State v. People's United States Bank

• Decision Date: 01 June 1906
• Citation: 197 Mo. 574,94 S.W. 953
• Parties: STATE ex rel. HADLEY, Atty. Gen., v. PEOPLE'S UNITED STATES BANK.
• Court: Missouri Supreme Court

94 S.W. 953

197 Mo. 574

STATE ex rel. HADLEY, Atty. Gen., v. PEOPLE'S UNITED STATES BANK.

Supreme Court of Missouri.

June 1, 1906.

1. BANKS AND BANKING—REGULATION—SECRETARY OF STATE—POWERS.

Where the promoter of a bank advertised that its affairs would be placed in the hands of directors, who were strong, wealthy men and most experienced bankers, but in fact he caused directors to be elected who were men inexperienced in financial affairs, of no independent judgment nor fortune, but who were wholly sub-servient to his will, the Secretary of State, on ascertaining such conditions, was justified by Rev. St. 1899, § 1305, conferring on him visitorial powers over bankers, to require a change in the personnel of the board of directors.

2. CORPORATIONS—PROMISE OF PROMOTERS—LIABILITY OF CORPORATION.

The promoters of a corporation are not its general agents, in such a sense as to bind it by their acts and engagements when it comes into existence.

3. BANKS AND BANKING—DIRECTORS—MISCONDUCT —CORRECTION — RECEIVERS — APPOINTMENT —EQUITY JURISDICTION.

Under Rev. St. 1899, §§ 1305, 1307, granting to the Secretary of State visitorial powers over banks, to be exercised and enforced by the Attorney General, the fact that a bank after its organization wrongfully elected certain directors who were mere dummies to the president, who was its chief promoter, and thereafter loaned large sums to corporations controlled by such president, in violation of representations made by him, which defects were corrected on objections by the Secretary of State, constituted no ground for the interposition of equity and the appointment of a receiver to wind up its affairs on a petition filed by the Attorney General on behalf of the state.

4. SAME—PURCHASE OF STOCK IN OTHER CORPORATIONS.

Where a bank purchased certain stock in other corporations in violation of Rev. St. 1899, § 1276, which was also a violation of its charter, but a demand of the Secretary of State that the stock be immediately disposed of was promptly complied with, such misconduct was not ground for the appointment of a receiver to wind up the bank's affairs, as provided by sections 1305, 1307.

5. SAME—STOCKBOOKS—ENTRIES.

Where subscriptions to the stock of a bank were received in small amounts by its president, and in some instances not fully paid for, the fact that the stock was carried in the name of the president, and that the stockbooks did not show the names of the actual stockholders, was not ground for the appointment of a receiver of the bank; a bona fide effort having been made to remedy such defect on demand of the Secretary of State.

6. SAME—GOVERNMENT FRAUD ORDER.

Where a bank was incorporated for the purpose primarily of doing a mail order banking business, the issuance of a fraud order against it by the Post Office Department, in the absence of the facts on which such order was based, could not operate as a ground for the appointment of the receiver of the bank, nor as proof in itself that the bank was organized for the purpose of furthering a fraudulent scheme.

7. SAME.

In a proceeding by the Attorney General for appointment of a receiver of a bank, it was alleged that the president had obtained proxies from 80 per cent. of the stockholders, couched in such terms as to be dangerous to the health of the bank. It was also charged that the promotion expenses were charged to the bank without being allowed by its board of directors, and that a note for such expense, signed by the president and certain other individuals, should be paid. It was also contended that L. was chosen president and director, though he was not the bona fide owner of two shares of stock, as required by Rev. St. 1899, § 1281. Held, that all of such objections were curable by proceedings which the Secretary of State was authorized to take by section 1305, and were therefore not grounds for the appointment of a receiver to wind up the affairs of the bank.

In Banc. Appeal from Circuit Court, St. Louis County; John W. McElhinney, Judge.

Proceedings by the state, on relation of Herbert S. Hadley, Attorney General, against the People's United States Bank. From an order refusing to revoke an interlocutory order appointing a receiver to wind up the bank's affairs, it appeals. Reversed.

Carter, Collins & Jones and Barclay, Shields & Fauntleroy, for appellant. The Attorney General and John Kennish, for respondent.

LAMM, J.

Defendant bank, by virtue of Rev. St. 1899, § 806, appeals from an order of the circuit court of St. Louis county entered August 15, 1905, refusing to revoke an interlocutory order, granted on a second amended petition, appointing a receiver to take charge of and to wind up its affairs. On motion here the cause was advanced in obedience to the command of said section of the statute, and set down for hearing at the January call, 1906, in banc. At that time it was argued orally and leave granted plaintiff and defendant to file briefs. During February, 1906, these briefs were supplied, and on March 30th a per curiam order was passed and sent down reversing the order nisi, refusing to revoke the order appointing a receiver, and the trial court was directed to sustain said motion to revoke and proceed with the cause; opinion to be filed thereafter. In pursuance of the aforesaid order this opinion is formulated and now handed down.

A résumé of the facts in the history of the litigation will show that on July 10, 1905, the state of Missouri, at the relation of its learned Attorney General, Herbert S. Hadley, commenced a proceeding in the circuit court of St. Louis county for the purpose of having a receiver appointed for the People's United States Bank, a banking corporation organized under the laws of this state and domiciled in St. Louis county. Upon this petition Judge Selden P. Spencer was appointed receiver on the same day. The scope and character of this order are not in issue and need no notice. An idea of the magnitude of the bank's operations may be got from the fact that four days thereafter he, as such receiver, filed a report of its assets, summarized as follows:

                Exhibit A. Stocks and bonds (belonging
                 to the bank). . . . . . . . . . . . . $  204,469 92
                Exhibit B. Cash in other banks
                 and on hand. . . . . . . . . . . . .     346,897 63
                Exhibit C. Time and demand certificates
                 (of deposit in sundry
                 banks). . . . . . . . . . . . . . . .  1,046,758 43
                Exhibit D. Time and demand
                 loans (due to said bank). . . . . . .  1,010,183 12
                Exhibit E. Sundry accounts (carried
                 as assets). . . . . . . . . . . . . .     70,935 69
                                                      _______________
                    Total . . . . . . . . . . . . . .  $2,679,244 74
                

On the 11th of July a writ of summons was sued out, and duly served on defendant bank on July 14, 1905, made returnable to the September term, 1905. Thereafter, limiting its appearance to the purposes of the motion, defendant bank, before the return day, appeared and filed its motion to revoke the order appointing Judge Spencer receiver, and on hearing said motion was sustained on July 17th, and he was ordered to redeliver to it all its property and assets of every kind in his hands, which order he obeyed. Following that, on the 19th of July, an amended petition was filed, not only setting forth further facts, but elaborating the allegations of the abandoned petition and enlarging the scope of, and putting in the alternative, the relief prayed. This petition was, in turn, abandoned and needs no attention. Thereupon plaintiff filed a third pleading on July 29, 1905, called in the record a "second amended and supplemental petition," wherein the relief sought was (1) the appointment of a receiver to wind up the affairs of the bank; or (2) the appointment of a receiver for the preservation of the assets of said bank, "and for the doing of such other acts as in the opinion of the court may from time to time be necessary"; or (3) if the interests of stockholders and creditors would not be subserved by the appointment of a receiver for either of the purposes aforesaid, then that the court make an order for the removal of officers and make other orders suggested by the conditions discovered by the court, etc. The second amended and supplemental petition contained information given to the court upon the official oath of the learned Attorney General, which information is based upon official communications from the Secretary of State, under his hand and the great seal of the state of Missouri. Defendant, having been notified of the new and pending application for a receiver, appeared conditionally, resisted the appointment, and filed and exhibited to the court certain affidavits denying some of the averments of the petition, explaining others, and presenting facts deemed pertinent to the matter then pending, with the result, as said, that on the 15th day of August, 1905, an order was made appointing Frederick Essen receiver; and defendant's motion to revoke this order having been denied, it excepted, declined to give a supersedeas bond for $100,000, perfected its appeal without such bond, and thereby permitted its assets to pass into Essen's hands and its affairs to be put in process of liquidation.

Assuming for the purposes of this case that averments of fact relating to the condition of a state bank, based on official communications from the Secretary of State to the Attorney General, and ascertained by official examinations, when presented to a court under the oath of office of the Attorney General, are taken as true, prima facie, then a proper consideration of the questions presented here on this interlocutory order appointing a receiver seeks an examination of the allegations of the petition and the facts stated in the affidavits presented by defendant; for these are the only proofs adduced. And, broadly speaking, the question presented below and here is whether, on the allegations of the petition alone, or on such allegations taken in ...