Opinion of the Court. acted in conformity with instructions received from those who have the right to control its operations. 2. That which directors ought, by proper diligence, to have known as to the general course of the bank's business, they may be presumed to have known in any contest between the corporation and those who are justified by the circumstances in dealing with it upon the basis of that course of business. Mr. Eppa Hunton and Mr. J. Chandler for appellants. Mr. R. T. Merrick and Mr. M. F. Morris for appellees MR. JUSTICE HARLAN delivered the opinion of the court. This is an appeal from a decree in two suits in equity commenced in one of the courts of the State of Missouri and thence removed into the Circuit Court of the United States for the Western District of that State, where, by consent, they were consolidated for final hearing. The question presented is whether the appellant, the Daviess County Savings Association, a banking corporation of Missouri, doing business at Gallatin, in that State, is, under the circumstances of this case, estopped to deny that the cancellation, in its name and by its cashier, of certain notes secured by trust deeds upon real estate, and the release of record of the lieps given by those deeds, was by its authority and binding upon it. The facts bearing upon this question, as they are disclosed by the pleadings, testimony and stipulations of counsel, are substantially as will be now stated. On the 30th day of June, 1879, one Patrick S. Kenney was largely indebted to that association. The indebtedness was secured by recorded deeds of trust upon several tracts of land, in some of which, embracing a large part of this indebtedness to the bank, his wife had not joined. These deeds bore date, respectively, February 8th, 1872, November 17th, 1873, Dec. 20th, 1873, August 28th, 1874, September 21st, 1874, May 24th, 1875, and April 1st, 1876. In three of them the trustee was Robert L. Tomlin, who, at the date of their execution and during the entire period covered by the transactions to be hereafter recited, was a director and cashier of the bank. Kenney and wife had also executed and delivered a deed of trust upon a portion of the same lands, for the benefit of Opinion of the Court. James D. Powers, to secure a debt of $5,000 and interest. As to the lands therein described, it gave a lien superior to that created by any of the before-mentioned deeds, except the one of date February 8th, 1872. On the 15th day of July, 1875, and 1st day of November of the same year, respectively, the Exchange Bank of Breckinridge, Missouri, and one Thomas Ryan, obtained judgments for money against Kenney, which, on June 30th, 1879, remained, or were believed by those interested in them to remain, liens superior to that given by the foregoing deed of April 1st, 1876. It was desired by Tomlin, the cashier, to have Kenney's indebtedness to the bank in better shape than it was, and to secure further time on his indebtedness to other parties. He also deemed it important that the liens upon these lands (whether created by trust deeds or judgments), which were prior to those held by the bank, should be removed, and that Mrs. Kenney's signature be obtained to a trust deed or deeds in favor of the bank, covering all the lands of her husband. He therefore requested Kenney to obtain a loan of money sufficient to satisfy all liens prior to those held by the bank. Tomlin did not wish his bank to make further advancements to Kenney, believing the latter would be more prompt with strangers, than with the bank, in paying interest as it matured. In order to effect the desired result, application was made by the cashier to Frank & Darrow, of Corning, Iowa, for a loan to Kenney. After some negotiations, that firm made an arrangement with Albert S. Webb, R. L. Belknap, and William H. Kane, of New York, trustees under the will of Henry R. Remsen, for a loan of money to Kenney for five years, at eight per cent. interest, to be secured by a trust deed on his lands, which would give them a lien prior and superior to that held by all others, including the bank. It was expressly agreed between Frank & Darrow, representing the trustees of Remsen on one side, and Kenney and Tomlin, the latter representing his bank, on the other side, that the money thus obtained should be applied, as far as necessary, to the debts secured by the before-mentioned Powers deed of trust, and to the two Opinion of the Court. judgments against Kenney; that the balance should be paid to the bank, which should then cancel and surrender the notes held against Kenney, taking a new note from him, and enter of record satisfaction and release of its liens under the several deeds; that Kenney and wife should execute a deed of trust, giving a first lien to Remsen's trustees to secure the loan by them made; a like deed, giving a lien subordinate to that of Remsen's trustees, to secure Frank & Darrow in the sum of $1,000, the amount stipulated to be paid them for effecting the loan; that Kenney and wife should also make a deed of trust on the same lands to the Daviess County Savings Association, giving a lien subordinate to those given to Remsen's trustees and to Frank & Darrow, for the balance of their claims against Kenney remaining after crediting such portion of the $10,000 received from Remsen's trustees as should be paid to the bank. No part of the sum received from Remsen's trustees was paid directly to or disbursed by Kenney; but, conformably to the agreement between the parties, $5,200 of it was applied in satisfaction of the debt secured by the Powers deed of trust, $1,689.86 in discharge of the two personal judgments against Kenney, and the balance, $3,110.14, was paid to the bank. A new note was then executed to the bank by Kenney, and the $3,110.14 entered on its books as a partial payment thereof. Satisfaction was entered of record in the name of the bank by its cashier of all the debts held against Kenney, and the old deeds of trust held were also cancelled of record in its name by the cashier. Deeds of trust executed by Kenney and wife, of date July 1st, 1879, were then placed upon record, all on August 6th, 1879, but distinctly giving liens upon the lands in the order already indicated. The new deed to the bank, in addition, expressly provides that the lien thereby created is subordinate to that given Rem sen's trustees. The old notes of Kenney were marked by the cashier on the books of the bank as paid, and the new note entered as the one Kenney was to pay. The $3,110.14 went into the general funds of the bank, and was used in its business. The old notes and deeds, being first stamped by the cashier as "paid," were Opinion of the Court. placed by him in an envelope marked with Kenney's address. The cashier had promised when this arrangement was consummated to send them to Kenney, but finding the package containing them to be bulky they were held for delivery to him when he should call at the bank. The Daviess County Savings Association was organized in 1865. Of its paid-up capital stock, at the time of these transactions, all, except a very small amount, was owned by McFerran, Hemry, and Tuggle-McFerran owning a majority of the whole stock. McFerran was elected president, and from some time in 1780 until January 1st, 1872, Tomlin was acting cashier, and from the latter date until January 1st, 1881, he was cashier. At the outset the business seemed to have been managed entirely by the cashier under the general supervision or direction of McFerran. But desiring to extend the field of his business operations the latter removed in 1873 to Colorado, and there engaged in banking business. He did not return to Missouri until February, 1881. During his absence, and up to 1879, he claimed to be the president of the association. But during the whole period of McFerran's absence, the exclusive management of the business of the bank seemed to have been left to the cashier, without interference from any quarter. This state of things continued even after the election of Hemry as president on the 1st day of January, 1879. Tuggle, one of the directors, says he never gave much attention to the affairs of the bank. He resided some distance from Gallatin; came to town about once a month, staying sometimes a week; was in the bank frequently, but never gave much attention to its affairs; when there he would inquire of the officers how it was "running" or "getting along," but he never examined its books, money, or notes; and when in town, did not, he says, do anything about "running the affairs of the bank." He testifies that the meetings of the board of directors were "simply for the purpose of electing officers and declaring dividends." He knew that the business of the bank was varied, presenting itself in different forms; that deeds of trust were taken from time to time; and that in the course of its business it was necessary to cancel such deeds. Upon cross-examination he said: Opinion of the Court. "Tomlin was attending to the business of the bank from 1873 When a man ap up to the time this loan was made. plied to the bank for a loan, or to have a deed of trust changed, or the security changed, my understanding was that Tomlin attended to it. I never questioned Tomlin's right to cancel a deed of trust from 1873 to 1879; never knew of any other director questioning his right during that time. Tomlin was acting as cashier from 1865 up to the time of making this loan, and, so far as I know, was transacting generally all the business necessary to be transacted here at the bank." When asked by whom he expected a deed of trust to be cancelled, when executed by one who applied to the bank for a loan, and gave other security, and wished that deed released, his answer was: "I expected Tomlin attended to it." When asked who he supposed had such authority from 1873 to the time of the loan in question, his answer was: "I understood he (Tomlin) was doing it. I never thought much of it, and knew nothing about his authority." Again, the same witness: "My understanding is that Tomlin was doing the business of the bank. Cannot say when it was I first heard of this loan. When I heard it I did not do anything." Hemry, the other director, and who was elected president of the bank for 1879, said that he did not, nor did any individual director, to his knowledge, give orders as to the release of securities. “To be very particular," said he, "I don't think of any particular case in which I directed or advised." It thus appears that from 1873 up to 1880, during McFerran's absence in Colorado, there could have been no supervision of the business by him, and that the local directors surrendered all control to the cashier, who was their co-director. If they did not abdicate all authority as directors, they acquiesced in the cashier's assumption of exclusive management of the bank's business. Tomlin understood, and from the conduct of the directors had reason to understand, that he was invested with full authority to manage the operations of the bank according to his best judgment, and without disturbing the directors. This explains the fact-which is quite extraordinary in view of the |