Anthony v. First Nat. Bank of Magnolia, s. 5--4524

• Decision Date: 27 May 1968
• Docket Number: Nos. 5--4524,5--4525,s. 5--4524
• Citation: 431 S.W.2d 267,244 Ark. 1015
• Parties: Garland ANTHONY, Jr., et ux., Appellants, v. FIRST NATIONAL BANK OF MAGNOLIA et al., Appellees.
• Court: Arkansas Supreme Court

Page 267

431 S.W.2d 267

244 Ark. 1015

Garland ANTHONY, Jr., et ux., Appellants, v. FIRST NATIONAL BANK OF MAGNOLIA et al., Appellees.

Nos. 5--4524, 5--4525.

Supreme Court of Arkansas.

May 27, 1968.

Supplemental Opinion on Denial of Rehearing Sept. 3, 1968.

Dickey & Dickey, Pine Bluff, for appellants.

Keith, Clegg & Eckert, Magnolia, for appellees.

FOGLEMAN, Justice.

These suits were originally brought to recover $100,665.65 on 10 notes of Garland (Jiggs) Anthony, Jr. dating from August 27, 1957, and to foreclosure three mortgages or deeds of trust given by appellants.

After first filing a general denial, appellants admitted liability on 6 of the 10 notes, but denied liability on the remainder, among which were notes #65935 executed in 1958 in amount of $23,000, #86019 in amount of $3,980.29, and #87602 in amount of $2,360.49. Appellants later admitted liability on note #84798 in amount of $15,321.88. Notes #86019 and #87602 were given for interest on the other two notes. In the amendment to the answer, appellants asserted as defenses: (1) lack of consideration for the original obligation; (2) a guarantee of non-liability made to Garland Anthony, Jr. by the bank acting through its president; and (3) unclean hands on the part of the bank. In the same pleading there was a cross complaint for judgment over against one W. C. Blewster in the event that appellants were found liable on the basis that a letter of guarantee over the signature of Blewster was interpreted to be his personal guarantee to Garland Anthony, Jr. rather than that of the bank. A further amendment to the answer of appellants asserted the defense of fraud and misrepresentation. This defense was based on the following allegations: that W. C. Blewster as president and agent of appellee bank misrepresented to Garland Anthony, Jr. that Anthony would not be required to repay the loan; that the note was required to assist the bank in its compliance with banking regulations and nothing more; that a letter of guarantee given by W. C. Blewster as president was further assurance that Anthony would not be called upon to repay said obligations; that Anthony relied upon these representations to his detriment and to the benefit of the bank; that the board of directors of appellee bank either expressly held out to Garland Anthony, Jr. that Blewster was acting within the scope of his authority or acquiesced in allowing said representations after it knew or had reason to know of such dealings by Blewster; that appellees occupied a superior bargaining position and influence over Anthony; and that the acts of Blewster, as the bank's president, were a breach of fiduciary responsibilities. This amendment contained a counterclaim for judgment against the bank in amount of any judgment against appellants predicated upon the execution of these notes as an accommodation to appellees.

Appellees' reply was a general and specific denial of allegations of the second amendment and counterclaim. Appellees also asserted that any guarantee to Garland Anthony, Jr. was ultra vires and denied any knowledge or acquiescence by the Board of Directors. Appellees further denied that Anthony accommodated the bank, asserting that the accommodation was for the benefit of Avalene Whitten, a sister of Garland Anthony, Jr., and her husband, Vernon. They also pleaded laches, waiver, estoppel, acquiescence and ratification on the part of Garland Anthony, Jr., based upon alleged interest payments and failure to deny liability until institution of these suits.

The chancery court gave judgment against Garland Anthony, Jr. on note #65935 for the principal balance with interest and attorney's fees, and judgment against Blewster in favor of appellant. It cancelled a deed of trust purportedly given by appellants on their home in Dallas County. No action was taken regarding notes #86019 or #87602. The chancellor found: that the letter of guarantee referred to in the pleadings was the personal guarantee of Blewster; that Garland Anthony, Jr. had recognized his liability from time to time by payment of interest, and never asserted that he was not liable on the note until after Blewster was dismissed as president; that the note was executed by Garland Anthony, Jr. as an accommodation for his sister and brother-in-law as owners of Garland Anthony Lumber Company, to which credit was given for the proceeds of the note; that a guarantee of non-liability by the bank would have been ultra vires and illegal; that there was valid consideration for the note; that the defense of unclean hands was not sustained because it was not shown that any improper activities of Blewster were known or approved by the board of directors; that Garland Anthony, Jr. should not escape liability for an act which, if wrongful, was made to deceive bank examiners or other persons; and that Blewster had admitted liability to Garland Anthony, Jr.

Appellee Wilson Rogers, assistant vice president of appellee bank, was the only witness offered by appellees. He identified the note in question and stated that interest had been paid on #65935 to August 10, 1964, and that there had been one principal payment of $55, leaving a principal balance of $22,945.00. He said that notices for interest payments had been mailed regularly every three months to Garland Anthony, Jr. He also stated that the interest rate shown on the note had been changed from 6% to 7% with Anthony's consent. There is no question about the proceeds of this note having gone to the account of Garland Anthony Lumber Company, a concern owned by Avalene and Vernon Whitten, the sister and brother-in-law of Garland Anthony, Jr., and John Franklin Anthony, his brother.

W. C. Blewster was president and chairman of the board of directors of appellee bank from 1942 until he resigned in November 1964. Until his connection with the bank was severed, he handled all of the transactions involved in this litigation and seems to have had a rather free hand in conducting the bank's business.

Garland Anthony, Jr. had done business with the bank since 1941. While his loan account was paid in full in 1951, he seems to have had a series of business failures after that time. In all of these businesses he incurred debts which he liquidated by borrowing money from appellee bank. He also borrowed money for living expenses and to pay premiums on life insurance pledged to appellee bank as security. He mortgaged timber lands of the value of $82,000 to secure these debts. The notes on which he admitted liability constituted a part of these debts. He was allowed by the bank to keep a supply of blank notes on hand. He usually arranged for loans over the telephone, after which he would fill in and sign a note and attach it to a draft for the loan proceeds.

Blewster solicited the account of Garland Anthony Lumber Company for the bank in 1943. He took care of its financial needs at all times and even arranged to 'farm out' loans to other banks when the company had exceeded his bank's legal limits on loans. The Whittens had the utmost faith and confidence in Blewster because they knew he could get financial assistance for them whenever they needed it. This assistance was not limited to this business venture, but included a loan of money to a wholesale lumber concern in which Whitten had to be a silent partner because OPA regulations forbade his ownership in such a business. Blewster even arranged for the purchase of lumber by this concern and was paid commissions which he later refunded when financial difficulties arose. The Garland Anthony Lumber Company was permitted to incur overdrafts in substantial amounts. The Whittens had, on occasion, left blank notes in Blewster's hands to be used in case of overdrafts. Blewster carried these as 'cash items' in the bank's assets rather than permitting the bank account to be overdrawn, but they are usually referred to by the parties as overdrafts.

Shortly before the execution of the note in issue, Blewster called Vernon Whitten and said something would have to be done about an accumulated overdraft of $23,000. When Whitten went to the bank to discuss the matter, Blewster said to let him work on it. This was about the time when Blewster expected bank examiners, and he was doing everything he could to get all cash items and overdrafts out of the bank. There is a conflict in the testimony as to what happened from this time on. Blewster said that the matter was discussed with the Whittens several times and that they stated that they had no way in which they could pay this amount and that he suggested that they go to Garland Anthony, Jr. to see if some arrangement could be made. He testified, however, that he went to Anthony on his own. Mr. and Mrs. Whitten both say they made no request of 'Jiggs' and didn't talk to him about the matter either before or after their conversations with Blewster. They said that they were not close to 'Jiggs,' would not have asked him to help, and did not think he would have done so if they had asked. Mrs. Whitten says that she did not authorize Blewster to contact her brother and would have objected had she known that he intended to do so. Vernon Whitten said that they did not ask Blewster to find a solution for them, insofar as going to Anthony, individually, was concerned, but that Blewster said to give him a little time and he would see what he could work out. Blewster says he feels sure that he did tell them he was going to Garland Anthony, Jr. At any rate, Blewster called Anthony. Anthony states that Blewster said, 'we're in trouble' and that he felt Anthony could help. Blewster advised Anthony of the overdraft situation. Blewster says that he discussed the matter with Anthony on the basis of his borrowing $23,000 to cover the overdrafts. Anthony says that Blewster told him these items must be paid before bank examiners appeared but assured him he would not have to pay the note. He says that he agreed to sign a note...