Security State Bank of Wishek v. State

• Decision Date: 30 October 1970
• Docket Number: No. 8663,8663
• Citation: 181 N.W.2d 225
• Parties: SECURITY STATE BANK OF WISHEK, Plaintiff and Respondent, v. STATE of North Dakota, doing business as the Bank of North Dakota, Defendant and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 225

181 N.W.2d 225

SECURITY STATE BANK OF WISHEK, Plaintiff and Respondent, v. STATE of North Dakota, doing business as the Bank of North Dakota, Defendant and Appellant.

Civ. No. 8663.

Supreme Court of North Dakota.

Oct. 30, 1970.

Rehearing Denied Dec. 4, 1970.

Syllabus by the Court.

1. That Section 40--57--10, N.D.C.C., prohibits a bank chartered by the State of North Dakota from purchasing revenue bonds in excess of the limit provided for therein does not entitle such a bank to rescind its purchase of such revenue bonds from the Bank of North Dakota as seller after the purchase is completed and the municipality has defaulted on its bonds.

2. Section 40--57--03, N.D.C.C., provides for the powers of municipalities and Subsection (2) thereof permits municipalities to issue revenue bonds such as the bonds issued by Cass County in the instant case. The bonds issued in the instant case were municipal securities under that statute, notwithstanding they were not general obligations of the municipality.

3. The plaintiffs in the instant case, the Security State Bank of Wishek and the president of that bank, are not entitled to recover on the basis of mistake of fact under Section 9--03--13, N.D.C.C., for the reason that the mistake fo fact committed in this case resulted from a neglect of a legal duty to carefully ascertain the type of securities offered before they were purchased.

4. The power to cancel for mistake should not be exercised against a party whose conduct has in no way contributed to or induced the mistake, and who will obtain no unconscionable advantage thereby.

5. That neither the State, doing business as the Bank of North Dakota, as the seller of securities, nor a bank chartered by the State of North Dakota, as the purchaser of securities, was cognizant of the restriction contained in Section 40--57--10, N.D.C.C., does not justify a rescission of the contract under Subsection (1) of Section 9--03--14, N.D.C.C., as such fact does not constitute a misapprehension or a misunderstanding by the parties of the meaning of any particular law, but instead constitutes an ignorance of the law which cannot be excused. That a bank chartered by the State of North Dakota was unaware of the restriction against its purchase of bonds contained in Section 40--57--10, N.D.C.C., does not entitle it, under the provisions of Subsection (2) of Section 9--03--14, N.D.C.C., to rescind the contract of purchase, when the other party to the contract, namely the State of North Dakota acting through the Bank of North Dakota, was not cognizant of the limitation contained in Section 40--57--10, N.D.C.C., and its effect upon the chartered state bank.

Helgi Johanneson, Atty. Gen., and Robert A. Birdzell, Special Asst. Atty. Gen., Bismarck, for defendant and appellant.

Vogle, Bair & Brown, Mandan, for plaintiff and respondent.

ERICKSTAD, Judge.

The State of North Dakota, doing business as the Bank of North Dakota, as defendant in this action, appeals to this court from a judgment of the district court of Burleigh County entered May 29, 1970, in favor of the plaintiffs, Security State Bank of Wishek, a domestic banking corporation, and Walter R. Sayler, in the sum of $89,401.80. The State demands a trial de novo in this court.

This litigation arises out of the sale by the Bank of North Dakota to the Security State Bank of Wishek of Cass County Industrial Development Revenue Bonds for $80,000 (the face value of the bonds), plus interest which had accrued on those bonds at the rate of 5 percent per annum from February 1, 1967, to December 22, 1967, in the sum of $3,566.67. The coupons maturing on February 1, 1968, and August 1, 1968, were clipped and collected by the plaintiffs, and no problems arose over the sale until the Bank of North Dakota contacted Mr. Sayler, the president of the Bank of Wishek, by telephone in Arizona early in 1969, when it became apparent that the County was about to default in the payment of the principal and interest on some of its bonds, in an effort to secure the agreement of the Bank of Wishek to a so-called moratorium whereby all of the purchasers of the bonds were to agree to permit an extension of the maturity date of said bonds and to permit a defernment in the payment of interest thereon. It is Mr. Sayler's contention that it was on this occasion that he first learned that the bonds which his bank had purchased were not general obligation bonds of the County and thus were not guaranteed by the County, and that on learning this he returned the very next day and made a demand of the Bank of North Dakota that it accept a return of all of the securities and that it refund to the Bank of Wishek the purchase price of the securities.

It is Mr. Sayler's further contention that when there was no compliance with this request, he brought this action to recover the entire purchase price of the bonds.

Mr. Sayler also asserts that it was the same date on which he conferred with the officials of the Bank of North Dakota, and made the demand above referred to, that he later visited with the State Bank Examiner, who informed him that the Bank of Wishek was in violation of Section 40--57--10, N.D.C.C., in that the stated capital of the Wishek bank was only $50,000 and that it was thus prohibited from owning bonds of this type in excess of 5 percent of the stated capital, or $2,500 of such bonds.

Section 40--57--10 reads:

40--57--10. Sale of revenue bonds.--Revenue bonds shall be sold at not less than ninety-five percent of par plus any accrued interest. Such bonds may be sold at private sale, or such bonds may be sold at public sale after notice of such sale has been published once at least five days prior to such sale in a newspaper circulating in the municipality, and in at least two financial newspapers published in Chicago, Illinois, in New York, New York, in Minneapolis, Minnesota, or in San Francisco, California. Banks chartered in this state may purchase the revenue bonds issued under the provisions of this chapter in an amount not to exceed five percent of their capital.

North Dakota Century Code.

The material allegations of the plaintiffs' complaint follow:

I

The plaintiff, Security State Bank of Wishek, is a domestic banking corporation, and this action is brought pursuant to the provisions of Section 6--09--27, NDCC.

II

Pursuant to the suggestion of the State Examiner of the State of North Dakota, the plaintiff, Security State Bank, requested from the Bank of North Dakota offers to sell municipal bonds in the approximate amount of One Hundred Thousand ($100,000.00) Dollars. In response to such solicitation, the Bank of North Dakota on December 8, 1967, in writing offered for sale certain 'municipal securities', including Cass County Industrial Development Revenue Bonds of 1967. Pursuant to such offer, and pursuant to the express warranty of the Bank of North Dakota, that such bonds were municipal securities, the plaintiff, Security State Bank of Wishek, ordered and purchased Eighty Thousand ($80,000.00) Dollars face value of such bonds at par and accrued interest, and paid for same.

III

At the time of making such offer to sell, solicitation and sale, the Bank of North Dakota knew, or should have known (1) that such bonds were not municipal securities, in that they were not guaranteed as to payment of principal or interest by any municipality, and (2) that under the express provisions of Section 40--57--10, NDCC, North Dakota banks were not permitted to invest more than five (5) per cent of their capital in such securities, and that the plaintiff, Security State Bank, was therefore limited to an investment of Two Thousand Five Hundred ($2,500.00) Dollars in such securities.

IV

Upon subsequent examination by the State Examiner, such bonds, to the extent of Seventy-seven Thousand Five Hundred ($77,500.00) Doaars thereof, were disallowed as admissible assets of the plaintiff, Security State Bank, and Walter R. Sayler, the individual plaintiff herein, as majority stockholder of said bank, necessarily agreed to purchase or reimburse the bank for any loss on account of such purchase, to his damage.

V

That such bonds are now in default as to the payment of interest.

VI

That the defendant has been guilty of breach of contract, and of fraud and deceit and misrepresentation, upon which the plaintiffs justifiably relied to their detriment, and the plaintiffs hereby rescind their purchase of such bonds and offer to restore them to the defendant upon repayment of the sum paid therefor, with interest.

WHEREFORE, plaintiffs pray:

(1) That the transaction described herein be declared rescinded, null and void;

(2) That the defendant reimburse the plaintiffs for the cost of such bonds, with interest from the date of purchase;

(3) That the plaintiffs have their costs herein, and such other and further relief as to the Court seems just.

The State denied the material allegations of the complaint and in addition asserted affirmative defenses, the material parts of which read:

I

That the defendant is an agency of the State of North Dakota created and existing under and by virtue of the laws of the State of North Dakota.

II

That on or about the Fifth day of January, 1968, the defendant delivered to the plaintiff, Security State Bank of Wishek, at its special instance and request and in consideration of payment by it of the total sum of $83,566.67, exclusive of shipping charges, certain Cass County Industrial Development Revenue Bonds of 1967 in the aggregate face amount of $80,000.00, each and all of which bonds were dated as of February 1, 1967, and had theretofore been issued according to law by Cass County, a duly organized and existing political subdivision of the State of North Dakota, payable to bearer in fully negotiable form with bearer form negotiable interest coupons attached payable semi-annually on the first days of February and August each year, which bonds carried endorsed on each thereof...