First Nat. Bank of Portage v. State Bank of Northwood

• Decision Date: 29 September 1906
• Citation: 15 N.D. 594,109 N.W. 61
• Parties: FIRST NAT. BANK OF PORTAGE v. STATE BANK OF NORTHWOOD et al.
• Court: North Dakota Supreme Court

15 N.D. 594

109 N.W. 61

FIRST NAT. BANK OF PORTAGE

v.STATE BANK OF NORTHWOOD et al.

Supreme Court of North Dakota.

May 23, 1906.

On Rehearing, Sept. 29, 1906.

Syllabus by the Court.

Where, in evidence of a loan actually made to a bank, the lending bank accepts from the borrowing bank a note signed by the latter's cashier, personally, and indorsed by the borrowing bank, this being done to avoid disclosing on the face of the transaction an excessive loan to the borrowing bank, the borrowing bank is not thereby relieved of its obligation as a debtor.

Where an officer of a bank, without authority to do so, borrowed money in the name of his bank and pledged certain of the bank's assets as security for the loan, and the borrowed money was received and used by the bank, and the transaction was such that the directors had, or ought to have had, knowledge of it, the corporation is estopped to deny the authority of its officer to make the contract in its behalf by which the money was procured.

The defendant bank had sold certain of its lands under executory contracts, which provided that the title should be conveyed to the vendees on payment of the purchase price, which was to be paid by installments, the vendees, meantime, being given possession. Each future installment of the purchase price was represented by the vendees' note. The defendant bank assigned these contracts with accompanying notes to the plaintiff as collateral security for the former's debt to the latter. In connection with this assignment, and as part of the same transaction, the defendant bank conveyed the legal title of the lands described in said contracts to the plaintiff. Held, that the conveyances of the land cannot, so long as the vendees' contracts are in force, be considered as mortgages securing the debt of the defendant bank and be foreclosed as such, but that the conveyances transferred to the plaintiff the legal title of the lands to be held by it in trust as security for the purchase price of the lands by the vendees, such title to be conveyed to the purchasers when the latter had performed the conditions of the contracts.

Although a certificate of deposit payable on demand after a stated period contains a stipulation that it shall not bear interest after maturity, the holder thereof is entitled to legal interest thereon from the date when the bank fails or refuses to meet a demand of payment when payment is due.

Appeal from District Court, Grand Forks County; C. J. Fisk, Judge.

Action by the First National Bank of Portage against the State Bank of Northwood and another. Judgment for plaintiff, and defendants appeal. Remanded, with instructions to modify the judgment.Charles F. Templeton, for appellants. Guy C. H. Corliss, for respondent.

ENGERUD, J.

This action is before us for trial anew of all the issues. Defendants, the State Bank of Northwood and Samuel Loe, receiver of said bank, are the appellants. The State Bank of Northwood, which we shall hereafter refer to as the “Northwood Bank,” is a banking corporation organized under the laws of this state. It became insolvent, and Mr. Loe is the receiver placed in charge of its affairs. The bank's doors were closed, and the receiver placed in charge thereof, in July, 1901. The plaintiff, which we shall refer to as the “Portage Bank,” is a national Bank at Portage, Wis. It alleges that on the 26th day of January, 1901, the Northwood Bank was indebted to it in the sum of $7,500 for borrowed money, in evidence of which indebtedness the Northwood Bank had, on December 1, 1900, executed and delivered to the Portage Bank a certificate of deposit for said sum, dated December 1, 1900; that on January 26, 1901, for the purpose of securing the payment of said debt, the Northwood Bank executed and delivered to the Portage Bank certain quitclaim deeds, purporting to convey to the latter bank the former bank's title to several tracts of real property owned by the bank, it being agreed that the deeds, though purporting to be unconditional conveyances, were given only as security for said debt and were mere mortgages. The title to some of these tracts appeared of record in the name of Sydney C. Lough, who, at the time of the conveyances, was president of the bank and held the title in trust for the corporation. The deeds of these tracts were therefore executed by said Lough personally as grantor, but in doing so he was acting for and in behalf of the bank. No point is made as to the sufficiency of these conveyances in form to convey the bank's title, and in speaking of them hereafter we shall treat them as conveyances by the corporation itself. The prayer for relief, in substance, is that these deeds be declared to be mortgages and for a decree of foreclosure in the usual form. The answer of the Northwood Bank and its receiver denies that it ever became indebted to the Portage Bank by reason of the transactions set forth in the complaint. These defendants aver that the acts referred to in the complaint, although done in the name of the bank by the president and cashier, were not done in the ordinary course of the business of banking in this state, and were wholly unauthorized by the directors of the Northwood Bank. The answer further alleges as a counterclaim that, at the time of the execution of the certificate of deposit described in the complaint and as part of that transaction, Sydney C. Lough, the then president of the Northwood Bank, unlawfully and without authority from the board of directors of said corporation delivered to the plaintiff a large number of promissory notes executed by various persons to the bank and owned by it. The notes so delivered are specifically described and are alleged to be worth the aggregate sum of $11,000. It is alleged that the receiver of the Northwood Bank demanded the surrender of said notes to him by the Portage Bank, but the latter refused and still refuses to comply with the demand, and thereby converted said notes to its own use to the damage of said Northwood Bank in the sum of $11,000. Said defendants demand judgment that the plaintiff take nothing by the action, that the deeds described in the complaint be declared void, and that the defendants have and recover from plaintiff damages in the sum of $11,000. Such in brief are the issues which we deem material to the decision of the case. The plaintiff claims to have a mortgage on the several tracts of land involved to secure its claim against the Northwood Bank and demands a foreclosure thereof. The defendants deny the indebtedness; assert that the transactions referred to in the complaint were void as against the Northwood Bank, and that the Portage Bank has unlawfully converted to its own use part of the Northwood Bank's assets to the damage of the latter in the sum of $11,000, for which amount they demand judgment against plaintiff.

We shall take up the counterclaim first because the decision of the questions presented thereby necessarily discloses and determines the nature and validity of all the transactions upon which plaintiff relies for relief. The record is a very voluminous one. As to what was said and done, however, by the various persons concerned in the numerous transactions involved, there is little or no room for dispute in the evidence. The dispute is principally as to the inferences to be drawn from the facts and circumstances, and as to the legal effect of the acts of the parties. It would require too much space, and would serve no useful purpose, to set forth in this opinion a detailed analysis of the evidence in support of our views as to the ultimate facts proved. We shall simply state the facts which we think the evidence establishes. For several years before the failure of the Northwood Bank its business had been conducted by Sydney C. Lough, who, from the time of its organization until November, 1900, had been cashier. At that time Lough was made president and one H. Rostad succeeded him as cashier; but Lough continued his management of the bank as before. The directors paid little or no attention to their duties. They met from time to time as a board but the only business apparently transacted at such meetings was of a formal nature, to vote or resolve as Lough dictated. Lough was virtually the sole manager of the bank. The bank had been in bad condition for some years before the failure and had continued to tide over its difficulties and conceal its true condition by borrowing from other banks. When one bank declined to extend further credit, its claim would be met by borrowing from some other bank. On January 9, 1900, Lough, in behalf of the Northwood Bank, borrowed from the Portage Bank $5,000. In order to obtain this loan and as collateral security therefor, Lough was required to pledge to the Portage Bank sundry promissory notes owned by the Northwood Bank. The terms upon which these collateral securities were deposited were stated in the note executed in the name of the Northwood Bank by Lough, as cashier, to evidence the debt. That note is in the following form: “$5,000. Northwood, N. Dak., Jan. 9th, 1900. November 1st, 1900, after date, (without grace), for value received, we promise to pay to the order of the First National Bank of Portage, five thousand and no/100 dollars, at its office in the city of Portage and state of Wisconsin, with interest at the rate of 8 per cent. per annum after date until paid, having deposited with said bank as collateral security sundry notes and first mortgage farm loans, all assigned and deposited with C. C. Gowran & Co. of Grand Forks, N. Dak., amounting to $6,250.00. All or any part of which hereby give the said bank or its president or cashier, or its assign or assigns, authority to sell on maturity of this note, or any time thereafter, (or before, in the event of such securities depreciating in value), at public or private sale, without advertising the same or demanding payment, or giving notice of such sale, and it...