Commercial Bank & Trust Co. v. Citizens' Trust & Guaranty Co. of West Virginia

• Decision Date: 06 May 1913
• Citation: 153 Ky. 566,156 S.W. 160
• Parties: COMMERCIAL BANK & TRUST CO. et al. v. CITIZENS' TRUST & GUARANTY CO. OF WEST VIRGINIA.
• Court: Kentucky Court of Appeals

156 S.W. 160

153 Ky. 566

COMMERCIAL BANK & TRUST CO. et al. v. CITIZENS' TRUST & GUARANTY CO. OF WEST VIRGINIA.

Court of Appeals of Kentucky.

May 6, 1913

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

Suit by the Citizens' Trust & Guaranty Company of West Virginia against the Commercial Bank & Trust Company and others. From a judgment for plaintiff, defendants appeal. Reversed and remanded for further proceedings.

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

Wehle &amp Wehle and Helm & Helm, all of Louisville, for appellee.

LASSING J.

The Commercial Bank & Trust Company, a corporation, was organized under the laws of this state and empowered to do a general banking and trust business in Louisville, Ky. Lloyd W. Gates is, and was in January, 1912, the treasurer of Jefferson county. As such he was required to give bond for the faithful performance of his duties. This he did, with the Citizens' Trust & Guaranty Company, a West Virginia corporation, as surety. The Commercial Bank & Trust Company desiring to secure, at least, a part of the deposits of the county treasurer, entered into an agreement with him, whereby it obligated itself to furnish said treasurer security in the sum of $100,000 to secure the safety of any and all deposits which he might, as treasurer, make in said bank. The Citizens' Trust & Guaranty Company likewise became the surety for said bank on said bond to the treasurer, but, before doing so, exacted of said bank a pledge of its liquid assets in the sum of $100,000 to secure it against loss. The bond of the bank to Gates, treasurer, was duly executed with the West Virginia corporation as surety, and the bank pledged with said surety certificates of deposit and short-term negotiable notes to the amount of $100,000. Under the arrangement between the bank and its surety, as these notes matured and were paid off or renewed, other paper of like value was substituted for that so paid or renewed. In this way the business continued from the time the arrangement was entered into up until January 13, 1913, when the bank was closed on the order, or on the suggestion, of the banking commissioner. At that time the value of the commercial paper claimed by the Citizens' Trust & Guaranty Company as security for its liability on the treasurer's bond amounted to something like $70,000. All of this paper was held by the Louisville National Banking Company under an arrangement entered into between the Commercial Bank & Trust Company and the Citizens' Trust & Guaranty Company. As a question was raised as to who was entitled to the possession thereof, the Louisville National Banking Company would not permit either to have it. Thereupon the Citizens' Trust & Guaranty Company filed suit against the Louisville National Banking Company, the Commercial Bank & Trust Company, and Thomas J. Smith, banking commissioner, in charge of said Commercial Bank & Trust Company, in which it sought to have the said negotiable paper so held by the Louisville National Banking Company adjudged to it, and prayed for a mandatory order directing said Louisville National Banking Company to surrender up and turn over to it all of said paper; it being alleged that it was liable on this bond of the bank to Gates, the treasurer, in a sum in excess of the value of the paper so deposited with the Louisville National Banking Company. The Louisville National Banking Company answered, setting out fully the circumstances under which the said paper was placed in its possession; alleged that it had no interest therein further than a reasonable charge for its services in taking care of it; asked that the West Virginia corporation and the Commercial Bank & Trust Company, in the hands of the banking commissioner, be required to litigate the matter of ownership; and stated that it was ready and willing to deliver said notes to whomsoever the court should direct. The banking commissioner, Thomas J. Smith, answered for the defendant the Commercial Bank & Trust Company, and, in addition to traversing the allegations of the petition, pleaded that the paper held by the Louisville National Banking Company was the property and part of the assets of the Commercial Bank & Trust Company; that, by virtue of his office, he was entitled to its possession; that the alleged agreement by which it was turned over to and held by the Louisville National Banking Company as bailee, or custodian, was made by the parties in contemplation of the insolvency of the Commercial Bank & Trust Company, and with the view of preferring the West Virginia corporation over, and to the exclusion of, the other creditors of the Commercial Bank & Trust Company; and that, by reason of such fact, the attempted transfer was illegal, null, void, and of no effect. Other defenses were interposed, but for the purposes of this case they need not be considered. The affirmative matter in the answer of the banking commissioner was traversed. Upon the issue thus made the case was submitted to the chancellor for judgment upon the motion of the plaintiff for a temporary mandatory injunction, and of the defendant the banking commissioner for a temporary injunction on his answer, which was made a cross-petition against his codefendant the Louisville National Banking Company.

Upon consideration the chancellor was of opinion that plaintiff was entitled to the relief sought, and so adjudged. The motion of the banking commissioner was denied. Thereupon the parties entered into the following agreement: "It is hereby agreed between plaintiff, Citizens' Trust & Guaranty Company of West Virginia, and the defendants Commercial Bank & Trust Company and Thomas J. Smith, banking commissioner, and the Louisville National Banking Company, that on all issues raised between the plaintiff and these defendants the proof in the form of affidavits and exhibits and the pleadings of all parties filed herein, so far as uncontradicted, and the testimony heard by the court, and the cross-examination of affiants shall be treated and considered to be the formal and final testimony offered by said parties as between themselves, and to have the same force and effect as though such testimony was taken by deposition on notice and regularly filed herein; and these parties waive the setting of the case at rules and hereby agree to submit forthwith for final judgment, reserving and excepting for further consideration of the court any issues that are or may be raised as between the other parties hereto and the Louisville National Banking Company concerning the allowance, charges, fees, and expenses claimed by the Louisville National Banking Company."

The court, having considered the case, entered the following judgment:

"(1) The cross-petition of the defendants Commercial Bank & Trust Company and Thomas J. Smith, banking commissioner, praying for an injunction, herein be and it is dismissed, to which said defendants except.

"(2) The prayer of the petition of the plaintiff, Citizens' Trust & Guaranty Company of West Virginia, for injunction herein, is granted, and it is now considered ordered and adjudged that the Louisville National Banking Company be and is hereby enjoined from withholding the possession from the plaintiff, and is ordered to restore and give possession to the plaintiff herein of all the notes and proceeds of notes described in Exhibit B filed with the petition, with the exception of $200 which is reserved for the costs and expenses, if any, of the defendant Louisville National Banking Company, and it is further adjudged that the plaintiff has the right of possession of said notes and proceeds thereof, except as mentioned above, and the defendants, and each of them, and all persons claiming by or under either of them, are enjoined and restrained from interfering with the plaintiff in the exercise of its rights and powers as pledgee to collect the said notes and to hold and use their proceeds for its indemnity, security, and protection, as surety of the defendant Commercial Bank & Trust Company upon its bond to L. W. Gates, treasurer of Jefferson county, Ky. and, so soon as the sum realized from said collateral shall have amounted to sufficient to reimburse the said Citizens' Trust & Guaranty Company of West Virginia for any loss or expense it may have incurred or been called upon to meet, the balance of said collateral or the balance of the sum realized therefrom shall be paid to the said Commercial Bank & Trust Company or its representatives. Provided, however, that this order shall not be operative until March 24, 1913, the intervening period being allowed to the defendants, and each of them, for the purpose of an appeal from this order, if so desired, and it is ordered that the status existing before the rendition of this judgment shall be maintained during said period unless the question is sooner decided by the Court of Appeals. Jurisdiction of this action is retained for the purpose of considering the claim of the Louisville National Banking Company for expenses and commissions and such other issues as may be presented to the court."

Later said judgment was modified as follows: "Came the parties by counsel, and, the court being advised, it is ordered that so much of the judgment rendered herein on March 3, 1913 granting an injunction to plaintiff as provides that said judgment shall not be operative until March 23, 1913, be and it is hereby set aside. The defendants Commercial Bank & Trust Company and Thomas J. Smith, state banking commissioner, pray an appeal from said judgment of March 3, 1913, as modified by this order, which is granted. It is further ordered that the injunction granted to plaintiff herein be suspended until March 24,...