Libby v. Union National Bank

Mr. Justice Dickey delivered the opinion of the Court: Several questions are presented for our consideration by this record. The theory of appellants is, that the bank, having a claim against Adam Smith and others of over $30,000, inadequately secured, accepted the deed from Libby to Coolbaugh in payment of that demand, and to accomplish that end agreed to pay, in addition to the amount of this demand, the sum of $22,000 in money, to be paid' in three years, with interest; that the title to the land was taken to Coolbaugh to hold and sell for the bank, and hence the debt to Libby is really the debt of the bank. The first question naturally arising is, whether the Eational bank has power, under its charter, to buy and hold real estate for such a purpose. If the nature of the transaction be in truth such as is claimed by appellants, there can be but little question of the power of the bank in this regard. It is provided by the act ,of Congress, that a national banking association may purchase, hold and convey real estate for certain enumerated purposes, and “ for no others.” Among the purposes enumerated is included such real estate “as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings.” If, therefore, the real purpose of this conveyance was to secure the satisfaction of the indebtedness evidenced by the Adam Smith notes, it was entirely competent for the bank to make the purchase in question. This question was discussed in Mapes et al. v. Scott et al. 88 Ill. 355, and by the views there expressed the power of the bank to purchase and hold real estate in the manner claimed in this case seems to be beyond question. If in this case the subject of this purchase had been laid before the directors of the bank, and Mr. Coolbaugh had been directed to buy off Libby’s prior and superior claim at $22,000, and by an arrangement with Smith and Libby to surrender to Libby, for Smith, the $30,000 claim of the bank against Smith for a clear title to this land, to be conveyed to Coolbaugh for the benefit of the bank, — and all this for the purpose of securing in this way the payment of this $30,000 claim, — we imagine none could be found to deny the capacity of the bank to thus purchase real estate for the satisfaction of a debt contracted in the ordinary course of business. The next question in order seems to be whether Mr. Coolbaugh had authority to act for the bank in this regard, so as to make his acts the acts of the bank. It would seem there can be but little doubt upon this question. Coolbaugh was not only the president of the bank, clothed with official authority as such, but he was the general agent and manager of the affairs of the bank, and had been from its very organization. This the proof shows abundantly. His powers, as shown by a long course of action known to and acquiesced in and evidently approved by the directors, fully warranted him in accepting in satisfaction of suspended paper any valuable thing which, in his judgment, it seemed wise to accept. It is strenuously insisted, because there is no special grant of such power to him, as president, found in the by-laws, that he had in fact no such power. There are many things done daily in every bank which are in fact and in law the acts of the bank, and of which no mention is made in the by-laws. Some officer or agent or employee of the bank receives, daily, large sums of money on deposit, for which the bank at once becomes liable, and yet no mention is made in the by-laws of any power in any officer or agent to receive such deposits. Had Coolbaugh accepted from Libby a draft on Hew York, payable to the bank, for $55,000, in satisfaction of these Adam Smith notes, (or Swansea notes, as they are sometimes called,) or in purchase of them, and had he paid Libby for the same, in addition to the notes in question, $22,000 from the cash of the bank, or had he given instead to Libby the promissory note of the bank for that sum, there could have been no question as to his acts in that regard being the acts of the bank, and by which the bank would have been bound. The whole course of business of this bank, as managed by Mr. Coolbaugh for years, shown by the proofs, could leave no doubt about this. It is not perceived that the fact that real estate was accepted, and not a draft, can make any difference in the result. We are, therefore, brought at last to the question whether the allegations of appellants in this regard are true, in point of fact. This the appellee most strenuously denies. Ho question is made that the taking of the original notes, in September and October, 1873, was done by the bank'; nor is it denied that the bank, through Coolbaugh, about December 4, 1873, extended the time of payment upon this indebtedness for six months, retaining the original notes and taking in addition four other notes, and as security to them the pledge of the shares in the Swansea company and the deed of trust to Merrill upon the land in question. That transaction of December is conceded to be business transacted by the bank; nor is it contended that the co-operation with Ames and others in the injunction suit against Libby, in January, 1875, for the purpose of relieving the claim of the bank upon this land from Libby’s prior lien, was not the act of the bank. All this was conducted and controlled by Coolbaugh, in behalf of the bank. The contention relates to facts occurring after the injunction suit was ended. Counsel for the bank state their theory of the ease as follows: “After the sale under the Libby trust deed, Adam Smith induced Coolbaugh to purchase the land in question for the benefit of Smith, and as an inducement to this end Smith agreed that he would pay accruing interest upon the purchase money note; that he would sell the land before the principal should mature, and out of the proceeds of such sale Mr. Coolbaugh should retain all his disbursements, and if anything remained, it should be applied in liquidation of the debt of Adam Smith to the bank.” This statement we regard as very near the truth, but not the whole truth. Coolbaugh had the promise of Libby, made before the sale to Libby, that the bank might have this part of the land at $1000 an acre. Had he consummated that purchase, the bank would have held the title, subject to redemption by Smith, on payment of the money paid to Libby and the amount of the notes given to Merrill. To cut off this equity of redemption by Adam Smith would have required a foreclosure in court, or another sale under the Merrill trust deed. The land was considered worth from $2000 to $3000 an acre, that is, from $44,000 to $66,000. Coolbaugh, in his conversation with Merrill, estimated it at $44,000. But the market was dull, and to realize cash at a fair price seemed to require that the land should be held for a while. We agree with counsel for the bank in saying: “Adam Smith induced Coolbaugh to change his original arrangement with Libby, and instead of simply buying in for the bank the outstanding title of Libby for $22,000,” induced Coolbaugh -to purchase “the laud,” — the absolute title to the land, — by adding the notes of Smith (called the Swansea notes), and by substituting, instead of $22,000 in cash, a note for that amount at three years, at 10 per cent interest. But we would add, that he induced him to purchase for the bank. We agree with counsel that this arrangement was intended to be “ for the benefit of Smith,” but we think it was intended also to be for the benefit of the bank. Smith was to be benefited by getting up the notes on which he was liable to the amount of about $33,000, which was an object no doubt desirable to him. Coolbaugh regarded the personal liability of the makers of the paper and stock of the Swansea company as of no value to the bank, but thought that Smith was an expert and skillful real estate operator, and was willing in behalf of the bank to surrender this paper (which he considered of no value) and take the hazard of Smith’s being able to pay the accruing interest on the note to Libby, and finally to discharge the principal by sales of the property in parcels, and in the end to refund to the bank at least two-thirds of what the bank had lost by the depreciation of the Swansea paper; and we agree with counsel in saying, that “as an inducement to this end, Smith agreed that he would pay accruing interest upon the purchase money note” to Libby, and “that he would sell the land before the principal should mature, and out of the proceeds of such sales Mr. Coolbaugh should retain all his disbursements;” but we would add to the statement that this meant “ all of his disbursements” for the bank; and we agree ivith counsel in saying that what remained of these proceeds, after paying the Libby note and the incidental disbursements, was to “be applied in liquidation of” the amount of “ the debt of Adam Smith to the bank,” which, by the arrangement, was turned over to Libby “ for the benefit of Smith,” and thus the bank, by this purchase, was to "obtain in part satisfaction of a debt originally contracted in the ordinary course of business. The question in dispute is thus narrowed to the inquiry whether Coolbaugh’s acts in this purchase from Libby constituted a purchase by Coolbaugh personally, for his own profit or with a view of aiding Smith as a friend, or whether they constituted a purchase by the bank, as a means of getting part satisfaction of a debt which had become desperate. What is the evidence bearing on this question ? The contention relates to facts which occurred after the termination of the injunction suit. Libby testifies that after that, and before the sale at which he acquired the title to the entire 80 acres, in a conversation with Coolbaugh, he promised that if he should get the title at that sale the bank should have the Adam Smith land at $1000 an acre, or at what was the cost of the same to Libby, if it did not sell for more than Libby’s claim, and that after the sale he learned from Adam Smith that Coolbaugh would be willing, on behalf of the bank,.to give the Adam Smith notes, or the Swansea notes as they were sometimes called, and $22,000, for a deed to the land, and that he wentuto the bank and there consummated the trade upon the terms mentioned. He says in his testimony, that Coolbaugh in making the trade said he was making it for the bank, and so he accepted and received the Swansea notes, and Coolbaugh’s note secured by the trust deed upon the land conveyed. He further testifies that after he had received all these securities, at the request of Coolbaugh, and with the consent of Adam Smith, who had an interest in the purchase of the notes, he left the Swansea notes in the custody of the bank, Coolbaugh saying: “They are subject to your order, Mr. Libby; you can have them any time you want them.” He further says the original arrangement was that the bank was to have this land at $1000 per acre, and that the arrangement to put in the Swansea notes Avas an arrangement brought about by a bargain made betAveen Smith and Coolbaugh. These Adam Smith notes, or Swansea notes, were not considered of any value in themselves by Libby at that time. Adam Smith testifies that after the sale to Libby the witness saAV Coolbaugh, and suggested that in order to secure the bank he had better buy this 20-acre tract from Libby, and turn in the notes of the Swansea company, amounting to $30,000, and he Avould try to sell it for him and bring him out; and that- he, the witness, brought Mr! Libby to the bank, and he and Coolbaugh made a trade, whereby Coolbaugh “ was to buy for the bank 20 acres, and turn in these , Swansea notes as first payment, and pay $22,000 on time, to ' be secured on the 20 acres as a balance of purchase money.” He swears “ Coolbaugh said he was doing this to secure the bank,” and that “ the reason he did not have the land deeded directly to the bank was, that he did not want it to appear that the banh was carrying so much real estate." The witness further testified that after the trade was closed Coolbaugh requested Libby, in the presence of the witness, that he would leave those Swansea notes in the bank for a time; that they should lie there as his property, and that he said he would give Libby any kind of a receipt he wanted. Merrill testifies Coolbaugh consulted the witness about taking this land of Libby, and said : “ If there is any security in the property, I want to get additional security,” and said he thought “it would be worth to the bank” possibly $1000 an acre. The witness adds it was generally understood the equity of redemption over what was going to Libby was $1000 an acre, or more, and Coolbaugh said that in this transaction he wanted to get more security, for the parties on the notes had become worthless. More security for Avhat? This declaration could refer to nothing except further security for the claim of the bank growing out of these transactions Avith Adam Smith. The testimony of Donnersberger shows that about that time Coolbaugh was in conference Avith some gentleman, Avhom the witness did not know, about this property, and in connection with this $30,000 claim of the bank, Avith a view of securing or saving in part this $33,000 claim. • This testimony seems to be abundant to show that this transaction with Libby Avas a transaction for the banh, although transacted in form in the name of Coolbaugh. Considering all the circumstances developed by the proofs, Ave have no doubt whatever that this is the real truth. Ho witness pretends to contradict the direct and explicit testimony of Adam Smith and of Washington Libby, supported and corroborated as it is by the testimony ot Merrill and Donuersberger. It is contended that certain circumstances developed in the testimony tend strongly to show that this purchase from Libby was made by Coolbaugh either as a personal speculation, or in trust for Adam Smith. When carefully analyzed and compared, we find nothing in them incompatible with the idea that the purchase was in substance and in fact a purchase by the bank, — so intended by Coolbaugh, and so understood by Libby, and also by Adam Smith. Let us consider some of these facts on which counsel for the bank seem chiefly to rely. It is said “ no officer, director or stockholder of the bank ever heard of this contract;” that although Libby may have promised the bank the privilege of redeeming at $1000 an acre, still this is not a redemption, but on its face a purchase out and out, and entirely in the name of Coolbaugh, without mention of the bank in any of the papers; that no memorandum or entry of any kind relating to the transaction was made in any of the books of the bank; that for two years and a half Coolbaugh personally paid the taxes on this land and the interest on the note given to Libby, except the first installment of interest, and that was paid by Adam Smith; that after this purchase from Libby, Coolbaugh, in his own name, joined Libby in vacating the plat before that time made of this 80-acre tract, and in making a re-subdivision of the land,- under the name of “ Coolbaugh and Libby’s Subdivision;” that the Adam Smith or Swansea notes were retained in the bank, and this for no possible end, if appellants’ theory be true; that if this property had been taken in payment of the Adam Smith and Swansea notes, they should- have been canceled; that the note given by Coolbaugh to Libby was made payable at the Traders’ National Bank, and not at the Union .National, for the purpose of concealment, as is suggested, from the officers and employees of the Union Rational; that this note was put at three years, at 10 per cent, when the bank had plenty and a surplus of money on hand, and was paying no interest on money, save to country banks, and that not over 3 per cent; that this land was by direction of Coolbaugh omitted from the list of the lands of the bank; that no part of Coolbaugh’s disbursements for interest or taxes were ever charged by him against the bank, or collected from it. To our minds all these circumstances are in complete accord with our view of the true character of this transaction. It is well- known, as a part of the history of that time, that by a revulsion in monetary affairs, which occurred in the fall of the year of 1873, most of the banks in this country found it necessary, in their efforts to avoid loss, to resort to the real estate of their debtors for security. It is equally well known that it was regarded as injurious to the credit of any bank to have it known that it was carrying any considerable amount of real estate, and that it was a common device among bankers, when it was necessary to resort to real estate for security, to have such real estate carried upon the records not in the name of the bank, but in the name of some person in whom confidence was placed. It is plain that considerations of this kind had an influence on this transaction long before the sale of this land by Libby, for we find that in December, 1873, when Adam Smith induced Mr. Coolbaugh, in behalf of the bank, to extend the time of payment of this §30,000 debt, the notes for that purpose were not made payable to the bank, but were made payable to Merrill. There is, then, no reason to discredit the testimony of Adam Smith when he swears that Mr. Coolbaugh assigned as “ the reason he did not have the land deeded directly to the "bank, that he did not want it to appear that the bank was carrying so much, real estate.” To avoid this, the land was deeded to Coolbaugh instead of to the bank, and the note for the money to be paid to Libby was given by Coolbaugh instead of by the bank; and for the same reason no memorandum of the transaction was made in the books of the bank; and for the same reason Libby was induced, with the consent of Smith, to leave in the custody of the bank the-Swansea paper, or Adam Smith notes, that they might remain on the books of the bank as bills receivable, and that the stock certificates and Merrill deed of trust might remain “in the safe of the bank, where they were kept with other col-laterals of the bank ordinarily,” as Hippell swears they did; and for the same reason Coolbaugh paid the taxes, and also the interest on Libby’s note, after Adam Smith failed to do so, and this without any charge for the same being entered on the books of the bank; and for the same reason, when it was thought best to vacate the old plat and plat the ground anew, Coolbaugh, and not the bank, joined with Libby in doing this, the fee of this 22 acres being vested at law in him; and for the same reason this tract was omitted from the list kept of the lands of the bank. The note to Libby was no doubt given at three years, and at 10 per cent interest, and made payable at the Traders’ Bank, for the convenience of Smith, who had, as counsel concede, agreed to keep the interest paid, and to give time to realize the amount from sales of lots, without drawing upon the cash of the bank, for such a draft would at once make it apparent on the books of the bank that the bank was carrying this amount of real estate, and this Coolbaugh wished to avoid. Hot only are these circumstances all in harmony with our theory as to the real truth of this transaction, but there are some circumstances which, if not wholly incompatible with any other theory, at least strongly corroborate our view. The fact that Smith at first paid the interest on the Libby note, shows that he was in some way interested in the purchase, and the fact that the deed of" Libby for this land recites a consideration of $55,000, which agrees with the amount of $22,000 note given Libby added to the amount of $33,000, (representing the original $30,000 debt of Smith and others, with interest and expenses incurred,) strongly supports the testimony of Smith and - Libby that this claim of the bank was a part of the consideration or price of this land. If this be so, and the purchase was not made for the bank, why was not the amount of this claim charged on the books of the bank against somebody? If Coolbaugh bought for himself, why was it not charged to him? There was no objection to its appearing on the bank books that Coolbaugh had personally bought that claim from the bank and used it in a trade for his own use, had that been the truth. The same suggestion is equally pertinent as against the theory of his having made the purchase as a friend of Smith, and as a speculation for Smith. It is somewhat significant that this deed of Libby to Coolbaugh, with a professional opinion as to the title, was placed by Coolbaugh in a box of the bank in which the title papers of lands of the bank were usually kept, and were found there after his death, in an envelope indorsed in the handwriting of Coolbaugh, “ Papers relating to 22 acres of land purchased of Washington Libby, acct. Adam Smith & Co.” Coolbaugh personally had no account or dealings with Adam Smith & Co., on account of which it could be said this purchase was made. This clearly indicates that the object of the purchase had relation to some transactions with Adam Smith & Co. The bank, and the bank alone, had had transactions of this character. Another fact in harmony with all the circumstances is, that in making this purchase Coolbaugh sought and obtained the opinion of a lawyer as to the title, and for this opinion the charge was made by the lawyer against the bank, and with other charges against the bank was rendered in an account and paid by the bank, although Coolbaugh had a personal account with the same parties. All truths are consistent with each other. In an examination of all the proven facts in this case, they can all be reconciled with each other on the theory that this purchase from Libby was by the bank and for the bank, and they can • not be reconciled upon any other hypothesis which has been suggested or which has occurred to us. It is not denied that Coolbaugh bought from Libby, either for the bank or for himself, or for the benefit of Smith. No motive can be found to induce such a purchase for himself as a speculation, at the price of $55,000, when his estimate of the value was $44,000. He is not shown to have had any motive to attempt to serve Smith as a friend in a transaction where the bank was interested against Smith, and the duty of protecting the interests of the bank rested upon him while he owed no duty to Smith; nor can we conceive how Smith could expect to be benefited by a purchase by him at $55,000 of property worth only $44,000. There is a motive, and a laudable one, shown for the purchase by the bank, as we have already shown. It seems to us plain that the bank, in truth, was the purchaser, and as such should pay the unpaid part of the purchase money, and that the estate of Coolbaugh should be held liable only as a security for the bank. The judgment of the Appellate„Court is therefore reversed, and the cause remanded to that court, with directions to that court to reverse the decree of the Superior Court of Cook county, and remand the cause to that court for further proceedings in accord with the views expressed in this opinion. Judgment reversed. Walker and Soholfield, JJ.: We are unable to concur in the decision announced in this case.