People's Bank of Butler v. Allen

• Decision Date: 08 March 1939
• Docket Number: 36372
• Parties: People's Bank of Butler, a Corporation, by O. H. Moberly, Commissioner of Finance of the State, in charge thereof, v. C. A. Allen
• Court: Missouri Supreme Court

125 S.W.2d 829

344 Mo. 207

People's Bank of Butler, a Corporation, by O. H. Moberly, Commissioner of Finance of the State, in charge thereof, v. C. A. Allen

No. 36372

Supreme Court of Missouri

March 8, 1939

Appeal from Vernon Circuit Court; Hon. Thos. W. Martin Judge.

Affirmed.

John A. Silvers, J. R. Nicholson, Leslie M. Crouch and L M. Crouch, Jr., for appellant.

(1) This being a replevin suit, if the defendant, as trustee, is entitled to possession of the assets, plaintiff's case must fail. Berry v. Adams, 71 S.W.2d 126; Ball v. Davis, 107 S.W.2d 87; Hoshaw v. Fenton, 110 S.W.2d 1140. (2) The defendant, as trustee, is legally in possession of the assets: because he holds the same as trustee for the obligee of the bond. (a) The policy of Missouri, as gathered from the Constitution, decisions and statutes, requires security for public funds and the bank had the right to pledge its assets to secure such public funds and the county court and city could take these pledges in addition to any statutory requirement for bond. Secs. 6794, 12187, R. S. 1929; Sec. 15, Art. X, Mo. Const.; 7 Am. Jur., Banks, sec. 175; Melaven v. Hunker, 35 N. M. 408, 299 P. 1075; Schornick v. Butler, 185 N.E. 11; Bliss v. Mason, 121 Neb. 484, 237 N.W. 581; Snyder v. Fulton, 44 Ohio App. 238, 184 N.E. 839; Cameron v. Christy, 286 Pa. 405, 133 A. 551; Consol. School Dist. No. 4, v. Citizens Savs. Bank of Cabool, 21 S.W.2d 781; Huntsville Trust Co. v. Noel, 12 S.W.2d 751; French, Commr. of Finance, v. School Dist. No. 20, 7 S.W.2d 415; 18 C. J. 585, sec. 54; Marion County v. First Savs. Bank of Palmyra, 80 S.W.2d 861. (b) The assets conveyed to defendant (and his predecessor trustee) under the law were held by the trustee in trust for the obligees of the bonds. 21 R. C. L., sec. 132, p. 1094; Mothersead v. U.S. Fid. & Guar. Co., 22 F.2d 644. (c) Even if the defendant does not hold the assets in trust for the obligees of the bond, the board has a right to place the assets in the hands of the defendant. The bank had a right to pledge its assets for the purposes of borrowing money, and the signers of the bond were in truth and fact lending their credit to the bank and could be, where the corporation was benefited and entire good faith shown, secured. 13 Am. Jur., Corps., secs. 1042, 1043, pp. 986, 987, 988; Foster v. Belcher's Sugar Ref. Co., 118 Mo. 238; St. Louis v. Alexander, 23 Mo. 483; Con. School Dist. No. 4 v. Citizens Savs. Bank, 21 S.W.2d 781. (d) The weight of authority is that where the assets may be pledged directly to the obligee that said assets may be pledged as security for the surety. Fulton v. Lloyds Cas. Co., 75 F.2d 295; Natl. Surety Co. v. Franklin Trust Co., 313 Pa. 501, 170 A. 683, 95 A. L. R. 300. (3) Even if the bank had no authority to place the assets in the hands of the defendant, as trustee, since the bank received all benefit from the transaction, it cannot recover possession without repaying the benefits obtained. Brice, ultra vires, 729; State ex rel. Am. Surety Co. v. Haid, 30 S.W.2d 100; Farmers & Traders Bank v. Harrison, 12 S.W.2d 755; State Bank of Commerce v. Stone, 261 N.Y. 175, 184 N.E. 750, 87 A. L. R. 1449.

H. E. Sheppard for respondent.

(1) The board of directors could not deal with themselves and for the bank at the same time. Frankford Exchange Bank v. McCune, 72 S.W.2d 155; Cantley v. Beard, 98 S.W.2d 735; Robertson v. Vandalia Trust Co., 66 S.W.2d 198; Hill v. Rich Hill Coal Mining Co., 119 Mo. 9; Ward v. Davidson, 89 Mo. 458; Proctor v. Farrar, 213 S.W. 475; Bent v. Priest, 86 Mo. 475; Enright v. Heckscher, 240 F. 863; In re Webster Loose Leaf Filing Co., 240 F. 779. (2) The assignment of the assets was void ab initio and the trustee for the directors acquired neither the title to nor the right of possession of the same. Frankford Exchange Bank v. McCune, 72 S.W.2d 155; Cantley v. Beard, 98 S.W.2d 735.

OPINION

Hays, P. J.

This is an action in replevin brought by the Commissioner of Finance (O. H. Moberly) of the State of Missouri, and presently maintained by his substituted successor in office (R. W. Holt), in charge of the People's Bank of Butler, in process of liquidation, for the recovery of certain assets of the bank which are described in the petition. It is admitted that the described assets are now held by the appellant in the capacity of successor trustee in place of one Alva Deerwater (now deceased) under the hypothecation of said assets as made by the Board of Directors of said bank to secure themselves from liability resulting to them as sureties of the bank on its bonds given the county of Bates and the city of Butler, respectively, both of which had selected the bank as depository for aliquot parts of the public funds of the county and city respectively. Each bond was in the sum of $ 24,000. The bond given by the People's Bank was executed by that institution as principal, and each and every one of its directors as sureties, in manner and pursuant to authorization as follows:

The bank directors in meeting assembled, in passing the resolution authorizing the bank's bond made an order that the president and the cashier "assign, set apart and maintain as security to the sureties on the bond (all members of the board) bills receivable belonging to said bank in a sum not less than $ 40,000 nor more than double the amount of the penalty of said bond, for the purpose of securing said bondsmen against loss by reason of their obligation on said bond; said president and cashier are further authorized and empowered, from time to time, to take up any of the bills receivable so put up as security and to substitute other bills receivable in place of any so taken up; all security so put up to be returned to the bank when said bondsmen are released from liability on said bond. Alva Deerwater is named as trustee to receive and hold said collateral security for the benefit of the sureties on said bond."

In the order of the county court designating the bank as depository it was further provided that the designated depository furnish a bond in proper form for the amount above stated, "to be signed by not less than five owners of unencumbered real estate of value equal in amount to the bond, or more."

Only two of all the directors could meet this requirement when the bond was presented. The county court approved and accepted the same.

Said notes were all taken out of the possession of the bank before the assets of the bank were turned over to the Commissioner of Finance and copies of them substituted in the bank's files. All the original notes so taken out were held and are now retained by the appellant.

In all published statements of the condition of the affairs of said bank prior to the Commissioner of Finance's taking over of the bank, said assets were included as assets of the bank.

When the bank thereafter was placed in liquidation Bates County had there on deposit $ 9,134.39. Suit was brought therefor by the county and judgment was rendered for said sum against the bank and said members of the Board of Directors as sureties on the bank's bond. The greater part of said judgment has been paid from the assets of the bank, leaving, however, a very substantial remainder due and unpaid. No part of the judgment has been paid by the sureties, and for the remainder the county has filed a preference claim, now pending.

A like condition of affairs exists with respect to the city of Butler and its depository, the Farmers Bank and the city's unsatisfied judgment for $ 4,935 against the Farmers Bank; and also with respect to a number of townships of the county, which operates under the Townships Organization plan.

It is claimed, and not disputed, that the bank directors and the appellant acted in the premises, after consulting legal counsel, in good faith and in the belief that their plan and their action thereunder would be lawful and to the interest of the bank.

The judgment of the trial court was in favor of the plaintiff. Hence this appeal by the trustee.

The question here presented is whether the course so pursued by the bank, acting through its board of directors, was intra vires, as contended by the appellant, or whether it was ultra vires and void as contended by respondent.

It is contended, first, that the policy of Missouri as gathered from the Constitution and the statutes, requires security for public funds; and, second, the bank had the right to pledge its assets to secure such public funds and the county and the city had the right to take these pledges in addition to any statutory requirements for bond. As supporting the second proposition the following are authorities cited from this jurisdiction: Consolidated School District No. 4 of Texas County v. Citizens' Savings Bank, 223 Mo.App 940, 21 S.W.2d 781; French, Commissioner of Finance, v. School District No. 20 of Scott County (Mo. App.), 7 S.W.2d 415; Huntsville Trust Company v....