#### BANK OF CANTON AND TRUST COMPANY v. D. H. CLARK, Trading as CLARK CONSTRUCTION COMPANY, and D. H. CLARK, Individually.

(Filed 8 January, 1930.)

1. Banks and Banking C b — Bank officer does not have implied authority to use bank funds for personal liability.

The cashier of a bank has no implied authority to use the funds of the bank for his personal or private use, and an agreement between him and another that such other should give his note to the bank for an amount due him by the cashier and that the .cashier would pay it upon maturity is not binding upon the bank in the absence of authorization by its board of directors.- C. S., 221 (n).

*1702. Same — One dealing with hanlc officer is put upon inquiry as to his authority to use bank funds for personal liability.

Where one enters into an agreement with an officer of a bank whereby the officer was to use the bank’s funds for the payment of a personal debt, he is put upon inquiry as to the authority of such officer to make the agreement, or whether the governing body of the bank had given its sanction thereto.

3. Same — Question of whether bank was estopped from denying authority of cashier to use bank funds for personal debt held for the jury.

Where the contractor for the erection of a residence for the cashier of a bank has given his note to the hank for the amount due him by cashier, with the understanding that the cashier was to pay it upon maturity, and there is evidence that the contractor inquired at the hank several times and was informed that the note had been paid, when in fact it had been kept by the hank and used by it as collateral, the question is for the jury as to whether the bank in its suit on the note is estopped to set up the fact that the note had not been paid, or deny the cashier’s authority to enter the agreement, there being further evidence that thus lulled into feeling secure the contractor had lost his right of statutory lien upon the residence erected for the cashier.

4. Estoppel O a — Application of doctrine of estoppel by misrepresentation.

Estoppel by misrepresentation differs from estoppel by record, by deed, or by contract, in that it is not mutual, but applies when the representation of a material fact is false and should have been known as such to the party making it, and was calculated to, and did deceive another, causing him to suffer loss.

5. Principal and Agent A c — Person first reposing confidence in agent must suffer loss by his wrongful acts.

Where one of two innocent persons must suffer by the fraud or deceit of another, he who first reposes the confidence must bear the loss.

Appeal by defendant from Schenck, J., at September Term, 1929, of Haywood. New trial.

S. M. Robinson and T. A. Glal/rk for plaintiff.

Morgan, Ward & Stamey for defendant.

Adams, J.

The defendant Clark was a contractor doing business under tbe name of tbe Clark Construction Company. On 9 June, 1925, be executed for tbe Clark Construction Company a promissory note under seal in tbe sum of $1,700, payable on demand to bis own order, witb interest at tbe rate of six per cent per annum. Presentment, protest, notice of protest and of nonpayment, and all defenses growing out of an extension of time were waived on bebalf of tbe maker and endorser. After writing bis name on tbe back of it tbe defendant delivered tbe instrument to tbe plaintiff’s cashier and was given credit on bis *171bank account for tbe face oj; the note. More than two years afterwards the plaintiff brought suit, and upon the trial the controversy came down to the single issue of the defendant’s indebtedness: “What amount, if any, is the plaintiff entitled to recover of the defendant ?” In reference to the issue the judge gave the jury this instruction: “If you find the facts to be as shown by all the evidence, your answer will be $1,700, with interest from 9 October, 1927.” The jury returned a verdict and the plaintiff recovered a judgment for this amount, and the defendant appealed upon exceptions formally entered of record. The decisive question is whether there was error in the instruction.

When the transactions between the parties took place the plaintiff’s cashier was W. R. Palmer. He had been cashier for the three years next preceding; he continued his service in this capacity for two years ■ after the note was executed. During this period Frank Mease was the vice-president and had active charge of the bank; but both Mease and Palmer made loans without consulting any person connected with the institution. Palmer testified that he left the bank in November, 1927, and Mease in the preceding July, and that each of them repeatedly falsified the records intrusted to their keeping.

There is evidence that Palmer and the defendant, some time before the note was made, entered into a contract to this effect: The defendant for $4,100 was to build a house in Canton for Palmer; the defendant was to draw checks on the plaintiff from time to time to pay for building material, labor, and incidental outlays, and Palmer was to deposit in the bank to the credit of the defendant such sums as were necessary to protect these checks. Palmer made two such deposits of $500 each; but after the defendant had drawn his checks on the plaintiff, for the purposes specified, in sums aggregating $1,500 or more, Palmer found it impossible to deposit an amount sufficient to pay them, and requested the defendant to execute the note in suit. The defendant testified that the note was delivered to Palmer under an agreement between Mease, Pálmer and himself that Palmer was to take up the checks and pay the note and that the defendant “was not to pay the note to the bank.”

There is evidence that some time after this agreement was made the defendant demanded a return of the note; that Palmer told him “it had been taken care of,” and Mease, that it had been paid; that Mease made the latter statement more than a half dozen times; and that by reason of these misrepresentations the defendant was lulled into security, led into giving Palmer credit for $1,700, and deprived of his statutory lien on Palmer’s house. It was the defendant’s contention that the time for filing his lien had not expired when the plaintiff’s officers gave him these assurances, and that the lien would have been filed if he had not been misled by their deceit. Palmer admitted that he was due the de-' *172fendant $1,700, ,and that be bad made payments of interest and bad procured renewals of tbe note. Tbe defendant neither paid interest nor at any time sought a renewal of tbe paper.

When be delivered tbe instrument bearing bis endorsement to the plaintiff’s cashier and was given a credit of $1,700 on bis account, tbe defendant became liable to tbe bank, nothing else appearing, for tbe full amount of tbe obligation; and tbe alleged agreement between him and tbe cashier did not alter tbe situation or affect bis liability. There are two phases of tbe evidence in which this statement may be considered. When tbe note was executed tbe defendant bad on deposit with tbe plaintiff a balance of $2.63; be bad drawn thirty-eight checks, for tbe protection of which, upon tbe cashier’s failure to perform bis alleged agreement, tbe note was requested and bis credit of $1,700 was extended. These cheeks were overdrafts for which tbe defendant was liable, as be did not have tbe bank’s permission to draw them. . Tbe bank owed him nothing above Ms small balance, and was under no obligation to honor bis paper in excess of this amount. This is tbe law as declared upon similar facts in Dowd v. Stephenson, 105 N. C., 467. It is there held, in addition, that without tbe consent of tbe governing authority of a bank its officers have no right to appropriate any part of its funds to tbe payment of their personal debts. Palmer was utterly without authority to bind tbe plaintiff by diverting or appropriating its assets to tbe satisfaction of bis individual wants. His official position clothed him with no implied authority to accomplish such purpose. He bad no right to “absorb tbe funds” of tbe plaintiff in payment of bis private debts. “No person can act as tbe agent of another in making a contract for himself.” Hier v. Miller, 63 L. R. A., 952. Nor could the joint action of Mease and Palmer legally affect this result without tbe consent of tbe governing body. It was said in Dowd v. Stephenson, supra, that “in tbe absence of special authority for such purpose, neither tbe bank’s president nor its cashier, nor these officers acting jointly, bad authority or right to appropriate and devote any part of tbe funds of tbe bank to tbe payment of tbe president’s personal debt due to tbe defendant. Such authority, ordinarily, was beyond tbe scope of tbe purpose and duties of such officers.” Tiffany on Banks and Banking, 325; Stansell v. Payne, 189 N. C., 647; Grady v. Bank, 184 N. C., 158; Bank v. West, ibid., 220; Bank v. Lennon, 170 N. C., 10; Bank v. Wilson, 124 N. C., 562, 568; C. S., 221(n).

Tbe defendant knew tbe terms of tbe contract; be knew tbe cashier’s interest in it was personal; and this knowledge charged him with tbe duty of inquiring into tbe actual extent of tbe cashier’s authority. Hier v. Miller, supra; Bank v. West, supra. Under these circumstances be *173cannot evade liability on bis obligation by proof of “an understanding” witb Mease and Palmer tbat be “was not to pay tbe note.”

Tbe trial judge no doubt bad these principles in mind when be gave tbe peremptory instruction to wbicb tbe appellant excepted. But there was material evidence wbicb tbe instruction excludes. According to tbe testimony of tbe defendant be called for bis note within a few days after tbe bank bad received it and was told by tbe cashier and tbe vice-president tbat it bad been taken care of or bad been paid. Tbe time-for filing a lien on Palmer’s bouse bad not then expired. On various subsequent occasions tbe plaintiff’s officers gave him similar assurances: tbe books, they said, showed no entry against tbe defendant or tbe note bad been lost; at any rate, it bad been paid. Paid by whom? Evidently by Palmer, not by tbe defendant; and if by Palmer tbe bank was satisfied and tbe defendant absolved. These assurances continued until it was too late for tbe defendant’s lien. Meanwhile, tbe note bad been in tbe service of tbe bank as collateral security and was next seen by tbe defendant in tbe year 1927.

These are some of tbe contentions of tbe defendant. He says tbe officers of tbe bank deceived him for tbe purpose of protecting tbe cashier, tbe consequence being bis alleged liability on tbe note and bis inability to file a lien or to collect anything for building tbe bouse. He insists tbat tbe governing authority of tbe bank cannot set up tbe collusion of its officers as an act ultra vires, because tbe bank as a result of tbe collusion retained tbe note as an asset and profited by its use.

There are allegations in tbe'answer and evidence in tbe record upon wbicb to rest tbe. defendant’s theory. If be can establish bis contentions to tbe satisfaction of tbe jury be may thereby bar tbe plaintiff of a recovery on tbe note. He would then have a case to which tbe doctrine of estoppel by misrepresentation would be applicable. Estoppel of this nature differs from estoppel by record, by deed, and by contract. It is not based upon an agreement of tbe parties or upon a finding of fact wbicb may not be disputed. It is not mutual,, but applies to only one party. Tbe fundamental principle is tbat a party may be estopped by tbe false representation of a material fact wbicb be knew or should have known was calculated to deceive and wbicb has deceived another and caused him to suffer loss.- There are convincing reasons for denying tbe availability of tbe plaintiff’s contention tbat tbe alleged misrepresentation was unauthorized: there is evidence tbat tbe bank derived benefit from tbe asserted deceit; moreover, where one of two persons must suffer by tbe fraud or deceit of another be who first reposes tbe confidence must bear tbe loss. R. R. v. Kitchin, 91 N. C., 39; Bank v. Liles, 197 N. C., 413. Tbe appellant is entitled to a

New trial.