210 F.

2d 217

UNITED STATES
v.
KLOCK et al.
No. 7.
Docket 22474.

United States Court of Appeals, Second Circuit.

Argued December 15, 1953.
Decided January 25, 1954.

Defendants were indicted in an indictment containing 25 counts. Counts I

through XXIV were substantive counts, and count XXV a conspiracy
count. Counts I through III and VI through XXIV charge in substance
that, on specified dates in 1948, 1949 and 1950, Klock, employed as a
supervisor in the bookkeeping department of The Syracuse Trust
Company, did, with intent to injure and defraud the bank and without the
consent or knowledge of the bank, misapply moneys, funds and credits of
the bank by causing the bank to pay insufficient funds on checks drawn
by Potter on one of his accounts at said bank, without charging the checks
against the account, by which action on Klock's part Potter was enabled to
convert the amount of the check to his own use or that of the corporation
upon which he drew it. Each of these counts refers to a different check
drawn by Potter. The total amounted to $1,684,765.21. In each count
Potter is charged with aiding and abetting Klock in the misapplication of
the amount of the specified check.
Counts IV and V charged that Leslie L. Root, Jr., also an employee of the
bank, misapplied the bank's moneys, funds and credits, in the same
manner. Potter was also named as an aider and abetter in these counts.
These two counts were dismissed before trial.
Count XXV charged that, between January 1, 1946 and April 20, 1951,
Potter, Klock and Root conspired to misapply $1,684,765.21 of the
moneys, funds and credits of the bank with intent to defraud and, with like
intent, to make and cause to be made false entries in the books of the bank
and to deceive the officers of the bank and bank examiners. It further

charged that, as of April 10, 1951, Klock had concealed and withheld
checks totalling the aforesaid amount drawn by Potter upon his accounts
at the bank, without charging them to the accounts upon which they were
drawn. Root pleaded guilty to this count before the commencement of the
trial while the panel of trial jurors was excluded from the courtroom.
The statutes alleged to have been violated in the substantive counts were,
with respect to the misapplications occurring before September 1, 1948,
12 U.S.C.A. 592, and, with respect to misapplications occurring after
September 1, 1948, 18 U.S.C. 656 and 2.
The conspiracy count charged a conspiracy under 18 U.S.C. 88, as in
effect prior to September 1, 1948, and 18 U.S.C. 371, as in effect after
that date to violate 12 U.S.C. 592 and 18 U.S.C. 656 and 1005.
18 U.S.C. 2 reads:
"Principals
"(a) Whoever commits an offense against the United States, or aids, abets,
counsels, commands, induces, or procures its commission, is a principal.
"(b) Whoever causes an act to be done, which if directly performed by
him would be an offense against the United States, is also a principal and
punishable as such."
18 U.S.C. 656 reads in part:
"Theft, embezzlement, or misapplication by bank officer or employee
"Whoever, being an officer, director, agent or employee of, or connected
in any capacity with any Federal Reserve bank, member bank, national
bank or insured bank, or a receiver of a national bank, or any agent or
employee of the receiver, or a Federal Reserve Agent, or an agent or
employee of a Federal Reserve Agent or of the Board of Governors of the
Federal Reserve System, embezzles, abstracts, purloins or willfully
misapplies any of the moneys, funds or credits of such bank or any
moneys, funds, assets or securities intrusted to the custody or care of such
bank, or to the custody or care of any such agent, officer, director,
employee or receiver, shall be fined not more than $5,000 or imprisoned
not more than five years, or both; but if the amount embezzled, abstracted,
purloined or misapplied does not exceed $100, he shall be fined not more
than $1,000 or imprisoned not more than one year, or both." 1

The jury, after a trial, returned a verdict of guilty as to defendants Klock

and Potter on all counts (other than IV and V which had been dismissed).
The district judge entered a judgment of conviction as to each defendant.
The defendant Potter was "sentenced (on counts I and II) to be confined in
an Institution designated by the Attorney General for a period of five
years, to run consecutively; and (on each of counts III and VI-XXV, incl.)
to be confined in said Institution for a period of five years, to run
concurrently with sentence imposed on Counts I and II; and further to pay
a fine of $5,000 on each of Counts I, II, III, VI, VII and XXV, making a
total fine of $30,000."
The defendant Klock was "sentenced (on count I) to be confined in an
Institution designated by the Attorney General for a period of four years;
and (on count II) to be confined in said Institution for a period of four
years, to run consecutively with sentence imposed under count I; and (on
each of counts III and VI-XXV inclusive), to be confined in said
Institution for a period of four years, to run concurrently with each other
and with sentence imposed on counts I and II of this Indictment, and
sentence on all counts of this Indictment to run concurrently with sentence
imposed under" the indictment in United States v. Klock, 2 Cir., 210 F.2d
215.
Defendants Klock and Potter have appealed.
Anthony F. Caffrey, U. S. Atty., for the Northern Dist. of N. Y., Syracuse,
N. Y. (Robert J. Leamy, Asst. U. S. Atty., Oneonta, N. Y., of counsel), for
appellee.
William W. Barron, Washington, D. C., Paul R. Shanahan and Robert K.
Murray, Syracuse, N. Y. (William J. Barron, New York City, of counsel),
for appellants.
Before CLARK, FRANK and HINCKS, Circuit Judges.
FRANK, Circuit Judge.

1. Sufficiency of the evidence.

We have examined the record carefully and think there was ample evidence to
support the verdict. Lack of knowledge or consent by the bank is not an
element of the crime; Mulloney v. United States, 1 Cir., 79 F.2d 566, 581.

Since the allegation in the indictment of such lack of knowledge and consent
was therefore surplusage, there was no need for the government to prove those
facts. Glover v. United States, 5 Cir., 125 F.2d 291.
3

2. Alleged illegal composition of the grand jury and the petit jury.

This objection was not made until after the verdict. We think this was too tardy,
but, in any event, the objection lacked merit; see our opinion in United States v.
Titus, 210 F.2d 210.

3. Exclusion of evidence as to authorization by bank officials of the overdrafts.

(A) Under the substantive counts.

Defendants sought to prove that the responsible officials of the bank had
authorized the overdrafts by Potter and (as circumstantial evidence) similar
overdrafts by the others. If there was authorization of the Potter overdrafts, then
they were but loans, and Klock's conduct with respect to them did not violate
the statutory provisions named in the substantive counts, 12 U.S.C.A. 592
and 18 U.S.C. 656. This defense, if proved, would have exculpated not only
Klock but Potter as well; for the latter, charged in those counts with aiding and
abetting, could not be guilty unless Klock was. For that reason, it is immaterial
whether or not Potter knew of the authorization.

The judge, however, apparently assumed that authorization of Klock's conduct,

if proved, would be no defense to either defendant, because it would be merely
approval of crimes committed by Klock. Acting, apparently, on that
assumption, the judge seriously erred in excluding the following items:

(1) Directors' reports, call reports for the Federal Reserve System and the
State Banking Department:

10

One of the defendant's excluded exhibits, a call report to the Federal Reserve
System made June 30, 1950, indicated that the bank reported, as of June 30,
1950, approximately $10,000 in overdrafts which were debited to customers'
accounts. Potter alone had drawn checks amounting to $17,000 against
insufficient funds which were paid and "held out" (i.e., not debited against his
account) between March 10 and June 27, 1950. Titus, another of the bank's
customers, drew checks amounting to $60,000 against insufficient funds during
the same period; his overdrafts were not debited against his account. Klock, in

order to enable the bank's books to balance, set up, before these transactions, a
so-called "dummy control" for overdrafts not debited against accounts found in
"Ledger 65" (a ledger containing approximately 200 of the bank's largest and
most active-commercial accounts). The "dummy control" was in the same
control book as the genuine control for "Ledger 65," and was presumably
accessible to the bank officials. While the "dummy control" would enable the
books to balance if the undebited overdrafts were posted in it, yet none of
Potter's or Titus' overdrafts, for the period March 10 to August 30, 1950 were
entered therein. Not having been entered in either the dummy control or as
debits in Ledger 65, the undebited overdrafts for that period amounting to
approximately $60,000 were not accounted for, and presumably the bank's
general ledger could not have been balanced unless they were in some manner
accounted for. There was therefore a large discrepancy between the amount of
debited overdrafts reported to the Federal Reserve System and the amount of
overdrawn checks actually paid by the bank.
11

If these exhibits had been received in evidence, the jury could have then
reasonably inferred that not only did the bank's officers know about the
$60,000 of undebited overdrafts which the bank did not report as overdrafts to
the State Banking Department and the Federal Reserve, but also that the bank's
officers considered those overdrafts informally made loans. The jury could
further reasonably have inferred that the bank officers, thus considering the
overdrafts as loans, had authorized Klock to omit posting them as debits against
depositors' accounts. In effect, the defense to the substantive counts of
misapplication of funds was that the bank officials treated the overdrafts as
loans. While perhaps making of loans in this manner may be in violation of
some state law,1a nevertheless it does not constitute a crime under 12 U.S.C.A.
592 or 18 U.S.C. 656, if Klock had no notice of the impropriety.
Defendants were therefore entitled to introduce evidence tending to show that
they were acting in accord with the bank's practice of making loans informally,
and that the bank had acquiesced in Klock's bookkeeping in respect to these
loans.

12

The same reasoning applies to defendants' excluded exhibits of directors'

reports and reports to the State Banking Department.

13

(2) The Clark Trucking Company financial statements:

14

Defendants offered, and the judge excluded, the financial statements of the
Clark Company, audited by a bank officer and in the bank's possession, to
prove that the bank had allowed that company to overdraw its account

repeatedly, had paid the company's overdrawn checks to the payees of the
checks, and had given the company as much as one month in which to make
good these overdrafts. This evidence would have been relevant to show that the
bank had knowledge of overdrafts by its depositors and that the bank had
allowed such overdrafts not only in isolated instances but frequently over a long
period of time. We think the defendants had a right to produce this evidence to
show the existence of a bank policy of allowing overdrafts and, further, had the
right to cross-examine bank officials as to whether they reported to federal and
state officials the Clark Company's overdrafts as overdrafts.
15

(3) Testimony of Bank Officer Aquilino:

16

Defendants sought to introduce testimony of a branch manager of the bank to

the effect that he had, for years, known of a practice of treating overdrafts as
loans. The judge excluded this testimony, reasoning that it was irrelevant since
Potter had no knowledge of the bank's practice in this regard.1b We do not
agree; such testimony would have been relevant to show the bank's policy.

17

(4) The excluded testimony of Barbara Aitken:

18

The stricken testimony of Barbara Aitken, a former bank bookkeeper, would

have been relevant on the same ground. She stated that, in her capacity as
bookkeeper, from 1942 to 1949, she placed checks of the Clark Trucking
Company, drawn on insufficient funds, among the "holdouts" (i. e., did not
debit them), and that she did likewise as to overdrafts by bank officers and
employees and their families. The fact that her testimony covered a period prior
to the indictment period did not make it irrelevant. Cf. Heike v. United States,
227 U.S. 131, 145, 33 S.Ct. 226, 57 L.Ed. 450.

19

Of course, if it is proved at the retrial that Klock was on notice that his
superiors' authorization of overdrafts was beyond their authority because of
some federal or state statute or regulation prohibiting the making of loans by
the method of allowance of overdrafts then Klock's defense of authorization
would not be valid.

20

(B) Under the conspiracy count.

21

As to so much of the conspiracy count as charged a conspiracy to violate 18

U.S.C. 1005, authorization by Klock's superiors could not be a defense; see
our opinion in the companion case of United States v. Klock. But the
conspiracy count also charged violation of 12 U.S.C.A. 592 and 18 U.S.C.

656, as to which (for reasons above noted) such a defense would be good. Since
the jury, in finding defendants guilty under the conspiracy count, did not
separately report their finding concerning guilt or innocence under 18 U. S.C.
1005, we cannot know whether their verdict did or did not rest solely on a
finding that defendants had violated those other sections. In other words, for all
we know, the jury found the defendants innocent of a conspiracy to make false
entries to deceive the bank examiners. We hold, therefore, that the errors in
excluding evidence as to authorization must lead to a reversal and a new trial on
all counts.
22

4. The charge to the jury concerning the defense of authorization.

23

The trial judge's erroneous assumption, on which apparently he based the

exclusion of evidence relating to authorization, seems to have carried over into
his charge on that subject. The judge stated that the testimony, introduced by
defendants, "purporting to show authorization was mainly vague and
inferential." He went on immediately to charge that "authority to commit a
crime is an impossibility." He also gave an instruction, requested by the
government, to the effect that authorization would not alter the criminal nature
of the acts committed by Klock and Potter if they intended to injure the bank.
These instructions may well have created the mistaken impression that
authorization would not be a defense to an accusation of misappropriation of
bank funds. In the light of these instructions, it was surely error to deny several
of defendants' requested charges which would have made it clear to the jury
that no crime was committed if the bank had a policy of permitting the payment
of checks drawn against insufficient funds and the defendant Klock had acted
pursuant to such a policy.1c

24

5. Charge concerning "reasonable doubt."

25

We set forth in a footnote1d that part of the judge's charge relative to

"reasonable doubt." In United States v. Farina, 2 Cir., 184 F.2d 18, 19, 20, we
dealt with a charge which said that "a reasonable doubt * * * is a doubt for
which a juror who says that he has such a doubt about a defendant's guilt, can
give a reason for entertaining." We stated, "Perhaps it was unwise to vary the
customary formulae", but we held the charge not reversible error since no
objection thereto had been made at the trial. Previously, in United States v.
Woods, 2 Cir., 66 F.2d 262, 265, we said: "We do not approve such a
definition" of reasonable doubt, but refuse to reverse. So here, while we do not
hold that the charge amounted to error,2 we think it would be well if, at the new
trial, the judge adhered to the conventional formulation.

26
27

6. Miscellaneous.
Defendants maintain that the judge erred in denying them inspection, until the
government had rested, of important bank files relevant to the authorization
defense. Whether this was error we need not decide. For we are sure that now,
well in advance of the new trial, they will be given access to such data. We
think that the judge unduly restricted cross-examination of government
witnesses, concerning such data; we trust such restrictions will be relaxed at the
new trial.

28

We see no indication of bias against the defendants on the judge's part. We

think the doctrine to which we adverted in United States v. Zeuli, 2 Cir., 137
F.2d 845, 846,3 does not apply here: The charge of conspiracy is not identical
with the crimes charged in the substantive counts; for Klock's crime of
misappropriation could have been committed without cooperation from Potter;
and the aiding and abetting charge against Potter does not duplicate the charge
of conspiracy.4

29

Reversed and remanded for a new trial.

Notes:
1

The pertinent part of 12 U.S.C.A. 592 is substantially the same

1a. We do not know whether this would constitute a violation of state law. The
point was not argued on this appeal, and we will not here pass on that question.
1b. If United States v. Wicoff, 7 Cir., 187 F.2d 886, 889, supports this view, we
do not agree with it.
1c. Defendants' requested instruction No. 22: "If you believe that the defendant
Klock in his job as bookkeeper at the Syracuse Trust Company acted in such a
way as to allow depositors including the defendant Potter to draw checks when
there were insufficient funds in their accounts and that his actions in this regard
were reasonably guided by the policy of the bank and the bookkeeper in his
subordinate position acted under the compulsion of such authority, then you
may find that he was not guilty of misapplying the funds of the bank as alleged
in the indictment."
Requested instruction No. 23: "You must keep in mind that the defendant
Klock was employed at The Syracuse Trust Company as a bookkeeper, which

would not warrant the making of bank policy and if he permitted or caused
checks to be paid against accounts where the funds were insufficient, his acts
may be construed as intending to injure the bank. However, if the payment of
checks by the bank against insufficient funds was a rule rather than an
exception, and a policy was in force which was condoned by officers permitting
the payment of such checks against insufficient funds and that the defendant
Klock acted pursuant to such a policy and it is further shown that the defendant
Klock had no stake in such activity, then there would be no misapplication of
funds as provided by the statute."
Requested instruction No. 24: "The indictment charges, among other things,
that the defendant Klock as an employee of the Syracuse Trust Company,
caused the funds to be misapplied without the knowledge and consent of the
bank or its officials. If you find from a fair appraisal of the evidence that the
defendant Klock acted with the knowledge and approval of the bank or any
officer or person authorized to give such consent or approval, then you must
find that neither defendant had an unlawful intent to injure or defraud the
bank."
1d. "A defendant is not called upon to establish his innocence. The burden of
proving his guilt rests upon the prosecution throughout the trial. He is entitled
to the benefit of a reasonable doubt upon the whole case, upon all the evidence
or lack of evidence in the case, and if there is a reasonable doubt in your minds
as to any material question necessary to conviction, it must be resolved in their
favor.
"But a reasonable doubt, ladies and gentlemen, is not a mere whim, guess or
surmise, nor can it be used as a subterfuge to which resort may be had in order
to avoid doing a disagreeable thing. It is such a doubt as reasonable men and
women like yourselves may entertain after a careful and honest review and
consideration of all the evidence in the case. As it says, it must be grounded in
reason. It must survive the test of reasoning or the mental process of a
reasonable examination.
"This rule does not require that the guilt of the defendants, Klock and Potter
should be established beyond all doubts, because as you realize that would be
an impossibility in many cases. There is nothing human, probably, that we can
say is beyond all doubt. The law only says that the defendants are entitled to the
benefit of a reasonable doubt, not all doubt. A reasonable doubt is such a doubt
that a man of reasonable intelligence can give some good reason for
entertaining if he is called upon to give a reason. It cannot be imaginary or
unsubstantiated.

"Now, if the evidence establishes the guilt, the proof of guilt to a reasonable
and moral certainty, a certainty that convinces and directs your understanding
and satisfies your judgment beyond a reasonable doubt, then it becomes your
duty to render a verdict of guilty against either defendant or both defendants for
the crimes charged."
2

For reasons stated in his dissenting opinion in United States v. Farina, 2 Cir.,
184 F.2d 18, 19, 21, as well as Gomila v. United States, 5 Cir., 146 F.2d 372,
and Pettine v. Territory of New Mexico, 8 Cir., 201 F. 489, the writer would
hold the charge reversible error but concurs here because of this Circuit's
precedents

There we said: "Lower Federal courts have several times decided that, if a
crime necessarily involves the mutual cooperation of two persons, and if they
have in fact committed the crime, they may not be convicted of a conspiracy to
commit it. * * * Although the Supreme Court has never actually so decided, it
has twice clearly approved the doctrine; and we accept it as settled law."

Pinkerton v. United States, 328 U.S. 640, 66 S.Ct. 1180, 90 L.Ed. 1489; Nye &
Nissen v. United States, 336 U.S. 613, 69 S.Ct. 766, 93 L.Ed. 919