Opinion
No. 32166.
March 23, 1936. Suggestion of Error Overruled April 20, 1936.
1. BANKS AND BANKING.
National bank is liable, notwithstanding statute, for fraud and deceit or fraudulent representations by which a customer is led to make an investment on the faith of such fraudulent representations (Rev. Stat. U.S., sec. 5136, par. 7, as amended by Act Cong. Feb. 25, 1927, sec. 2, 44 Stat. 1226, sec. 2).
2. PLEADING.
In customer's suit against bank for principal and interest on bonds which he purchased relying upon bank's representations that bonds were guaranteed, refusal to strike from declaration a copy of a bill filed by a bondholders' committee against surety guaranteeing mortgages underlying bonds held not error, where purpose of exhibit was to show that bank had either made no investigation or else knew investment was not a sound one.
3. FRAUD.
In customer's suit against bank for principal and interest on bonds which he purchased relying upon bank's representations that bonds were guaranteed, testimony of examining auditor that company issuing bonds and trustee of company were insolvent and had been prior to sale of bonds held properly admitted to show lack of value of bonds when suit was instituted and when customer acquired knowledge of fact.
4. BONDS. Fraud.
In determining value of bonds in suit for rescission of a purchase because of fraudulent representations of seller of bonds, or for damages based on fraud and deceit in sale, considerable latitude is allowed, and evidence having tendency to show worthlessness or value less than face value is competent.
5. FRAUD.
Bank customer, suing bank for principal and interest on bonds which he purchased relying upon bank's representations that bonds were guaranteed, was entitled to recover difference between purchase price and value of bonds on return or tender of bonds on learning of falsity of representations.
6. FRAUD.
In customer's suit against bank for principal and interest on bonds which he purchased relying upon bank's representations that bonds were guaranteed, admission, for purpose of showing intent to deceive, of testimony of other witnesses than plaintiff as to similar transactions and representations made out of plaintiff's hearing by agent, held not error.
APPEAL from circuit court of Lauderdale county. HON. ARTHUR G. BUSBY, Judge.
Wilbourn, Miller Wilbourn, of Meridian, for appellant.
The court should have overruled the demurrer of appellee to appellant's special plea No. 1, and at the conclusion of the testimony should have directed a verdict in favor of appellant.
The proviso to paragraph 7 of section 5136 of the Revised Statutes of the United States, as amended February 24, 1927, reads as follows: "Provided, That the business of buying and selling investment securities shall hereafter be limited to buying and selling without recourse marketable obligations evidencing indebtedness of any person . . . or corporation, in the form of bonds, notes and/or debentures, commonly known as investment securities." It was in full force and effect at the time of the sale here involved.
Awotin v. Atlas Exchange National Bank of Chicago, 55 S.Ct. 674, 79 L.Ed. 1393.
It is undisputed that the bonds here involved are of the class of securities dealt with by the statute, and that the statute was in force when appellant sold them. The pleadings of appellee cannot be construed as alleging an intentional or wilful misstatement, nor any purpose to defraud.
The case here before the court is not materially different from that of Awotin v. Atlas Exchange National Bank, supra. In the Awotin case, contemporaneously with the purchase, and as an inducement, and part consideration for it, the bank agreed in writing at the purchaser's option to repurchase the bonds at maturity at par and accrued interest. The Supreme Court of the United States held such a contract invalid as being one prohibited by the statute; and declared that the purchaser could not invoke estoppel to impose a liability which the statute forbids.
In the instant case, both parties were then and there charged with knowledge of the prohibition of the statute, and legally knowing the subject of the sale could only be sold by the bank without recourse on it, to award recovery under such circumstances is to grant the purchaser recourse against the bank in violation of the statute. If the bank could not be liable in view of the statute where it expressly and intentionally agreed to restore the price, how can it be held to be liable to restore the price, where it neither intended nor agreed to do so, on the ground of misstatement of its agent. The purpose of the statute was to prohibit liability of any form growing out of the sale. This the parties each legally knew.
Logan County National Bank v. Townsend, 139 U.S. 67, 11 S.Ct. 496, 35 L.Ed. 107.
No act or representation of an agent or officer of the bank in negotiating a sale of such securities, can be held to bind the bank so as to make the sale of such securities, which the statute says must be "without recourse," one with recourse; for the reason that a sale "with recourse," express or implied, or by estoppel is ultra vires.
A sale with recourse being ultra vires, the appellant cannot be bound by the representation which its officer may have made in its behalf, any more than a contract entered into by such officer.
Tome v. Parkersburg Branch Railroad Co., 39 Md. 36; Penn's Del. Md. Steam Navigation Co. v. Dandridge, 8 Gill John. 248; Duncan v. Md. Savings Institution, 10 Gill Johns. 299; U.S. v. City Bank of Columbus, 21 How. 356; Merchants Bank v. Marine Bank, 3 Gill. 125; Minor v. Mechanics Bank of Alexandria, 1 Pet. 46; Weckler v. First National Bank of Hagerstown, 42 Md. 581, 20 Am. Rep. 95; Third National Bank of Baltimore v. Boyd, 44 Md. 47, 22 Am. Rep. 35; Wiley v. First National Bank, 47 Vt. 546; First National Bank of Lyons v. Ocean National Bank, 60 N.Y. 278; Lazear v. National Union Bank of Maryland, 52 Md. 78, 36 Am. Rep. 355; Central Transportation Co. v. Pullman Palace Car Co., 139 U.S. 24, 35 L.Ed. 55.
If a national bank, therefore, is without power, in the sale of securities such as are here involved, to make any endorsement thereof, or to assume any liability with reference thereto, on the basis of which recourse may be had against it, then we submit it logically follows that no character of recourse may be had against the bank on any such sale, predicated either upon implication, or misrepresentation, or estoppel, since the bank could only sell such securities without recourse upon itself. And, since all who dealt with it were equally charged with the law in that respect, as is held in Awotin v. Atlas Exchange National Bank, supra, and many other cases, then the bank cannot be made liable on any theory to make good what is received by virtue of such a sale, without defeating the purpose of the federal law on the subject.
Carlton Mining Power Co. v. W. Va. Northern R.R. Co., 145 S.E. 42.
To hold the bank liable here for the alleged statement of Blanks about the bonds would defeat the sovereignty of the federal government in the matter of the establishment and regulation of national banks.
Tucker v. Hibernia Bank Trust Co., 251 S.W. 406.
It is held, without dissent, that no shipper can recover of a carrier, where the carrier misquotes a scheduled freight rate. The carrier's rates are fixed according to law, and cannot be voided by misquotation, or misrepresentation or estoppel. If it were not so, federal control of interstate freight rates would be nullified.
Southern Ry. in Miss. v. Buckeye Cotton Oil Co., 126 Miss. 562, 80 So. 228; Brookhaven Lbr. Mfg. Co. v. Miss. Central R.R. Co., 122 So. 472; G.M. N.R.R. Co. v. Riverside Brick Mfg. Co., 107 So. 193, 141 Miss. 505; Lexington Compress Oil Mill Co. v. Y. M.V.R.R. Co., 131 Miss. 49, 95 So. 92; Central Warehouse Co. v. Chicago R.I.R. Co., 20 F.2d 828; Wheeling L.E. Ry. v. Standard Envelope Mfg. Co., 2 F. Supp. 637.
We earnestly insist that to hold the appellant liable on this record will strike down the statute of the United States governing the liability of national banks in such matters, and indeed nullify federal sovereignty over the national banking system.
The overruling of appellant's motion to strike Exhibit "A" to the first count of the declaration and the allegations of the first count of the declaration with reference to the suit filed in the federal court at Richmond, Virginia, and admitting in testimony the purported copy of the declaration in the suit in federal court in Richmond, Virginia, Exhibit "A" to the declaration in this cause and in permitting it to be read to the jury was error.
Appellee was not a party to the suit in Richmond. He had nothing whatever to do with it. It was something that was filed as a mere pleading by the Bondholders' Protective Committee long after appellee's purchase. Under the facts in this record it was incompetent for any purpose and its admission was highly prejudicial.
The testimony of the witnesses, Golden and others, as to their independent and unrelated transactions with R.L. Blanks out of the presence of the appellee and which were never communicated to the appellee were under the facts and the pleadings in this case and the law applicable thereto inadmissible for any purposes whatever.
All the testimony about the transactions between Golden, the Massengales, Miss Hosey, Miss Allen and Touchstone was not within the pleadings, was not admissible, we submit for any purpose whatever, and was highly prejudicial, and reversible error.
Rex Motor Co. v. Dupont, 132 Miss. 504, 96 So. 684; Stowe v. Wooten, 62 S.W.2d 67; Standard Mfg. Co. v. Slot, 98 N.W. 923, 105 Am. St. Rep. 1016; J.H. Clark Co. v. Rice, 106 N.W. 231; West Florida Land Co. v. Lewis, 25 So. 274; Johnson v. Gulich, 46 Neb. 817, 65 N.W. 883; May v. Roberts, 219 P. 55; 12 R.C.L., sec. 182, page 345.
It seems to be overwhelmingly shown that Pigford was advised before he bought the bonds that they themselves were not guaranteed. The verdict in this case is not supported by the evidence, but is at least against the overwhelming weight of the evidence.
McCain v. Cochran, 153 Miss. 237, 120 So. 823; Carter v. Eastman Gardner Co., 48 So. 615, 95 Miss. 651.
We contend the testimony of E.J. Gallagher ought not to have been admitted. It relates to the question of damages. Gallagher went to Asheville, North Carolina, in March 1931, and looked at some records there and interviewed parties in Asheville and got some statements from records there. Without producing these records or the parties who made them, appellee introduced the purely opinion and hearsay testimony of Gallagher as to what he found on the occasion of his visit to Asheville in March, 1931. The appellee bought his bond November 1, 1929, and that was the date as to which the value of the bonds should have been determined. Then both Central Securities Co., Inc., and Central Bank Trust Co. were going concerns. There is no competent testimony to show either of them insolvent then.
The general rule applicable to the measure of damages for fraud is that such an amount should be awarded to plaintiff as will compensate him for the loss occasioned by the fraud or, as it has been expressed, plaintiff is entitled to recover damages adequate to the injury which he has sustained. Plaintiff can recover the entire amount of his loss occasioned by the fraud, but the recovery must be limited to the actual loss. The number of false representations made does not affect the measure of damages.
27 C.J. 89, sec. 239, par. B; Estell v. Myers, 54 Miss. 174, 56 Miss. 800.
The measure of damages sustained by the purchaser where a purchase has been induced by fraud is, according to the weight of authority, the difference between the real value of the property purchased and the value which it would have had, had the representations been true.
27 C.J. 92, sec. 243, par. B; Estell v. Myers, 54 Miss. 174, 56 Miss. 800; Drake v. Holbrook, 66 S.W. 512; La Rue v. Barbee, 212 S.W. 142; Whiting v. Price, 70 Am. St. Rep. 262.
The damages in cases of fraud are ordinarily computed with reference to the time and place of the transaction.
Garstang v. Skinner, 156 Cal. 721, 134 P. 329; Kaufman v. Davis, 161 S.W. 1180; Moore v. Beakly, 215 S.W. 957; Anderson v. Snyder, 99 A. 1032; Workmen v. Boles, 181 N.W. 265; Stumpf v. Laurence, 40 P.2d 920; Morrell v. Wiley, 178 A. 121; Howard v. Merrick, 27 P.2d 891.
Graham Graham, of Meridian, for appellee.
Exhibit "A" to the declaration was identified by Mr. R.L. Blanks, cashier and trust officer of the appellant bank, in his testimony in the case of Sylvia G. Bullard v. Citizens National Bank, 160 So. 280, tried in the Chancery Court of Lauderdale County in May, 1933, from his prior knowledge of the contents of said exhibit, as being a true copy of a declaration filed by the Bondholders Protective Committee in Richmond, Va., against the United States Fidelity Guaranty Company, based upon the fraud aforesaid, in which suit, the appellant here, was a party plaintiff, and the testimony of Mr. Blanks, as aforesaid, shows that the bank had knowledge of the allegation in said suit at Richmond, and no evidence has ever been disclosed, as to the bank disapproving of the allegations contained in said exhibit, but on the contrary, this record shows that the bank was aiding and abetting in the prosecution of said suit in Richmond with knowledge of the allegations therein contained, and encouraging other bondholders so to do.
Said Exhibit "A" is offered in this case as admissions on the part of the appellant, named as plaintiff, in the exhibit, for the purpose of showing, not only that the bonds never had any value at any time, except a sale value, based upon the ignorance of the purchaser, as to the true facts; but to show that the appellee herein was under no duty whatever to save himself, or appellant, from damage herein sued for by reselling said bond to some person ignorant of the facts disclosed by this record; which, we submit, would not only have been immoral, but unlawful. It was introduced also to show the original scheme and plan of the Central Securities Company who designed and schemed to sell the bonds, issued by the Central Securities Company, on the reputation of the United States Fidelity Guaranty Company and the Maryland Casualty Company on the pretense that they were guaranteeing the bonds by a guarantee of the collaterals underlying the bonds by representing that there were underlying collaterals guaranteed by said surety companies, but in fact there was no such collateral to be guaranteed, and they flooded the country with descriptive circulars disclosing this scheme, one of which was introduced by the appellant on the cross-examination of the appellee.
The record showed that neither Mr. Blanks nor the appellant bank ever went or sent anyone to Asheville to investigate these bonds before the company failed; that the appellant investigated the people who sold them the bonds instead of the bonds themselves.
This record overwhelmingly shows that R.L. Blanks represented to Lamar Pigford that the bonds were guaranteed by the U.S.F. G. Co. and the Maryland Casualty Co. and that the bank made a thorough investigation and the witnesses Robert Golden. Miss Lula Belle Allen, Mrs. Mollie V. Blanks, S.K. Massengale, E.C. Massengale, Miss Bettie Hosey and Dr. A.G. Touchstone testify that they bought the same kind of bonds from Mr. R.L. Blanks (some differing only in series) and that he told all of them that the U.S.F. G. Co. and the Maryland Casualty Co. guaranteed them.
Replying to Point One of counsel's brief, based upon par. 7, section 5136 of the Revised Statute of the United States, we cite Bullard v. Citizens National Bank of Meridian, Miss., 173 Miss. 450, 162 So. 169, where JUDGE ETHRIDGE said in the opinion on Suggestion of Error, that: — "Our attention has been called to the recent case of Awotin v. Atlas Exchange National Bank of Chicago, 55 S.Ct. 674, 79 L.Ed. 1393; and it is contended that this case absolves the bank from liability in the transaction herein involved. The Awotin case dealt with a statute there involved as effecting the power of a bank to make contracts of the character there prohibited, and to incur any liability by dealing with such transactions by contract. It was not intended by the court, as we understand it, to hold that the statute prohibited the bank from being liable in actions of fraud and deceit; or in actions of tort, involving misrepresentations of facts in selling its securities, or disposing of such property which it had acquired for its own use, or as agent for others. It is inconceivable to us that the federal statutes should prohibit a person dealing with a bank, and who has been misled by false representations, from holding the bank liable for such false representations as would render other persons and corporations liable in actions for fraud or torts."
This decision of our court is in line with the decisions of the federal courts and other courts.
Smith v. First National Bank of Casselton (U.S.), C.C.A. 8th Circuit, 268 Fed. 780, 254 U.S. 571, 41 S.Ct. 218, 65 L.Ed. 460; Salter v. Williams, 244 Fed. 126, 156 C.C.A. 554; 40 S.Ct. 53, 250 U.S. 653, 63 L.Ed. 1191.
The decisions relied on by counsel were largely those cases decided prior to the enactment by Congress of the Federal Statute as amended Feb. 25, 1927; prior to that date banks were not authorized to buy and sell investment securities by the Federal Acts; and, of course, all such dealings were ultra vires on the part of national banks, but since said act has fully authorized national banks to buy and sell investment securities, with the only limitations being against contracts by the bank for contingent liability, the authorities cited by counsel, in the main, are wholly inapplicable here. Even before the federal act, national banks were held liable for ultra vires acts to the extent of the benefits received by the bank as fruits of such ultra vires acts.
U.S.F. G. Co. v. First National Bank, 76 So. 747; Bank of Tucson v. Anglo and London Paris National Bank of San Francisco, 269 P. 68, 280 U.S. 526; Jackson v. Continental National Bank, 16 F.2d 728; Southern Exchange Bank v. First National Bank, 141 S.E. 323, 37 Ga. App. 645; Coon v. Smith, 4 F. Supp. 960.
The statute in question was enacted Feb. 25, 1927. It provided that the banks, in buying and selling investment securities, shall hereafter be limited to doing so without recourse. The opinion of the Supreme Court of the United States in the case of Awotin v. Atlas Exchange National Bank of Chicago, 55 S.Ct. 674, decided April 29, 1935, interpreted this federal statute. It will be seen that the court, in interpreting the statute, interpreted its application to contractual liability of the bank as distinguished from liabilities growing out of acts ex delicto.
39 C.J. 1282, par. 1472.
The statute does not shield a bank in its tortious acts. The bank is not authorized to commit a tort. Under the general law it is made responsible, as any other natural or artificial person, for the wrongs that it commits.
The trial judge herein was eminently correct in sustaining a demurrer to defendant's plea based on this federal statute.
We submit that the testimony showing the bonds were not in fact guaranteed and were worthless was admissible in any event, and that the testimony as to what Blanks said to them was admissible in each case as it involves one of a class of transactions showing a plan, scheme, design, course of conduct, or custom of dealing under the following authorities:
Rex Motor Car Mfg. Co. v. Dupont, 132 Miss. 504, 96 So. 684; Nash Miss. Valley Motor Co. v. Childress, 156 Miss. 157, 125 So. 708; Lizana v. Edward Motor Sales Co., 163 Miss. 266, 141 So. 295; Bullard case, 162 So. 280; Stonewall Life Ins. Co. v. Cooke, 144 So. 217; Lindley v. Lindley, 34 Miss. 432; Clopton v. Cozart, 13 S. M. 363; Louisville N.R. Co. v. Blankenship, 74 So. 960.
All of the authorities hold that testimony of other witnesses to other transactions are material where intent is necessary to be proved, but Mississippi holds that intent is not material in actions for fraud and deceit, but that does not mean that such testimony is not relevant or admissible as was held by this court in the case of Story v. State, 68 Miss. 609, 10 So. 47, where it says: "A malicious killing of itself implies some unlawful motive, and the state need not establish what that is by specific proof. But it does not follow that because it need not, therefore it may not make such proof."
1 Wigmore on Evidence (2 Ed.), pars. 304, 376 and 377; Blake v. Assurance Co., L.R. 4, C.P.D. 94; Woodward v. Buchanan, L.R. 5, Q.B. 285; Lexington E.R. Co., 104 Ky. 23, 46 S.W. 209; Land Finance Co. v. Sherwin Electric Co., 146 A. 72; Anthon State Bank v. Bernard, 201 N.W. 59; Lowenstein v. Lombard, 58 N.E. 44; Cox v. Derringer, 82 Pa. 236.
Wigmore and Corpus Juris both say that the admissibility of such testimony is to be determined by the discretion of the trial court subject to review for abuse only.
22 C.J. 744, par. 834, and page 746, par. 836; Reeves v. Dennett. 145 Mass. 23; Emerson v. Lowell Light Co., 6 Allen (Mass.) 146; Columbia-Knickerbocker Trust Co. v. Abbott, 247 Fed. 833, 160 C.C.A. 55, 39 S.Ct. 6, 248 U.S. 558, 63 L.Ed. 420; Sacremento Suburban Fruit Lands Co. v. Elm, 29 F.2d 233; Tooker v. Alston, 159 Fed. 599; Bixler Company v. Dunsmore, 156 S.E. 72; Lincoln v. Emes, 74 U.S. 132.
As to the contention that the value of the bonds, as of the date of sale thereof, is not shown by this record, becomes wholly immaterial, as fraud vitiates everything it touches, and no person is justly chargeable, as an innocent holder of such a fraudulent thing, with any duty, with relation thereto, except, not to perpetrate another fraud by reselling it to some innocent person, under a representation that it was guaranteed, or secured, by this, that or the other. It is conclusively proven by this record that such a bond will not sell without sponsorship, which, necessarily, would involve some favorable representation thereof.
The only value the bond has or ever had was a sale value, as it never had any real or inherent value, and it being a fraudulent bond, issued through a fraudulent scheme, should never have been issued or sold by anybody. That such a bond was sold to appellee, known to appellant as a depositor, without any knowledge of securities and relying on appellant's advice under representations which the jury found the appellant to have made to appellee, as an inducement; and then, for the bank to come into court and seek to charge appellee with any value of such a bond, as a credit against the amount he is suing for, constitutes moral deliquency, as held, in the case of Canadian Agency, Limited, v. Assets Realization Company et al., 150 N.Y. Sup. 758.
Redgrove v. Hurd, 20 Ch. D. 1; Hammond v. Pennock, 61 N.Y. 145; 1 Story, Eq. Jur., page 193.
The true rule as applied to the measure of damages in the case of bonds bought for investment is found in the law of our sister state in the case of Southern Building Loan Assn. v. Bryant, 224 Ala. 527, 144 So. 367, wherein the court says: "That the measure of actual damages in such suit is the difference between the value of the shares at the time of discovery of fraud and the purchase price, or the value the articles would have had, had it possessed the qualities represented and within the contemplation of the parties, with interest (Southern Building Loan Assn. v. Wales, 24 Ala. App. 542, 138 So. 553; C.D. Chapman Co. v. G.P. Dowling Hardware Co., 205 Ala. 586, 88 So. 748; Attalla Oil Fertilizer Co. v. Goddard, 207 Ala. 287, 92 So. 794; Ewart v. Cunningham, 219 Ala. 399, 122 So. 359; Hogan v. Thorington, 8 Port. 428; Maxwell v. Sherman, 172 Ala. 626, 55 So. 520; Preston Motors Corp. v. Wood, 208 Ala. 172, 94 So. 70; Kibly Locomotive Mach. Works v. D.B. Lacey Son, 12 Ala. App. 464, 67 So. 754, and authorities; King v. Livingston Mfg. Co., 192 Ala. 269, 68 So. 897; Caffey v. Alabama Mch. Supply Co., 19 Ala. App. 189, 96 So. 454; Robinson v. Stevenson, 20 Ala. App. 59, 100 So. 910)."
In the case at bar the jury determined that the bonds were not as represented; that they were worthless; that they were not guaranteed by any surety companies, and that fact being a material representation which the appellee relied upon in purchasing the bonds for an investment, and as a result of said misrepresentations he was defrauded out of his money because there was no guarantee, and when he discovered the fraud the bonds were worthless.
Cartwright v. Hughes, 226 Ala. 464, 147 So. 399.
Damages are ordinarily computed with reference to time and place of the fraudulent transaction, and fixed as of the date on which the fraud was discovered.
27 C.J. 91, sec. 240; Danielson v. Skidmore, 125 Ark. 572, 189 S.W. 57; Smith v. Duffy, 57 N.J. Law 679, 32 A. 371; Goodwin v. Wilbur, 104 Ill. App. 45, 53; Garstang v. Skinner, 156 Cal. 721, 134 P. 329; 4 Sutherland on Damages (4 Ed.), page 4409, sec. 1172; Bullard v. Citizens National Bank, 160 So. 280.
We submit that appellee proved his case by the overwhelming preponderance of the clear and convincing evidence and that the verdict of the unanimous jury settled the facts in case as to the representations being made and as to the damages suffered by the appellee.
Argued orally by R.E. Wilbourn, for appellant, and by S.M. Graham, for appellee.
Lamar Pigford brought suit against the Citizens National Bank of Meridian in the circuit court of Lauderdale county to recover one thousand three hundred dollars and forty cents, principal and interest on two five hundred dollar bonds, Series B, Nos. 199 and 200, issued by the Central Securities Company of Asheville, N.C., which Pigford purchased from the bank on November 1, 1929. The suit was based on alleged fraud and deceit on the part of the agent of the bank in selling the bonds.
Appellee contends that the agent represented to him that the payment of the two bonds was guaranteed by the United States Fidelity Guaranty Company and the Maryland Casualty Company, whereas, in fact, the bonds themselves were not guaranteed by the surety companies; only the mortgages which were to be the basis upon which the bonds were issued had been insured by the companies. The bank denied making the representations that the bonds were guaranteed by the surety companies, contending that the bonds themselves showed on their face that the mortgages underlying the bonds, and upon which the bonds were issued, were alone insured. Appellant also contended that it was not liable because paragraph 7, section 5136, of the Revised Statutes of the United States, as amended by Act Cong. Feb. 25, 1927, sec. 2, 44 Stat. 1226 (see 12 U.S.C.A. sec. 24, par. 7), authorized the bank to engage in buying and selling investment securities but limited the liability of the bank to selling without recourse marketable obligations evidencing indebtedness of any person or corporation, in the form of bonds, notes, and debentures, commonly known as investment securities. The bank contended in its pleadings that this question had been decided favorably to it by the case of Awotin v. Atlas Exchange National Bank, 295 U.S. 209, 55 S.Ct. 674, 79 L.Ed. 1393; but the court below held that the statute involved and the decision referred to did not apply to an action for fraud and deceit.
As an exhibit to his declaration, the appellee filed a copy of the bill filed by the Citizens National Bank and many others, through a bondholders' committee, against the United States Fidelity Guaranty Company in a Richmond, Va., court; he also introduced the said exhibit in evidence on the trial. Appellee testified that the bank, through its assistant cashier, Blanks, represented that the bonds themselves were secured by the two surety companies mentioned above, and that he asked Mr. Blanks if that meant that if the security company did not pay, then the surety companies would, and that Mr. Blanks answered that it did. Pigford introduced several witnesses who had bought bonds of the bank issued by the same security company; they testified that Blanks, the assistant cashier, had made substantially the same statements to them, but the statements made to these other witnesses were not made in the presence and hearing of Pigford and were not communicated to him prior to his purchase of the said bonds. This testimony was objected to and the objection overruled. The assistant cashier denied that the alleged representations were made to each of the witnesses.
Appellee introduced one E.J. Gallagher, an auditor who, after default was made in the bonds, went to North Carolina where the Central Securities Company was domiciled. He made an examination of the condition of the Central Securities Company and of the Central Bank Trust Company, the trustee of the Central Securities Company, and testified that the said bank and securities company were then insolvent, and had been in failing condition prior to the time the bank sold the bonds to Pigford. This testimony was likewise objected to and admitted over objection.
In the case of Bullard v. Citizens' National Bank, 173 Miss. 450, 162 So. 169, we held that the statute there involved did not exempt the bank from liability for fraud and deceit or fraud and other torts, and we have, this day, in the case of Citizens' National Bank v. Golden, 166 So. 745, reaffirmed the opinion there rendered, and referred to other authorities in accord with that decision. We feel quite sure that in enacting the statute enabling the bank to deal in bonds, notes, and other securities without liability as indorser or guarantor, or without any contractual liability, Congress did not mean to exempt the bank from misrepresentations of existing facts, which misrepresentations would deceive a purchaser into buying such notes, bonds, or other securities; it meant that the bank through no contract of suretyship or guaranty or indorsement could incur liabilities; that it could only deal in a contractual way, without recourse. While some of the language used in the case of Awotin v. Atlas Exchange National Bank, supra, might imply exemption from other than contractual liability, express or implied, we think the opinion is to be interpreted in the light of the facts of the case, and that the principles announced in Smith v. First National Bank of Casselton (C.C.A.), 268 F. 780, are sound and are applicable to the present statute. The Supreme Court of the United States must have considered the opinion of the Circuit Court of Appeals in 268 F. 780 correct, for it refused a certiorari to review the decision on appeal. 254 U.S. 655, 41 S.Ct. 218, 65 L.Ed. 460.
We do not think it was error for the court to refuse to strike Exhibit A from the declaration. The declaration to which this bank was a party showed that the bank either had not made an investigation as claimed when selling the bonds, or if it had made such investigation that it would have learned facts which would inform it that the investment was not a sound one. We also think that this declaration, although some of the exhibits to it were not introduced in evidence, was competent for the proposition for which it was offered, as it is not shown that the exhibits, so far as this suit is concerned, would have had any bearing on the admissibility of the pleading. We also think it was competent to show by the witnesses Gallagher that he had made a thorough investigation of the affairs of the Central Securities Company and the Central Bank Trust Company to ascertain their condition at the time of the investigation and prior thereto. His testimony was competent to show the lack of value of the bonds purchased from the bank at the time of the institution of this suit and at the time Pigford acquired knowledge of the fact. We think his testimony tended to show that the bonds were practically worthless at the time they were sold to him, although it did not show that the bank knew at that time that the bonds were worthless or of the facts then existing. In determining the value of bonds considerable latitude is allowed, and evidence having a tendency to show that they are worthless, or greatly less than their face value, is competent as a circumstance on the issues involved.
We also think that the measure of damages, or right of the appellee to recover, was based upon the period at which he learned that the bonds were repudiated, and that the representations alleged to have been made to him by the bank were untrue. We think this conclusion is sustained by the decision of this court in Mississippi Power Co. v. Bennett, 173 Miss. 109, 161 So. 301, wherein the power company, through agents, sold Bennett stock in the corporation under certain representations set out in the opinion; Bennett did not know of the untruth of the representations for a long period of time, although he had the certificates of stock in his possession which would give the information or lead to sources from which the real facts concerning the stock could be secured. The point was there made that laches and neglect to read the bonds and inform himself precluded a rescission of the contract or the right of Bennett to recover in an action for fraud and deceit. The court held that where representations were made as facts, the party had a right to rely upon the representations and was not charged with the duty to make an investigation until default was made or until some knowledge came to him indicating that the representations were not true in fact and were fraudulently made. Sufficient authorities are set out in that decision to show the court's position on the question here involved. On learning that the representations made to him were not true, Pigford had a right to demand a return of his money, and the measure of damages is governed by the conditions and values of the bonds then existing, considered with reference to purchase price; or, in other words, he was entitled to recover the purchase price less the then value of the bonds on the return or tender of such bonds.
The bank contended that it was error to receive the testimony of other parties who bought bonds from the same salesman, the assistant cashier, at other times, and at which times Pigford was not present and the representations then made not communicated to him. In Nash Mississippi Valley Motor Co. v. Childress, 156 Miss. 157, 125 So. 708, we held that in cases of fraud other representations near the time involved in the suit, and made by the same person about the same subject-matter, were admissible as circumstances tending to show fraud. In that case a speedometer had been set back on a used car, and the facts were misrepresented about the mileage on the car. The plaintiff offered evidence by other witnesses to show that it was the habit of the motor company to set speedometers back so they would not reveal the true mileage, and the court held that such evidence was competent. This holding was reaffirmed in the case of Lizana v. Edwards Motor Sales Co., 163 Miss. 266, 141 So. 295.
Language from the case of Nash Mississippi Valley Motor Co. v. Childress, supra, is set forth in the case of Citizens National Bank v. Golden, 175 Miss. 508, 166 So. 745, this day decided. We there distinguished the case of Rex Motor Car Manufacturing Co. v. Dupont, 132 Miss. 504, 96 So. 684, wherein the court held that it was reversible error to admit the testimony of other salesmen than the one involved in the suit, and also statements of that salesman to other people at other times and places and not in the presence of Dupont. The Rex Motor Car Manufacturing Company v. Dupont Case is correctly decided, in our opinion, on its facts, and nothing said in Nash Mississippi Valley Motor Co. v. Childress, supra, conflicts with the holding of the prior case. We think each case is proper on its own facts, and that there is no inconsistency in the doctrine of the two cases, but the Nash Mississippi Valley Motor Co. v. Childress Case is controlling in this case.
We have examined the refused instructions complained of, and also the instructions given for both parties, and are of the opinion that the given instructions constituted a sufficient announcement of the law, and that there is no reversible error in the action of the court in giving or refusing any of the instructions. The judgment is therefore affirmed.
Affirmed.