The opinion
CALDWELL, Circuit Judge
(dissenting). The court sustained a demurrer to the plaintiff’s evidence, and directed the jury to return a verdict for the defendant, which was done. The note discounted by Sheldon was his own individual note. It was not payable to nor indorsed by the defendant bank. It was not the property of the defendant bank at any time, and its execution, existence, and discount were unknown to the bank, and wholly unauthorized by it. The note was the personal obligation of Sheldon, and discounted for his own personal use and benefit. These facts are overwhelmingly established by the plaintiff’s own testimony and letters. We here quote a sample of the letters which refer to the note in suit:
“The Hanover National Bank of the City of New York.
“Now York, December 15th, 1890.
“C. M. Sheldon, President, Burlingame, Kansas — Dear Sir: Referring to your personal note $5,000 due December 24th, our board insists that the First National Bank of Burlingame should guaranty it. We accordingly inclose form of guaranty for signature, and return, and remain,
“Yours, very truly, Wm. Halls, Jr., Asst. Cashier.”
Ho guaranty in writing or otherwise was ever given, hut, on the contrary, as soon as the plaintiff bank made a claim against the defendant hank for the amount of the note, it promptly denied any liability therefor. There is not a syllable of evidence going to show that Sheldon had any authority to hind the bank in this transaction, if we except his alleged statements to the officers of the plaintiff hank, which are mere hearsay, and of which more hereafter. It is said the money was placed to the credit of the defendant hank, but the hank was a mere conduit through which it passed to O. M. Sheldon, who immediately drew it out on his personal checks, and for his personal use; and this fact is distinctly stated in the answer. This is the second appearance of this case in this court. When the case was here the first time, Judge Sanborn, delivering the unanimous judgment of the court, said:
“But the evidence was undisputed that the New York bank discounted this uote on September 23, 1890; that by direction of Sheldon it placed the proceeds of it on its books to the credit of the Kansas bank, and telegraphed to Sheldon to that effect on the same day; and that immediately upon the receipt of that telegram by Sheldon these proceeds were placed to his credit in the Kansas bank, and were used by him. Just as soon as he learned that the New York bank had credited the Kansas bank with this money on its books, he caused it to bo charged to the Kansas bank, and credited to himself on the books of the latter, and he used it. The Kansas bank neither retained nor enjoyed the proceeds of this discount, nor did it receive any interest, commission, or other benefit from the transaction.” First Nat. Bank of Burlingame v. Hanover Nat. Bank of New York, 13 C. C. A. 313 , 66 Fed. 34 .
There is no evidence questioning or contradicting this finding of fact in the present record. The assistant cashier of the plaintiff bank, upon whose testimony the plaintiff relies for a recovery, re *430 ferring to the discount of the note in controversy, says, “The First National Bank of Burlingame was to give us their authority to charge- to- their account at maturity,” not that die authority had been or was given. If Sheldon had, or claimed to have, any such authority, why did the plaintiff bank not exact the guaranty at the time? If any such guaranty was then made, why write to Sheldon months afterwards, insisting that he should obtain the guaranty of the defendant bank' for “your personal note $5,000, due December 24th” ? Under the testimony' it is not possible to maintain the claim that at the time the note was discounted it was then a liability of the defendant bank. On the contrary, it was then distinctly agreed between Sheldon and the plaintiff bank that the loan was made to Sheldon personally on his individual note and credit, and not to the bank, and that Sheldon alone, and not the defendant bank, was the borrower and the debtor in the transaction. This fact is conclusively established by the plaintiff’s books and by the testimony of its assistant cashier, who states very fully the reason why the credit was given to Sheldon, and not to the bank. He says:
“Mr. Sheldon, practically said that the demands for money in his, section were at times greater than his bank’s resources admitted of their supplying without rediscounting or borrowing. Now, they did not want to rediscount or borrow, and put it on the books in that way, because they would have to show the people that they were borrowers' of money; and they wished to avoid this. * * * We demurred a little at that, but, as he was so urgent, and1 said it would only be for a moderate amount, and only for the emergencies of those times when his bank would be short, we agreed to do it in that way. Q. So -you understood that- Mr. Sheldon did not want to sign the name of the bank to this note, or indorse the notes in the name of the bank, because the people would find out that the bank was borrowing money? A'. That is practically the idea. * * * I may also explain that the comptroller calls for reports from national banks at certain periods, and he did not wish to show in the newspaper publication of these reports that liis bank was a borrower.”
And again be says Sheldon said:
“The demand they had for money was greater than their resources would supply, and they did not like to havfe to publish in their statement, which they were called upon for from time to time by the comptroller of the currency, any bills rediscounted or bills payable, and Mr. Sheldon had devised the idea, which one or two other bank officers had also followed, of having paper discounted” in this way.
And, coming to the particular note in controversy, he says;
. “In this particular instance the proposition was that the First National Bank of Burlingame was to give us their authority to charge to their account at maturity such notes as we had discounted in this way, and it was upon that proposition, with the correspondence we had had before, that the president and I passed the paper after our board of directors had referred it to us under the belief that it was for that bank.”
When Sheldon urged that the loan he made to him, and not to the defendant hank, for the reasons he had stated, the plaintiff’s assistant cashier says: “We demurred a little at that, hut, as he was so urgent, and said it would only he for a moderate amount, and only for. the emergencies of those times when his hank would be short, we agreed to do it in that way.” “We agreed to do it in that way,” —in.w-hat way? In the way Sheldon wanted it done, and that was that *431 Ms note should be discounted for him; the liability thereon should be his, and not the bank’s. To have charged the defendant bank with the note would have frustrated the very purpose Sheldon had in view. He did not want to make it a liability of the bank, “because the people would find out that the bank was borrowing money.” The plaintiff bank yielded to Sheldon’s “urgent” appeal, and agreed to do it in that way, and discounted the note on Sheldon’s personal credit, and its books, accounts, and letters show that fact, and confirm the testimony of its cashier. Obviously, if Sheldon, or any other officer of the bank, liad been indicted under section ¡¡209, Bev. St. II. S., for not including in the report of the bank’s condition this note as a liability of the hank, as required by section 5211, he could not have been convicted. The note itself, the plaintiff's books, and the testimony of the plaintiff’s cashier would have shown to a demonstration- that it was Sheldon’s personal debt, and not the debt of the hank. The nearest approach to connecting the defendant bank in any way with the transaction would have been, the statement of the plaintiffs cashier that Sheldon said the hank would at some future time guaranty the payment of the note, which it never did. It is equally clear, upon the proof in this case, that, if the plaintiff hank had brought an action against Sheldon on this note, it must have recovered, and it is doubtless because of his insolvency that the plaintiff now seeks to convert his note into an obligation of the hank. Let it be noted that the plaintiff makes no claim that there was any mistake, oversight, or accident in the transaction, or that the note, and its hooks, accounts, and letters do not truly show the transaction as it actually took place. It rests its claim wholly on an alleged promise of Sheldon that the bank would at some future time guaranty the payment of his note. Having given the credit to Sheldon originally lor the reason and purposes stated by its cashier, the plaintiff will not now be heard to set up a claim that the note was discounted for the bank, and is the hank’s debt, and not Sheldon’s. Manifestly, it was not the bank’s debt when the note was discounted. It was expressly stipulated that it sliould not be, and confessedly nothing transpired after-wards to make it such. It is not doubted but what, if this issue had been submitted to the jury, their verdict would have been for the defendant. Upon this issue, however, if there had been no other, the case should have been submitted to the jury.
But there was another issue, and it is stated in the brief of counsel for the plaintiff in error that it was upon this latter issue that the lower court directed a verdict for the defendant. The plaintiff bank, perceiving that the note was Sheldon’s individual paper, and not indorsed by the bank, and that its hooks and letters showed that the note ivas discounted for and charged to Sheldon personally, and not to the defendant hank, was driven to seek a recovery upon a contract, not only not disclosed by the writings, but flatly inconsistent with them. In doing so it has simply jumped out of the frying-pan into the fire. Tt: now says that the transaction was made to appear to he one with Sheldon personally for the purpose of circumventing and evading, the provisions of the national hank act. *432 Section 5211 of the Revised Statutes of the United States reads as follows:
“Every association shall make to the comptroller of the currency not less than five reports during each year, according to the form which may he prescribed by him, verified by the oath or affirmation of the president or cashier of such association, and attested by the signature of at least three of the directors. Each such report shall exhibit, in detail and under appropriate heads, the resources and liabilities of the association at the close of business on any past day by him specified; and shall be transmitted to the comptroller within five days after the receipt of a request or requisition therefor from him, and in the same form in which it is made to the comptroller shall be published in a newspaper published in the place where such association is established, or if there is no newspaper in the place, then in the one published nearest thereto in the same county, at the expense of the association; and such proof of publication shall be furnished as may be required by the comptroller. The comptroller shall also have power to call for special reports from any particular association whenever in his judgment the same are necessary in order to a full and complete knowledge of its condition.”
Section 5209 of the same statutes declares:
“Every president, director, cashier, teller, clerk or agent of any association * * * who makes any false entry in any book, report or statement of the association with intent, in either case, to injure or defraud the association or any other company, body politic or corporate, or any individual person, or to deceive any officer of the association or any agent appointed •to examine the affairs of any such association, * * * shall be deemed guilty of a misdemeanor, and shall be imprisoned not less than five years nor more than ten.”
The plaintiff’s, assistant cashier testified, as we ha.ve seen, that Sheldon desired to circumvent the requirements of the statute which we have quoted, and which makes it the duty of the officers of national banks to report, under oath, the liabilities of their banks, and publish the same in a newspaper published in the place where the bank is established, and to that end, the witness says, .“Mr. Sheldon had devised the idea” described in detail by the witness whose testimony we have elsewhere set out. That “idea” was that, if the defendant bank then indorsed or guarantied the payment of the note, its officers would be compelled by the requirements of the statute quoted to report it as a liability of the bank to the comptroller of the currency, and to publish that report in a newspaper printed in the town where the bank was situated; and Sheldon said he did not want the bank officers compelled to do that, “because the people would find out the bank was borrowing money,” and for this reason he wanted the plaintiff bank to discount the note upon his individual indorsement and credit, and that at some future time the bank would guaranty its payment; and the plaintiff’s assistant cashier says, “We agreed to do it in that way;” aud it is upon this agreement that the plaintiff bank now seeks to recover. It must be conceded that there is not a scintilla of evidence that the defendant bank ever did afterwards guaranty or otherwise do any act to render it liable for the note.
■ At this point it may be observed that, whatever implied powers a bank president has to borrow money for his bank, he has no implied power to borrow in the mode and for the reasons stated in the testimony of the plaintiff’s cashier. National banks were brought into *433 being by an act of congress. They are federal corporations, and quasi public institutions. They were brought into existence at a critical period in the history of the country as a means of rendering financial aid to the government, and of providing the people with a sound currency, national in its character, and as a means of affording safe depositories for public and private moneys. To accomplish these extremely desirable objects, and for the security and protection of the public, the act creating these institutions exacts from their officers, under heavy penalties, a rigid observance of its requireme'hts, and subjects these institutions to a large measure of governmental control and supervision. Among other requirements, the statute makes it the duty of every national bank to make, under oath, not less than five reports during each year to the comptroller of the currency, and as many more reports as that officer may require, showing the “resources and liabilities” of the bank; and these reports are required to be published in a newspaper published in the place where the bank is situated; and the act declares that any officer of the bank who makes any false report or statement shall be “imprisoned not less than five years nor more than ten.” And as a means of ascertaining whether the officers of these associations are complying with the requirements of the law, and whether their reports state truly the resources and liabilities of their banks, the government stipulates for and exercises the power of visitation over them, and sends its officers, known as “bank examiners,” to examine the condition of these banks when and as often as the comptroller of the currency deems necessary. It will be observed that the officers of national banks have duties to perform which are public in their nature, and which they are required to perform for the security and protection of the public, and for not performing which they are liable to a heavy penalty. To carry out Sheldon’s idea, it was necessary for the plaintiff bank to become an active participant in the scheme to evade and violate the statute. The basis of the whole agreement now set up was the fraudulent concealment of a fact the law required to be reported to the comptroller of the currency, and published for the protection of the public. It was to be done so artfully that no bank examiner could ever discover the fraud. To accomplish this, it was absolutely essential that the plaintiff bank should assert, as it did, and make its books show, as it did, that the note was discounted for the account of Sheldon personally, and that there was no liability on the bank for the same. All this the plaintiff bank agreed to do and did do. A more shocking agreement was probably never entered into by a reputable financial institution. It involved a violation of the act of congress by the officers of both banks, — on the part of the plaintiff bank a false statement, in this; that it would report the sum of the note as due from Sheldon instead of the defendant bank; and on the part of the defendant bank a false statement of its liabilities. If Sheldon’s note was then a liability of the defendant bank, as now claimed, then this agreement necessarily contemplated the commission of fraud and perjury, which the statute denounces and punishes as a crime. In view of this obvious fact, it is not surprising that, when Sheldon unfolded to the *434 plaintiff bank this shocking scheme which he had devised to cheat the law and defraud the public, the plaintiff’s cashier says, “We demurred a little at that;” but they did not stand on their demurrer, and their virtuous instincts soon gave way under the urgent plea of Sheldon, and he says, “We agreed to do it in that way.” Here we have a distinct agreement amounting in law to a deliberate conspiracy between Sheldon and the plaintiff bank to violate the statute and defraud the public if the note was then a liability of the bank. In the face of these facts it is vain to talk about the plaintiff bank being an innocent party. It is said these facts constitute no defense tó 'this action, because the penalties for the violation of the statute “are prescribed by that act, and an avoidance of the unreported legal liabilities of the bank is not among them.” Ho one contends that, when a bank fails to report its debts, it is thereby discharged from them. But if one national bank, for the purpose of enabling another national bank to evade the provisions of the statute requiring it to make a true report to the comptroller o'f the currency of its liabilities, agrees to discount and does discount the individual note of the president of the latter bank without the indorsement or guaranty of the latter bank, the former bank will not thereafter be heard to set up a claim that the note is the obligation of the bank, and not the personal obligation of its maker, as it purports to be.
It is well settled that all contracts which have a tendency to corrupt persons holding any office or trust under a statute which imposes on them the performance of any act for the protection of the public are void as against public policy. The law will not permit one to encourage, aid, or assist another to be unfaithful in the discharge of a legal duty he owes to the public, and any contract or agreement having that for its purpose or having that tendency is void. Chicago, M. & St. P. R. Co. v. Wabash, St. L. & P. R. Co., 9 C. C. A. 659 , 61 Fed. 993 , and cases there cited. And when a statute makes the nonobservance of its requirements a crime, for which a penalty is imposed, a contract made to evade the statute, or to aid or abet its violation, or which has that tendency, is void, independently of -any question of public policy other than that appearing from the statute itself. The doctrine rests on the impregnable principle that no one can come into a court of justice, and seek the assistance of the law, whose claim is founded on a contract or agreement made to evade or circumvent the law. In Bartlett v. Vinor, Carth. 252; Id., Skin. 322, Holt, C. J., said: “Every contract made for or about ány matter or thing which is prohibited or made unlawful by any statute is a void contract, though the statute does not mention that it shall be so, but only inflicts a penalty on the offenders, because a penalty implies a prohibition, though" there are no prohibitory words in the statute.” Lord Mansfield, in Drury v. Defontaine, 1 Taunt. 136, referring to a casé in which the contrary had been held, said, “The law has since changed, and, if any act is forbidden under a penalty, a contract to do it is now held void.” And in Belding v. Pitkin, 2 Caines, 149 , the court said: “It is too salutary and well-settled a principle to be in any measure infringed that courts of justice ought not-to assist an illegal transaction in any respect. It is the first principle, and1 not to' *435 be touched, that a contract, in order to be binding, must be lawful. Whenever the consideration which is the ground of the promise, or the promise which is the effect or consequence of the consideration, is unlawful, the whole contract is void.”
The rule is now firmly established that, where a statute imposes a penalty to protect the public against fraud or imposition, or to protect the public health or morals, the imposition of the penalty amounts to a prohibition of acts in violation of it, and all contracts tending to that result are void. Statutes which prohibit worldly labor on the Lord’s day, and impose penalties for their violation, never in terms declare that contracts made on that day shall be void. But the principle is well settled that all contracts made on that day, like all other contracts made in violation of a statute which inflicts a penalty for the prohibited act, are void. Swann v. Swann (C. C.) 21 Fed. 299, 306 ; 2 Pars. Cont. 886; Lyon v. Armstrong, 6 Vt. 219 ; Robeson v. French, 12 Metc. (Mass.) 24, 45 Am. Dec. 236 ; Gregg v. Wyman, 4 Cush. 322 ; Hazard v. Day, 14 Allen, 487 . We forebear to cite the multiplied cases supporting the foregoing propositions. It is enough to cite and quote briefly from two comparatively recent decisions of the supreme court of the United States. In Gibbs v. Gas Co., 130 U. S. 396, 430 , 9 Sup. Ct. 553, 32 L. Ed. 979 , the supreme court, speaking by Mr. Chief Justice Fuller, said:
“The law ‘cannot recognize as valid any undertaking to do what fundamental doctrine or legal rule directly forbids. Nor can it give effect to any agreement the making whereof was an act violating law. So that, in short, all stipulations to overturn — or in evasion of — what the law has established; all promises interfering with the workings of the machinery of the government in any of its departments, or obstructing its officers in their official acts, or corrupting them; all detrimental to the public order and public good, in such maimer and degree as the decisions of the courts have defined; all made to promote what a statute has declared to be wrong, — are void.’ Bish. Cont. § 549; Woodstock Iron Co. v. Richmond & D. Extension Co., 129 U. S. 643 , 9 Sup. Ct. 402, 32 L. Ed. 819 (decided at this term), opinion by Mr. Justice Field; Trist v. Child, 21 Wall. 441 , 22 L. Ed. 623 ; Irwin v. Williar, 110 U. S. 499 , 4 Sup. Ct. 160, 28 L. Ed. 225 ; Arnot v. Coal Co., 68 N. Y. 558 , 23 Am. Rep. 190 ; Salt Co. v. Guthrie, 35 Ohio St. 666 ; Woodruff v. Berry, 40 Ark. 251, 261 ; Hartford & N. H. R. Co. v. New York & N. H. R. Co., 3 Rob. (N. Y.) 411; Craft v. McConoughy, 79 Ill. 346 , 22 Am. Rep. 171 ; Hooker v. Vandewater, 4 Denio, 349 ; Stanton v. Allen, 5 Denio, 434 ; Railroad Co. v. Collins, 40 Ga. 582 ; Morris Run Coal Co. v. Barclay Coal Co., 68 Pa. 173 .”
In Miller v. Ammon, 145 U. S. 421, 426 , 12 Sup. Ct. 884, 36 L. Ed. 759 , that court, speaking by Mr. Justice Brewer, said:
“The general rule of law is that a contract made in violation of a statute is void, and that, when a plaintiff cannot establish his cause of action without-relying upon an illegal contract, he cannot recover. Pol. Cont. pp. 253-260: Penn v. Bornman, 102 Ill. 523 ; Alexander v. O’Donnell, 12 Kan. 608 ; Gunter v. Leckey, 30 Ala. 591 ; Kennedy v. Cochrane, 65 Me. 594 ; Bank v. Owens, 2 Pet. 527, 539 , 7 L. Ed. 508 ; Pangborn v. Westlake, 36 Iowa, 546, 549 ; Harris v. Runnels, 12 How. 79, 84 , 13 L. Ed. 901 . In Bank v. Owens, this court, said, ‘There can be no civil right where there can be no legal remedy, and there can bo no legal remedy for that which is itself illegal.’ There are some exceptions to this general rule, and the last two cases cited furnish instances thereof. These exceptions are based upon a supposed intent of the legislature. In Pangborn v. Westlake it was thus stated how the exception should be determined: ‘We are, therefore, brought to the true test, which is that while, as a general rule, a penalty Implies a prohibition, yet the *436 courts will always look to the language of the statute, the subject-matter of it, the wrong or evil which it seeks to remedy or prevent, and the purpose sought to be accomplished in its enactment; and if, from all these, it is manifest that it was not intended to imply a prohibition, or to render the prohibited act void, the courts will so hold, and construe the statute accordingly.’ And in Harris v. Runnels, this court, after noticing some fluctuations in the course of decision, and observing ‘that we have concluded, before the rule can be applied in any case of a statute prohibiting or enjoining things to be done, with a prohibition and a penalty, or a penalty only for doing a thing which it forbids, that the statute must be examined as a whole, to find out whether or not the makers of it meant that a contract in contravention of it should be void, or that it should: not be so,’ added: ‘It is true that a statute containing a pronibition and a penalty makes the act which it punishes unlawful, and the same may. be implied from a penalty without a prohibition; but it does not follow that the unlawfulness of the act was meant by thd legislature to avoid a contract made in contravention of it. When the statute is silent, and contains nothing from which the contrary can be properly inferred, a contract in contravention of it is void.’ In the light of these authorities, the solution of the present question is not difficult. By the ordinance, a sale without a license is prohibited under penalty. There is in its language nothing which indicates an intent to limit its scope to the exaction of a penalty, or to grant that a sale may be lawful as between the parties, though unlawful as against its prohibitions. Nor, when we consider the subject-matter of the legislation, is there anything to justify a presumed intent on the part of the lawmakers to relieve the wrongdoer from the ordinary consequences of a forbidden act.”
Upon the plaintiff’s own testimony the court properly instructed a verdict for the defendant, and its judgment should he affirmed.