(Oircuit Oourt, N. D.lllinoiB.
BANKS-THEII'T 011' BONDS DEPOSITED-'SPECJIAL DEPOSIT-USED FOR COLLATAS PLEDGEES.'
li'laintiffs, bankers, defendants, other 'bankers, certain. g2 v ernJl,lent bonds as a special deposit.. They afterwards asked defendants to disQount for them up to par of.the bonds as collateral." On this loan being paid,'defendants asked what they should do with the collaterals, and, being directed hold them as formerly,for plaintiffs' use, replied, "We hold $12,000 U. S, 4:%, as special deposit;" and'that the)' held them. subject to plaintiffs' 'further' orders. The two banks were in unlDterrupted business relation for 10 years, The plaintiffs informed defendants that they wished, from time to time, to' overdJ,"aw their account on the security of these bonds as collaterals, &I\d time to time, made overdrafts on defendants, which were paid. 'The bonds were afterwards stblen, by defendants' assistant cashier, Held,defendants' liability was thl1t of pledgees"
In. this case it was shown that bonds were kept in the "treasury" psrt of defendants' bank safe, where the securities and, reserve or surplus 'funds, not in active use, were kept, that Ker, the. defaulting assistant cashier, bad access,therelp; that defendll,llts examined their cash and counted their securities eVllry month, and their special deposits twice a year, to see that they'corresponded WIth the amounts marked on the envelopes, and were otherwise, correct; ..thllt,the collateralsand special deposits were kept together; that no record of the Dumber of bonds held on specialdepo!\it was kept, and 'they could not be counted and checked off,' More than a year before Ker' fled; defendants wer&' warned that some one in their bank.was speculating on the board of trade,., q£. which Ker was. accused", and admitted the fact, /tndon promising hot to dos,o again, was retained in his position. Two months before Rer fled, defendants were again warned, and commenced an examination of their books and securities, but made no effort to see whether the special deposits were disturbed, because, as no record was l,apt of them.bynUIubers or otherwise, although the numbers of plaintiffs' bondsclid appear on defendants' bond register,'having been sold by them to plaintiffS. . Held,' de.fendan,t,8.w,',ere guilty of gross negl.igence. i.n not .diSclrarging Ker, or placing him in a position of less responsibility, and were liable for bonds belonging to plaintiffs, stolen by him, whether such were held \)y them at law or special deposit,
2 SAHE77DJPII'AULTING CASlUER-WARNmGS-GRoss NEGLIGENCE. ' .
At Law., H. Jack$Dn and Robert Hervey, for plaintiffs. John P.Wil8Dn ,and O. H. Horton, for defendants.
GRESH4M, J. ,The plaintiffs, who were bankers at Marysville, Mis· .souri, opened an account in 187,3 with the defendants, who were bankers at Chicago, and this relation continued until the spring of 1883. Interest' was allowed the plaintiffs on their deposits above a certain amount, at the rate of 2! and 3 per cent. per annum, and the deposits averaged Jrom $200,000 to $400,0001\ year, On July 7, 1880, the defendants "sold to the plaintiffs $12,000 of4 per cent. government bonds, for which the latterpaid,including premium and accrued interest, $13,005. The letter which the plaintiffs wrote ordering the purchase concluded thus: "You will please send us description and numbers of the bonds, and hold same as special. deposit for us." In the account which the defendants rendered to the plaintiffs of the purchase, the latter were informed
that the bonds were held 'as a. deposit, subject to their order. The numbers of these bonds appeared upon the bond register Which the defendants kept, and they remained in' their custody until some time between November, 1881,and No'Vell'lber, 1882, during which period they were stolen by their assistant manager, Ker, who disappeared on January 16, 1883, and this suit is brought to recover their value. On October 8, 1880, theplaintiffs wrote to the defendants: "Would it be convenient for you to discount for us, say, up to par of our boncls with you as collateral, and, if so, at what rate?" and in reply tothis,'on October Hth, the defendants ,said: "We will discount for you with pleasure, taking your government ·bonds at par as· collateral." On December 22d the defendants discounted plaintiffs' note for $12,000, and on the same day notified them that the bonds were held as collateral security for the loan. This note was renewed, and when it became due, on April 27, 1881, the defendants wrote the plaintiffs:' "We debit you $12,000 for your to--day, which please find inclosed, canceled. What disposition shall we make of the collaterals?"The answer to this letterwas,not produced; but Robinson, one of the plaintiffs, testified that he directed the defendants to "hold the bonds, as formerly, for our [plaintiffs'] uS6,"lmd to furnish a Hstof them, giving numbers. On May 5th the derendantswrote to the plaintiffs: "Your favor of the second inst. at hand. We hold $12,000 U. S. 49'0, as special depositj" giving the numbers,' and informing the plaintiffs the bonds were held subject to their further orders. On October 11, 1882,the defendants discounted the plaintiffs' note for at 60 days, receiving as collateral security therefor a number of notes givcen to the plaintiffl;\ by their customers. 'fhis note was .paid at maturity, and the cOllaterals returned. Robinson testified that, in' a letter which he wrote to the defendants asking for the last loan, he .informed them the plaintiffs preferred giving the notes of their customers in place of the bonds as collateral, as. they wished to use the' bonds in case of emergency. He also stated that after thepul'chase of the bonds, the plaintiffs had overdrawn their account from, time to time, and, that their overdrafts had been honored. On November 24, 1880, the plaintiffs wrote to the defendants: "We are carrying alarge amount of hogs and cattle at this time for our customers, and we shall wish to overdraw our account for a small amount, and we will thank you to honor the same, and will consider our bonds in your hands as security for the same. We do not wish.to overdraw, but stock rimy be detained on the road;" and two days later the defenda.nts replied: "Yours of the twenty-fourth inst.received. In reply, we beg to SlLy, should' you have occasion to check on us as you suggest, we will pay yonr checks with great pleasure." ,Robinson;testified that on January 16, 1883, he wrote to the defendants asking for another loan of $10,000,on the notes of their customers, as tbeplaintiffs wished:to keep the bonds for emergencies, meaning to meet overdrafts as previously. On January 29th the defendants replied to this }dtter,apologizing for the delay which had occurred through oversight on, the part of their corresponding clerk, saying: "We telegraphed
you to-day that it is all right, meaning to say that your request for discount is granted." If the defendants did not know when they wrote this letter that Ker had stolen the bonds, they had abundant reason for believing he had. On March 5,'1833, the defendants wrote to the plaintiffs: "Do your books show that you should have a special deposit of government bonds with USj if iSO, what issue of bOhds, and what amount?" to which the plaintiffs replied, on March 8th: "We refer you' to your advice of July 7, 1880, in regard to our bonds held by you." Kean, one of the deferidants,told Robinson in July, 1883, so the lattertestified, that he (Kean) did not know until about the middle of January of that yel1r that Ker ha<il.stolen the bonds. At the time the plaintiffs demanded the bonds, or their equivalent, there was nothing due from them to the defendantSjand the latter refused to comply with the demand on the sole ground that the bonds were held as a special· deposit, without reward, and that,they were not liable for their loss. Ker acted as book-keeper for about 10 years previous, to May, 1881, when he. became assistant cashier,at a salary 0£'$2,OOO, a year. The partofthe safe, where the plaintiffs' bonds were kept securities and reserve or surplus funds, not in active use, were kept. Ker took $21,500 of the defendants' funds, and.$35,OOO in bonds, in. cluding those sued for.' Kean also testified that he did not know when the plaintiffs' bonds were last seenin tlievaultj that it was their habit to exanlihetheir securities and count their cash every. month,; and to ex. amine their special deposits twice a year, to see that they corresponded with the amounts marked on the envelopes, and were otherwise correctj that the collaterals and special deposits were kept togetherj that Ker took none of thecollaterals, presumably because he was aware of the habit of the bank to examine them and the cashj and that no record of the numbers of bonds held on special deposit was kept, and they could not be counted· and checked off. ' . More than a year before Ker left, the defendants were cautioned that some one in their bank was speculating on the board of trade.. Kean testified that; after receiving this caution,he made a quiet investigation; and the facts pointed towards Ker, if any onej that he thereupon called Ker up, and accused him of having been so speculating, to which he replied, "I haV'e made a few transactions, but I am not doing anything now, and do not propose to do anything more." He admitted that what he had done was against the rules of the bank, and said:' "I know I ought not to do it, and I am not going to do any more of it. lam ahead a thousand dollars; all told." Ker'ssalary appears to have been his only income.· The defendants do not claim that he had accumulated ,any means or property from this or any other source, or that they thought he had j and yet they retained him' in his position, which afforded him access to their own assets as welh.s the securities ofothers, without mak"! iri.g any eff'ortto verify the truth'of hi's statements, or ascertain whether he had beentetripted to appropriate to his own use the property ofothers. 'About two months before he left, Preston, one of the defendants; i-esiding at·: Detroit; wrote to the bank at Chicago, calling attention to
PRATHER 11. KEAN.
reported speculations of Some of the employes on. the board of trade, suggesting inquiry upon the subject, and directing that a careful examination be made of their securities oiaU kinds. On receipt oHbis letter, Kean told Ker what he had heard, and asked if he had not been speculating again on the board of trade? Ker said he had made some deals for friends in Canada for which he had received a brokerage, and that the transactions were all ended. The defendants then seemed to entertain suspicion of Ker's. integrity, and an examination of their books lind securities was commenced. No effort was made, however, to see whether the special deposits had been disturbed. Kean testified that the special deposits, including the plaintiffs' bonds, were not examined, because no record was kept of them, by numbers or otherwise; although the proof shows that the numbers of the plaintiffs' bonds did appear upon the defendants' bond register at the, time of the purchase. If the, bonds were held as collateral security at the time they were stolen, the defendants were ,obliged, as bailees for reward, to exercise that degree of care in their safe-.keeping which a reasonably prudent and cautious man would exercise in the care of his own property of the same kind. It does not follow that they are. not liable if they were as diligent in caring for these bonds as. they were in caring for securities of their own,for theyAnay have been careless of the latter. If, however, the, custodY' of ,the defendants at the time the bonds were stolen was only that of gratuitous bailees, Cor safe-keeping, they are not liable for the loss unless it resulted from their gross carelessness. National Bank v. Graham, 100 U. S. 699. When the first loan for which the bonds were pledged as security was paid, and the defendants inquired what should be done with thecollaterals, they were directed by the plaintiffs to hold them as formerly, for the plaintiffs' use, and forward a list of them by numbers. The direction was not that the bonds be held as a special deposit, or for safe-keeping. Evidently the defendants were informed that the plaintiffs expected to use the bonds as they had already been used, namely, as collaterals; and in informing the plaintiffs that the bonds. were held as a special deposit, subject, to their further orders, the defendants doubtless intended 1:0 be underlltood as willing to hold the bonds as collateral security for future loans. The two banks had been in uninterrupted business relations for a number of years, during the greater portion of which time there was a balance, varying in amount, with the defendants in favor of the plaintiffs. The defendantsde.emed this and valu,able. They cut off the coupons as they matured, and placed the amount, to the plaintiffs' credit. While, therefore, the bailment was for the conveni.ence of the plaintiffs, it came about in the course of business between the two banks, and it was for their m\ltual benefit. If it be conceded, however, that the bonds ceased to be held as coUat,erals when the $12,000 note was paid, and they thereupon became a mere special deposit, the character of the bailment was changed by the .subsequent agreement whereby they remained in the custody of the defendants as a continuing security for advances made and to be made to