Bank of Monroe v. Anderson Bros. Mining & Railway Co.

• Decision Date: 08 April 1885
• Parties: THE BANK OF MONROE v. THE ANDERSON BROS. MINING & RAILWAY CO. ET AL
• Court: Iowa Supreme Court

22 N.W. 929

65 Iowa 692

THE BANK OF MONROE v. THE ANDERSON BROS. MINING & RAILWAY CO. ET AL

Supreme Court of Iowa, Davenport

April 8, 1885

Appeal from Jasper Circuit Court.

ACTION on a promissory note executed by defendants to one Tunis Schenck, and by him assigned to plaintiff. The Anderson Brothers Mining & Railway Company made no defense. Defendant Gifford answered, admitting the execution of the note, but alleging that he signed it only as a surety, and that his signature thereto was obtained by fraud, and that the contract was void for that reason. He alleges that at the time the note was executed Schenck, the payee named therein was president of the bank of Monroe, and one R. C. Anderson was cashier of said bank; that said Anderson was also a stockholder and manager of the Anderson Brothers Mining & Railway Company; and that, while acting as such cashier, he had taken and appropriated a very large sum of money belonging to said bank, either to his own use or the use of said mining and railway company, in which transaction he was guilty of the crime of embezzlement; that both he and the mining and railway company were insolvent; that these facts were known to the bank and its officers, and that said officers thereupon threatened to criminally prosecute Anderson for said embezzlement, if the money so taken was not in some manner secured or returned to the bank; that thereupon the bank and Schenck and Anderson and the mining and railway company conspired together to cheat and defraud defendant; the bank and Schenck agreeing, for the purpose of bolstering said Anderson up, and giving him a false and fictitious standing and credit, to conceal said defalcation and the insolvency of Anderson and the mining and railway company, and to nominally retain Anderson as cashier of the bank, and to conceal the fact of his indebtedness and that of the mining and railway company to the bank, and the fact of the existence of certain mortgages given by Anderson on his property to secure a portion of the indebtedness, and the purpose for which the money which he desired to borrow was wanted; and that Anderson agreed also to conceal these facts and that he would procure the signature of defendant Gifford and other responsible parties, to promissory notes, and turn the same over to the bank in payment of said indebtedness; and that there was an agreement between the parties that if Anderson procured such notes and turned them over to the bank he should not be prosecuted for said embezzlement; and that, in pursuance of this agreement, the bank and its officers did conceal the facts of said embezzlement, and the indebtedness and the insolvency of said parties, and the existence of said mortgages, and did nominally retain Anderson as their cashier, and thereby gave him a false and fictitious character and standing; and that Anderson thereupon applied to defendant to sign the note sued on as surety, and, to induce him to sign it, represented that he desired to borrow $ 2,500 from plaintiff, to be used in starting up his coal mine at Knoxville Junction; that said mine was ready to commence business, and that he wanted the money to use in that business; also that he was practically out of debt, and his property was unincumbered, and that he had $ 7,000 of stock in the plaintiff bank, and that he was solvent; and that the Anderson Brothers Mining & Railway company, the principal maker of said note, was a copartnership, consisting of himself and his brother, J. Q. Anderson; that these representations were all false, and were known by Anderson to be false when he made them, and were made by him with intent to defraud and cheat defendant; and that defendant relied upon said representations and believed them to be true, and was induced thereby to sign said note as surety; and that plaintiff and its officers well knew the means by which his signature to said note had been obtained when they accepted the same. There was a verdict and judgment for defendant, and plaintiff appeals.

REVERSED.

Winslow & Varnum and J. Kipp & Son, for appellant

J. F. Lacey and A. Clark, for appellees.

OPINION

REED, J.

The evidence given on the trial shows that R. C. Anderson was cashier of the plaintiff bank from its organization in 1877 to the 27th of January, 1883. He was also a stockholder and the business manager of the Anderson Brothers Mining & Railway Company, a corporation which was engaged in developing a coal mine. He was also a member of the copartnership of Anderson Brothers, which consisted of himself and his brother, J. Q. Anderson. During the year 1881, he and the copartnership of Anderson Brothers became indebted to the bank to the amount of more than $ 14,000 for money advanced. More than one half of this indebtedness was contracted without the knowledge of the directors of the bank. When the members of the directory learned of the indebtedness, a meeting of the directors was held, at which it was agreed that an additional loan of $ 5,000 should be made to him, and that he should secure the whole amount of the indebtedness by a pledge of stock which he held in the bank, of the value of over $ 7,000, and a mortgage on real estate, and this agreement was carried out. This transaction occurred in September, 1881. The money obtained by these advances was used in the business of the copartnership, and in developing the coal mine which belonged to the corporation; but the credit therefor seems to have been extended to Anderson personally, and to the firm. During the year 1882, various advances of money were made by the bank to the mining corporation, and on the 19th of February, 1883, the corporation was indebted to the bank in the sum of $ 13,784. On the 22d of February and the 2d of March, the account of the corporation was credited with the full amount of this indebtedness. Seven thousand five hundred dollars of this credit was for the note in suit, (which is for $ 2,500,) and two other notes for the same amount, each signed by the corporation and other parties. The balance of the credit was for four promissory notes of the mining corporation, three of which were secured by a real estate mortgage given by Anderson, and the fourth by a mortgage on the mining property of the corporation.

About the first day of February, an agreement was entered into between Schenck, who was the president of the bank, and Anderson, that the bank would accept the promissory notes of any responsible parties which Anderson might obtain and turn over to it, and would give credit for the amount thereof on the indebtedness of the corporation; and, in pursuance of this agreement, Anderson prepared the three notes for $ 2,500 each, and signed the name of the mining corporation to them, and procured defendant Gifford to sign the one in suit as surety, and other parties to sign the others in the same way, and delivered the same to Schenck, who indorsed them without recourse, and delivered them to the bank, and the amount thereof was credited on the account of the corporation.

There was evidence which would warrant the jury in finding that Anderson represented to defendant, for the purpose of inducing him to sign the note, that he had made an arrangement with Schenck to borrow $ 2,500 from him, to be used in starting the business of his coal mine, and that he needed that amount for that purpose, and would appropriate it to that use. Also that he represented that his property was unincumbered, and that he was still a stockholder in the bank. The debt contracted by Anderson and the copartnership in 1881 was still unpaid, and defendant had no knowledge of its existence, or of the indebtedness of the mining corporation to the bank. Defendant knew when he signed it that the note was signed by the Anderson Brothers Mining & Railway Company, but the evidence would justify the jury in finding that he then believed that this was the name of the copartnership composed of Anderson and his brother, and that he supposed that Anderson was personally liable on the note, and that Anderson knew that defendant was acting in that belief when he signed the note, but made no disclosures to him as to the real facts...