Cartmell v. Commercial Bank & Trust Co.

• Decision Date: 20 May 1913
• Citation: 153 Ky. 798,156 S.W. 1048
• Parties: CARTMELL et al. v. COMMERCIAL BANK & TRUST CO. et al.
• Court: Kentucky Court of Appeals

156 S.W. 1048

153 Ky. 798

CARTMELL et al. v. COMMERCIAL BANK & TRUST CO. et al.

Court of Appeals of Kentucky.

May 20, 1913

Appeal from Circuit Court, Jefferson County, Chancery Branch, First Division.

Action by T. R. Cartmell and others against the Commercial Bank &amp Trust Company and others. From a judgment for defendants plaintiffs appeal. Affirmed.

H. O Williams, of Louisville, for appellants.

Herman Newcomb, Arthur B. Bensinger, and Hines & Norman, all of Louisville, for appellees.

LASSING J.

Prior to January 22, 1913, the Commercial Bank & Trust Company, a corporation organized under the laws of Kentucky and empowered to do a general banking and trust business, was located and doing business in the city of Louisville. On that date the capital stock of the bank was impaired to such an extent that a majority of its board of directors deemed it advisable for the bank to cease to do business, and, without notice to all the members of the board, prepared, signed, and posted on the doors of the bank the following notice: "This bank is in the hands of the banking commissioner"--quit business, and notified Thomas J. Smith, banking commissioner of the state, of their action. Thereupon the banking commissioner took charge of all the property and assets of the corporation and proceeded to wind up its affairs. Because of his familiarity with the bank's business, he retained Ben. L. Bruner, the president, to assist him in liquidating the bank. Before permitting him to enter upon the discharge of his duties, he required him to execute a good and sufficient bond.

On February 13, 1913, T. R. Cartmell and six others, depositors of the bank at the time it was placed in the hands of the banking commissioner, filed suit against the Commercial Bank & Trust Company, Thomas J. Smith, the banking commissioner, Ben. L. Bruner, his employé, styled a special deputy banking commissioner, and the Fidelity & Columbia Trust Company, in which they sought the appointment of a receiver to take charge of all the property and assets of the insolvent bank and a reference to the court commissioner for a settlement of its affairs. As grounds for their application, the plaintiffs allege: (1) That the Commercial Bank & Trust Company was insolvent. (2) That a majority of the directors had not the power to put the bank into the hands of the banking commissioner, without first giving notice to all of the directors of their proposed action. (3) That the banking commissioner failed to notify the directors of the impairment of the capital stock of the bank, or to require them to make it good, within 30 days. (4) That Ben. L. Bruner, appointed by the banking commissioner as his agent to assist him in liquidating the bank, was disqualified to act as such, because of the fact that he was the president and a director of the insolvent bank. (5) That the expenses for office rent, salaries of the banking commissioner and his agent, and counsel fees were being incurred.

The motion for a receiver was submitted and heard upon the plaintiffs' pleadings, and, upon consideration, the chancellor was of opinion that plaintiffs had failed to show any legal ground for the appointment of a receiver for said bank and overruled said motion. They appeal.

Banks are to the commercial world what arteries are to the human system. Through them passes the vitalizing life-giving medium of exchange, and, upon their healthy condition, commercial activity and prosperity in the main depend. It is a matter of common knowledge that payment, in 95 per cent. of all business transactions, is made, not in cash, but by means of checks or drafts. Banks thus become, in a sense, public institutions. Though organized and financed by private individuals and for personal gain, they nevertheless serve an almost indispensable public purpose, and upon this account, in most of the states, legislation has been enacted looking to their regulation, examination, and control.

Prior to 1912 there were few safeguards thrown around banking institutions in this state. The frequency with which bank failures occurred led the Legislature in 1912 to pass a comprehensive act looking toward the regulation, examination, and proper conduct of all state banks, and providing for the closing and winding up of the affairs of all such as were found to be in an insolvent condition. This legislation has, as its ultimate aim, the protection of the depositing public, and it is doubtful if any legislation enacted in recent years is calculated to have so beneficial an influence and effect. The power of the Legislature to pass the act is not seriously questioned; nor is it claimed that the provisions thereof are unreasonably or unduly restrictive of the inherent rights which banks have by reason of their charter provisions. Appellants seem to have proceeded upon the idea that the act in question did not give the banking commissioner power to summarily close the bank or authorize the board of directors to place it in the hands of the banking commissioner for liquidation in the way and manner in which it was done in the case at bar. It is also claimed that, in retaining Ben. L. Bruner in his service in charge of the bank while in process of liquidation, the commissioner not only exceeded his authority but violated an express provision of the act itself. Other grounds are urged in support of the claim that the court should direct the liquidation of the bank, through its receiver, rather than permit it to be carried out under the order and directions of the banking commissioner. But, as it is apparent that if it should be held that the banking commissioner has the power, under said act, to close a bank, when found by him to be in an insolvent and failing condition, or that a majority of the board of directors may, without notice, place the bank in the hands of the banking commissioner, when it is found to be in an insolvent condition, and that the banking commissioner and a majority of the directors of the bank have proceeded in the way and manner prescribed in the act, it necessarily follows that, in taking the steps which they did, they acted within their rights.

The act under consideration is comprehensive and far-reaching in its effect. It is apparent, from an examination of its various provisions, that the Legislature intended that it should be the whole law upon this subject.

Section 1 provides: "There is hereby established a department to be designated 'department of banking,' which shall be charged with the enforcement of all laws heretofore passed, or which may hereafter be passed, relating to banks, trust companies, saving banks, combined banks, and combined banks and trust companies, organized and doing business under the laws of the commonwealth of Kentucky." This idea permeates the entire act and is accentuated by the language of the closing section, for it is there provided: "All acts and parts of acts in conflict with this act are hereby repealed."

Section 2 creates the office of banking commissioner, defines his powers and duties, and fixes his compensation and term of office.

Section 3 provides for the employment of clerks and stenographers for his office, at a total expense not exceeding $2,400 per annum.

Section 4 provides that all reports, which banks had theretofore been required to make to the Secretary of State, should be made to the banking commissioner and received by him.

Section 5 provides for the appointment of a deputy banking commissioner, prescribes his duties, and fixes his salary, term of office, etc.

Section 6 provides for the appointment of three bank examiners, defines their qualifications and duties, and fixes their compensation, etc.

Section 7 provides as follows: "No banking commissioner, deputy banking commissioner, or state bank examiner, shall be or become indebted, directly or indirectly, either as borrower indorser, surety or guarantor, to any bank under his supervision, or subject to his examination; nor shall he be a director, officer or employé in any such bank, but no person shall be appointed to examine the affairs of any bank or trust company in any county in which he holds stock in either a state or a national bank. If any officer becomes so indebted to, or so interested in, any such bank or shall engage or become interested in the sale of securities as a business, or in the negotiation of loans for others, his office shall, ipso facto, become vacant. The cashier or president of any bank to which any of said officers shall become indebted, shall make immediate report thereof to the Governor, who shall remove the officer so offending. Every banking commissioner, deputy banking commissioner and state bank examiner shall be a resident and citizen of the commonwealth of Kentucky, shall be a practical bookkeeper and accountant and shall have had not less than four years actual experience as officer or clerk in a bank or trust company, and shall take the oath required of officers by the Constitution and laws of this commonwealth, for the faithful performance of his duties. They shall severally executed bond with good surety, to be approved by the auditor, for the faithful performance of their duties. The bond of the banking commissioner shall be in the penal sum of fifty thousand dollars ($50,000); the bond of the deputy banking commissioner shall be in the penal sum of twenty-five thousand dollars ($25,000); the bond of each state bank examiner shall be in the penal sum of ten thousand dollars ($10,000). All bonds so required to be executed shall be filed as part of the public records in the office of the Secretary of State. The cost of all contingency and all bonds required to be given under this section, shall be borne and paid by the state in the same manner as other...