CASES ADJUDGED IN THE SUPREME COURT OF THE UNITED STATES AT OCTOBER TERM, 1918. HARRIMAN NATIONAL BANK OF NEW YORK v. SELDOMRIDGE, AS RECEIVER OF THE MERCANTILE NATIONAL BANK OF PUEBLO, COLORADO. ERROR TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT. No. 173. Argued January 31, 1919.-Decided March 3, 1919. A, the cashier of the M. National Bank and in control of its affairs, acting in the name of B, its president, by correspondence induced the H. National Bank to agree to lend B a sum of money to be secured by the joint note of A and B and certain collateral. A then bought certain shares from T, with a check on the M. Bank signed with B's name, and forwarded by mail to the H. Bank a forged note and collaterals in apparent compliance with the loan agreement, upon receipt of which the H. Bank credited B with the amount agreed on; but in the meantime the check to T had been paid by the M. Bank, and A, to meet it, had made a slip falsely purporting to show a deposit there by B of a check on the H. Bank for the amount of the proposed loan. Having at first credited B with the amount of the loan, the H. Bank, under instructions sent by A in the names of the M. Bank and of B, respectively, made bookkeeping entries transferring the credit to the M. Bank, and later, upon receiving notice from B to cancel A's authority to act for the M. Bank, made further entries withdrawing the credit from the Argument for Plaintiff in Error. 249 U. S. M. Bank's account; and still later, upon learning that the M. Bank had failed, made additional entries to cancel the loan. B repudiated A's action and denied liability. Held: (1) That, as against the M. Bank, the H. Bank had the right to rescind and cancel the loan agreement for failure to comply with its conditions and for the fraud; (2) that the payment of the check to T and the making of the fraudulent deposit to meet it, having occurred before the H. Bank received the note and collateral or made any entry on its books, could not subject it to liability in favor of the M. Bank; (3) that the bookkeeping entries made by the H. Bank could not create such liability, in the absence of any consideration moving to it from the M. Bank, and in the absence of any ground for estoppel. P. 10. 240 Fed. Rep. 111, reversed. THE case is stated in the opinion. Mr. Charles E. Hughes, with whom Mr. Bertram L. Kraus was on the brief, for plaintiff in error: The credit was obtained by fraud, the collateral security being forged, and hence the defendant was entitled to rescind. The evidence clearly shows that the note itself and the powers of attorney for transfer of the certificates of stock were forged. In view of the forged collateral, it makes no difference whether W. B. Slaughter authorized his signature and thus became a party to the note or not. Bradley v. Seaboard National Bank, 167 N. Y. 427; Flatow v. Jefferson Bank, 135 App. Div. 24; Mann v. Franklin Trust Co., 158 App. Div. 491. On the transfer of the credit, the Mercantile Bank took subject to all equities. It had no standing superior to that of the Slaughters. There was no negotiable paper used; the transfer was merely a book entry of credit. The suggestion of an account stated between the Mercantile Bank and the defendant is unavailing. The former was simply the transferee of a chose in action created through fraud. An account stated may be opened on proof of fraud or mistake. Lockwood v. Thorne, 18 N. Y. 285, 292. See also Greenhalgh Co. v. Farmers National Bank, 226 1. Argument for Plaintiff in Error. Pa. St. 184; Shipman v. Bank of State of New York, 126 N. Y. 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 |