author: Mehaeey, J.

text:
    Southern Surety Company v. Phillips.
    Opinion delivered February 17, 1930.

      Buzbee, Pngh & Harrison, L. P. Biggs and D. M. Halbert, for appellants.

      D. D. Glover, Joe McCoy and W. H. Glover, for ap-pellees.
   Mehaeey, J.

R. O. Gwin entered into a contract with the Arkansas State Highway Commission on the 17th day of October, 1927, for the construction oif a road in Hot Springs County, Arkansas, known as State Job No. 621.

The Southern Surety Company executed a bond to the Highway Commission for the faithful performance of said contract. The evidence does not show how much of the construction work was done nor how much money had been earned or paid to the contractor, nor how much was due him at the time the surety company took charge of the work. But on February 12, 1929, the contractor, R. 0. Grwin, executed the following instrument:

“Whereas, the undersigned, R. 0. Grwin, entered into a contract with the State Highway Commission of the State oif Arkansas, on the 17th day of October, 1927, for the construction, grading and drainage structures on the Dallas County Line-Malvorn Road, State Highway No. 9 S-4, State Job No. 621, Hot Spring County, and
“Whereas, the undersigned executed a bond to the State Highway Commission for the faithful performance of said contract on which bond the Southern Surety Company became surety; and,
“Whereas, the Southern Surety Company of New York has succeeded to all of the rights and liabilities of said Southern Surety Company under said bond; and,
“Whereas, by virtue of an arrangement made by the undersigned with M. W. Elkins, of Little Rock, Arkansas, the said M. W. Elkins has furnished a large sum oif money which has been used in constructing said highway for the benefit of the undersigned, and it has finally become nee-essary for said M. W. Elkins and said Southern Surety Company of New York to assume the liabilities of the undersigned under said contract, and to collect'from the State Highway Department the amounts due said Highway Department under the terms of said contract.
“Now, therefore, in consideration of the premises, I hereby assign to the said M. W. Elkins all my right, title and interest in and to any sum of money which may be due me by the said Highway Department under the terms of said contract, subject, however, to the rights and interests of Southern Surety 'Company of New York, therein, and the said Southern Surety Company of New York is hereby authorized and directed to pay out of moneys received from the State Highway Department under said contract; first, all lawful claims growing out of the performance of said work; second, all amounts which may be due to it, and, third, the remainder, ilf any, to the said M. W. Elkins, but not to pay the said Elkins any more than I owe the said Elkins, and the remainder to be returned to R. 0. Gwin.
“Witness my hand this 12th day of February, 1929.
“R. O. Gwin (Signed)
“Witness: L. P. Biggs (Signed).”

Appellants state in their brief that a great many suits were brought against the contractor and the surety by laborers, materialmen and subcontractors. Something like thirty or forty different persons brought suits in the justice court and in the circuit court of Hot Spring County.

The evidence, however, does not show any suits except these. Some of these suits were brought in the latter part of 1928 and some in January, 1929. Those brought in justice court were appealed to the circuit court by the surety company and were consolidated under the following agreement:

“It is agreed by and between the attorneys for the plaintiffs and the attorney for the defendant, Southern Surety Company, in the above entitled cases, that the said cases may be consolidated and proceed as one case hereinafter under the style olf E. T. Phillips and others v. R. O. Gwin and Southern Surety Company. It is agreed that the statements of account set out in each of the complaints, and/or exhibits thereto in each of said cases, is true and correct, and was furnished as therein alleged.”

The parties waived a jury, and, by agreement of parties, the cases were tried by the court sitting as a jury, and the court found for the appellees. The court found that the appellant, Southern Surety Company, was not liable to plaintiffs on the bond of the contractor to the Highway Commission, but found against the appellants on the agreement entered into on the 12th day of February, 1929. The judgment of the court in favor of appellants on the bond was not appealed from; hence the only question for our consideration is whether or not the appellants are liable on the instrument executed on the 12th day of February, 1929.

■Counsel for appellants state in their brief that the surety company might, under its original assignment, have appropriated the fund received from the highway department, and used the same as far as it went in paying obligations which were recoverable against the surety. This being true, there was no occasion or reason for the assignment made by (Twin except to pay all lawful claims growing out of the performance of the contract. But whether they could have paid these obligations and appropriated the money or not is immaterial, because they are either liable under the instrument of February 12 or they are not liable at all. It is contended that this is not a contract but merely an order, draft, direction or agreement by G-win.

A contract is an agreement which creates an obligation. There must be competent parties, a subject-matter, a legal consideration, mutuality of agreement and mutuality of obligation. Agreement is the expression by two or more persons of a common intention to affect their legal relations. It consists in their being of the same mind and intention concerning the matter agreed on. The instrument of February 12 was an assignment and an offer, and, until accepted, it was not binding. An acceptance, however, may be by an act of the party as it was in this case.

Mr. L. P. Biggs testified in this case about the contract entered into between Gwin and the State Highway Commission, and the surety bond and assignment set out above, and then said: “The Southern Surety Company of New York and M. W. Elkins demanded of and received from the State Highway Department all of the money due said Gwin by the Highway Department on the aforesaid contract for construction, and that this was done after making’ and signing’ the paper attached to his deposition. ’ ’

This was the assignment of Gwin. In other words, when the assignment was made, the surety company and Elkins then, under the terms and provisions of the assignment, received all of the money that the Highway Department owed Gwin. The acceptance of the offer made by Gwin constituted a contract. But it is said that the ap-pellees have no right o'f action arising out of the instrument signed by the contractor, but that it is merely an order, draft or direction, and then cite and rely on the case of Rogers Commission Co. v. Farmers Bank, 100 Ark. 537, 140 S. W. 992. The court in that case said, however:

“It was not necessary to the bank’s liability that it should have on deposit to the drawers’ credit more than the amount of this check at the time of its presentation, for it would have become liable to its payment by an acceptance of it, and could have permitted an overdraft as it has usually done, or withheld its own check which it claimed to have in its drawer against the account of the makers of the check which latter the testimony indicates it did do.”

It will therefore be seen that the case relied on holds that if the offer is accepted it constitutes a contract and the bank would have to pay.

Appellant next calls attention to the case of Sims v. American National Bank of Fort Smith, 98 Ark. 1, 135 S. W. 356. That was a ease where the indorsement on the check was forged. A11^, while it was paid, the court held that there was never an acceptance, and the payee of a check cannot maintain an action upon it against the hank on which it is drawn until it is accepted. But, when accepted, it constitutes a contract upon which the suit may be maintained.

In the next case cited and relied on by appellant, Exchange Bank & Trust Co. v. Ark. Grocer Co., 169 Ark. 1084, 277 S. W. 871, the court, among other things, said:

“If there was an acceptance of the order by the garnishee, its character, by that act, was changed from a simple order to an assignment. * * * It occurs to ús that this act of the association in receiving and filing the order was tantamount to saying to Bueker, the drawer of the order: 'We acknowledge receipt of your order, accept the same, and will pay the money to the Exchange Bank & Trust Company as you direct.’ ”

So, in the instant case, when the surety company and Elkins, after the assignment or instrument signed by Grwin had been delivered to them, collected all the money due the contractor, it amounted to saying: “We acknowledge the receipt of your order and accept the same, and will pay the money due you to the persons holding lawful claims growing out of the performance of your work. ’ ’

The next case relied on by appellant is Southern Trust Co. v. American Bank of Commerce & Trust Co., 148 Ark. 283, 229 S. W. 1026, 14 A. L. R. 761. In that case the court said that the check would not operate as an assignment of the funds so as to empower Smith to sue for the amount, and that it had become the settled doctrine of this court that the payee of an unaccepted check cannot maintain an action upon it against the bank on which it is drawn, and that the unauthorized payment by the hank on a forged endorsement does not constitute an acceptance. It is also the settled doctrine of this court that, if there has been an acceptance, then the payee can 7namtain an action against the bank.

It is next contended by the appellants that the plaintiffs cannot sue on this contract. Our statute provides: “Every action must be prosecuted in the name of the real party in interest except as provided in §■§ 1091, 1092 and 1094.” And appellants state what they call the essentials of a contract made for the benefit of a third person to enable the third person to maintain the suit, and they quote as follows:

‘ ‘ One may maintain an action upon a promise made to another for his benefit if such promise was founded on a consideration, and especially where the promisor received property and in consideration thereof agreed to discharge the debt of another.” Citing Spear Mining Co. v. Shinn, 93 Ark. 346, 124 S. W. 1045; Hecht v. Caughron, 46 Ark. 132; Bloom v. Home Insurance Agency, 91 Ark. 367, 121 S. W. 293; Chamblee v. McKenzie, 31 Ark. 155; Talbot v. Wilkins, 31 Ark. 155; Thomas Mfg. Co. v. Prather, 65 Ark. 27, 44 S. W. 218.

All of these cases support the theory that one may maintain an action upon a promise made to another for his 'benefit, but it is argued that the instrument is not a promise, agreement, contract or obligation made by appellants to pay anything or do anything, but a mere written consent of the contractor. That was true until accepted by the appellants, but when they acted on the promise of Gwin and accepted the money, that instrument named the persons for whose benefit the contract was made. And the promise of Gwin, as it is called, provided that appellant should pay all of the debts of Gwin growing- out of the work on the road.

There is no evidence showing how much they received, but the’ appellants themselves state that it became necessary for the Southern Surety Company to finance the job to completion with funds furnished by M. ~W. Elkins, who was already a large creditor of the contractor and who hoped to recoup a part of his loss by completing the project. In other words, appellants state that they expected to make a profit by taking over the road. The only evidence in the case that Elkins furnished any money at all is in the assignment signed by Gwin in which it is stated, among other things, that Elkins furnished a large sum of money which has been used in the construction of the highway for the benefit of Gwin, and the- only evidence in the record that Gwin could not complete the contract is the statement in the same instrument that it has finally become necessary for said Elkins and said Southern Surety Company of New York to assume the liabilities of the undersigned under said contract, and to collect from the State Highway Department the amounts due said highway department under the terms olf said contract. How much was due from the highway department is not shown, as we have already said, and how much of the work was done. In fact, there is no evidence tending to show what profit the appellants made out of taking' over the contract, but, according to their own statement, they took it over expecting to make a profit.

Appellant argues that there was in the minds of the parties when the instrument was written only an intent to have the contractor confirm the payments theretofore made and thereafter to be made for his account. They say that when the instrument was signed there was around the table subcontractors awaiting for the payment of the amount agreed on. This may be true, but there is no evidence in the record tending to show this to be true.

It is also argued that there was not in the minds of any one -who had any interest in the matter any idea or intent to create a promise on the part of 'appellants to pay all Gwin’s lawful claims. There is no evidence on this question except the instrument itself, and it specifically provides for the payment of all lawful claims growing out of the performance of said work. The agreement entered into 'by the attorneys shows that the account of each appellee is correct, and that the purpose for which they were furnished was correctly stated. And each account states, in substance, that the material was furnished to be used in the construction olf the road. Now the agreement is that the account is correct, and that it was for material furnished to be used in the construction of the road.

Appellants call attention to the case of Spear Mining Co. v. Shinn, 93 Ark. 346, 124 S. W. 1045. In that case the court said, among other things:

‘ ‘ The weight of modern authority holds that one may maintain an action on a promise made to another for his benefit, if such promise is founded upon consideration.” 3 Page on Contracts, § 1307; Hendrick v. Kindsay, 93 U. S. 143.
“And especially is this true where the one who makes the promise receives property, and in consideration thereof agrees to discharge a debt in favor of another. # * # s0 one corporation may become liable for the debts of another corporation, where it has in express terms or by reasonable implication assumed the payment of the liabilities of the debtor corporation.”

Appellants then cite Bloom v. Home Insurance Co., 91 Ark. 367, 121 S. W. 293, and say that that case is not of great assistance in the case. In that case the court said:

“By § 5999 of Kirby’s Digest, it .is provided that every action must be prosecuted in the name of the real party in interest, with certain exceptions which do not apply here. The beneficial owner is the real party in interest within the meaning of this provision of the code. 30 Cyc. 45. Where a contract is entered into for the benefit of a third person, the latter is the real party in interest,- and a majority of the American courts have adopted the rule that such person may maintain an action for the violation of the contract. ’ ’

Appellants next calls attention to the case of Georgia State Savings Assn. v. Dearing, 128 Ark. 149, 193 S. W. 512, and quote as follows: “A person for-, whose benefit a contract is made, but incurring no obligation himself, cannot sue upon the contract.” In that case the court also said: “The rule in- this State is that a stranger to a contract between others in which one of the parties promises to do something’ for the benefit of such stranger, there being nothing but the promise (no consideration from the stranger, and no duty or obligation to him on the part of the promisee), cannot recover thereon.”

But in this case there was a duty; there was a consideration. These persons had furnished material to go into the construction of the road. There was money in the highway department due the contractor for this work, how much we do not know, and these persons had furnished the material, and Grwin was indebted to them and promised to pay that debt, and the other parties, the appellants, in accepting that contract, thereby promised to pay these parties.

In the next case referred to by appellants, Thomas Mfg. Co. v. Prather, 65 Ark. 27, 44 S. W. 218, the court said:

“This court long ago ruled, in line with the doctrine which generally obtains in this country, that where a promise is made to one upon a sufficient consideration for the benefit of another, the beneficiary may sue the promisor for a breach of his promise. * * * Of course, the name of the person to be benefited by the contract need not be given, if he is otherwise sufficiently described or designated. Indeed he may be one oif a class of persons, if the class is sufficiently described or designated.”

The next case referred to and relied on by appellants is Schmidt v. Griffith, 144 Ark. 8, 221 S. W. 746. The court in that case said:

< c There are many decisions of this court announcing the familiar rule that, where a promise is made to one party upon a sufficient consideration for the benefit of another, the beneficiary may sue the promisor on his promise. ’ ’

Appellants say that, if the contractor had turned over his home to the surety, and, in consideration of the transfer, the surety had promised to pay all the contractor’s debts, then appellees might sustain the complaint. If they could, we see no reason why the same rule does not apply in turning over other property. In this case the contractor owed the appellees. The materials furnished by them were used in the construction of the road, and the amounts sued for are correct. The contractor turned over to the appellants all the moneys due hinri from the highway commission, and the appellants, by accepting the assignment, agreed to pay all lawful claims growing out of the performance of the work. These claims come within that class.

The judgment of the circuit court is correct, and is therefore affirmed.


source: Caselaw Access Project

author: MoHaney, J.

license: Public Domain

text:
    Imperial Oil Marketing Company v. Rogers.
    Opinion delivered February 17, 1930.

      Mahony, Yocum S Saye, for appellant.

      Marsh, McKay <& Marlin, for appellees.
   MoHaney, J.

On February 19,1927, appellees leased to appellant a certain lot in El Dorado, and all improvements thereon, together with all the equipment and personal property used or employed as a part of or in connection with a'filling station, and located on said lot on the 11th day of February, 1927, * * * from the 11th day otf February, 1927, to and including the 10th day of February, 1930, ’ ’ for a monthly rental of $150. The lease agreement contained this clause: “It is agreed that in case the premises shall, during said term, be destroyed or damaged by fire or other unavoidable casualty, so that the same shall be thereby rendered unfit for use as a filling station, this lease shall terminate as to both parties.”

Appellant entered into possession of the leased premises, and operated a filling station thereon until April 14, 1928. On the night of April 13, a fire occurred, which originated in a waste paper basket in the northeast corner of the building on the leased lot, and the walls adjacent to this corner were somewhat damaged, as also a portion of the ceiling in this room, the building being divided into three rooms. The blaze was quickly extinguished by the fire department, but in doing so a door was broken open, a window knocked out and two holes torn in the roof as well as water damage to certain office furniture and equipment. Appellant, contending that it had the right to do so under the clause of the lease agreement above quoted, surrendered possession of the leased premises to appellees, moved out and refused to pay further rent from said date. Appellees brought this action to recover damages as for breach of the lease agreement based on the difference between the rent reserved, and the rental value at the time of the breach, rents having declined in the meantime. The case, was tried to a jury on instructions that are not complained of, which resulted in a verdict and judgment for appellees.

At the close of the evidence, appellant requested a directed verdict, which was refused, and this is the only assignment of error urged now for a reversal of the case. We think the court correctly refused this request. There is no substantial dispute in the evidence. The actual fire damage was very small. The damage to the roof, the door, the window and the water damage was done by the fire department in extinguishing the flame. The question was whether all this damage, when considered together as the result of the fire, rendered the “premises” “unfit for use as a filling- station.” Manifestly the parties did not contemplate that the lease would terminate if the premises were only slightly damaged by fire, but only in case the fire damage was such as to render the premises unfit for use as a filling station. This precise question was submitted to the jury, and, by its verdict, it found that the damage was not such as to render the premises unfit for use as a filling station. The undisputed evidence is .that the necessary repairs could have been made in a few hours, and without interruption of appellant’s business in the operation of a filling station. The building and other personal property leased were not destroyed by fire, but only damaged, and the question was whether the damage was such as to render the premises unfit for occupancy. The principle of law announced in Tedstrom v. Puddephatt, 99 Ark. 193, 137 S. W. 816, Ann. Cas. 1913A, 1092, we think is applicable here. It was there said: “We think that it is well settled by the authorities that, under leases containing provision for a forfeiture thereof and a cessation of the rent, in event of destruction of the premises bi^ fire or other casualty, or inability to occupy the same on that account, a partial destruction of the premises will not terminate the lease, though it renders the premises, or a part thereof, temporarily untenantable for the purpose of the lease, snd will not relieve the tenant from future liability for rent. ’ ’

While it is true the provision in the lease in that case is somewhat different from the clause above quoted in this case, yet the principle is the same, and is controlling here.

The evidence was sufficient to support the verdict, and the judgment is accordingly affirmed.


author: McHaney, J.

text:
    Sullivan v. Times Publishing Company.
    Opinion delivered February 17, 1930.

      A. F. Barham, Gladish S Taylor and Caraway, Baker 3 Gautney, for appellant.

      G. B. Segraves, James G. Coston and J. T. Coston, for appellee.
   McHaney, J.

In 1906 Leon Roussan died testate in Mississippi 'County, Arkansas. His will provided that all his property described therein, including- lots 5 and 6, townsite addition to Osceola, the property in controversy in this litigation, should he the property of his wife, Adah L. Roussan, and continued: “To have and to hold, use, after she had paid off all indebtedness as may remain due at my demise, and which now consists of a mortgage held by the American Building & Loan Asso.-ciation of Little Rock, Arkansas, and a mortgage held by the Ladies Aid Society for $200, and other debts amounting to about $300 more.

“In liquidating- these claims she may sell any part of the property- she may deem best or more advantageous, the remainder to be used by her for her sole use and benefit (for support. After her death the real estate is to go t.o my sister, Clara, for her sole use and benefit, and at her death the property will revert to my lawful heirs. No bond or other legal process shall be required of my wife nor my sister before taking immediate and full and undisputed possession.”

This will was admitted to probate, and Mrs. Roussan qualified as executrix thereof. After administering the estate for some time, she filed a report in which she claimed that the estate was indebted to her in the sum of $2,542.23. No objection or exceptions having been filed as to the report, which remained on file for three months, the probate court entered an order approving the report, and finding that the estate was indebted to her in said sum. No appeal was taken from: this order. In 1913 she filed a petition to sell the property in controversy to pay the debts of the estate which the court approved, and ordered the property sold for this purpose. She thereupon advertised the property for sale, but there were no bidders, and no sale was had. She then resigned as executrix, and O. O. Ermen, who was appointed to succeed her, filed a like petition to sell the property to pay debts, and another order was made to sell said lots 5 and 6. He caused an appraisement to be made, the sale advertised, and at this sale Mrs. Roussan bid $2,500 for lot 5, and $500 for lot 6, which was more than two-thirds of the appraised value of said lots, and the property was struck off to her, there being no other bidders. This sale was reported to, approved and confirmed by the probate court on April 12, 1915, and deed was executed to her. No objections or exceptions were filed in the probate court to any of the proceedings therein, and no appeal was taken from any of the orders of the court, but thereafter Mrs. Roussan held, occupied and used the property as her own, mortgaged it, and on September 5,1924, conveyed it to the appellee, the Times Publishing Company. Thereafter in January, 19'27, Mrs. Roussan died, and in September following appellants who are the collateral heirs of said Leon Roussan, brought this action against the appellees in which they alleged their relationship to the testator, that they are Ms sole surviving heirs, that Mrs. Itonssan by the terms of said will acquired only a life estate in the property, and that the Times Publishing Company by its deed acquired no greater title than was devised to her under said will; that, by the sale of other property belonging to the estate, Mrs. Boussan obtained sufficient money to pay the debts owing 'by the testator at the time of his death, and that all the debts had been paid by her prior to her conveyance of the property involved in this litigation to the Times Publishing Company. Issue was joined on these allegations, and at the conclusion of the testimony on a trial of the case the court instructed a verdict for the appellees on the ground that the orders and judgments of the probate court were valid on their face and were not open to collateral attack in that court, and that all the evidence offered constituted a collateral attack on such judgments and orders and was therefore incompetent.

We think the court was correct in so holding. Whether the will created in Mrs. Boussan only a life estate with remainder to the collateral heirs, and whether her deed destroyed the estate in remainder or defeated it as to said lots 5 and 6, we do not find it necessary to decide in this case. *

On the application for the second sale, the probate court made an order finding “that the said estate is indebted to Mrs. Leon Boussan in the sum of $2,795.48, and to Lamb & Bhodes in the sum of $100. ’ ’ The court made other substantial findings of fact in connection with its order to sell, showing that the statute governing the sale of real estate to pay the debts of the estate were substantially complied with. The court thereupon entered a judgment directing the sale of said property in accordance with the statute, and the sale was made, reported, approved and confirmed. It is said that Mrs. Boussan made no report for more than six years, and that there was no claim allowed against the estate until December, 1912, and that the report she made shows that the claims which she paid were barred by limitation, and that they were not presented to and allowed by the probate court prior to 1912. 'Conceding this to -be so, the action of the court in allowing Mrs. Boussan’s claim for the amount of debts sbe bad paid was an order from wbicb an appeal should have been taken by any person interested. This was not done, but about fifteen years later this collateral attack is made. The probate court is a court of superior jurisdiction, and, when acting within its jurisdictional rights, its judgments import absolute verity and are not open to collateral attack. Graham v. Graham, 175 Ark. 530, 1 S. W. (2d) 16; Day v. Johnston, 158 Ark. 478, 250 S. W. 532.

The probate court had jurisdiction to order a sale •of the real estate to pay debts. This jurisdiction is specifically given it by statute. In Stumpff v. Louann Provision Co., 173 Ark. 193, 292 S. W. 106, this court held that “the county court is a court of superior jurisdiction, and its judgments, rendered in pursuance of jurisdiction rightfully acquired, cannot be attacked collaterally.” We there quoted from Crittenden Lumber Co. v. McDougal, 101 Ark. 390, 142 S. W. 836, as follows: “It is well settled in this State that, in a collateral attack upon a judgment of a court of general jurisdiction, every presumption will be indulged in favor of the jurisdiction of the court, and the validity of the judgment or decree.”

We therefore hold that appellants are precluded from maintaining this action, and that the instructed verdict was properly given by the court. Judgment affirmed.


author: Butler, J.

text:
    Keith v. Drainage District No. 7 of Poinsett County.
    Opinion delivered February 17, 1930.

      C. T. Carpenter, for appellants.

      Chas. D. Frierson, for appellee.
   Butler, J.

The appellants, Harry A. Keith and Mamie Keith, filed a complaint in the circuit court of Poinsett County, on the.day of., 1922, which is as follows :

“Drainage District No. 7 of Poinsett County, Arkansas, is a drainage and levee district created under and by virtue of the Acts of the General Assembly of the State of Arkansas for the year 1917 and the acts amenda-tory thereof. -Said drainage district, as described in said act and the acts amendatory thereof, comprises a vast area of land in Poinsett County, and includes therein all the lands in township 12 north, range 6 east in said county. Plaintiffs are the owners of south half of southeast quarter, section 27; northeast quarter, section 34, and north half of southeast quarter, section 34, all in township 12 north, range 6 east, and containing three hundred and twenty (320) acres, and all of said lands are within the boundaries of said.drainage district.
“Pursuant to the powers conferred upon it by said acts aforesaid, the board of directors of said district, under the advice and directions olf its engineer, prepared, adopted and filed in the office of the county clerk of Poinsett County, Arkansas, plans and specifications for the improvements to be máde and constructed in said district. On the 24th day of May, 1919, said district, through its commissioners and engineer, made, adopted and filed plans and specifications for the construction of said levees, drains, ditches and floodways, which said plans and specifications of said improvements are referred to generally as the reservoir and as the floodway. Said plans and specifications provide for the construction of a levee and drainage ditch along and upon either side of right-hand chute of Little River, and a reservoir on and near St. Francis River and St. Francis Lake in said county. Said reservoir is formed by means of the construction of a levee and drainage ditch on the west side of St. Francis River from the county line on the north, extending in a southeastern direction to a point near the foot of St. Francis Lake on the south, and on the east side of said St. Francis River and St. Francis Lake there is also established a levee and drainage ditch extending from the county line between 'Craighead County and Poinsett County on the north, in a southwestern direction, to the foot of St. Francis Lake in the south. Said improvement along right-hand chute of Little River, being described as follows:
“A levee and drainage ditch on each side of the right-hand chute of Little River beginning in sections 29 and 30, township 12 north, range 7 east, thence in a southwestern course through said sections 2'9 and 30 to section 25, township 12 north, range 6 east, on the north and west side of right-hand chute of Little River, and on the south and east side of Little River a levee and drainage ditch through sections 36 and 35, township 12 north, range 6 east, thence in a southwestern direction through sections 2,11,10 and 9, in township 11 north, range 6 east.
“'That said levee and drainage ditch last described crosses and closes the right-hand chute of Little River, as the same traverses section 36, township 12 north, range 6 east, and diverts the waters thereof into the St. Francis River. That, beginning at a point in section 25, township 12 north, range 6 east, as shown on the map of said improvement filed May 24, 1919, there is a levee and drainage ditch running* due north through said sections 24,13, 12 and 1, said township and range, to the county line between Poinsett and Craighead counties on the north. That beginning at a point in section 5, township 12 north, range 6 east, on the west side o)f the St. Francis River, there is a levee and drainage ditch constructed in a southeastern direction through said section, and sections 8, 17, 20 and 32, in township 12 north, range 6 east, and through sections 4, 5, 8 and 9 in township 11 north, range 6 east. The whole area thus described as being a reservoir comprises aJbout sixteen thousand acres of land, constituting and being shown as the reservoir, for the purpose of carrying the waters from the various ditches and drains established in said district, and also the water of the St. Francis River and lake, and the waters diverted as aforesaid from the right-hand chute of Little River into said reservoir. That there is also constructed across the St. Francis River in the south part of section 10, township 11 north, range 6 east, a levee and drainage ditch, whereby the natural flow of the waters of the St. Francis River, in its channel as it flows in a southeastern direction is diverted and caused to flow in a direction almost due west and into a floodway, which floodway runs in a southwestern direction through sections 9, 16, 17, 20, 21, 29, 30, 31 and 32, township 11 north, range 6 east, and sections 5, 6, 7 and 18 in township 10 north, range 6 east, and thence in a southwestern direction into the St. Francis River at a point in section 10, township 9 north, range 5 east, said floodway herein described being a part otf said improvement, as shown on said map aforesaid.
“That said improvements, aforesaid, confine the waters of St. Francis River and St. Francis Lake in a space much narrower than formerly occupied by said river and said lake. That the waters of the right-hand chute of Little River are diverted, and caused to flow into the St. Francis River, and that the waters of the St. Francis Lake, at the point hereinbefore described are also diverted and caused to flow toward, and in the directi'on of, said floodway. That said diversion, in each of the instances herein mentioned, is from the natural course and channel of the said rivers as hereinbefore stated. That said floodway hereinbefore referred to is about one-half mile in width, and the improvement therein 'consists of the construction of a levee and drainage ditch on either side thereof, said ditch on each side of said floodway 'being one hundred feet in width. That, by reason of the establishment of said improvements according to said plans and specifications aforesaid, the waters of the 'St. Francis River and St. Francis Lake and right-hand chute of Little River are diverted and confined as herein described, and thereby raised five or six feet in excess of the waters of said river and lake at ordinary tide, and completely submerging all of the lands herein-before described as belonging to the plaintiffs, which are within the reservoir hereinbefore described.
That prior to the improvement aforesaid, all of said lands -were high and above ordinary overflow of the St. Francis River. A part of said lands are in cultivation and all olf said lands are susceptible to cultivation. That plaintiffs have cleared and cultivated a part of said lands, erected two dwelling houses, barns and other improvements thereon, and that said lands prior to said improvements were useful and valuable farming lands. That, when the improvements described in the plans and specifications are completed, the lands of plaintiffs will be completely submerged, and rendered useless and unfit for cultivation or occupancy.
‘ ‘ That, although the lands of plaintiffs are embraced within the boundaries of the district, no benefits or damages have been assessed against the same, and no order has been made assessing benefits or damages against said lands. That the defendant has appropriated all of the lands of plaintiffs to its use in the construction of said improvements alforesaid, and has failed, neglected and refused to compensate plaintiffs for the value of the lands taken and appropriated, and has refused to institute any action, suit or proceeding- for the condemnation of the lands of the plaintiffs so taken, appropriated and used. That plaintiffs’ lands are of the value of forty-eight thousand dollars.
“That defendant has unlawfully taken and appropriated and deprived plaintiffs of their property without due process of law in violation of article 14, § 1 of the Constitution of the United States of America. That defendant has unlawfully taken and appropriated to its own use the private property of the plaintiffs, without first making compensation therefor, in violation of article 2, § 22, 'of the Constitution of the 'State of Arkansas.
“Wherefore plaintiffs pray judgment against said defendant, Drainage District No. 7 of Poinsett County, Arkansas, for said sum of forty-eight thousand dollars ($48,000), for costs and all proper relief.”

The case was continued on motion of the defendant, awaiting the action of this court in the case of Sharp v. Drainage District No. 7, on the ground that that case would he decisive of the questions in the instant case. The Sharp case was decided May 5, 1924. Sharp v. Drainage District No. 7, 164 Ark. 306, 261 S. W. 923. After that decision a demurrer was interposed to the complaint of plaintiffs, which demurrer was sustained, and to review the action of the lower court in sustaining the demurrer this appeal has been brought.

It is first insisted by the appellee that this suit was brought under the provisions of the act of the General Assembly of 1917 creating the district, and that since the passage of that act it had been amended from time to time and curative acts passed, the general effect of such acts being to materially change the plans and specifications of said improvement, and that the improvement was finally constructed on the plans as revised and altered. If in fact the levees were not constructed as alleged in the complaint, so as to injure plaintiff’s land, this would be a matter of defense.

It is insisted, also that the allegations of the complaint do not bring it within the rule announced in the case of Sharp v. Drainage District, supra, but in effect allege that in constructing levees plaintiff’s lands were left outside and unprotected by said levees, and that therefore it was not such a tailing of the property for which compensation could be had, but was such “damage, if any, which must be suffered by the individual for the benefit of the general public. ’ ’

Ve recognize the rule laid down in City Oil Works v. Helena Improvement Dist. No. 1, 149 Ark. 285, 232 S. W. 28, 20 A. L. R. 296, and in a number of other cases, both of this court and of the courts of the United States, cited in brief for appellee, that a landowner, whose property is left outside of a levee is not entitled to damages because of the failure to protect his land or because the levee as constructed may prevent water from flowing off his land as it otherwise would, or may deepen the water in an overflow of land between the embankment and river. The court, however, is of the opinion that the allegations of the complaint are not within the above rules, but that they state with sufficient precision a cause of action under the rule announced in Sharp v. Drainage District, supra. The complaint does ’ not allege that the lands alleged to have been damaged have been left outside the levees created, but that streams have been dammed thereby diverting the water from its natural course over the lands of plaintiffs, raising- the water level much higher, and continuing it much longer than before the construction of the levees, resulting in the injury complained of. Appellee asserts that in the instant case the complaint shows on its face that these lands are simply left unprotected by the levees, not assessed, and not condemned, and not affected otherwise by the construction of the levees. We do not 'believe that á fair construction of the complaint justifies this conclusion. The complaint, after tracing the course of the construction of the levees, in plain language states that the levee crosses and closes the right hand chute of Little River, and that there is also constructed across the St. Francis River a levee which diverts the waters of the chute of Little River, and of the St. Francis River from the natural flow in a southeastern direction to a western course, causing the same to flow upon the lands of the plaintiffs. In the opinion of the court this is a sufficient allegation of the fairing and damage of appellants ’ lands within the meaning of the provision of article 2, § 22, of the Constitution of 1874. In the case of Sharp v. Drainage District, supra, the court held that, while the allegations might not be definite, yet, giving those allegations their most favorable intendment, it was fairly inferable that a cause of action was stated. But in this case no such inference need be indulged as to the allegations of the complaint. There are specific allegations as to the damming of two streams, by which the overflow is alleged to have been caused, and, as is said by the court in the case of Sharp v. Drainage District, supra, this "takes the case out of the general rule and brings it within one of the well known exceptions, which is that the waters of a stream may not be obstructed by dams or other embankments so as to throw the water back upon the upper proprietors, and thereby damage or destroy entirely the use of their property.” The court further said: "If the commissioners had erected levees along both banks, at some distance therefrom, for the purpose of preventing the waters of the St. Francis River from overflowing the adjacent lands, the fact that the lands of the plaintiff were left outside of the levees would bring him within the rule above announced, and he could not recover compensation for his lands thereby damaged or taken. It is fairly in-ferable from the complaint, however, that something more than this was done. In order to prevent the waters within the banks of the levees from spreading out and overflowing the lands below the levees, a dam or embankment was constructed at the lower end of the levees, so as to impound the waters and let them ont through a floodgate or floodway, at the will of the commissioners. This caused an obstruction to the flow of the waters, and threw them badk upon the lands of the plaintiff, so as to destroy their use for agricultural purposes.”

The court is of the opinion that the instant case comes squarely within the rule announced in the Sharp case, supra, and that the circuit court erred in sustaining the demurrer to the complaint. For this error, the judgment is reversed, and the cause remanded with directions to overrule the demurrer, and for further proceedings according to law.


text:
    Ouachita Valley Bank v. Pullen.
    Opinion delivered February 17, 1930.

      Bose, Hemingway, Cantrell £ Loughborough, for appellants.

      Homer T. Rogers, Compere £ Compere, Haynie, Parles £ Westfall and McRae £ Tompkins, for appellees.
   Butler, J.

The following statement is made in the brief of counsel for the appellees: “The question of law and fact in these two interventions are s'o nearly similar that they were tried together in the lower court, and this appeal covers both interventions,” and on this theory counsel for all parties have treated the facts as interchangeable, and applied to each the same principles of law. We think, however, there is an essential and vital difference in the facts established by the evidence regarding the formation and conduct of the Bank of Smackover from that of the Louann State Bank, that the law governing one has no application to the other, and we therefore deem it necessary to take up and consider the two cases separately.

I. BANK OF SMACKOVER.

The appellant, Ouachita Valley Bank, prior t'o-1928, had been organized and doing business in the city of Camden, Arkansas, for more than thirty years, its business during that time having been carried on' in such manner as to gain general confidence, and to bring in satisfactory dividends to its stockholders. About the year 1922, oil was discovered in what is known as the Smackover Field, and there was a great influx of monejr into Smackover, and a g'reat need for 'banking facilities. The Ouachita Valley Bank (hereafter for convenience called Valley Bank) thought first of organizing a branch bank at Smackover, but abandoned this idea when ad-xdsed that this was not permitted under the laws of the State of Arkansas. However, recognizing the advantages likely to accrue to it from having a bank in Smack-over where the deposits of oil men would be large, four of the directors of the Valley Bank, together with a Mr. O. B. Gordon who was not connected with the Valley Bank, organized the Bank of Smackover with' a capital stock of $13,000. Three of these directors of the Valley Bank, Mr. Gaughan, Mr. George Gordon and Mr. W. W. Brown each took $3,000, Mr. Bauerlein, another director of the Valley Bank, and also its cashier, subscribed $500, and Mr. O. B. Gordon, who was elected cashier of the Bank of Smackover, subscribed $500.

The Valley Bank advanced the money for the entire capital stock in the following manner. Each of the stockholders of the Bank of Smackover gave his personal note to the Valley Bank payable six months after date, which was renewed from time to time, and the Valley Bank paid into the Bank of 'Smackover the face value of such notes. Shortly after its organization, the Bank of Smackover, by some improvident business transaction, became involved to tlie extent that it was necessary for the stockholders to be assessed 100- per cent, on their stock, for which assessment they gave their notes to the Valley Bank, which bank advanced the money and the business was continued. The organization of the Bank of Smackover was perfected about October, 1922. After the 100 per cent, assessment, the business was continued and proved very profitable, which business was conducted in the following manner. The deposits of the Bank of Smackover, which were large — running from $200,000 to $500,000 — were placed by said bank with the Valley Bank, the latter bank paying the former from 2% to 4 per cent, on daily balances, and its deposits loaned to various corporations, firms and individuals by Mr. W. W. Brown, president of the Valley Bank, and Mr. C. W. Ramsey, active vice president of the Valley Bank. The notes were taken in the name of the Valley Bank, payable at its office, and were then indorsed without recourse to the Bank of Smackover. They were then sent to the Bank of Smackover, entered upon its books according to number, and returned to the Valley Bank for collection. Such of these notes as were not paid were later renewed and made payable directly to the Bank of Smackover, but these transactions were handled by the Valley Bank, as in the first instance, and the renewal notes were sent to the Bank of Smackover for entry upon the books and returned to the Valley Bank where they were kept, all <of such notes as were collected being collected by, and at, the Valley Bank. .

The deposits in the Bank of Smackover were subject to frequent fluctuation. At times large sums were deposited, and again there were large withdrawals, so that at times the cash reserve of the Bank of Smack-over would sink below the reserve required by law. When this occurred, the Valley Bank would send to the Smackover Bank the amount of cash needed to bring the reserve tup t'O1 the legal requirement, and it would take in lien of such advance a sufficient number of the notes belonging to the Bank of Smackover to equal the amount of cash sent, and these notes would then be entered on the books of the Valley Bank as a part of its assets. It was understood that, while nominally the shares of the capital stock of the Bank of Smackover belonged to the incorporators of that bank, they were in reality the property of the Valley Bank. All of the dividends that accrued from the earnings of the Bank of 'Smackover were applied to the payment of the notes executed to the Valley Bank for the cash that had gone into its capital stock. The board of directors of the Valley Bank, in discussing the affairs of the Bank of Smackover, reached an understanding on a resolution offered by one of the directors that when the earnings of the Bank of Smackover should pay the notes aforesaid, all the earning^ of the stock should go to the Valley Bank, and that said bank would stand any losses on the Bank of Smackover.

As we have seen, all 'of the directors of the Bank of 'Smackover, except one, were directors of the Valley Bank, and a majority of the directors of the Valley Bank were directors of the Bank of Smackover. At all times after the organization of the Bank of .Smackover, until 1928 — approximately six years — W. W. Brown was the president of the Valley -Bank and also president of the Bank -of Smackover. O. W. Ramsey was employed by the Bank of' Smackover shortly after its organization and afterward — about July, 1923 — entered the employ of the Valley iBank as first assistant to the president, and in 1924 or 1925 became its vice president, he and the president having sole charge of the loan and discount departments' of the Valley Bank, making and collecting loans, handling the borrowing of money and the extension of notes. These two gentlemen had exclusive management of the business between the Valley Bank and the Bant of Smackover. The hoard of directors of üie Valley Bank met usually about once a month, and, when the discussion of the affairs of the Valley Bank was concluded, those directors of the Valley Bank who were also directors of the iBank of Smackover would then take up and discuss the affairs of that hank. Of course, all of these meetings were in the office of the Valley Bank in Oamden. The business was conducted in this manner from October, 19'22, until the 26th of March, 1928, when the Valley Bank, becoming- insolvent, its doors were closed by the Bank Commissioner, causing the Bank of 'Smackover to fail also.

The facts above stated are practically undisputed. There is some question, however, as to what was the understanding between the Bank of Smackover and the Valley Bank, or Mr. Brown and Mr. Ramsey, its president and vice president, regarding a guarantee of 'the collection of the notes taken by the Valley Bank for the Bank of Smackover. Ramsey’s testimony regarding this is somewhat equivocal as to whether or not it was the distinct agreement between Brown and himself, as president and vice president of thé Valley Bank, and the Bank of Smackover, that the payment of all of the notes taken by the Valley Bank was guaranteed, and Mr. Brown testified that he knew of no such arrangement. However, it is undisputed that the assistant bank commissioner, after the organization of the Bank of Smack-over, and at the time when the affairs' of the Valley Bank were being examined, had a discussion with Mr. Brown relative to the two banks, and the hazard of the oil business, in which conversation Mr. Brown told him that it was the intention to furnish paper from the files of the Valley Bank to the Bank of Smackover, and that he was told that the paper would have to be indorsed without recourse, and Mr. Brown remarked, “Of course, we expected to take care of that”; that afterwards, in 1927, when the examination by the Bank Commissioner was made 'of the affairs of the Smackover Bank, no information or data of record could be discovered in that bank, but only dummy notes, and it was ascertained that all of the papers and original notes were in the possession 'of the Valley Bank; that the representative of the Bank Commissioner then visited Camden, in company with the cashier of the 'Bank of Smackover, in an effort to ascertain the condition of that bank, and there Mr. Ramsey stated to the representative of the Bank Commissioner that the Ouachita Valley Bank would take care of any loss that the Bank of Smackover might sustain on the notes, and that a notation was made on the report submitted to the Bank Commissioner as follows: “Mr. Ramsey of the Ouachita Valley Bank stated that the Ouachita Valley Bank would take care of all losses on loans”; that this report, with the above indorsement upon it, was transmitted to the directors of the Bank of Smackover, which was examined by them, but the directors testified that they did not discover or notice the memorandum.

The chancery court found, on the facts as above stated, “that the Ouachita Valley Bank pursued a course of conduct in dealing with the Smackover Bank and the Louann Bank that would estop it from disputing liability on any paper involved in these petitions, had no bank failures occurred. The Louann Bank has properly pleaded estoppel. The manner of dealing and handling the paper existed between the Bank of Smackover and the Ouachita Valley Bank over considerable greater length of time. The principles of estoppel would apply even stronger.” A master was appointed and directed to find which of the notes exhibited with the interventions were taken direct to the Valley Bank, and by that bank indorsed to the Bank of Smackover or to the Louann Bank ivith or without recourse; which of the notes were taken direct to the Bank of Smackover, or to 'the Louann State Bank, as renewals of notes first mentioned, and by whom such renewals were taken; which, notes were taken from the Valley Bank direct t'o the Bank of Smackover, or to the Louann State Bank, and never entered upon the 'books of the Valley Bank, hut accepted as direct loans by the Bank of Smackover, or by the Louann .State Bank, and by what person the said notes were taken, and under what authority; which of the notes had been compromised and settled, and which of the notes had never passed through the Valley Bank but were taken direct by the Bank of Smackover, or by the Louann State Bank.

The master filed a report which has been exhibited by the litigants to this suit as to correct finding and thereupon the court rendered its decree giving judgment against the Valley Bank for the amount of the notes of the following classes:

1. Notes made payable to the Ouachita Valley Bank and assigned by said bank to the Bank of Smackover without recourse.

2. Notes which represented renewals of notes originally taken, payable to the Ouachita Valley Bank, and by it assigned without recourse to the Bank of Smackover, said renewals being taken at the Ouachita Valley Bank and being made payable direct to the Bank of Smackover.

3. Notes taken by the Ouachita Valley Bank by authority of W. "W. Brown, president, and O. W. Ramsey, lice president of the Ouachita Valley Bank, payable to the Bank of Smackover; the Ouachita Valley Bank advanced the money to borrowers on these notes and charged the amount to the account of the Bank of Smack-over with the Ouachita Valley Bank, and sent the notes to the Bank of Smackover without entering them upon the books of the Ouachita Valley Bank as notes payable to it, and without ever carrying them on its books as assets; and that the amount of the notes of the aforesaid classes, “be credited by the Bank ■Commissioner in favor of the Bank of Smackover as a claim against the Ouachita Valley Bank, and that the Bank of Smackover receive upon said claim the same dividends as other creditors.”

The court made the same findings and rendered the same judgment as to notes of similar classes in the transactions between the Valley Bank and the Louann State Bank, and decreed that the amount of such be allowed as claims of the Louann State Bank against the Ouachita Valley Bank. Prom the findings and judgment of the trial court an appeal is brought to this court.

It is insisted by the appellee that there was a specific agreement on the part of President Brown and Vice President Ramsey of the Valley Bank to guarantee the collection of all notes taken for the Bank of Smack-over and that Brown and Ramsey had the power to make this contract, while the appellant contends that there was no such agreement ever entered into, and, if Hiere had been, Brown and Ramsey had no power to make the contract. Appellant also contends that the fact that the notes taken in the- name of the Valley Bank for the Bank of Smackover were indorsed by the Valley Bank without recourse negatives the alleged contract of guaranty, and that such indorsement cannot be contradicted, and that, if any such contract had been made, it was void under the statute of fraud.

We think the circumstances surrounding the organization and conduct.of the affairs of the Bank of Smackover, clearly show the position of the appellant on these questions is not tenable, for, while in theory the two banks were separate and distinct corporations, they were in fact one and the same institution. To escape this conclusion, the appellants urge that the Bank of Smackover was not organized as a branch bank, and any such attempt, either direct or indirect, would be an ultra vires act on the part of the Valley Bank, and therefore void because done without authority of the statute, and also in direct conflict with the express prohibition of § 13 of the State Banking Law passed by the General Assembly at the session of 1923, amending § 677 of Crawford & Moses’ Digest. That section, in so far as it is applicable to the appellants’ position, is as follows: “If the commissioner is satisfied that the persons named as stockholders have the confidence of the community and are financially able to discharge the obligations resting upon the stockholders under any of the provisions of this act, and that the requisite capital has been in good faith subscribed, * * * then he shall, * * * give to the persons named as stockholders a certificate of incorporation * * * and shall authorize it to proceed with its business; but, with only one office for the transaction thereof in only one town or city as to which the application has been made.” The directors of the Valley Bank were advised by the attorneys, that they could not lawfully organize a branch bank at Smackover and, with that advice and the statute above quoted in mind, they sought to do by indirection what was forbidden them to do directly, and by means of this procedure were able to and did secure large increases in the cash deposits carried by it together with all the benefits arising from the deposits nominally made with the Bank nf Smackover. The interest it paid on daily balances was in effect paid to itself, and the interest arising from the loans made for the Bank of Smackover was paid to it, and used first in repaying to it the sums advanced to pay for the capital stock of the Bank of Smackover with the understanding that when this debt was discharged all the profits arising from the operations of the Bank of Smackover should become the property of the Valley Bank.

The question is, can the Valley Bank under such circumstances plead and secure protection from liability to the creditors of the Bank of Smackover on the ground that its acts were unlawful? It urges that its ultra vires act was not only the mere excess of corporate authority, but -forbidden by the act of the Legislature, supra, and therefore was void. This ¡might be true if the Valley Bank itself were seeking some benefit or to enforce some obligation, but not so where it is seeking to escape a liability by reason of its unlawful operations. While, as a general proposition of law, no action can be brought on a contract which is expressly declared void by statute, there are -important exceptions to this rule, one of which is that where to hold an ultra vires transaction void punishes the very persons whom the Legislature plainly meant to- protect, or would be followed by other manifest injustice, no such construction will be allowed. The statute above quoted under which the appellant seeks immunity was manifestly enacted for the protection of those dealing -with the bank; its purpose was to protect depositors and other creditors of the institution, and has not expressly made void any act done in contravention to that part of the statute providing for “only one office for the transaction thereof in only one town or city as to which the application has been made. ’ ’

In the case of Doyle Dry Goods Co. v. Doddridge State Bank, 175 Ark. 153, 298 S. W. 863, a borrower sought to defeat the collection of a loan, because the bank extending the credit did so in violation 'o-f the law prohibiting a loan by a bank in exce-s-s of thirty per cent, of its capital stock, and the bank by subterfuge so managed the loan as to deceive the Bank Commissioner, and to -circumvent the ¡State Banking Law. The borrower insisted that the bank could not recover, because it would be forced to rely on an illegal transaction, and that relief therefore should be denied. The conduct of the bank-in making the loan was ultra vires, and in violation of the express-statutory inhibition, but this court held that, as the provision of the banking law was enacted for the protection .of the public in its dealings with banks and as a security for its creditors, the contention of the borrower did not come within the spirit of the law. ;As it was not the intention of the Legislature to relieve the borrower of liability on aocount of the violation of the law by the officers of the bank, certainly relief should be denied the bank itself when it seeks to escape a just demand by subterfuge, through which it hopes to evade a statutory inhibition.

Since the Bank of Smackover was organized by a majority of the directors of the Valley Bank and as a feeder for such 'bank, it must be assumed that they had knowledge, not only of the purpose of its organization, but of the manner in which its affairs were conducted, all of which unquestionably was for the benefit of the parent bank, which benefits were actually received by it. Therefore, although the purpose for which the Bank of Smackover was organized and the manner in which its business was conducted to circumvent the law and the acts of its officers ultra vires, the Valley Bank cannot complain nor escape liability for the obligations of the Bank of Smackover. Wilson v. Davis, 138 Ark. 111, 211 S. W. 152.

In support of the conclusion above reached we quote from the case of American Southern Trust Co. v. McKee, 173 Ark. 158, 293 S. W. 50, as follows: “If the American and the St. Louis banks had authorized Walz tu take charge of the Bank of Gillette as an instrument through which to carry on their business, or had operated it as a branch 'bank, or had taken the management and control of the same, their liability would have -been the same as if they had done the business in their own name.” See also Richardson v. National Bank of Mena, 96 Ark. 594, 132 S. W. 913; Minneapolis F. & M. Mutual Ins. Co. v. Norman, 74 Ark. 190, 85 S. W. 229, and oases therein' cited. Having reached the conclusion that the Valley Bank is responsible for the conduct of the affairs of the Bank of Smackover, the question arises, -what is the extent of its liability? The majority of the court are of the opinion that the liability as fixed by the court below is correct, and that its decree as to the Bank of Smack-over should be affirmed.

A® to the decision of the chancellor on the question of interest charges and as to the adjustment and settlement of certain notes by the Bank Commissioner, we are of the opinion that the finding of the chancellor is correct, subject only to the proceeds arising from such interest and compromised settlement to be applied in the same manner as the other assets of the Smackover and Valley Banks.

II. STATE BANK OE LOUANN.

The facts with reference to the dealings of the Ouachita Valley Bank with the State Bank of Louann are somewhat different from those with the Bank of Smackover. Although in one place in the testimony of Mr. Ramsey the statement was made that the transactions of the Ouachita Valley Bank were first had with the Louann State Bank, and-that afterward dealings were begun between the Smackover Bank and the Valley Bank on the same basis as that existing between the Valley Bank and the Louann Bank, he was evidently mistaken or confused when this statement was made. The facts are that the Bank of Louann was organized at some date which is not disclosed by the record, and that it first began doing business with the Valley Bank in 1924, at which time it was a going concern with á capital stock of $15,000. As oil had been discovered at Smackover, so also in the Louann territory, and deposits were being-made in the 'State Bank of Louann out of all proportion to its means to safeguard, and handle in the usual way— that is, the Louann State Bank was unable to loan its money with proper security, and in amounts sufficient to carry on the business 'of the bank, and return a fair interest on the investment, and its vaults were unequal for the security of- its funds. Its deposits ran well above $100,000, and frequently to a much larger amount. At this time, namely, in 1924, Mr. W. W. Brown, the president of the Ouachita Valley Bank, and Mr. Ramsey, its vice president, acting for themselves, each bought $3,000 worth of the capital stock of the Louann State Bank, and made an arrangement with that hank to transfer its account from the banks with which it was then doing business to the Ouachita Valley Bank, and to do its business exclusively with the Valley Bank, and that all of its deposits, except such as were sufficient to meet the requirements of the law as to cash reserve, should be kept in the Valley Bank for two purposes; one, for the security of those funds, and the other, that the money might be loaned by Brown and Ramsey for the benefit of the Louann State Bank, the- Valley Bank paying for the privilege of handling the funds from two to four per cent, on daily balances. Brown and Ramsey agreed to make these loans, and agreed that the Valley Bank would guarantee the payment of all such notes as might be taken for money of the Louann Bank loaned o-ut by them.

In 1927 a representative of the Arkansas State Bank Department, on examining the affairs of the Bank of Louann, found that the local directors at Louann knew nothing about the condition of the bank, and that there was i» information or data of record from which its condition might be ascertained. Accordingly, he came to Camden where he conversed with Mr. Ramsey, and found the original notes -belonging to the Louann State Bank on deposit with the Valley Bank. Mr. Ramsey stated that the Valley Bank would take care of any losses that the Louann Bank might have on the notes; that it was not a written agreement between the two banks, but was an agreement between Mr. Ramsey and the Louann Bank. A report 'of this was made to the Bank Commissioner, but there is no showing that such communication was ever made known to the Valley Bank by the Bank Commissioner.

The dealings with reg’ard to lending- money . and taking notes was practically the same as those had with the Bank of Smackover, some of the notes being made payable to the Valley Bank and indorsed without recourse to the Louann State Bank. Some of these notes, if not all, on becoming due and unpaid, were renewed, payment to be made direct to the Louann State Bank. These notes would be sent to the Louann State Bank for number and entry on its books, and returned to the Valley Bank for safe keeping and collection. Also, when the cash balance of the Louann State Bank would fall below the legal amount, Mr. Ramsey would transfer cash from the Valley Bank sufficient to bring- up the cash balance in the Louann Bank tc the required amount, and in lieu of such cash advanced would take a part of the notes of the Louann Bank,’ and transfer them on its books to the account of the Valley Bank. There were two notes, aggregating the sum of $1,000, of the Page Oil Corporation taken by the Valley Bank, or Ramsey for the Bank of Louann, 'but these were objectionable to the Bank Commissioner, of which fact Ramsey was informed, and the notes were taken back and the Louann Bank given credit for them on its account with the Valley Bank.

Mr. S. M. Plarris, cashier of the Louann State Bank, after reciting the agreement between Brown and Ramsey on the one part and the Louann State Bank on the other, and that the notes taken for the loan of its money should be guaranteed, stated: “It was a great convenience to the Louann Bank to have the Valley Bank make the loans for it. We had a superfluity of depositors and a dearth of borrowers. I would not have accepted the notes if it had not been for the agreement with the Valley Bank.”

Mr. Ramsey was asked the following- question: “But it was your understanding- that the Ouachita Valley Bank dealt with the State Bank of Louann and the Bank of Smackover, so far as these notes were concerned, on exactly the same basis — that is, it was guaranteed to the State Bank of Louann and also to the Bank of Smack-over the payment of every one of these notes sent from the Ouachita Valley Bank to either of these banks, and you so testified in -your original testimony?” Ramsey answered, “Yes, sir, that is my recollection.” Mr. Brown testified, and also Mr. Ramsey, that there were never any objections made to the actions of either of them as to what they had done or the action they had taken as to the Bank of Smackover or the Louann State Bank. However, nowhere in the testimony is there any evidence that any member of the board of directors of the Ouachita Valley Bank, except Mr. Brown, knew that Ramsey had guaranteed to the Louann State Bank the collection of the notes, and there is nothing in the testi-mon}^ from which such an inference could be drawn. There was no action taken in the matter or any authority shown to have been given by the board of directors of the Valley Bank to Ramsey to make the guarantee for such bank.

Prom the above statement it is apparent that the liability of the Valley Bank to the Louann Bank must be measured by different rule from that applied to the Bank of Smackover. In the first place, it may be said that Mr. Brown, the president of the Valley Bank, by virtue of his office, had no inherent power to bind his principal by an}*- contract that he might make. His powers as such were very small, and his control over the affairs of the Bank of the slightest, except as to the exercise of powers delegated by the governing body (board of directors), or of which they had knowledge, or which he had openly exercised for so long a time as would impute such knowledge. In his transactions with the- Louann Bank, except the negotiating of loans, the borrowing of money and the handling of commercial paper, he had no power either expressly granted or which he was ever shown to have exercised. Indeed, it may be said that he did not himself deal with the Bank of Lonann, bnt all of snob dealing's were made by Mr. Ramsey. Mr. Brown stated that the negotiations were had by Ramsey, and reported to him (Brown), and that he sent none of the notes to the Lonann Bank and did not know how they were indorsed until long afterward; that he did not send the notes and did not know when they were sent back. In their dealings with the Louann Bank, Ramsey and Brown insist that they were not the agents of the Louann Bank, but of the Valley Bank, but it is not from their statements that their relationship with the Louann Bank and their authority to deal therewith so as to bind the Valley Bank can be tested.

As is said in 1 Mechem on Agency, § 285: “The authority of an agent, and its nature and extent, where these questions are directly involved, can only be established by tracing it to its source in some word or act of the principal. The agent certainly cannot- confer authority upon himself or make himself agent merely by saying that he is one.” This rule was recognized by this court in American Southern Trust Co. v. McKee, 173 Ark. 147, 293 S. W. 50. B'oth Brown and Ramsey had absolute authority in dealing with all matters relative to the lending and collection of money; they had charge of the loan and discount department of the Valley Bank, made and collected loans, handled the borrowing of money and the extension of notes, and for all of these purposes “ran the bank.” Of course, they could, and did, bind their principal in doing anything within the apparent scope of their authority as to such matters, but there was and could have been no implied authority to bind the principal in any transaction not included in, or necessarily implied from, their dealings relative to the business intrusted to their management. The circumstances show that the interest of Ramsey and Brown, m so far as their relations with the Louann Bank were concerned, was in conflict with, the duties they owed the Valley Bank. The deposits of the Louann Bank were out of all proportion to the amount of its capital stock, and the handling of these deposits promised large returns ; Brown and Ramsey were owners of two-fifths of the entire capital stock of the Louann Bank; Ramsey was paid a salary by that bank; the revenue which would be derived from the loans made would belong to the bank, and, as stockholders, they would share largely in it. It was greatly to1 their interest to see that the loans made of the funds of the Louann Bank be secured in every possible way, while the Valley Bank had no direct interest in these matters, and it would not be to its interest, but very much against it, to pledge its faith and credit to the guarantee of loans of the Louann Bank made by its own directors and paid employees. Ramsey states most positively that in these transactions he was acting as the agent of the Valley Bank, but the facts themselves contradict him. As we have seen, he was interested in the Louann Bank, and that interest conflicted with the interest of his principal. “An agent cannot prostitute the name of his principal to the service of his own personal notes, and this rule applies with full force to the officials of a corporation in making use of a corporate name.” City Electric Street Ry. Co. v. First Natl. Bank, 65 Ark. 543, 47 S. W. 855.

In Greer v. Levee Dist. No. 3, 140 Ark. 60, 215 S. W. 171, Mr. Justice Wood, speaking for the court, said: “The knowledge of J. J. Scroggins, president of the bank, and his testimony as to the purpose of himself and co-makers in borrowing the money from the bank, is not eharg'eable to the bank, for in that transaction, where his interests conflicted with that of the bank, it must be held that he was not acting for or representing the bank, and his conduct could create no estoppel against the bank to enforce the payment iof the notes.”

It is argued that the bank knew of the guaranty made by Ramsey, and acquiesced in by Brown, because they contend that the knowledge of Brown, the president, and of Ramsey, the vice president, was that of the bank itself. This contention is answered in Greer v. Levee Dist., supra, and in the case of First Natl. Bank v. First Natl. Bank, 159 Ark. 517, 252 S. W. 594, where it is said: “The testimony developed the fact that the cashier of each of these banks was lending money to the other, and in about equal amounts, but they both testified that they had authority from their respective boards to do so. It is the theory of the defendant that the cashier of the plaintiff bank knew Harkins was acting f or himself and not for the defendant bank in this transaction, and an attempt was made, ion his cross-examination, to develop the fact that the note was not sent to the defendant bank, but was sent to Harkins individually. An objection was made to this testimony, but we think it was proper. If there was, in fact, a collusive agreement between these cashiers to lend each other money, and the cashier of the plaintiff bank sent the note to Harkins knowing that in what Harkins did he would be acting for himself individually, and not for the bank, the defendant bank would not be liable for the conversion of the note by Harkins, even though he should admit its conversion, because, in a transaction of that kind he would not be the bank’s agent. ’ ’

As a matter of 'fact, the alleged guaranty made by Ramsey to the Louann Bank was unknown to any of the directors of the Valley Bank except Brown. Neither Brown nor Ramsey testified that any responsible member of the Valley Bank was ever advised of this transaction. They say they made no attempt to conceal what they did from the board of directors of the Valley Bank, but the fact remains that only those two and the cashier of the Louann Bank knew anything about the guaranty, and they did not disclose the same to the directors of the Valley Bank. Each member of the board of directors •of the Valley Bank testified in this case, and they all stated that they did not know, and had never been informed, of any such contract, and that they.only knew that the Louann Bank was carrying its deposits with the Valley iBank as any other bank would do; that this was not unusual in ¡banking affairs, and none of the dealings with the Louann Bank was of such nature. Ramsey testified there was nothing out of the ordinary rules of banking in sending the notes to the Valley Bank for collection — it had much safer' vaults than the Louann Bank, and was a much safer place to keep money. Had the directors of the Valley Bank made an inspection of the books of the Valley Bank with a view of ascertaining the mode of its business with the Louann iBank, nothing-out of the ordinary would have been disclosed. None of the notes were carried on the books of the Valley Bank in its bills receivable account, but all were kept in a file as the property of the Louann Bank. Mr. Ramsey stated that he was ready at any time to take up any bad note of the Louann Bank, and pay the cash of the Valley Bank therefor, but this intention was not known to the board of directors of the Valley Bank, and there was no custom of that kind in which the directors could have acquiesced or about which they could have known. There was only one bad note shown to have been handled in this way during the four or four and a half years which elapsed from the beginning of the business with the Louann Bank until the close of the Valley Bank’s doors in 1928. This could not show a course of dealing, the knowledge of which would be imputed to the bank.

Inasmuch as Brown and Ramsey, in making the alleged guaranty, were acting in their own interest, and adverse to' the interest of the Valley Bank in this transaction, as they were acting beyond the scope of their authority without the express or implied authority to do so, as this conduct on their part was unknown to the board of directors, and there were no circumstances shown from which such knowledge might be imputed to them, it is our opinion that such guaranty was not binding on the Valley Bank, and the chancellor erred in so holding. This cause must, therefore, 'be reversed and remanded with directions to enter a decree in conformity with the principles of equity, and not in conflict with the views herein expressed.