Leach v. Beazley
| Decision Date | 16 February 1926 |
| Docket Number | 37218 |
| Citation | 207 N.W. 374,201 Iowa 337 |
| Parties | ROBERT L. LEACH, Superintendent of Banking, Appellant, v. J. M. BEAZLEY et al., Appellees |
| Court | Iowa Supreme Court |
Appeal from Cherokee District Court.--C. C. BRADLEY, Judge.
ACTION by plaintiff Leach, receiver, against the defendants, to recover certain security and notes held by the defendants claimed to have been unlawfully removed from the assets of the Farmers State Bank of Washta, Iowa, for which plaintiff as superintendent of banking, is the duly appointed receiver. The district court refused the relief prayed, and plaintiff appeals.--Affirmed in part; reversed in part.
Reversed in part; affirmed in part.
Ben J Gibson, Attorney-general, and W. P. McCulla, for appellant.
Kass Brothers, T. E. Diamond, and J. A. Miller, for appellees.
ALBERT, J. DE GRAFF, C. J., and EVANS and MORLING, JJ., concur.
I.
It appears from the record that the Farmers State Bank of Washta, Iowa, was duly and legally incorporated as a state bank under the laws of the state of Iowa, and conducted a general banking business for a number of years prior to May 5, 1924. At all times involved herein, the appellee J. M. Beazley was president of said bank, and M. L. Beazley was cashier. J. A. Miller was a director. An application for appointment of a receiver was made, prior to the 28th of April, 1924, and the bank had closed its doors several days before the application was made. The receiver was appointed on the 5th of May, 1924.
It appears that, in the first part of March, 1924, J. M. Beazley was the holder of a certificate of deposit for $ 7,000 in the aforesaid bank, on which there was $ 494.85 interest due; that on that date he turned in the said certificate of deposit to the bank, and received from the said bank its equivalent in promissory notes then held by the bank. These notes were indorsed to him without recourse, and the certificate of deposit was duly canceled by the bank. On the 18th of March, he received from the bank a note for $ 1,333.33, made by one C. J. Beazley, for which he gave to the bank his check on his open account for the amount due thereon. On the 25th of March, he received from the bank 15 promissory notes made by various parties to the bank, for which he gave to the bank his check on his open account. On the 18th day of April, he received from the bank 8 promissory notes, formerly payable to the bank, for which he gave the bank his check on his checking account for the sum of $ 1,105.20. The 35 notes received by Beazley from the bank amounted to approximately $ 13,300. After these transactions, Beazley's deposit account had left in it $ 48, and he still had a certificate of deposit against said bank for $ 3,000 and interest.
This bank had been in financial distress for some months previous to the time in controversy. In February, 1924, on the demand of the state superintendent of banking, a list of notes held by the bank, amounting to something over $ 44,000, was pointed out as of doubtful worth, and the officers and directors of the bank guaranteed the notes thus pointed out by the banking department. From that time on, the bank seems to have been in distress. Later, the board of directors authorized its officers to borrow $ 50,000; but, in spite of this, the reserve of the bank steadily decreased, so that in April, after several meetings of the directors and stockholders, it was realized that the enterprise could not be continued. A petition was then filed, and a receiver appointed to take charge of the affairs of the bank.
It is the claim of the receiver that J. M. Beazley, being, at all times in controversy herein, the president of the said bank, had no authority to secure the benefit of his own deposits by thus removing what was apparently good commercial paper, and thereby withdraw his deposits from the bank, while it was insolvent, to the prejudice of all other depositors therein. The claim of defendant J. M. Beazley is that he bought this paper from the bank in the regular and due course of business, and that it was all done in good faith on his part. His explanation is that his deposits were drawing only 4 per cent, and he wanted a larger rate of interest, which could be secured by taking the commercial paper from the bank; that it drew 8 per cent interest. He denies any knowledge of the insolvency or failing condition of the bank. Without now stopping to set out the testimony, we are not disposed to take this explanation on the part of Beazley as to why this commercial paper was taken. We are quite satisfied, after reviewing all of the evidence, that he knew the bank was insolvent at the time he took the paper; or, if this be not so, he was an officer of the bank, and in law was bound to know its condition.
It is also the claim of Beazley that the bank was not insolvent at the time of these transactions. We have carefully gone over the bank's statements and the list of notes which are set out in the record other and different from those taken by Beazley, and also other and different from those which constitute the $ 44,000 which the directors and officers of the bank had guaranteed in February, and are satisfied beyond doubt that approximately $ 80,000 of this paper was absolutely worthless. Counsel argue that it was slow paper, which would be realized on in time. The evidence abundantly shows, however, that as to a large part of it the makers thereof had either gone through bankruptcy or were at the time insolvent. Some of it represented indebtedness to the bank of five years' standing, and all of it had been in the bank more than three months prior to the appointment of the receiver. If this amount is deducted from the assets of the bank, the inevitable conclusion is that during all this time this bank was actually insolvent.
To set out the details of this matter would make this opinion too long. We have this situation: J. M. Beazley was president of this bank, and took from its assets good commercial paper to the amount of about $ 13,300, and attempted to pay for the same by turning in the aforesaid $ 7,000 certificate of deposit and checks for the balance on his open account in the bank. The bank was insolvent at this time, and we are abundantly satisfied from the evidence that he actually knew of its insolvency at the time of his transactions. The question is whether or not, under these circumstances, he is entitled to hold the commercial paper thus acquired by him, and thereby, in effect, secure a preference against all other depositors for the amount he had on deposit in the bank. His contention is that, even though the institution was insolvent, and though he knew it was insolvent, yet, since he was one of the creditors of the bank, it was simply a question of the diligent creditor, and therefore he cannot be deprived of the benefit of his diligence. He bottoms his contention on the following Iowa cases, where such a rule is pronounced: Buell v. Buckingham & Co., 16 Iowa 284; Garrett v. Burlington Plow Co., 70 Iowa 697, 29 N.W. 395; Warfield, Howell & Co. v. Marshall County Canning Co., 72 Iowa 666, 34 N.W. 467; Rollins v. Shaver Wagon & Carriage Co., 80 Iowa 380, 45 N.W. 1037; In re Assignment of Bloomfield Woolen Mills, 101 Iowa 181, 70 N.W. 115; Manton v. Seiberling & Co., 107 Iowa 534, 78 N.W. 194.
It is claimed by counsel that the above rule is, in effect, overruled by our case of Dawson v. National Life Ins. Co., 176 Iowa 362, 157 N.W. 929; but we do not feel called upon at this point to pass upon that question, because we do not think the same has any application to the facts in this case. It will be found by a reading of the above cases that each one deals with private corporations, and not with banking corporations. Too, each of those cases deals with a transaction wherein there was a good-faith loaning to the company of funds which were then or subsequently secured by mortgage or otherwise. In other words, each case deals with a good-faith loan to a private corporation, and it is held that, even though the corporation may be insolvent, a good-faith loan of that kind may be secured to the creditor although that creditor is an officer or director of the corporation, and the corporation was insolvent, and known to be so by the officer when he took the security. In the instant case, we have an entirely different situation. J. M. Beazley was an officer of and a depositor in this bank. It therefore becomes necessary to determine what his relation to the bank was, by reason of his deposits. It is true that, in some of the earlier cases in this state, we referred to a deposit made in the bank as a loan; but in later cases we receded from this doctrine, and held that money thus deposited in the bank was not a loan, but simply created the relation of debtor and creditor between the bank and the depositor. Such rule is announced in Officer v. Officer, 120 Iowa 389, 94 N.W. 947; Hunt v. Hopley, 120 Iowa 695, 95 N.W. 205; and State ex rel. Carroll v. Corning St. Sav. Bank, 136 Iowa 79, 113 N.W. 500. In Hunt v. Hopley, supra, referring to a deposit, we said:
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