¶11. Banks and Banking—Special Deposit — Negligent Alteration of Certificate.
¶2A bank, on receiving certain notes as a special deposit, issued a certificate for the amount thereof, made out on a printed form, from which the-words “in current funds” were erased, and “in certain notes” substituted. The certificate was marked “Special deposit.” Having been transferred, this certificate was sent by the holder to the bank for payment. The notes-had not then been collected, and the teller was directed by the cashier to-return the certificate; hut, as the signature was torn, he was instructed to prepare and transmit a duplicate certificate. In doing so, he carelessly omitted to change the printed form by erasing “in current funds,” and substituting “in certain notes.” Held, that there was no ground for a claim that the second certificate was given in payment for the first; that it was-*597only a substitute for it; and that the receiver of the bank was only required to surrender to the holder the notes constituting the special deposit, for which the original was issued. 74 Fed. 1000, affirmed.
¶32. Same—Knowledge of Oashieb Imputable to Bank.
¶4Knowledge by a member of a firm of the true consideration of a certificate of deposit, which the firm discounted at a bank in payment of individual notes of one of its members, and which had been negligently altered in making out a duplicate certificate, held to be imputable to the bank, where the other member of the firm was its president, and, as such, acted as the sole representative of the bank in accepting the certificate. 74 Fed. 1000, affirmed.
¶5Appeal from the Circuit Court of the United States for the Southern District of Ohio.
¶6This is a bill in equity filed by W. C. Niblack, receiver of the Columbia National Bank, against S. S. Cosier, as assignee, under a general assignment of the Valley Bank. The Valley Bank is a partnership doing business at Spring Valley, Ohio, under the partnership name of the Valley Bank. The object of the bill is to compel an allowance by its assignee of two certificates of deposit issued by the Valley Bank. The first of these certificates is known in the record as “Exhibit A,” and is in the following words and figures:
¶7“No. 112. The Valley Bank, Spring Valley, Ohio. $4,175.
¶8“Dec. 17, 1892.
¶9“Dwiggins, Starbuek & Co. have deposited in this bank forty-one hundred and seventy-five-no/100 dollars, payable to the order of themselves-in current funds on the return of this certificate properly indorsed, with interest at 4 per cent, per annum if left 6 months. No interest after 12 months unless renewed.
¶10“$4,175.00. S. S. Cosier, Teller.”
¶11The said certificate is indorsed as follows:
¶12“Face ...................................................... $4,175 00
¶13Int. at 4 per cent., Dec. 17—92, to May 11—93, 145 days........ 67 26
¶14Total, 5—11—93....................................... $4,242 26-
¶15Oct. 28—93, balance....................................... $1,225 43
¶16Suspense .................................................. 620 28
¶17$1,855 71
¶18Balance due .......................................... $2,386 55
¶19“Dwiggins, Starbuek & Co.”
¶20The second certificate is known as "Exhibit B,” and is in words and figures as follows:
¶21“No. 106. The Valley Bank, Spring Valley, Ohio. $5,150.
¶22“Feby. 1, 1893.
¶23“United States Loan & Trust Co. has deposited in this bank fifty-one hundred and fifty and-no/100 dollars, payable to the order of self-in current funds on the return of this certificate properly indorsed, 6 months after date, with interest at — per cent, per annum, if left — months. No interest after 12 months unless renewed.
¶24“$5,150.00. S. S. Cosier, Teller.”
¶25Indorsed:
¶26“Without recourse. United States Loan & Trust Co., Harry M. Green, Secy.”
¶27The certificate which we shall designate as “Exhibit A” is not the original one issued by the Valley Bank, but is a duplicate, issued April 19, 1S93, as a substitute for an original certificate issued December 17, 1892. The original *598was issued at the request of a firm doing a banking business at Chicago, under the firm name of Dwiggins, Starbuck & Co. The consideration upon which it was issued was certain notes deposited in the Valley Bank, in which Dwiggins, Starbuck & Co. owned a one-half interest. The words “payable in current funds,” found in the certificate as it now appears, were crossed out of the form used in filling out the original, and the words “payable in certain notes” substituted. The original also contained the words “special deposit.” This original certificate was indorsed by Dwiggins, Starbuck & Co. to the Columbia National Bank, and the proceeds passed to their credit. Subsequently that bank charged it to the account of the Valley Bank, and sent it in for payment April 19, 1893. Payment was refused, as the notes in which it was payable had not been collected, and Mr. Cosier, the bank teller, was instructed by Mr. Puckett, the cashier, to return it. In opening the letter in which this certificate was inclosed, the teller accidentally detached the signature from the certificate, and was directed to issue a similar certificate, aud send it to the Columbia Bank in place of the one defaced. In the execution of this simple direction, Mr. Cosier omitted to make the substituted certificate payable “'in certain notes,” as was the original, and omitted to mark it as a “special deposit.” The certificate, in form as heretofore set out, was returned to the Columbia National Bank. These instructions were given the teller by Mr. Puckett, the cashier, over the telephone, and the latter never knew of this .change in its terms until after the demand for payment in current funds was made by the receiver subsequently appointed to wind up the Chicago bank.
¶28The history of Exhibit B is much the same. On February 2, 1893, Dwiggins. Starbuck & Co. sent to the Valley Bank $5,000 par value of bonds issued by a corporation doing business in Chicago as the United States Loan & Trust Company. These bonds were called “income bonds,” and were supposed to be based upon shares in country banks owned by the trust company. These bonds were remitted with the request that a certificate of deposit be issued for them. By direction of the cashier, the teller issued a certificate for $5,150, being the par value of these bonds, with accrued interest. That certificate was made “payable in certain bonds,” and was plainly marked as a “special deposit.” The certificate was made payable to the order of Dwiggins, Starbuck & Co., and was remitted to that firm through the mail. On the 4th of February, 1893, it was returned to the Valley Bank by letter requesting that it would send “a similar one, but to the order of the United States Loan & Trust Company,” and that it should be dated February 1st, instead of February 2d. Mr. Puckett, the cashier, was consulted by the teller, and instructed over the telephone to comply with this request, and issue another certificate similar to the one returned except in the particulars mentioned. The teller repeated the blunder he had made in renewing Exhibit A, and omitted to strike out the words “payable in current funds,” and to insert in place the words “payable in certain bonds”; and for the second time he neglected to write on the certificate the words “special deposit.” Instead of sending a similar certificate as requested, he sent the one set out in the earlier part of this statement of facts. This substituted certificate was indorsed without recourse by the United States Loan & Trust Company, and was discounted by the Columbia National Bank on February 8, 1893, which now claims as an innocent purchaser for value, without notice of the real consideration or of the circumstances we have detailed as to the issuance of the substituted certificate. The notes upon which Exhibit A was issued are uncollectible, and probably worthless. The so-called “income bonds” have never been sold by the Valley Bank, and are probably of no real value. The defendant below averred its readiness and willingness to take up these certificates in the notes and bonds in which, according to its contract, they were payable, and denied that the Columbia National Bank was entitled to the status and rights of an innocent purchaser for value. The Columbia National Bank failed in May, 1893. At that time it held for collection, on account of the Valley Bank, checks on other banks aggregating $620.28, which were subsequently collected by its receiver. There was to the credit of the Valley Bank $1,225.43, as shown by its books. Both these sums were credited on Exhibit A by the receiver, who seeks to recover only the balance after such credits. The defendant, by cross bill, prays that the complainant, as receiver, be required to pay to him the sum of $C20.2S, as *599a collection made after tlie Columbia Bank had been closed, and to allcw tbe dividend due upon its claim for $1,225.43, as a depositor. Tbe circuit court held that tbe complainant was not an innocent purchaser for value of either of said certificates, and that it was not entitled to an order for tbe payment thereof, and granted the relief sought by the cross bill.
¶29Harvey Scribner, for appellant;
¶30Charles Darlington and Edward Colston, for appellee.
¶31Before TAFT and LURTON, Circuit Judges, and SEVERENS, District Judge.
¶32After making the foregoing statement of facts, the opinion of the court was delivered by
¶34Neither of the original certificates was payable in money, and neither was evidence of a deposit of money. One on its face was “payable in certain notes,” and the other in “certain bonds,” and both bore evidence of being issued for a “special deposit.” Neither embodied a contract negotiable in character, and one taking them as originally issued could not claim the protection accorded one who takes negotiable paper before maturity for value, and without notice of defenses. When the first certificate was indorsed to the Columbia National Bank, it received it as a special contract, redeemable or payable in “certain notes,” and not payable in money. No question of innocent purchaser could arise upon such paper, and it is wholly immaterial whether the bank had any knowledge outside the terms of the paper itself. It acquired no greater rights against the Valley Bank than existed in favor of the payee named in the certificate. The contention of appellant that the certificate which it now holds was issued in payment of the original certificate is without support in the facts. It was issued as a mere substitute for the original, which had been accidentally spoliated. The only consideration for the certificate now held was the one originally issued. That was redeemable in “certain notes.” There was no new agreement between the parties, and no consideration for an agreement to pay in current funds. The change in the contract was made without the knowledge, consent, or intention of the Valley Bank, and was wholly due to the gross carelessness of the clerk who prepared and issued it. Under these facts, the complainant cannot be regarded as a purchaser without notice. It is therefore subject to any defense which could have been made against the original. This certificate was redeemable in the notes deposited by Dwiggins, Starbuck & Oo. Those notes are held subject to the order of complainant, having never been collected or- otherwise disposed of. The decree of the circuit court as to the certificate dated December 17, 1892, must be affirmed.
¶35The rights of the complainant upon the certificate dated February 1, 1893, depend upon a different state of facts. That certificate, in its present shape and form, was discounted by the Columbia National Bank February 8, 1893. The officer who acted for the bank in discounting it was Zimri Dwiggins, its president. Dwiggins was one of the owners of the Valley Bank, and was a member of the firm of Dwiggins, Starbuck & Co., who procured the issuance of *600both the original and the substituted certificates. He was also the president of the United States Loan & Trust Company, to whom the certificate was payable. Dwiggins’ knowledge of the actual terms upon which the Valley Bank had issued this certificate is clearly established. That he knew of the mistake made by the teller in making the duplicate of the original certificate is not shown; but that he knew that income bonds had been deposited upon which this certificate was issued, and that the certificate was redeemable in such bonds, unless in the meantime they had been sold by the Valley Bank, is clearly shown, and is not denied by Dwiggins.
¶36This brings us to the question as to whether the Columbia National Bank is chargeable with the knowledge of Dwiggins. We think it is. Dwiggins acted for the bank in discounting this certificate, and, unless there is something else in the case, the bank, upon well-settled principles of the law of agency, is chargeable with the notice which its agent had as to the contract under which this certificate was redeemable. The contention made by counsel for appellant is that Dwiggins was interested for himself in obtaining the discount of this paper, and that he therefore acted for himself in causing its discount by the bank, and that notice to him under such circumstances is not to be imputed to the bank, even though the bank obtained its title through him as its sole agent. The general rule that a principal is held to know all that his agent knows in a transaction in which the agent acts for him has its exceptions. One of these exceptions is that the agent’s knowledge will not be imputed to the principal where the legal effect of what the agent did was to cheat the principal for his own benefit. This exception has been many times noticed and applied, and was the subject of elaborate consideration by this court in Read v. Doak, 22 U. S. App. 669, 12 C. C. A. 643, and 65 Fed. 341, and in Wilson v. Pauly, 37 U. S. App. 642-651, 18 C. C. A. 475, and 72 Fed. 129. But it is unnecessary to consider the application of this principle to this case, for the reason that the facts do not show that Dwiggins was acting for himself or for any firm or corporation in which he liad an interest. The assumption that this certificate was discounted for the benefit of Dwiggins, Starbuck & Co., in which firm Dwiggins was interested, is based upon the mere form in which entries were made upon the books of the bank. It was agreed by counsel for both parties that the books of the Columbia National Bank show that on the 8th of February, 1893, the United States Loan Sc Trust Company deposited, among other certificates, the one now under consideration, and received credit for the same upon the books of the bank, and upon same day drew its check upon the bank to the order of Zimri Dwiggins, president of the bank, for an amount which covered the proceeds of this certificate, and that the amount so drawn out by the United States Loan Sc Trust Company was placed to the credit of Dwiggins, Starbuck & Co. No explanation of these entries is made, although both Mr. Dwiggins and Mr. Star-buck testify as witnesses for the complainant that the income bonds deposited with the Valley Bank, and for which this certificate was *601issued, were owned by J. M. Starbuck individually, or in part by J. M. Starbuck, and the rest by his brother, W. H. Starbuck, and that the certificate was issued to the United States Loan & Trust Company as a mere matter of form, and to add to its credit. Both these witnesses likewise testify that both J. H. and W. H. Starbuck were individually indebted to the Columbia National Bank by individual notes unsecured by collateral or otherwise, and that this certificate was accepted by the bank in payment of the individual indebtedness of J. H. Starbuck to the Columbia National Bank. Dwiggins says he thought the certificate better paper than the individual note of Starbuck, and therefore accepted it in place of such paper for the bank. This transaction seems to have been completed in connection with other certificates discounted at same time by the bank, and the form of book entry may have been adopted as a consequence. But, whatever the form of book entry, the actual fact was that this certificate, though issued to the United States Loan & Trust Company and at the request of Dwiggins, Starbuck .& Co., was the property of J. H. Starbuck or f J. H. and W. H. Starbuck, and was indorsed to the Columbia National Bank, and applied in payment or liquidation of the individual indebtedness of J. H. Starbuck to that bank. Thus, Dwiggins acted alone for the bank in taking this certificate, and in applying it upon the individual indebtedness of Starbuck; and the general rule imputing to a principal the knowledge of his agent, who acted for him in a particular transaction, has full force and application to this case. The suggestion that Dwiggins was one of the partnership owning the Valley Bank, and was therefore acting for himself in discounting the certificate of the Valley Bank, is not well taken. This certificate was not discounted for the Valley Bank. It was no party to the transaction by which the Columbia National Bank acquired its title. The decree of the circuit court upon the matters involved by the cross bill was correct, and the decree of the court is in all respects affirmed.