State v. Capital City Bank.Appeal of New England Nat. Bank of Kan. City

• Decision Date: 08 June 1927
• Docket Number: No. 3146.,3146.
• Citation: 32 N.M. 369,257 P. 993
• Parties: STATEv.CAPITAL CITY BANK.Appeal of NEW ENGLAND NAT. BANK OF KANSAS CITY, MO.
• Court: New Mexico Supreme Court

32 N.M. 369

257 P. 993

STATE

v.CAPITAL CITY BANK.Appeal of NEW ENGLAND NAT. BANK OF KANSAS CITY, MO.

No. 3146.

Supreme Court of New Mexico.

June 8, 1927.

Syllabus by the Court.

An action cannot be maintained on a contract that is illegal or against public policy, where both parties are equally culpable.

A contract in whose consideration and performance nothing illegal or against public policy inheres may be enforced although it may incidentally aid one in evading or violating a law, the incidental transaction tainted with illegality not being required to be proven to enable the plaintiff to make out his case.

Appeal from District Court, Santa Fé County; Holloman, Judge.

Action by the State against the Capital City Bank, in which the New England National Bank of Kansas City, Mo., presented a claim as a general creditor against the receiver of the bank. From a judgment denying the claim, the claimant appeals. Reversed and remanded, with directions.

See, also, 246 P. 899.

An action cannot be maintained on a contract that is illegal or against public policy, where both parties are equally culpable.

Mechem & Vellacott, of Albuquerque, for appellant.

E. R. Wright, of Santa Fé, for appellees.

RYAN, District Judge.

[1] This is an appeal from the final judgment of the district court for Santa Fé county denying a claim in the principal sum of $34,889.06, asserted by New England National Bank of Kansas City as a general creditor against the receiver of the Capital City Bank of Santa Fé.

The New England National Bank presented its claim to the referee of the insolvent bank, and upon the rejection of the claim prosecuted, by stipulation, an original action at law in the district court of Santa Fé county for money lent.

The claim of the New England Bank is upon two notes. One, for convenience, called the Jaramillo note, originally in the sum of $30,000; the other, for convenience, called the Trujillo note, originally in the sum of $26,005.55. There was subsequent substitutions and renewals of these notes, but such transactions do not affect any of the matters here involved, so, for the sake of clarity, we refer to the original notes only. The Capital City Bank of Santa Fé, a state institution, was adjudged insolvent on the 14th of July, 1923, and its affairs proceeded to liquidation by the receiver under the provisions of the general corporation insolvency act.

With reference to the Jaramillo note, the petition above referred to, filed in the district court, alleges that on or about the 26th of December, 1916, the petitioner, called herein the New England Bank, lent to the Capital City Bank, called herein the Santa Fé Bank, at the request of the latter and to be used in the latter's business, the sum of $30,000, under an agreement between the parties that the New England Bank should carry for the Santa Fé Bank and hold as security for said loan a certain indebtedness due from Jaramillo to said Santa Fé Bank in the sum of $30,000; that this indebtedness was renewed from time to time as evidenced by promissory notes signed by Jaramillo; that payments were from time to time made on such indebtedness, and the balance due renewed, and at the time of the closing of the Santa Fé Bank and the appointment of the receiver, there was owing and unpaid $14,872.60, with interest; and, further, that by the custom and trade usage by bankers, well known to petitioner and defendant and to the banking community at large sufficiently to charge all parties with notice thereof, the agreement to carry such note for defendant meant and was understood to mean that petitioner would loan and advance the face amount of said note to defendant to enable it to use such amount of cash and hold the note as security therefor, and that at maturity said note should either be paid off by defendant or collected by it from the principal maker and the amount remitted or credited by petitioner and the note taken up by defendant.

The same allegations were made with reference to the Trujillo note, except that with regard to it the money was lent and advanced on September 22, 1917, and the amount of the loan was $26,005.55, and the amount due at the time of insolvency was $20,016.46.

The defendant receiver of the Santa Fé Bank denied all the facts alleged as above set forth, so far as they had to do with the existence of the claim, and pleaded by way of affirmative defense that the capital stock of the Capital City Bank was $50,000, and that it had a book surplus of $10,000; that in the conduct of its business it was governed by the provisions of chapter 67 of the Session Laws of 1915 and the various amendments thereto; that during all of said time the maximum amount said bank was authorized to lend to any person, firm or corporation, was the sum of $12,000; “that on or about the 26th day of September, 1916, the said Capital City Bank then and there having loaned to one Venceslado Jaramillo the full amount of $12,000, and said amount, being the maximum amount which under the laws of the state of New Mexico the said Capital City Bank was entitled to loan to the said Venceslado Jaramillo, and the said Venceslado Jaramillo desiring to obtain additional funds and credit from the said Capital City Bank, the said Capital City Bank made and entered into an agreement with the said New England National Bank of Kansas City to obtain for the said Venceslado Jaramillo the additional sum of $30,000, the said $30,000 being the amount referred to in the said amended petition of the said New England Bank; that at the time of obtaining said sum of $30,000 for the said Venceslado Jaramillo from the said New England National Bank, it was understood and agreed by and between the said New England National Bank and the said Capital City Bank that the said note and obligation of the said Venceslado Jaramillo representing said sum of $30,000 while taken in the name of said the Capital City Bank was to be indorsed to the said New England Bank by the said Capital City Bank without recourse, and that said note and all renewals thereof down to some time in the year 1921 were so indorsed to the said New England National Bank without recourse; that at the time of so receiving said note and collateral security attached thereto from the said the Capital City Bank, the said New England Bank well knew that the Capital City Bank could not carry the said paper, note, and obligation of the said Venceslado Jaramillo as a direct loan from the Capital City Bank, because same was an excessive loan and in excess of the legal amount which said Capital City Bank was authorized to loan to the said Venceslado Jaramillo, and at the time of so receiving and accepting said note of the said Venceslado Jaramillo, indorsed without recourse as aforesaid, the said New England National Bank well knew that the purpose and intent of the said Capital City Bank in so indorsing the same without recourse to the said New England National Bank was for the purpose and with the intent of avoiding the provisions of the New Mexico statutes above referred to, and to enable the said the Capital City Bank to avoid reporting to the bank examiner of the state of New Mexico the said obligation of Venceslado Jaramillo as an obligation and indebtedness of the said the Capital City Bank.”

The same affirmative defense is set forth relative to the Trujillo note, and the defendant also alleges with reference to the renewals and substitutions above referred to “that the several renewals were all indorsed without recourse and with a similar purpose and with a similar intent and with a similar knowledge on the part of said New England National Bank for the purpose of aiding the said Capital City Bank to avoid reporting the same as an indebtedness and obligation of the said the Capital City Bank”; and so the defendant charges:

“This receiver further alleges that all of said indebtedness now claimed by the New England National Bank against your receiver was contracted in the manner hereinbefore alleged and not otherwise; that the said New England National Bank at the time of making said original loans and at the time of each renewal and substitution thereof well knew that said loans were excessive loans and in excess of the legal and lawful amount that the said Capital City Bank could loan under the laws of the state of New Mexico to any one individual, copartnership, or corporation, and well knew that the manner of making said loans and indorsing the paper and obligations representing said loans to the said New England National Bank was to enable the said Capital City Bank to avoid reporting the same as obligations of said Capital City Bank, in the reports required by the statutes of the state of New Mexico, to be made to the state bank examiner.”

Because of these things the defendant, the receiver of the Capital City Bank, concludes:

“That the New England National Bank in now presenting its claim on account of said indebtedness as against the receiver of the Capital City Bank is estopped to set up, claim, or contend that by reason of any custom existing among bankers or by reason of any written agreement or oral understanding or guarantee made by the said Capital City Bank the said alleged indebtedness is an obligation against the assets of the said Capital City Bank.”

After the conclusion of the trial had upon the issues framed, estoppel as above set forth being the principal issue, the court made numerous findings of fact and these conclusions of law:

“(1) That the secret arrangement made between the Capital City Bank and the New England National Bank, whereby the Capital City Bank guaranteed verbally, through J. B. Herndon, its president, the payment of the Jaramillo note, and later the payment of the Danner & Hughes note, being made and entered into with full knowledge on the part of the New England National Bank that the indorsement of said notes without recourse was made for the purpose of enabling the ...