Summary
The Colorado Supreme Court held that a bank cashier’s issuance of a draft and certificate of deposit to pay his personal debt did not bind the bank absent authorization or ratification. Because the cashier controlled the bank and was the only person aware of the wrongful transaction, his silence and acquiescence could not constitute ratification. The judgment of the District Court was affirmed.
Topics
Practice areas
Questions Presented
- Whether a bank is bound by a draft and certificate of deposit issued by its officer to discharge the officer's personal debt.
- Whether the officer's ownership and control of the bank, together with the bank's silence, authorized or ratified the transaction or estopped the bank and its receiver from challenging it.
- Whether the receiver was entitled to judgment concerning the draft and to disallowance of the certificate of deposit as a claim against the bank.
Holdings
- A bank is not bound when its officer uses bank obligations to discharge the officer's individual indebtedness, unless the transaction was authorized by the bank or subsequently ratified by it.
- The bank and its receiver were not estopped, and the transaction was not ratified, merely because Bowlds controlled the bank and the bank remained silent; Bowlds's own silence or acquiescence could not ratify his own wrongful act.
- The district court judgment in favor of the receiver was affirmed.
Key quotations
“An agent is not vested with authority to appropriate the funds of his principal to pay his debts” (79)
“To hold otherwise would enable a bank official, in sole charge of the affairs of a bank, to ratify his own wrongful act by his own silence and his own acquiescence.” (80)
Factual background
Bowlds owned the bank's entire capital stock, controlled its affairs, and served as the officer who issued a draft and certificate of deposit in the bank's name to discharge his individual debt to DeBaca. The instruments were not supported by any deposit made by Bowlds for their payment, and no other bank officer knew of the transaction. Bowlds had also pledged ninety shares of the bank's stock to Central National Bank as security for an unpaid note. The bank later failed and a receiver took control of its affairs.
Procedural history
Bowlds, the bank's controlling officer and owner, issued a bank draft and certificate of deposit to DeBaca to satisfy Bowlds's personal debt. After the bank failed and its affairs passed to a receiver, the receiver contested the validity of the instruments. The district court ruled for the receiver, and DeBaca sought review by writ of error. The Supreme Court affirmed.