion to his claim, still can it be said that each customer acquires an interest in the deposits of the others, or that their deposits are made upon an implied contract for mutual benefit in case of the failure of the bank?

VOL III-86.

Craigie v. Smith.

I do not think such an interest or agreement among the customers results from their mutual dealings with the bank, or that because they are deemed to know the legal constitution of the bank and the policy of the law in relation to insolvency, that they can be held to have waived their right to impeach a contract for frand. It would be an unsafe rule that should declare the frauds of a bank beyond remedy, because it has become insolvent. The argument that the plaintiffs cannot maintain their action, for the reason that if they can, the sequence would be that every customer who deposited money after acts of insolvency could likewise recover is not I think a valid one, and the fault in the argument consists in its being assumed that depositors of money could not recover, for the like fraud. It might happen, and probably would happen in ninety cases out of a hundred, that circumstances would arise that would prevent a rescission by the depositor. His cash may have become mixed with the common fund, or partly or wholly appropriated, or diverted so as not to be distinguishable. As a general statement it may be true, when a deposit either of drafts or money is made and credit entered in favor of the depositor, that in legal view the deposit is merged in the general funds of the bank. Ordinarily, I suppose that to be the legal result, that is, the result where the transaction is not voidable. The proposition however is but the expression of the legal doctrine that excludes the idea that the depositor keeps any interest in the specific subject of the deposit after the bank has received it. Still I believe the law refrains from laying down a rule that makes the condition of a person dealing with a National bank different from what it is when dealing with natural persons, so far as concerns his right to rescind a contract for fraud. If he can rescind, — that is, if the circumstances of fact exist which the law ordinarily recognizes as necessary to the exercise of that right-he may rescind even as against an insolvent National bank. If he has not received any thing which can be restored to the bank only by his actif, in fact, the deposit remains distinctly separate from the general funds, if it has not been subsequently incumbered or affected by the transactions of the bank, and no circumstances of the kind that ordinarily prevent rescission have intervened then his remedy remains.

Farmers and Mechanics' National Bank of Buffalo v. Rogers.

The conclusion reached therefore is that the judgment entered on the report of the referee in favor of the plaintiffs should be affirmed.

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FARMERS AND MECHANICS' NATIONAL BANK OF BUFFALO v.

ROGERS.

(Buff. Super. Ct., June 29, 1889.)

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Pleading complaint cause of action - location — right of corporation action uniting legal and equitable causes of actions.

The complaint alleged that the plaintiff is a corporation organized under the National Banking Act of the United States; that defendant made his promissory note for $5,000, payable to the plaintiff, at said bank, for value received, with interest, and containing an agreement which recites that the defendant "having deposited with the bank, as collateral security," a certain certificate of stock "giving the plaintiff full power in case of default in the payment of the note at maturity, to sell the stock at private or public sale, and apply the proceeds to the payment of the note;" that the note was not paid at maturity, and that the stock has not been sold or the lien foreclosed, and demands judgment for $5,000, and that the lien upon the stock be foreclosed, etc. Held, that the complaint alleges a good cause of action. The complaint alleged that the plaintiff had done business in Buffalo, N. Y., upward of ten years, and the name "Farmers and Mechanics' National Bank of Buffalo," is recited in the complaint. Held, that there was sufficient to fix the location at Buffalo, N. Y., under Code Civ. Pro., § 1775. Although the plaintiff had the right under the agreement to sell the stock without action, he may come into court and ask its direction.

Under Code Civ. Pro., § 484, such as were formerly denominated legal or equitable, or both, may be joined in the same complaint.

Lewis & Mott, for plaintiff.

L. F. & G. W. Bowen, for defendant.

TITUS, J. The defendant sets up as grounds of demurrer to the complaint, that it does not state facts sufficient to constitute a cause of action; that it does not allege whether the plaintiff is a domestic or foreign corporation, as required by section 1775 of the Code, and that two inconsistent causes of action are improperly joined.

Farmers and Mechanics' National Bank of Buffalo v. Rogers.

The complaint contains a general allegation, that the plaintiff is a corporation, organized under the National Banking Act of the United States. That the defendant made his promissory note for $5,000, payable to the plaintiff, at said bank, for value received with interest. Following the note and on the same paper on which it is written, is an agreement which recites, that the defendant "having deposited with the bank as collateral security, certificate No. 256, for one hundred shares of capital stock of the New York Steam Company, giving the plaintiff full power in case of default in the payment of the note at maturity, to sell the stock at private or public sale, and apply the proceeds to the payment of the note." The complaint further alleges, that the note was not paid at maturity, and that the stock has not been sold, or the lien foreclosed, and demands judgment for $5,000, and that the lien upon the stock be foreclosed, and that the plaintiff have such other relief as may be proper.

The complaint alleges a good cause of action, and the court could grant such relief on the trial as the evidence would warrant. There is no ambiguity in the language used, or uncertainty, as to what the cause of action is. The substance of the allegations are the making of the note by the defendant, and turning over stock to the plaintiff as collateral security for its payment, and the non-payment of the note when it became due, to-wit, with a prayer for relief that the stock be sold and the proceeds applied in payment of the judgment establishing the amount due on the note.

From the fact that the plaintiff had the right, under the agree ment, to sell the stock without action, it does not follow that he cannot come into court and ask its direction to the matter. This is the more usual, and it seems to me the proper practice in cases of this kind, and it does not seem necessary to cite authorities in support of it.

It is claimed that two causes of action, one legal and the other equitable, have been improperly joined; one being an action at law on the note and the other for the foreclosure of a lien, and for specific relief. The distinction between legal and equitable actions was long ago abolished, and the plaintiff may now, under the Code, unite in the same complaint two or more causes of ac

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