German Bank of Memphis v. United States/Opinion of the Court

The question in this case is whether the government can be held liable for the amount of certain registered bonds which the register of the treasury had canceled without authority of law, plaintiffs themselves having been held liable to the owners of the bonds for having been parties to the transaction.

Briefly stated, the facts are that the bonds were originally issued to 'M. E. Cochran, executor or assigns;' that, Cochran having died, one Anderson was appointed administrator de bonis non, obtained possession of the bonds, took them to the German National Bank, and requested the bank to sell them for him, exhibiting a paper from the treasury department at Washington to the effect that, as the successor of Cochran in the administration of the estate, he had power to transfer them. The bank sent them to the Chemical National Bank of New York with a similar request to sell. The Chemical National Bank transmitted them to the register of the treasury, stating that neither the German National Bank nor the Chemical National Bank wished to be responsible for any irregularities in the papers. In reply the register stated that there was on file in that office satisfactory power in favor of the bank to transfer the bonds, and subsequently, at the request of the bank, issued new bonds to the 'Chemical National Bank of New York, or assigns.' These bonds were sold, the proceeds transmitted to the German National Bank at Memphis, passed to the personal credit of Anderson, and embezzled by him. Suit was thereupon begun against the two banks by the heirs of the estate represented by Cochran and Anderson, upon the theory that, as the bonds ran to 'M. E. Cochran, executor or assigns,' the banks were apprised of the fact that there was a trust of some kind impressed upon them, which could be ascertained by reference to the will; and that they bore the unmistakable brand of the rights of ownership of others, without the slightest evidence of claim of any character on the part of Anderson.

Having paid the judgment against them, the banks filed this petition, claiming to be subrogated to the rights of the parties who had recovered against them, and to hold the government liable upon the ground that they were induced, by the act and conduct of the register of the treasury, to do what had been adjudged to be wrong on their part, and on account of which a decree had been taken against them.

Under these circumstances, are the plaintiffs entitled to maintain this suit against the government? Plaintiffs were held liable by the supreme court of Tennessee to the heirs of Woodward for the unlawful conversion of the bonds, the court holding that the banks received the bonds and disposed of them under circumstances showing that a breach of trust was meant by Anderson, and under such circumstances as to put them upon inquiry as to his title to the bonds and the motive prompting him to offer them for sale. The court held further that the fact that the bonds were payable to M. E. Cochran as executor put them upon inquiry as to whose estate Anderson was administrator of; why there was no assignment upon the bonds; how Anderson came by them; by what autnority he proposed to dispose of bonds created by a will when he was not himself the executor; why the bonds had been kept off the market so long; for whose benefit Anderson proposed to invest in securities at a greater rate of interest; and why he should do so when the bonds were a certain security. 'These suggestions,' said the court, 'would have led at once to an inspection of the records, which would have discovered that Anderson had no right whatever to manage or control the bonds, and that his purposes were anything but honest. It was impossible to have read the bonds, however casually, without discovering that there was a trust of some character impressed upon them, which trust could be ascertained by reference to the will.'

Plaintiffs now seek to hold the government liable upon the ground that the register of the treasury participated with them in such conversion. In other words, it is an attempt on the part of one wrongdoer, not merely to enforce contribution from another, but to hold him liable for the entire amount of damages occasioned by their joint negligence. It is only upon the theory that the register exceeded his power that the plaintiffs have any possible standing. If his conduct in canceling the original and issuing the new bonds was within the scope of his authority as register of the treasury, there is no possible reason for charging him or his principal with liability. Assuming, however, that he was guilty of negligence in reissuing these bonds upon insufficient evidence of the authority of the holder to demand such reissue, (as to which we express no opinion,) it was an act of negligence for which the government is not liable to these plaintiffs. It is a well-settled rule of law that the government is not liable for the nonfeasances or misfeasances or negligence of its officers, and that the only remedy to the injured party in such cases is by appeal to congress. This rule was applied in the cases of U.S. v. Kirkpatrick, 9 Wheat. 720, 735; U.S. v. Van Zandt, 11 Wheat. 184; U.S. v. Nicholl, 12 Wheat. 505; and Dox v. Postmaster General, 1 Pet. 318,-cases of laches in failing to prosecute delinquent officers within a reasonable time; in Gibbons v. U.S., 8 Wall. 269, to a case of alleged duress by a military officer; in Jones v. U.S., 18 Wall. 662, to the negligence of the government in permitting a dishonest postmaster to remain in office; in Hart v. U.S., 95 U.S. 316, to the negligence of an officer of the United States in permitting the removal of distilled spirits from a distillery warehouse before the payment of taxes; in Minturn v. U.S., 106 U.S. 437, 1 Sup. Ct. Rep. 402, to the unlawful act of a customs officer in giving up goods without the payment of duty; in Moffat v. U.S., 112 U.S. 24, 5 Sup. Ct. Rep. 10, to certain frauds by officers of the United States in issuing land patents; and in Robertson v. Sichel, 127 U.S. 507, 8 Sup. Ct. Rep. 1286, to the negligence of an officer of the customs in keeping a trunk of a passenger on the pier instead of sending it to the public store, so that it was destroyed by fire.

If this be treated as a case of tort, then it is clear that the government is not liable, not only upon the ground above stated, but because under the act of congress conferring jurisdiction upon the court of claims (24 St. p. 505) there is an express exception of cases sounding in tort.

Plaintiffs, however, take the further ground that if, instead of suing the banks, Covington and his wife and daughter had sued in the court of claims upon the original bonds, the government could not have shown in defense that the bonds had been canceled and reissued to the Chemical National Bank, since such cancellation was without authority. Therefore they insist that, having paid these bonds themselves, they are entitled to be subrogated to the claim of the heirs of the estate, and to recover in their own names upon these bonds. There are difficulties, however, in sustaining this position. In the first place, the plaintiffs themselves had no contract with the government and, if they had, such contract was fully performed by the issuing of the new bonds to them. They are not entitled to be subrogated to the heirs of the estate, since their right of subrogation arises from certain conduct of theirs which was adjudged by the supreme court of Tennessee to be tortious. It is said that a person who invokes the doctrine of subrogation must come into court with clean hands. Sheld. Subr. § 44; Railroad Co. v. Soutter, 13 Wall. 517; Wilkinson v. Babbitt, 4 Dill. 207; Guckenheimer v. Angevine, 81 N. Y. 394. They are unfortunately put in the position of claiming through the judgment of the supreme court of Tennessee, which held them liable for having participated in the alleged misconduct of the register of the treasury. As we hold that they are not entitled to invoke the doctrine of subrogation, it becomes unnecessary for this court to determine as an independent question whether the register acted within the scope of his authority in canceling and reissuing the bonds. The opinion of the supreme court of Tennessee would not be conclusive upon that point, the government not having been a party to that action.

Under no view that we have been able to take of this case can we hold the government liable, and the judgment of the court of claims is therefore affirmed.