Scott v. National Bank of Chester Valley. goods only in case of gross negligence, which in its effects on contracts is equivalent to fraud. He further remarks, that the accommodation here was to the bailor, and to him alone, and he ought to be the loser, unless he in whom he confided, the bank or cashier, had been guilty of bad faith in exposing the goods to hazards to which they would not expose their own. These rules he derived from Coggs v. Bernard, 2 Ld. Raym. 909, and Foster v. Essex Bank, 17 Mass. 501. In the latter case the law of bailment was exhaustively discussed by PARKER, C. J., and the conclusions were as above stated. It was further held, that the degree of care which is necessary to avoid the imputation of bad faith is measured by the carefulness which the bailee uses toward his own property of a similar kind. When such care is exercised, the bailee is not answerable for a larceny of the goods, by the theft even of an officer of the bank. It is further said that from such special bailments, even of money in packages for safe-keeping, no consideration can be implied. The bank cannot use the deposit in its business, and no such profit or credit from the holding of the money can arise as will convert the bank into a bailee for hire or reward of any kind. The bailment in such case is purely gratuitous and for the benefit of the bailor, and no loss can be cast upon the bank for larceny, unless there has been gross negligence in taking care of the deposit. These appear to be just conclusions, drawn from the nature of the bailment. The rule in this case is restated by THOMPSON, C. J., in Lancaster Bank v. Smith, 12 P. F. Smith, 54. He says: "The case on hand was a voluntary bailment, or, more accurately speaking, a bailment without compensation, in which the rule of liability for loss is usually stated to arise on proof of gross negligence." That case went to the jury on the question of ordinary care, and hence the observation of the chief justice that the same idea was sufficiently expressed by the judge below, in using the words "want of ordinary care." It may be proper, however, to say that want of ordinary care is applicable to bailees with reward, when the loss arises from causes not within the duty imposed by the contract of safe-keeping, as from fire, theft, etc., and hence is not the measure in such a case as that before us, which we have seen in gross negligence. That case was one where the teller of the bank delivered the deposited bonds to a stranger calling himself by the name of the bailor, without taking sufficient care to be certain that he was delivering the package to the right person, and the bank was held Scott v. National Bank of Chester Valley. responsible for his negligence. Then the teller, in giving out the deposit, was acting in his official capacity, and hence the liability of the bank. The case before us now is different, the bonds being stolen by the teller, who absconded. This teller was both clerk and teller, but the taking of the bonds was not an act pertaining to his business as either clerk or teller. The bonds were left at the risk of the plaintiffs, and never entered into the business of the bank. Being a bailment merely for safe-keeping for the benefit of the bailor, and without compensation, it is evident the dishonest act of the teller was in no way connected with his employment. Under these circumstances, the only ground of liability must arise in a knowledge of the bank that the teller was an unfit person to be appointed or to be retained in its employment. So long as the bank was ignorant of the dishonesty of the teller, and trusted him with its own funds, confiding in his character for integrity, it would be a harsh rule that would hold it liable for an act not in the course of the business of the bank, or of the employment of the officer. There was no undertaking to the bailor that the officers should not steal. Of course there was a confidence that they would not, but not a promise that they should not. The case does not rest on a warranty or undertaking, but on gross negligence in care-taking. Nothing short of a knowledge of the true character of the teller, or of reasonable grounds to suspect his integrity, followed by a neglect to remove him, can be said to be gross negligence, without raising a contract for care, higher than a gratuitous bailment can create. The question of the bank's knowledge of the character of the teller was fairly submitted to the jury. But it turned out that after the teller absconded, his accounts were found to be false, and that he had been abstracting the funds of the bank for about two years, to an amount of about $26,000. It was contended that the want of discovery of the state of his accounts for such a length of time, especially as he had charge of the individual ledger, was such evidence of negligence as made the bank liable. The court negatived this position, and held that the bank was not bound to search his accounts for the benefit of a gratuitous bailor, whose loss arose, not from the accounts as kept by him, but from a larceny, a transaction outside of his employment. We perceive no error in this. The negligence constituting the ground of liability must be such as enters into the cause of loss. Scott v. National Bank of Chester Valley. But the false entries in the books, and the want of their discovery, was not the cause of the bailor's loss, and not connected with it. True, the same person was guilty of both offenses, but the acts were unconnected and independent. True, the bank did not discover in time the injury he did to it, but the very fact that it did not discover his false entries and his peculations repels the knowledge of his dishonesty. The neglect was culpable, and might have led to responsibility to those with whom they had dealings, if they suffered from that neglect. But this neglect to examine into his accounts was not the cause of the bailor's loss. His loss was owing to the immediate act of dishonesty of the teller, and not to his purloining the funds, or falsifying the accounts of the bank. The argument of the plaintiff results simply in this: that mistaken confidence is a ground of liability. But if this were the rule, business would stand still; for without a common degree of confidence in agents and officers, much of the business of the world. must cease. The facts were fairly left to the jury, with the proper instruction. Another complaint is, that the teller was suffered to remain in employment after it was known that he dealt once or twice in stocks. Undoubtedly the purchase or sale of stocks is not ipso facto the evidence of dishonesty, but as the judge well said, had he been found at the gaming-table, or engaged in some fraudulent or dishonest practices, he should not be continued in a place of trust. So, if the president of the bank, when he called on the brokers who acted for the teller in the purchase of the stock, had discovered that he was engaged in stock-gambling, or in buying and selling beyond his evident means, a different course would have been called for. No officer in a bank, engaged in stock-gambling, can be safely trusted, and the evidence of this is found in the numerous defaulters, whose peculations have been discovered to be directly traceable to this species of gambling. A cashier, treasurer, or other officer having the custody of funds, thinks he sees a desirable speculation, and takes the funds of his institution, hoping to return them instantly, but he fails in his venture, or success tempts him on; and he ventures again to retrieve his loss, or increase his gain, and again and again he ventures. Thus the first step, often taken without a criminal intent, is the fatal step, which ends in ruin to himself and to those whose confidence he has betrayed. Hence any evidence of stock-gambling, or dangerous O'Hare v. Second National Bank of Titusville. outside operations, should be visited with immediate dismissal. this case, the operations of the teller in stocks as a gambler in them, were unknown to the officers of the bank until after he had absconded. Upon the whole, the case appears to have been properly tried, and finding no error in the record, the judgment is affirmed. Judgment affirmed. O'HARE V. SECOND NATIONAL BANK OF TITUSVILLE. (77 Pennsylvania State, 96.) Loans in excess of one-tenth of capital stock. In an action against the indorser of a note discounted by a National bank it is no defense that at the time of the discount the maker of the note was indebted to the bank for money lent in excess of one-tenth of its capital stock. A CTION upon two promissory notes indorsed by the defendant and discounted for the maker by the plaintiff, the Second National Bank. The defense was that the maker of the notes was, at the time of their being discounted, indebted to the plaintiff for money loaned in excess of one-tenth of its capital stock, and that the plaintiff was an accommodation indorser. Judgment was entered against the defendant for a want of a sufficient affidavit of defense. B. J. Reid and J. A. Neill, for plaintiff in error. R. Sherman and M. C. Beebe, for defendant in error. AGNEW, C. J. The main question in these cases is, whether the notes in suit are illegal, and cannot be recovered upon, because at the time they were discounted the bank had previously lent the drawer, for whose accommodation O'Hare indorsed, more than one-tenth part of its capital. It is contended that the discount was contrary to the 29th section of the National Bank Law of June 3, 1864, providing that "the total liabilities to any associa O'Hare v. Second National Bank of Titusville. tion, of any person, or of any company, corporation or firm for money borrowed, including in the liabilities of a company or firm, the liabilities of the several members thereof, shall at no time exceed one-tenth of the amount of the capital stock of such association actually paid in: Provided, that the discount of bona fide bills of exchange drawn against actually existing values, and the discount of commercial business paper, actually owned by the person or persons, corporations or firms, negotiating the same, shall not be considered as money borrowed." The affidavits of defense, upon which the question is raised, do not aver that the excess above one-tenth of the paid-in capital was knowingly and voluntarily lent to the drawer of the note. This defect in the affidavit would support the judgment, for surely it cannot be contended that an accidental excess made in mistake or in ignorance would forfeit an honest loan. But without resting the case on this defect, we cannot think that an excess known to the bank only is such an unlawful act, entering into the validity of the loan, as will avoid it. The fact of an excess of indebtedness over one-tenth of the paid-in capital is a matter aside from the loan itself, not entering into its terms, and, therefore collateral. The loan of the money is an act within the authorized power of the bank; a part of its proper business, and, therefore, not in itself illegal. The note or security given for the money was an instrument within the power of the bank to accept. The drawer had a right to make it, and the bank had a right to discount it. In this lies the difference between this case and that of Fowler v. Scully, 22 P. F. Smith, 456 (ante), relied on as authority. There the very instrument itself, a mortgage of real estate, for future advancement, was illegal and void, being forbidden to the bank as well as to the mortgagor, who is presumed to know the law. It appeared on the face of the mortgage that it was given to secure future discounts up to the sum of $100,000, and for the express purpose of enabling the mortgagor "to avoid the necessity of procuring the additional indorsement to said paper by a third party." It therefore presented a case where both parties combined purposely to do an act expressly forbidden by the law, and where the thing itself (the mortgage) was the very ground of attempted recovery by law and of the court to enforce the illegal instrument. Fowler v. Scully is no authority for this case. What might be the consequence if the bank and Garfield, the drawer, had combined know |