Commercial National Bank v. First National Bank

We copy the statement of the case and conclusions of fact of the Court of Civil Appeals, as follows:

"This action was brought in the District Court of De Witt County by the appellee against W.H. Smith and J.F. Ray to recover upon a promissory note for the sum of $2066.66, dated November 27, 1901, payable at Cuero, Texas, and alleged to have been executed by them to the appellee. The appellee also made the appellant a party to the suit and sought to recover against it, alleging that the appellant had undertaken, as the agent of appellee, to have the note sued on signed by Smith and Ray and had sent the same to appellee with the representation that it had been so signed; and that appellee had acted on such representation and had advanced the sum of $2000 on the note to Smith, against whom no recovery could be had on account of his insolvency; that Ray was solvent but claimed that the note as to him was a forgery; and that in the event the note was a forgery appellant was liable to appellee for the amount so advanced by it to Smith on account of its deceitful representations. Defendant Smith filed no answer. Defendant Ray answered under oath denying the execution of the note by him. The appellant pleaded in abatement to the venue of the suit, asserting its privilege to be sued in Bee County, where it had its domicile. It also pleaded the general demurrer; a special demurrer to the venue; a special demurrer raising the question of misjoinder; and in bar the general denial.

"The pleas to the venue and the general demurrers were overruled by the court and afterwards the cause was submitted for trial to the court without a jury and resulted in a judgment in favor of the appellee for the amount of the note and costs against Smith and the appellant and in favor of the defendant Ray. The questions presented to this court on appeal are: (1) The sufficiency of the petition to show a cause of action for deceit against the appellant. (2) The misjoinder of parties defendant. (3) Venue of the suit as to the appellant. (4) The sufficiency of the facts to show that the appellant is liable. The facts upon which the suit is founded transpired in the making of a loan of $2000 by the First National Bank of Cuero, Texas, to W.H. Smith. Smith, who resided at Mineral City, in Bee County, wrote to the bank at Cuero requesting the loan, and offered as surety James F. Ray, who was a wealthy stockman of Bee County and resided at Pettus in that county. Ray was vice president and director of the appellant bank and an uncle by marriage of Smith. The Cuero bank wrote to the First National Bank of Beeville, in Bee County, its correspondent, stating that Smith had applied for the loan and had offered Ray as surety; that it was unacquainted with them and asked about their responsibility. The First National Bank of Beville replied in due course of mail, saying that the parties were good for the amount of money; that Smith was a merchant in good standing; that Ray was a man of property and an official of the Commercial National Bank; that Smith was a former patron of that bank, and that it was acquainted with their signatures. The Cuero bank then prepared for signature the note sued on in Cuero and mailed it with a letter to the Commercial National Bank, saying: ``A few days since we had a letter from Wm.H. Smith of Mineral City, Texas, making application for a loan of $2000 and offering as security James F. Ray, vice-president of your bank. Will you do us the kindness to hand the inclosed note to Mr. Ray for signature by himself and Mr. Smith? Thanking you in advance,' etc. Upon receipt of this letter and the note the appellant, by its president, John W. Flournoy, mailed the note in a letter to Wm. H. Smith, at Mineral City, requesting him to get Mr. Ray's signature and return to the writer. A letter was received returning the note as follows: ``Pettus, Texas, 11-20-01. — The Commercial National Bank of Beeville, Beeville, Texas: Dear Sir. — Inclosed find note as per request. You will please forward to the Cuero bank and tell them to place to my credit. Respectfully, Wm. H. Smith.' The letter was opened by Flournoy in presence of the bookkeeper of the appellant bank and the signatures to the note were examined and pronounced genuine by both of them. Flournoy at once wrote a letter from Beeville to the appellee at Cuero in which he inclosed the note and mailed it. The letter was as follows: ``Commercial National Bank of Beeville, Beeville, Texas, 12-2-01. — First National Bank of Cuero, Cuero, Texas: Dear Sirs. — Inclosed you will find note of Wm. H. Smith, properly signed up. He wants the proceeds of said note placed to his credit. Yours truly, John W. Flournoy, President.' The note was received and the money was advanced by the appellee to Smith. The signature of Ray to the note was found to be a forgery, but was pronounced to be a most clever one. Both Flournoy and the bookkeeper, Miller, testified that ``If the signature of Ray to this note is a forgery then it is a most expert and adroit one and calculated to deceive the most careful, and greatly did deceive this witness.'

"Smith belonged to a family of people who stood high in Bee County, well known for probity and honesty, and who had occupied positions of public honor and trust. Wm. H. Smith himself had been a young man of excellent habits, and at the time of this transaction and for a number of years prior thereto he was engaged in the mercantile business in Mineral City, in Bee County, a small village about seventeen miles northwest of Beeville. His standing and credit among business men were of the highest order. His business seemed to be successful and profitable and of large volume; and for some years he had done business with appellant, his transactions amounting in the year 1900 to $70,000. He had the confidence of the officers of the bank and it carried him without security sometimes for as much as $10,000. Not long before this transaction the bank had loaned him $500 with Ray as surety, and the note for the money was prepared and mailed to him at Mineral City with the request to sign and get Ray's signature and then return to the bank; and the money was paid to Smith on return of the note by him. Ray lived at the little village of Pettus, about sixteen miles north of Beeville, and did business with the appellant bank, and was personally and intimately known to the officers of the bank. The correspondence of Smith and Ray with the bank had been voluminous, and Flournoy and Miller had seen them write and both testified that they were familiar with and knew their signatures, and that they had no reason or ground to suspect that either of them was forged, but believed they were genuine. The Cuero bank was not acquainted with Smith or Ray and did not know their signatures. It trusted the appellant bank to get the note signed, and believed its representation that it had been properly signed and on that account alone let Smith have the money. Appellee would not have loaned the money on Smith's signature alone. No charge was made by the appellant for the service it rendered, and the appellee did not offer or expect to pay for it, but would have done so if required. The appellant is a national bank duly incorporated under the national banking act of Congress, with its domicile at Beeville, in Bee County, Texas, and the appellee is also a national bank duly incorporated under the national banking act, with its domicile at Cuero, in De Witt County, Texas."

Representations made by an officer or agent of a corporation will not create liability upon the corporation unless the representation be made by the agent concerning a business which the corporation is empowered by its charter to do, and the agent must, at the time, be acting within the scope of his authority. Cooley on Torts, 136.

The facts alleged in the petition show that the plaintiff in error is a corporation, created under the national banking laws enacted by the Congress of the United States, hence to that law we must look to determine the kind of business in which a bank may engage. That act provides: "Upon duly making and filing articles of association and an organization certificate, the association shall become, as from the date of the execution of its organization certificate, a body corporate, and as such and in the name designated in the organization certificate, it shall have power: * * *

"Seventh. To exercise by its board of directors, or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; receiving deposits, buying and selling exchange, coin, and bullion, by lending money on personal security, and by obtaining, issuing and circulating notes according to the provisions of this title."

"The business of banking" is defined to consist in discounting and negotiating promissory notes, drafts, bills of exchange and other evidences of debt; receiving deposits, buying and selling exchange, coin and bullion, lending money on personal security, and obtaining, issuing and circulating notes; and to these specified powers and those necessary to the exercise of the powers expressed the bank must confine its operations, and acts of officers not embraced in the terms of the law are not binding upon the corporation. Weckler v. First Nat. Bank, 42 Md. 581; Merchants Nat. Bank v. Armstrong, 65 Fed. Rep., 934; Cooley on Torts, 136.

The facts alleged against the plaintiff in error do not show a transaction embraced in the provisions of the law above quoted; on the contrary, it was a matter in which the Beeville bank was not interested; in fact it was a mere courtesy between the officers of the two banks, performed gratuitously by Flournoy for the accommodation of the officers of the Ceuro bank to aid them in making a loan to Smith.

If it were held that procuring the signature to a note in order that the Cuero bank might lend money to a third party was within the power and authority of the bank at Beeville, the president of the Beeville bank was not authorized to transact such business for his bank and did not bind it by the statements he made. Under the national banking law the corporation was authorized to elect a board of directors, to which was committed the management and control of the bank, and the board was empowered to select one of its members as president of the bank, of whom it is said: "It is his duty to preside at the meeting of the board of directors, and he has charge of the litigation of the bank, and other than these he has no power inherent over and beyond another director." National Bank Act, by Bolles, sec. 53. The board could have adopted by-laws conferring larger powers upon the president, but the petition does not allege the existence of such by-laws, nor any fact which would extend the authority of the president so as to embrace the act upon which this action rests. The statement made by Mr. Flournoy that the note returned was signed up by Mr. Ray was without authority of the Beeville bank, therefore not binding upon it. United States v. Bank of Columbus, 21 How., 356; Weckler v. Nat. Bank, 42 Md. 581; Merchants Bank v. Marine Bank, 3 Gill (Md.), 96; Crawford v. Bank, 67 Mo. App., 39; Houston T.C. Ry. Co. v. McKinney, 55 Tex. 176.

United States v. Bank of Columbus, before cited, involved a state of facts much like this case. The cashier of the defendant bank gave to one of its directors, Mr. Miner, a statement that he was authorized on behalf of the bank to "contract with the Treasury Department of the United States for the transfer of money, from the East to the South and West, for the government," and upon the faith of the statement of the cashier, the Secretary of the Treasury contracted with the party named for the transfer of $100,000 from New York to New Orleans. Miner received and cashed the draft, but the government did not receive the money at New Orleans. Upon suit by the United States against the bank, the Supreme Court of the United States held that the cashier had no authority to make such representations on behalf of the Columbus bank and that it was not liable for the loss sustained in consequence of reliance upon the false statement.

Crawford v. Bank is much like this case. A firm of merchants secured from the cashier of a bank a statement to the effect that the firm was "solvent and would pay for all that they would buy." Upon this statement the firm obtained credit, and having failed in business, it was sought to hold the bank responsible for the loss. The court held that the cashier had no authority to give such statement, therefore the bank was not responsible for the damages.

The act of Flournoy, who signed the statement as president of the Beeville bank, was a mere personal transaction of his own, and if any liability was created thereby it rested upon him individually and not upon the bank. We do not, however, wish to be understood as intimating that the facts would give a cause of action against Flournoy; that question is not now before us.

The allegations in the plaintiff's petition presented no cause of action against the Commercial National Bank of Beeville, and the general demurrer should have been sustained. It is therefore ordered that the judgments of the District Court and of the Court of Civil Appeals be reversed as to the Commercial National Bank of Beeville only, and this cause be remanded for further trial as to said bank, but the judgments as to Ray and Smith remain in force.

Reversed and remanded in part.