Grady v. Pink Hill Bank & Trust Co.
| Decision Date | 04 October 1922 |
| Docket Number | 228. |
| Citation | 113 S.E. 667,184 N.C. 406 |
| Parties | GRADY v. PINK HILL BANK & TRUST CO. |
| Court | North Carolina Supreme Court |
Appeal from Superior Court, Lenoir County; Lyon, Judge.
Action by J. J. Grady against the Pink Hill Bank & Trust Company receiver of the Bank of Pink Hill, to recover possession of a note. Judgment for plaintiff, and defendant appeals. Reversed.
Without special authorization to the cashier of a bank, which must be shown by one claiming it, the cashier cannot, in payment of the debt of another to the bank accept the note of a company executed by the cashier as officer of it, and bearing his personal indorsement as security.
Cowper Whitaker & Allen, of Kinston, for appellant.
H. D Williams, of Kenansville, for appellee.
G. S Willard was cashier of the insolvent bank of Pink Hill for seven years immediately prior to the date when it was closed by order of the Corporation Commission, and was acting cashier at the time of all the transactions involved in this case. Upon the evidence it appears that about a week before the bank was closed, and while it was being examined by the bank examiners, the said Willard disappeared, and the officers and directors of the bank could not ascertain his whereabouts. He returned a few weeks later, and in the meantime the bank had been closed by the bank examiners because of its insolvent condition, and a receiver was appointed under whom the bank is now undergoing liquidation.
It further appears from the evidence that said G. S. Willard, cashier, was also secretary and treasurer and general manager of the chain of stores doing a general merchandise business under the corporate name of Willard & Smith Company. This company had been organized in December, 1917, and Willard was the promoter of the company, and also the largest stockholder, and as secretary and treasurer and general manager he had complete charge of its finances and signed its checks. The Willard & Smith Company is also insolvent and in the hands of a receiver undergoing liquidation.
On November 17, 1919, the plaintiff borrowed from the Bank of Pink Hill $5,000, and gave a note for that amount, due November 17, 1920, signed by his wife and J. B. Thomas as sureties. This loan was approved by the loan committee of the bank. Some time after this loan was made, and before it was due, Grady placed about $1,500 in money on deposit in the Bank of Pink Hill, and about the same time Willard went to Grady and asked him to lend this money which was on deposit in the bank at 4 per cent. to Willard & Smith Company, stating that the company would give Grady its note for the loan at 6 per cent., and would make the note payable before November 17, 1920, so that it could be paid in time for Grady to meet his $5,000 note due the bank. Grady thereupon loaned Willard for his company the $1,500, and accepted therefor a note signed by Willard & Smith Company, by G. S. Willard as secretary and treasurer, and bearing as security the personal indorsement of G. S. Willard on the back thereof.
The day before Grady's $5,000 note was due on November 16, 1920, he went to the Bank of Pink Hill and paid $2,300 in money to Willard as cashier of the bank on his note. Grady also testified that he pulled out the $1,500 note of the Willard & Smith Company and said to Willard, "I want to use this note too," and Willard said, "That is all right." Grady thereupon turned over to Willard the $1,500 note, and Willard issued a receipt to Grady for $3,800. The testimony of Willard as to this transaction was that he merely accepted the $1,500 note for collection, and at the time told Grady that he would pay the $1,500 note for his company as soon as his company could get the money to pay it with, and he thought the company could pay it by the time the $5,000 note came back from Richmond, where it had been hypothecated with some bank. The records of the bank, which were put in evidence, showed that $2,300 was paid on the Grady note on November 16, and no entry whatever was made as to the Willard & Smith Company note.
On November 17, 1920, Grady went back to Willard at the bank, accompanied by J. B. Thomas, and paid $200 in cash, and gave a renewal note for $1,000 due January 20, 1921, indorsed by Thomas, which transaction, Grady contends, paid the $5,000 note in full. Grady testified that Willard did not give him the $5,000 note at that time, stating that the note was hypothecated with a Richmond bank, but he did obtain a receipt from Willard for $5,000 as full payment of the note.
On January 20, 1920, when the $1,000 renewal note became due, Grady paid Willard $100, and gave a renewal note for $900. When the bank went into the hands of a receiver, the $900 note was hypothecated with the Farmers' & Merchants' Bank of Kinston. Grady later paid this note to the Kinston bank and the canceled note was in evidence.
The books of the Bank of Pink Hill were offered in evidence, and showed that proper entries were made on said books, showing all of the payments made by Grady and the renewal notes given by him just as Grady testified to, except as to the first payment, and as to this payment the books of the bank showed an entry of the payment of $2,300, instead of $3,800. No record whatever was made of the $1,500 Willard & Smith Company note on the books of the bank, and said note has never been found among the assets of the bank, and the bank has never owned same, nor received a single penny as payment on said note. The $5,000 Grady note was found among the "on hand" notes of the Bank of Pink Hill at the time the bank closed, showing a balance due thereon of $1,500. The only entry of payment on the back of said note was as follows: "Pd. $3,500.00." This entry was put there by Willard after it had been returned by the Richmond Bank.
Grady admitted in his testimony that during all of these transactions with Willard he knew that Willard was cashier of the Bank of Pink Hill, and was also a large stockholder, as well as secretary and treasurer and general manager of Willard & Smith Company. He further admitted that when he turned the Willard & Smith Company note over to Willard he knew that Willard had signed this note as secretary and treasurer of the company, and had indorsed his name on the back thereof, and was therefore personally interested in the note. Grady made no inquiry as to whether Willard had authority from the officers of the bank to accept the Willard & Company note to Grady as a payment on the Grady note.
The president of the Bank of Pink Hill and one of the directors, who were both members of the loan committee, testified that neither the loan committee nor the officers and directors of the bank were consulted by Willard or by the plaintiff in reference to accepting the Willard & Smith Company note as a payment on the Grady note, and did not know that such had been done; that Willard, the cashier, had never been authorized by them to accept notes of third persons in payment of any indebtedness to the bank, and he went beyond his authority and disobeyed the instructions given him and the by-laws of the bank in accepting the $1,500 note from Grady as a payment to the bank, if he did so accept it.
The court charged the jury, after stating the contentions of the parties, that the only question for them to determine was whether in the transactions between Grady and Willard on November 16, the $1,500 note of Willard & Smith Company was accepted as an absolute payment on the $5,000 note, or was merely accepted for collection or to be credited thereon when paid. We think this was not the test in this case, whether the plaintiff's note was accepted by Willard as an absolute payment or merely for collection or credit, but the case should be determined rather upon the sound proposition of law that one acting in the capacity as cashier of the bank, and who was at the same time an officer and active manager of another corporation, cannot in law bind the bank in a transaction in which both he and his corporation are adversely interested to the bank, and especially when the third party enters into such transactions with the cashier with full knowledge and notice that the cashier is attempting to so act in a dual capacity. Such transaction is neither binding on the bank as between the cashier nor as to the third party. The authorities seem to be well settled upon this point. In 3 R. C. L. 444, § 71, it is said:
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