Farmers' & Merchants' Nat. Bank v. Smith

THAYER, Circuit Judge, after stating the case as above, delivered the opinion of the court. A preliminary question 1ms been raised in tins case respecting the, construction which should be placed on the petition on which the ease was tried in the circuit court. It is insisted in behalf of (ho defendant: in error, who was the plaintiff below, that the averments of the petition are sufficient: to warrant a recovery either for money had and received or for damages on account of fraud and deceit practiced in the sale of the mortgage bond, or for damages for the breach of the written agreement alleged to have been made by the defendant, bank to guaranty the payment of the bond. It is not claimed, as we understand, that the three causes of action aforesaid are stated separately in as many different counts, as the Code of Nebraska requires (Consol. St. Neb. 1891, § 4633, but it is insisted that, while ihe petition contains but one count, it lias been so deftly drawn that, at the plaintiff’s option, he is entitled to demand a judgment on either one of the three* grounds above stated. We are not able to assent to that: view. It is manifest that the petition, tlu* material parts of which are quoted in the* statement, does not state* a good cause* of action for fraud and deeeeit in the sale* of properly, for the reason ilmi: it. contains no alle>galion to the effect that the* ele*fe*nelant bank, for Hu* purpose of effecting a sale of the; mortgage bond, falsely represented the* title to the mortgaged premises to be; free; and clear from ineumbranetes. knowing sueth repre;se;ntaHon to be; untrue. There is no such avemineut in the petition. It is not alle;ge*el, e;ither directly or indirectly, that the ele*fe*nelant: bank, by fraudulent representations or decent ful conduct, induce*! the plaintiff’s testator to become a purchaseT of (he security. In short, if it be* conceded that the record dise*Ie>se*s fae-ts that might warrant a rei:overy of damages for fraud and deceit, such facts are found in the evidence adduced at the trial, and not in the averments of the petition. It follows, therefore, that the petition is insufficient to warrant a recovery on the ground last stated. — 134 — In view of the averments of the petition, we also think that the plaintiff was not entitled to recover thereunder on the ground that the', sale complained of was made under circumstances or upon conditions which entitled his testator to rescind the contract of sale, and sue for money had and received. If the plaintiff below intended to rest his right to recover on that ground, he should have offered to surrender the bond and mortgage for cancellation; but no such tender was made, either in the petition or during the progress of the trial. The bond and mortgage were not void. Both instruments bore the genuine signatures of Stephen H. Elwood and wife, and the title to the mortgaged premises seems to have been well vested in the mortgagors, subject only to certain incumbrances which they failed to discharge. It also appears from the testimony that the interest coupons of the bond, which matured prior to January 1,1891, were paid to the plaintiff’s testator. Under these circumstances, it must be held that it was the duty of the plaintiff below to return, or offer to return, the mortgage bond, if he intended to insist upon the right to recover the consideration paid therefor, either on the theory that the conditions under which the money was paid had not been fulfilled, or that he had been induced to part with his money through fraud, or while laboring under a mistake of fact. While the petition is defective in the respects above indicated, if it is regarded either as a suit ex delicto to recover damages for fraud and deceit, or ex'contractu for money had and received, yet no difficulty whatever is encountered in construing it as an action brought to recover damages for a breach of the written guaranty which is set out in the petition. The averments in the pleading which precede the statement of the terms of the guaranty were evidently inserted for two purposes: First, for the purpose of showing that there was an adequate consideration for the execution of the alleged guaranty by the defendant bank; and, second, for the purpose of showing that C. EL Toncray, who executed the same, had authority to bind the bank. Looking at the pleading as a whole, we have no doubt that it was framed solely with a view of recovering upon the guaranty, and we think it should be so construed. If a plaintiff intends to demand a judgment on different grounds, he. should state the facts constituting the several causes of action in separate counts, so as to advise the court and the opposite party of his intention. The Code of the state where this caiise originated provides that, “where a petition contains more than one cause of action, each shall be separately stated and numbered.” Section 4633, supra. When this provision of the Code is disregarded, and the facts constituting a cause of action are stated in a single count, it may well be concluded that the pleader intended to rely upon a single ground of recovery, and in such cases he should be confined to the cause of action which, upon a fair construction of the complaint, he appears to have selected. • Treating the suit, then, as an action to enforce the contract of guaranty, we turn to consider whether the trial court, on the state of facts disclosed by the testimony, properly instructed the jury that the plaintiff was entitled to recover. The guaranty was signed in behalf of the bank by G. H. Toncray, cashier, to secure the payment of — 135 — a mortgage bond which he had caused to be executed and negotiated for his individual use and benefit. It was so executed without the knowledge or sanction of any officer of the bank other than the cashier, and without authority to execute an obligation of that character for such a purpose. In view of the fact that the guaraniy was executed by the cashier without any actual authority, the first question which deserves consideration is whether it is binding, in any event, upon the defendant bank. Counsel for the defendant in error contend, in substance, that the execution of the guaranty was within the apparent powers of the cashier, and that the defendant bank is estopped from denying his authority to execute it, provided the guaranty was signed and delivered in behalf of the bank for a sufficient consideration. With reference to this contention it may be said that, so long as a national bank confines itself to the kind of business which it is authorized to transact, one who has dealings with it is cm titled to presume, unless he has notice to the contrary, that its cashier is empowered to draw and certify cheeks and drafts, to transfer by indorsement commercial paper of all kinds which is in the bank’s possession, to guaranty the payment of notes and bills which the bank sells or rediscounts for its own benefit, and to do many other acts which, for present purposes, need not be specially enumerated. These are acts which cashiers customarily do and perform, end persons dealing with them without notice of any limitation of their powers may properly assume; without inquiry that they have the right to do such acts and to exercise such powers. Merchants’ Bank v. State Bank, 10 Wall. 604, 650; People’s Bank v. National Bank, 101 U. S. 181; Fleckner v. Bank, 8 Wheat. 338, 356; Wild v. Bank, 3 Mason, 505, Fed. Cas. No. 17,646; Cooke v. Bank, 52 N. Y. 96, 115; Farmers’ & Mechanics’ Bank v. Butchers’ & Drovers’ Bank, 16 N. Y. 125, 133, 134; Houghton v. Bank, 26 Wis., 663; Thomp. Corp. §§ 4789 -4791, 4815. But the doctrine aforesaid has no application in those case's where a bank is known to be carrying on a kind of business which it is not authorized to transact. If a person imlen; into a business transaction with a national bank, or any other coiporaiion, he is bound to take notice; of the nature and extent of its corporate powers, and of the purpose for which it was organized; and if the transaction in question is in excess of those powers he has no right to presume without inquiry that a guaranty executed by its cashier, or by any other officer, in the course of such transaction, is executed with the sanction and approval of the corporation. No act done by an officer of an incorporated company in furtherance of a business venture which is out side of the company’s corporate powers can be said to be an act which is within the scope of the apparent or customary powers of such officer, and to be binding upon the corporation for that reason. A bank may well be held responsible to a (bird party for an act done by its cashier in the proseen (ion of the legitimate business of the bank which was within the apparent scope of his powers, although it was in fact unauthorized by the corporation. A bank may also be held responsible to a third party for a wrongful and unauthorized act of its cashier which has the appearance of being within the scope of his ordinary duties, and — 136 — not ultra vires, although by reason of some extrinsic fact, such as the purpose for which the act is done, which is unknown to the party with whom he deals, the act done is in excess of the legitimate functions of the corporation. Farmers’ & Merchants’ Bank v. Butchers’ & Drovers’ Bank, 16 N. Y. 125, 130; Houghton v. Bank, 26 Wis. 663; Thomp. Corp. § 4806. But when the transaction in which a bank is for the time being engaged is known to the person dealing with it to be outside of the legitimate sphere of its operations, no reason is perceived why a person dealing with the cashier under such circumstances should be allowed to indulge in any presumptions as to the cashier’s authority. He is advised by the very nature of the transaction that all acts done and performed in relation thereto are beyond the power of the corporation, and, if he expects to hold the corporation liable on any contract or obligation entered into by the cashier or other officer in the course of that transaction, he should at least see to it that such contract or obligation is approved by the board of directors or other governing body. Bank v. Graham, 79 Pa. St. 106; Moores v. Bank, 111 U. S. 156, 4 Sup. Ct. 345; Thomp. Corp. §§ 4754, 4755. In the case in hand there was evidence which tended to prove, even if it did not conclusively show, that Isaac E. Smith, the original plaintiff’s testator, when he purchased the mortgage bond in controversy, was well aware that it did not belong to the defendant bank, but that it had simply undertaken to negotiate a sale of the same for a commission in that behalf paid to it by thé mortgagor. In other words, there was evidence tending to show that he knew that the bank was engaged in the brokerage business. Walker & Co., who acted ostensibly as agents for the defendant bank in negotiating the sale of the mortgage bond, evidently understood that it did not belong to the bank. The members of that firm, in consequence of their prior dealings with the bank, were advised that the bank, in offering the bond for sale, was acting solely in the capacity of a broker. They do not claim, and there is no evidence in the record which tends to show, that they represented to the purchaser of the bond that it was the property of the bank, or that the bank was selling it for its own account; it does appear, however, that Walker & Co. exhibited to him, prior to the sale, an application for the loan in question, dated July 7, 1888, made on a printed form, which was signed by Elwood and wife, the mortgagors, and was verified before C. H. Toncray as a notary public. In addition to this request for the loan, which was made by the mortgagors, the purchaser also had before him the bond and mortgage, which were executed on printed forms, and both of which bore the following statement: “Negotiated by the Farmers’ & Merchants’ National Bank, Fremont, Nebraska.” Under these circumstances, it is necessary to conclude that when the plaintiff’s testator purchased the security in question, he was well aware that it did not belong to the bank, and that the bank was engaged in the business of selling such securities on commission. From the nature of the transaction we do not see that any other inference could fairly be drawn. The representation contained on the face of the mortgage that it was — 137 — "negotiated by the Farmers’ & Merchants’ National Bank,” and the other circumstances to which we have adverted, would naturally lead any one to infer that in the particular transaction the bank was acting in the capacity of a broker, and that it had probably become engaged, quite extensively, in that line of business. Such, indeed, was the fact. For several years the bank liad made a practice of selling farm mortgages on commission, and from some passages found in the correspondence between Toneray and Walker & Co. it would seem that the deceased, Isaac E. Smith, had been one of its best customers. Concerning the power of the defendant bank to engage in the business of selling mortgage bonds on commission, little need be said, because it does not seem to be claimed that such a power could be, lawfully exercised by the bank. The brokerage business is entirely distinct from the business of banking which it was authorized to transact. If a national bank can lawfully act as a broker in selling farm mortgages for a commission, no reason is perceived why it may not act in the same capacity in selling any other species of property, real or personal. The national bank act does not, in terms, or by necessary implication, authorize national banks to act as brokers in negotiating the sale of securities, and it is generally agreed that they cannot lawfully engage in such business. Weckler v. Bank, 42 Md. 581; Wiley v. Bank, 47 Vt. 546; First Nat. Bank of Lyons v. Ocean Nat. Bank, 60 N. Y. 278; Talmage v. Pell, 7 N. Y. 328. The case disclosed by the record, then, is briefly as follows: The plaintiff’s testator bought the mortgage bond in controversy from the defendant bank through its ostensible agents, Walker & Co., either knowing, or having sufficient reason to believe, that the bank was acting merely in the capacity of a broker for the mortgagors. He was affected with knowledge that the bank could not lawfully act in that capacity, and that the transaction in question was ultra vires. After the purchase was made, and the money was paid, he accepted a guaranty of the loan, executed by C. H. Toneray as cashier, to guard against a loss which might be sustained owing to the existence of prior incumbrances on the mortgaged premises. The cashier acted wholly without authority in executing the guaranty, and the plaintiff’s testator made no inquiry as to his authority, but relied on the assumption that the act was within the scope of his ordinary duties. The bank received no part of the proceeds of the sale of the mortgage bond, and has not profiled to any extent by the unauthorized act of its cashier. In view of the foregoing considerations, we are of opinion that the defendant hank is not bound by the alleged guaranty which the cashier assumed to execute in its name, and that: the bank is not estopped from denying the cashier’s authority to execute it. When the plaintiff’s testator accepted the guaranty, he was not dealing with the bank under such circumstances as warranted him in assuming without inquiry that it was executed and delivered with the sanction and approval of the board of directors, but be was dealing with it under conditions which conveyed notice that, if the bank had in fact undertaken to dispose of the security in question, its action in that regard was in excess of its lawful powers. — 138 — In the argument of counsel for the defendant in error, considerable space is devoted to the discussion of the question whether, by virtue of what had been done by C. H. Toncray, ostensibly as cashier, prior to November 17, 1888, when the guaranty was signed, the bank had incurred a liability of any kind to the plaintiff’s testator which would serve as a consideration for the guaranty, provided it was executed with the knowledge and approval of the board of directors; but, inasmuch as we are satisfied that the guaranty would not be binding upon the bank even if such a liability had been incurred, no discussion of the question last suggested is deemed necessary or advisable. Even if the bank had incurred a liability to the purchaser of the mortgage bond through the wrongful act of its cashier, yet we would not be able to admit that it was within the scope of the cashier’s ordinary duties to compromise the liability, without the knowledge or sanction of the board of directors, by executing an agreement in the name of the bank to guaranty the payment of the bond. Bank v. Armstrong, 152 U. S. 346, 14 Sup. Ct. 572. The judgment of the circuit court is accordingly reversed, and the case is remanded for a new trial, with leave to the plaintiff below to amend his petition if he shall so desire.