Third National Bank of Baltimore v. Boyd.

BARTOL, C. J. This suit was brought by the appellee, to recover the value of certain coupon bonds and stocks, that passed like bank notes, by delivery, which had been deposited by the plaintiff with the defendant, and which had been stolen from the defendant, in consequence of its alleged failure to exercise ordinary care in the custody of them.

The case is one that, from its nature, depended at the trial below mainly on the questions of fact arising upon the evidence, with regard to the manner in which the bonds were lost, and the vigilance and care exercised by the bank in their custody. These were questions exclusively for the jury, whose province it was to decide whether there was any want or omission of ordinary care and diligence on the part of the bank, from which the loss of the plaintiff's property resulted. These questions were submitted to the jury by the Circuit Court, were decided by them against the bank, and we have no authority or power to review their verdict.

All the prayers asked by the defendant, being either conceded by the plaintiff's counsel or granted by the Circuit Court except the tenth, the only matters presented for our consideration on this appeal arise upon the defendant's tenth prayer, which was refused; and the first, fourth, fifth, sixth and seventh prayers of the plaintiff, which were granted.

It appears by the evidence that the appellant was a bank organized under "the National Currency Act of 1864." The firm of William A. Boyd & Co., of which the appellee was senior member, was a large customer of the bank, through which all the banking business of the firm was transacted, and from which it received accommodations as needed. On the 5th day of February 1866, the firm was indebted to the bank about $5,000, when the appellee voluntarily proposed to the president of the bank to deposit with the bank a large amount of bonds, about $37,000, as collateral security for his present and future indebtedness. The terms of the deposit as agreed on between Mr. Boyd and the president were dictated by the latter to the discount clerk and were as follows:

"THIRD NATIONAL BANK, February 5, 1866.

"William A. Boyd has deposited with the Third National Bank of Baltimore $20,000 in United States 5-20 bonds, and $1,500 5-20, July, 1865; $5,000 Hudson County, New Jersey; $5.000 Town of Saratoga, New York, 7 per cent bonds; $5,000 stock of Third National Bank of Baltimore, as collateral security for the payment of all obligations of Wm. A. Boyd and Wm. A. Boyd &

Third National Bank of Baltimore v. Boyd.

Co., to the Third National Bank of Baltimore, at present existing, or that may be incurred hereafter, with the understanding that the right to sell the above collaterals in satisfaction of such obligations is hereby vested in the officers of the Third National Bank.

(Signed)

"A. H. BARNITZ,

Discount Clerk."

This paper was kept by the cashier of the bank in the same envelope with the bonds- afterward memoranda were inclosed therein, signed by the appellee's attorney and by the cashier, showing that certain of the bonds originally deposited had been withdrawn, and others deposited to replace them.

It appears from the evidence "that while these collaterals remained in the bank, the firm kept a deposit account with the bank, having an average amount of about $4,000 on deposit, and from time to time as it needed, obtained discounts ranging from $2,000 to $15,000 on the security of the collaterals, but frequently, and for considerable times, as much as five months at a time, it sometimes owed the bank nothing, but left the bonds in its vault; that at times when the firm wanted money for a very short time, it had obtained it from the bank, on the security of these collaterals on what were called 'call loans' by checks such as the following:

"BALTIMORE, July 13, 1871. “Third National Bank of Baltimore pay to order of call loan on general collaterals, four thousand dollars.

"WILLIAM A. BOYD & Co."

"The firm was not indebted to the bank subsequent to July, 1872, when it paid its last indebtedness; the bonds were not withdrawn, but left with the defendant under the original agreement." The bank was robbed and the bonds stolen in the manner described in the testimony, between Saturday evening, the 17th, and Monday morning, the 19th of August, 1872. It appears from the proof that the giving of the bonds as collateral security was the voluntary act of the plaintiff, not done at the instance or request of the defendant; that the bank officers considered the account of the plaintiff's firm a very desirable one, and considered the arrangement by which every liability of theirs was secured by the collaterals, very advantageous to the bank; "which was under no obligation to lend them any thing; but the bonds and stocks were to be held as collateral security for all loans that might be made to them,

Third National Bank of Baltimore v. Boyd.

and for their liability on any paper signed or indorsed by them, which might at any time be held by the bank."

The defendant, by its tenth prayer, asked the court to instruct the jury "That the defendant had no power, by the act of Congress under which it was incorporated, to assume and undertake the keeping of the plaintiff's bonds, while they were not held as collateral security for debts owing to it, and if the jury shall find that when the bonds were stolen * * * there was not, and had not been for nearly three weeks, any indebtedness for which they were held as security, that the plaintiff cannot recover in this action."

This prayer raises the question of the power of the bank to accept and retain the deposit of the plaintiff's bonds, in the manner and for the purpose disclosed in the evidence. Having been organized under the act of Congress of 1864, chapter 106, the powers of the bank are limited and defined by the provisions of that act.

By section 8 it is authorized "to exercise all such incidental powers as shall be necessary to carry on the business of banking by discounting promissory notes, drafts, bills of exchange and other evidences of debt; by receiving deposits; by buying and selling exchange, coin and bullion; by loaning money on personal security, and by obtaining, issuing and circulating notes according to the provisions of this act."

The construction of this section was considered by this court in Weckler v. First National Bank of Hagerstown, 42 Md. 581; S. C., 20 Am.Rep. 95 (ante, p. 533). The precise question, however, now presented, did not arise in that case. There the attempt was made to hold the bank responsible for alleged fraudulent representations made by its teller in the sale of bonds of the Northern Pacific Railroad Company, which the narr. alleged the bank was engaged in selling on commission. It was decided, that "the business of selling bonds on commission was not within the scope of the powers of the corporation," under the act of Congress to which we have referred. It was further held that the defense of ultra vires was open to the bank under the decision in "The Steam Navigation Co. v. Dandridge, 8 G. & J. 318, 319; and consequently that the bank was not responsible for any false representations made by its teller to the plaintiff, whereby she was induced to purchase the bonds in question." It is contended that the case now under consideration comes within that decision. In the argument of the

Third National Bank of Baltimore v. Boyd.

cause, the counsel for the appellant has treated the transaction as a mere gratuitous deposit, simply for the convenience or accommodation of the appellee, and for the purpose of affording a place of safe-keeping for his bonds, and has argued that the bank had no power to accept a bailment of that kind, or in other words, to become a mere safe deposit company, and was not, therefore, responsible for the loss. There is very strong ground, both upon reason and authority, in support of the proposition that a National bank, deriving its existence and exercising its powers under the act of Congress referred to, is not authorized to enter into a contract as a mere gratuitous bailee, by receiving on special deposit for safekeeping merely, coin, jewelry, plate, bonds or other valuables. Such a contract does not appear to be authorized by the terms and the 8th section, as a transaction "within the ordinary course of business of banking, or incident to it;" and has been decided by the Supreme Court of Vermont to be unauthorized by the law, and beyond the scope of the corporate powers. Wiley v. First National Bank of Brattleborough, 47 Vt. 546; S. C., 19 Am. Rep. 122 (post). The very-well-considered opinion by Judge WHEELER in this case will be found in The American Law Register (N. S.), vol. 14, p. 342, accompanied by an able note from the pen of Judge REDFIELD, in which the cases are collected and reviewed.

In the case of The First National Bank of Lyons v. The Ocean National Bank, 60 N. Y. 278; S. C., 19 Am. Rep. 181 (post), the Court of Appeals of New York have recently made a similar decision.

Assuming these decisions to be correct, and we are not disposed to question their soundness, it is clear that the contract entered into by the bank in this case was not a mere gratuitous bailment. As shown by the paper of February 5th, 1866, the bonds were not received on special deposit, for safe-keeping merely, but were received as collateral security for a debt then existing, and for all obligations that might thereafter be incurred by the depositor.

We entertain no doubt of the power of the bank to enter into a contract of that kind. To accept such collateral security for existing debts and for future loans and discounts is a transaction within the usual course of the business of banking, and incident thereto, and, therefore, within the terms of the act of Congress.

The power of National banks to receive such deposits was distinctly recognized by the Supreme Court of Vermont and the Court

Third National Bank of Baltimore v. Boyd.

of Appeals of New York, in the cases before cited, and we are not aware that it has ever been questioned. On this point we refer to the able opinion of Judge SHARSWOOD, in Erie Bank v. Smith, Randolph & Co., 3 Brewst. 9.

In Maitland v. The Citizens' National Bank, 40 Md. 540; S. C., 17 Am. Rep. 620, this court affirmed the right of a National bank to receive on deposit the note of a third person as collateral security for future loans or advances to the depositor.

The original contract of bailment being valid and binding, the obligation of the bank for the safe custody of the deposit did not cease when the appellee's debt had been paid. There is no evidence that the contract was changed; on the contrary, the evidence shows "the bonds remained with the bank under the original agreement," as collateral security for any indebtedness of the appellee that might thereafter accrue, and for any liability of himself, or of the firm of which he was a member, or any paper signed or indorsed by them, which might at any time be held by the bank. For these reasons the Circuit Court committed no error in refusing the appellant's tenth prayer.

The appellant's counsel have argued that the memorandum of February 5th, 1866, cannot be construed as a contract made by the appellant, because it does not appear that the officers by whom it was made were authorized to bind the bank.

This point is not properly before us, was not made in the Circuit Court, and is not presented by the bill of exceptions. All the prayers of the appellant go upon the theory that the bonds were held by the bank as collateral security.

But, even if the question of the authority of the officers to bind the appellant were open on this appeal, it may be observed that the contract of bailment being one which it was competent for the corporation to make, and having been made by its officers, acting within the scope of their general powers and apparent authority, and in the exercise of powers usually delegated to like officers, the bank would be estopped to deny their authority. It may be added further, that there was evidence from which the jury might properly have inferred that the authority had been conferred upon the president and cashier, and that their acts were known to and sanctioned by the directors. Union Bank v. Ridgely, 1 H. & G. 325, 413, 430.

But, as we have before said, the question of the authority of the