Union Nat'l Bank v. Hunt

• Decision Date: 08 April 1879
• Citation: 7 Mo.App. 42
• Parties: UNION NATIONAL BANK, Respondent, v. CHARLES L. HUNT ET AL., Appellants.
• Court: Missouri Court of Appeals

7 Mo.App. 42

UNION NATIONAL BANK, Respondent,

v.CHARLES L. HUNT ET AL., Appellants.

St. Louis Court of Appeals, Missouri.

Apr. 8, 1879.

1. To establish a defence founded upon false and fraudulent representations, it must be shown that the representations were false in a material matter, and made with the intent to deceive in regard to matters peculiarly within the knowledge of the party making them, that they were relied upon by the defendant, furnished his motive for entering into the contract, and that he used ordinary vigilance to ascertain the truth.

2. Where a bank purchases its own stock to protect itself from loss upon a debt, it is bound to sell the stock within six months, and may sell on credit and take the purchaser's note, with the stock sold as collateral to secure it, provided this is done in good faith.

3. An abuse of the corporate powers is not a sufficient defence to such a note The question of misuser will not be decided collaterally by setting aside a sale otherwise good.

APPEAL from St. Louis Circuit Court

Affirmed.

NOBLE & ORRICK, for appellants: The bank is chargeable with fraudulent acts and representations done and made for the purpose of effecting the sale.-- Bank v. Peck, 29 Conn. 384; Wannall v. Kem, 57 Mo. 478; Bank v. Gregg, 14 N. H. 331; Hatch v. Taylor, 10 N. H. 538. If representations of the character set forth in the answer were material, were false, were known to be false, and were made to induce the purchase, and relied on by the purchaser, they avoided the sale.-- Brown v. North, 21 Mo. 528; Joliffe v. Collins, 21 Mo. 338; City Bank v. Phillips, 22 Mo. 85; Irving v. Thomas, 18 Me. 418; McClellan v. Scott, 24 Wis. 81. Misrepresentation need not be made by the party whom it benefits, in order to constitute a fraud as against him.--2 Pars. on Con. ^*779, ^*780; Warner v. Daniels, 1 Woodb. & M. 90; Howes v. Delamor, 3 Ired. Eq. 219; Bowen v. Johnson, 10 Smed. & M. 73; Lawrence v. Hand, 23 Miss. 105. It is not necessary to a charge of fraud that the party deceived might have discovered the truth by proper inquiry.-- Central R. Co. v. Kisch, L. R. 2 H. L. 99, 120; Vigers v. Pike, 8 Cl. & Fin. 562, 650; Wilson v. Short, 6 Hose, 366, 375. Contracts made as to banking, in violation of charter, void.-- Downing v. Ringer, 7 Mo. 585; Pelz v. Long, 40 Mo. 532; Carson v. Hunter, 46 Mo. 467; Bank of Lawrence v. Young, 37 Mo. 398; Griffith v. Commonwealth Bank, 4 Mo. 255; 30 Mo. 183; White v. Franklin Bank, 22 Pick. 181; Brown v. Tarkington, 3 Wall. 381. When a contract is prohibited, whether expressly or by implication, it is illegal, and cannot be enforced.-- Beasley v. Bignold, 5 Barn. & Ald. 335; Foster v. Taylor, 5 Barn. & Adol. 887; Cope v. Rowlands, 2 Mee. & W. 149.

JAMES O. BROADHEAD and WILLIAM F. BROADHEAD, for respondent: The purchase of its own stock by the bank, and its sale thereof on credit, taking the stock as collateral to secure the note taken for the stock, is not a violation of the bank's charter, and these facts constitute no defence to an action on the note.-- Steam Nav. Co. v. Weed, 17 Barb. 378; 16 Cal. 255; Bank v. Hammond, 1 Rich. 281; Insurance Co. v. Lanier, 5 Fla. 164; 16 Serg. & R. 144; Little v. O'Brien, 9 Mass. 423; Fleckner v. Bank, 8 Wheat. 338. An abuse of corporate powers in making a contract will not enable the other party to avoid payment under it.-- Insurance Co. v. Insurance Co., 7 Wend. 31; Glass Co. v. Dewey, 16 Mass. 94; Railroad Co. v. Proctor, 29 Vt. 93; Abb. Dig. Corp. 245, sect. 305, referring to 4 Johns. Ch. 370; Silver Lake Bank v. North, 6 Hill, 33; The State v. Woram, 5 Hill, 137; Bank v. The President, 11 Barb. 213. Representations, expressions of opinion, and commendation of the subject of the contract, even if false and groundless, constitute no defence.-- Mooner v. Miller, 102 Mass. 247; Manning v. Albee, 22 Allen, 522. “In order to made a representation a ground for an action of deceit or fraud, or for a defence, it must be shown that it was known to be false, and made with intent to deceive.”-- Peers v. Davis, 29 Mo. 184; 64 Mo. 531.

BAKEWELL, J., delivered the opinion of the court.

This is an action on a promissory note made by the defendant Theodore Hunt and indorsed by Charles L. Hunt. There is an allegation that the indorser waived demand and notice. As to this the jury found for the indorser, and as to his liability nothing more need be said. The petition alleges that the defendant Theodore Hunt purchased of Aull & Pollard one hundred shares of stock in the bank of the corporation plaintiff, at eighty cents on the dollar, in consideration of which a note at four months for $8,000, made by Theodore and indorsed by Charles Hunt, was given to Aull & Pollard, and the stock transferred to Theodore Hunt; that the note was as signed to plaintiff for value, before maturity, by Aull & Pollard; that at the maturity of that note, defendants requested an extension, and in consideration thereof executed the note in suit, which is dated June 4, 1873, and is for the same amount and time as the note of which it is a renewal.

The defendants admit the execution and indorsement of the note in suit, and that plaintiff was a banking corporation under the laws of the United States; and deny the other allegations of the petition, and set up two distinct grounds of affirmative defence. First, they say that the plaintiff had purchased seven hundred and eighty shares of the stock of its own corporation, in violation of the act of Congress which prohibits such a bank to purchase or hold its own shares, or to make a loan upon them, except such security or purchase shall be necessary to prevent loss of a debt previously contracted in good faith; and that, having and illegally holding these shares, plaintiff contrived that one hundred of these shares should be regarded as the property of Theodore Hunt, and that he should borrow from the bank $8,000 on such shares, and deposit them as collateral security for his note; and that the note sued on was a renewal of the note given to carry out this illegal transaction, and represents a discount made by the bank on the security of its own shares, in violation of law. The second affirmative defence is that the note was obtained by false and fraudulent representations, and that the consideration has failed. The particulars of this defence are set out in the answer with great detail.

The testimony of Charles Hunt was to the effect that he is the father of his co-defendant, Theodore Hunt; that he was on terms of intimacy with Aull, the president, and with Pollard, the vice-president of plaintiff, and with some of the directors; that he kept his account in plaintiff's bank; that his son Theodore, a man of about thirty years of age, had a separate estate, owned five shares in plaintiff's bank, was on intimate terms with the officers of plaintiff, and kept his account in plaintiff's bank; that Pollard, in the presence of Aull, represented to Charles Hunt that the bank had been compelled to purchase from the estate of O'Fallon & Hatch, in bankruptcy, a large number of its own shares; that this had been done by the bank to protect itself, O'Fallon & Hatch being very heavily indebted to the bank. Pollard said that he was desirous to sell these shares to friends of the directory; and mentioned two or three men who would take one hundred shares each. The bank, Pollard said, was in a flourishing condition, making money; its shares were selling at eighty-two, and were worth a hundred, and would soon be sought for at that price. Pollard requested Charles Hunt to get his son Theodore to take one hundred shares, out of friendship for the officers of the bank; the dividends would pay the interest. Pollard said that Theodore would never be called upon to pay the note; that if he did not wish to hold the shares, they would find some one to take them off his hands. This conversation was repeated by Charles Hunt to Theodore, word for word, without advising him in regard to the matter. Charles Hunt told his son that if he desired to comply with Pollard's request, he, Charles, would indorse the note. From his intimate friendship with Pollard, Charles Hunt believed that he was not deceiving him in these statements. The note was executed and indorsed; the certificates of stock were assigned by Theodore in blank, and the note and stock were rolled up together and put away in the vaults of the bank by Aull & Pollard, with the remark that if Theodore wanted the stock at any time for sixty or ninety days, to raise money on it, he could have it. The testimony of Theodore Hunt corroborated that of his father. He said he relied implicitly on Pollard's statements; that he did not want the stock, and had no idea of buying it, except to accommodate his friend Pollard; that the statement that the stock would soon be worth a hundred did not influence him, except so far as it went to show that there was no risk. When the first note matured, he had a considerable sum in plaintiff's bank, and Pollard asked him whether he would pay anything on the note Theodore said of course he would not. Pollard said, “All right. I thought perhaps you might wish to do so.” The note was then renewed by the note in suit. Theodore paid accrued interest by his checks on plaintiff. He did this anticipating a dividend. The dividend was credited to him. He voted the stock on one occasion, when the question was as to the bank's going into liquidation. The bank failed in October, 1873, just before the maturity of the note sued on. Pollard died about a month after the failure.

There was evidence in the case from which a jury might infer that this stock at the time of the transaction belonged to the bank, being a part of seven hundred and eighty shares purchased by the bank, in the name of Aull & Pollard, from the assignee of O'Fallon & Hatch, to protect the bank, and to prevent loss from a bona fide indebtedness of the bankrupts to the bank. There was also evidence tending to show...