1.

Argument for Plaintiff in Error.

Pa. St. 184; Shipman v. Bank of State of New York, 126 Ν. Υ. 318, 327; Talcott v. First National Bank, 53 Kansas, 480; Curry v. Wisconsin National Bank, 149 Wisconsin, 413; First National Bank v. Whitman, 94 U. S. 343, 346. Mere book entries do not create an obligation. Rankin v. City National Bank, 208 U. S. 541, 545, 546; Cherry v. City National Bank, 144 Fed. Rep. 587; Kendrick State Bank v. First National Bank of Portland, 213 Fed. Rep. 610; Modern Woodmen of America v. Union National Bank, 108 Fed. Rep. 753; Talcott v. First National Bank, supra.

The defendant is not estopped from showing the fraud and denying liability. Even if the payment had been made upon the faith of a representation by the defendant that it would make the loan or extend the credit, the representation being explicitly conditioned upon the receipt of described collateral, the defendant could not be held on the delivery of forged collateral. To base an estoppel, the representation must be taken as it is made. There was no payment which changed the position of the Mercantile Bank. The defendant is thus clearly entitled to rescind, both as against the Slaughters and the Mercantile Bank; and there is no basis for the finding of estoppel. Selover v. First National Bank, 77 Minnesota, 140. The receiver contends that if W. B. Slaughter had drawn a check against the amount credited to him and given the check to the Mercantile Bank which had been paid, the latter could have retained the avails of the check, citing American National Bank v. Miller, 185 Fed. Rep. 338; 229 U. S. 517; National Bank v. Burkhardt, 100 U. S. 686. But this introduces a question of negotiable paper.

C. C. Slaughter was acting for the bank; he had no interest adverse to the bank; it was a transaction in fraud of the defendant but not in fraud of the Mercantile Bank. If the bank is to take the benefit of the act of its agent it

Argument for Defendant in Error.

249 U. S.

must take the burden of what the agent knows at the time of the transaction. The Distilled Spirits, 11 Wall. 356, 366-368; Ditty v. Dominion National Bank, 75 Fed. Rep. 769; Aldrich v. Chemical National Bank, 176 U. S. 618, 633, 634; Holden v. New York & Erie Bank, 72 N. Y. 286. The receiver stands in no better position than the bank. Rankin v. City National Bank, 208 U. S. 541.

Mr. Stuart G. Gibboney, with whom Mr. William A. Barber and Mr. George M. Burditt were on the brief, for defendant in error:

The Mercantile Bank, having to its credit $53,000, was entitled to use the money as it saw fit unless it was guilty of fraud, and the defendant was bound to retain that amount and to pay it out only upon the order of the Mercantile Bank. Concededly the defendant withdrew $30,000 without any such order. A bank cannot discharge its liability to a depositor except by payment to him or on his written order. Leather Manufacturers' Bank v. Merchants' Bank, 128 U. S. 26.

The statement sent to the Mercantile Bank showing the credit was binding upon the defendant unless there was some mutual mistake or fraud. Leather Manufacturers' Bank v. Morgan, 117 U. S. 96; Daintry v. Evans, 148 App. Div. 275. No mistake on the part of the Mercantile Bank has been shown. The evidence shows that it was the practice of C. C. Slaughter to draw checks against his father's account, to which the latter never objected. The Mercantile Bank had no knowledge of the loan agreement, nor did it rely upon any such agreement. The only knowledge it had was the deposit ticket and the subsequent information from the defendant that the $30,000 had been placed to its credit. The transfer of the credit had the same effect as would the deposit of cash. The case is like American National Bank v. Miller, 229 U. S. 517, where it was held that the collection of a

1.

Argument for Defendant in Error.

check and crediting by a bank on which the check is drawn, in the absence of fraud or mistake, constitutes payment. See also National Bank v. Burkhardt, 100 U. S. 686; Oddic v. National City Bank, 45 N. Y. 735. The fact that the Mercantile Bank did not forward a check signed by W. B. Slaughter is immaterial. It had his authority, his assignment, in the form of a deposit ticket; it paid out all of the funds for his benefit. The defendant accepted a telegram as sufficient authority for the transfer. Both banks acted in good faith. Care upon defendant's part would have saved the situation.

The knowledge of C. C. Slaughter cannot be imputed to the Mercantile Bank, because the Slaughters were acting in their individual capacities, in a transaction in which they were personally interested, and their interests were adverse to those of the bank. American National Bank v. Miller, supra; American Surety Co. v. Pauly, 170 U. S. 133, 156; Levy & Cohn Co. v. Kaufman, 114 Fed. Rep. 170; Bank of Overton v. Thompson, 118 Fed. Rep. 798; Hilliard v. Lyons, 180 Fed. Rep. 685; In re United States Hair Co., 239 Fed. Rep. 703. The Mercantile Bank did not derive its right to the $30,000 by any connection with the loan, but by paying out its money on the order of W. B. Slaughter's agent, on the assertion that the amount had been deposited to its credit in the defendant bank.

While the defendant was entitled to rescind as against the Slaughters because of the fraud, this is not true as to the Mercantile Bank, which had become the owner of those funds for value without notice. The book entries are only evidence of the happening of a specific event-the transfer from W. B. Slaughter's account to that of the Mercantile Bank of $30,000. That is just as real as if the defendant had handed to the Mercantile Bank $30,000 in cash.

The cases cited to the effect that mere book entries do

not create an obligation are inapplicable here. Those were cases where the original parties were still the ones in interest, and there were no third parties who had, without notice and for value, parted with a thing of value. The Mercantile Bank is not now seeking to retain a gain by reason of the transaction, as in Selover v. First National Bank, 77 Minnesota, 110, but to recoup its loss brought about by the extreme negligence of the defendant. In The Distilled Spirits Case, 11 Wall. 356, the agent had no interest adverse to that of the principal. In Ditty v. Dominion National Bank, 75 Fed. Rep. 769; Aldrich v. Chemical National Bank, 176 U. S. 618; and Holden v. New York & Erie Bank, 72 N. Y. 286, the bank had derived a specific benefit from the transaction which it was seeking to hold.

MR. CHIEF JUSTICE WHITE delivered the opinion of the court.

Following the failure in March, 1915, of the Mercantile National Bank of Pueblo, Colorado, the Receiver appointed by the Comptroller commenced this suit to recover from the Harriman National Bank of New York City $30,000, alleged to be due to the Mercantile Bank. On issue joined before a jury, the court, after refusing a request of the Harriman National Bank for a peremptory instruction directing a verdict in its favor, granted a request of like character made by the Receiver, and a judgment on the resulting verdict for the amount claimed was entered.

The case is before us on error to the judgment of the court below affirming that of the trial court, our jurisdiction to review resulting because the case from its inception involved the enforcement of the National Banking Act, and therefore, was not dependent in the trial court solely upon diversity of citizenship. Auten v.

United States National Bank, 174 U. S. 125, 141; International Trust Co. v. Weeks, 203 U. S. 364, 366.

The case is this. W. B. Slaughter, through stock ownership, controlled the Mercantile National Bank of Pueblo, Colorado. He was president and his son, C. C. Slaughter, was cashier. Prior to 1915, Slaughter, the president, removed his residence from Pueblo to Texas, engaging there in the cattle business and leaving his son, the cashier in complete control of the Mercantile Bank and of all its affairs. W. B. Slaughter was also the president of the Silverton National Bank of Silverton, Colorado, and controlled the affairs of that bank by the ownership of a majority of its stock. At Silverton there was another national bank carrying on business, the First National, the majority of whose stock was owned by one Thatcher.

The correspondent of the Mercantile Bank in New York City was the Harriman National, with which it had a checking account. On January 28, 1915, C. C. Slaughter, the cashier of the Mercantile, dictated a letter to the Harriman which was dated at Pueblo and written on the letterhead of the Mercantile Bank, purporting to be from W. B. Slaughter, whose signature was affixed by a rubber stamp. By this letter its assumed writer, after referring to his ownership and control of the Silverton National, stated his purpose to buy out the interest of Thatcher in the First National Bank of Silverton and after doing so to consolidate the two banks, and requested a loan of $30,000 to enable him to accomplish the purpose. It was stated that it was proposed to evidence the loan by a note at sixty days, to be signed by the writer, W. В. Slaughter, and by his son C. C. Slaughter, if the bank so desired, and to secure the note by the pledge of 500 shares of the Mercantile and 400 shares of the First National of Silverton. The Harriman Bank received this letter on the first of February and at once telegraphed W. В. Slaughter, president of the Mercantile Bank at Pueblo,