ARK.] CITY NATIONAL BANK V. MCGRAW. 997 CITY NATIONAL BANK V. MCGRAW. 44062 • Opinion delivered December "), 1935.. 1. BANKS AND BANKING—AUTHORITY TO INVEST DEPOSIT.—Eviderice held to sustain a finding that a bank had no express authority to invest a depositor's savings account in bonds secured by mortgage. 2. BANKS AND BANKING—RATIFICATION OF UNAUTHORIZED ACT.— Where a bank by letter dated July 16, 1929, advised a depositor of the fact that his savings account had been invested in • biinds secured by mortgage; and every sik months collected interest and sent him deposit slips, failufè . of the depositor to makC objection until January 2, -1931, when default was . first made, held to constitute a ratification of the bank's act,. . Appeal from Sebastian Chancery Court, Fort Smith District; C.M. • Wolford, Chancellor . ; reversed,. Appeal by the City National Bank of Fort • Smith and I. H. Nakdimen from a judgnient in favOr . of Dave McGraw.
928 CITY NATIONAL BANK v..MCGIIANV. [191 James B. McDonough and Joseph B. Brawn, for appellants. • • Warner & Warner, for appellee: MCHANEY J. . On July . 16, 1929, appellee had on deposit . in appellant . bank upwards of $22,000 in a savings account at 4 per cent. interest. On that date, the bank purchased -for his .account 22 bonds of $1,000 each of G. T. Cazort, paying therefor the sum of $22,282.26, which included the accrued interest on the bonds to that date. The bonds were secured..by a deed of trust on approximately. 4,000 acres of lands belonging -to -said Cazort, and also all the gas rights-of both -Mr. and Mrs. Cazort under the lands owned by them. The totat amount of the bond issue was $200,000, and appellant bank was the trustee of the bond issue. .GO.s in,large . quantities was .produced: from some of the lands in said mortgage and was •sold •tb the Gas Company:in Fort Smith. The royalties paid to Cazort by the gas company in previous years had amounted to more than $50,000.. The royalties paid to the bank in 1.929, from July to December amounted to $13,665.31. For the . year 1930, the gas royalties amounted to $27,971.44, but thereafter the consumption of gas gradually .declined nntil, in 1934, the royalties amounted to only $11,120.73.. At the time that appellant bank invested appellee's 'liinds in said bonds, July 16, 1929, appellant Nakdimen wrote Appellee. a letter advising him of this fact, as follows : "I have this day invested for you $22,060 bearing 6 per cent.. The bond is dated May 1st, and the interest will- be due semi-annually, and the next interest will . be due November 1st. "I have charged your . account with $22,282.26, the $282.26 being for accrued interest. In other words; the bond _has. been •bearing inteyest since_ May 1st. We carried it for two and one-half months:" - Appellee did not reply to . this - letter in any way. On October 21, 1929; appellant, Nakdimen, for the bank, wrote appellee- the following letter': I, have . today credited your account • with . $660; being' interest for six months oh Cazort bonds for $22,000; and herewith enclose duplicate deposit , ticket covering same." On May 1, 1930, and on November 1, 1930, like letters were writ-
ARK.] CITY NATIONAL BANK V. MCGRAW. '929 ten to appellee by appellants advising him of the 'collecT lion of the interest in said sum and enclosing 'a •duplicate depositticket to . cover same. Appellee did not respond to any of these letters in any way. On January . 2, 1931, appellee, who lived in- Clarksville; waS in. Fort Stnith and reeeived . from the bank, at his request,.a receipt for the bonds. He -, says 'that on- . this occasion, appellant Nakdimen made certain statements to him regarding the value of the bonds, that : they were as good as gold, being secured by 4,000 acres of the best Arkansas Riverbottom lands: and gas royalties- that, brought-in from, $40,000 tO $50,000 a year, and that appellants promised 'him , that at any time that he needed-the money on-the bOnds could . get it. Thereafter, defaUlt was' •made in the pay-ment- of both principal:and interest on some' of the bonds, and certain of tire bondholders instituted suit . to f6re-close- in the Crawford Chancery . Court, and -appellee Was made . a -defendant in , this- action: , After considerable delay, appellee filed . an 'answer and eross-,comPlaint. • He alleged -the ownership Of the bonds • and songht a* foreclosure 'thereof beeause of delinquencies. in •payment- of interest and taxes, etc: His cross-Complaint Was against appellants in which he 'alleged that they had, converted his funds on. deposit 'in fhe bank and used same in Purchasing the Cazort bonds-;' that this , purchase -was, Made by 'appellants without any authority . or permiSsion from him, and that he had been' induced to acquiesce in the purchase by the false and fraudulent representations of Nakdimen made tO•him on ,january- 2; . 1931. ' .He:prayed judgment against , appellants for the $22,000 with interest, and for. a decree rescinding . . the ugreement 'Wrongfully procured from . him by the fraudulent- representations :of appellants, 'and the wrongful . eoncealment of material facts from him with reference to the nature and value of the property secUring,said bonds. Upon, appellant 's motion, appellee elected to rely upon . his canse Of action against . appellants rather -than upon . the security of the bonds, and the case was transferred to the Sebas-tian Chancery Court, where,' upon . a trial of: the issues joined, a decree was rendered against appellants for the sum of $22,000,.with interest.
,ND 930 CITY NATIQNAL BANK V. McGraw-. [191 • .• For a reversal of the judgment, counsel for appellants make two contentions that we think deserve consideration. One is that appellants . were authorized by appellee to make the investment for him and the other is 'that the appellee, by his silence, must be held to have ratified -the act of: appellants , in the making of the investment fot: bim i even though done without his authority. • As to the first proposition, that is, whether appel-lee authorized appellants to make the investment, the evidence is ,in dispute. H. S. Nakdimen, son of appellant Nakdimen, and one--of the officers . in the bank, testified . that. appellee :told • his father • in his presence to invest his money for him when he had anything good to invest in. Appellee had long . -been a customer of -the bank, and' a long acquaintance,• and friend of appellant I. H. Nakdimen.. The proof shows_ that-he had great trust. and confidence in . Nakdimen's ability, and integrity. He had . ,in the past purchased through appellants Liberty bonds, and had sold same through . .thern. He had again inyested through. appellants, in what is called the 0 Leary bonds, .which latter had,been paid off through appellant bank, and the funds of appellee were deposited -in a say, ings• account at 4 per cent... As' stated,. these transactions had been handled for appellee by the' bank. and its president. H. Nakdimen,.. Whether appellants. had the 411- thority • from appellee to make .this investment -or not, it is ° undisputed that they, thought they had the authority, for, immediately. upon .making --the investments;;; they wrote - appellee. notifying..him thereof. The trial, court found on disputed .evidence that: appellants had .no•actual authority- to . invest these-funds for appellee, nclr we cannot say that this finding is against the preponderance of the evidence, as .appellee te if s ied yery ,positively that po such authority was given; Now, as to the secon& point, we are 'of the' opinion *that it. makes no difference 'under -the circurnstances of this -case whether appellants had the actual authority to make -the investment for appellee or not. Appellee admits receiVing the letter dated July 16; 1.929, advising him of the fact, and *he . admits that .he did nothing: to advise the appellants that the investment -was . not satis-
ARK.] CITY NATIONAL BANK V. MCGRAW.. 931 factory to him. All of the cIrcumstances tend to show that, on the • contrary, it \vas satisfactory to him. At the time this $200,000 loan was negotiated with Mr. Cazort, by the bank, it is undisputed in this record that the value of the property securing . the indebtedness was greatly in excess thereof, and that it was considered as a good-loan. Gas royalties on the land alone were thought ta be amply sufficient to pay the principal and interest as it matured. In addition to this, the lands were thought to be of great value for farming purposes: • There is nothing ill •this reCord to show that -appellants negotiated this loan with Mr. -Cazort in any way except in the best of faith and with the holiest opinioa . that the Security \vas raMply sufficient to pay the debt. The fact is that the interest had been paid to the time of the bringing of this •suit, and $49,000 of the principal had . been retired, although-some $60,000 in principal is in default. Not . only WaS 'appellee notified immediately . of the' investment, but appellants' collected the interest . on the loan every six . months for appellee's account, nOtified him thereof, and' sent him a' duplicate deposit slip ' shawing stch . collections and credits. Not only , this, but appellees' pass boOk waS balanced after -this investment was made; showing that his account had been charged with the amount 'thereof; and'showing the credits for interest Collections. Appel7. lee appears to have been 'perfectly satisfied with his 'investment until , the bonds began to default in . the interest,' at which 'time he' becalne concerned . abont his" security, and sought to hold . appellants for his inYestment: In the meantime, the value of the seeurity covered by this 'Mortgage along with all ofher property began to decline and continued to decline. The royalties froM the gas rights declined from 'upwards of $50,000 to about $13,000.-per year, and the farm lands had greatly depreciated- it value. We think the case of . Balik of Hatfield v. Clayton; 158 Ark. 119, 250 S . W. 347, is an authority against'ap-- pellee under the facts of this case: There Mrs. Claytoh sued the bank for $1,000 . she had 'on 'deposit in the bank; and which had . been withdrawn . by the check of the vice president of the bank: The vice , president made a Visit to the home 6f Mrs. Clayton-and proposed that, if 'she
932. CITY NATIONAL BANK V. MCGRAW. [191 would permit him to withdraw $1,000 of the funds to her credit in, the bank an& lend it out, he could get 10 per cent, interest for her. The vice president testified that she consented to that arrangement, but- she testified that :she refused to do so for the reason that she needed the money for another purpose: The jury settled that issue of fact in favor of Mrs. Clayton. The vice president drew a check on the : bank for $1,000 and signed Mrs. Clayton's name to it, withdrew the .money and executed his own note to Mrs. Clayton with another as surety for that amount. He did that on June 5, 1921. On June 11, 1921, he wrote Mrs. Clayton that he had placed $1,000 for her at 10.per cent., and, if she happened to need it and would let him know a couple of weeks ahead, he would replace it. •She received this letter but made no reply. Thereafter, on July 30, the bank gave her a statement of her account which.showed the withdrawal of these funds. On October 1, 1921, she wrote the vice president a letter asking- him to put •the money back into the bank as she would . need it by . November 1st. She made no objection to the use- of tbe funds until some time in November. The• court submitted , the question to the jury upon instructions . which .told the jury that she was entitled to recover unless it was found, from . a preponderance of the evidence, :that she authorized the loan of her funds, "or that thereafter, being fully informed of all material facts with respect thereto, plaintiff expressly ratified said transaction-either orally or in writing, or • in her conduct to said defendant,' . ' In • reversing the judgment, this court held that there was no evidence to submit to the jury as to whether. she had objected to the statement of her account within a reasonable time ; that the statement rendered to her by the bank at the end of July, 1921, constituted an account stated within the meaning of the law. The court said : "Tbe rule seems to be universal that the furnishing of a statement by -a bank to a depositor where the items are sufficiently shown to put the depositor upon notice constitutes an account stated, to which objection must be made within a reasonable time, otherwise the account is final." The court further said : "There was a .delay of between two and . three months
ARK.] CITY NATIONAL BANK V. MCORAW.. 933 before any objection was made, and it was, more than three months before it was insisted that the money had been wrongfully withdrawn: ' There were no undisclosed facts which might or might. not have.affected plaintiff's decision in repudiating the withdrawal of the fund. She says that she thought that'Johnson was acting :for the bank in making the loan, but she knew to a certainty that the money had been withdrawn from the bank, which bad the effect of changing the status q f -the bank as her debtor, and the only fact which she claimed to misfinder-stand was that the money had been-loaned . out by Johnson instead of the bank; • -but she . Was . aWare of the precis0 method in which her. money had been •ithdrawn from - the hank, and it- was her duty . to object :to this, if -it was unauthorized."- Appellee contends that there is . no question'of an ac- • count, stated in this . case, 'and that Appellee was under no duty to speak. While it is true that there was no account stated, just as in . the Bank of -Hatfield case, there was notide to appellee of everything that was done, in addition to the fact that his' pasS book Was balanced which reflected the actual condition . .of his account. We think appellee was under the ditty to speak within a reasonable time after the Withdrawal of his funds from the savings account, and that his objection made on January 2, 1931, if in fact he made any objection at, that time, comes too late. It was his duty to _act promptly . -on receipt of the letter of July 16, 1929, if he wished to y epudiate the action of those, who preSumed. to. act . as his agents,: Milether rightfully oy WroneullY, 'and that.h qthust have done so within a reasonable . time. :ITot' having . done So within a. reasonable time, the must be, held to , have rati-, fied the act of his suppoSed ,agents, and Cannot . at thiS. time recover against them. Appellee Must be held tO be tbe owner . of said . honds , and entitled tO all of the. rights given him under the Mortgage' securing same . 63- gether witkother bondholders. -. The decree against app . ellants will be reversed, and the cause dismissed.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.