Larsen v. Utah Loan & Trust Co. , 23 Utah 449 ( 1901 )

PER CURIAM.

The complaint alleges, and the testimony tends to show, that the plaintiff left his money with the bank officers, in whom he relied and had confidence, upon its agreement to loan it on good inside real estate security in Ogden City, at thirty per cent of its value, to be secured by real estate mortgage; that, because of his extreme age, and failure to understand the English language, he so intrusted the whole business to the officers of the bank, relying upon a fulfillment of the trust imposed; that until March, 1897, or 1898, he supposed the agreement had been complied with, and that security had been taken for the money loaned by the bank. Instead of loaning the money referred to in the first cause of action, as plaintiff claims it should have been loaned, on good inside real estate, secured by mortgage, it selected from among its customers one whom it is admitted was known to be insolvent, and bad him execute a note to the plaintiff, and took $*700 of the plaintiff’s money to itself, and in this way paid to itself the Henderson loan, and imposed upon the plaintiff a worthless note, thereby relieving itself from probable loss. If the plaintiff’s testimony be true, and his theory correct — and we must treat it as so for the purposes of the nonsuit — the bank, in effect, loaned the money to itself and for its own purposes, regardless of the interests of the plaintiff, and in fraud of his rights, and is therefore chargeable with the consequences following the wrongful act, provided the complaint sufficiently charges the fraud shown by the plaintiff’s testimony. It is charged in the amended complaint that, in making the $700 loan to Henderson, the defendant carelessly, negligently, and fraudulently failed to take any security whatever for the payment of the note, well knowing that Henderson was. wholly insolvent and that the note was worthless. This allegation, in eonüection with others, while not so specific as it could have been charged, sufficiently alleges that the money was fraudulently loaned to one whom the defendant knew was insolvent. Such an allegation would amount to a charge of fraud, and was sufficient upon which the plaintiff could introduce his proof. The facts necessary to make a case for relief on the ground of fraud are stated. “The fraudulent concealment of a cause of action by the party against whom it exists, preventing the opposite party from acquiring knowledge thereof, will prevent the statute of limitations from commencing to run until the cause of -action was, or might have been by reasonable diligence, discovered; and this is true irrespective of statutory provisions as to the cases of fraud and mistake.” Cook v. Van Etten, 12 Minn. 522 (Gil. 434); Boomer Dist. Tp. v. French, 40 Iowa 601; Findley v. Stewart, 46 Iowa 6'55; Cowin v. Toole, 31 Iowa 513; Baker v. Joseph, 16 Cal. 173; Currey v. Allen, 34 Cal. 254. Where relief is sought on the ground of fraud, the statute does not begin to run until the discovery of the fraud, or the dis>-covery of such facts as would put a person of ordinary intelligence and prudence on inquiry. As we have seen, this discovery was not made until a short time prior to the commencement of this suit — sometime in 1897, and within the two years limited by statute. Currey v. Allen, 34 Cal. 254; Moore v. Moore, 56 Cal. 89; Boyd v. Blankman, 29 Cal. 19, 87 Am. Dec. 146. Section 2877, Revised Statutes of Utah, provides that: “(4) An action for relief on the ground of fraud or mistake; the cause of action in such case not to be deemed to have accrued until the discovery by the aggrieved party of the facts constituting the fraud or mistake.” The fraud in this case consisted in the appropriation of the funds of the plaintiff, and applying the same in a different manner than was authorized, for the defendant’s benefit, and to the plaintiff’s injury. While the fraud may not have been intended, nevertheless it was, in the eye of the law, a fraud, according to plaintiff’s showing. It was a violation of the confidence imposed by the plaintiff in the bank to his injury. Plaintiff claims that the fact that no security was taken for the loan was not disclosed until 1897 or 1898, after Mr. West succeeded Mr. Rolapp as cashier. While the fund was deposited in the bank for a special purpose, it was still a deposit, within the meaning of section 3154, Compiled Laws Utah, 1888, and there was no limitation of time in which an action to recover it should be commenced. This statute reads as follows: “To actions brought to recover money or other property deposited with any bank, banker, trust company, or savings or loan society, there is no limitation.” While it is true that the allegations of fraud in the amended complaint were somewhat general, yet it does not appear that any demurrer was filed or motion made affecting it on this account. The parties went to trial upon the complaint without objection. In such cases it is held that: “Where, in an action or defense based upon fraud, the pleading fails to allege the facts showing the fraud, the defect should in general, be taken advantage of by demurrer. The demurrer in such a case is not a confession of the fraud, for a demurrer confesses only matters of fact which are well pleaded. If, however, the issue is made without objection to the pleading or to the evidence of fraud, all objection is deemed waived, and it can not be urged for the first time on appeal that there was no issue of fraud.” 9 Enc. Pl. and Prac., 697; Hubbard v. McNaughton, 43 Mich. 220, 5 N. W. 293, 38 Am. Rep. 176; Bonds v. Smith, 106 N. C. 599, 11 S. E. 322; Sukeforth v. Lord, 87 Cal. 399, 25 Pac. 497. It also appears that no security was taken to secure the note set out in the second cause of action in accordance with the contract testified to by the plaintiff, and it also appears that the note and personal security were worthless. Under the facts shown, we are of the opinion that the court erred in granting the nonsuit as to the first and second causes of action named in the complaint.

On the trial of the third cause of. action the plaintiff gave testimony to the effect that defendant, by 'its officers, told him that the trust deed given by Mr. Shurtliff covered the Shurt-liff residence. On motion of defendant, this evidence was stricken out, and plaintiff excepted. It appears that Mr. Shurtliff was an officer of the bank, and was indebted to the bank about $13,300; and, to secure $12,000 of this sum, in June, 1894, he gave the bank eight notes secured by a trust deed on property in Ogden that did not include his residence. Two of these notes, amounting to $3,000, were by the cashier of the bank placed in a pouch that Mr. Rolapp called the plaintiff’s pouch, where his papers were kept, without indorsement, except that the plaintiff’s name was marked on the back of the notes in pencil, and the $3,000 charged to his account. These notes were not formally indorsed to the plaintiff until March, 1897, when the cashier indorsed the same to the plaintiff without recourse. The complaint was filed May 25, 1898. Plaintiff testified, in substance, that be supposed and bad been told by tbe bank officers that tbe trust deed covered the residence of Mr. Shurtliff, and did not know that the trust deed secured $9,000 owed to tbe bank, in addition to tbe $3,000 transferred to bis pouch; that tbe bank statement given to him made no mention of tbe trust deed. He says that be did not know that tbe money was loaned to tbe bank first, and that tbe two notes were afterwards transferred to him, but supposed tbe loan was made to him on a good mortgage covering tbe Shurtliff residence, until Cashier West came into tbe bank in 1896 and 1897, and after tbe foreclosure of tbe Shurtliff mortgage was commenced, and then be found that tbe residence was not included. Tbe bank claimed that tbe plaintiff bad taken tbe notes away from tbe bank at different times to examine tbe property, and returned them, and had received one payment of interest from Mr. Shurtliff. As we have seen, tbe amended complaint alleges fraud as one element of tbe cause of action. We are of tbe opinion that it was error to strike out tbe testimony referred to, as it tended to explain plaintiff’s theory that be examined tbe notes, and received tbe payment relying upon tbe bank’s statement that tbe loan was secured on tbe residence. Tbe testimony tends to explain plaintiff’s conduct with reference to tbe notes, and to rebut tbe theory of the defendant that be knew all about tbe kind and nature of the security for tbe notes, and accepted them as a loan for tbe $3,000. Tbe notes were not formally indorsed to plaintiff until March 1, 1897, and were still left in tbe plaintiff’s pouch in tbe bank, to which tbe officers bad access. It appears from tbe testimony of Mr. West, the cashier who succeeded Mr. Rolapp, that, after tbe two Shurt-liff notes bad been placed in the plaintiff’s pouch, tbe remaining notes, amounting to $9,000, were assigned to him to secure tbe bank’s indebtedness to him of $5,000 and interest, and that- be foreclosed tbe trust deed, making tbe plaintiff a party, and that he bid in the property to himself, and obtained a deficiency judgment. Mr. West was asked if he paid the sheriff the money on the sale, and if he assigned back to the defendant bank the Shurtliff judgment The court, under objection from the defendant, declined to permit the question to be answered. Under the charge of fraud contained in the complaint, the plaintiff had a right to know what became of the trust deed, and how much money was realized, if anything, from it by the bank. The whole transaction was open to inquiry, as affecting the alleged conduct, fraud, and liability of the bank. The deed secured the payment of the two' notes in question, and if the bank received a consideration therefrom, and concealed the same after the assignment, that fact would tend to bear upon and characterize the acts of the defendant.

The witness Dee was asked the following question by the defendant: “Suppose you had $12,000, of your own money, you desired to loan at interest; would you have loaned it on that security at that time ?” Under objection, the witness answered that he would. The question before the court was whether the plaintiff’s money was fraudulently or negligently loaned or converted. The trust deed and the eight notes from Shurtliff to the bank for $12,000 were taken June 21, 1894, to secure a long-standing, past-due indebtedness to the bank. It was not given to the plaintiff, and no money was loaned by the bank to Shurtliff at the time. The transaction was not a loan of the plaintiff’s money, but was the making of a contract of indorsement, without recourse, by the bank with its principal, for its benefit. On July 12, 1894, forty days after the loan, the two notes in question were passed to the plaintiff’s pouch in the bank without any formal indorsement, and he was charged with the $3,000. The formal indorsement, “without recourse,” was not made to plaintiff until March 1, 1897. Whether the witness would have loaned the money on the property at that date of the trust deed was not material or competent. What the witness might have done with reference to making loan on the property did not show, or tend to show, its value, nor the sufficiency of the security; nor was plaintiff’s money loaned upon that security at the time referred to. Whether the security was reasonably sufficient to secure the two notes at the time they were transferred to the plaintiff,’ and what the property was worth at that time, and whether it was sufficient security, was a proper inquiry, on the defendant’s theory of the case. It is the duty of an agent who loans money for his principal to exercise an honest judgment and use reasonable care and diligence in the selection of the security, and the performance of those other acts necessary to perfect and protect the security. If he fails in the performance of this duty, or through any fraud or connivance loans the money to himself, or transfers his own paper to the principal, which he is not willing to recommend without qualification; if he fraudulently loans the money contrary to the express instructions of his principal, and loss thereby results to him — the agent is responsible for the loss. Mechem, Ag., secs. 473, 474, 509.

The record in this case is quite incomplete, and we are not able to discover from it any good reason to sustain other assignments of error. Because of the errors herein expressed, it is deemed proper to say that, should either party hereafter desire to amend their pleadings, such amendments may be allowed, in the discretion of the trial court, on such reasonable terms, as said court may direct. For the errors referred to, the judgment of the district court is reversed, with costs, and the case remanded, with directions to grant a new trial.