Court Opinion

ID: 3503067
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:09:52.261952+00
Date Added: 2024-06-11T13:44:52.596007
License: Public Domain

In September, 1929, the defendant banking company was a corporation engaged in the general banking business at St. Joseph, Michigan; and on September 5, 1929, sold to plaintiff bonds of the Cook County Investment Securities Company in the sum of $5,000, par value. These bonds were then owned by defendant company and were sold to plaintiff by a Mr. Zick, a teller in the bank. At the time of the purchase, Mr. Zick informed plaintiff that the bank would repurchase the bonds at any time at the option of plaintiff. About November, 1929, defendant bank repurchased $2,500 of these bonds from plaintiff; and on June 12, 1930, plaintiff again purchased $2,500 of these bonds from defendant through a Mr. Johnson, cashier of defendant bank, who at the time of this sale told plaintiff that the bonds were gilt edged and that the bank would take them back at any time plaintiff so desired. *Page 501 
The bank having failed to repurchase these bonds, plaintiff brought suit and contends that the bank had the right to enter into a contract to guarantee the value of the bonds or to repurchase upon demand; and further that at the time of purchase Mr. Johnson, cashier of defendant bank, falsely represented to plaintiff that the bonds were "gilt edged" so that defendant bank must respond in damages for such false and fraudulent representations.
Plaintiff claims fraud in the purchase of the second group of bonds from Mr. Johnson, the cashier of defendant bank, and it is alleged that Johnson claimed the bonds were "gilt edged." There appears to be no doubt that this statement was made. We said in Boss v. Tomaras, 251 Mich. 469, 473, the general rule is, "that a statement of value is an expression of opinion and not a basis of fraud."
If plaintiff is to recover on the basis of fraud, he must not only show that false and fraudulent representations were made, but must also show that such representations were the moving force that induced plaintiff to purchase these bonds to his damage. We do not think that plaintiff has made such a showing; on the contrary, plaintiff's testimony shows that the inducement for this purchase of bonds was the statement of Johnson that the bank guaranteed them. We quote from the record:
"Q. Do you want us to understand you would not have bought the last $2,500, unless the bank guaranteed them?
"A. I wouldn't have bought them at any price unless the bank guaranteed them; and that is what I told him.
"Q. When you bought that last $2,500 you relied entirely on the guarantee of the bank to take care of you?
"A. Yes, sir." *Page 502 
This testimony clearly shows that plaintiff in the purchase of these bonds relied solely upon the so-called guarantee and not upon anything said by Johnson, its cashier, as to their quality.
Plaintiff next contends that the repurchase agreement is valid, while the defense contends that plaintiff cannot recover,
(1) Because Mr. Zick, the teller, was without authority to bind the bank by a repurchase or guaranty agreement as was made in this case, and
(2) Because the agreement to repurchase is void not only because it is ultra vires, but because it is against the "public policy" of the State of Michigan.
In this cause the sale of these bonds in the first instance was made by Mr. Zick, the teller of the bank, and the second sale was made by Mr. Johnson, the cashier.
In both instances the record fails to show that the bank through its board of directors ever authorized either the teller or the cashier to make any such agreement or ever knew that such promises had been made, and none can be implied unless the positions of teller and cashier carry with them an implied authority to bind the bank.
In 4 Michie on Banks and Banking, p. 185, § 56, it is said, "The statement of a bank teller that an indorsement upon a check is genuine does not bind the bank, which holds him out to the public as an agent with limited powers." But plaintiff contends that the bank is estopped to claim that the agreement is ultra vires and cites Crowder State Bank v. ÆtnaPowder Co., 41 Okla. 394 (138 P. 392, L.R.A. 1917 A, 1021);People's Bank v. National Bank, 101 U.S. 181; Logan CountyNational Bank v. Townsend, 139 U.S. 67 (11 Sup. Ct. 496);German American State Bank of Chalco v. Farmers  MerchantsSavings Bank of Lidderdale, 203 Iowa, 276 *Page 503 
(211 N.W. 386); and that where the agreement to repurchase is a part of the original sale, it needs no other consideration and is valid. Stratbucker v. Bankers Realty Investment Co.,107 Neb. 194 (185 N.W. 271).
We think these contentions bring us to the question of the public policy of the State of Michigan for banks to enter into such an agreement. If such an agreement is valid, it would create against the bank a contingent liability which would vary from day to day and could not be measured or determined. If a bank could make one such contract, it could make many and thus imperil the security of depositors by consuming the capital and surplus. Moreover, such a condition would prevent banking officials, depositors, and others desiring to do business with the bank from ascertaining its exact financial condition.
We are not in accord with plaintiff's contention that all State banking corporations have an implied authority to guarantee the payment of securities sold by them. This contention is true as to commercial paper or where a bank enters into a contract of guaranty in order to save itself from a bad debt.
In Knass v. Madison  Kedzie State Bank, 354 Ill. 554, 565
(188 N.E. 836), the court said:
"Such a transaction can scarcely be said to bear resemblance to the ordinary indorsement of a note or bill of exchange, in which banks are authorized to, and commonly do, deal, and which becomes by indorsement the obligation of the bank. The risk of complete destruction of a banking institution, and thus loss of deposits arising from the traffic in ordinary commercial bank paper by indorsement thereof is by no means comparable to the risk involved in the guaranty of a large number of real estate mortgage bonds, over which or their security the bank has no means of control. Such agreements are so fraught with danger to depositors and other creditors of the *Page 504 
bank that it is inconceivable that any considerable number of bankers should deem them to be in accordance with sound banking principles."
See, also, Hawkins Realty Co. v. Hawkins State Bank,205 Wis. 406 (236 N.W. 657); Eberlein v. Stockyards Mortgage  TrustCo., 164 Minn. 323 (204 N.W. 961); Greene v. First NationalBank of Thief River Falls, 172 Minn. 310 (215 N.W. 213, 60 A.L.R. 814); Farmers  Mechanics Sav. Bank v. CrookstonState Bank, 169 Minn. 249 (210 N.W. 998).
In Reichert v. Metropolitan Trust Co., 262 Mich. 123, the trust company had engaged in the business of loaning its own money upon mortgages, and then selling participating interests in these mortgages to the public under a guaranty of payment. This court in determining whether or not a trust company had any legal right to enter into any such guaranty said:
"It was beyond the power of the trust company and against public policy, for an organization of this nature to engage in such a venture."
Hawkins Realty Co. v. Hawkins State Bank, supra, involves an attempted agreement on the part of a bank to repurchase certain mortgages at any time at par and accrued interest. The court said:
"If a bank, under such circumstances, can be bound by such a secret agreement, entered into between its president and cashier, an intolerable situation will result. Such a practice would be absolutely inimical to safe and sound banking, and would destroy the effect of many laws passed by the legislature for the purpose of making banks safe. * * *
"That such a contract should be held void on grounds of public policy seems entirely free from doubt. In 2 Page, Contracts (2d Ed.), p. 1163, it is said: 'Contracts are against public policy when they tend to injure the State or the public. Public policy *Page 505 
is that principle of law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good.' This court has repeatedly held that a bank is a quasi-public institution in which the public is deeply interested."
In Lowe v. Crocker, 154 Wis. 497 (143 N.W. 176), the court said:
"The reason the law declares contracts contrary to public policy to be void is not for the purpose of permitting a person to retain what in equity and good conscience he ought not to retain, but to punish any party to such a contract by leaving him where he has placed himself, namely, at the mercy of the other party. Any other rule would be no check upon the making of unlawful contracts, for their enforcement upon equitable grounds would furnish as adequate a remedy as their enforcement upon legal grounds."
The contract in the case at bar was illegal as beingultra vires and contrary to the public policy of the State of Michigan.
Judgment affirmed, defendant may have its costs.
BUTZEL, BUSHNELL, and POTTER, JJ., concurred with EDWARD M. SHARPE, J.