Ruohs v. Third Nat. Bank

• Decision Date: 08 November 1894
• Citation: 28 S.W. 303,94 Tenn. 57
• Parties: RUOHS v. THIRD NAT. BANK OF CHATTANOOGA et al.
• Court: Tennessee Supreme Court

28 S.W. 303

94 Tenn. 57

RUOHS v. THIRD NAT. BANK OF CHATTANOOGA et al.

Supreme Court of Tennessee.

November 8, 1894

Appeal from chancery court, Hamilton county; T. M. McConnell Chancellor.

Action by Joseph Ruohs against the Third National Bank of Chattanooga and others to recover the purchase price of town bonds alleged to have been sold under false representations. Judgment was rendered for defendants, and plaintiff appeals. Affirmed.

Pritchard & Sizer and W. H. De Witt, for appellant.

White & Martin, Daniels & Garvin, and Clark & Brown, for appellees.

WILKES J.

Complainant Ruohs, bought 22 bonds purporting to have been issued by the town of Athens, Tenn., in aid of the Nashville & Tellico Railroad Company, each for $1,000, and paid for the same $19,800, or at the rate of 90 cents on the dollar. He afterwards brought suit against the town of Athens to recover the amount then due him on said bonds, when it was held that the charter of the town of Athens was void, and its bonds, as a consequence, were invalid and void even in his hands as a bona fide holder for value, and relief was denied him. See the case of Ruohs v. Athens, 91 Tenn. 20, 18 S.W 400. The present bill is filed to hold the defendants, the Third National Bank of Chattanooga, W. E. Baskett, its cashier, W. H. Hart, vice president, and the representatives of John A. Hart, its president, liable for said bonds. The grounds upon which it is sought to hold the defendants liable are guaranty, express and implied, fraudulent misrepresentations, and mutual mistake in the sale of the bonds to Ruohs, in which it is charged the bank as a corporation, and its officers as individuals, participated. Much proof was taken, and on the hearing the chancellor denied complainant any relief, and dismissed his bill, from which he appealed, and has assigned errors.

There is no controversy but that complainant is a bona fide purchaser of the bonds for full value, and without actual notice of their invalidity; that he paid the sum of $19,800 for them; and that there is a total failure of consideration in the fact that the bonds are invalid and void. Complainant's view of the case is that he was a patron of the defendant bank, kept a large amount of money on deposit in it, had the utmost confidence in its officers, and trusted largely to their representations and statements in his business matters. He was approached by John A. Hart, the president, with an offer to sell him the 22 bonds, and, knowing nothing of them, he sought the advice of Hart, and inquired specially as to the solvency and validity of the bonds, and was assured by Hart that they were regular and valid; that the officers of the bank had made an investigation at Athens, and found the bonds were all right, and they would prove a good investment, and be worth a premium. Hart represented that he would be glad to buy them himself if complainant would lend him the necessary money. He further represented that the bonds belonged to a Louisville party, and the bank was only interested in selling them for a commission. Similar inquiries were made of the cashier, Baskett, and vice president, W. H. Hart, and they also assured complainant that the bonds were good. Complainant, relying upon these representations, made no further inquiries, except to consult legal counsel whether the bonds were regular on their face. Complainant charges that the Harts and Baskett conspired together to mislead him; that they had already bought the bonds for 72 1/2 cents on the dollar, and sold them to complainant for 90 cents, and this was done with the intention, afterwards consummated, to appropriate and divide the profits. The bank filed a demurrer, and demurrers were also incorporated in the answers of the officers as individuals. The bill was amended so as to charge more distinctly conspiracy on the part of the bank and its officers to defraud complainant, and that the defendants acted for the bank as well as for themselves, and that the spoils were divided between the bank and the officers. A second demurrer was filed by the bank, setting up, among other grounds, that the act, as charged, was ultra vires, so far as the bank was concerned. This demurrer was overruled, with liberty to rely on the same in answer.

It is insisted with great earnestness and zeal that the chancellor erred in refusing to grant the relief asked against each and all of the defendants. The grounds on which complainant bases his claim to relief are, in substance: (1) That the officers and bank guarantied the validity and solvency of the bonds by express stipulation, and, if this cannot be maintained, such guaranty will be implied from the transaction itself. (2) That the officers of the bank made false and fraudulent misrepresentations in regard to the bonds and their validity and solvency, upon which complainant relied, and for which he is entitled to hold both the bank and the officers liable to the extent of the bonds, or at least the amount paid for them. (3) If neither of these contentions can be maintained, still complainant can hold both the bank and its officers for the full amount paid for the bonds, on the ground of mutual mistake of the parties in dealing with the bonds, which had no legal existence, and which proved to be utterly void.

It appears that, when the bonds were issued by the town of Athens, they went into the hands of R. L. Bright, president of the railroad company, and were by him hypothecated,-one-half with the First National Bank of Athens, and the other half with the Bank of Fayetteville, Tenn. About the 1st of November, 1888, while Bright was in New York, he sold the bonds to a party to him then unknown, but represented by defendant Baskett. He had previously been negotiating for a sale of the bonds with John A. Hart and Baskett. He states that he did not know the bank at all in the transaction; that the negotiations were made with John A. Hart and Baskett, and, if the bank had any connection with it, he did not know it. He further states, however, that, when he returned, a memorandum was presented to him, showing how the proceeds had been applied, and that $354.75 of the proceeds had been applied as a credit on a note

he owed the bank individually, and that this amount, together with the amounts paid the Athens and Fayetteville banks, and a commission to Baskett of $159.50 (or 1 per cent.), consumed the proceeds of the sale, $15,950. He cannot account for this $354.75 transaction, except by saying that Hart and Baskett, having possession of the money, and being officers of the bank, had it credited upon his note to the bank, and he accounted for the same to the railroad company. He states, in a second deposition, that he knew the bank only as a collecting agent, and did not know it had any interest in the purchase, but supposed he was selling to Baskett and Hart, and possibly other parties than the bank; otherwise, he would probably not have sent the bonds to the bank for collection. Instructions were given to the Athens bank to turn its bonds over to Baskett, and the Fayetteville bank's bonds were sent to the defendant bank for collection from Baskett and associates, if any. Baskett's testimony is that he bought the bonds for John A. Hart, and the bank was not interested in the purchase in any way or to any extent, and had nothing to do with the sale to complainant, and received none of the profits of the sale. It appears that Fisher, the cashier of the Athens bank, on November 9th went to Chattanooga to get his money for the bonds held by his bank as collateral, and was told by Baskett that the bonds had been sold, but that the party buying could not complete his financial arrangements for a week; that the bank was then quite close, otherwise it would loan the purchaser the money to take up the bonds; and thereupon, on Fisher's suggestion that his bank did not need the money, but wanted to close the transaction, and would take a six-months certificate of deposit, without interest, on the Chattanooga bank for the amount due it, Baskett agreed to give, and did deliver to Fisher, the bank's certificate of deposit for the amount due him. The bonds, as a matter of fact, were not at that date sold to complainant, and not until November 26th. In the meantime, on November 21, 1888, the following letter was sent to complainant by John A. Hart, to wit: "Chattanooga, Tenn., Nov. 21, 1888. This morning I received permission to sell the bonds I offered you at 90 cents net. If I had the money, I would prefer buying them myself. If you would loan me the money one year, at 7 per cent., and take them as collateral, I would like to do so; but if not, and you still wish them, please call at the bank, and I will let you have them, or, if you prefer, I will bring them over to your house. I must have a final answer Friday morning at 10 o'clock. Please answer. Yours, very truly, John A. Hart."

Complainant states that the negotiations were made with complainant for the sale of the bonds mostly at the banking house, and were conducted sometimes between complainant and John A. Hart, and at other times between complainant and Baskett, and again between complainant, Baskett, and John A. Hart, and once or twice pending the negotiations W. H. Hart talked with complainant about the bonds and the pending sale. The trade was finally consummated in the president's room in the bank. It also appears that W. H. Hart, at the instance of John A. Hart, went to Athens to investigate the bonds, and interviewed Ivins, the mayor, for information. His version is that Ivins told him some citizens had talked about enjoining the bonds, but that all difficulty had been removed; and W H. Hart reported this to John A. Hart and Baskett. Ivins says he stated to Hart that there was much...