State of Okla. ex rel. Shull v. Bank

• Decision Date: 22 October 1932
• Docket Number: No. 30078.,30078.
• Citation: 53 S.W.2d 899
• Parties: STATE OF OKLAHOMA ex rel. C.G. SHULL, Bank Commissioner, v. LIBERTY NATIONAL BANK OF KANSAS CITY, a Corporation, Appellant.
• Court: Missouri Supreme Court

53 S.W.2d 899

STATE OF OKLAHOMA ex rel. C.G. SHULL, Bank Commissioner, v. LIBERTY NATIONAL BANK OF KANSAS CITY, a Corporation, Appellant.

No. 30078.

Supreme Court of Missouri, Division One.

October 22, 1932.^*

Appeal from Jackson Circuit Court. — Hon. Thomas J. Seehorn, Judge.

AFFIRMED.

McAllister, Humphrey, Pew & Broaddus for appellant.

(1) It was the duty of the pledgee to sell the collateral with reasonable promptness. 49 C.J. 997, art. 247, also p. 1004, art. 262; Franklin Savings Institution v. Emil Practorious, 6 Mo. App. 470. (2) The notice of sale was sufficient. Chouteau v. Allen, 70 Mo. 290; Tennant v. Union Central Life Ins. Co., 112 S.W. 754; Williams v. Parker, 157 Pac. 550; Wilkes v. Allegan Fruit & Produce Co., 206 N.W. 483. (3) The purchase price paid for the collateral by the Commonwealth Loan Company was adequate. Axman v. Smith, 156 Mo. 29; Robey v. Smith, 168 S.W. 965; Mueller v. Baker, 171 S.W. 322; Potts v. Smith, 178 S.W. 881; Montgomery Bk. & Trs. Co. v. Jones, 169 N.Y. Supp. 478. (4) The pledgee complied with the terms of the collateral agreement. Any sale so made is valid. Hiscock, Tr. in Bankruptcy, v. Varick Bank of N.Y., 51 L. Ed. 945; Ardmore State Bank v. Mason, 30 Okla. 568, 120 Pac. 1080; Chouteau v. Allen, 70 Mo. 290; Montgomery Bk. & Trs. Co. v. Jones, 169 N.Y. Supp. 478; Carson v. Iowa City Gas Co., 45 N.W. 1068; Axman v. Smith, 156 Mo. 292; Brown v. Kirk, 20 Mo. App. 524; Boehlert v. McBride, 48 Mo. 505. (5) The pledgee had a right to sell to the Commonwealth Loan Company. 2 Thompson on Corporations (3 Ed.) art. 1346; 5 Fletcher on Corporations, sec. 2376; 14 C.J. 58; Manufacturers Sav. Bk. v. Big Muddy Iron Co., 97 Mo. 38; Kitchen v. Railroad Co., 69 Mo. 224; Alexander v. Williams, 14 Mo. App. 13; Jones v. Williams, 139 Mo. 1; Hill v. Gould, 129 Mo. 106; Martin v. Development Co. of America, 240 Fed. 42; Troll v. Spencer, 141 S.W. 855; Montgomery Bank & Tr. Co. v. Jones, 169 N.Y. Supp. 478; Wilkes v. Allegan Fruit & Produce Co., 206 N.W. 483.

Hanna & Hurwitz for respondent.

(1) The notice of sale was insufficient. LaClede Natl. Bank v. Richardson, 156 Mo. 270, 56 S.W. 117. (2) The purchase by the appellant through its alter ego, the Commonwealth Loan Company, at its own sale, and without express authority in the collateral agreement to so purchase is void and does not change the relation of the parties. LaClede Natl. Bank v. Richardson, 156 Mo. 270, 56 S.W. 117; Hagan v. Continental Natl. Bank, 182 Mo. 319, 81 S.W. 171; Dibert v. D'Arcy, 154 S.W. 1116; Greer v. Bank, 30 S.W. 319; Boardman v. Florenz, 37 Mo. 759; Easton v. German Amer. Bank, 127 U.S. 532, 32 L. Ed. 212; Rush v. First Natl. Bank, 71 Fed. 102; Morris v. Railway, 95 Fed. 13; Dibert v. Wernicke, 214 Fed. 673; Tenant v. Union Central Life Ins. Co., 133 Mo. App. 345; Schaff, Admr. v. Fries, 91 Mo. App. 111; Moses v. Grainger, 106 Tenn. 53; Richardson v. Ashby, 136 Mo. 208, 33 S.W. 806. (3) Where a pledgee converts collateral into money, it is the duty of the pledgee to apply the proceeds to the payment of the debt secured and it holds the excess as trustee for the pledgor. See authorities cited under number 2. (4) The purported sale was made in an attempt to place the title of the collateral in the appellant, in order to cut off respondent's equities and rights of redemption and was therefore void. See authorities cited under number 2.

ATWOOD, J.

This is a suit by the Bank Commissioner of the State of Oklahoma in charge of the affairs of the Bank of Commerce of Okmulgee, Oklahoma, against Liberty National Bank of Kansas City, Missouri, for an accounting and judgment for balance found to be due plaintiff on certain collateral security pledged by said Oklahoma bank to the Commonwealth National Bank of Kansas City to secure a $20,000 note given by the former to the latter, the name of the latter bank being changed on April 12, 1923, to that of appellant herein. Judgment was rendered in favor of plaintiff and against defendant for $13,579.97, and it was further ordered, adjudged and decreed that defendant deliver to plaintiff one of the collateral notes known as the Harry-Smith Motor Company note, and also cancel and deliver said $20,000 note to plaintiff. From this judgment defendant has appealed.

It appears from matters stipulated and evidence adduced at the trial that on the 29th day of September, 1921, the Bank of Commerce of Okmulgee. Oklahoma (hereinafter called the Oklahoma Bank), executed its promissory note payable to the Commonwealth National Bank of Kansas City, Missouri, (hereinafter called the Missouri Bank), in the principal sum of $20,000, due December 2, 1921. To secure payment of this principal note, it pledged to and deposited with the Missouri Bank said collateral consisting of ten promissory notes of the aggregate face value of $28,650. On November 2, 1921, the Oklahoma Bank was declared insolvent and placed in the hands of the Bank Commissioner of the State of Oklahoma. On that date the Oklahoma Bank had on deposit with the Missouri Bank $9,432.17 in cash, which the Missouri Bank at once appropriated and credited on the said $20,000 note, leaving a balance due thereon of $10,567.83. On November 28, 1921, one of the customers' notes pledged as aforesaid with the Missouri Bank in the sum of $800 became due, and the customer, Harry Miller, paid the same on its due date to the Missouri Bank. The balance due, therefore, on the $20,000 note on December 2, 1921, the date of its maturity, was $9,767.83, and the face value of the collateral notes securing the same was $27,850. All of these collateral notes were notes of customers of the Oklahoma Bank, all of whom lived in or near Okmulgee, Oklahoma.

On December 3, 1921, one day after the maturity of the principal note, the Missouri Bank published notice of sale in the Daily Record in Kansas City, Missouri, which notice is as follows:

"NOTICE OF SALE.

"Public notice is hereby given that on Wednesday, December 14, 1921, at 2 o'clock P.M., at the south front door of the Jackson County, Circuit Court House, at Kansas City, Missouri, we, the undersigned, duly appointed and authorized so to do by the terms and provisions of a certain promissory note, now in default, executed by Bank of Commerce of Okmulgee, Oklahoma, dated September 29, 1921, No. 17353, for $20,000 to us, and of which we are now the legal holder, will sell, at public sale, for cash, various promissory notes pledged as collateral security for the payment of said above described note to satisfy all indebtedness thereon.

                             "Commonwealth National Bank
                    "First publication December 3, 1921."
                

No actual notice of intention to hold a sale was ever given to or received by the Oklahoma Bank or the Bank Commissioner in charge of its affairs. On the date named in the publication, to-wit, December 14, 1921, the collateral notes were exposed for sale in the manner and at the place set out in the notice, and were bid in by a member of the law firm that had prepared the notice for the Missouri Bank on behalf of the Commonwealth Loan Company for $9,778.33, this being the exact amount of the balance due on said principal note, plus $10.50, the cost of publishing the notice.

It was stipulated at the trial that the Commonwealth Loan Company, the purchaser, was a subsidiary of the Missouri Bank, and its stockholders were identical with the stockholders of the bank. None of its stock was ever actually issued to its stockholders, all shares being held by three trustees, but to each certificate of stock of the bank was attached a rider or a sticker stating that the certificate carried with it a certain pro rata number of shares of the stock of the loan company. It was impossible to own stock in the bank without owning stock in the loan company, and vice versa. The office of the loan company was in one of the rooms of the banking house occupied by the bank and this room was used jointly by the bank and loan company. Although the loan company was a Missouri corporation and not organized under the banking laws of the United States, nevertheless the federal comptroller always examined it when he examined the bank. The parties stipulated that it was "formed for the purpose of handling such paper as Commonwealth National Bank of Kansas City, Missouri, was not authorized to handle or which it was forced to charge off." When the comptroller refused to approve notes or other evidences of indebtedness in the note case of the bank, the criticised paper went to the loan company, sometimes at face value, and sometimes at other agreed prices. It apparently never paid cash for this bad or worthless paper, all transactions being paper transactions. They were usually wiped out and adjusted from time to time by mutual credits and debits, although the books at all times showed a liability from the loan company to the bank. It appears that the loan company never made any profit out of any of these transactions. The reason assigned for this continual passing of paper between the bank and the loan company was that the Missouri Bank was going through a period of great distress. It was subsequently reorganized and taken over by appellant.

It appears from the evidence that the bidder, whose law firm represented both the bank and the loan company, was told the exact price which he should bid for the collateral by the officials of the bank; and he gave his personal check for the purchase price. On the same day, the loan company reimbursed him after the bank had lent to the loan company $9,778.33, the exact amount necessary for such reimbursement and payment of the cost of publishing the notice.

On the next day after the purported sale, the loan company sold or transferred back to the bank $14,200 in face value of the collateral notes at their full face value. The testimony is vague as to the manner in which the bank paid the loan company for these collateral notes, but the "presumption" of the appellant's...