American Southern Trust Co. v. McKee

Mehaeey, J., (on rehearing). It is insisted by the appellee, in its argument on petition for rehearing, that the court in its opinion wholly overlooks two major contentions of appellee. First, that appellant was cooperating with the officers of the Bank of Gillette in keeping it open and holding it out to the public as a solvent institution, when it was insolvent, and known to ibe so by the 'officers and directors’ and appellant; that this constituted fraud on the depositors who put their money in the institution, and was a wrongful act, rendering all persons and corporations participating in it jointly and severally liable to the persons damaged thereby. The second is that the court ignored the contention of appellee that loans were made to Crandall, to Wm. Molls, to Simmons and Brock and others in excess of 30 per cent, of the capital stock, and that, as a result of such loans, more than $50,000 of this excess was lost; that such loans were made in violation of the banking laws of the State.

The appellee, in his argument on the petition for rehearing, take's up, first, the proposition that Walz was a general agent of appellant, and that appellant is liable to third persons dealing with the Bank of Gillette through Walz, and argues that .the court, in its opinion, laid down a rule which applies only to cases of special agent and is never applied to the acts of a general agent.

“While the courts have very often defined and distinguished general and special agents, the great trouble is that they are totally unable to define general and special agents in terms which make the distinction applicable to each particular case. Their powers, when properly analyzed, however, are governed by the same general principle, to-wit, they can do anything within the scope of their agency so as to bind the principal, notwithstanding there may be some secret instructions limiting their powers; and, whether the authority be general or limited, they cannot charge their principals if they exceed it. They are of course more likely to transcend the bounds of a narrow than of an extended power; but the principle in either case is the same.” 31 Cyc. 1338.

“A general agent; unless he acts under a special and limited authority, impliedly has power to do whatever is usual and proper to effect such a purpose as is the subject of his employment. Hence, in the absence of known limitations, third persons dealing with such a general agent have a right to" presume that the scope and character of the business he is employed to. transact is the extent of his authority. This rule, as already stated, does not apply when limitations upon the authority of the agent have been brought home to the knowledge of the third person dealing with him, nor when the third person fails to make such inquiry as conditions demand, especially if the facts and circumstances are such as to suggest inquiry. Furthermore, the implied power of any agent, however general, must he limited to such acts as are proper for an agent to do, and cannot extend to acts clearly adverse to the interests of the principals, or for the benefit of the agent personally. And an agent has no implied authority to do acts not usually done by agents in that sort of transaction, nor to do them in other than the customary manner. The most general authority is limited to the business or purpose for which the agency was created.

“The authority of a special agent must be strictly pursued, and those dealing with him must, at their peril, determine the extent of his authority; for, as in the case of acts and transactions of a general agent, a special agent cannot hind his principal by acts outside the scope of his authority. . A special authority, like a general authority, confers by implication all powers necessary for or incident to its proper execution, and secret instructions or restrictions do not limit the special, agent’s authority, so far as innocent third persons are concerned; and if a principal has permitted a special agent so to act as reasonably to induce others to credit him with broader powers than he actually possesses, he will he estopped to deny the existence of as broad an authority as he permitted the special agent to exercise.” 31 Cyc. 1340. •

The above is a general statement of the law with reference to general and special agents, and, we think, a correct statement, and we do not think there is any conflict with the general rule and the rule announced by this court in its original opinion.

Walz was authorized, under the written contract, to deal with loans and collaterals. In other words, he was to have absolute authority in the granting of loans and accepting collateral. No loans were to be made by the Bank of 'Gillette without first obtaining the approval of Walz. And we hold that he would hind his principals in doing anything within the apparent scope of his authority as to loans and collateral. This would be true whether he was a general or a special agent. He would, however, have no implied authority to take charge of and run the Bank of Gillette, and for depositors, creditors or any other persons to act on the assumption that Walz had authority would not be justified, but would be ■assuming that he was acting in violation of law. The statute provides that the affairs of and business of the bank shall be managed and controlled by a board of directors of not less than three, who shall be selected from the stockholders at such time and in such manner as may be provided in its by-laws. Crawford'& Moses’ Digest, § 683.

The board of directors of the Bank of Gillette, in the management and control of its affairs, made the contract, doubtless believing, at the time they made it, that it was the best' arrangement they could make at the time in the management of the affairs of the bank. And, assuming that Walz was a general agent, he was a general agent with reference to loans and collaterals only, and he had no implied authority to take charge of the affairs and manage and control the affairs of the bank when the law expressly provides that the directors must do this. He had authority to do anything with reference to loans and collaterals, and his principal was bound by his acts, but, as to the other acts complained of, unless he was held out by his principal as having authority to do them, or was authorized, or his acts were ratified, the principal would not be bound.

We have not overlooked the distinction between the powers and authority of a general and special agent, and we have not overlooked the rule stated in R. C. L., which is as follows : ‘ ‘ There is a marked, distinction between the power and authority of a general and a special agent to bind his principal. A general agent is usually authorized to do all acts connected with the business or employment in which he is engaged, while a special agent is only authorized to do specific acts in pursuance of particular instructions, or with restrictions necessarily implied from the act to he done. Where it appears that an agent has done an act for the benefit of his principal and that the latter has not questioned the authority of the agent to bind him, it will be presumed, until the contrary appears, that the agent was duly authorized. Although the agent exceeds' his authority, the principal will he hound to the extent that he has acted within the powers conferred on him. In other words, the authorized acts of the agent are valid, and only those in excess of his authority are invalid. A person dealing with an agent must not act negligently, but must use reasonable diligence to ascertain whether the agent acts within the scope of his powers. He is not authorized, under any circumstances, blindly to trust the agent’s statements as to the extent of his powers. * * * Very obviously, the principal is liable for all such acts and statements of his agent as he may have expressly authorized; and this includes, by implication, whether the agency be general or special, all such powers as are necessai-y and proper as a means of effectuating the purposes for which the agency was created. Being clothed with power to do a particular act, the agent will be deemed to have also whatever authority attaches to the doing of the act or is necessary to its performance.” 21 R. C. L. 853-4.

One of the cases decided by this court, to which attention is called by the appellee, is Liddell v. Sahline, 55 Ark. 687 , 17 S. W. 705 . The court in that case said:

“A person dealing with a general agent can hold the principal, if the acts of the agent are within the general scope of the business intrusted to him.”

All the other cases decided are practically to the same effect. We do not think there is anything in the above case that contradicts the rule announced by the court in the original opinion. Walz was appointed with reference to loans and collateral, and everybody dealing with him had a right to -assume that any thing or act within the general scope of his authority with reference to those matters was authorized by his principal. We have not overlooked the testimony of Jones, Norden and Koen, nor can there be any question or do'ubt that the contract entered into gave Walz authority as to loans and collateral.

Appellees contend that the letter of April 15, 1922, shows that Walz had authority to employ attorneys for the Bank of Gillette and to make contracts for it. That it was stated that there would possibly be cases where he and the directors would not agree, but that in such cases the voice of the directors was not to prevail, but the matter was to be referred to Walz’s principals, and his principals would make their decision as to which way the matter should be handled.

They then argued that the learned chancellor deemed that sufficient to support a finding that appellant did authorize AValz to do the things which the witnesses swear that he did do. And they add that, unless it can be said that the chancellor’s finding is against the reasonable construction to be placed upon this evidence, Ms finding should not be reversed by this court. The letter referred to not only does not justify the conclusion that Walz had authority to employ attorneys for the bank, but the letter expressly states that the writer called to the attention of Mr. Coffman and Mr. AValz the complaint registered. And the writer of the letter adds: “We considered the entire proposition at length. So we have agreed that you can do just as you like about the employment of an attorney, which will be perfectly satisfactory with Mr. AValz. If you decide to employ the attorney at DoWitt in addition to the attorney at Stuttgart, there is no objection to that.”

AVe think also that the testimony of Mr. Hicks as to the agency contradicts the construction placed upon the letter by appellees. Mr. Hicks testified: “Mr. Norden himself raised that question in onr conference as to whether or not Mr. Walz was to have supervision of the bank, and I told him positively no, that we did not want Mr. Walz to have anything to do with the operation of the bank. All that we wanted him to do was to represent ns as our trustee in the handling of the collateral and loans, ’ ’ etc.

The above is the testimony of Mr. Hicks with reference as to what was said in the conference, and this' testimony is not denied by any of the parties in the conference.

Mr. Hicks also said'in his testimony: “I told Mr. Walz very plainly at that time that all we wanted him to do was to act as our trustee in the handling of the collateral; that we wanted him to obtain all the collateral on the notes that the Bank of Gillette had, keep them under his supervision; to assist them in collecting those notes, to assist them in getting better collateral on the notes that they had, and supervise in an advisory capacity the granting of new loans, and he was not to make any new loans without the approval of the directors, and he was to have nothing to do whatever with the inside operation of the bank.”

Mr. Sanders himself testified that he did not say that the bank was wrongfully handled, and that Mr. Hicks said that the American Bank desired to assist them in their financial troubles, and that if Walz could not get along he would give us a man that could.

We have already held, in the original opinion, that the authority of Walz was limited by the written contract. Appellees, in their brief for rehearing, say that, unless the finding of the chancellor is against the reasonable construction to be placed upon the evidence, his finding shall not be reversed by this court. That is true, but that means his finding of facts, and we have held that the statements and acts of Walz are not competent to prove the extent of his authority. It is also insisted that the appellant knew that Walz was running the Bank of Gillette. We think the testimony of Mr. Hicks, above quoted, to the effect that he made the statement at the conference, is sufficient to show that the appellant did not know that Walz was running the hank, but instructed him that.he was not to and could not run the bank. Mr. Hicks also told them that, if Walz’s conduct was-not satisfactory, they would get them another man and send down there.

The statement in the letter above referred to, that Mr. Walz was willing’ to submit to the board of directors any contract that he has made, etc., evidently meant con: tracts that he had authority to make. And the deck cisión referred to that would be made by the creditor banks necessarily meant decisions with reference to the loans and collaterals. Really what the directors objected to in Walz was his manner and the way he talked to people.

It is next insisted that the appellant aided the Bank of Gillette to keep open and receive deposits while said bank was insolvent and known to the appellant to be insolvent. If there were no evidence in the case as to the condition of the country at the time the contract was made, such condition was matter of common knowledge. Many institutions and persons would have failed if they could not have got help, and apparently it was thought that, by lending the Bank of Gillette $75,000 additional money, that additional money would enable the bank, not only to pay its debts, but to assist the farmers to make another crop, and at that time it appears that everybody was of the same opinion.

Mr. Maxwell was Bank Commissioner, and had supervision over all the banks of the State. The Bank of Gillette filed its statements as required by law, and the department made special investigation of the affairs of the bank. He discussed the matter with Mr. Hicks, and learned that Mr. Hicks or the American Southern Trust Company was willing to extend further credit in conjunction with the First National Bank. Mr. Maxwell further says that, in 1920 and .1921, not only banks but financial institutions in general were needing’ all the assistance they could get to • preserve their existence; that the condition was brought about by the deflation oí values in commodities; and that we had no forewarning of it; that, as a result of this condition, many banks in the State were suddenly placed in a condition where they were over-extended; that he had a conference with répre-sentativess of the Little Bock banks for the purpose of obtaining cooperation of the larger institutions in Little Bock in assisting the country banks throughout the State. He said the reports filed by the Bank of Gillette during his administration did not indicate insolvency, and, if he had thought it was insolvent, he would have required it to restore any impairment of gts capital by levying an assessment on its stockholders, if necessary. He further said if there had been any indication of insolvency he would have closed the bank. It therefore appears that the Bank Commissioner, whose duty it was, under the law, to know, did not believe it was insolvent, and the appellant did not believe it was insolvent. The Bank Commissioner was told about the contract. It has been suggested by some of the appellees that the contract was kept secret. It was made known to the banking department • it was spread on the records of the Bank of Gillette, and every time the Bank of Gillette was examined by the banking department it was known, and we do not think there was any effort to keep it secret.

Petitioners call our attention to a statement in the opinion with reference to lending money on crops, and states that the court evidently overlooks the proof that new money had to be loaned to persons already indebted to the bank before they could start making rice crops. As we have already said, the situation was bad. It was necessary to furnish the rice farmers with money to make crops, or they could not make them, and doubtless everybody thought at the time that that was not only the best, but the only, way by which they could collect what the rice growers already owed.

Ill addition, to this, the proof was that the American Bank loaned on real estate approximately $50,000, and thereby enabled the Bank of Gillette to pay $50,000 of its indebtedness with money received loaned on real estate which was not, prior to that time, pledged to the Bank of Gillette. That the Bank of Gillette was hard pressed and needed to borrow more money was, of course, known to all the parties. But, if a bank in that condition could not borrow money because the lender would become liable for all its debts if he advanced money, then, if a bank should happen to get where it did not have money to meet its obligations, it would have to fail, no matter bow much property it had. If lending money by one bank to another when the borrowing bank needed it would make the lender liable for all the debts, and liable, as appellees argue, for fraud in keeping the. bank open, then no bank could afford to lend another money.

It is next contended that the appellant is liable fob loans made by its agent, Walz, in excess of the statutory limit, and lost. The liability referred to by appellees is a statutory liability, but there certainly could be no liability on the part of the bank because of the loans made to Crandall, Moll and others. These parties were already indebted to the Bank of Gillette before Walz- went there. And Mr. Norden says in his testimony that the bank had a large number of loans outstanding when Walz came. Crandall’s debt was reduced while Walz was there. Walz held the borrowers down, and that made some of them sore. But the lending money to these parties men-tiohed by appellees was evidently for the purpose of collecting the debt these parties already owed.

After a careful reexamination of the entire record we have reached the conclusion that the original opinion was correct, and the petition for rehearing is therefore denied.