First Nat. Bank Of Tallapoosa v. Monroe

• Decision Date: 11 January 1911
• Citation: 69 S.E. 1123,135 Ga. 614
• Parties: FIRST NAT. BANK OF TALLAPOOSA et al. v. MONROE et al.
• Court: Georgia Supreme Court

69 S.E. 1123

135 Ga. 614

FIRST NAT. BANK OF TALLAPOOSA et al.

v.MONROE et al.

Supreme Court of Georgia.

Jan. 11, 1911.

(Syllabus by the Court.)

1. Banks and Banking (§ 260^*)—National Banks—Powers—Suretyship.

A national bank in negotiating its paper can bind itself for the payment thereof by its indorsement thereon; but it cannot guarantee the payment of the paper of others, or become surety thereon, solely for the benefit of the latter.

[Ed. Note.—For other cases, see Banks and Banking, Cent. Dig. § 984; Dec. Dig. § 260.*]

2. Banks and Banking (§ 262*)—National Banks—Ultra Vires Act by Officer-Ratification.

A national bank loaned to one of its customers, a private corporation, an amount greater than 10 per cent, of its unimpaired capital stock and surplus, in violation of the provisions of the federal statute. The cashier of the bank, who was secretary and treasurer of the bank's debtor, notified another of this fact, and stated to him that the "only way the bank could extend any further credit" to its debtor "was by procuring a loan" from him "to be secured by said bank, " and induced such other person to lend the bank's debtor $15,000, upon the guaranty of the cashier individually, and of the bank through its cashier, of the payment of the notes of the bank's debtor for the amount borrowed. Held: (a) A national bank cannot ratify such an ultra vires act. (b) The fact that the cashier's object in making statements to the lender to induce him to make the loan "was to procure to said bank the payment to it of the said amount so due said bank" by its debtor and to release the cashier from his liability "in making said excessive loan." and the fact that the bank received $11,640.02 of the $15,000 borrowed, do not estop it from setting up the invalidity of such guaranty on its part.

[Ed. Note.—For other cases, see Banks and Banking, Cent. Dig. § 1005; Dec. Dig. § 262.*]

(Additional Syllabus by Editorial Staff.)

3. Evidence (§ 65*)—Presumptions—Knowledge of Law.

Every person is presumed to know the law, and is charged with notice of the limitation on the powers of a corporation fixed thereby.

[Ed. Note.—For other cases, see Evidence, Cent. Dig. § 85; Dec. Dig. § 65.*]

Error from Superior Court, Haralson County; Price Edwards, Judge.

Action by J. M. Monroe and others against the First National Bank of Tallapoosa and others. Judgment for plaintiffs, and defendants bring error. Reversed.

G. R. Hutchens and Dorsey, Brewster, Howell & Heyman, for plaintiffs in error.

Lloyd Thomas, Griffith & Matthews, and A. C. King, for defendants in error.

HOLDEN, J. The defendants in error, hereinafter called the plaintiffs, in a suit to recover upon the guaranty hereinafter referred to, and for other purposes, made substantially the following allegations: The First National Bank of Tallapoosa, one of the plaintiffs in error, through its cashier, had loaned one of its customers, the Southern Car Wheel Iron Company (a private corporation), an amount in excess of the amount permitted by law to be loaned to one person, and the debtor was unable to make any payment thereon. The cashier of the bank stated to the plaintiffs, who had in the bank the "sum of $20,000 on a deposit of twelve months, " that the bank would "readily let said iron company have whatever money it needed, but for the fact that the bank had already loaned said iron company more money than was authorized by its charter, and the only way it could extend any further credit to said iron company was by procuring a loan from petitioner to be secured by said bank, " and that, if the loan was made, he and the bank would guarantee the payment thereof; "that the entire management of the bank was left with him; that he had frequently made such guaranties for the bank; and that he had full authority to make such guaranty." On or about May 3, 1907, the cashier stated that he had become the secretary and treasurer of the iron company, that he was then in position to make the loan for the plaintiffs of $15,000, and that, if the loan was made, "the same would be sufficient to pay off all the urgent and pressing debts, and would afford said Southern Car Wheel Iron Company a sufficient working capital for one month's run in advance." The statement as to the amount of urgent and pressing debts was false, and known by the cashier to be false when made. Such debts amounted to $50,000. The plaintiffs relied upon such statements as true. "Statements of the said cashier that he was allowed by the officers and directors of said bank to have the entire control and management of said bank were true." The cashier's object in making statements to the plaintiffs to induce them to make the loan "was to procure to said bank the payment to it of the said amount so due said bank by said Southern Car Wheel Iron Company, and to release Rowe Price from his liability as cashier in making said excessive loan." Upon the statements of the cashier, and relying upon the guaranty as a valid and sufficient security, the plaintiffs on May 14, 1907, made the loan of $15,000 to the iron company, and took the latter's several notes therefor and the guaranty of the cashier and the bank of the payment of the notes. The notes were placed for collection with said bank, which reported four of the notes paid as they matured. The other seven notes are unpaid, and the iron company "is hopelessly insolvent and is now in bankruptcy." The bank and the cashier are indebted tothe plaintiffs $13,000 principal, besides interest and attorney's fees, on the guaranty, which, as appears from a copy of it set out in the petition, was signed by Rowe Price individually, and by the bank "by Rowe Price, Cashier." Eleven thousand six hundred and forty dollars and two cents of the $15,000 loaned was applied to the payment of debts due the bank by the iron company. The petition also alleged a sale by the national bank of its assets to a state bank, and prayed for a receiver to take charge of its assets and for an injunction. We deem it unnecessary to set forth in detail all of the remaining allegations of the original petition and of the several amendments thereto by which others were made parties. Demurrers were filed by the banks, and to the order overruling the same they excepted.

1. Corporations are creatures of the law, and their powers are limited. Every person is presumed to know the law, and is charged with notice of the limitations on the powers of a corporation fixed thereby. Rev. St. U. S. § 5136 (U. S. Comp. St. 1901, p. 3455), give to a national bank the power to "make contracts" and "to exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes according to the provisions of this title." The provisions referred to do not give power to a national bank to guarantee the payment of the obligations of others solely for their benefit, nor is such power incidental to the transaction of the business of banking. A bank can lend its money, but not its credit. See McGee on Banks & Banking, § 248; 1 Morse on Banks & Banking, §§ 65, 169; 1 Bolles on Law of Banking, § 25; Bolles on the National Bank Act Annotated (4th Ed.) 40, § 10. A national bank in negotiating its paper can bind itself for the payment thereof by its indorsement thereon, but it cannot guarantee the payment of the paper of others, or become surety thereon, solely for the benefit of the latter.

2. The plaintiffs in their petition seeking to recover against the bank on its guaranty of notes amounting to $15,000 of the iron company, given to the plaintiffs, allege, among others, the following facts: The cashier of the bank stated to them that the bank would "readily let said iron company have whatever money it needed but for the fact that the bank had already loaned said iron company more money than was authorized by its charter, and the only way it could extend any further credit to said iron company was by procuring a loan from petitioners to be secured by said bank, " and that, if the loan was made, the bank and its cashier as an individual would guarantee the payment thereof. The cashier became secretary and treasurer of the iron company, and stated to the plaintiffs that he was then in a position to make the loan for them of $15,000, and falsely stated that, if the loan was made, "the same would be sufficient to pay off all the urgent and pressing debts, and would afford the said Southern Car Wheel Iron Company a sufficient working capital for one month's run In advance." The object of the cashier in making statements to defendants in error to induce them to make the loan "was to procure to said bank the payment to it of the said amount so due said bank by said Southern Car Wheel Iron Company, and to release Rowe Price from...