In re Farmers & Merchants Bank of Linn

• Decision Date: 04 October 1938
• Docket Number: No. 24630.,24630.
• Court: Missouri Court of Appeals
• Parties: In re FARMERS & MERCHANTS BANK OF LINN. LIESEMEYER v. MOBERLY, Finance Com'r, et al.

119 S.W.2d 1012

In re FARMERS & MERCHANTS BANK OF LINN.

LIESEMEYER v. MOBERLY, Finance Com'r, et al.

No. 24630.

St. Louis Court of Appeals. Missouri.

October 4, 1938.

Appeal from Circuit Court, Warren County; William C. Hughes, Judge.

"Not to be published in State Reports."

Action by H. L. Liesemeyer against O. H. Moberly, Finance Commissioner, and Leslie B. Hutchison, Special Deputy Finance Commissioner in charge of the liquidation of the Farmers & Merchants Bank of Linn to have a claim allowed as a preferred claim against the bank. Judgment denying the preference, and claimant appeals.

Affirmed.

E. M. Zevely and Marion R. Garstang, both of Linn, for appellant.

Leslie B. Hutchison, of Vienna, for respondents.

McCULLEN, Judge.

This action was brought by appellant to have his claim in the sum of $6000 allowed as a preferred claim against respondent Farmers & Merchants Bank of Linn, Missouri. It was originally filed in the Circuit Court of Osage County, Missouri, but was duly taken by change of venue to Warren County, where it was tried before the court, resulting in a judgment in favor of respondents denying the preference sought. Appellant has brought the case to this court by appeal.

It appears that, on March 5, 1936, the respondent bank was taken in charge by the Finance Commissioner of Missouri because of insolvency, and Leslie B. Hutchison, Special Deputy Finance Commissioner, was placed in charge thereof for purposes of liquidation.

In due time, appellant filed his claim petitioning for a preference for said claim on the ground that twelve of its capital notes of $500 each, totaling $6000, had been sold to him by the bank by means of false and fraudulent representations, and alleging that the bank thereby became a trustee ex maleficio of $6000 in money paid to it by appellant for said notes.

Respondent bank is a Missouri corporation duly licensed to do a general banking business. Its banking house is located at Linn, Missouri, in Osage County. Prior to May, 1934, its capital stock consisted of two hundred shares of common stock of a par value of $100 per share.

It appears from the evidence that, in May, 1934, respondent bank was in financial difficulties; that, in December, 1933, an examination had been made of the bank; and that $28,000 worth of assets were charged off, after which the bank was required to raise $21,000 to replace its impaired capital. $15,000 of said amount was raised by the bank issuing Class A Capital Notes, which were sold to the Reconstruction Finance Corporation, and by issuing $6,000 of Class B Capital Notes, which were sold to plaintiff. It further appears that, upon the bank's promise to raise such capital, it was permitted to operate from January to July, 1934, during which period it was covered by temporary insurance of deposits up to $2500 in the Federal Deposit Insurance Corporation; and that, after July, 1934, it had permanent insurance of deposits up to $5000.

The evidence discloses that the bank was organized in 1913 by August Gove, who was cashier of the bank continuously from that time on until his death in 1935. Mr. Gove was the manager of the bank, and attended to all the details of its business. Mr. J. W. Vogel was the assistant cashier of the bank in May, 1934, at the time of the transactions involved herein, and had been assistant cashier for about ten years prior to that time. Both Gove and Vogel were members of the bank's board of directors.

The evidence shows that, in May, 1934, at the time of the transactions in question, appellant was a farmer, sixty-one years of age; that he was an uneducated man, who could read and write only with difficulty; that he had gone to Mr. Gove, cashier of the bank, for financial advice from time to time, having been a customer of the bank from the time it was organized; that Mr. Gove had often advised him on financial questions, and assisted him in making loans of his money; that he depended on the advice of Mr. Gove in financial matters and followed it whenever it was given; that, at the time of his purchase of the Class B Capital Notes involved herein, appellant had about $3000.00 in time certificates of the bank about to fall due, on which the bank was paying 2½% interest, and that he was not satisfied with that rate of interest; that, on the date of the transaction, appellant went to the bank where he saw Mr. Gove, the cashier, and Mr. Vogel, the assistant cashier, and a Federal bank examiner whose name was not remembered; that appellant brought up the question of investments and complained about the low rate of interest paid on time certificates; that Mr. Gove, the cashier, then told appellant, in the presence of Mr. Vogel, that he, Gove, could sell him Class B Capital Notes of the bank and that appellant would get 5% interest, payable semiannually thereon, and that they would run for twenty years.

During the direct examination of appellant as a witness at the trial, he was asked to relate the conversation that occurred in the bank between him and Mr. Gove, the bank's cashier, when Mr. Vogel, the assistant cashier, was present at the time appellant bought the Class B Capital Notes. Objection was made on behalf of respondents on the ground that Mr. Gove, the cashier, was dead, and that appellant, as the other party, was incompetent to testify. After some discussion between the trial judge and counsel for the parties, the objection was overruled, the judge saying he would decide on the final determination of the case whether or not he would consider appellant's testimony. Whereupon appellant testified as follows:

"Q. You may detail, Mr. Liesemeyer, just what occurred in the bank at the time you went in and bought these notes, everything that was said and done. A. Well, I told Mr. Gove I had three thousand dollars due there, and I told Mr. Gove I had too much money in there for the little amount of interest I was a getting, and that there was lots of people would like to borrow money, and I could get six per cent, that they was just a begging for it, and he says, `Well,' he says, `I can just sell you our Capital B Notes, and you will get five per cent and the interest is paid every six months.' And I says, `Are they good?' And he says, `Sure, they are good.' So I says, `Are you for sure?' And he says, `Yes,' and he says, `Furthermore, you are insured five thousand, your stuff is insured for five thousand.' Now, I am just telling what he told me."

Appellant further testified that it was explained to him at that time that the government was buying $15,000 of the Class A Capital Notes; and that the Class B Capital Notes would be secondary to the Class A Capital Notes.

Jess W. Vogel, assistant cashier of the bank, testified as a witness for appellant that Gove, who was the cashier and active business manager of the bank, had died January 25, 1935; that, in 1933, all banks were getting in shape to have their deposits guaranteed; that the transactions between appellant and the bank occurred in May, 1934; that the banks had about three months from September, 1933, until the end of that year to get in condition to guarantee their deposits; and that examiners were sent out to all the banks, including respondent bank, to make examinations; that an examination was made of the affairs of respondent bank by the Federal examiners; that, upon the bank's promise to sell $15,000 of Class A Capital Notes and $6,000 of Class B Capital Notes, a certificate was sent the bank guaranteeing the deposits from the 1st of January on; that, in May, 1934, while respondent bank was undergoing the examination, appellant came into the bank; that Mr. Gove explained to appellant that the Class B Capital Notes were transferable, and that there would possibly be a demand for them and that he could sell them to other parties later; that appellant made an inquiry as to whether or not the notes were safe. The witness was asked:

"Q. Well, did you hear Mr. Liesemeyer ask Mr. Gove if those notes were safe?"

Here an objection was made which was sustained by the court, after which the following occurred:

"By Mr. Garstang: Q. Did that come up in the conversation, Mr. Vogel? A. Well, yes. Yes, there was an inquiry, Mr. Liesemeyer inquired if the notes were safe, and he guaranteed, he assured him they were safe, and that he thought after awhile there would be a demand for them and others would want to buy them, and he could sell part of them if he needed the funds.

"Q. That is, Mr. Gove assured Mr. Liesemeyer to that effect? A. Yes, sir."

Appellant's testimony further shows that appellant did not know anything about the financial structure or standing of the bank except what the cashier, Mr. Gove, told him; that he did not know anything about the Class B Capital Notes except what he was told by Mr. Gove; that he made no inquiry elsewhere, but depended upon Mr. Gove's advice to him that the notes were safe and a good investment; that he did not read the notes; that immediately after receiving the notes from the bank, he placed them in his safe deposit box at the bank and did not make any further investigation concerning them until after the bank had closed; that, after the bank closed on March 6, 1936, he got the notes out of his box and showed them to Mr. Hutchison, the special deputy Finance Commissioner in charge of the bank, and was told that the notes were worthless; that, in making his investments in the notes, he relied entirely upon the advice of Mr. Gove, the cashier. Asked if he believed what Mr. Gove told him, the witness answered: "Sure, else I wouldn't have taken them."

It is admitted that appellant paid $6,000 for the Class B Capital Notes in question; that the respondent bank got said amount from appellant; and that, upon the closing of the bank, assets belonging to the bank in excess of $6,000 passed into the hands of the Finance Commissioner for...