Gentlemen: Kindly advise us if you can give us $25,000 more *in discounts. We have not decided whether we will make further discounts this year, although it is more than probable that we will have to, as our cotton men do not want to sell at present.

We believe the advance in price will cover shortage of crop, and that our collections will be equal to those of last year. If our cotton men continue to hold their cotton, it will be necessary for us to make further rediscounts, and we want to know what we can do in case they refuse to sell.

If you can grant us this favor, kindly let us know what rate of interest you will want. Your immediate reply is requested.

Yours very truly,

W. C. Denney, Cashier.

New York, Nov. 28, 1892.

Mr. W. C. Denney, Cashier, Little Rock, Ark. Dear Sir: Yours of the 25th is to hand. We will give you the additional discounts

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New York, December 17, 1892.

as requested. You may send on your paper, First National Bank, Little Rock, Arkansas: and we will put same to your credit at 6 per


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Little Rock, Ark., Dec. 13, 1892. United States Nat. Bank, New York City. Gentlemen: In accordance with our letter of the 25th ult., and your reply of the 28th ult., we find that we shall need some more money, as our cotton men are not shipping out any cotton. It seems to be the inclination of all of them to hold for a better price, and we are now carrying $175,000 in demand loans on cotton, which we may have to carry two or three months longer.

We inclose herein paper as scheduled below. Kindly wire us proceeds to our credit, and oblige,

Yours very truly,

H. G. Allis, President.

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City Electric St. R'y Co.,


April 10

5,000 00


& Joyce Co., due

May 10.


April 10

& Joyce Co., due

5,000 00

5,000 00

$32,500 00 We hold all collaterals recited subjected to your order and for your account.

New York, Dec. 16th, 1892. H. G. Allis, Esq., Pres't, Little Rock, Ark. Dear Sir: We have this day discounted

174 U.S.

Letter thirteen received notes discounted proceeds credited account.

United States National Bank.

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Henry C. Hopkins, cashier of the New York bank, was called as a witness in its behalf, and after explaining the letters and telegrams which were sent by the banks, and the transactions which they detailed, testified that the dealings between the banks were such as take place between banks carrying on legitimate banking business, in the usual course of business, and that the notes were not discounted in any other way, and that the bank had no notice or intimation that the notes had not been regularly received by


the First National Bank or offered by it in the banks at Little Rock to rediscount the regular course of business or for the bene- through their presidents and cashiers until fit of any person other than the bank or in- after a decision in the National Bank case of terested in the proceeds, and that the United Cincinnati in January, 1893; after that it States National Bank in its correspondence was done by resolution of the board of diand dealings did not recognize H. G. Allis, rectors, and the banks of New York and other W. C. Denney, or S. S. Smith personally or commercial cities commonly require that now. in any capacity than as representing the By a witness who was cashier of the LitFirst National Bank; and that the transac- tle Rock bank from November, 1890, to Octions were solely with the First National tober, 1891, Allis then being president, it was Bank; and that the correspondence and trans-shown that it was the custom of the bank as actions were usual for the president and to rediscounting notes for the cashier or as[185]cashier of a United States *national bank to sistant cashier to refer them to the president, carry on; and that the proceeds of the vari- and the president generally directed what ous discounted notes were withdrawn by the amount and where to send them. Whether Little Rock bank in the regular course of they were referred to the board of directors, business by its officers. the witness was unable to say.

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

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

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

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

The record also shows that "J. H. Parker, president, Joseph W. Harriman, second assistant cashier, and John J. McAuliffe, assistant cashier, each testified to identically the same facts in the identical language as Henry C. Hopkins, and it is agreed that the depositions of Hopkins shall be treated as [136]the deposition *of each of the said witnesses without the necessity of copying the deposition of each witness."

There was proof made of the protest of the notes.

There was testimony on the part of the plaintiff showing that it was the custom of

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

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

The testimony on the part of the plaintiff in error showed (we quote from brief of de-[137] fendant in error) that "the notes never be longed to the First National Bank; that the three notes of the Electric Street Railway Company were executed to Brown and Allis for accommodation of Allis, and the two notes of McCarthy & Joyce Company were executed and delivered to Allis for the purpose of raising money for the company to be placed to its credit with the First National Bank, to which McCarthy & Joyce Company was indebted; that neither of the notes was ever passed upon by the discount board of the bank or appeared on the books of the

bank; that after the bank was notified that the notes had been discounted and placed to notes ($25,000) to be placed to his credit on its credit, Allis directed the proceeds of the the books of the bank, at which time there was an overdraft against him of $10.679.44; that Allis was at that time indebted to the Little Rock bank on individual notes for at least $50,000, and was continuously thereafter indebted to the bank until its failure."

As to the power of the president to direct rediscounts or to indorse the notes of the bank, E. J. Butler, N. Kupferle, and C. T. Abeles, who were directors of the bank at

the time of the transactions between it and the New York bank, testified respectively as follows:

(Butler): Was a pretty regular attendant at the board meetings during the yearat nearly all the meetings.

Q. Did Mr. Allis have authority to discount notes for the bank or to rediscount them?

A. Never that I knew of. I knew that when Colonel Roots was president he asked and received authority from the board to make rediscounts, but I do not know that Mr. Allis ever asked, and the board, when I was present-he never was given any authority to make rediscounts for the bank.

Q. Did he have authority from the bank to indorse its papers for rediscount?

4. No, sir; never that I was aware of.

On cross-examination he testified that he did not recollect of Allis asking for authority; that the question never came before the board as to discounts. He knew that there 38]were discounts made, but did not recollect any particular ones, but in case there were he would suppose they were on the authority of the board, given in his absence, but did not remember that the question was brought up at all.

Q. There are a couple of statements made by the bank (being the statements heretofore introduced by the plaintiff) of May 17, 1892, and July 12, 1892, to which you as a director certify, which show, one of May 17 shows rediscounts, $16,172.40, and the one of July 12, 1892, shows rediscounts, $81,748.88. Did you sign these?

A. I couldn't say without referring to the original reports.

Q. These are the published reports, are they not?


A. They purport to be the published rebut I do not know anything about it. was one of the directors at that time. Q. That is one of the usual forms of the reports published in the papers, isn't it? A. Yes, sir.

Q. You now tell the jury that you do not know anything about the extent of rediscounts made by it?

A. No, sir; I cannot remember.

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

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

Cross-examination: There was nothing said in the board about such power. The question was not brought before the board. The bank during that time rediscounted paper. The cashier generally attended to that. I knew that the bank was discounting paper. I recall once where the president requested of the board that the bank should

borrow some money. That was in the fall of 1892. I knew that the bank had been discounting paper long before that and borrowing money before*that, and no authority had[139] been asked of the board to do it. I knew that they were borrowing money and rediscounting paper continually.

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

Q. Did they at any time rediscount, or authorize the rediscounting of paper? Did they have that authority?

A. No, sir; that was not their business. Q. Theirs was to discount paper for customers of the banks?

A. The daily offerings, yes, sir.

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

Q. Did you, as a member of the board of directors, or otherwise, have any informa tion that Mr. Allis was using the name of the bank upon his, or other people's paper, for accommodation?

A. No, sir, I never did.

Q. You didn't know he was using the name
of the bank on the bank's paper?
A. No, sir.

Q. You knew he was discounting paper?
A. No, sir; it was not his place.

Q. Didn't the correspondence there show he was sending the paper for discount all over the country?

A. No, sir; I don't know anything about that.

Q. Wasn't it your business to know it?
A. I do not know.

Q. You was vice president and one of the directors?

A. Yes, sir. I never knew anything about it until the failure of the bank-that he ever used the bank's name."

(Abeles): Not while I was there (at the meetings of the board) was authority given to Allis as president to indorse or rediscount the notes of the bank. I do not think it was ever mentioned. I knew of the bank rediscounting paper, and somebody was[140] transacting that part of the business. I think I inquired of some of the directors who it was, and was told that the authority vested in the cashier. I do not recollect that I inquired of Allis or Denney.

(Cohn): Was not a director in 1892was for ten years prior to that time, and Allis was president in 1891, but did not recollect that he had authority from the board to indorse its paper or to rediscount it. Cross-examination: Knew that rediscounting was being done, but supposed it was being done by the cashier-didn't stop to inquire.


Q. Who was authorized in the bank to perform that duty?

A. I understood the cashier.

Q. How was he authorized?
A. By law.

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

Mr. Sterling R. Cockrill for plaintiff in error.

Messrs. John Fletcher and W. C. Ratcliffe for defendant in error.

In this case briefs were also allowed to be submitted in David Armstrong, Receiver of the Fidelity National Bank of Cincinnati, Ohio, Appt., v. Chemical National Bank of New York, No. 279, by Messrs. John W. Herron and Francis F. Oldham for appellant and by Messrs. William Worthington, George H. Yeaman, and George C. Kobbe for appellee.

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1. To sustain the motion to dismiss, it is contended that the jurisdiction of the case depends on diversity of citizenship, and hence that the judgment of the circuit court of appeals is final. But one of the defendants (plaintiff in error), though a citizen of a different state from the plaintiff in the M41]action* (defendant in error), is also a receiver of a national bank appointed by the Comptroller of the Currency and is an officer of the United States, and an action against him is one arising under the laws of the United States. Kennedy v. Gibson, 8 Wall. 498 [19: 476]; Re Chetwood, 165 U. S. 443 [41: 782]; Sonnentheil v. Christian Moerlein Brewing Co. 172 U. S. 401 [ante, 492]. It is however, urged that such appointment was not shown. It was not explicitly alleged, but we think that it sufficiently appeared, and the motion to dismiss is denied.

2. Against the correctness of the action of the circuit court in instructing a verdict for the New York bank, it is urged that the discounting of the notes in controversy was for the personal benefit of Allis, and that the New York bank was charged with notice of it because of the nature of the transaction, the form of the notes and the order of the indorsements, and also because notice was a question of fact to be decided by the jury on the evidence.

It is also contended that the receiver was entitled to a judgment on the set-off. We will examine each of the propositions.

1. The argument to sustain this is that the facts detailed constitute borrowing money, and that borrowing is out of the usual course of legitimate banking business; and one who loans must at his peril see that the officer or agent who offers to borrow for a bank has special authority to do so. But is borrowing out of the usual course of legitimate banking business?

Banking in much, if not in the greater part of its practice, is in strict sense borrow

|ing, and we may well hesitate to condemn it as illegitimate, or regard it as out of the course of regular business, and hence suspicious and questionable. "A bank," says Morse (sec. 2, Banks and Banking), “is an institution usually incorporated with power to issue its promissory notes intended to circulate as money (known as bank notes); or to receive the money of others on general deposit to form a joint fund that shall be used by the institution for its own benefit, for one or more of the purposes of making temporary loans and discounts; of dealing in notes, foreign, and domestic bills of exchange, coin.[142] bullion, credits, and the remission of money; or with both these powers, and with the priv ileges in addition to these basic powers, of receiving special deposits and making collections for the holders of negotiable paper, if the institution sees fit to engage in such business."

This defines the functions: what relations are created by them? Manifestly those of debtor and creditor-the bank being as often the one as the other.

A banker, Macleod says, is a trader who buys money, or money and debts, by creating other debts, which he does with his creditexchanging for a debt payable in the future one payable on demand. This, he says, is the essential definition of banking. "The first business of a banker is not to lend money to others but to collect money from others." Macleod, Banking, vol. 1, 2d ed. pp. 109, 110. And Gilbart defines a banker to be "a dealer in capital, or more properly a dealer in money. He is an intermediate party between the borrower and the lender. He borrows of one party and lends to another." Gilbart, Banking, vol. 1, p. 2.

The very first banking in England was pure borrowing. It consisted in receiving money in exchange for which promissory notes were given payable to bearer on demand, and so essentially was this banking as then understood, that the monopoly given to the Bank of England was secured by prohibiting any partnership of more than six persons "to borrow, owe, or take up any sum or sums of money on their bills or notes pay. able at demand." And it had effect until 1772 (about thirty years), when the monopoly was evaded by the introduction of the deposit system. The relations created are the same as those created by the issue of notes. In both a debt is created-the evidence only is different. In one case it is a credit on the banker's books; in the other his written promise to pay. In the one case he discharges it by paying the orders (checks) of his creditor; in the other by redeeming his promises. These are the only differences. There may be others of advantage and ultimate effect, but with them we are not concerned.

But it may be said these views are elementary and do not help to a solution_of_the[143] question presented by the record, which is not what relation a bank has or what power its officers may be considered as having in its transactions with the general public, but what is its relation and what power its officers may be considered as having in its trans

actions with other banks. Indeed, the ques- | tion may be even narrower-not one of power, but one of evidence. If so, the views expressed are pertinent. They show the basis of credit upon which banks rest, and the necessity of having power to support it; maybe to extend it. Borrowing is borrowing, no matter from whom. Discounting bills and notes may require rediscounting them; buying bills and notes may require selling them again. Money may not be equally distributed. It is a bank's function to correct the inequality. The very object of banking is to aid the operation of the laws of commerce by serving as a channel for carrying money from place to place, as the rise and fall of supply and demand require, and it may be done by rediscounting the bank's paper or by some other form of borrowing. Curtis v. Leavitt, 15 N. Y. 1; First National Bank v. National Exchange Bank, 92 U. S. 122 [23: 679]; Cooper v. Curtis, 30 Me. 488.

A power so useful cannot be said to be illegitimate, and declared as a matter of law to be out of the usual course of business, and to charge everybody connected with it with knowledge that it may be in excess of authority. It would seem, if doubtful at all, more like a question of fact, to be resolved in the particular case by the usage of the parties or the usage of communities.

It is claimed, however, that Western National Bank v. Armstrong, 152 U. S. 346 [38: 470], establishes the contrary, and decides the proposition contended for by the plaintiff in error. We do not think it does. Some of its language may seem to do so, but it was used in suggestion of a question which might be raised on the facts of the case, without intending to authoritatively decide it. The facts of that case are different from the facts of the pending one, and in response to its citation we might rest on the difference. But plaintiff in error urges the case so earnestly and confidently that we have [144]considered it better to answer the argument on which it is asserted to be based and remove misapprehension of the extent of the decision.

2. Did the form of the notes or the order of indorsements charge the New York bank with inquiry of Allis's authority or with knowledge of his use of them for his personal


It may be conceded that an individual negotiating for the purchase of a bill or note from one having it in possession, and whose name is upon it, must assume that the title of the holder, as well as the liability of all prior parties, is precisely that indicated by the paper itself. These principles are established by West St. Louis Savings Bank v. Shawnee County Bank, 95 U. S. 557 [24: 490]; Central Bank of Brooklyn v. Hammett et al., 50 N. Y. 158; New York Iron Mine v. First Nat. Bank, 39 Mich. 644; Lee v. Smith, 84 Mo. 304 [54 Am. Rep. 101]; Park Hotel Co. v. Fourth National Bank [58 U. S. App. 674], 86 Fed. Rep. 742; Claflin v. Farmers' & C. Bank, 25 N. Y. 293.

But it is not meant that circumstances may not explain the notes or merelieve

the taker from the obligation of inquiry.
If the order of indorsements and Allis's offi-
cial position and his relation to the notes
were circumstances to be considered, they
were not necessarily controlling against all
other circumstances, and compelled inquiry
as a peremptory requirement of law.

3. In judging of the conduct and rights of
the New York bank the question is not what
actual authority Allis had, but what appear-
ance of authority he had, or rather what
appearance of authority he was given or
permitted by the directors.

In the inquiry there is involved the two preceding propositions as questions of fact, or of mixed law and fact. The first-the power of a bank to rediscount its paper-as to what the course of dealing of the contending banks was; the second-the form of the notes and their order of indorsements as notice-whether relieved by the circumstances which attended them and the transaction which preceded them.

The evidence shows that it was not only the custom of the defendant bank to rediscount its paper but that it was *the[145] custom of the other banks at Little Rock to do so, and the officers of the New York bank testified as follows:

Q. Were there any of the dealings between said banks (the parties to this action) other than such as take place between banks carrying on a legitimate banking business, in the usual course of business?

A. No.

Q. Were the correspondence and transac
tions carried on by H. G. Allis and W. C.
usual for the president and cashier of a
Denney, as you have disclosed, such as are
United States national bank to carry on and
A. Yes.

This testimony certainly has very compre
hensive scope, and there is no contradiction
of it. It must be received, at least, as es-
tablishing that, as between the contending
banks rediscounting paper was in the usual
course of their business, and that besides it
was the usual course of business in their re-
spective localities. Therefore the discount-
ing of the notes in controversy carried the
sanction of such business.

It is contended that the notes gave notice of the want of authority to rediscount them because the indorsement of the bank followed that of Allis, and hence showed that the bank was an accommodation indorser, and because the indorsement of the bank was by its president and not by its cashier.

The order of indorsements did not necessarily import that the Little Rock bank was an accommodation indorser. The order was a natural one if the notes had been discounted in the regular course of business. It is not contended that a want of power precluded the bank from discounting the notes of its officers. It had been done for one of the directors, and his note was rediscounted by the New York bank. It had an example therefore in the dealings of the parties, and,

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