Napier, executor, vs. The Central Georgia Bank

Supreme Court of Georgia1882-02

68 Ga. 637

Summary · law.co

Holding. The judgment was reversed. The trial court properly struck most of Napier's defensive pleas, but it erred in striking the plea alleging that the bank refused to sell the collateral stock because the bank's officers and stockholders were conspiring to depreciate its value to acquire a controlling interest, as this plea stated a valid defense if the bank acted as alleged.

The Central Georgia Bank sued B. H. Napier, executor, to recover on two promissory notes that Napier had given when borrowing money, secured by twenty-five shares of factory stock. The notes matured without payment, but the bank never sold the collateral stock as permitted under the notes' terms. Napier filed several defensive pleas, most of which the trial court dismissed before trial. The case proceeded on the general issue and a usury plea, and Napier later moved for a new trial based on the court's rejection of his other pleas.

The appellate court found that most of the dismissed pleas lacked legal merit. However, one plea deserved consideration: Napier's allegation that the bank refused to sell the stock because some of its officers and stockholders were actively trying to depreciate the stock's value in order to buy a controlling interest cheaply. The court concluded this amounted to a potential defense if proven, since the bank would have been acting improperly by refusing Napier's orders to sell while conspiring to harm the stock's value. The court also rejected other pleas as legally insufficient—one for merely alleging the bank's failure to sell without showing wrongful intent, another for claiming a statutory duty to sell that did not exist, and a fourth for making conclusory allegations of fraud without stating the specific facts that constituted the fraudulent conduct.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether a pledgee's failure to sell collateral at maturity constitutes a defense to a secured note
Whether a pledgee's refusal to sell collateral for an improper purpose—to benefit the pledgee or its officers at the pledgor's expense—provides a defense or basis for damages
What level of specificity and factual detail is required to plead fraud or conspiracy as a defense

Procedural posture

The trial court sustained demurrers to most of defendant's pleas before trial, allowing only the general issue and usury plea to proceed; after verdict, defendant moved for a new trial based on the court's ruling on the pleas.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

Crawford, Justice.

This suit was brought by the Central Georgia Bank against B. H. Napier, executor, upon two promissory notes given for money advanced to him on. twenty-five shares of factory stock,- which were delivered to the said bank at the time of making the notes, and in which said notes it was stipulated that if they were not paid promptly at maturity the bank might proceed to sell the stock, and apply the proceeds to the payment of the notes without further notice to the maker.

The notes were not paid, the stock was not sold, and the bank brought suit against Napier thereon.

The defendant filed several pleas and amendments thereto, all of which were stricken on demurrer, except that of the general issue and the plea of usury. The case was then tried, and a motion was afterwards made for a new trial for the error committed in striking the pleas ; so that the questions here made are upon that ruling of the court.

The first plea averred that the twenty-five shares of stock were transferred as collateral security, with full power to sell at the maturity of the notes if they were not paid; that they were not paid, and the stock was not sold until the same went down from seventy-five to sixteen cents in the dollar, by which failure of duty on the part of the bank defendant was damaged $1,250.00, which he asks to recoup. A mere failure on the part of the bank to sell the stock at the maturity of the notes constituted no defence to their recovery, and gave the defendant no right to damages therefor. This plea was properly stricken. 65 Ga., 305.

An amendment was filed to this plea, alleging that it was the duty of the bank to sell at the maturity of the note, and that the president was notified to sell, but disregarded his statutory duty therein, and the defendant was thereby damaged $1,500.00. There being no such statutory duty as set forth in this amendment, and no legal right in the defendant to force a sale at his pleasure, this amendment was also properly stricken. Code, §2140.

The second plea averred notice to the bank to sell the stock both before and after the maturity of the notes, which notice the bank failed and refused to regard, and so refused because one or more of its officers, and some of its stockholders, were largely interested in said factory stock, and were engaged in the effort to depreciate the same, and in this way to buy the controlling interest therein for less than its value, and in fact did so depreciate its value as that defendant was injuredand damaged by the refusal to sell, as directed, in the sum of $1,250.00.

Upon demurrer this plea was stricken, and we think improperly. For whilst it is not full and specific as to the particular officers and stockholders engaged in depreciating the stock, and the manner in which it was done, yet it does distinctly aver that the bank failed and refused to sell the stock because some of its officers and stockholders were engaged in the effort to depreciate the same. If the bank for this reason co-operated with its officers and stockholders to depreciate the value of the shares which they held of defendant, or refused to sell with intent to aid in the depreciation, and defendant was thereby damaged, it was a defence which he might set up, prove, and be allowed. Had the bank, however, filed a special demurrer to this plea upon the grounds stated, and no amendment had been made, so as to give it notice, that it might come prepared to meet the averment, and the court had sustained the special demurrer, this would not have been error.

The third plea alleged that the twenty-five shares of stock were transferred absolutely to the bank, the president refusing to make the loan without such transfer. This transfer being necessary to enable the bank to make the certificates of stock available, and there being no other averment in connection therewith, we see no error in striking the plea.

The fourth plea averred that the president of the plaintiff and another stockholder in plaintiff’s bank, engaged in depreciating the factory stock, with the view of buying a controlling interest therein, and thereby run the stock down to such a small value that no one would buy it, until at last the factory property was sold and only fifteen cents on the dollar paid on the stock; that after the notes fell due the defendant ordered the plaintiff to sell said stock, “the plaintiff, through its president, corresponded with the defendant about the sale of the stock and led defendant to believe that he was trying to sell the same, which was not true, as he made no effort to do so, and which was unknown to defendant until after the stock had so far depreciated that defendant could not sell it at any price.” The stock had no market value elsewhere than at Macon, and in order to sell one had to be at that place and defendant could not remain there to find a a buyer, and for this reason gave the order to sell. For which failure to sell as ordered defendant claims damages by way of recoupment in the sum of $1,250.00.

That the president of the bank and another stockholder were engaged in depreciating the value of the stock, did not make it the act of the bank, so as to charge it with any loss on the value of defendant’s stock. But if the bank, through its president, acting under the authority properly vested in him as such president, was engaged in depreciating the value of the stock, and at the same time refusing to obey the instructions, with the intent to buy a controlling interest therein, this being the act of the bank, it would render the bank liable to account for the damages sustained by the defendant by reason thereof.

This is not averred, nor is the allegation of fraud in the plea that the president of the bank corresponded with defendant, and led him to believe that he was trying to sell the stock when he was not sufficient. To say that the correspondence led him to believe that he was trying to sell it, is but to give the conclusion of the defendant’s mind as to the correspondence. Facts constituting the alleged fraud should be full and explicit, and in what it consisted.

There was no error in striking this plea.

Judgment reversed.