Lathrop v. Hall

• Decision Date: 04 May 1935
• Docket Number: 32276.
• Citation: 141 Kan. 909,44 P.2d 201
• Parties: LATHROP v. HALL et al. [*]
• Court: Kansas Supreme Court

44 P.2d 201

141 Kan. 909

LATHROP v. HALL et al. ^[*]

No. 32276.

Supreme Court of Kansas

May 4, 1935

Syllabus by the Court.

Allegations concerning failure of alleged banking institution, after payment of note, to return bonds pledged to secure note held not to show creation of "debt" with assent of officers of institution in failing circumstances so as to render them personally liable (Rev. St. 1923, 9--163).

Plaintiff's allegations concerning alleged banking institution's misappropriation of bonds, pledged to secure note, after payment of note with knowledge of managing agents of institution in failing circumstances held not to state cause of action showing personal liability of managing agents of institution (Rev. St. 1923, 9--163).

1. Assuming, but not so deciding, that the Guarantee Title &amp Trust Company was a banking institution within the meaning of R. S. 9--163, as alleged in the first cause of action in the petition, it is held that the transaction set up in the first cause of action concerning the failure of the trust company after the payment of a note, to return the bonds pledged to secure the note, did not constitute the creation of a debt with the assent of the defendant officers, as required by R S. 9--163, and therefore the first cause of action did not state facts sufficient to constitute a cause of action.

2. It is further held that the second cause of action does not state facts sufficient to constitute a cause of action, to render officers and managing agents of a corporation personally liable.

Appeal from District Court, Sedgwick County, Division No. 2; R. L Ne Smith, Judge.

Action by Clifford Lathrop against Standish Hall and others. From an order sustaining demurrers to the first cause of action, plaintiff appeals, and from an order overruling demurrers to the second cause of action, defendants appeal.

Judgment affirmed in part, and reversed in part, and cause remanded, with directions.

HARVEY, J., dissenting in part.

Austin M. Cowan, C. A. McCorkle, J. D. Fair, W. A. Kahrs, and R. H. Nelson, all of Wichita, for appellant.

C. H. Brooks, Willard Brooks, Howard T. Fleeson, Fred W. Aley, Carl G. Tebbe, Wayne Coulson, W. D. Jochems, and J. Wirth Sargent, all of Wichita, for appellees and cross-appellants.

HUTCHISON Justice.

The appeal in this case involves the sufficiency of the allegations of the two counts of the petition.

There are several defendants, one of whom tiled a general demurrer to the first cause of action in the petition, and all the other defendants filed an answer to the first cause of action and then filed a motion for judgment for the defendants on the pleadings. All the defendants filed general demurrers to the second cause of action in the petition. The trial court treated the motion for judgment on the pleadings as a demurrer to the first cause of action, and after argument the court sustained the demurrers to the first cause of action and overruled them as to the second cause of action. The plaintiff appeals from the ruling sustaining the demurrers to the first cause of action, and the defendants appeal from the order overruling their demurrers to the second cause and have served notice of a cross-appeal on that ruling.

The demurrers to each cause of action are on the ground that the petition does not state facts sufficient to constitute a cause of action.

The answer to the first cause of action is set out in the abstract, but there is nothing in the record to indicate that the trial court took it into consideration in sustaining that part of the defendants' motion for judgment on the pleadings, which was treated as a general demurrer.

The first cause of action in the petition in substance alleged that the plaintiff is a citizen and resident of Burns, Kan., and the defendants and each of them at the times hereinafter mentioned were duly elected, qualified, and acting directors of the Guarantee Title & Trust Company, a banking corporation duly organized and existing under and by virtue of the laws of the state of Kansas.

That on July 1, 1929, the plaintiff was the owner and holder of $11,000 of bonds, and on that date he deposited the same with the Guarantee Title & Trust Company as collateral security to the note of J. C. Powell, dated July 1, 1929, and due July 1, 1930. That thereafter, and on or about the 18th of December, 1929, without the knowledge or consent of this plaintiff, and without the consent of said Powell, the said Guarantee Title & Trust Company wrongfully sold said bonds to the International Mortgage Trust Company of Topeka, Kan. That the fair and reasonable value of said bonds at that time was the face value thereof with accrued interest. That at that time the Guarantee Title & Trust Company was insolvent and known to the defendants to be insolvent and had no authority to sell or dispose of said bonds pledged as collateral security, and that all such facts were known to the defendants or by the exercise of ordinary care should have been known to them.

That at all these times the said Guarantee Title & Trust Company was a banking institution within the purview and meaning of 9--163 and 9--164 of the Revised Statutes of Kansas 1923, and was engaged in receiving deposits subject to check and on time, and engaged in the loaning of money and doing a general banking and trust business, with its place of business in the city of Wichita, Kan. That the said Guarantee Title & Trust Company had been insolvent and in failing circumstances from a time prior to July 1, 1929, and up to August 7, 1930, on which latter date the bank commissioner of the state of Kansas took charge of the institution and closed the same, so that it ceased to do a banking and trust business and cased paying any amount on indebtedness due its creditors, and its liabilities exceeded its assets by the sum of $300,000.

That said defendants were not only duly elected, qualified, and acting directors of said banking institution during all the times heretofore mentioned, but held themselves out to the public and to the plaintiff herein as such.

That $11,000 of the principal of said note to which said bonds were collateral was paid on June 30, 1930, and by agreement with the Guarantee Title & Trust Company the said bonds were to be released and delivered to this plaintiff, and the balance of the note was paid to the institution long prior to the filing of this action.

That this plaintiff did not know of the insolvency of this banking institution at any time prior to August 6, 1930, and he pledged said bonds as collateral, and said defendants assented to the creation of the debt herein mentioned by such banking institution after having knowledge of the fact that said banking institution was insolvent and in failing circumstances. That the plaintiff thereafter made demand for the value of said bonds or their return, but such demand has been refused, and plaintiff has not sold or assigned or transferred his right to the bonds or the cause of action herein set forth, and he is still the owner of said bonds.

That said bonds were negotiable instruments payable to bearer, and the International Mortgage Trust Company paid value for them without knowledge of the rights of the plaintiff and has, prior to the institution of this suit, disposed of the same for a valuable consideration to a holder in due course, and that plaintiff is unable to recover said bonds without payment of principal or face value thereof with accrued interest.

The appellant maintains that the first cause of action sufficiently alleges and shows that the Guarantee Title & Trust Company was a banking institution within the provisions of R. S. 9--163, and that the transaction set up in the first cause of action constituted the creation of a debt within the meaning of that section. In order to consider the last proposition first, let us assume, but without so deciding, that the Guarantee Title & Trust Company was a banking institution within the provisions of R. S. 9--163, and under such premises consider whether or not the transaction set up in the first cause of action constituted the creation of a debt within the meaning of R. S. 9--163, which is as follows: "It shall be unlawful for any president, director, manager, cashier, or other officer of any banking institution, to assent to the reception of deposits or the creation of debts by such banking institution, after he shall have had knowledge of the fact that it is insolvent or in failing circumstances; and it is hereby made the duty of every such officer, agent or manager of such banking institution to examine into the affairs of the same, and, if possible, know its condition. And upon failure of any such person to discharge such duty, he shall, for the purpose of this act, be held to have had knowledge of the insolvency of such bank, or that it was in failing circumstances. Every person violating the provisions of this section shall be individually responsible for such deposits so received, and all such debts so contracted. ***" The appellant calls our attention to the fact that while the statute above quoted uses the terms "the creation of debts" and "debts so contracted," the succeeding section, having to do with proceedings under the former section, uses the phrases "debt so created" and "creation of such debt." The appellant maintains that there arose an implied contract that the Guarantee Title & Trust Company would pay this money to the plaintiff when the note to which the bonds were pledged as security was paid, which was done on June 30, 1930, and at that time there was created a debt.

Appellant cites Abernathy v. Loftus, 95 Kan. 87, 147 P. 818 where, under the old statute, section 1204, General Statutes of 1889, making trustees of corporations...