Commonwealth Farm Loan Co. v. Wall

• Decision Date: 14 February 1916
• Docket Number: 184
• Citation: 183 S.W. 193,122 Ark. 281
• Parties: COMMONWEALTH FARM LOAN COMPANY v. WALL
• Court: Arkansas Supreme Court

183 S.W. 193

122 Ark. 281

COMMONWEALTH FARM LOAN COMPANY v. WALL

No. 184

Supreme Court of Arkansas

February 14, 1916

Appeal from Poinsett Chancery Court; Edward D. Robertson Chancellor; affirmed.

Decree affirmed.

Mayo & Maddox, for appellant.

1. Leatherwood was the agent of the appellee, Wall in the matter of the payment of the prior liens on the lands, and he is bound by his acts. 31 Cyc., p. 1222. He acted for Wall after the draft was endorsed by him and delivered to Leatherwood as his agent for the purpose of discharging the liens. 31 Cyc 1225, note; 67 Ark. 159; 53 S.W. 888.

2. One dealing with an agent is bound to ascertain the nature and extent of his authority, and has no right to trust to the mere presumption of authority, nor to the assumption thereof by the agent. 92 Ark. 315; 94 Id. 301; 126 S.W. 832. A principal is not bound by the acts or declarations of an agent beyond the scope of his authority. 92 Ark. 315; 122 S.W. 992; 100 Ark. 360; 8 Id. 227. Here there was no ratification by the loan company of the unauthorized act. 74 Ark. 557; 11 Id. 189; 64 Id. 217; 41 S.W 852.

Lamb Caraway & Wheatley, for appellee.

1. Leatherwood was the agent of the loan company and it must bear the loss. 31 Cyc. 1222, 1225; 54 Ark. 40; 58 N.W. 100; 53 N.W. 148; 62 Id. 753; 144 Id. 1077; 27 P. 807; 46 N.E. 589; 53 N.W. 179; 101 F. 490; 100 Ark. 360-363.

2. The principal is bound by the acts of the agent exercising such authority as a third person is justified in believing the agent to have. 103 Ark. 79, 85; 100 Id. 240.

OPINION

SMITH, J.

Appellant is engaged in the business of making farm loans and had as a local correspondent, or agent, at Marked Tree, Arkansas, one Paul Leatherwood. On February 20, 1913, appellee made application, through Leatherwood, for a loan of $ 1,200, and submitted an abstract of the title to his property, which showed the existence of two liens, one in favor of the Chapman & Dewey Land Company, and the other in favor of the Marked Tree Bank & Trust Company. Leatherwood had formerly been the cashier of this bank. Notes for the amount of the loan and the mortgage securing the same, were executed by appellee on March 7, and after the mortgage had been duly recorded it was sent, with the notes, to appellant. Leatherwood drew a common customer's draft on the appellant for the amount of the loan, made payable to himself, but the payment was refused by appellant on presentation. Thereafter a draft was drawn on one of the company's forms, executed by appellee and payable to his own order and endorsed by him and delivered to Leatherwood to pay off the prior liens. This draft was then endorsed by Leatherwood and was paid upon presentation, and the proceeds thereof placed to the credit of Leatherwood with the Marked Tree Bank. Leatherwood checked out the money for other purposes and the prior liens were never discharged.

Appellee instituted suit praying that the notes and mortgage in appellant's favor be cancelled on the ground that no consideration therefor had ever passed, or that he have judgment against appellant for the amount of said loan. There was an answer and cross-complaint in which a foreclosure was asked on account of appellee's failure to discharge the prior liens and to pay interest. Upon the trial a decree was rendered cancelling said mortgage and notes, and this appeal has been prosecuted from that decree.

The parties to this litigation agree that the controlling question in this case is the one of fact: Whose agent was Leatherwood in the matter of the payment of the prior liens on the land offered as security for the loan?

In the application for the loan Leatherwood was referred to as "your (appellant's) local agent," and he was referred to by appellant's officers, who testified, as their "local correspondent," but no attempt was made to differentiate between an agent and a correspondent.

The officers of the appellant company knew, of course, of the outstanding liens and that it was anticipated that the loan would be used in part in their satisfaction and that according to their contract these items were to be discharged before the loan was completed. Appellant company knew, when it paid the draft, that Leatherwood was the last endorser and in the usual course of business the money would pass through his hands. There is nothing about the transaction to indicate any purpose on appellant's part to pay appellee the entire amount of the loan and then trust to his honesty to properly apply the money. Leatherwood testified that he had procured numerous loans from appellant company and that his fees or commissions were always paid by it and never by the borrower, and that his instructions in all cases were to secure a release and satisfaction of all prior liens, and that in making these loans it was generally necessary to satisfy some prior lien, and that his custom was to deposit the draft in the local bank and to pay off the prior indebtedness by checks on the bank. He further testified that it was his duty to see that the papers were properly executed and that he was required to submit a report on the loan, in which he gave his opinion on the appellant's character and credit and also his opinion on the desirability of the loan. The applicant knew nothing of this report and was not supposed to see it.

The evidence on appellant's behalf was to the effect that it had no local agents, but only local correspondents, and that the duty of these correspondents was confined to submitting applications for loans.

The cashier of the bank testified that Leatherwood had negotiated a number of loans and that his custom was to attach the mortgage to a draft drawn on appellant for the amount of the loan, and deposit the draft for collection to his credit, and out of the proceeds of the draft to pay off the prior liens, and any balance to the borrower.

Appellant lays stress on the recital in the application that all liens will be discharged, and insists that in undertaking to do this Leatherwood was the agent of the borrower. But this is the very point in issue. The agreement was not that appellee would discharge the liens but that there are no liens which would not be removed before the loan was completed.

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