Opinion
12640
April 10, 1929.
Before SEASE, J., Anderson, December, 1927. Affirmed.
Action by Mrs. Norma Bass Rivers against the Woodside National Bank of Greenville and another. From a decree for defendants, plaintiff appeals.
The decree of Judge Sease here follows:
"This is an action to cancel for alleged fraud and misrepresentation a deed to real estate in Anderson County executed by plaintiff to the defendant J.B. Ricketts as attorney. The case is before me on defendant's exceptions to the report of the Special Referee, who found for plaintiff.
"The deed in question was executed and delivered on March 6, 1924. Plaintiff had acquired the property covered by the deed some months previously by way of gift from her husband, A.B. Rivers, and she conveyed it to Ricketts for the benefit of the Woodside National Bank or its assigns at her husband's request. The circumstances and considerations moving her to execute the deed constitute the main inquiry in the case.
"Plaintiff's husband, A.B. Rivers, was a member of the firm, Anderson Cotton Company; the other partners being B.W. Harrison and K.D. Gilmore. The firm was engaged in the cotton business at Greenville and Anderson. The latter part of March, 1924, the firm and all the partners were adjudged bankrupt, with liabilities of more than $500,000 and only nominal assets.
"During a few weeks immediately prior to March 6, 1924, the partnership obtained the aggregate sum of about $375,000 from three national banks in Greenville on negotiable paper which turned out to be forged. Of this amount, $298,000 was obtained from the defendant Woodside National Bank — $132,000 on acceptances of Anderson Cotton Mills, $100,000 on Anderson Cotton Company's note, secured by warehouse receipts for cotton, and $66,000 on drafts with bills of lading for cotton attached. The money on these papers was obtained in the usual course of business, and the transactions were regular and lawful in all respects, except that the papers turned out to be forgeries, the entire responsibility for which was assumed by Harrison.
"At the time of these forgeries, and for some time previous, Rivers was in charge of the Anderson office, and Harrison and Gilmore of the Greenville office, of Anderson Cotton Company. After January 1, 1924, however, practically no business was transacted by the Anderson office, and Rivers was frequently in the Greenville office.
"There is a great conflict in the testimony as to the circumstances under which the deed was executed by Mrs. Rivers, and the reasons prompting its execution.
"The substance of the testimony of Mr. and Mrs. Rivers, who were the only witnesses for the plaintiff, is as follows: Rivers knew nothing about the forgeries until the night of March 4, 1924, when his partner Gilmore telephoned him at Anderson to come to Greenville, as Harrison was in trouble on account of some forged mill acceptances and cotton warehouse receipts. He came over on March 5th and again on March 6th bringing his wife with him on the 6th. Harrison told him that the forgeries involved about $100,000, and asked him to get his wife to deed the real estate to the Woodside Bank, the holder of the forged papers, as otherwise he might have to go to jail. Rivers says he knew nothing about the condition of the affairs of the partnership; that he could get no information out of Harrison, Gilmore was in the office very little, the officials of the bank made him promise not to go to the bookkeeper for information, and that he did not know enough about the books to examine them for himself. Under these circumstances he says that he was entirely dependent upon the information furnished him by the bank; that the bank falsely represented to him that the indebtedness of the partnership to the bank was only about $100,000, when as a matter of fact it was about $300,000; that the bank also told him that it wanted the partnership to continue in business, with Harrison in charge, in order to pay off the indebtedness; that Harrison's wife had already deeded the bank certain real estate and his mother was about to deed other real estate, and if Rivers would get his wife to deed her real estate to the bank, it would finance the business and the partnership could continue. Rivers says that, relying on these representations and promises, not knowing the true state of affairs of the partnership and the bank being informed, and he having no reasonable means of ascertaining the true situation, except from the bank, he requested his wife to execute the deed and she did so.
"The witnesses for the bank were Robert I. Woodside, its president, John L. Williams, active vice president, J.G. Thornton, cashier, and J.B. Ricketts, trust officer and attorney. They say that they first learned of any of the forgeries through the treasurer of Anderson Cotton Mills on the night of March, 4, 1924. The same night Harrison confessed that the $132,000 of acceptances were spurious and that he had forged them, but he insisted that all the other paper the bank had handled for him was good and valid. They did not know until several days later that all the papers were forgeries, although to protect the bank's credit four of the Woodside brothers promptly gave instructions for all the Anderson Cotton Company and B.W. Harrison paper to be called in and turned over to them, they paying for it as good paper. Their eventual net loss on all the forged paper was $300,000. They say that the bank's books did not show a dollar of indebtedness by the partnership to the bank, the $100,000 note having been sold without recourse to a New York bank, the acceptances being the indebtedness of Anderson Cotton Mills, and the drafts with cotton bills of lading attached being regarded as cash items. Consequently, if Rivers had asked about indebtedness, they would have told him the only indebtedness was that due to the acceptances being forgeries, they having been assured by Harrison that the other paper was good. But they say, as a matter of fact, that Rivers only inquired about the amount of forged paper, and they told him just what Harrison had told them and that this inquiry was not in connection with the making of the deed by Mrs. Rivers. They say that as soon as Harrison confessed that the acceptances were forgeries, they called on Harrison for restitution. He assigned to the bank various cotton futures contracts belonging to himself and the partnership in which he claimed to have equities, and his Lincoln car; had Gilmore to assign his Lincoln car; had his wife to convey certain real estate; and a day or two later got his mother to make a similar conveyance. That all these conveyances were made and received by way of restitution for the money obtained on the forged acceptances; and that, in addition, on the night of March 4th Harrison told them he could and would get Rivers to convey his home for the same purpose. They say that the next morning Rivers told them that he had seen Harrison; that he personally had nothing to do with the forgeries, but Harrison had asked him to convey his home to the bank and he was willing to do so to help cover the bank's loss; that the property really belonged to his wife but he would go back to Anderson and get her to make the deed that day though he would prefer waiting until the next day. That the next day (March 6th) Rivers brought his wife in and the deed was executed by her. They say that the bank did not consider or propose the financing of the partnership with Harrison or anyone else in charge and never heard of any such scheme until the summons and complaint were served in the case at bar. They also say, and there is no contradiction of it, that some days later the bank entered into an agreement with Rivers, representing his wife, under which they were to continue to occupy the premises until the bank asked them to vacate, they keeping up the insurance and taxes.
"Stated briefly, the plaintiff says that the officers of the bank deliberately and fraudulently misrepresented to Rivers and his wife the amount of the indebtedness of Anderson Cotton Company to the bank for the purpose of getting a deed to her property and she was thereby induced to convey it. The bank, on the contrary, says that the conveyance was made on the request of Harrison and not the bank, and was made for the purpose of making good pro tanto the loss sustained by the bank on account of the forged acceptances.
"The deed under attack is regular and valid on its face, which gives rise to the presumption that it is valid in all respects. Being attacked for fraud and misrepresentations, it devolved upon plaintiff to make the fraud or misrepresentations appear by clear and convincing evidence. The evidence offered for plaintiff is not of that character. It is full of glaring inconsistencies of a substantial sort, and in some particulars is too far at variance with the natural and usual course of human conduct to inspire belief.
"There can be no question that the books of the bank did not show any indebtedness by the partnership to the bank. Neither the acceptances nor the drafts with bills of lading attached represented indebtedness of the partnership to any one; and the $100,000 partnership note had been sold by the bank to a New York bank without recourse. The only indebtedness of the partnership to the bank arose by reason of the papers being forged, and at the time the plaintiff executed the deed the only forgeries the bank knew of were the acceptances. It gave Rivers all the information it had, as well as the source of its information, Harrison. The plaintiff has entirely failed to show that the bank misrepresented the situation to her or to her husband, who acted as her agent.
"The testimony is far from convincing as to the existence of any agreement to continue the business, with Harrison in charge, if Mrs. Rivers conveyed her home to the bank. The cotton business cannot be carried on without the use of drafts, warehouse receipts, bills of lading, and other forms of commercial paper. It scarcely seems reasonable that, at the very time the bank discovered that Harrison had uttered forgeries which cost the bank a loss of $132,000, it should propose to finance the business with him in charge when this necessarily would involve the handling of negotiable paper for him. In so far as the record shows, there was never any mention of this alleged agreement by any one to Rivers except by the bank, and yet both Harrison's and Gilmore's assent as partners was necessary if it was to be put into effect. Neither Gilmore nor Harrison's wife or mother has come forward to testify to the agreement, and neither of the latter appears to have complained of the circumstances under which they conveyed their property to the bank.
"It is also worthy of notice that, while the Rivers deed was executed and delivered on March 6, 1924, nothing was ever said in the way of repudiation of it until December, 1925, when this suit was brought. In the meantime — as the officers of the bank testify and Rivers did not deny — Rivers on several occasions made statements to officers of the bank which he would not have made if he had not regarded the deed as honestly obtained and valid.
"On the whole, without reviewing in further detail the mass of conflicting testimony, I am convinced that the deed was fairly obtained by the bank, without fraud or misrepresentation, and in the manner and under the circumstances stated by its officers. The deed being in all other respects valid, and there being no equity in the complaint, it follows that the deed should be adjudged valid and the complaint dismissed.
"It is therefore ordered, adjudged, and decreed that the deed of Norma Bass Rivers to J.B. Ricketts, attorney, dated March 6, 1924 (a copy of which is attached to the complaint), is a good and valid conveyance, in fee simple, of the property therein described; that the said J.B. Ricketts, attorney, is entitled to immediate possession of the premises; that the complaint be dismissed, the costs to be taxed against the plaintiff; and that the defendants have leave to apply at the foot of this decree for further relief, if desired."
The report of Probate Judge H.E. Bailey, sitting as Special Referee, mentioned in the dissenting opinion, was as follows:
"This is an action to set aside a deed executed by the plaintiff on March 6, 1924, whereby she conveyed to the defendant, J.B. Ricketts, attorney, certain real estate located near the City of Anderson, County and State aforesaid. The plaintiff prays that this deed be declared null and void, and proper entry made to that effect upon the records of the Clerk of Court's office, where the same has been duly recorded.
"The grounds upon which the Court is asked to grant this relief are certain false and fraudulent representations made to the plaintiff and her husband, A.B. Rivers, before the deed was executed, and which the plaintiff contends influenced her to make the deed.
"After due notice to the parties, a reference was held by me on July 14, 1926. The testimony was taken on this day, it being agreed that it should be taken stenographically by W.D. White, Esq., signatures of witnesses being waived, and the stenographer's report, consisting of 137 typewritten pages, is hereby certified to the Court as the evidence upon which this report is based.
"At later date the matter was fully argued before me by counsel, and I have given the matter long and deep consideration. After weeks of study, I have reached the following conclusions of law and fact:
"CONCLUSIONS OF FACT"It appears from the evidence that A.B. Rivers, husband of the plaintiff, was one of the members of a partnership with offices in Anderson, S.C. and Greenville, S.C. operating under the name of the Anderson Cotton Company. The members of the firm were B.W. Harrison, K.D. Gilmore and A.B. Rivers. Mr. Rivers lived in Anderson and had charge of the office there. Mr. Harrison was the main principal in the firm and with Mr. Gilmore operated the main office of the company in Greenville, S.C. having offices in the Woodside Building, the seventeen-story skyscraper on Main Street. The partnership had been in existence some year or so prior to March 6, 1924.
"It further appears from the evidence that over a period of about three weeks prior to March 5, 1924, the Woodside National Bank had been lending the Anderson Cotton Company, through B.W. Harrison, large sums of money. The loans to the partnership at that time aggregated $300,000, and loans to Harrison individually amounted to about $75,000, making a total indebtedness by the two of $375,000. At this time the combined capital and surplus of the bank was $310,000. Mr. John L. Williams, vice president of the bank, testified: `As far as the Woodside National Bank was concerned, the Anderson Cotton Company and B.W. Harrison were practically synonymous.'
"As already pointed out, Mr. Rivers was in charge of the Anderson office, where he lived, and the bank officials who made these loans admitted that they never consulted him about them. They were looking to Harrison almost entirely. Mr. Rivers testified that he knew very little of what was going on in the Greenville office and that he did not know Harrison was negotiating any of these loans. There is nothing in the testimony to disprove his statement.
"On the night of March 4, 1924, as the culmination of a number of events, the bank officials got Harrison down to the bank, and there he confessed that certain negotiable paper which they held as collateral were forgeries. The bank officials contend that at this time he only advised them that the trade acceptances on the Anderson Cotton Mills were forgeries. Mr. Rivers testified that the bank officials told him that Harrison had also confessed to forging warehouse receipts. On that same night the bank began to take assignments from Harrison and Gilmore to protect the bank and its connections.
"The next morning, on March 5, 1924, Mr. Rivers was called to Greenville and when he arrived Harrison made a statement of the conditions. In response to questions, Harrison said that he was involved `about $100,000.00.' In keeping with the promise made by him to Mr. John L. Williams, the vice president of the bank, the night before, Harrison asked Rivers if he would get his wife, the plaintiff herein, to put up her property to help straighten the matter out. The members of the Greenville office had already arranged for an interview between Rivers and Mr. John L. Williams, the vice president of the bank.
"This interview was not held in the bank or any of its offices, but Mr. Williams took Mr. Rivers to an unoccupied room on one of the upper floors. Mr. Rivers said that it was on the 17th floor, the top story, while Mr. Williams said that it was on the eighth or tenth floor where the interview was held.
"There could be but one purpose for holding this interview under those circumstances, and this was secrecy. The bank officials had every legitimate reason in the world to keep this affair secret. If it had become known that Harrison had hit the bank for $375,000 there would have been a run on the bank which nothing could have stopped. Ruin was staring them in the face, and naturally they wanted to protect the bank and its depositors.
"Mr. Rivers testified that he told Mr. Williams that Harrison had asked him to get his wife to put up her property, and that he would not give an answer until he had seen a lawyer. He says that Mr. Williams asked him not to do this, that the bank wanted to keep the matter quiet. I find as a matter of fact that Mr. Williams did make this statement. I feel satisfied that the bank officials in the great emergency which confronted them made statements which they do not now recall, being actuated by the laudable motive of protecting the bank, its stockholders and depositors.
"Mr. Rivers further testified that he informed Mr. Williams that Harrison had said he was involved about $100,000, and that Mr. Williams did not dispute the statement. Mr. Williams said that at his interview Rivers asked him `how much we had of these papers that were forged, and I told him it was over $100,000.00.'
"There is no denial that Mr. Rivers asked the bank officials how much was involved, and the only figure any of them ever mentioned was `One Hundred Thousand Dollars.'
"There is no doubt that this question was uppermost upon Rivers' mind. He was being asked to have his wife to put up their home in Anderson in an effort to straighten out the affairs of the partnership. As Rivers expressed it, the plan was for Mrs. B.W. Harrison, Harrison's mother, Mrs. Rivers and the partners to put up their various properties and finance the thing through. With all this collateral and the property, the securing and ultimate payment of $100,000 was not an unsurmountable undertaking.
"I have no doubt that the bank officials offered every assistance to get this unfortunate matter cleared up without any publicity. Mrs. Rivers testified that he relied implicitly upon the statement that the indebtedness was around $100,000, and that if he had known that the loss was $300,000 or any material sum in the rise of $100,000 that he would not have asked his wife to sign the deed, nor would he have permitted her to do so.
"The plaintiff likewise testified on cross examination that she was informed that `the indebtedness of the Company was around $100,000.00,' and that when she was first introduced to Mr. Ricketts and Mr. Williams, who were respectively trust officer and vice president of the bank, Mr. Ricketts state to her `that they (the bank) would keep it (her home) for temporary security so the business could continue and he was quite sure that everything would turn out all right.' Relying upon these statements plaintiff signed the deed, for no money consideration whatsoever, on March 6, 1924. It was made to J.B. Ricketts, attorney, whom the testimony shows was acting for the bank.
"I conclude as a matter of fact that Mr. Rivers and his wife did rely upon this material representation of the bank officials; that the plaintiff and her husband believed these statements to be true, and that the deed would not have been executed but for these misrepresentations.
"I find as a matter of fact that this statement as to the amount of the indebtedness was false as the admitted indebtedness upon forged securities and collateral was $300,000 to the firm and $75,000 to Harrison individually. I conclude as a matter of fact that Mr. Rivers would not have asked his wife to sign the deed, nor would plaintiff have signed it, if this fact had been known.
"There is nothing to show that Mr. Rivers was criminally involved in the slightest. The testimony shows that he was indicted along with other members of the firm in the United States District Court, upon a charge of conspiracy, which permitted a wide latitude of testimony, and he was acquitted by the jury, and I find as a matter of fact that he was not in any way actuated by a desire to aid himself to evade criminal responsibility.
"A significant fact showing that the bank officials were doing all in their power to secure secrecy was developed during the testimony. On the night of the 4th of March assignments were taken from the Greenville partners of everything they could assign, including two fine Lincoln automobiles, the property of Harrison and Gilmore. These cars were practically new and worth approximately $5,000 each, yet they were allowed to continue in possession of the cars until after Harrison's arrest upon criminal charges about March 14th.
"I conclude as a matter of fact that the bank officials knew, or ought to have known, on March 5, 1924, that the indebtedness of the Anderson Cotton Company and Harrison amounted to the enormous sum of $375,000. They could have given Mr. Rivers and the plaintiff the exact figures in a few minutes, and it was their duty to have done so. I also conclude as a matter of fact that neither plaintiff nor her husband knew the truth, and under the circumstances had no reasonable way to have ascertained it. Regardless of the motive of the bank officials, I find that they did make the misrepresentations to Mr. Rivers and the plaintiff for which they should be held liable.
"CONCLUSIONS OF LAW"Although the bank officials may not have intended to perpetrate an actual fraud upon the plaintiff, yet in law and equity the bank cannot escape the results of their actual misrepresentations. If an untrue statement was made at the time, concerning a material matter, upon which another party acted, the bank is responsible, even though there may not have been a dishonest intention at the time.
"The South Carolina Supreme Court has already recognized the doctrine of constructive fraud.
"In the case of Lagrone v. Timmerman, 46 S.C. 409, 24 S.E., 298, the law was so clearly decided that it has never been questioned since. It is conclusive here in my opinion. The Court said:
"`The sixth, seventh, ninth, and eleventh grounds of appeal make substantially the same question, and may, therefore, be considered together. That question is, whether the defendants can be held liable without proof of actual moral fraud on their part. That point is so conclusively determined by the authorities in this State adversely to the view contended for by appellants, that we need not go elsewhere for authority, though much of it will be found collected in our own cases, upon which we shall rest our conclusions. In Bank v. Wray, 4 Strob., 87, it was held, expressly affirming the previous case of Edings v. Brown, 1 Rich., 255, that if one signed a note or endorsed a bill, as agent, when he is not agent, he is personally liable, although he do so bona fide, and does no other act to deceive or mislead the person with whom he deals, except by the assumption of agency when he is not agent. Falsehood and deceit are not necessary to charge an agent personally with a contract he had no authority to make. In the opinion of the Court in that case we find language so pertinent to the present case that we quote and adopt it here: "The injury proceeded from the act of the defendant. He would evade liability under the plea of innocent mistake. In a moral sense, the act of defendant may have been innocent, for he had no desire or apprehension of mischief to his principal but in its practical effect, it was not innocent. * * * But even when the agent bona fide believes he has authority to contract and has not, he is still personally liable. In such cases, it is true, the agent is not actuated by any fraudulent motive, nor has he made any statement which he knows was untrue. But his liability depends on the same principle as in the first case."
"`In this case, the Court takes pleasure in saying that the evidence does not justify any imputation of moral fraud or intentional wrong on the part of the defendants; and, indeed, we do not understand that any such imputation is made. But, under the principles laid down in the cases above cited, in which cases of the highest authority elsewhere are reviewed, we must hold that the absence of moral fraud or intentional wrongdoing on the part of the defendants is not sufficient to relieve them from liability. If follows, therefore, that these grounds must be overruled.'
"If it should be conceded that in this case there is an absence of moral fraud and intentional wrongdoing, nevertheless, when considered in the light of the foregoing quotation the bank's liability for the false statements of its officials becomes so obvious as to require the citation of no further authority.
"I therefore conclude as a matter of law that the Woodside National Bank is liable for the misstatements of fact made by its officials. The statements made by them were untrue and very material, and the bank must be held responsible for them, although there may not have been an actual intent to commit an actual moral fraud at the time.
"But it is contended that plaintiff's husband, A.B. Rivers, had equal opportunity to know the truth. I am aware of a line of decisions in South Carolina, such as Whitman v. S.A.L. Ry. Co., 107 S.C. 200, 92 S.E., 861, L.R.A., 1917-F, 717, and others, which hold that `fraud action cannot be maintained, where plaintiff had abundant opportunity to ascertain the truth.'
"I do not think the plaintiff had this opportunity. The bank officials asked him not to say anything about the matter to the bookkeeper. As already pointed out, the bank officials were making every effort to keep the matter quiet. Mr. Rivers testified that he knew nothing of the bookkeeping methods, and that he could not have ascertained the amount of the indebtedness without the assistance of Mr. Boleman, the bookkeeper. As far as that is concerned, he had every reason to believe that the books would not give accurate information. If his partner had forged collateral to put up with the bank, he had every reason to believe that the books would have false entries. If he had looked at the books and seen entries of the various notes, he would not have been able to have found the credits which may or may not have been made. The books are somewhat intricate, and only an expert could check them up properly. On the contrary, Mr. Rivers had every right in the world to believe the bank officials knew the correct amount. As between his partner, and the books kept under his direction, upon the one side, and officials of a national bank upon the other, he had every reason to accept the statement of the bank. If he had called upon the bookkeeper for information, which he would unquestionably have had to have done in order to understand the books, the very object of the bank to maintain secrecy would have been defeated.
"I therefore conclude as a matter of law that the plaintiff did not have an equal opportunity with the bank officials to know the truth.
"In conclusion, I recommend that the plaintiff be granted the relief prayed for in the complaint, to wit: That the deed executed by her on March 6, 1924, to J.B. Ricketts, attorney, be set aside and canceled and that the same be declared null and void, and that the record of the deed in the Clerk's office at Anderson, in the County and State aforesaid, be appropriately indorsed showing the complete satisfaction thereof. I further recommend that the defendant pay the costs of this action."
Messrs. Thos. Allen, and Price Poag, for appellant, cite: One who negotiates forged paper "without recourse" is responsible for same: 74 S.C. 180.
Messrs. Nettles Oxner, and Watkins Prince, for respondents, cite: No limit imposed by law on amount national bank may advance on bills of exchange drawn against actual existing values, and commercial or business paper: U.S.C.A., Title 12, Sec. 84; Pratt's Dig. Fed. Bkng. Laws (1920 Ed.), 102.
April 10, 1929. The opinion of the Court was delivered by
This is a cause in equity, and it is incumbent upon the appellant to convince the Court that the Circuit Judge was in error in the conclusions reached by him as to the facts. We have not been so convinced. The cause depends entirely upon the facts, as there is no error of law. The decree of the Circuit Judge, Hon. T.S. Sease, will be reported, and it is affirmed.
MR. CHIEF JUSTICE WATTS and MR. JUSTICE COTHRAN concur.
After a careful study of the case, I am convinced that the judgment of this Court should be in accordance with the conclusions of the Special Referee. Let his report be incorporated in the report of the case.
MR. JUSTICE CARTER concurs.