FARMERS'& MINERS'BANK v. Bluefield Nat. Bank

• Decision Date: 12 January 1926
• Docket Number: No. 2413.,2413.
• Citation: 271 US 669,11 F.2d 83
• Parties: FARMERS' & MINERS' BANK et al. v. BLUEFIELD NAT. BANK. et al.
• Court: U.S. Court of Appeals — Fourth Circuit

11 F.2d 83

271 US 669

FARMERS' & MINERS' BANK et al. v. BLUEFIELD NAT. BANK. et al.^*

No. 2413.

Circuit Court of Appeals, Fourth Circuit.

January 12, 1926.

William H. Werth, of Tazewell, Va., for plaintiffs in error.

D. E. French (French, Easley & Easley, of Bluefield, W. Va., on the brief), for defendants in error.

Before WADDILL, ROSE, and PARKER, Circuit Judges.

ROSE, Circuit Judge.

The parties occupied below the same relative positions as they do here; that is, the Farmers' & Miners' Bank, a Virginia corporation, and H. M. Browning, its receiver, a citizen of that state, were the plaintiffs, and the defendants were the Bluefield National Bank, a national banking association located and doing business in West Virginia, and R. B. Parrish, its active vice president and its chief executive officer, who was a citizen of the latter state. We will refer to them by the positions they occupied below.

The suit was to recover $8,000 and interest, the aggregate amount of two notes for $4,000 each, held by the plaintiff bank. The Tazewell Timber Corporation was the maker of these notes. They were each indorsed by two other corporations, neither of whom are parties to this cause. They are not indorsed by either of the defendants, nor is it contended that either of them ever in writing assumed any liability with reference to the paper in question. The plaintiffs' claim to recover is based upon what it asserts was an oral guaranty given its then cashier, one Wylie, by the defendant, through Parrish. Wylie testified and gave his version of what happened.

Some time in 1920 and before August 2d, he had a conversation with Parrish. He says that the latter then told him the Tazewell Timber Corporation wished to open an account with the defendant bank and desired a line of credit for $50,000. At that time, as both of them knew, the combined capital and surplus of the defendant bank was around $110,000, so that the maximum loan which the statute permitted it to make to any one borrower was in the neighborhood of $11,000. In answer to a question in cross-examination, he stated that Parrish said the defendant bank could not grant the credit asked for unless it could get other banks to carry a portion of it. In this connection the witness testified that he supposes that Parrish asked him if the plaintiff bank could not carry part of the loan for "him" (Parrish), and that he replied that his bank would be glad to do so. Wylie remembered that Parrish talked to him about the financial condition of the Tazewell Timber Corporation and its proposed indorsers, but he said if Parrish handed him correspondence and financial reports concerning them he (the witness) just glanced at them. At one time he testified that Parrish said he would see that the notes were paid, but that appears to be his understanding of the effect of what was said, for the exact words of Parrish, according to the witness, were: "Whenever the board of directors of the Farmers' & Miners' Bank wanted the notes paid, he would have them taken up." He added that he did not remember whether Parrish said anything about placing them at other banks at that time or not.

Following this conversation, on August 2, 1920, Parrish wrote plaintiff bank a letter in which he said: "Inclosed you will find two notes of Tazewell Timber Corporation of $4,000 each at 90 days. These are the notes that I spoke to you about some time ago. I hope you can use both of them for us and if so please credit our account with the proceeds, $7,878.40." When the notes arrived the plaintiff bank was rather short of funds and could not conveniently handle both of them. It returned one and discounted the other, putting the net proceeds, $3,939.20, to the credit of defendant bank and so advised the latter. Shortly thereafter witness was again in Bluefield and saw Parrish, whom he told that if he would return the other note it would be discounted also, and this was done; the entries concerning it being of the same kind as those made with reference to the note first discounted. In this second interview with Parrish, the latter said that both notes had been charged by the defendant to the plaintiff bank on August 2, when they were both sent down to it and the matter had since been held in abeyance. The two banks, plaintiff and defendant, had a running account between themselves, the items of which were reconciled from time to time by the transfer of funds through credits in any other bank, as might be desired by the plaintiffs or by defendant. Defendant never drew directly on plaintiff by check or draft, the account being handled by offsetting the entries carried. The defendant never drew a check against the two specific credits given on account of the two notes in question. Their maker never had any deposit account in the plaintiff bank, and the notes were not charged or their proceeds credited to it.

Wylie says that the notes were reported by him to the discount committee and directors of plaintiff bank, and those gentlemen knew that the notes were not indorsed by the defendant bank and that the witness had discounted them at the request of Parrish for the Tazewell Timber Corporation. At one time in his cross-examination and in answer to the question why he had not requested defendant's indorsement, he said, "Well, that is a question hard for me to answer." At another time, he testified that "he had not asked for an indorsement, because I took Mr. Parrish's word * * * that he would take the paper any time I called on him for doing it." He explained that if the defendant bank had indorsed the notes, it would have been a contingent liability, and "I do not think he" (Parrish) "wanted that." "If they had been indorsed, they would have had to have reported them as a contingent liability." It may be said, and the observation is our own, that the valid guaranty of their payment would equally have created a contingent liability for them; the only practical difference being that they were not as likely to come to the attention of the bank examiners.

For the moment, and for the moment only, let it be assumed that what Wylie testified Parrish said amounted to a guaranty on behalf of the defendant bank of the payment of the notes. In the federal courts, it is well settled that a national bank has not power to lend its credit to another by becoming surety, indorser, or guarantor for him. Merchants' Bank v. Baird, 160 F. 642, 90 C. C. A. 338, 17 L. R. A. (N. S.) 526. And it is still more clear that, as we ourselves have said, no officer of the bank, without express authority from its directors, has power to bind it by an accommodation indorsement or guaranty. Wagner v. Central Banking & Security Co., 249 F. 145, 161 C. C. A. 197. If, then, the transaction was as the plaintiffs' witness Wylie says the directors of the plaintiff bank knew it to be, namely, that he (Wylie) had discounted the notes at the request of Parrish for the Tazewell Timber Corporation, it is clear that the learned judge was right in directing at the close of the plaintiffs' testimony a verdict for the defendants. It is, however, equally well established that a national bank may validly warrant title to the property it conveys, or become liable as an indorser or guarantor of notes or other obligations which it rediscounts or sells, because to do so is incidental to the business it is authorized to transact and to the...