White v. Poole
| Decision Date | 04 May 1925 |
| Citation | 272 S.W. 1021,220 Mo.App. 973 |
| Parties | JOHN WHITE, CLAUDE WHITE, AND RICHARD WHITE, RESPONDENTS, v. A. E. POOLE ET AL., APPELLANTS |
| Court | Kansas Court of Appeals |
Appeal from Circuit Court of Randolph County.--Hon. A. W. Walker Judge.
AFFIRMED.
Judgment affirmed.
D. M Wilson, A. G. Knight, W. A. House, H. J. West and Hunter & Chamier for appellants.
M. J Lilly, P. M. Marr, R. E. Ash, Alpha L. Burns and John H. Taylor for respondents.
This is a suit brought under the provisions of sections 11763 and 11764, Revised Statutes 1919, to recover from the directors of the Milan State Bank of Milan, Missouri, deposits alleged to have been made in the bank at a time when the defendants had knowledge that it was insolvent or in failing circumstances. The petition is in nine counts, each covering a separate deposit. There was a verdict and judgment in favor of plaintiffs on each count, the total recovery amounting to $ 1518.29. Defendants have appealed.
The Milan State Bank was organized in the month of May, 1920, at the instigation of the representatives of the State Finance Department, to take over the affairs of the Milan Bank, hereinafter referred to as the old bank. The old bank had failed and closed its doors on May 12, 1920. The new bank took over at face value all the assets and assumed all the liabilities of the old bank. It was organized with a capital stock of $ 70,000 and surplus of $ 7,000, all paid up in cash. It opened with deposits in the sum of $ 326,741.90; bills payable in the sum of $ 160,000, and loans amounting to $ 419,986.92; its total assets as shown by the books were $ 576,269.05.
A contract was made between the two banks whereby the new bank took over all the affairs of the old bank including all its assets and liabilities. The capital stock, surplus, undivided profits and net earnings of the old bank amounted to $ 63,549.84 and the contract provided that these were to be held as guaranty fund against any bad notes among the assets conveyed and were to be carried as a demand deposit to be "immediately available for the purpose of taking up notes that can neither be collected or renewed in a manner satisfactory to the officers and Board of Directors of the Milan State Bank." Due diligence of the new bank was required in the matter of attempting to collect the notes taken over and it was provided that they might be held by the new bank for the purpose of collection, even after being charged to the guaranty fund. The new bank opened for business on May 24, 1920, and continued in business until October 13, 1921, a period of sixteen months and nineteen days when, on account of its not being able to raise money to replenish its reserve fund, it closed its doors by resolution of its Board of Directors notifying the Commissioner of Finance to come and take charge.
The deposits sought to be recovered in this case were made from time to time beginning on June 11, 1920, and ending on September 17, 1921, and aggregating the sum of $ 1436.55. Plaintiffs when the first deposit sued for was made, had $ 268.75 on deposit in the bank, and from June 11, 1920, to the closing of the bank they checked out and withdrew from the bank $ 225.80, leaving a balance in the bank of $ 1479.50 when it closed. It appears to be admitted that nothing has been paid to the depositors since the closing of the bank and its taking over by the Commissioner of Finance, but as to what has been realized out of the assets of the bank or the amount of money on hand available for the payment of the bank's debts, is not shown.
At the close of its business the books of the bank showed loans in the sum of $ 322,043.82 capital stock and surplus of $ 80,000; deposits in the sum of $ 106,349.14; bills payable in the sum of $ 138,425, the books showing the total assets in the sum of $ 372,804.14. There was, therefore, a decrease in the assets of the bank of $ 203,464.91 in sixteen months and nineteen days, or a decrease in its assets of about $ 12,000 a month during the period of its operation. During the same period its deposits, exclusive of the guaranty fund, decreased about $ 160,000, or at the rate of a little less than $ 10,000 per month; the bills payable and bills rediscounted for the same period decreased only $ 10,915, or about $ 656 a month. At the time of the closing of the bank the bills receivable amounted to $ 321,656.68. This included notes held by the bank and signed by its customers. Only 8.34 per cent of the bills receivable was secured by first deeds of trust on real estate; 43.22 per cent was secured by second deeds of trust; 1.91 per cent secured by third deeds of trust; 2.78 per cent secured by first, second or third deeds of trust, the Examiner being unable to tell which; 8.53 per cent of the total bills receivable was secured by chattel mortgages on crops and live stock; 2.09 per cent was secured by personal indorsements; 31.25 per cent, or over $ 100,000, was unsecured in any way; 1.81 per cent of the total of bills payable was in installment commission notes but the Examiner was not able to tell whether or not they were secured.
Among the assets taken over by the bank in May, 1920, were notes of nineteen persons (referred to in the brief as "nineteen large borrowers") which aggregated the sum of $ 210,513.37. Very little of these loans had been reduced at the time of the closing of the bank but the total amount was increased by reason of the debtors being unable to pay the interest on the renewal date of the notes. The indebtedness of these parties was not increased by the lending of additional money except in case of one person who was lent an additional sum of $ 2500. At the close of the bank the indebtedness of these nineteen borrowers amounted to $ 247,748.45, but this increase in the amount of the indebtedness was not entirely due to the things we have mentioned but in greater part by reason of the consolidation of the loans of other persons with some of the loans made to the nineteen persons in question and the purchase by the bank of notes aggregating $ 5598.35 secured by first mortgages on the real property of one of the nineteen large borrowers, in order to protect subsequent deeds of trust held by the bank.
At the time of the closing of the bank the guaranty fund had been depleted by the charging off of notes taken over from the old bank under the provisions of the contract so that a balance of only $ 3,416.92 remained. Most of the deeds of trust securing the loans of the nineteen large borrowers were on farm lands in Sullivan county and vicinity. The testimony shows that in the latter part of 1920 the market price of farm lands began to fall rapidly so that they declined from twenty-five to thirty per cent from 1920 to 1921. At this rate there must have been a decline of from eight to ten per cent in the land values in the four months period covering the time in which these deposits were made. The testimony shows that the efforts of the new bank from the time of its opening were mainly directed to collecting loans that it had taken over, and that it did not make very many new loans; one of the directors testified that "conditions were such that we didn't feel like we needed any more loans . . . we were trying to collect and reduce loans instead of increasing them," but that they were taking deposits all of the time. The bank was having a hard time to keep its legal reserve on hand. Beginning with April 15, 1921, and ending with October 13, 1921, when the bank closed, there were thirteen business days in which it did not have the cash reserve required by law and in this calculation the guaranty fund is treated as an asset of the bank and not as a deposit. The reserve was below the legal requirement for one day prior to the time the first of the deposits in question was made and four days prior to the making of the last of these deposits.
The evidence further shows that on July 23, 1921, the total amount of the indebtedness to the bank of five of the nineteen large borrowers was $ 140,456.22; that the loans of each of these five exceeded the limit allowed by law and that the indebtedness of one equaled to forty-five per cent of the bank's capital stock and surplus. From June 1 to October 13, 1921, more than $ 54,000 of the bank's loans was charged off to the guaranty fund; from the 11th day of June, 1921, the day the first deposit sued for was made, until the bank closed, its assets decreased at the rate of a little over $ 4,000 a month while its bills payable or its indebtedness to other banks decreased at the rate of only $ 114 per month.
Three of the seven directors of the bank had no deposit in the bank at the time it closed; those who had money on deposit owed the bank $ 3274 more than they had on deposit; the three directors who had no money on deposit owed the bank over $ 8563. The directors as a whole owed the bank $ 12,215 when it closed. Some of the directors had overdrafts. As a whole the directors were liable to the bank for $ 9,966 in excess of their deposits in that institution. One of the bank's directors testified that he and his partner in another business did most of their business with two other banks in Milan. This unusual procedure of accounts being kept in other banks, was put upon the ground that it was intended for the purpose of promoting the interests of the business. There is no evidence that any of the directors were insolvent or unable to pay their indebtedness to the bank but their relation to the bank in this connection was material as tending to show that they realized the shaky condition of the bank.
On July 23, 1921, $ 60,000 of the loans was overdue, approximately one-half...
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