Vallely v. Devaney

• Decision Date: 23 July 1923
• Citation: 49 N.D. 1107,194 N.W. 903
• Parties: VALLELY v. DEVANEY et al.
• Court: North Dakota Supreme Court

49 N.D. 1107

194 N.W. 903

VALLELY

v.DEVANEY et al.

Supreme Court of North Dakota.

July 23, 1923.

Syllabus by the Court.

Where notes are given to a bank at the solicitation of its president to enable it to carry, in a form satisfactory to the bank examiner, an indebtedness owing by a corporation in which the president and the makers and indorsers of the notes are personally interested, and where the bank subsequently fails and the receiver sues on the notes, the makers and indorsers are estopped to defend on the ground that the notes were given for the accommodation of the bank.

Where the undisputed evidence shows that the notes were given pursuant to the arrangement stated above, with the understanding between the president of the bank and the makers and indorsers of the notes that the latter were not to be held personally liable, and that the notes were not to be paid by them, the defendants are estopped, as against the receiver, to assert in defense that the president of the bank entertained a secret fraudulent intention to hold them personally liable to the bank.

Additional Syllabus by Editorial Staff.

One is not entitled to a judgment, notwithstanding the verdict, if the verdict is justifiable on the most favorable construction of the evidence.

Appeal from District Court, Cavalier County; C. W. Buttz, Judge.

Action by John Vallely, as receiver of the State Bank of Milton, against Thomas Devaney and others. From a judgment for defendants, and an order denying a motion for judgment notwithstanding the verdict, or in the alternative for a new trial, plaintiff appeals. Reversed and remanded, with directions.McIntyre, Burtness & Robbins, of Grand Forks, and G. Grimson, of Langdon, for appellant.

Price & Pierce and Thomas Devaney, all of Langdon, for respondents.

BIRDZELL, J.

This is an appeal from a judgment for the defendants and from an order denying a motion for judgment notwithstanding the verdict, or in the alternative for a new trial in three consolidated actions upon as many promissory notes. By stipulation, two additional actions, each on separate notes, abide the result of these cases. The facts are as follows:

In 1918, one W. L. Dodson purchased a large herd of cattle at some distant point and took them to Cavalier county. In connection with the purchase he had given his note to the St. Paul Cattle Loan Company of South St. Paul for $28,000. This note was indorsed by B. Prom and was secured by a chattel mortgage on the cattle. From this herd some cattle were afterward sold to the defendant Benoit, some to the defendant Beauchamp, and some to the defendant Marcotte, all farmers living in the vicinity of Milton. In the summer of 1919, Benoit, Beauchamp, and Marcotte, together with the other defendants in this action, Devaney and Sullivan, organized a corporation under the laws of this state, which was known as the Northern Live Stock Company. When this company was organized, the directors were Sullivan, Devaney, Marcotte, Beauchamp, Sheehan and Prom. Benoit was made president; Devaney, secretary; and Sheehan, treasurer. During the remainder of the year 1919. meetings were held and negotiations conducted with a view to the acquisition by the company of a large herd of live stock and of considerable land for ranch purposes. These negotiations were practically completed in December, and soon after the first of the year, January 12th, a meeting was held at which they were finally completed. The details of the arrangement are not clear in the record and are perhaps immaterial. But it does appear that the various interested individuals named above turned their herds in to the company, each taking what is termed a lien note in settlement. The manner in which the corporation stock was distributed does not appear, except it does appear that Prom obtained $5,000 of stock on account of the purchase of the Dodson herd. There seems to have been an understanding reached, prior to the meeting of January 12, 1920, that no mortgage should appear as being given by the live stock company, so that the company might obtain the advantage of a better credit rating. Hence the so-called lien notes. It was apparently recognized at the January meeting that cattle were being turned in to the company upon which there were mortgages. The testimony is conflicting as to the discussion of the mortgages at this meeting, but the defendants all agree it was understood that the individuals, except Dodson, who turned their herds in, were to pay off their mortgages or secure releases. They further claim that at the time of this meeting they did not know of the South St. Paul Cattle Loan Company mortgage on the Dodson herd. They testify also that, while the subject of mortgages was under discussion, and while each of the other owners stated the amount of the mortgage against his herd, Dodson and Prom remained silent, thus giving the impression that the Dodson herd was clear. It appears that the defendants in this action, other than Sullivan, did later clear up the mortgages on their herds.

Early in July, 1920, Prom requested Benoit, the president of the live stock company, to accompany him to St. Paul. While they were there they went to the Stockyards National Bank for the purpose of securing an extension of the $28,000 loan. Prom gave his note for $26,000 and secured Benoit's indorsement. He returned with this note to Milton and stated to the remaining members of the board of directors of the live stock company that the loan would be extended if they would indorse this note; that otherwise it would be foreclosed; and that, inasmuch as the mortgage covered so large a percentage of the cattle taken over, this would practically put the live stock company out of business. Upon these representations the note was indorsed by the remaining directors. They claim, however, to have derived from this transaction an understanding that Prom was to pay this debt personally. Soon after this, Benoit, as president of the company, shipped some three carloads of cattle to St. Paul and applied the proceeds on the cattle company loan.

Up to this time expenses were being incurred in the care of the cattle which had been met by the State Bank of Milton in the following manner: Upon a note of the Northern Live Stock Company, dated December 1, 1919, due April 1, 1920, indorsed by Sullivan, Marcotte, Beauchamp, and Benoit, the bank advanced $1,000; upon a note of the Northern Live Stock Company, dated January 10, 1920, and due the 1st of May, the bank had advanced $693.22; upon a note of Benoit, dated January 12, 1920, and indorsed by Sullivan, Marcotte, and Devaney, and which was payable on or before the 12th of May, the bank advanced the amount of the note, $1,462; and upon the company note, dated January 31st and due the 15th of June, guaranteed by Devaney, Sullivan, Marcotte, Benoit, and Beauchamp, $1,000; total $4,155.22.

There was more than $5,000 paid out for the company on the checks of Benoit, over and above the funds derived from the notes, which was carried as an overdraft, so that by August 1, 1920, there was due the bank, on account of notes, overdraft, and interest, $10,133.84. Prom was president and managing officer of the bank. On or about August 1st, Prom met with the other directors of the Northern Live Stock Company at the office of Devaney, in Langdon, and proposed to them that they execute notes respresenting the amount that had been thus advanced for the benefit of the cattle company. It seems that previous to the meeting he had prepared notes for execution. At that meeting, notes were given by the various makers, dated August 1, 1920, in amounts as follows: Devaney, $2,000; Beauchamp, $2,000; Benoit, $3,000; Northern Live Stock Company, $2,500; Northern Live Stock Company, $633.84. Each of the individual notes was indorsed by the remaining four members of the board of directors, except Prom, and the company notes were indorsed by all except Prom. The failure of Prom to execute or indorse the notes, according to the explanation given at the time, was due to the fact that they were to be held by the bank and he could not, as an officer of the bank, appear to be liable. These are the notes upon which the present actions were brought.

The testimony is to the effect that at the time the notes were executed, it was stated by Prom, in substance, that he desired the notes so that he might carry the live stock company loan in a manner that would be unobjectionable to the bank examiner and that, if these notes would be executed, the company debt would be in such shape that the bank could carry it; that, upon being asked whether or not the individuals were to be liable, he had stated, in substance, that they would not be liable; that the entire obligation would be met from the assets of the live stock company; that he spoke of a prospective sale which a real estate broker was negotiating under a listing contract of some weeks' standing, and that the proceeds of this sale would more than liquidate the company obligations, and that these obligations would be the first to be satisfied out of the proceeds. The notes, aggregating $4,155.22, which were past due, were turned over to the secretary of the live stock company, marked “renewed” across the face. The secretary states, however, that the meeting had adjourned before the notes were delivered to him, and that they were included among some papers handed him by Prom with an...