government to draft 12,000 white men and 5,000 negroes or colored men; that the latter would be sent immediately to the United States to a suitable cantonment for men of that race, and the 12,000 white men would be trained in Porto Rico; that this had not yet been decided, but that the news in detail would be given soon; and that, if this project was finally adopted, Porto Rico would be contributing many more men than was set at the beginning.

He testified that he had before him, also, in the preparation of his article an article published in the "La Correspondencia" on July 20, 1917, which gave the number of men to be furnished under the draft by each state and territory, and concluded with this statement:

"As may be seen by our readers from the list we are publishing, the quota of Porto Rico, as a blood tax, to be a part of the first National Army, is 12,833 men; that is, it occupies the place designated with No. 22 among all the states and territories, being over 29 states and territories whose quota of men for the defense of the great American nation is much smaller."

While the statements contained in these articles in "La Correspondencia" were incorrect, and that of July 20, 1917, failed to take into consideration that the number of men assigned to the different states was the net number to be drafted after the number who volunteered had been deducted, there was no evidence that the defendant knew such to be the fact or was in any position where it might be said that he should have known the facts. It did appear in this statement that Hawaii would furnish no men, and that Porto Rico would furnish a larger number of men than 29 states and territories, although the population of these states far exceeded that of Porto Rico, on the assumption that Porto Rico would furnish 12,833 men. The article of October 23, 1917, from "La Correspondencia," stated that the draft, from officially authorized advices, would be raised to 17,000 men. These articles were admitted in evidence to meet the charge that the defendant had an evil intent in making the statements with which he was charged. In the light of the evidence afforded by them, we do not think that any construction can be placed upon the article of October 27th that would sustain a finding that it was willfully published with the intent to cause insubordination, etc., or to obstruct the recruiting or enlistment service. It was clearly in the nature of a criticism of the conduct of those who were charged with the duty of protecting the citizens of Porto Rico, and seeing that they were not unfairly discriminated against under the Selective Service Act, because he asks:

"What do the politicians say to that, who attribute to themselves the monopoly of the defense of the people's interests? They say nothing. They are busy defending some positions that they have paid for."

There was no evidence before the jury to show the intent with which the defendant published this article, except the language of the article itself and the testimony of the defendant in regard to the sources of information which he had for it, and this was not only uncontradicted, but was supported by the testimony of the government that the articles in "La Correspondencia" were actually published in that paper, and also the uncontradicted testimony of the defendant in regard to the prior publications in his own paper.

(257 F.)

[12] We think there was no evidence to sustain the verdict of the jury that the defendant published either the article of October 27th or that of November 10th willfully, with the intent to create insubordination, mutiny, etc., or to obstruct the recruiting or enlistment service. of the United States, and that the defendant's motion to instruct the jury to return a verdict of not guilty should have been granted.

The judgment of the District Court is reversed, the verdict is set aside, and the case is remanded to that court for further proceedings not inconsistent with this opinion.

FIRST NAT. BANK OF SWEETWATER, TEX., v. RUST et al. (Circuit Court of Appeals, Fifth Circuit. March 15, 1919. Rehearing Denied May 9, 1919.)

No. 3300.

1. BANKS AND BANKING 117-CERTIFICATE OF DEPOSIT-ISSUANCE FOR INDIVIDUAL DEBT-RISK OF AUTHORITY.

One to whom a bank's president, in payment of his individual debt, issued its certificate of deposit, accepted with knowledge thereof, took the risk of the president's authority, depending on whether there had been a contemporaneous deposit, as recited in the certificate; the principle that his general powers would give apparent authority not applying, where he is known to be acting in his own interest.

2. BANKS AND BANKING

118-CERTIFICATE OF DEPOSIT-ISSUANCE FOR INDIVIDUAL DEBT-AUTHORITY-BURDEN OF PROOF.

One to whom a bank's president issued its certificate of deposit in payment of his individual debt, accepted with knowledge thereof, seeking to hold the bank thereon, has the burden of proving the making of the recited contemporaneous deposit, necessary for the authority to issue certificate.

3. BANKS AND BANKING 118-CERTIFICATE OF DEPOSIT EVIDENCE OF DEPOSIT.

A bank's certificate of deposit having been issued by its president in payment of his individual debt, and accepted with knowledge thereof, neither recital in certificate nor statement in letter of president to person receiving the certificate is evidence against bank of deposit having been made, necessary for president's authority to issue certificate.

4. EVIDENCE 244(12)-STATEMENT OF BANK PRESIDENT-PAST TRANSAC

TION.

Statement of president of bank, to one to whom its certificate of deposit had been issued by its prior president in payment of his individual debt, that its books showed the deposit called for thereby, is not inadmissible against it, in the absence of injury therefrom raising an estoppel; it amounting to an admission that past transactions had occurred and had been evidenced by the bank's books.

Batts, Circuit Judge, dissenting.

In Error to the District Court of the United States for the Northern District of Texas; Robert T. Ervin, Judge.

Action by Anna Rust and husband against the First National Bank of Sweetwater, Tex. Judgment for plaintiffs, and defendant brings Reversed and remanded.

error.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Diges's & indexes

J. H. Beall, of Sweetwater, Tex. (Beall & Douthit, of Sweetwater, Tex., and Kirby & King, of Abilene, Tex., on the brief), for plaintiff in error.

R. W. Haynie, of Abilene, Tex. (Woodruff & Woodruff, of Sweetwater, Tex., and Fred Cockrell, of Abilene, Tex., on the brief), for defendants in error.

Before WALKER and BATTS, Circuit Judges, and GRUBB, District Judge.

GRUBB, District Judge. The defendant in error Anna Rust brought suit in the District Court on three certificates of deposit, each for $2,000, purporting to have been issued by the plaintiff in error. The certificates were issued July 5, 1915, and were to mature 11 months after date, with 6 per cent. interest. At their maturity the interest was paid, and the certificates were extended for one year from their maturity. Upon presentation for payment, the plaintiff in error denied liability and refused payment, and this suit on them was instituted.

[1] The evidence developed that J. V. W. Holmes was president of the issuing bank at the time it is charged that the certificates were issued by it; that he owed the defendant in error certain land notes, and, being desirous of disposing of the land by which the notes were secured, induced the defendant in error by letter to accept in part payment of the notes, which were not then due, certificates of deposit of the plaintiff in error maturing at the same time the notes matured. The evidence shows that the husband of the defendant in error acted for her in the transaction with Holmes; that he was familiar with Holmes' handwriting, and knew that the certificates sued on were issued in settlement of an individual debt due by Holmes to his wife, and knew that the certificates were signed by Holmes, as president of the plaintiff in error, and that he had no knowledge of the deposit in the bank of the money, called for by the certificates, other than the recital of that fact in the certificates themselves, and in a letter from Holmes to him. The record, therefore, showed indisputably that the defendants in error received the certificates of deposit, knowing that they had been signed and issued by Holmes, and that he had used them in payment of his individual debt, and not in the business of the bank, for which he assumed to act.

The defendants in error, this being true, took the risk, in accepting the certificates, of the authority of Holmes to sign them in its behalf. It is not disputed that it was within his power as president to sign certificates of deposit, when the money was deposited in the bank, as called for by the certificate. He had no actual authority to issue certificates, in the absence of a contemporaneous deposit of the money. His general powers would give him apparent authority, as to persons dealing with the bank, to act for the bank, in the issue of certificates of deposit, in all cases, whether the money was deposited or not. The principle, however, is confined to cases where he was not known to be acting in his own interest, and not in the interest of the bank. If the party dealing with him knew that he

(257 F.)

was acting in his own interest in the matter of the issuance of the certificates, and not in the business of the bank, then the party dealing with him was charged with knowledge of his want of authority, if he had none, and of his failure to deposit the money, as recited, if he so failed. If Holmes issued the certificates sued on, without making a corresponding deposit in the bank, and if the defendants in error knew that he used the certificates, when issued by him, for his own advantage, as distinguished from that of the bank, then they were charged with knowledge of his want of authority to bind the bank by the issuance of the certificates, and could not recover on them.

[2] The record showing without conflict that the defendants in error did know that Holmes, in issuing the certificates, was acting for his own advantage, to pay his individual debt with them, the only question left for decision is whether there was money deposited by Holmes in the bank to cover the issue of the certificates. If none was deposited in fact, the defendants in error were charged with knowledge of that fact, and, from it, with Holmes' want of authority to bind the bank. Ohio Valley Banking & Trust Co. v. Citizens' National Bank, 173 Ky. 640, 191 S. W. 433, 438; American Surety Co. v. Pauly, 170 U. S. 133, 18 Sup. Ct. 552, 42 L. Ed. 977; Hier v. Miller, 68 Kan. 258, 75 Pac. 77, 63 L. R. A. 952; Claflin v. Farmers' & Citizens' Bank, 25 N. Y. 293; Campbell v. Manufacturers' National Bank, 67 N. J. Law, 301, 51 Atl. 497, 91 Am. St. Rep. 438; Amarillo National Bank v. Harrell (Tex. Civ. App.) 159 S. W. 858; Bank v. American D. & T. Co., 143 N. Y. 559, 38 N. E. 713. The case was tried upon this theory, and the only question submitted to the jury was whether or not the money was, in fact, deposited in the bank, as recited in the certificates, and, on this question, the court below placed the burden upon the defendant bank. We think the District. Judge misplaced the burden of proof in this respect. The party who deals with an agent, knowing him to be acting in his own interest, takes the risk of his having authority to so act for his principal, and assumes the burden of establishing his authority when he seeks to hold the principal. The case of Hier v. Miller, 68 Kan. 258, 75 Pac. 77, 63 L. R. A. 952, correctly states the rule, as we understand it to be. In that case the court said:

"The rule of law involved, that an agent may not represent himself and his principal in the same transaction, has been applied in many cases. 'Undoubtedly the general rule is that one who receives from an officer of a corporation the notes or securities of such corporation in payment of or as security for a personal debt of such officer does so at his own peril. Prima facie the act is unlawful and, unless actually authorized, the purchaser will be deemed to have taken them with notice of the rights of the corporation.' Wilson v. M. E. R. Co., 120 N. Y. 145, 150, 24 N. E. 384, 385, 17 Am. St. Rep. 625. Ordinarily, the cashier, being the ostensible executive officer of a bank, is presumed to have, in the absence of positive restrictions, all the power necessary for such an officer in the transaction of the legitimate business of banking But certainly he is not presumed to have power. by reason of his official position, to bind his bank as an accommodation indorser of his own promissory note. Such a transaction would not be within the scope of his general powers, and one who accepts an indorsement of that character, if a contest arises, must prove actual authority before he

*

*

can recover. There are no presumptions in favor of such a delegation of power.' West St. L. Sav. Bk. v. Shawnee, etc., Bank, 95 U. S. 557, 559, 24 L. Ed. 490. * * * 'But the test of the transaction is whether it is with the bank and its business, or with the cashier personally and in his business. Claflin v. Farmers' Bank, 25 N. Y. 293; Moores v. Citizens' National Bank, 111 U. S. 156 [4 Sup. Ct. 345, 28 L. Ed. 385]. As to the former, all presumptions are in favor of its regularity and binding force. In the latter no such presumption arises. In fact, upon proof that it was known to the claimant to be an individual transaction, and not one for the bank, the burthen is cast upon the claimant to establish by proof that the act of the cashier thus done for his own individual benefit was authorized or ratified. These are fundamental principles applicable to principal and agent in every transaction arising out of that relation.'"

See, also, Harwood v. Ft. Worth National Bank (Tex. Civ. App.) 205 S. W. 484-488.

[3, 4] The question, then, arises whether the record presents any evidence from which the jury might have legitimately inferred that the deposit had been made as recited. If the transaction had not been an individual one of Holmes, the president, the recital in the certificates would have been prima facie evidence of the receipt of the money by the bank. In view of its having been issued by the president in his individual transaction and accepted by the defendants in error with that knowledge, it has no such effect. The letter of Holmes asserting the deposit, written in his own interest to defendants in error, has no greater effect. The only other evidence relied upon is the declaration of McAdams, who was the successor of Holmes as president of the bank, made to William Rust, defendant in error, and while he was president, to the effect that the bank had received the money called for by the certificates. McAdams claims that he made the declaration through mistake, and afterwards corrected it. If McAdams' declaration was an admission of, and as such binding on, the bank, the question of its correctness was for the jury to decide.

We think, however, that the declarations of McAdams, made many months after the transaction between defendants in error and Holmes, of which he had no personal knowledge, were binding upon the bank only as a reply to the demand of the defendant in error William Rust, and not as an admission as to the bank's receipt of the money from Holmes when he signed the certificates of deposit. Even the president of a bank is without authority to bind his principal by statements merely narrative of past transactions. McAdams' denial of receipt of the money and of liability could be proven as the predicate for the instituting of a suit to recover from the bank. If the defendants in error had been prejudiced by his admission of the receipt of the money by the bank, by having acted or delayed action because of it, the bank would be estopped to dispute its correctness. As no injury resulted, the defendants in error could only offer the statements as admissions of the bank, through its president, as to a past transaction. The president was without authority to bind the bank by such statements, as admissions. In the case of Packet Co. v. Clough, 20 Wall. 528, 540 (22 L. Ed. 406), the Supreme Court said of the authority of the declarations of the master, made two days after the occurrence of the transaction to which they related: