City Nat. Bank v. Sternberg
| Decision Date | 31 January 1938 |
| Docket Number | No. 4-4916.,4-4916. |
| Citation | 114 S.W.2d 39 |
| Parties | CITY NAT. BANK et al. v. STERNBERG. |
| Court | Arkansas Supreme Court |
James B. McDonough and W. L. Curtis, both of Fort Smith, for appellants.
Daily & Woods, of Fort Smith, for appellee.
The McKinney Bayou Drainage District was organized in 1923 and issued $446,000 in 5½ per cent. bonds. I. H. Nakdimen was the president and active manager of the City National Bank of Fort Smith, Ark.
It is undisputed that in July, 1929, appellee was in the City National Bank and that I. T. Nakdimen said he was on a trade for some bonds. About six weeks after that time the appellee bought twenty-three $1,000 bonds at 95 cents on the dollar.
Appellee testified that when Nakdimen spoke to him about the bonds he called appellee's attention to the fact that appellee owned some Fayetteville paving bonds which were about to mature, and asked appellee if he had made arrangements about reinvesting the money. Nakdimen told appellee that he was on a trade for some bonds, and he bought the bonds on September 9 from Nakdimen. He testified that Nakdimen said he knew the bonds were good; that he had investigated them. He said again on September 9th: "I have these bonds now, and they are good." He stated that he knew as much, or more about bonds, as anybody in town; that he never bought a bond until he knew all about it, and he knew these were good. Nakdimen then directed one of the employees to bring the package of McKinney Bayou bonds. The package was brought, and Nakdimen said he had twenty-three $1,000 bonds there, and they draw only 5½ per cent. interest; that he could sell them to appellee at 95 cents, which would make them pay 6 per cent. Nakdimen said he bought them a little cheaper than that and he had to make a small profit on them; appellee told Nakdimen he would take five, and Nakdimen said: "No. I want to sell you all of them." When appellee said he could not pay for them all, Nakdimen said: "You have those Fayetteville paving bonds, and most of them will mature pretty soon and I can take them in and what you lack paying for them I will lend you the money at 6 per cent, and they will pay themselves out in no time at all." Appellee said he let Nakdimen talk him into purchasing the bonds. Nakdimen called his son and directed that a check be made out for $23,138. The $138 was accrued interest. Appellee signed a note to the bank for $9,500 and the bank kept the bonds as collateral. In February, 1930, witness called Nakdimen's attention to the fact that the interest was due on the bonds. Nakdimen got the bonds, clipped the coupons, and gave witness credit for $632.50. Those coupons had not been paid by the district, but Nakdimen did not tell witness that. He said that when he demanded his money back, about the first of the year 1934, Nakdimen told him that he still had the coupons and witness did not think any more about it until six months later, and by that time he had paid off his note at the bank.
Appellee testified that he talked to Nakdimen frequently and Nakdimen would tell him the bonds were good as gold and that he would stand behind appellee and not let him lose a cent.
The evidence shows that at the time the bonds were sold to appellee, a receiver had already been appointed for the district because it had failed to meet its obligation in the payment of principal and interest on the bonds. Nakdimen says that he did not know that a receiver had been appointed, but the evidence shows that the bonds were offered at Texarkana, near the district, for 50 cents on the dollar, and there were no purchasers. The evidence shows that they finally went down in price to 5 cents, but afterwards the market value rose to 20 cents.
Nakdimen testifies that he paid 72 cents for the bonds, but that he did not go to Texarkana and investigate because he said it was not necessary; and yet if he paid 72 cents for the bonds, he did it when the market value was 50 cents or less. Any investigation at all at Texarkana would have shown that the district had defaulted in its interest, and that because of that a receiver had been appointed and the bonds were offered on the market for 50 cents.
According to appellee's testimony when he learned that a receiver had been appointed and talked with Nakdimen about it, that Nakdimen told him that that made the security better; that Nakdimen said when the district will not collect the assessments, a receiver is appointed and the receiver will collect the assessments and pay the principal and interest of the bonds and he would get 10 per cent. interest instead of 6 per cent.
Mr. H. S. Nakdimen testified that the bonds were not in default at the time the bank purchased them, and testified that they were worth 95 cents at the time they were sold to appellee. I. H. Nakdimen testified to the same thing.
The testimony is quite long and there is some conflict in the testimony, but we think the undisputed facts show that the receiver had already been appointed before Nakdimen sold the bonds to appellee; that the district had defaulted in its payment; that many people had not paid their taxes; and that the condition of the district was such that at the time of the sale the market value was less than 50 cents.
Mr. Nakdimen testified that he did not know these facts and that he had made a thorough examination. The evidence, however, conclusively shows that any reasonable effort to get the facts would have disclosed these conditions. If he knew the facts, and misrepresented them, he would of course be liable. If he did not know the facts, and represented to appellee that he did, he would be liable to the same extent as if he had known the facts and misrepresented them.
Mr. Nakdimen had been engaged for many years as an investment banker. The appellee, according to the evidence, had great confidence in Mr. Nakdimen; not only did he trust him, but according to the evidence, he believed what Mr. Nakdimen said about the bonds and their value, and believed that if Nakdimen had made the investigation, that he knew the value of the bonds. Appellee had been a customer of the bank for a number of years and, according to his testimony, which is not contradicted, he knew nothing about dealing in bonds.
Appellants name five questions which they say are involved in this case. We think, however, that all of them may be considered under two propositions: First, Did the appellants perpetrate a fraud in the sale of the bonds? If they did not, then there would be no liability. The second proposition is: Was the plaintiff's cause of action barred at the time the suit was begun?
Appellants contend that a decree in favor of appellee cannot be sustained upon his uncorroborated evidence. Appellee's evidence is corroborated in some respects by Mr. Nakdimen himself. He does not deny that he told appellee that the bonds were good. Not only that, but he now says that they were worth the price for which they were sold, in the face of the fact that the evidence shows the bonds were being offered at the time for 50 cents and there were no purchasers. It is undisputed that Nakdimen said he had made a thorough investigation; that in his sale to appellee he was making only a very small profit; and that he could at that time sell the bonds for par. The condition of the district and the default in payments are testified to by Mr. Moore and Mr. Barney, two lawyers of Texarkana, who knew all about the facts and whose testimony is not disputed. These witnesses are both men of high character, and from them the conditions could have been learned by Mr. Nakdimen before the sale of the bonds.
Appellants call attention to the case of Hanger v. Evins & Shinn, 38 Ark. 334. It is true that the court said in that case that the purchaser had a right, when he made his contract, to demand an express warranty, and in the absence of a warranty he is presumed to rely upon his own judgment, but the court followed this statement with the following: "But if, in the making of the contract, the vendor or seller makes use of any artifice or device, or such fraudulent and false representations in regard to the material facts, of which he has special means of information, and knows the buyer is purchasing on the strength of his statements about matters of which he has peculiar means of information, and difficult of access to the buyer, and by such false and fraudulent representations, in such a matter material to the trade, he designedly prevents the purchaser from making examination and induces him to buy in ignorance of such defects, known to plaintiff; then the defendant would be entitled to be relieved to the extent of injury shown by the evidence to have been suffered by him by reason of such false and fraudulent representations."
In the instant case, according to the testimony of appellee, and not disputed by anyone, there was an express warranty. Nakdimen repeatedly, according to appellee's testimony, stated that he bonds were as good as gold, and that he would stand behind appellee and see that he did not lose a cent.
The next case relied on by appellant is Catlett v. Bradley, 185 Ark. 260, 47 S.W.2d 15, 16. That was a suit to cancel certain...
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