Farmers' & Merchants' Nat. Bank v. Smith

• Citation: 77 F. 129
• Decision Date: 16 November 1896
• Docket Number: 758.
• Parties: FARMERS' & MERCHANTS' NAT. BANK v. SMITH.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

77 F. 129

FARMERS' & MERCHANTS' NAT. BANK v. SMITH.

No. 758.

United States Court of Appeals, Eighth Circuit.

November 16, 1896

This suit was brought by Edward A. Smith, now deceased, against the Farmers' & 'Merchants' National Bank of Fremont, Neb., the plaintiff in error, on March 25, 1893, in the circuit court of the United States for the district of Nebraska. The plaintiff died on November 26, 1895, and thereupon the suit was revived in the name of Herbert K Smith, his executor, who is the present defendant in error. The petition on which the case was tried contained, in substance, the following allegations: That on July 2, 1888 C. H. Toncray was the cashier of the Farmers' &amp Merchants' National Bank of Fremont, Neb.; that on said day Stephen H. Elwood and Lurta Elwood, his wife, executed and delivered to said Toncray a bond in the sum of $8,000 with semiannual interest coupons thereto attached, and to secure the payment of the same also executed and delivered to said Toncray a mortgage on certain real estate situated in Holt county, Neb.; that said bond and mortgage were thus delivered either as security for a debt due from said bank, or because the bank was at that time engaged in the business of negotiating and selling such mortgage bonds to third parties for a commission in that behalf paid to it; that said bond and mortgage were delivered for one or the other of the purposes last stated, but that the plaintiff was unable to say with certainty for which of said purposes they were so delivered. In addition to the foregoing averments, the petition contained the following allegations:

'(4) That thereupon the said defendant bank, being the owner and holder of, or having a valuable interest in, the said coupon bond and mortgage, did, either by itself or through its cashier, the said C. H. Toncray, * * * offer the said coupon bond, together with all the coupons attached thereto, for sale and discount through Walker & Co., the brokers and agents of said defendant bank in New Haven, Connecticut; and with the knowledge and authority of the said defendant bank and the said C. H. Toncray, the said Walker & Co. offered the said coupon bond, together with all the coupons attached thereto, on August 1, 1888, to one Isaac E. Smith, a citizen of the state of New York, and a resident of the city of New York, * * * with the condition that the title to the land on which the said mortgage was given to secure the payment of said coupon bond was perfect, and the abstract and deed all right, and that the said mortgage to secure the payment of the said coupon bond and coupons was a first mortgage on said property; that, relying thereon, and in good faith, and not knowing otherwise, the said Isaac E. Smith purchased the said coupon bond and coupons thereto attached, together with the mortgage securing the same, and paid therefor the sum of $8,000, all of which was, on said August 1, 1888, received by and paid to the said defendant bank, and all of which the said defendant appropriated and retained for its own use, behoof, and benefit.

'(5) That thereafter, and shortly prior to the 17th day of November, 1888, the said purchaser, Isaac E. Smith, discovered that the said mortgage securing the said coupon bond and coupons so purchased by said Isaac E. Smith was not a first mortgage on said property, and that the abstract and title to said property was not all right, but that the said property had prior mortgages and incumbrances for more than its full value, and thereupon the said Isaac E. Smith, the purchaser of said coupon and coupons, demanded that the said bank should make his said security and title good, as the same had been represented when he, the said Isaac E. Smith, purchased and paid for said coupon bond and coupons, or that the said defendant bank should take back the said coupon bond and coupons, and return to said Isaac E. Smith his purchase money; whereupon it was proposed that, if the said Isaac E. Smith's title could not be perfected, that there should be prepared for and given to him a guaranty for all loss that might befall him on account of the imperfection of the title, and to make sure of his, the said Isaac E. Smith's not throwing back the said coupon bond and coupons; and thereupon, and in answer to said proposition, and to avoid the necessity of taking back the said coupon bond, and to continue the said loan which it, the said defendant bank, thereby obtained from said Isaac E. Smith, the said defendant bank did, for valuable consideration, execute and deliver to the said Isaac E. Smith a certain written guaranty in the words and figures as follows, to wit:

'For a valuable consideration we hereby guarantee the payment of interest and principal upon a certain loan for $8,000 made to Stephen H. Elwood and Gusta (Lurta) Elwood, of date July 1, 1888, due July 1, 1893, secured by mortgage upon land in Holt county, Nebraska. Dated Fremont, Nebraska, November 17, 1888.

Farmers' & Merchants' National Bank, "C. H. Toncray, Cashier. "C. H. Toncray.'

'(6) And the plaintiff says that the said loan for $8,000 made to said Stephen H. and Gusta (Lurta) Elwood, referred to in said guaranty was the same one as aforesaid purchased and held by the said Isaac E. Smith, and that thereupon, and relying upon the said guaranty, the said Isaac E. Smith held and retained the said coupon bond, and did not turn the same back to the said defendant bank, or hold the said defendant bank liable under its said representations and statements at the time of the purchase of said coupon bond as hereinbefore stated; but this plaintiff says that the said coupon bond of the said Elwood and wife has long since matured by reason of the terms thereof, for inasmuch as default has been made in the payment of the said interest coupons as follows, to wit, the interest coupon for $300 which matured January 1, 1891. * * *

'(7) And this plaintiff says that the said Isaac E. Smith made demand for the payment of said interest and the said coupon bond, and that no part thereof has been paid, and the whole thereof, to wit, $8,000, with interest thereon from July 1, 1890, at the rate of 7 1/2 per cent. per annum, remains past due and unpaid; that the property included in the said mortgage given to secure the said mortgage bond for $8,000 is worthless, and covered by liens prior to the mortgage securing the same far in excess of its value; that the said Stephen H. Elwood and his said wife are financially worthless and insolvent, and that any action at law or in equity upon the said mortgage and the coupon bond would be without any avail, and would result only in the accumulation of court costs.

'(8) This plaintiff further says that on the -- day of April, 1891, the said Isaac E. Smith died testate, a resident and citizen of the city, county, and state of New York, aforesaid, and that on said -- day of April, 1891, his last will and testament was duly admitted to probate, and this plaintiff was therein and thereby made the sole legatee and devisee of the said Isaac E. Smith, and his executor. * * *

'(9) And, further, this plaintiff says that he has demanded of the said defendant that it, the said defendant, make its said guaranty good, and that it, the said defendant, should pay the interest called for by said mortgage bond so as aforesaid purchased by the said Isaac E. Smith, and that it, the said defendant should pay the taxes, liens, and other assessments on the said property covered by said mortgage, but the said defendant has failed to pay the same, or any part thereof; that this plaintiff has also demanded that said defendant should pay the principal and interest of the said mortgage bond so as aforesaid held by this plaintiff, as in its guaranty the said defendant agreed and promised, but the said defendant has failed (to pay) the same, or any part thereof, to this plaintiff's damage in the sum of $8,000, with interest thereon at the rate of seven and one-half per cent, per annum from July 1, 1890, until paid, no part of which has been paid. Wherefore this plaintiff prays judgment against the said defendant for the sum of $8,000, with interest thereon at the rate of seven and one-half per cent. per annum, payable semiannually, from July 1, 1890, until paid. * * * '

The defendant bank, in its answer, denied all of the aforesaid allegations of the petition. It also averred that C. H. Toncray had no authority to execute the alleged guaranty.

The facts developed at the trial were substantially as follows For some years prior to July 1, 1888, the defendant bank, through its agent, the firm of Walker & Co., of New Haven, Conn., had been engaged quite extensively in the business of negotiating and selling mortgages on lands located in the state of Nebraska. The commissions received by it for such services had amounted for several years to the sum of $2,000 annually. To enable it to transact such business, the defendant bank had caused printed forms of coupon bonds and mortgages to be prepared, which contained on the face thereof a statement that they were 'negotiated by the Farmers' Merchants' National Bank, Fremont, Nebraska. When the bank undertook the negotiation of a bond and mortgage for a customer, both instruments were prepared on such printed forms, and both were made payable to C. H. Toncray individually, who was at the time the cashier of the defendant's bank. On or about July 1, 1888, the said Toncray requested Stephen H. Elwood to execute a bond and mortgage in his favor in the sum of $8,000, to be used as collateral to enable him, the said Toncray, to raise money for his individual use and benefit. In compliance with such request, Elwood and wife executed the bond and mortgage now in controversy, and delivered it to C. H. Toncray, the understanding...