Madison Nat. Bank v. Lipin

• Decision Date: 27 January 1975
• Docket Number: Docket No. 17820,No. 2,2
• Citation: 57 Mich.App. 706,226 N.W.2d 834
• Parties: , 16 UCC Rep.Serv. 1111 The MADISON NATIONAL BANK, Plaintiff-Appellee, v. Max LIPIN, Defendant-Appellant
• Court: Court of Appeal of Michigan — District of US

Page 834

226 N.W.2d 834

57 Mich.App. 706, 16 UCC Rep.Serv. 1111

The MADISON NATIONAL BANK, Plaintiff-Appellee, v. Max LIPIN, Defendant-Appellant.

Docket No. 17820.

Court of Appeals of Michigan, Division No. 2.

Jan. 27, 1975.

Released for Publication March 19, 1975.

Hal O. Carroll, Goldsmith, Yaker & Goldsmith, Troy, for defendant-appellant.

Tony Ferris, Mt. Clemens, for plaintiff-appellee.

Before BRONSON, P.J., and HOLBROOK and V. J. BRENNAN, JJ.

HOLBROOK, Judge.

Plaintiff, a bank chartered under 12 U.S.C. § 21 et seq., brought an action to recover on renewal notes against Max Lipin, defendant. Plaintiff moved for summary judgment on the basis that defendant's answer had failed to state a valid defense to the claim asserted against him and that there was no genuine issue of material fact. GCR 1963, 117.2(2) and (3). This motion the trial court granted and entered judgment in favor of plaintiff for the sum of $12,900 plus interest in the amount of $1,662.05, plus costs of $157.60 for a total of $14,719.65. In addition, interest was ordered at the rate of 7% From June 20, 1973.

Motions based upon GCR 1963, 117.2(1) or 117.2(2) are tested by the pleadings alone. Todd v. Biglow, 51 Mich.App. 346, 349, 214 N.W.2d 733, 734 (1974). Interrogatories and depositions are relevant, however, when the ground stated for summary judgment is that there is no genuine issue of material fact. Id. In George E. Snyder Associates, Inc. v. Midwest Bank, 56 Mich.App. 193, 195--196, 223 N.W.2d 632, 633 (1974), Judge Brennan, of this panel, wrote:

'A motion for summary judgment under GCR 1963, 117.2(3), made before trial has commenced, is not to be granted unless it can be said, giving the benefit of every reasonable doubt to the party opposing the motion, that there is no genuine issue as to any material fact. Rizzo v. Kretschmer, 389 Mich. 363, 207 N.W.2d 316 (1973); Rowen & Blair Electric Co. v. Flushing Operating Corp., 49 Mich.App. 89, 211 N.W.2d 527 (1973). In determining whether such an issue does indeed exist, a court is required to consider all affidavits filed in the action 'together with the pleadings, depositions, admissions, and documentary evidence then filed in the action or submitted by the parties'. GCR 1963, 117.3.'

Thus, for our review of the trial court's determination that summary judgment should lie, we review the pleadings, affidavits and depositions. We will give the benefit of every reasonable doubt to defendant. See also Peoples Wayne County Bank of Dearborn v. Harvey, 268 Mich. 47, 49, 255 N.W. 436, 437 (1934).

In light of the foregoing, the fact that no trial was held and the rule that we view the allegations and asserted claims in the light most favorable to the defendant, the following facts are revealed. On March 24, 1964, defendant was approached by Howard Hamilton, the president and chairman of the board of directors of the Madison National Bank at the time, as to the possibility of purchasing stock in the bank. Defendant stated that he had had similar dealings with Mr. Hamilton while Hamilton was with another bank. To Hamilton's offer, defendant replied that he had no available funds. Hamilton told him that he would accept a promissory note. Defendant signed a note for $5000; Hamilton took a check to defendant; and defendant indorsed the check and returned it to Hamilton. Defendant stated that he did not know how much stock he had purchased or whether it would come from Hamilton, the bank or a third party. Defendant did not determine or inquire as to whether there was a new stock issue authorized by the bank. Two similar transactions later occurred, one a note for $8500 and a second note for $7500. Defendant dealt only with Hamilton and had no knowledge as to whether any other person knew of the transaction. Defendant never received stock certificates or any acknowledgment that a certificate was being held in deposit. Every three months defendant received renewal notes with the amount left blank. He routinely signed and sent these back to the bank. A bank employee at the time in question, in a deposition, testified that when she received the signed renewal notes from defendant, she gave them to Hamilton. Defendant made a $2500 payment on the principal on the first note and in late 1971 paid $200 plus an amount for interest, which he stated he received from Hamilton while Hamilton was on vacation. Defendant, in his deposition, stated that Hamilton had told him that 'I'll handle it when I get back. Take this over there any pay it.' Defendant had made no other interest payments and testified he assumed the bank was making these payments. Hamilton left the bank in August 1971 and shortly thereafter defendant was informed that he owed $12,900 on renewal notes.

Plaintiff's complaint stated that defendant had executed and delivered renewal notes of $7900 and $5000 made on August 30, 1971 and August 16, 1971, respectively, and that such were due and owing. Precisely how the original principal of $21,000, subtracting the payments of $2500 and $200, has become $12,900 is unexplained. In his answer, defendant admitted the execution and delivery of the notes but asserted, by the way of affirmative defenses, that he never received the stock and that the notes sued upon were based upon the representations and warranties of the president of the Madison National Bank, Howard Hamilton. In other words, defendant asserted (1) failure of consideration and (2) fraud. While the precise legal basis for the trial court's determination is not set out, the following interchange is informative:

'The Court: The court is of the opinion that the motion for summary judgment should be granted. The court is of the opinion that the undisputed facts are as to renewal of the notes, and you are bound by the instant writing and parol evidence rule, unless there are other facts which contravene it. There aren't any other facts which are pleaded which would in any way alter that rule of waiver.

'The court is of the opinion that the defense is a good one, based on the statute, the fact that the statute prohibits sale of its own stock by a national bank.

'The court is of the opinion that summary judgment should enter. The court will sign an order to that effect.

'Mr. Carroll (defense attorney): Your honor, I am a little unclear. You said you were of the opinion that--you said the 'defense' was a good one? That is our position.

'The Court: I misspoke myself. I'm sorry. Strike that. I didn't mean that.' (Emphasis supplied.)

Defendant has here appealed the summary judgment and set out three issues. Plaintiff has answered in five issues which do not readily comport with the three set out by defendant. We, therefore, pass upon what we consider to be the relevant issues in this case and set them out in the order we find to be proper.

Hamilton's authority

Generally, it is said in 10 Am.Jur.2d, Banks, § 99, p. 103:

'Officers of a bank are but its agents and, like other agents, can bind the bank only when acting within the scope of their authority; But when a bank opens its doors for business with the public and places officers in charge, persons dealing with them in good faith and without any notice of any want of authority will be protected where an act is performed in the apparent scope of the officer's authority, whether the officer is actually clothed with such authority or not.' (Emphasis supplied.)

Also see Anno., Powers of bank president or vice president, 67 A.L.R. 970, 971, and Anno., Responsibility of bank for fraud of officer or agent inducing customer or debtor of bank to enter into transaction with such officer or agent personally or with third person, 117 A.L.R. 389. 1 Restatement Agency, 2d, § 261, p. 570 provides:

'A principal who puts a servant or other agent in a position which enables the agent, while apparently acting within his authority, to commit a fraud upon third persons is subject to liability to such third persons for the fraud.' ¹

§ 262, p. 571 states:

'A person who otherwise would be liable to another for the misrepresentations of one apparently acting for him is not relieved from liability by the fact that the servant or other agent acts entirely for his own purposes, unless the other has notice of this.'

Notwithstanding the plaintiff's assertion that it cannot be held liable for the representation and acts of its agent in selling stock which the bank per se was not authorized to sell (discussed below), we rule that the determination of whether Hamilton was authorized to make the representation, I.e., whether this was within his apparent authority as president and chairman of the board of directors of the bank, is a question of fact--a genuine issue of material fact.

LIABILITY OF A BANK FOR ALLEGED FRAUDULENT SALE OF STOCK BY PRESIDENT AND CHAIRMAN OF BOARD OF DIRECTORS OF THE BANK WHEN THE BANK LEGALLY COULD NOT SELL SUCH STOCK.

Plaintiff has based much of its argument on the fact that a national bank does not have power to sell its own stock except as permitted by certain provisions of the National Banking Act, which specific provisions are herein inapplicable. ² In effect, plaintiff is saying that defendant's assertions of failure of consideration and fraud are irrelevant in that the asserted action of Hamilton was Ultra vires for the bank and thus for him. We find that this approach confuses more than controls. It is undisputed that the bank did not have authorization to sell its stock; however, the question is what liability the bank may have for the attempted sale of such non-authorized, nonexistent stock by one of its officers.

As a general proposition, a plea of Ultra vires is not available to corporations in Michigan. M.C.L.A. § 450.11; M.S.A. § 21.11 (Now M.C.L.A. § 450.1271; M.S.A. § 21.200(271)). See Vander Meer v. Weurding, 227 Mich. 46, 53, 198 N.W. 828, 830 (1924). ³

In Briggs Commercial & Development Co. v. Finley, 283 Mich. 1, 3, 276 N.W. 877 (1937), it is said:

'There...