Ellerbee v. National Exchange Bank

• Decision Date: 08 February 1892
• Citation: 109 Mo. 445,19 S.W. 241
• Parties: ELLERBEE v. NATIONAL EXCHANGE BANK OF KANSAS CITY.
• Court: Missouri Supreme Court

19 S.W. 241

109 Mo. 445

ELLERBEE v. NATIONAL EXCHANGE BANK OF KANSAS CITY.

Supreme Court of Missouri, Division No. 1.

February 8, 1892.

NATIONAL BANKS — DISCOUNTS BY CASHIER — RATIFICATION — SUPERINTENDENT OF INSURANCE — ESTOPPEL.

1. The cashier of a national bank, who was also a director of an insurance company, received several notes, aggregating $25,000, from subscribers to the stock of the insurance company, entered them on the books of the company as discounted paper, and passed them at their face value to the credit of the insurance company. The note makers deposited as collateral security the stock of the insurance company thereupon issued to them. The insurance company agreed not to draw on that part of their deposit represented by the notes. The total deposit of the company, excluding the notes, then aggregated $100,000, and the cashier of the bank and the president of the company made affidavits to the superintendent that the capital stock of the company — $125,000 — was paid up, whereupon the superintendent authorized the company to begin business. Held, in a subsequent action by the superintendent, after dissolving the company as insolvent, to recover the deposit represented by the notes, that the bank, by coercing from the company payment of interest for several months on the $25,000, by threatening to dishonor its checks drawn on that sum, and by subsequently surrendering the notes and the stock to the makers, and receiving from them interest on the notes, ratified the act of the cashier in discounting the notes.

2. Since the agreement by the insurance company not to draw on the $25,000 was made before it received the certificate from the superintendent of insurance, when, by Rev. St. 1879, § 5991, it was expressly prohibited from transacting business of any kind, the agreement was not binding on the company, and the bank cannot contend that it ratified the cashier's act only on the condition of such agreement.

3. The fact that the interest was not deducted in advance, nor the money delivered, but entered as a cash credit, does not support a contention that the notes were neither discounted nor negotiated. The act of the cashier was, therefore, one that the bank could itself do or ratify, under Rev. St. U. S. § 5136, cl. 7, empowering national banks to discount and negotiate notes, etc.

4. A personal agreement by the cashier with the note makers to carry their notes for five years did not affect the relations of the bank and the insurance company, whether known to the officers of the bank or not.

5. Where a bank delivers to the superintendent of insurance a certificate that the capital stock of a certain insurance company has been fully paid up, and is on deposit, and the superintendent, relying thereon, issues his certificate authorizing the company to do business, the bank, in a subsequent action by the superintendent, after having wound up the insurance company as insolvent, to recover the balance of the deposit, is estopped to claim that only a part of the money was really deposited.

Appeal from circuit court, Jackson county; R. H. FIELD, Judge.

Action by C. P. Ellerbee, superintendent of insurance, against the National Exchange Bank of Kansas City to recover a certain deposit. Judgment for plaintiff. Defendant appeals. Affirmed.

McDougal & Sebree and Elijah Robinson, for appellant, in support of the proposition that the bank could not have authorized the original transaction, and therefore could not ratify Warden's acts, cited: Rev. St. U. S. § 5136, cl. 7; Bank v. Dearing, 91 U. S. 29; Weckler v. Bank (Md.) 14 Amer. Law Reg. (N. S.) 609; Matthews v. Skinker, 62 Mo. 329, and cases cited; Wiley v. Bank, 47 Vt. 546; Bank v. Sevier, 14 Fed. Rep. 662; Seligman v. Bank, 3 Hughes, 647, 651; Fleckner v. Bank, 8 Wheat, 350; Bank v. Johnson, 104 U. S. 271; 1 Amer. & Eng. Enc. Law, 430, and cases cited note 1; Commissioner of Tippecanoe Co. v. Lafayette, etc., R. Co., 50 Ind. 112, and cases cited; Morse, Banks, (3d Ed.) 101; Boynton v. Gas-Light Co., 124 Mass. 197; Directors v. Riche, L. R. 7 H. L. 653, 672, (1875.)

Huff & Hereford and Pratt, Ferry & Hagerman, for respondent.

BRACE, J.

The Midland Accident Insurance Company of Kansas City was incorporated under the insurance laws of Missouri on the 26th of January, 1889, with a capital stock of $125,000. At that time the defendant, duly incorporated under the laws of the United States, was doing a general banking business in the city of Kansas, Thomas T. Crittenden being its president, and James S. Warden its cashier, and both members of its board of directors. They were also stockholders and officers in the insurance company, Crittenden being a director and president, and Warden a director, thereof. Among the subscriptions to the capital stock of the insurance company were the following: Charles D. Lucas, $5,000; L. F. McCoy, $5,000; Daniel Bullard, $5,000; Thomas H. Edwards, $2,500; George E. Ford, $7,500. In order to raise the money to pay for their stock, each of these subscribers executed a negotiable promissory note for the amount by him subscribed, dated January 26, 1889, payable to himself six months after date at the Exchange National Bank of Kansas City, Mo., with interest after date at 10 per cent. annually until paid; and, having indorsed the same, these notes were afterwards taken to the bank, passed through the books of the bank as discounted paper by the officers thereof, and the amount of the face of the notes, aggregating $25,000, placed to the credit of the insurance company as cash on the books of the bank; of which credit the secretary of the insurance company being advised, paid-up capital stock of the insurance company was thereupon issued to these parties in accordance with their subscription, and the same was then deposited in the bank and attached to these notes as collateral security for their payment. The cash to the credit of the company, as shown by the books of the bank, including this $25,000, on the 16th of February, 1889, was $125,671.78. Thereupon the cashier of the bank and the president and secretary of the insurance company issued the following affidavits: "State of Missouri, Jackson county, Kansas City-ss.: James S. Warden, being duly sworn, deposes and says that be is the cashier of the National Exchange Bank at Kansas City, Missouri; and he further says that the Midland Accident Insurance Company of Kansas City, Missouri, has on deposit to its credit in the said bank the sum of one hundred and twenty-five thousand dollars (125,000.00) in actual cash, and that the said sum has been paid into said bank and deposited therein by the stockholders of the said insurance company, as the capital stock of the Midland Accident Insurance Company aforesaid. JAMES S. WARDEN. Subscribed and sworn to before me this 16th day of February, 1889. [Seal.] HENRY HOUSTON CRITTENDEN, Notary Public." "State of Missouri, Jackson county, Kansas City-ss.: Thomas T. Crittenden, president, and C. D. McCoy, secretary, being duly sworn, deposed and say that they are, respectively, the above-described officers of the Midland Accident Insurance Company of Kansas City, Missouri, and that the money amounting to the sum of one hundred and twenty-five thousand dollars, (125,000,) exhibited this day to Alfred Carr, superintendent of the insurance department of the state of Missouri, is the bona fide property of the said company, free and clear of any liens or claims thereon whatsoever. THOS. T. CRITTENDEN, President, C. D. McCOY, Secretary. Subscribed and sworn to before me this 16th day of February, 1889, [Seal.] HENRY HOUSTON CRITTENDEN, Notary Public." Upon this exhibition of the condition of the capital stock of the insurance company the superintendent of insurance issued his certificate authorizing the company to commence business under its charter. His certificate was received by the company about the 1st of March, and soon thereafter they commenced business.

It appears from the evidence that, although the bank had a discount committee, consisting of the president, cashier, and one of the directors, the matter of discounting paper and loaning money for the bank was left practically within the control of the cashier, Warden, and that he was also the largest stockholder in the insurance company, and took an active part in promoting its organization. As an inducement to the four subscribers Lucas, McCoy, Bullard, and Edwards to take stock in the company, and execute their notes as aforesaid, he entered into a like written agreement with each, one of which is as follows: "Whereas, the undersigned has this day made, executed, and delivered to James S. Warden his several obligations for the payment of money, which money had been invested in the Midland Accident Insurance Company, of Kansas City, Missouri, upon the understanding and agreement that said Midland Accident Insurance Company shall make certain investments, well understood by and between the undersigned and James S. Warden, and upon the express agreement that the amount of the obligations hereinabove mentioned are to be paid out of the earnings of the Midland Accident Insurance Company as dividend and surplus: Now, therefore, it is agreed between the undersigned and James S. Warden that said above and foregoing mentioned obligations shall be carried upon semi-annual renewals until the same shall be paid of and from the earnings upon said Midland Accident Insurance Company's stock. It is expressly understood and agreed that at the end of each six months a sum of money shall be indorsed upon the above and foregoing mentioned obligations equal to the dividend declared upon said Midland Accident Insurance Company's stock, and the surplus carried to the surplus account of said Midland Accident Insurance Company's business, to be applied, first, in the payment of the interest on said above and foregoing mentioned obligations, and thereafter upon the principal. And it is...