
    The Citizens’ Savings Bank v. Blakesley.
    1. C. & Co., a partnership, engaged in private banking, gave a certificate of deposit to B. Thereafter they ceased doing a general banking business, and were immediately succeeded by a savings bank, incorporated under the act of February 26, 1873 (70 O. L. 44), which conducted its business in the former banking rooms of C. & Co., whose members were trustees of the bank — one its president, another its treasurer and cashier, who had full control of its business. B. presented his certificate at the bank, whoso cashier cancelled it with a stamp of C. & Co.; filed it with their redeemed certificates ; issued to B. a certificate of deposit of the bank in lieu of it, and charged the amount of it on the books of the bank to C. & Co., who had an unauthorized credit on the bank books (making a large credit balance in their favor), placed there by the president and cashier without the knowledge of the other trustees. This certificate was, from time to time, renewed by the cashier bjr like certificates, until the issuing of the one in suit. For two years prior to the issuing of the last named certificate the managing officers of the bank had, without the knowledge of the other trustees, in like manner redeemed, either by the bank's money or certificates, the cer tificates of C. & Co., who were ia fact "insolvent and debtor to the . bank, but in good credit. B. was not a party to, and had no knowledge of the fraud and bad faith, of the officers of the bank. Held: 1. The bank was liable to B. upon its certificate of deposit.
    2. Where a transaction with an incorporated banking association properly pertains to the business of such an association, neither the abuse or disregard of his authority by its managing officer or agent, nor his fraud or bad faith will be permitted to be shown in defense of such bank in an action against it by an innocent party, growing out of such transaction.
    ERROR. Reserved in the District Court of Hancock county.
    The original action was by the defendant in error, John Henry Blakesley, an infant, suing by bis next friend, against the plaintiff in error, for the amount of an alleged indebtedness represented by a certificate of deposit of the tenor following:
    “No. 24,882. CitizeNS Savings Bane, l Bindlay, Ohio, Jan. 23, 1878. j
    John Henry Blakesley has deposited in this Bank Five Hundred and Borty-one Dollars and Borty-one Cents, payable to the order of himself June 1st, 1878, in current funds on return of this certificate properly indorsed.
    $541.41. L. C. Carlin, Cash.”
    The cause was tried to the court, by which findings of fact and conclusions of law were stated, which occupy several pages of the printed record, but which, for the purpose of presenting the questions in controversy may be summarized as follows:
    On September 10, 1875, and for some time prior thereto, Parlee Carlin, Squire Carlin, and M. D. Sours, constituted a partnership styled “ Carlins & Co.,” doing business as private bankers in Bindlay, Ohio. On that date they issued to the plaintiff below a certificate of deposits of the following tenor :
    “ Citizens Bane. S. Carlin. P. Carlin. M. D. Sours.
    Carlins & Co. Bindlay, 0., Sept. 10, 1875.
    No. 22,240.
    John Henry Blakesley has deposited in this Bank Four Hundred Thirteen 28-100 Dollars in current funds, payable to the ordei’ of himself March 10, 1876, on return of this certificate properly indorsed.
    $413.28. CaeliNS & Co.”
    They continued to do business until Januai’y 31,1876, when they ceased, with an indebtedness of $180,000 evidenced by certificates of deposit, and were in fact insolvent, although their credit remained unimpaired, and they promptly redeemed their outstanding paper and continued business in the redemption of their obligations at their former banking house, until March 1878.
    On January 31,1876, the plaintiff in ei'ror assumed corporate powers under “ an act to incorporate savings and loan associations,” passed February 26, 1873, as amended March 1875. This corporation had thirteen trustees, among them the above named Parlee Carlin, Squire Cai’lin, and M. D. Sours, and L. C. Carlin, a son of Parlee Cai’lin, who were also trustees and stockholders. It continued to do business at the former banking house of Carlins & Co., with Parlee Carlin as president; M. D. Sours, treasurer and cashier, and L. C. Carlin assistant cashier, who conducted its business, until March 25,1878, when it ceased and proceeded to close its affairs as provided by the act of incorporation.
    By March 1,1876, Carlins &Co. had become debtor to the bank in the sura of $6,490.48. On that day Parlee Carlin, as president, and M. D. Sours as treasurer, entered on the books of the bank a credit to Carlins & Co. of sixty-five bonds of $1,000 each, made by Squire Carlin, and purporting to be secured by two unrecorded mortgages made to M. C. Whitely, and nineteen bonds of $1,000 each, made by Parlee Carlin and purporting to be secured by an unrecorded mortgage made by L. O. Carlin, amounting in all to $84,000. Two of these mortgages were never recorded and one of them not until nearly a year afterwards. None of these bonds or mortgages were ever indorsed or assigned to the bank, and the lands mortgaged were not worth more than the amount of the bonds. These credits were made without the knowledge or consent of any of the other trustees or stockholders of the bank, and were so entered upon its books as to appear as cash credits.
    Thereafter, Parlee Carlin and Sours continued to redeem the certificates of “ Carlins & Co.” with the money of the bank and its certificates of deposit issued by them therefor, and charged the amounts thereof to Carlins & Co. on the books of the bank, so that, on September 11, 1876, Carlins & Co. were debtors in fact to the bank in $39,000, although its books, by reason of the credits above mentioned, showed'a large balance in their favor.
    On March 14, 1876, Isaac Blakesley, the father of plaintiff below, who was also a trustee and stockholder of the bank, indorsed the certificate of Carlins & Co. above set forth, and presented it to Sours at the counter of the bank “ to be fixed.” Sours took it, canceled it with the firm stamp, filed it with the firm papers, then issued to the plaintiff below and delivered to Isaac Blakesley for him, a certificate of deposit of the bank for the amount of the canceled certificate and interest for six months at 8 per cent, included, and charged “ Carlins & Co. ” upon the books of the bank with the amount of the certificate so taken up. This was without' the knowledge or consent of the other trustees or stockholders, and was the customary manner of redeeming the certificates of Carlins & Co., from the organization of the corporation, except that, if the holder preferred, he was paid from the moneys of the bank.
    No money was actually deposited with the bank as recited by this last certificate. Carlins & Co. placed no money in the bank for the certificates taken up. They in fact had no money on deposit in the bank, and had no money provided to redeem such certificates, and if payment had been demanded it could only have been made with the money of the bank. This certificate was in the same manner returned and renewed, from time to time, until the date of the one in suit, which represents the amount of the last preceding certificate and the interest thereon. No money was actually deposited by the plainliff below. None was asked for. None was intended to be paid or passed between the bank and the plaintiff below.
    
      The plaintiff below and his father, Isaac Blakesley, who was his agent in all these transactions, had notice and knowledge that Carlins & Co. were closing up their business, and of the organization and incorporation of the bank, and, of course, that Isaac was one of its trustees and stockholders.
    As soon as the other trustees had knowledge that the credit of $84,000 had been given and entered upon the books of the bank, which was after the issuing of the last certificate to Blakesley, they repudiated the same and refused to accept the bonds, and the same was not used by or for the bank, nor did it secure any benefit therefrom.
    As a conclusion of law, from the facts so found, the court found that the transaction between the plaintiff and defendant and Carlins & Co., was in legal effect a payment of Carlins & Co.’s certificate of deposit by Carlins & Co. out of the funds of the bank and a deposit of money by the plaintiff in the bank, and that plaintiff was entitled to recover from the bank the sum prayed for in his petition, and rendered judgment accordingly ; to which error is assigned, as well as to the exclusion by the court.from its consideration of certain evidence, the effect of which is given in the foregoing statement of facts, as this court, in the opinion, deals with it as having been admitted.
    The case was reserved in the district court for disposition here.
    
      J. F. JBurhet, and Whiteley <$¡Bbpe, for plaintiff in error:
    The transaction was not authorized by the statute and was a violation of the specific powers granted by the charter. Bank v. Slemmons, 84 Ohio St. 142; 8 Wheaton, 388; 15 Ohio St. 69; 23 Am. Rep. 687 ; Manhattan Co. v. Lydig, 4 Am. Dec. 289; s. o., 4 Johnson, 376 ; Wyman v. Ilallowell Banlc, 14 Mass. 57 ; White'v. Westport Mf’g Co., 1 Peck. 215 ; 17 Mass. 29; 5 Ohio St. 61.
    When the act of incorporation prescribes a mode of contracting, that mode must be observed, or the instrument no more creates a contract than if the body had never been incorporated. In no state of the Union have these principles been-adhered to with more unyielding tenacity than in this (Ohio).
    So that there can be no recovery upon the certificate of deposit, much less upon an account stated for moneys deposited, as claimed in the amended petition in this case, upon which and the answer the case was tried. For no money was deposited, and no consideration or benefit received by the corporation to to be restored to plaintiff or to work an estoppel. Stark Bank v. Pottery Oo., 34 Yt. 144; 3 Neman, 309 ; 3 Comst. 344; 6 Cush. 408 ; 8 Mich. 526; 5 Nev. 224.
   Owen, J.

Divested of all circumstances from which fraud or bad faith may bo imputed to the transaction now under consideration, the following is a fair statement of the facts found by the court below:

Carlins & Co., a partnership, was engaged in private banking. It issued its certificate of deposit, in the usual course of business, to a depositor. Thereafter, the savings bank, a corporation, was organized and proceeded to do a banking business at the banking room of Carlins & Co., who proceeded to wind up their business by redeeming, at the counter of the savings bank, acting by its cashier, their outstanding certificates of deposit, either by cash or certificate of the bank as the holder should elect; Carlins & Co. being charged on the books of the bank with the amounts of the certificates redeemed. The depositor of Carlins & Co. above named, knowing these facts, presented, his certificate of deposit at the counter of the bank for redemption. The cashier of the bank received it; computed the interest upon it; canceled it with the firm stamp of Carlins & Co.; issued a certificate of deposit of the bank for the amount; delivered it to the holder of the redeemed certificate; charged the amount of it against Carlins & Co. on the books of the bank, upon which was an entry, as a cash credit to Carlins & Co., of $84,000, the account showing a large credit balance in favor of the latter.

The certificate so issued was, from time to time, renewed by the bank by its own certificate until the one in suit was issued.

Can the power of tbe bank to issue its certificate, in such a case, be seriously questioned ?

The power expressly conferred upon it by the law of its charter, was to receive on deposit for safe keeping, or making investments thereof, all sums of money that may be offered for that purpose” .... and to “purchase and sell promissory notes, drafts and bills of exchange, .... and transact such other business as properly pertains to the business of such associations not forbidden by the constitution and laws of this State.” JO O. L. 44, § 14.

The power to receive deposits carries with it the power to issue certificates therefor. Issuing, dealing in, buying and selling certificates of deposit, is one of the incidents of, and properly pertains to the business of banking. Receiving, at their request, the certificates of Carlins & Co. and issuing its own certificates or paying its money therefor, charging the amount of them against their credit on the bank books, was in itself harmless and'in the proper course of its business.

But it is maintained that the real transaction involved in this case, was characterized by circumstances of fraud and bad faith which call upon the court to leave the parties where it found them. These- circumstances are briefly as follows s The cashier of the bank was a member of Carlins & Co., and was acting at the same time, and in the same transaction, for the bank and for his own firm. The entries on the books of the bank, which appeared as a cash credit of $84,000, were unauthorized, and did not in fact represent cash deposits, and were not entitled to stand as cash credits. The other trustees and stockholders of the bank had no knowledge of the redemption at their bank of- the certificates of Carlins & Co., or of the transaction leading to the entry itself. The plaintiff 'below had knowledge that Carlins & Co. were closing up their business, and of the incorporation of the bank. Car-lins & Co. in fact had no money in the savings bank with which to redeem their certificates, but were debtors of the bank in the sum of $39,000 when the certificate in suit was issued. Promptly on discovering the real character of the $84,000 credit, but after the issuing of the last certificate to the plaintiff below, the trustees repudiated it and the transaction which led to it.

Do these circumstances so far characterize or qualify the transaction as to defeat the liability which would otherwise attach to the bank? If they do, it is so not by reason of want of authority in the officers of the bank, but by reason of their fraud and bad faith in the performance of their trust. But to give this effect to their acts, it is necessary so far to connect the plaintiff below with their fraudulent conduct as, practically, to make him a party to it, and thus, by the operation of the very familiar rule which requires a party seeking to enforce his rights or redress- his wrongs to go with clean hands into court, the law must refuse him relief. The plaintiff knew that the cashier of the bank was a member of Car-lins & Co.; that his certificate did not represent money actually deposited by him ; that upon the issuing of the bank certificate in lieu of that of Carlins & Co. the latter were charged with the amount of it on the books of the bank. But he also knew, at the time of the issuing of this last certificate, that for two years such had been the customary course of dealing at the bank. We are to suppose he knew (in the absence of knowledge of fraud or bad faith) that the officers in charge of the bank were acting within the due course of their employment and authority.

Corporations are liable for the acts of their servants, while engaged in the business of their employment, in the same manner and to the same extent that individuals are liable under like circumstances. Merchants’ Nat. Bank v. State Nat. Bank, 10 Wall. 604; Thayer v. Boston, 19 Pick. 511; Frankfort Bank v. Johnson, 24 Me. 490.

The trustees constituted the bank officers and clothed them with power to act for and bind the bank in all matters pertaining to its business. Those who create the trust, appoint the trustee, and clothe him with the power that enables him to mislead, ought, if there is misleading, to suffer rather than an innocent party. Farmers’ & Mech. Bank v. Butchers’ & Drovers' Bank, 16 N. Y. 133; Merchants Nat. Bank v. State Nat. Bank, 10 Wall. 604.

It is assumed in argument, however, that Blakesley is not an innocent party, that he was, in reality, a party to the fraud of the bank officers. Is this assumption justified by the facts? We have called attention to the facts within his knowledge. But he did not know that the credit of $84,000 to Carlins & Co. was unauthorized; that Carlins & Co. were in fact insolvent; that they had no money with which to redeem their outstanding certificates; nor that the other trustees of the bank were ignorant of the manner in which the affairs of the bank were being conducted. If these trustees succeeded in keeping themselves profoundly ignorant, for more than two years, of what was transpiring at their bank, it certainly was not the fault of Blakesley, and we know of no rule of law or of fair dealing which calls upon us to visit their neglect upon his head. True, Isaac Blakesley, the father and agent of the plaintiff below, was also a trustee of the bank, and while the court below was right in treating his knowledge as that of his principal, we are not to impute to the latter (an infant), notice or knowledge of any fact which his agent may be held, by legal construction or presumption, to have known as a trustee.

In our opinion, too much importance is given to the fact that these trustees were ignorant of the transactions of the officers of the bank. Parlee Carlin, the president, M. D. Sours, treasurer and cashier, and L. C. Carlin, assistant cashier, were supreme in the conduct of the daily business of the bank. They were the only officers or agents competent to speak for it or bind it in any of its business affairs. Notice to a trustee, not otherwise an officer, would have been no notice to the bank of any matter within the peculiar control of the officers in charge. Blakesley had good right to suppose that the facts within his knowledge were as well and fully known to the other trustees.

But it is maintained by the bank that the facts shown to have been within his knowledge were sufficient to put him upon inquiry, and that be is to be charged with the knowledge of such facts as by reasonably diligent inquiry be could have acquired. Let this be granted. Inquiry at the bank, of its officers, or even an inspection of its books, would have disclosed to him a large cash balance to the credit of Carlins & Co. Beyond this he would not be required to go. To have plied the officers of the bank with the inquiry if the credit entries in the books were fictitious or unauthorized, or if their conduct of its affairs was fraudulent, would have been an impertinence. But we are not able to see anything in his conduct or in the facts within his knowledge, to connect him with any fraud or bad faith in this transaction which should, for that reason, defeat his recovery.

The vital and decisive question, then, upon which must rest the determination of this controversy, is not one of the fraud or bad faith of the officers of the bank, but of their authority to act for and bind it. If Carlins & Co. had in fact had a cash credit at the bank against which to charge the amount of their certificates redeemed, would not this transaction have been utterly unassailable, and the bank liable upon this certificate ? It seems very clear to us that it would; and as we may treat the credit entries as genuine, in the absence of fraud or bad faith on the part of the plaintiff below; and as the subject of the transaction was within the course of the employment of the officers and of the business of the bank, we might safely rest our conclusion upon this view. If the contract is within the authority of the officers, and would be valid and bind the bank under any circumstances, an innocent party has a right to presume their existence, and the bank is estopped to deny them. Merchants’ Nat. Bank v. State Nat. Bank, supra. If the transaction properly pertains to the business of such associations,” the fraud or bad faith of the managing officers constitutes no defense as against an innocent party. The fact that the cashier of the bank was also a member of Cailins & Co. ought not to limit or qualify his authority as cashier, while dealing with a party acting in good faith and without knowledge of the fraud or bad faith of such cashier.

It is maintained further, however, that as the bank owed Blakesley nothing, and as he deposited nothing with it, this certificate is without consideration to support it, and for this reason cannot be enforced against the bank.

He surrendered his certificate against Carlins & Co. and with it his right to pursue them upon it. It was canceled, and he accepted in lieu of it that of the bank, which charged up the amount of it to Carlins & Co. Then it should not be forgotten that when the Carlins & Co. certificate was pre* sented, it was good. The credit of Carlins & Co. was then unimpaired. They were promptly redeeming their certificates with cash if the holders desired. These facts not only furnish sufficient consideration to uphold this certificate as the promise of the bank, but should estop it from asserting in defense that it is without consideration.

We are unaided in our consideration of this case by briefs or arguments from the defendant in error. Whether the conclusions of law stated by the court below in its findings are fully supported by the facts found, it is unprofitable to inquire, if in fact the judgment finally rendered by it is sustained by the facts.

We find, that it is, and accordingly affirm it.

Judgment affirmed.  