Gall v. Cowell., (No. 8493)

• Decision Date: 16 February 1937
• Docket Number: (No. 8493)
• Citation: 118 W.Va. 263
• Court: West Virginia Supreme Court
• Parties: 0.H. Gall, Receiver, et al. v. Wesley Alvin Cowellet al.

118 W.Va. 263

0.H. Gall, Receiver, et al.

v. Wesley Alvin Cowellet al.

(No. 8493)

Supreme Court of Appeals of West Virginia.

Submitted February 2, 1937.

Decided February 16, 1937.

1. Banks and Banking

The appointment of a receiver of a closed bank by the banking commissioner will not destroy its corporate entity, and its directors are not removed from office thereby.

2.Banks and Banking

A director of a closed bank may enter into a valid contract with its receiver for the purchase of the whole or a part of its assets. However, such director, in entering into said contract, occupies a fiduciary position in relation to the receiver, and is required to deal openly and with the utmost good faith and fairness with the receiver.

3.Banking and Banking

In the making of a contract between a director of a closed bank and its receiver for the sale and purchase of the whole or a part of the bank's assets, fraud will not be presumed, but the contract will be subjected to careful scrutiny by the court. In such case, the director is obligated to make a full disclosure of all material matters.

4.Banks and Banking

In the negotiations between a director of a closed bank and its receiver, leading toward the purchase of a claim secured by a lien against a debtor's real estate, a misrepresentation of the attitude of the owner of a prior lien as to its enforcement is a material misrepresentation, and if made with fraudulent intent, or as of the purchaser's own knowledge as to its truth, whereas, the purchaser was not fully informed as to its truth or falsity, the contract is voidable in the hands of the receiver, provided the receiver relied upon said misrepresentation in entering into the contract.

5.Banks and Banking

If a director of a closed bank in making a contract with its receiver for the sale and purchase of the whole or a part of the assets of the bank, makes a material representation with the intention that it be relied upon by the receiver, he is under a duty to disclose to the receiver his actual interest in the contract, and his failure to do so will render the contract voidable.

6.Contracts

A representation, untrue in fact, made by one party to a contract, as of his own knowledge, which induces the other party to enter into the contract, whereas, the first party was uninformed as to the truth or falsity of the representation, is fraudulent in equity, even in the absence of actual fraudulent intent.

7.Appeal and Error

The findings of fact by a trial chancellor will be set aside on appeal if clearly wrong or against the preponderance of the evidence.

Appeal from Circuit Court, Monongalia County.

Suit by C. E. Lawhead, receiver of the Bank of the Monongahela Valley, against Wesley Alvin Cowell and another. C. E. Lawhead having resigned as receiver during the course of the suit, 0. H. Gall, who was appointed in his place, was substituted as a party plaintiff, and, on demurrer to the bill of complaint, a defect of parties plaintiff having been raised, the Bank of the Monongahela Valley was made a party plaintiff by order of the court. From a decree for defendants, plaintiffs appeal.

Reversed and remanded.

George R. Farmer, for appellants.

Frank Cox and Chauncey M. Price, for appellees.

Riley, Judge:

This is a suit in equity brought by C. E. Lawhead, the then receiver of the Bank of the Monongahela Valley against Wesley Alvin Cowell and Glenn Hunter for the purpose of having set aside a contract of sale of a certain judgment in favor of the said Lawhead and against Max DeLynn and Isaac A. DeLynn, brothers, entered on September 10, 1932, in the principal amount of $25,868.53, which contract of sale was entered into on March 19, 1935, with the said Lawhead, receiver, as vendor and the defendant, Wesley Alvin Cowell, as vendee. During the course of the suit, the said C. E. Lawhead had resigned as receiver and 0. H. Gall having been appointed in his place, he was substituted as a party plaintiff for the said Lawhead. On demurrer to the bill of complaint, a defect of parties plaintiff having been raised, the Bank of the Monongahela Valley was made a party plaintiff by order of the court. From a final decree in favor of the defendants, entered on June 22, 1936, the plaintiffs appeal.

The defendant, Glenn Hunter, is a lawyer who has practiced at the bar of Monongalia County for many years. He had been the attorney and a director for Union Bank & Trust Company, which bank, on August 2, 1930, by assignment, had transferred all of its assets to the Bank of the Monongaheia Valley. At the time of this transfer, he had in his hands as such attorney for said Union Bank & Trust Company, several small items of business in the court of bankruptcy which he continued to have charge of on March 19, 1935, the date of the contract under consideration. The work of handling these items of business simply entailed Hunter's appearance on occasions at creditors' meetings in the Bankruptcy court and the payment of dividends to the receiver. On August 2, 1930, Hunter had been elected a director of the Bank of the Monongaheia Valley and continued to serve in that capacity until the failure of said Monongaheia Valley Bank on December 31, 1930, on which date the said C. E. Lawhead was appointed by the banking commissioner as the receiver of said bank. The record does not disclose the removal or resignation of the said Hunter. For the severance of his relationship as a director of the bank, he relies wholly upon its failure and the appointment of the receiver.

On March 19, 1935, the date of the contract in question, Hunter was indebted to the receiver of the Bank of Monongaheia Valley in the amount of $19,546.46, subject to certain credits in the amount of $3,918.09. In addition to these credits, Hunter claimed an additional credit for unpaid attorney's fees in the amount of about $4,000.00. Of the total indebtedness, all except $630.50, the balance of double liability on the stock owned by Hunter in the Bank of the Monongahela Valley, consisted of original indebtedness based on notes and double liability for stock owed to the Union Bank & Trust Company.

The judgment debtors, Max DeLynn and Isaac A. DeLynn, owned an undivided one-half interest in three certain parcels of real estate situated in the City of Morgantown. For purposes of convenience, these parcels of real estate will be called the Woolworth property, the Standish building and the McNeill property. Of these parcels of real estate, the Woolworth property was by far the most valuable. It is with this parcel that this case is largely concerned. One Sampson Finn was the owner of the other undivided one-half interest in said three parcels of real estate.

The building on the Woolworth property was built by F. W. Woolworth Company and leased by the DeLynns and the said Sampson Finn to said company under a fifty year lease which began April 1, 1927, and will expire March 31, 1977. This lease contains various provisions as to insurance and other matters which do not enter into this suit. The rent reserved in the lease for the first ten years was $10,000.00 per year and the lease provided for an increase in rent at the rate of $2,000.00 every ten years' period during the course of the lease. By agreement between the lessor and lessees, the rentals were reduced under the lease by a sum of $500.00 per year for the first three ten-year periods. In 1924, the DeLynns and Finn executed a deed of trust in favor of the Fidelity Trust Company of Pittsburgh on the Woolworth property to secure the sum of $50,000.00, the principal of which indebtedness as of March 19, 1935, was in the amount of $40,000.00; and in 1930, the same parties executed a deed of trust on the Standish property (improved), to secure a loan of $50,000.00, from the aforesaid company. Approximately $44,000.00 of the latter loan remains unpaid.

On November 22, 1927, by an assignment duly recorded, the DeLynns assigned all their interests in the rents under the Woolworth lease to Bankers Trust Company of Philadelphia to secure the payment of an indebtedness in the amount of $46,000.00 with the provision that upon the repayment of said sum, said rentals shall revert to the lessees. The DeLynns' share of the rentals under the Woolworth lease ranged from $5,000.00 per year up to $9,000.00 per year.

At the time of the appointment of the receiver for the bank, the DeLynns were also indebted to the bank in the amount of about $25,000.00. The foregoing; included a $15,000.00 and a $10,000.00 loan made early in 1930, a deed of trust having been given on the Woolworth property to secure the former, and on the Standish, to secure the latter. This indebtedness was reduced to a judgment in favor of the receiver in the amount of $25,868.53, by judgment order entered on September 10, 1932. This judgment was later secured by an assignment to the receiver of the Bank of the Monongaheia Valley of the Woolworth rents, dated January 31, 1933, which assignment, of course, was subject to the previous assignment made to the Bankers Trust Company.

Sampson Finn, the DeLynns' co-tenant, was financially sound and, as the record disclosed, was prompt in the payment of his obligations. However, the DeLynn brothers were unable to comply strictly with the terms of their contract to the Fidelity Trust Company, and, during the course of two years, had been delinquent in the payment of their interest. It was because of Finn's financial worth and responsibility that the Fidelity Trust Company had extended the original time of payment upon its loan on the Woolworth property from December 16, 1929, to December 16, 1934, without requiring any deductions of principal and had, at least through one of its officers, consented to the assignment to the Bankers Trust Company.

At one time, Hunter made an effort personally to purchase for himself the DeLynn judgment and later, that is, in March, 1933, as the attorney for Finn, he again tried to purchase this judgment and made an offer of...