Ray v. First Nat. Bank

• Decision Date: 19 June 1901
• Citation: 63 S.W. 762,111 Ky. 377
• Parties: RAY v. FIRST NAT. BANK OF LOUISVILLE. [1]
• Court: Kentucky Court of Appeals

63 S.W. 762

111 Ky. 377

RAY v. FIRST NAT. BANK OF LOUISVILLE. ^[1]

Court of Appeals of Kentucky.

June 19, 1901

Appeal from circuit court, Jefferson county, law and equity division.

"To be officially reported."

Action by James S. Ray, receiver of the Columbian Fire Insurance Company, against the First National Bank of Louisville, to recover damages for deceit. Judgment for defendant, and plaintiff appeals, affirmed.

W. S Pryor, H. S. Barker, and Pryor, O'Neal & Pryor, for appellant.

Humphrey Burnett & Humphrey and Dodd & Dodd, for appellee.

GUFFY J.

It appears from the petition in this action that the appellant James S. Ray, was appointed receiver of the Columbian Fire Insurance Company by the order of the Jefferson circuit court, common pleas division. It is further alleged that the Columbian Fire Insurance Company was incorporated and organized for the purpose of conducting the business of fire insurance; that the company claimed to have organized, and by the terms of its charter was required to organize, with a paid-up capital stock of $200,000, and a surplus of $50,000 and by law required to have said capital stock paid up in full before it commenced business, and was required to have said cash paid in before it was authorized to conduct or carry on the business of fire insurance, but, as a matter of fact, at the time of its alleged organization and commencement of business there was a large shortage in its capital stock; that, prior to its organization and commencement of business, it was necessary for said company to be examined by the insurance commissioner, who was a public officer charged by law with the duty of examining the condition of insurance companies, and making known to the public the true condition of the affairs of such companies, and of protecting the public against fraudulent organization and management of such companies, and to examine into the condition of the stock of such companies, the amount of cash paid in on account of such capital stock, and the amount on hand and belonging to such company at the time of such examination, and to refuse to permit such company to engage in or continue the business of insurance when, on examination, it is ascertained by said commissioner that its capital stock is impaired, or when it did not have on hand the full amount of capital stock required by law, or the surplus had not been paidin, or for any other reason it was made to appear that such company is not authorized by law to begin or continue such business of insurance. It is further alleged, in substance: That the said fire insurance company falsely and fraudulently claimed that it was fully organized, with all of its capital stock and surplus paid in, and that the amount of cash was actually in its possession January 1, 1893, and asserted that said company was then organized according to law, with the capital stock and $50,000 surplus, and that same was then on hand and deposited in the First National Bank of Louisville, which was publicly announced as the depository for all the funds of the said company, and demanded of said commissioner of insurance an examination of its accounts and of its organization, and demanded a certificate that it was fully paid up and organized according to law. That the said commissioner, who was then Henry S. Duncan, in the discharge of his duty, and at the request of the said company, made an examination of the affairs and capital stock of said company, and did authorize it to do business, and reported the necessary facts,--that it had in actual cash $248,182.90 then on deposit in the defendant bank, of which $200,000 was cash in full of the capital stock of the company, and the remainder was net surplus of said company. That the First National Bank, defendant, knowing that said examination was to be made, and that it was necessary, in order for said company to do business, that it should be made to appear to said commissioner that the said amount of money had been actually paid in on account of said capital stock and surplus, and was then on deposit in its said depository, falsely and fraudulently conspired with the said company to mislead and deceive said commissioner, in order that said commissioner might authorize said company to do business, and did make said commissioner, as the basis of its report, a false statement of the accounts of said insurance company in said bank, and, among other false statements then and there made for the purpose of giving to said insurance company false credit and permitting it to organize, the said First National Bank, through its cashier, Thomas R. Sinton, made and delivered to the said commissioner the following statement, to wit (a copy of which is filed, which, in substance, is as heretofore set out in the petition). It is further alleged that said statements were false, and made for the purpose of giving said company a false credit and deceiving the commissioner, and to enable the company to get a license, and it did have that effect, and caused the license to be issued, a copy of which is filed. It is further alleged, in substance: That said representation of defendant, furnished to the commissioner for the purpose of enabling him to certify that said insurance company was organized according to law, was false, and made for the purpose of enabling the company to organize and do business, when the defendant well knew that, if the true facts were made known, the defendant could not and would not be authorized to do business, and that at the time when the said representations were so made by the said bank the said insurance company was bound to pay to said bank a large part of said money, and afterwards did in fact pay a large part thereof, and that the alleged cash paid in consisted, in a large part, of notes which had been discounted by said company, and on which it was liable to the said bank, naming a number of them; also a demand certificate of deposit, in the sum of $25,000, issued by a New York bank to the company, which was in the nature of a loan to said company, on which it paid interest, and was under a written agreement between the bank and insurance company that said certificate was not to be good until said company had deposited in said Tradesmen's Bank a sufficient amount to pay off said certificate of deposit, which deposit was in fact only a loan, all of which was known to the defendant herein; also an item of $19,500 entered in said cash alleged by said bank to be on hand, which was money borrowed by the insurance company, and for which it had pledged collections and assets of said insurance company. That, at the time of the giving of said certificate by the defendant herein, the company was liable to said bank and others for nearly one-half of said capital stock, all of which was well known to defendant bank, and a large part of which indebtedness was to the bank, and at the time the defendant then had in its possession all of the notes on which the insurance company was liable, and which the defendant knew had been used to make up the capital stock, and also had the certificate of deposit, and knew the same was not to be cashed at that time, and was held by it under the arrangement aforesaid, and fraudulently concealed and suppressed said facts, and did not disclose any of same to the commissioner, all of which were material, and which, if they had been stated or made known to the commissioner, would have resulted in his refusing to authorize said company to do business, and would not have put it in the power of said company to have created any of the debts hereinafter shown, and that said certificate of authority and license to do business was fraudulently obtained, and by means thereof the indebtedness hereinafter referred to was created. He states: That said company, after it was so organized, continued to do business until February, 1894, when it made a general deed of assignment to S. H. Sullivan, who was afterwards removed by orders of said court, and this plaintiff appointed, as hereinbefore stated; and, upon examination of the affairs and accounts of said company, it has been ascertained, and it is true, that said company is indebted in a large amount, to wit, in at least the sum of $300,000, over and above all its assets, as shown by the commissioner's report now on file in said suit of S. H. Sullivan, assignee, against the Columbian Fire Insurance Company and others. That said company was organized and incurred said indebtedness by fraudulent representations as aforesaid to said commissioner; and by the false statement of the defendant herein to said commissioner, and by other false statements made by said bank, the said company was authorized to continue said business, and all of said indebtedness and loss to the creditors of said insurance company was caused by the false representations of the defendant, which combined and conspired with the said insurance company to obtain said license and certificate of authority for said insurance company, by which it was enabled to carry on the business of insurance; and he says that the said defendant is liable to this plaintiff, as receiver, who sues for the benefit of all the creditors of said company, for the sum of $300,000. The other paragraphs of the petition are as follows:

Paragraph 2: "The plaintiff further states; That after the organization of said insurance company as aforesaid, and after it had first obtained license, the said insurance company again applied to the said Duncan, who was then commissioner of insurance for the state of Kentucky, for a certificate of authority or license to continue business for the year 1895; and this defendant combined and conspired with the said insurance company so as to give the said insurance company a false...