Denny v. Fishter

• Citation: 238 Ky. 127,36 S.W.2d 864
• Parties: DENNY, Banking Com'r, v. FISHTER.
• Decision Date: 20 March 1931
• Court: Court of Appeals of Kentucky

36 S.W.2d 864

238 Ky. 127

DENNY, Banking Com'r, v. FISHTER.

Court of Appeals of Kentucky

March 20, 1931

Appeal from Circuit Court, Mason County.

Suit by the Mason County Building & Saving Association against George H. Fishter and O. S. Denny, Banking Commissioner, who filed a cross-petition against defendant Fishter. From a judgment dismissing the cross-petition, defendant Commissioner appeals.

Reversed with instructions.

Browning Reed & Zeigler, of Maysville, for appellant.

B. S Grannis, of Flemingsburg, for appellee.

DIETZMAN J.

In September, 1926, the Farmers' & Traders' Bank of Maysville held the note of Pickett and Burgess in the principal sum of about $12,000, secured by a mortgage on a piece of real estate in the city of Maysville. This note was long past due, and its makers not only were behind in their interest payments, but were also insolvent. The note was indeed a frozen asset. The bank at that time was getting in a more or less straitened condition, and in order to liquefy this frozen asset, its vice president, H. W. Cole, devised the following scheme: The bank procured the appellee, George H. Fishter, to take a conveyance of the mortgaged property from Pickett and Burgess, the bank canceling its mortgage note. Fishter then placed a first mortgage upon the property with the Mason County Building & Saving Association in the principal sum of $7,500. The proceeds of this mortgage were paid over to the bank. Fishter then executed a second mortgage to the bank in the principal sum of $5,250, payable by four serial notes of $1,000 each, and one note for $1,250, due in 1, 2, 3, 4, and 5 years, respectively, from their date. At the same time the bank and Fishter executed this contract in duplicate:

"This contract made and entered into this 27th day of September, 1926, by and between Geo. H. Fishter, party of the first part, and the Farmers & Traders Bank of Maysville, Ky. party of the second part.

Witnesseth: That whereas said Geo. H. Fishter and Katherine G. Fishter, his wife, have this day conveyed to said Farmers & Traders Bank of Maysville, Ky. certain property in the City of Maysville, Ky. situated on the south side of Second St. and formerly owned by C. S. Burgess and B. O. Pickett, and whereas said Geo. Fishter is indebted to the Mason County Building Association under a mortgage on said property for $7,500.00 and is indebted to the Farmers & Traders Bank of Maysville, Kentucky, under a mortgage for ______.

Now it is agreed between the parties as a consideration for said deed that should said Farmers & Traders Bank desire to record said deed above referred to it will cancel said mortgage indebtedness owing to it and assume the payment of any balance on said mortgage owing to the Mason County Bldg. Assn. above described.

It is further agreed between the parties. and said Farmers & Traders Bank hereby agrees, that should said Fishter at any time so demand it will upon sixty days notice cancel said mortgages as above referred to provided said Fishter has not in the meantime incurred any other obligation against said property.

In testimony whereof, witness the signatures of the parties of the first and second part in duplicate the day and year first above written.

Geo. Fishter

Farmers & Traders Bank of Maysville, Ky.

By H. W. Cole, V. Pres."

Fishter claims that at the time this contract was executed the deed referred to therein was made by him and given to the bank. The banking commissioner, however, has never been able to find it among the records of the bank or elsewhere. The record shows beyond a peradventure of a doubt that Fishter entered into this transaction as a pure accommodation to the bank and in a friendly effort to help it and with no positive idea of committing any fraud upon any one. After the property had been deeded to Fishter, he collected all the rents arising from it and turned them over to the bank, which put them in a separate account and used them for the purpose of paying the weekly dues owing the building and saving association on the first mortgage. In February, 1927, and before the first note of this second mortgage became due and while all these second mortgage notes were still in the ownership and possession of the bank, the state banking commissioner took charge of the bank as an insolvent institution. In September, 1927, the building and saving association brought suit to foreclose its mortgage and it made the banking commissioner a party defendant. He filed his cross-petition against the appellee seeking a foreclosure of the second mortgage the bank held on the property. Later the property was sold, for the sum of $10,000, under the judgment in favor of the building and saving association, which provided that any excess proceeds should be held until the issues between the banking commissioner and Fishter had been adjudged. This sale price, together with interest that accrued upon it, amounted at the time of distribution to $10,700, and, after paying the building and saving association, and the court costs, there was left $2,774.90, which was paid over to the banking commissioner on the second mortgage. There was left then, in the case, only the liability of Fishter for the difference between the principal sum of the second mortgage and interest and the amount which the banking commissioner had received in the distribution of the sale price of the property. Fishter defended the action on the ground that he had executed these notes representing the second mortgage purely as an accommodation to the bank and without consideration, and that he was simply acting as agent for the bank or as its trustee, and that in no event was he personally liable on these second mortgage notes. By reply the bank traversed the affirmative matters of the allegation in the answer and also pleaded that Fishter, having executed these second mortgage notes which were placed among the assets of the bank as he knew would be the case, and which were regarded by the bank examiners as part of the assets of the bank prior to its being taken over for liquidation by the state banking commissioner, was estopped to deny liability on these notes; deposits having been made in the bank after their execution and their proceeds being necessary to help discharge the liabilities of the bank. Some amended pleadings were filed which added nothing to these issues in the case. On final hearing, the court dismissed the cross-petition of the banking commissioner against Fishter, and from that judgment this appeal is prosecuted.

We need not discuss the question ably argued by appellee's counsel that if the bank, had it been the plaintiff in this suit against Fishter, could not have recovered, then neither can the banking commissioner, because he has no further or wider powers or rights than the bank would have had, since he is in truth but a receiver and represents only the bank, because the premise upon which this argument is rested has been heretofore disallowed by this court in the case of American Southern National Bank v. Smith, Banking Commissioner, 170 Ky. 512, 186 S.W. 482, 483, Ann. Cas. 1918B, 959. In that case, the George Alexander & Co. State Bank in Paris, Ky. had borrowed from the American Southern National Bank in Louisville a sum greater than its charter permitted. It had deposited with the Louisville bank collateral for the loan, and the Louisville bank, after the insolvency of the Paris bank, had sold that collateral and paid off the loan. The banking commissioner, who had charge of the Paris bank, brought suit to recover the proceeds of the sale of the collateral in excess of the sum which the charter of the Paris bank authorized it to borrow. We now quote from the opinion:

"It is first insisted that the right to bring this character of action, if one exists at all, is not vested in the banking commissioner; but the relief sought, if available at all, can be prosecuted only by a creditor, or creditors. In other words, that the act of 1912 and the general law of the land, as is announced by the courts and text-writers, do not vest the commissioner with any greater powers or rights than were possessed by the insolvent bank, whose business he is engaged in winding up, and that the bank, as such, would not have had the right to maintain this action without at least tendering back to the defendant the consideration which it received for the two notes. It seems to be conceded that the execution of the two notes by the Alexander Bank was ultra vires, at least as to the excess of $10,000. The decisions of the courts in regard to the powers and rights of a receiver, or an assignee for the benefit of creditors, are not, by any means, binding precedents in the determination of the question which we have before us. The banking commissioner is not a receiver appointed by the court, nor is he an assignee for the benefit of creditors in the ordinary acceptation of that term. In the one

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