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Melvin State Bank v. Crowe

AUGUST 8, 1968.






Appeals from the Circuit Court of Ford County; the Hon. R. BURNELL PHILLIPS, Judge, presiding. Reversed and remanded.


Alice Wisthuff appeals from the several judgments entered, after jury verdicts, as follows: (1) the sum of $16,923.75 in favor of the Melvin State Bank (hereinafter called Bank), and against Merwin E. Crowe and Alice Wisthuff on a judgment note for $15,000, dated January 23, 1964; (2) against Alice Wisthuff, as counterplaintiff, and in favor of the Bank as counterdefendant, on a counterclaim for $10,000 and (3) against Alice Wisthuff, as plaintiff, and in favor of Frederick Drake, as defendant, on the former's third-party complaint for damages and punitive damages totaling $45,000.

Merwin E. Crowe, a third-party defendant, appeals a judgment, after jury verdict, in favor of Alice Wisthuff, third-party plaintiff, in the sum of $15,000.

Third-party defendant, Merwin E. Crowe, contends that he is entitled to judgment in his favor notwithstanding the verdict, and in the alternative that he is entitled to a new trial because of improper instructions and the introduction of improper evidence.

While one of the briefs designates Drake as an appellee, no brief appears to have been filed on his behalf.

A general statement of the relation of the parties is necessary to an understanding of their contentions, and the detailed evidence which tends to support the various contentions.

Crowe operated a business under the corporate name of Meca Magnetics and, over a period of time, had become increasingly indebted to the Melvin State Bank upon unsecured loans until, at the time of the pertinent transactions in November of 1963, he was indebted to the Bank in the sum of $19,580.26. Frederick D. Drake was executive vice president and cashier and, for practical purposes, the day-to-day managing officer of the Melvin State Bank. Alice Wisthuff, who had been a part-time employee of Crowe, was sent by Crowe to Drake to obtain information regarding Crowe's business preliminary to having her make a loan to, or an investment in the business. After consulting with Drake, Alice Wisthuff first brought $10,366.38 to Drake at the Bank. At some time she received a note for $10,000, payable in five years, signed by Crowe and his wife. Of Mrs. Wisthuff's money, $4,580.26 was applied to Crowe's bank loan, and the balance was credited to his checking account. About one month after the first transaction Crowe signed a thirty-day note at the Bank for the $15,000 balance he owed the Bank. Four or five days later Drake came to Crowe's Meca Magnetics factory, where Alice Wisthuff was again employed, and obtained her signature on the Crowe $15,000 note, and apparently on other papers. On January 23, 1964, the thirty-day note having matured, Crowe obtained Mrs. Wisthuff's signature on his sixty-day renewal note of $15,000 in favor of the Bank.

The Bank took judgment on the latter note on January 23, 1964. Alice Wisthuff caused the judgment to be opened and answered the complaint denying the consideration, and alleging fraudulent representation by the Bank's agent as to the paper she was signing. She also counterclaimed for $10,000, alleging that the Bank's agent represented that Meca Magnetics had a net worth of $89,000, when its net worth was nil. She filed a third-party complaint against Merwin E. Crowe, her employer, and Frederick D. Drake, as agent of the Bank, alleging fraudulent representation, and the breach of a fiduciary relation.

The record discloses a fundamental confusion in the different principles of law applied in the several aspects of the case. Thus, the investment of $10,366.80 by Alice Wisthuff in Meca Magnetics presents one aspect of the case as to the fraudulent representation alleged, and as to the question of the scope of authority of Drake as executive, vice president and agent of the Bank, whereas the obtaining of the signature of Alice Wisthuff on the $15,000 note of December 17, 1963, first executed by Crowe and the substitution therefor of the $15,000 note of January 23, 1964, presents an entirely different aspect of the case. It is noted, by way of illustration, that plaintiff's given Instruction No. 19 states that one of the questions for the jury is whether Drake was acting within the scope of his authority. No distinction is made as to the two aspects of the case. It is obvious, however, that two different transactions are involved, — obtaining the $10,366.38 of Alice Wisthuff's money on November 14, 1963, and obtaining Alice Wisthuff's signature on Crowe's previously executed note to the Bank of December 17, 1963, on December 23, 1963. There may well have been a question concerning Drake's authority to recommend an investment as agent of the Bank. There is no question whatever that Drake was acting within the scope of his authority when he attempted to obtain additional security on a note of a Bank customer which was of doubtful value. It is noted that plaintiff's given Instruction No. 24 refers to the scope of the authority of Drake "at the time of the occurrence." As stated, there were at least two different occurrences, and there were alleged misrepresentations of an entirely different nature on the two occasions.

Again, the personal liability of Drake, by reason of using his position in the Bank to carry out directions of Crowe in giving information to Alice Wisthuff, is entirely separate and apart from the liability of the Bank. Even in respect to obtaining Alice Wisthuff's signature on the Crowe note to the Bank, Drake's responsibility for false representation may be separate and apart from the liability of the Bank in respect to this transaction. This would be clearly illustrated if the Bank had negotiated the note.

Finally, if the issue of confidential relationship were resolved by the jury in favor of Alice Wisthuff, the consequences concerning the burden of proof would be entirely different, and the numerous instructions regarding the requirements for proof of fraud and deceit set forth in nine of plaintiff's given instructions would be entirely inapplicable.

The specific failure to give proper instructions complained of by Alice Wisthuff is the failure to instruct upon the effect of a confidential relationship, if found. Further specific complaint is made that there is no evidence to support the judgment against Alice Wisthuff, and that the other judgments and verdicts adverse to her are against the manifest weight of the evidence. A review of the evidence is therefore necessary.

Alice Wisthuff's age is not set forth. She was married to a man 87 years old who was ill and did not participate in the transaction. She and her husband had farmed near Melvin, Illinois, and then moved to Gibson City in 1940. She and her husband had done some banking at the Melvin State Bank when they were farming near Melvin. She had an eighth-grade education. She worked from time to time to help out with family finances. At first she worked in a canning factory. She worked in a sewing factory for a while. Later she worked for James Electronics, which became Meca Magnetics. She worked as a bobbin winder. She had known Crowe when he was a salesman for James Electronics.

She had worked at Meca Magnetics in the Spring of 1963, but was not working there in November of 1963. She was taking care of her husband, who was ill. In none of her employment had Alice Wisthuff done any bookwork or office work. She was not familiar with financial arrangements. The Wisthuff's adopted son had died and she had collected something over $10,000 in insurance, which she had placed in savings and loan associations.

On November 13, 1963, Alice Wisthuff received a telephone call from Crowe, who asked her to come to his office, and she did. She testified that Crowe told her the Bank had talked him into selling some shares in the company. He asked her to go to the Bank that afternoon, and said that he gave the Bank permission to show her his records. She went to the Bank about 2 o'clock that afternoon. She testified that Frederick Drake showed her a bank statement and said how much it had gained in the past; that he showed her a paper and said the company was worth $89,000, that it would be a good investment for her, and she would get six percent on her money. She testified that she told Drake that she had some insurance money from her son's death, that she didn't want to lose it and she wanted a straight deal. She said Drake asked her if she could have the money the next day.

On November 14, 1963, Mrs. Wisthuff returned to the Bank with two building and loan checks — one for $5,000 and one for $5,366.38. She endorsed the checks in blank. She states that she received papers from Drake, who said she would have part ownership in the factory. The papers included a stock certificate of Meca Magnetics, Inc., for 1,000 shares of $10 par value stock in the name of Merwin E. Crowe, which was dated October 30, 1962, and was not endorsed; a blank stock assignment separate from the certificate signed by Crowe, undated and with no stock named therein; and a memorandum concerning Meca Magnetics, Inc., to Fred Drake from Merwin E. Crowe under date of November 12, 1962, as follows:

"The attached stock certificate #4 for 1,000 shares (par value $10.00 ea.) to Merwin E. Crowe; is hereby to be used to secure a `loan' to provide additional capital for Meca Magnetics, Inc./This in no way transfers title of this stock certificate No. 4. . . ."

A fourth document delivered was a judgment note for $10,000, dated November 14, 1963, payable to the order of Alice Wisthuff with interest at 6% per annum due five years after date, signed by Crowe. The note contained this clause:

"Interest payable semi annually with $2,000.00 payment privilege each anniversary date of note. Payment need not be made if maker prefers not to make it until due date of note."

Alice Wisthuff testified that she did not read the papers.

The several documents which Alice Wisthuff received had apparently been in Crowe's file at the Bank for a year. The file also contained some financial statements headed Meca Magnetics, Inc. One statement purported to show a net profit of $14,334.46 for an eight-month period ending May 31, 1963. Another purported to show a net worth as of June 11, 1962, of $15,781.49. Another purported to show a net worth of $60,729.90 as of December 31, 1962. Another statement, dated September 30, 1963, showed a net worth of $49,692.03.

Frederick D. Drake was executive vice president of the Melvin State Bank from 1959 until February 8, 1964. Leroy P. Arends was president of the Bank, but did not spend regular hours there. He would frequent the Bank at his leisure. As far as day-to-day operation was concerned, Drake was the manager in charge. Drake had a Ph.D. from Wesleyan and a Master of Education from Illinois State University. He was a bank examiner for the State of Illinois from 1955 to 1959. He was familiar with Crowe's business to the extent that he was in the place of business five to ten times prior to November 13, 1963. On some occasion prior to November, 1963, Drake had gone to Chicago with Crowe to consult the Small Business Administration about a loan. He states that he doesn't know whether Crowe ever got the Small Business Administration loan. He recalls that they did take some financial statements to Chicago.

Nothing short of a detailed chronological review of Drake's testimony can put the transactions in the proper perspective.

Drake testified that on November 13, 1963, Crowe called him and said that an employee was coming down to talk to him concerning Crowe's borrowing. Crowe told Drake to disclose to her anything she desired concerning the operation and asked Drake to make an open book of Crowe's operation. When asked if he could recall the discussion with Alice Wisthuff in the back room of the Bank in particular, he said: "I showed her Mr. Crowe's file just as you showed it to the jury a little bit ago." He also said, "I handed them to her similar to the way they were handed to the people in the jury box. I handed her the file and she could go through it and look at anything she wished because Mr. Crowe told me to allow her to do this." (Abst. p 2.)

Drake was asked if he had known Mrs. Wisthuff before he saw her that day in the Bank and states: "I had never seen her or heard of her." He was asked whether he could recall the discussion that took place with Mrs. ...

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