National Bank & Loan Co. v. Petrie

Background

A buyer paid money for bonds sold in transactions involving a national bank. The buyer said the bank’s president made false statements that caused the purchase, and in one case the president also acted as the buyer’s confidential adviser without revealing the bank’s interest. The bank argued the sales were unauthorized and sought protection under a federal statute. State courts ruled for the buyer, and the bank brought the case to the high court.

Reasoning

The Court considered whether a purchaser who was deceived can cancel the deal and recover money even when the sale might have been beyond the bank’s authority. The justices explained that fraud is a wrong separate from the contract, and a person misled into changing their position has a right to be restored when possible. If the bank insists it will rely on the sale, it must accept the entire transaction and cannot keep its benefits while avoiding the fraud. The Court did not reexamine the state court’s detailed findings about the false statements, but concluded the record showed no reversible error and affirmed the buyer’s judgment.

Real world impact

The ruling permits buyers deceived by a bank officer to undo bond purchases and recover money, even against a national bank’s defense that the sale was unauthorized. It makes clear that a bank choosing to enforce a sale must also bear responsibility for fraud tied to that sale. The opinion leaves open other scenarios, such as purely illegal contracts without fraud or cases based only on buyer regret, which the Court did not decide.