Thank You For Submiting Feedback!
In accepting the presidency of a bank, the bank president must be taken to have contemplated responsibility for losses to the bank, whatever they are, if chargeable to his fault. Losses are chargeable to a bank president's fault where the president had warnings that should have led to steps that would have made fraud impossible, even though the precise form that the fraud would take might not have been foreseen.
The bookkeeper of a national bank during a series of years defrauded if of an amount aggregating more than its capital and more than the normal average amount of its deposits, by a novel scheme involving exchanges of his personal checks on the bank for checks of an outsider on another bank, cashing of the checks outside, abstraction by the bookkeeper of his own checks when returned to his bank with clearing-house statements which were settled by the cashier, and falsification of the deposit ledger, kept by the bookkeeper, so as to conceal the transactions by false charges against deposits and false additions of the totals, diminishing the apparent liability to depositors. The fraud could have been discovered by the cashier if he had himself taken and examined checks as they came from the clearing house or had carefully examined the multitudinous figures of the deposit ledger or called in and compared with it the depositors' passbooks, but he negligently over-trusted the bookkeeper and made his statements to the directors accordingly. Semi-annual examinations by national bank examiners revealed nothing wrong, and wrong was not suspected, the seeming shrinkage of deposits being attributed to innocent causes. A bill in equity was brought by the receiver of the bank to charge its former president and directors with the loss of a great part of its assets through the thefts of an employee of the bank while they were in power. The District Court entered a decree against all of them. The Circuit Court of Appeals reversed this decree, dismissed the bill as against all except the administrator of Edwin Dresser, the president, cut down the amount with which he was charged and refused to add interest from the date of the decree of the District Court. Dresser's administrator and the receiver both appealed, the latter contending that the decree of the District Court should be affirmed with interest and costs.
Was the president liable for his failure to act on the warning signs?
The Supreme Court affirmed the circuit court's entry of judgment in favor of the directors since there was no indication that they should have been on notice of the bank employee's theft; it also affirmed the judgment upholding the bank president's liability since he assumed responsibility for losses to the bank which were chargeable to his failure to act on the warning signs.