Opinion ID: 466510
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 6 Farmers, a small-town bank with about 20 employees, and W.E. Tucker Oil (Tucker Oil) originally entered into a $70,000 unsecured note. Farmers then sold a 100% participation in the note to Union on January 13, 1983. Union is a large bank in Little Rock which has about 300-400 employees and a separate correspondent department. This correspondent department buys and sells participation with downstream banks, and it was anxious to solicit new business. 7 Farmers was interested in selling Union the $70,000 participation for several reasons. First, an examination by the Arkansas State Bank Department found that Farmers had loaned Tucker Oil more than the $225,000 loan limit, a condition known as being overline. Farmers sought to cure the overline problem by selling the $70,000 participation. Second, Farmers was interested in moving its primary upstream relationship from Worthen Bank in Little Rock to Union. 8 As a result of an examination by the Arkansas State Bank Department, the directors of Farmers decided to hire Woods to become Farmer's President. He joined Farmers on January 3, 1983 and determined to resolve the overline problems with Tucker Oil and several other accounts. Woods then met with two of Union's officers, Bob Knapp and Bob Jackson, on January 10, 1983 at Union's office in Little Rock. Jackson had previously met with Woods, shortly before he moved to Farmers, when he was at a bank in Wilmot, Arkansas. At that earlier meeting, Woods told Jackson of his anticipated move, and Jackson intimated to Woods that Union wanted to become Farmers' upstream bank. 9 At the January 10, 1983 meeting, Woods gave Knapp and Jackson the most recent financial statement available on Tucker Oil, a statement dated June 30, 1982. He also furnished an unaudited financial statement of E.A. and Linda Tucker dated October 31, 1982. After reviewing these statements, as well as a Dun & Bradstreet report on Tucker Oil, dated January 10, 1983, the Union officials decided to purchase the 100% participation in the note. These documents indicated that Tucker Oil was in sound shape. 10 Approximately two months after the sale of the participation, Tucker Oil's financial situation appeared more bleak. Farmers received a financial statement on Tucker dated December 31, 1982 which caused the Federal Deposit Insurance corporation (FDIC) to classify adversely all of the loans Farmers made to Tucker Oil. The statement showed a serious erosion of Tucker Oil's financial strength. 11 The obligation evidenced by the note and participation matured six months after its execution, but was not paid by Tucker Oil. Tucker Oil subsequently filed a voluntary petition of bankruptcy. Union then demanded that Farmers repurchase the note and filed suit when Farmers refused. 12 In its original complaint, Union alleged that Farmers violated federal and state securities laws, but the district court found on summary judgment that the participation was not a security under federal or state law. Union was then permitted to file an amended complaint to include common-law fraud. The amended complaint alleged that special circumstances existed between the parties because, among other things, the transaction was between bankers and E.A. Tucker, the President of Tucker Oil, was a director of Farmers. Tucker's accountant, Jim Sanderlin, was also a director of Farmers, until his resignation on May 10, 1983. 13 The trial court held that it had pendent jurisdiction and decided the merits of the fraud claims after trial. 2 It found that Woods represented that Tucker Oil was in sound financial condition when the participation was sold even though Tucker Oil was in some degree of financial difficulty at that time. The trial court found, however, that Woods had not been with Farmers long enough to know Tucker Oil's true financial condition and that Woods did not know or believe his representation to be false. The trial court further found that no special circumstances existed to impose an affirmative duty of disclosure on Farmers.