Chapman v. Guaranty State Bank

• Decision Date: 20 December 1924
• Docket Number: (No. 562-4149.)
• Citation: 267 S.W. 690
• Parties: CHAPMAN, Commissioner of Insurance and Banking, et al. v. GUARANTY STATE BANK et al.
• Court: Texas Supreme Court

267 S.W. 690

CHAPMAN, Commissioner of Insurance and Banking, et al. v. GUARANTY STATE BANK et al.

(No. 562-4149.)

Commission of Appeals of Texas, Section A.

December 20, 1924.

Error to Court of Civil Appeals of Second Supreme Judicial District.

Action by the Guaranty State Bank and others against J. L. Chapman, Commissioner of Insurance and Banking, and others. Judgment for plaintiffs was affirmed by the Court of Civil Appeals (259 S. W. 972), and defendants bring error. Reversed and remanded.

W. A. Keeling, Atty. Gen., and John C. Wall and John W. Goodwin, Asst. Attys. Gen. (Walace Hawkins and Chas. L. Black, both of Austin, of counsel), for plaintiffs in error.

B. Gayle Prestridge, of Cleburne, and Bailey, Nickels & Bailey, Jed C. Adams, Grover Adams, W. B. Harrell, Chas. A. Rasbury, and R. L. Stennis, all of Dallas, for defendants in error.

GERMAN, P. J.

About the 1st of April, 1922, the Traders' State Bank of Cleburne, Tex., became insolvent, and was taken in charge by Ed Hall, the commissioner of insurance and banking, who began the liquidation of such bank. In the process of liquidation the commissioner of insurance and banking negotiated a sale of a large part of the assets of the Traders' State Bank to the Guaranty State Bank of Cleburne, which was organized and incorporated for the purpose of taking over the assets of the Traders' State Bank and conducting the liquidation. The agreement entered into was substantially as follows: The commissioner of insurance and banking deposited in the Traders' State Bank out of the state guaranty fund the sum of $200,000, which was to be treated as a part of the assets of that bank. The stockholders of the Guaranty State Bank paid in the sum of $100,000 as its capital. After deducting about $313,000 of notes and paper from the assets of the Traders' State Bank, all of its other assets, including banking house, fixtures, and furniture, was to be transferred to the Guaranty State Bank. The assets consisted principally of several hundred thousand dollars in notes and paper, which were taken at their face value, and the consideration for the transfer on the part of the Guaranty State Bank was its agreement to assume and pay all debts and liabilities of the Traders' State Bank, including all claims of depositors. This agreement was reduced to writing, and on the 15th day of April, 1922, the commissioner obtained from the judge of the district court of Johnson county an order directing the sale, which recites that the application for such order had been duly considered and evidence heard thereon. The substance of the order is as follows:

"It is therefore considered by the judge, and so ordered, that the said Ed Hall, as commissioner of insurance and banking of the state of Texas, be and he is directed to conclude the contract described in said petition with the Guaranty State Bank and to sell to said Guaranty State Bank of Cleburne all of the assets of the Traders' State Bank in said petition described, and that all of the terms of the said contract as alleged be carried out in all respects, the said Guaranty State Bank assuming the liabilities and obligations in said contract specified."

On the same date the commissioner reported the sale as having been made in all respects in compliance with the contract, and the judge thereupon approved and confirmed the sale. After reciting due consideration of the report, and an examination of the statement of assets and liabilities of the bank, the order concludes:

"It is therefore ordered and adjudged by the court that the said report of sale be and the same is in all things approved and confirmed, and the said Ed Hall, as commissioner as aforesaid, is directed to execute and deliver the proper instrument of conveyance in accordance with his said contract and agreement entered by him as shown by said report."

These orders are all styled:

"Ex parte Traders' State Bank of Cleburne, insolvent. In the district court of Johnson county, Tex. In vacation."

In pursuance to said orders the commissioner executed a conveyance to the Guaranty State Bank, which was also accepted and executed by the president of the bank under proper resolution adopted by the board of directors.

The Guaranty State Bank immediately took charge of all the assets of the Traders' State Bank transferred to it, and at once opened its doors for business. In September thereafter the commissioner of insurance and banking, after an investigation of the affairs of said Guaranty State Bank, demanded that the stockholders put into said bank the sum of $25,000 to take the place of paper which had been found to be worthless, and this was done. The bank continued to do business untill April 4, 1923, when the commissioner of insurance and banking took charge of same on the ground that it was insolvent.

This suit was filed April 21, 1923, by the Guaranty State Bank and its directors against the present banking commissioner, J. L. Chapman, and the state banking board. The purpose of the suit was to obtain a rescission of the contract and agreement above referred to, to have the commissioner and the state banking board to take back all the assets received by the Guaranty State Bank in the transfer, and, if cash received had been loaned, to take in lieu thereof notes received by the Guaranty State Bank for said cash, and that plaintiffs recover from defendants the sum of $125,000 paid into the bank by the stockholders, or that sum in notes taken by the bank during the time it was engaged in business. The basis of this demand was that the commissioner and his assistants, in making the agreement and contract with the Guaranty State Bank, had practiced fraud upon it, in that they had represented to the bank that all worthless and bad paper had been taken from the holdings of the Traders' State Bank, and that all notes, warrants, and other paper being transferred to it were good and solvent and worth their face value, and such assets were worth as much or more than all the liabilities being assumed by the bank; that in making the contract, paying in the $100,000 to the capital of the bank, and in taking over and accepting the assets of the Traders' State Bank, it relied upon the representations of the commissioner. It was further claimed that the representations made by the commissioner were not true, and that in the process of liquidation it was found that several hundred thousand dollars worth of said paper was worthless; that by reason of the assets received by it being worthless, and the demands made upon it to pay the liabilities of the Traders' State Bank, its condition of insolvency was brought about; that on account of the fraud and deceit of the commissioner it was entitled to a rescission of the sale and the relief asked for, as shown above.

The trial court rendered judgment rescinding the contract of sale of April 15, 1915, and further decreed that the plaintiffs, jointly and severally, recover of the defendants the sum of $125,000, with 6 per cent. interest from date of judgment. It was provided that defendants might satisfy the judgment by delivering to plaintiffs notes of the face value of the judgment which had been received by the Guaranty State Bank on loans made by it, or notes acquired by it in the transfer which had been classified as good. The plaintiffs were ordered to place defendants in statu quo by returning all assets received by the Guaranty State Bank in the transfer not theretofore returned, and all cash, notes, and bills representing same or any renewals thereof, less all sums paid by the Guaranty State Bank on the liabilities of the Traders' State Bank, and less all lawful debts incurred by it and growing out of said contract. This judgment was affirmed by the Court of Civil Appeals. 259 S. W. 972.

There are numerous assignments of error. Many of them relate to one general proposition, and a discussion of it will make it unnecessary to discuss other questions in detail. The controlling proposition may thus be stated:

A sale of the assets and property of an insolvent state bank, the property of which is in the possession of the banking commissioner of Texas, in the process of liquidation, has the effect of a judicial sale, and cannot be rescinded or anulled except by direct proceeding or motion filed in the particular insolvency proceeding, having for its purpose the review and setting aside of the orders of the court, or judge thereof, directing and confirming the sale made by the commissioner.

After a most painstaking and careful study of the question, we have reached the conclusion that the contract of sale made April 15, 1922, by which the commissioner of insurance and banking transferred to the Guaranty State Bank the assets of the Traders' State Bank, which was then in liquidation, must be regarded as having the force and effect of a judicial sale. This being true, the present proceeding, being in effect a collateral attack upon that sale, even though predicated upon allegations of fraud in the inception of the contract, was not properly brought. A proper discussion of this matter requires a review of the powers and authority of the banking commissioner.

By the provisions of what is known as the Bank Deposit Guaranty Law, being chapter 5 of title 14 of the Revised Statutes, and amendments thereto, the banking commissioner of Texas (formerly the commissioner of insurance and banking) is given a wide range of powers in connection with the organization, supervision, and liquidation of state banks. We think he clearly occupies under the law two distinct positions. As an administrative officer of the state he possesses numerous statutory powers pertaining to the administration, regulation, and closing of banking institutions. When, however, a bank under his control has become insolvent, and he has taken possession of its property and assets for liquidation, he occupies a somewhat different status. He then becomes what has been...