#### INDIANA QUARRIES COMPANY v. ANGIER BANK & TRUST COMPANY, J. E. WILLIAMS and P. S. COOPER.

(Filed 14 October, 1925.)

Baiücs and Banking — Cashier_Materialmen — Principal and Surety— Guarantor of Payment.

A cashier of a bank has only the authority to bind the bank in transactions usually within the scope of his authority as such officer, and no implied authority to guarantee in behalf of the bank the payment for *278material furnished the contractor for a building in which he was personally interested, and in which the bank had no interest, though it was contemplated that a part of the building would probably be used by the bank when erected.

Appeal by plaintiff from judgment of *Lyon, J.,*at June Special Term, 1925, of HakNett.

Affirmed.

When this action was called for trial and before any evidence was offered, defendants, J. E. Williams and P. S. Cooper, demurred, *ore tenus,*on the ground that no cause of action was stated in the complaint as to them, or either of them. Demurrer was sustained, and plaintiff excepted.

At the close of all the evidence, defendant, Angier Bank and Trust Company, renewed its motion, first made at the close of plaintiff’s evidence, and then denied, for judgment as of nonsuit. This motion was allowed. Plaintiff excepted. From judgment in accordance with motion, plaintiff appealed.

*Godwin & Williams for plaintiff.*

*FranJdin T. Dupree and Chas. Boss for defendants.*

CoNNOR, *J.*

In its complaint, plaintiff alleges that P. S. Cooper and J. E. Williams were President and Yice-President and Cashier, respectively, of defendant, Angier Bank and Trust Company, a corporation, engaged in the general banking business in the town of Angier, N. C.; that on 24 October, 1921, said corporation was planning and about to undertake the erection of a new building in Angier to be used partly as a bank; that P. S. Cooper, President, and J. E. Williams, Yice-President and Cashier, as officers of said corporation, were in complete charge and control of its business, and were acting for the corporation in the matter of erecting said building. It further alleges that defendants had employed M. O. Cole as “its cut stone contractor for the said building” and that said Cole had made out the specifications for the cut stone required for the said building; that defendants “sent in said order to the plaintiff, and authorized and instructed this plaintiff to ship to the defendants the amount of cut stone specified in said order, and signed a written guarantee by and for defendant bank, guaranteeing unto the plaintiff to make payment for all stone required for the bank building at Angier, N. C., according to the order placed by M. O. Cole.” Plaintiff then alleges the shipment of said stone, and failure of defendants to pay for same, on demand of plaintiff.

There are no allegations in this complaint, upon which either P. S. Cooper or J". ,E. Williams can be held liable to plaintiff for the stone shipped by plaintiff. It is alleged specifically that they were acting as *279officers of defendant, Angier Bank and Trust Co., a corporation. There was no error in sustaining the demurrer.

The evidence offered at the trial, to sustain plaintiff’s action against Angier Bank and Trust Co., tends to show the following facts:

A short time prior to 24 October, 1921, plaintiff, whose place of business is in Chicago, Ill., received from M. 0. Cole, of Durham, N. C., a written order for cut stone to be shipped .to Angier, N. C.; before accepting said order, plaintiff sent the manager of its eastern sales office to Angier, N. C., where he saw J. E. Williams; said Williams was in charge of defendant bank as cashier. He stated to plaintiff’s manager that “the bank was to have a new building”; relying upon this statement, plaintiff’s manager asked Mr. Williams as cashier, to guarantee payment by Cole of the stone which Cole had ordered from plaintiff.

> Thereupon, Mr. Williams signed and delivered to plaintiff’s manager a letter as follows:

> W. H. Geegoet, Yice-Pres. J. E. Williams, Yice-Pres. and Cashier.

> “Angier Bane and Trust Company,

> Angier, North Carolina.

> P. S. Cooper, President,

> Dunn, N. C.

> October 24, 1921.

> The Indiana Quarries Company,

> Chicago, Ill.

> Gentlemen:

> This is to certify that we will guarantee payment for all stone required for our bank at Angier, N. C., per order placed by Mr. M. O. Cole, who is our cut stone contractor on this operation. The terms are sixty days from date of invoice. Yours truly,

> J. E. Williams, *Cashier*

Upon receipt of this letter plaintiff accepted Cole’s order and shipped the stone ordered by him to Angier, N. C.; invoices were mailed to Cole dated 5 and 19 November, 1921, respectively; the total amount of these invoices was $1,238.98; no payment has been made on the account for this stone by any one, and same is now past due.

At the time the letter was signed and delivered by J. E. Williams to the manager of plaintiff, the Williams Supply Company, a corporation, was engaged in the erection of a building in Angier, N. C.; this building wás planned partly as a bank; J. E. Williams, cashier, of *280Angier Bank and Trust Company, was secretary of tbe 'Williams Supply Company; all tbe stock in said company was owned by P. S. Cooper, J. E. Williams and,Mrs. J. E. Williams; tbe stone shipped by plaintiff, upon Cole’s order, was ordered for and was used in tbe construction of tbis building; Angier Bank and Trust Company bad no interest in said building or in its erection; its board of directors bad not authorized J. E. Williams, cashier, to write tbe letter purporting to be a guarantee by tbe bank of payment for tbe stone shipped by plaintiff; it did not contemplate at tbe time tbe erection of a bank building.

Plaintiff relied upon tbe letter offered in evidence in good faith as tbe guarantee by defendant of its account against Cole for tbe stone; it bad no notice that defendant bad no interest in said building, or that Williams, its cashier, bad a personal interest in tbe shipment of tbe stone.

At tbe close of all tbe evidence, tbe motion of defendant, Angier Bank and Trust Company, for judgment as of nonsuit was allowed. Plaintiff excepted, and assigns tbis as error.

If there bad been evidence, from which tbe jury could find that plaintiff bad notice, at tbe time it shipped tbe stone to Cole, at Angier, N. C., that defendant, Angier Bank and Trust Company, bad no interest in tbe building in which tbe stone was to be used, and that J. E. Williams, its cashier, bad a personal interest in tbe purchase of tbe stone, *Grady v. Bank,*184 N. C., 158; *Bank v. West,*184 N. C., 220, and *Stansell v. Payne,*189 N. C., 647, would be conclusive of tbis appeal. If plaintiff bad bad notice of .these facts before it shipped tbe stone, clearly tbe defendant, Angier Bank and Trust Company, could not be held liable upon tbe letter written and signed by tbe cashier, and purporting to be its guarantee of payment of tbe stone. Tbe authority of a cashier is confined to transactions which are for tbe benefit of tbe bank. It does not extend to a transaction which is for tbe benefit of tbe cashier personally, and one dealing with him with notice that such is tbe character of tbe transaction can acquire no rights thereby against tbe bank, unless tbe transaction was actually authorized, expressly or by implication. Tiffany on Banks and Banking, p. 325.

In *Grady v. Bank, supra, Chief Justice Clark,*writing tbe opinion for tbe Court, says: “Upon all tbe evidence, and in tbe light of tbe above cited authorities, Grady was not an innocent party to tbe transaction.” Grady knew that tbe cashier bad a personal interest in tbe note which be alleged tbe cashier bad taken in part payment of bis note held by tbe bank. Although tbe cashier bad authority to receive payments on notes held by tbe bank, be bad no authority, as cashier, to take a note, which was virtually bis own note, held by Grady for *281a loan made to a corporation of wbicb tbe casbier was an officer, and on wbicb be was an endorser, in payment of Grady’s note to tbe bank.

In *Bank v. West, supra,*tbe casbier of plaintiff bank bad bought an automobile of defendant, wbo was a customer of tbe bank. Pursuant to tbe cashier's instruction, defendant drew bis check on tbe bank for tbe purchase price of tbe automobile. This check was paid by tbe casbier, wbo, however, failed to deposit to tbe credit of defendant money for tbe payment of tbe check as be bad agreed with West to do. Tbe result of tbe transaction was an overdraft on tbe bank by defendant, wbo thereby procured tbe money of tbe bank in payment of tbe cashier’s personal debt. It was held that tbe bank was entitled to recover of defendant tbe amount of tbe overdraft. It is said in tbe opinion that “West knew, as a matter of course, that tbe transaction in effect was that tbe casbier, without any authority from tbe bank, was to loan him $540 without any note or security given by him to tbe bank, and without payment of interest.”

In *Stansell v. Payne, supra,*tbe plaintiff bad notice that tbe president, wbo endorsed tbe note in tbe name of tbe bank, was acting not in tbe interest of tbe bank, but in bis own interest. Tbe president bad no express authority to endorse tbe note in tbe name of tbe bank; we held that authority could not be implied from the mere fact that be was president of tbe bank.

• It has been held, however, that tbe principle upon wbicb these cases were decided does not apply where tbe party relying upon tbe act of tbe casbier bad no notice of bis personal interest or of tbe lack of interest of tbe bank in tbe transaction; nor does it apply where tbe act of tbe casbier is within bis authority, expressly conferred by tbe bank, or where tbe act is ratified by tbe bank by receipt of benefits arising therefrom.

In *Williams v. Bank,*188 N. C., 197, tbe bank was held liable for a transaction made in its name by tbe casbier, wbo applied tbe proceeds of tbe plaintiff’s note to bis own use, for tbe transaction was within tbe authority of tbe cashier, and tbe wrongful application was made without tbe knowledge of plaintiff. In *Trust Co. v. Trust Co.,*188 N. C., 766, we held that tbe guaranty of a note of a customer by the' casbier of tbe bank was binding on tbe bank, tbe cashier having no. personal interest in tbe transaction, and tbe bank having received credit, with tbe bank relying upon tbe guarantee for tbe note thus guaranteed. In that case, tbe casbier bad authority to discount notes owned by tbe bank, and tbe transaction was only one of many similar transactions wbicb bad been previously bad between tbe parties, all of wbicb bad been recognized by tbe bank as valid and binding.

*282If a cashier, purporting to act for his bank, makes a contract, which he has authority to make, or which by reason of .special circumstances is within the apparent scope of his authority as cashier, the bank is bound, and must be held liable. The fact that the bank receives no benefit from the contract or transaction, and that the cashier has a personal interest therein, does not relieve the bank from liability, unless the other party had notice of these facts. This principle, however, does not apply where the cashier has no' authority, express or implied, to make the contract for the bank, or where the contract or transaction is not within the apparent scope of his authority. One who relies upon a contract, or transaction, made by a cashier, purporting to act therein for his bank, which is not within the apparent scope of his authority, or within his implied authority, as cashier, acts at his peril, for the bank will not be held liable unless express authority from the bank is both alleged and proved. The rigid enforcement of this well-settled principle is required for the protection, not only of stockholders, but also of depositors and the public.

There is no evidence on this record that plaintiff had notice that the defendant' had no interest in the building for which the stone was ordered, or that the cashier had a personal interest therein, which would prevent liability attaching to the bank on account of the transaction, made in its name by the cashier. There is, further, no evidence that the cashier had express authority from the bank to guarantee the account of plaintiff against Cole for stone ordered by him and shipped by plaintiff. There is evidence, on the contrary, that he had no such authority. Nor is there any evidence tending to show any facts from which the jury might find that the contract or transaction was within the apparent scope of Williams’ authority as cashier. There had been no prior dealings between plaintiff and defendant, and no evidence of contracts or transactions by the cashier with other parties similar to this transaction, which had been ratified by the bank.

The question presented by this appeal, therefore, is whether the cashier of defendant bank had any implied authority to bind the bank by a guarantee of plaintiff’s account against Cole for the stone.

It must be noted that the cashier, in this case, did not purchase stone of plaintiff for defendant, to be used in a building to be erected by defendant for the convenient transaction of its business. The defendant, as a corporation, engaged in the banking business, under the laws of this State, has the power to purchase and hold such real estate as shall be necessary for the convenient transaction of its business. Public Laws 1921, chap. 4, sec. 26. Whether a cashier has implied authority to purchase material for a building to be erected by his bank, is not presented in this case. The debt for the stone was Cole’s debt, *283not tbe debt of the bank. He was primarily liable. Plaintiff contends that the bank is. liable only as a guarantor of Cole’s debt.

Defendant, as a banking corporation, under the laws of this State, in addition to the powers conferred by law upon private corporations, has power “by'its board of directors, or duly authorized -officers and agents, subject to law, to exercise all such 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 indebtedness, by receiving deposits, by buying and selling exchange, coin and bullion, by loaning money on personal security or real and personal property.” C. S., 220 (a)-; Public Laws 1921, chap. 4. The words used in the statute relative to the powers of corporations engaged in the banking business under the laws of this State are almost identical with those used in the Federal statute, relative to the powers of National Banks. U. S. Comp. Stat. 1918, sec. 9661, subsec. 7.

“In the absence of an express grant of authority, a banking corporation, as a rule, has not the power to become the guarantor or surety of the obligation of another person, or to lend its credit to any person. No such power being conferred by the National Bank Act, this rule applies to National Banks.” Tiffany on Banks and Banking, p. 284. “Banking associations from the very nature of their business are prohibited from lending credit.” Magee on Banks and Banking, p. 466: “It is not within the ordinary functions of a bank to lend its credit, and so it cannot become an accommodation endorser. Neither is a bank authorized to become a guarantor, except where it is necessary to protect its rights where the guaranty relates to commercial paper and is an incident to the purchase and sale thereof, or when the guaranty is especially authorized by law.” I C. J., 595. “A banking corporation cannot lend its credit to another by becoming surety, endorser or guarantor for him.” 3 E. C. L., 425. Each of these statements as to the law is sustained by numerous citations of authority.

An exception has been made to the general proposition herein approved, where the bank enters into a guaranty for its own advantage as an incident to business in which it is authorized to engage (Tiffany on Banks and Banking, p. 285, and authorities cited), or where the bank has actually received benefit from one who has relied, in good faith, upon the guaranty. *Creditors Claim Co. v. Northwest L. & T. Co.,*81 Wash., 247, 142 Pac., 670. This exception will not avail the plaintiff in the instant case, for, while the transaction on its face purports to be for the advantage of defendant as an incident to the erection of a building for bank purposes, the making of a guaranty, even if same is within the power of the bank, cannot be held to be within the implied powers of a cashier. If upon the facts appearing from *284the evidence in this case, the defendant, by its board of directors, whose powers are larger than those of a cashier (Public Laws 1921, ch. 4, sec. 48), had authority to guarantee payment for stone shipped to Cole, it does not follow that the cashier, without express authority from the board of directors, was authorized to bind the corporation by a guarantee. Clearly a cashier has no implied power to make a contract binding on the bank which the bank itself has power to make only under special circumstances.

The judgment of nonsuit is sustained. Defendant is not liable to plaintiff as a guarantor of the payment for stone shipped upon the order of Cole, for the reason that J. E. Williams, cashier, was without authority, express or implied, to bind defendant as he undertook to do in his letter dated 24 October, 1921. Lack of liability is not determined by the fact that defendant had no interest in the building for which the stone was ordered, or that the cashier had a personal interest in the building in which the stone was used. Even if the facts had been otherwise, defendant could not be held liable upon the guaranty of its cashier, who had no express authority to make the guarantee, and whose authority to do so cannot be implied. It is the plaintiff’s misfortune that it was not better advised as.to the law when in reliance upon the letter of the cashier as the guaranty of the Angier Bank and Trust Co., it shipped the stone upon Cole’s order. The judgment is amply supported by the authorities and is

Affirmed.