Wald v. Wheelon

• Decision Date: 20 May 1914
• Citation: 27 N.D. 624,147 N.W. 402
• Parties: WALD v. WHEELON et al.
• Court: North Dakota Supreme Court

27 N.D. 624

147 N.W. 402

WALD

v.WHEELON et al.

Supreme Court of North Dakota.

April 1, 1914.

On Rehearing, May 20, 1914.

Syllabus by the Court.

A customer doing business with a state bank is charged with knowledge of the law relating to the amount that can be loaned to one person.

As a general rule, contracts to perform acts forbidden by express statute, or which subject the parties to punishment, are unenforceable. To this rule there are some exceptions.

Where the intent of the Legislature in enacting a statute limiting the size of individual loans was to protect depositors and other customers of the bank, the law will be so construed as to give effect to the legislative intent.

One of the tests applied to determine whether an action for damages can be maintained for the breach of a contract calling for the performance of criminal acts is, Can the plaintiff establish his case otherwise than through the medium of the illegal transaction to which he himself was a party?

An executory contract, made between the bank and a customer, in which the bank agrees to make the customer a loan in excess of the amount which it is permitted by law to loan to one person, subjects the officers of the bank, if the loan is made, to conviction and fine, under the provisions of section 4668, Revised Codes of 1905, and the bank to a forfeiture of its franchise under section 4663, Revised Codes of 1905. Held, that by reason of these provisions, a loan in excess of 15 per cent. of the capital and surplus of the bank to one individual would be illegal, and that therefore a contract to make such a loan, when violated, does not subject the bank to damages for its breach.

Applying the principles above announced to the facts in this case, it is held that the plaintiff cannot recover in an action against the defendant bank for damages for failure to make a loan, which it is alleged the cashier of the bank agreed to make, in excess of the limit fixed by law.

Appeal from District Court, McHenry County; A. G. Burr, Judge.

Action by John F. Wald against S. W. Wheelon and the Farmers' State Bank of Towner, N. D. From judgment for plaintiff, the defendant bank appeals. Reversed, with directions, and rehearing denied.

A M. Christianson, of Towner, Engerud, Holt & Frame, of Fargo, and J. F. Callahan, of Casselton, for appellant. H. B. Senn and A. E. Coger, both of Rugby, for respondent.

SPALDING, C. J.

[5][6] Can there be a recovery of damages for the violation of a contract, the execution of which would constitute the commission of a crime by the officers of the defendant? This is the question to be considered on this appeal. For an understanding of the facts we may state that the action was brought to recover damages for the failure of the defendant, a state bank, to make a loan to the plaintiff as agreed, and therewith to pay the sheriff of McHenry county March 15, 1910, the sum necessary to effect a redemption of certain real estate from a foreclosure sale, and for which the time of redemption expired on such date, and which, it is alleged, went to sheriff's deed by reason of defendant's breach of contract. Damages in the sum of $6,500 were demanded. The answer denies any contract whatsoever with respect to the payment of any obligations of the plaintiff or any liens or foreclosure against the property, and as a further defense it is alleged that the defendant is a banking corporation organized under the laws of this state, and that the contract set forth in the complaint was wholly beyond the power and authority of any officer of the defendant to enter into by or on the behalf thereof, and wholly in excess of the powers of the defendant bank, and, therefore, void and unenforceable. One Wheelon, cashier of the bank was made a party defendant, but in the course of the trial the action was dismissed by consent as to him. A verdict for $500 was rendered in favor of plaintiff and judgment entered thereon. This appeal is from the judgment, and also from an order denying defendant's motion for judgment notwithstanding the verdict. In this court the only distinctive assignments of error insisted upon are the second and third, raised in the motion for a directed verdict. These points are that the agreement alleged would be unlawful, and consequently void and unenforceable, because its execution necessarily involved the commission of a crime, and, second, because the bank was not bound by the agreement, as the making of such an agreement was not within the express, implied, or ostensible authority of the cashier. We do not find it necessary to consider separately the last point, as it necessarily follows from our conclusion on the first point that it is well taken. It appears that the plaintiff had various conversations with Wheelon, the cashier, with reference to the bank making a loan sufficient to take up the indebtedness against his property and save it from going to sheriff's deed. There were a number of mortgages against it, and over $4,000, was needed. For the purpose stated an application and papers were executed for a loan of $4,000, which Wheelon thought he could procure. It appears that in the attempt to make this loan, Wheelon, either on his own behalf, or on behalf of the bank, was only acting as a negotiator; that it was not proposed that the bank itself make the loan. Wheelon found it impossible to secure $4,000 on the security offered. New papers were prepared for a loan of $3,000, or a trifle over the mortgage or mortgages and notes running to the bank. The plaintiff was to raise by other means something like $1,300, or enough, when added to the proposed loan, to make possible the redemption and the lifting of certain other mortgages on the property. As to the merits we may say in passing that the evidence to sustain the verdict, is at the best very slight. It discloses considerable uncertainty as to whether the minds met, as to what was to be done with reference to the additional amount to be raised by plaintiff. On his part, it tends to show that something was to be done by the bank, while on the other hand, Wheelon claims to have understood that the plaintiff was to raise his part and then call on the bank, so they could cooperate in making redemption and in discharging the mortgages. Defendant's evidence is emphatic on this point. The papers were sent to a bank in another town for execution, for the accommodation of the plaintiff. They were executed before the cashier of that bank, and were by him placed in a basket in the bank, where the employés of the bank deposited mail intended to be taken to the post office. No showing is made as to what became of them, but they were supposed to have been taken from the basket by somebody and mailed, and a copy of a letter written by the cashier of that bank was received in evidence, but there is no proof that the papers were in fact mailed. Wheelon testifies on behalf of the defendant that the defendant bank never received them. By reason of failing to receive the executed papers, or to hear from the plaintiff it seems to have assumed that he had abandoned the deal, and therefore, did nothing toward making a redemption, and the land went to deed. This recitation shows the circumstances surrounding the transaction. We do not understand it to be controverted that defendant, through the cashier, Wheelon, agreed to make the loan. It is stipulated that the capital and surplus of the defendant was $12,000. Under the prohibitions of section 4657, R. C. 1905, the most that the defendant could loan to any one person was $1,800, and by section 4668, R. C. 1905, any officer of any banking association loaning to one person more than 15 per cent. of its capital and surplus actually paid in is subject on conviction to a fine of not less than $50 nor more than $500. Hence, if this loan had been made, the cashier and any other officer of the bank participating in negotiating it would have been subject to prosecution for violation of this provision, and under the provisions of section 4663, R. C. 1905, a forfeiture of the bank's franchise would have worked.

[1] The plaintiff was charged with knowledge of the limitation of the amount which the bank could loan to one person. This is well established by authority. He is chargeable with knowledge of the law and of the amount of any loan which can lawfully be made on the capital and surplus possessed by the bank. There is a distinction between cases in which knowledge or constructive notice is furnished by public records and the statute and those cases in which some fact not disclosed in that manner may affect the transaction. If the borrower must go to the records of the bank or sources extrinsic, the law, or public records, he may not be charged with notice of the limitations of the bank's authority; as, for instance, if he were seeking to secure a loan which the bank might ordinarily make, but which, by reason of the depletion of the reserve required by statute to be maintained, it was not permitted by law to make, and made a contract for such a loan, and such a contract was violated by the bank, he probably would not be charged with notice of the condition of the reserve; but in the case at bar, the law and the public records give complete information as to the authority of the bank to make a loan of any given size. In re Assignment Mut. Ins. Co., 107 Iowa, 143, 77 N. W. 868, 70 Am. St. Rep. 149; Bailey v. Meth., etc., Church, 71 Me. 472; Jemison et al. v. Citizens' Savings Bank, 122 N. Y. 135, 25 N. E. 264, 9 L. R. A. 708, 19 Am. St. Rep. 482;Bissell v. Railroad Cos., 22 N. Y. 258;Monument Nat. Bank v. Globe Works, 101 Mass. 57, 3 Am. Rep. 322; Chambers v. Falkner, 65 Ala. 448; Hood v. N. Y. & N. H. R. Co., 22 Conn. 1; Franco-Texan Land Co. v. McCormick, 85 Tex. 416, 23 S. W. 123, 34 Am. St. Rep. 815;Durkee v. People, 155 Ill. 354, 40 N. E. 626, 46 Am. St. Rep. 340;Elevator Co. v. Memphis, etc., R. R. Co., 85 Tenn. 703, 5 S. W. 52, 4...