Peoples National Bank of Winston-Salem v. Southern States Finance Co.

192 N.C. 69

• Court: Supreme Court of North Carolina
• Decided: June 9, 1926
• Status: Published

Opinion

CowNOR, J.

Defendant admitted, in its answer, the execution by J. H. Mackie, and the endorsement by the Southern States Finance Company, of the note set out in the complaint. This note contains the following provision: “Each drawer, endorser, or surety hereby severally waives presentment for payment, notice of protest, or of nonpayment by principal, and hereby agrees to any extension of time given to them or either of them.” The note bears the following endorsement: “Pay to the order of Peoples Bank at Winston-Salem, N. C., Southern States Finance Company. J. R. Cherry, Treas.” It is admitted that the principal has not paid the note; defendant, Southern States Finance Company, by reason of its endorsement, is liable to plaintiff on the note, unless the defense set up in its answer relieves it of such liability. By its endorsement and waiver it engaged that upon dishonor by failure of the principal to pay the note when due, it would pay the same. 0. S., 3047. The burden of establishing, by evidence, the facts relied upon in said defense is upon the Southern States Finance Company.

J. R. Cherry, witness for defendant, testified: “I am secretary and treasurer of the Southern States Finance Company. I had a conversation with Colonel Blair over the phone prior to 6 March, 1924, before writing a letter to him of that date. I called the Peoples Bank of Winston-Salem and asked for Colonel Blair. I told Colonel Blair that Mr. Penry had called on us in behalf of a party living in the vicinity of Winston-Salem who wanted some of our stock; that we knew nothing of this party and-wanted him to get a line on the party for us. I told Colonel Blair that the man in question was J. H. Mackie, of Yadkin. He said he knew Mr. Mackie; he had not been in close touch with him for some time, but he knew of two lawyers in Winston-Salem who had recently done some work for him. He was sure he could get a good report from them. Colonel Blair said that these two lawyers were Mr. Hall and Mr. Holton. He said he would get a report and call us later. At the expiration of about an hour and a half Colonel Blair called back and said he had been out to seé Mr. Hall and Mr. Holton; that they both said that Mr. Mackie was possessed of considerable property, was a man of good standing, of good reputation; that he had the reputation of meeting his contracts as made. •

“We did not handle the proposition at that time. Later in the afternoon we called Colonel Blair again, and told him that there was another phase of the transaction we hadn’t got straight; that we understood his bank was going- to purchase this note. He said, ‘Well, I will have to look further into that phase of it.’ He called us back later, and said he would purchase the note. We endorsed the note and sent it to Winston-Salem by Mr. Penry. That was on Monday, 3 March, 1924. On said day .1 wrote a letter addressed to ‘Col. W. A. Blair, vice-president, Peoples National Bank,.Winston-Salem, N. C.,’ as follows:

“ 'Today we have endorsed a note to J. H. Mackie, of Yadkinville, in tbe sum of $16,500 to tbe order of your bank, wbicb was given to us for a like amount of common stock in tbis company. Tbe purpose of tbis letter is to.insure tbis company against any possible miscarriage of certificates of deposit on your bank in lieu of said note-and wbicb we would tbank you to issue to us as follows: Seven certificates for $2,000 eacb, and tbe balance of $2,500 in one certificate.

“ 'Tbe party making tbis purchase is undoubtedly a responsible one, but in view of bis residence being somewhat removed from tbe place of our location, we thought it best to take tbis means of apprising you of tbe transaction and in making tbe request that you send tbe certificates for tbis note when presented, and wbicb we understand will be done through Mr. Penry.’

“On 6 March, 1924, we received letter from Colonel Blair, of that date, acknowledging receipt of my letter. On said date I wrote Colonel Blair, vice-president, Peoples National Bank, as follows:

“ 'Since bearing from you over tbe long-distance telephone today we bad a call from Mr. Penry bringing in tbe certificates of your bank for $16,500 in lieu of tbe note for tbe same amount made by J. H. Mackie.

“ 'In view of tbe fact that your bank has issued tbe certificates and because of tbe favorable information you have received about Mr. Mackie’s responsibility, we have concluded that you were satisfied in tbe matter and accordingly we have issued tbe stock to Mr. Mackie. We will tbank you to confirm our understanding from you that you regard tbe paper as being all right.’

“The Peoples National Bank was a member of our Advisory Bank, and Colonel Blair of tbe bank was tbe officer in tbe bank who was to furnish us information. Tbe advisory board contract was in writing. The Peoples National Bank was our depository in Winston-Salem. We carried funds on deposit, and tbe bank made installment collections as they became due.

“There was no conversation between me and Colonel Blair as to what was to be done with tbe certificates of stock issued to Mr. Mackie. I told Colonel Blair that tbe stock was to be held by bis bank behind tbe Mackie note until tbe note was paid. I mean by 'behind tbe Mackie note,’ in a measure collateral. I suppose you would say as a collateral note. It was to be held as security to tbe note; tbe note, however, was not a collateral note. I gave tbe certificates issued to Mackie to Penry to take to tbe bank.”

There was evidence offered by defendant tending to show that in February, 1924, J. H. Mackie, E. W. Hanes, Webb S. Alexander and others who had been associated with them in business transactions, were indebted to plaintiff as makers or endorsers on various notes aggregating $15,590.56, held by plaintiff. That these notes were due and that plaintiff had brought suit in the Superior Court of Forsyth County to recover the amounts due on said note. All of these notes were paid on 10 March, 1924, from the proceeds of a note for $16,500 dated 29 February, 1924, executed by F. W. Hanes and payable to plaintiff. This note was secured by the certificates of stock issued by defendant to J. H. Mackie. These certificates were delivered by Mackie to Hanes, who attached same to his note- and then delivered his note with said certificates attached thereto, to Alexander. Alexander delivered the note and certificates to Colonel Blair, vice-president of plaintiff, who accepted the same in payment of the notes of Mackie, Hanes, Alexander and others held by plaintiff. A payment has been made on the Hanes note from the proceeds of the sale of the certificates deposited as collateral thereto.

There yras also evidence offered by defendants tending to show that in February, 1924, and for some time prior thereto, J. H. Mackie was insolvent; that many judgments aggregating a large sum had been docketed against him in Yadkin County, that executions on some of these judgments had been issued and returned unsatisfied; that he was a man of good character and reputation; that he was in possession of considerable real estate of large value, the title to which was in his wife and children. He was at one time treasurer of Yadkin County. Both Messrs. Holton and Hall, as witnesses for defendant, testified that in February, 1924, Colonel Blair saw them on the streets of Winston-Salem, and asked each of them as to the general character of J. H. Mackie; that each told Colonel Blair that Mackie was regarded as a man of good character; that neither of them told Colonel Blair that Mackie was solvent.

There was also evidence that the certificates of stock issued to J. H. Mackie by the Southern States Finance Company were delivered to Mackie at his home in Yadkin County by S. F. Penry, together with a letter dated 6 March, 1924, signed by the president of defendant company and containing the following paragraph:

“We are pleased to extend to you a hearty welcome as a stockholder in this corporation, having just received your subscription for $16,500 worth of our common stock, which we are sending to you with this letter.”

There was much additional evidence relied upon by defendant to sustain its contentions. Plaintiff offered evidence tending to- contradict witnesses for defendant in many respects and to rebut inferences which defendant contends that the jury might draw from all the evidence. ¥e do not deem it necessary for a decision in this case to set out this evidence.

Plaintiff assigns as error the refusal of the court to allow its motions, made first at the conclusion of defendant’s evidence, and upon being then overruled, renewed at the conclusion of all the evidence, for judgment as of nonsuit upon defendant’s defense to its action on the note, set out in the complaint, and for judgment, upon the admissions in the pleadings, that plaintiff recover of defendant in accordance with its prayer.

The gist of the defense, relied upon by defendant, and submitted to the jury upon the first and second issues, is the allegation that plaintiff, in violation of -the confidence which it knew defendant had in plaintiff, by reason of their relations, and with intent to cheat and defraud defendant, made false and fraudulent representations to defendant, as to the solvency and financial condition of J. H. Mackie, and thereby caused defendant to issue certificates for its common stock worth $16,500, and to accept in payment therefor the note of J. H. Mackie for that sum.

Plaintiff is a corporation, organized and doing business under the National Bank Act; it has only such power as is conferred by that act. It has, pursuant to said act, power “to exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange and other evidences of debt; by receiving deposits; by buying and selling exchange, coin and bullion; by loaning money on personal security, and by obtaining, issuing and circulating notes according to the provisions of this title.” National banks have no powers beyond those expressly granted or those fairly incidental thereto. Westervelt v. Mohrensticher, 34 L. R. A. (N. S.), 477; 76 Fed., 118; Myers v. Exchange National Bank, L. R. A., 1918A 67, 96 Wash., 244, 164 Pac., 95; Commercial Bank and Trust Co. v. Citizens Trust & G. Co., 45 L. R. A. (N. S.), 950, 153 Ky., 566, 156 S. W., 160; Commercial National Bank v. Price, 82 Fed., 802. A national bank has no power to engage in the business of furnishing to depositors or to others gratuitously or for compensation, direct or indirect, information as to the solvency, or condition or reputation, financial or otherwise, of persons, firms or corporations. An agreement to furnish such information is ultra vires; one, with whom a national bank may have entered into such an agreement, is presumed, conclusively, to know that he acquires no rights thereby, which may be enforced against the bank. Every one dealing with a national bank does so with notice of, and subject to, the powers conferred, and the limitations imposed by the law of its creation. Flannagan v. Cali fornia National Bank, 23 L. R. A., 836, 56 Fed., 959. A corporation, organized and engaged in the banking business, whether under the National Bank Act or under the laws of the State, can assume no liability, without acquiring assets to offset the same. The interests not only of depositors and stockholders, but also of the public, can be safeguarded only by a rigid and consistent enforcement of this salutary rule. It has been held by this Court, both upon principle and upon uniform authority to that effect, that a banking corporation cannot lend its credit to another by becoming surety, endorser or guarantor for him. Quarries Co. v. Bank, 190 N. C., 277. A national bank cannot lend its credit to another by becoming surety, endorser, or guarantor for him. Merchants Bank v. Baird, 17 L. R. A. (N. S.), 526, 160 Fed., 642. It may, however, guarantee the payment of commercial paper as incidental to its power to buy and sell the same. Thomas v. City National Bank, 24 L. R. A., 263, 40 Neb., 501, 58 N. W., 943. It will be held liable on an endorsement or guaranty, to the extent, at least, of the consideration, if any, which it has received. Appleton v. Citizens Central National Bank, 32 L. R. A. (N. S.), 543, 190 N. Y., 417, 83 N. E., 470; Trust Co. v. Trust Co., 188 N. C., 766, 125 S. E., 536, 37 A. L. R., 1368. There is evidence in this record that the Peoples National Bank of Winston-Salem was a member of the advisory board of defendant, Southern States Finance Company. There is no evidence, however, tending to show what obligations plaintiff undertook to assume by the contract establishing that relation. The contract is in writing; it was not offered in evidence. There is evidence that defendant was a depositor of plaintiff; no obligation, however, arose from this relation on the part of plaintiff to furnish information to defendant as to the solvency or financial condition of Mackie. There was no relation between plaintiff bank and defendant which imposed upon the plaintiff any duty to answer inquiries about J. H. Mackie.

There is evidence that Colonel Blair, who was vice-president of plaintiff bank, had been accustomed to answer inquiries made by defendant relative to persons residing in Winston-Salem, or its vicinity, in whose notes or other obligations defendant-was interested as a prospective purchaser. Some arrangement had been made by defendant with Colonel Blair for this service. There is no evidence, however, that Colonel Blair, in rendering this service to defendant, was acting or undertaking to act for plaintiff. Plaintiff had no interest in these persons, or in the notes which defendant proposed to purchase. Colonel Blair was not serving or undertaking to serve the bank, in answering defendant’s inquiries. There is no evidence that at the time of the inquiry by defendant relative to Mackie, plaintiff had any interest in the note which Mackie had executed, payable to the order of defendant. In answering the inquiry relative to Mackie, Colonel Blair was serving defendant and not the plaintiff. It was beld in Taylor v. Commercial Bank, 62 L. R. A., 783, 174 N. Y., 181, that a bank cashier is not acting witbin the scope of his authority in giving information as to the value of notes executed hy customers of the bank so as to render it liable in case the statements prove to be untrue. See Bank v. Smith, 77 Fed., 129.

The distinction between the acts of Colonel Blair when acting for defendant and when acting for plaintiff, is made clear by the testimony of Mr. Cherry, secretary and treasurer of defendant. . When asked to secure information as to Mackie, Colonel Blair proceeded to act at once. When asked if the bank would purchase the note, he replied: “Well, I will have to look further into that phase of the matter.” There is evidence that before giving a reply to the latter inquiry, he submitted the matter to the finance committee of the plaintiff, and replied only after the committee had authorized the purchase of the note.

We must therefore hold that upon all the evidence appearing in this record, plaintiff cannot he held liable for any loss or damage which defendant may have sustained by reason of the falsity of any representation which Colonel Blair may have made with respect to J. H. Mackie or by reason of his failure to disclose to defendant any facts within his knowledge with respect to Mackie. Defendant having failed to sustain its allegation in this respect, must fail in its defense involved in the first and second issues.

There is no evidence to sustain an affirmative answer to the third issue, which involves the allegation that plaintiff agreed to hold the certificates of stock issued to Mackie as collateral security for his note, transferred hy the endorsement of defendant to plaintiff. These certificates were delivered to J. H. Mackie, and not to the plaintiff, by S. E. Penry, agent of defendant. The note was not in the form of a collateral note; the certificates were not delivered to plaintiff hy defendant, and defendant’s letter to J. H. Mackie, signed by its president, is evidence contradicting the contention of defendant with respect to the third issue.

There was error in the refusal of the court to allow plaintiff’s demurrer to defendant’s evidence offered to sustain its defense and submitted to the jury on the first, second and third issues. Upon all the evidence, the court should have directed a verdict in favor of plaintiff on all the issues. Lester v. Harward, 173 N. C., 83. There must therefore he a

New trial.

ClaeksoN, J., dissenting.