297 F. 277 (E.D.N.C. 1924), 456, Blount v. Farmers' Bank of Greenville, N.C.

Docket Nº:456.
Citation:297 F. 277
Case Date:February 12, 1924
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 277

297 F. 277 (E.D.N.C. 1924)





No. 456.

United States District Court, E.D. North Carolina.

February 12, 1924

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Skinner & Whedbee, of Greenville, N.C., for plaintiff.

Small, MacLean & Rodman, of Washington, N.C., and Albion Dunn, of Greenville, N.C., for Farmers' Bank of Greenville.

Lewis G. Cooper, of Greenville, N.C., for Southern Stockyards Corporation.

CONNOR, District Judge.

The bill, answers, plea of intervention, and evidence disclose the following facts:

R. W. Wingate, of Ayden, N.C., at some time during the month of September, 1919, applied to the cashier of the Farmers' Bank of Greenville, N.C., for a loan of money. At that time Wingate was engaged in buying and selling horses and mules, maintaining for that purpose a sale stable. The bank had theretofore made several loans to him, for the security of which he had deposited notes and chattel mortgages on horses and mules. The bank, in connection with its other banking business, was representing the Virginia-Carolina Joint-Stock Land Bank, of Norfolk, Va., receiving applications for loans secured by mortgages upon real estate in Pitt county. Mr. Clodfelter, cashier, stated to Wingate that the loan which he desired was for a larger amount than the bank was in a position to make, and that, in view of his financial condition, he would require a longer credit than the bank could extend. He suggested that Wingate negotiate a loan from the Virginia-Carolina Joint-Stock Land Bank, of Norfolk, Va., for an amount sufficient to retire certain mortgages, then outstanding, on his land, and give him a surplus to meet his business needs, to which Wingate assented; Clodfelter proposing that he would aid him in negotiating the loan. A short time after this conversation, the secretary of the Land Bank, at Norfolk, Va., came to Greenville, saw Wingate and Clodfelter together, and the necessary steps were taken looking to securing the loan.

On September 19, 1917, application, upon blanks furnished by the Land Bank, was filled up, signed by Wingate, and delivered to the secretary or other appropriate officer or agent of the Land Bank. The application was introduced and a copy thereof filed herein. The amount of the loan applied for by Wingate was fixed at $37,500. The application contained a list of the tracts of land and the estimated value thereof, proposed to be conveyed by way of security for the proposed loan, together with a list of the incumbrances, mortgages, etc., thereon, represented to be $13,000. An appraisal of the land was made by the representatives of the Land Bank, and upon their report the

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executive committee of the Land Bank, on December 29, 1919, filed their report recommending that the bank make the loan.

The attorney for the Land Bank made an abstract of the title to the land, with a statement that the incumbrances thereon were $13,000. On April 1, 1920, Richard Wingate and his wife executed and delivered to the Land Bank their promissory note for $37,500, payable in 40 semiannual installments, including interest, of $1,622.25 each, and at the same time executed and delivered to the Guaranty Title & Trust Corporation a mortgage to secure the payment of said note, conveying the land described in the application, being a portion of the Gum Swamp tracts, which was admitted to probate and recorded in the office of the register of deeds of Pitt county, N.C., April 12, 1920, in Book Q 13, p. 411.

P. L. Clodfelter, cashier of the Farmers' Bank of Greenville, testified that several days after the suggestion was made by him to Wingate to apply for the loan, and 'while the application was in process, and after Wingate had agreed to borrow the money from the Land Bank, he, as cashier for the Farmers' Bank, loaned Wingate $8,000, for which Wingate executed his note to the bank. It was agreed between Wingate and wife and himself that, if he would advance this $8,000, they would cause the money loaned by the said bank to be put in his hands for this loan, so that he (Clodfelter) could get this particular money first. Witness was assured by F. W. McKinney, secretary of the Land Bank, that the loan would go through. Witness would not have made the advance of $8,000, except for the fact that this application was being made and the assurance that it would go through.

Before the executive committee of the Land Bank approved the loan, witness told them of this transaction. After McKinney told witness that the loan would go through, he advanced Wingate, November, 1919, $10,000, in addition to the loan of $8,000. This amount was loaned upon the agreement that the money was to be paid out of this particular loan from the Virginia-Carolina Joint-Stock Land Bank. This agreement was made between Mr. Clark, attorney for the Land Bank, Mr. McKinney, and the Land Bank, on one side, and Richard Wingate, on the other. The money was to be deposited in the Farmers' Bank, so that witness could get his money out of this loan. Wingate testified that it was his understanding with Clodfelter that from the proceeds of the loan, which he expected to receive from the Land Bank, the prior mortgages on the land were to be paid off first, and then the loans made by the Farmers' Bank were to be paid; that the money, proceeds of the loan, was to be sent by the Land Bank to the Farmers' Bank for that purpose. This is corroborated by McKinney and Clark. It was clearly understood by and between all of the parties that, when the loan was made by the Land Bank, the money was to be sent to the Farmers' Bank of Greenville, and the mortgages on the land paid and canceled, under the supervision of Mr. Clark, attorney for the Land Bank, and the notes for amounts advanced by the Farmers' Bank for $8,000 and $10,000 were to be paid from the proceeds of the loan. Mr. McKinney thus describes the process by which the loans were secured from the Land Bank:

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'Applications are received from the landowners and farmers, and the next step is to forward these to the federal farm loan appraisers, for the government, to arrange about the bonding. If this report is given and acceptable to applicant, the recommendation is given to the Land Bank and handled by the finance committee, to recommend or approve. The machinery provides that, before this Federal Farm Loan Bank may realize out of this collateral, the bonds are to be issued by the bank and certified to the district of the government. The application must be approved by the so-called board of Federal Land Bank; but we can approve it, and not wait for that, as, for instance, in this Richard Wingate loan, for the purpose of facilitating the loan, we had notes prepared for our own protection. When a mortgage has been finally approved by the Farm Loan Bureau in Washington. in amount of say $50,000, they may be forwarded to district Farm Land Banks. It would return the bond to us for our treasury, and thus the business can automatically be carried and secured.'

There was delay in perfecting the arrangement for completing the loan and securing the money, occasioned to some extent by the litigation pending in the federal court, involving the validity of the federal Land Bank Act of July 17, 1916 (Comp. St. Sec. 9835a, et seq.), resulting, February 28, 1921, in the decision of the case of Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 41 Sup.Ct. 243, 65 L.Ed. 577. During this time the value of lands in eastern North Carolina depreciated very heavily, occasioning doubt, whether, when the litigation came to an end, the Land Bank would make the loan. Wingate renewed his notes to the Farmers' Bank, under the same agreement, as to the application of the money expected from the loan, made at and before the loans were made. On December 24, 1920, Mr. W. A. Dunn, attorney for the Farmers' Bank wrote Mr. McKinney as follows:

'Dear Sir: The Farmers' Bank of this city has requested me to write you with respect to note of $37,500, executed by Mr. R. Wingate, of Ayden, Pitt county, N.C., to your bank. Mr. Clodfelter, cashier of Farmers' Bank, advises me that Mr. Wingate borrowed from said bank, for himself and his firm (R. Wingate & Son), sums aggregating $18,000, with the express understanding that said amounts were to be repaid out of loan which Mr. Wingate expected to secure from your bank, and on account of which he executed the note of $37,500 above referred to, secured by mortgage upon real estate in the county, with the further understanding that if, for any cause, the loan was not consummated, the note would be transferred to the Farmers' Bank, as additional and cumulative security to that given by Wingate to the bank at the time the loan of $18,000 was made.

'As I am advised, the loan from your bank was never consummated, although the note and mortgage from Wingate and wife to you, or the bank, was duly executed, and that the note is now in possession of your attorney, D. M. Clark, Esq., of Greenville, and the mortgage or trust remains uncanceled of record. Under the above circumstances, the Farmers' Bank is requesting that the note of $37,500 be transferred to it, as additional and cumulative security and I have advised Mr. Clodfelter that, under the circumstances surrounding the loan of his bank to Wingate, he is clearly entitled to be subrogated to the lien of the mortgage which you hold, in which view I have no doubt that you will agree.

'The Farmers' Bank is therefore insisting that the trust securing the note of $37,500 remain intact, and continue a valid and subsisting lien upon the property secured thereby, and I presume there will be no effort on your part to have the paper canceled, but, on the contrary, will co-operate with the Farmers' Bank to the extent that it may secure to...

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