Ferguson v. Union Nat. Bank of Clarksburg, W. Va.

• Decision Date: 11 March 1942
• Docket Number: No. 4892.,4892.
• Citation: 126 F.2d 753
• Parties: FERGUSON v. UNION NAT. BANK OF CLARKSBURG, W. VA.
• Court: U.S. Court of Appeals — Fourth Circuit

126 F.2d 753 (1942)

FERGUSON v. UNION NAT. BANK OF CLARKSBURG, W. VA.

No. 4892.

Circuit Court of Appeals, Fourth Circuit.

March 11, 1942.

COPYRIGHT MATERIAL OMITTED

Howard Caplan, Asst. U. S. Atty., of Clarksburg, W. Va. (Joe V. Gibson, U. S. Atty., of Kingwood, W. Va., and C. Brooks Deveny, Asst. U. S. Atty., of Fairmont, W. Va., on the brief), for appellant.

James M. Guiher, of Clarksburg, W. Va. (William P. Nottingham and Steptoe & Johnson, all of Clarksburg, W. Va., on the brief) for appellee.

Before PARKER, SOPER, and DOBIE, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal from a judgment in favor of the plaintiff, the Union National Bank of Clarksburg, W. Va., in a suit against the Federal Housing Administrator on a contract insuring a loan made to an industrial corporation pursuant to Title I section 2 of the National Housing Act, approved June 27, 1934, 48 Stat. 1246, as amended by the Acts of May 28, 1935, 49 Stat. 299, and August 23, 1935, 49 Stat. 722, 12 U.S.C.A. § 1703. The loan was for $50,000, but plaintiff asked recovery for only $33,117.93 and interest, being 20% of the total of its insured loans after deducting certain items to which reference will be made hereafter. The case was heard before a jury and from verdict in favor of the plaintiff for the full amount of its demand with interest the defendant has appealed. Error is assigned with respect to the action of the court below in taking jurisdiction of the cause, in refusing to direct verdict for defendant, in admitting testimony as to the action taken by the defendant on plaintiff's claim, in refusing certain prayers for instruction, and in allowing interest on the claim.

The controversy between the parties relates chiefly to the eligibility for insurance under the act of Congress and the regulations issued thereunder of the loan sued on and a loan made by plaintiff to the Old Tavern Brewing Company. Sustaining defendant's contention with respect to the eligibility of the former of these would entirely defeat plaintiff's right of recovery; sustaining it with respect to the eligibility of the latter would result merely in a reduction of the total of the insured loans with consequent reduction of the amount of the recovery to which plaintiff is entitled. The contention most seriously pressed is that the court should have directed a verdict for defendant on the ground that the loan sued on was not eligible for insurance.

The facts with respect to the loan sued on are that it was for $50,000 and was made by plaintiff to the Pederson Glass Company of Lumberport, W. Va., on January 10, 1936. That company had been engaged in manufacturing glass cylinders for gasoline filling station pumps, but had suspended the manufacturing of these articles about a year prior to the granting of the loan as a result of the virtual abandonment of the type of pump in which they were used. The glass company sought a loan under the housing act as amended for the purpose of installing in its plant a glass furnace with a view of manufacturing flat glass under a new and patented process which was thought to have much promise of success. The company approached plaintiff for the purpose of obtaining a loan under the amended act and represented that it thought that a loan of $30,000 would be sufficient in view of credits which it expected to obtain from furnishers of materials. The evidence is clear, however, that, as a result of conferences between the bank and the president of the glass company, it was decided that a loan of $50,000 would be necessary, that the loan was made in good faith for that amount and that not less than that amount was actually expended by the glass company in the construction of the furnace.

The company furnished to the bank a credit statement as the basis of the loan, including its last balance sheet, but furnished no profit and loss statement for the reason that it had virtually been out of business for more than a year. There is a conflict of evidence as to whether the statement furnished justified the loan, but the evidence introduced by plaintiff amply sustains the view that the loan was justified. Plaintiff, at the request of defendant, furnished a copy of the credit statement, which showed the absence of any profit and loss statement, and defendant raised no objection to the loan at that time but continued to list it as insured. Two guaranties, to the extent of $4,250 each, were given plaintiff as additional security for the loan, one signed by Solomon & Son, Inc., and the other by the Simplex Engineering Company.

At the time of the making of the loan, $22,500 was placed in the glass company's checking account and $27,500 in its reserve account. This reserve account, with the exception hereafter to be noted, was applied to the satisfaction of notes given for temporary loans, made as the work on the furnace progressed, to supply the glass company with funds for that purpose. This exception was that installment payments of principal and interest on the loan amounting to $7,707.25 were charged by the plaintiff against the reserve account. This was the only part of the $50,000 loan not used in the construction of the furnace except that the glass company drew a check to the bank in the sum of $1,500 against its checking account provided by the loan, to supply funds to be used to pay coupons falling due on a bond issue.

The items above mentioned, together with an item of $16,375 included in a loan to the Old Tavern Brewing Company, were eliminated by the defendant from the amount of plaintiff's insured loans in computing the amount of insurance to which plaintiff was entitled under the provision limiting the insurance to 20% of the total of the insured loans; and the amount for which plaintiff has sued as a result of this elimination of items $33,117.93, is less by a considerable amount than what remains of the $50,000 loan after the deduction therefrom of the $7,707.25 and the $1,500 items. Some of the installments of the loan were not due at the time suit was instituted, but the amount due at that time exceeded the amount for which suit was brought.

We think there can be no question but that the court had jurisdiction of the cause. It is specifically provided that the Administrator in his official capacity may "sue and be sued in any court of competent jurisdiction, State or Federal". 49 Stat. 722, 12 U.S.C.A. § 1702. It could hardly have been intended by Congress that suits for over $10,000 against the Administrator could be brought in any state court of general jurisdiction, but in the federal jurisdiction only in the Court of Claims; and as we read recent decisions of the Supreme Court the jurisdiction of a United States District Court to entertain a suit against governmental agencies and corporations is not limited by the provisions of the Tucker Act, 28 U.S.C.A. §§ 41(20), 250 et seq. Keifer & Keifer v. Reconstruction Finance Corporation, 306 U.S. 381, 59 S.Ct. 516, 83 L.Ed. 784; Federal Housing Administration v. Burr, 309 U.S. 242, 60 S.Ct. 488, 84 L.Ed. 724; Reconstruction Finance Corporation v. J. G. Menihan, 312 U.S. 81, 61 S.Ct. 485, 85 L.Ed. 595.

Defendant relies upon four grounds as basis for the motion for a directed verdict: (1) that the loan was not in reality for $50,000 but only for $30,000 and that the note was taken and listed with the defendant for the larger amount for the purpose of increasing the insurance coverage; (2) that the bank failed to exercise reasonable judgment in making the loan and particularly failed to require a profit and loss statement from the borrower in accordance with the regulations of the defendant; (3) that the loan was not for an authorized purpose in that $1,500 thereof was used to pay interest on a bond issue and $7,707.25 thereof was applied by...