Wilson, Banking Com'R, v. Louisville Trust Co.
| Decision Date | 16 February 1932 |
| Citation | 242 Ky. 432 |
| Parties | Wilson, Banking Commissioner, et al. v. Louisville Trust Company. |
| Court | United States State Supreme Court — District of Kentucky |
1. Banks and Banking. — Status of banking commissioner when taking charge of insolvent institution is that of trustee, assignee, or receiver (Ky. Stats., secs. 165a-1 to 165a-22).
2. Banks and Banking. — Statutory procedure prescribed for liquidation of insolvent institution is exclusive (Ky. Stats., secs. 165a-1 to 165a-22).
3. Corporations. — Corporation may not engage in business other than that expressly authorized by its articles of incorporation (Ky. Stats., sec. 567, Constitution, sec. 192).
4. Corporations. — Powers of corporation are only such as are conferred and as are necessarily incident thereto.
5. Banks and Banking. — Combined bank and trust company held empowered to issue, secure with collateral, and to sell bonds (Ky. Stats., secs. 579, 612a, 614, 4706).
Combined bank and trust company may sell bonds not in excess of limitations of indebtedness fixed by charter.
6. Banks and Banking. — Combined bank and trust company, or banking commissioner as its successor, in absence of fraud, could not, as against rights of bondholders and trustees, recover collateral delivered under trust agreement to secure bonds issued by trust company (Ky. Stats., secs. 579, 612a, 614, 4706, and secs. 165a-1 to 165a-22).
7. Corporations. — "Ultra vires contract" is one foreign to nature of corporation or not within expressed or implied authority under charter.
8. Corporations. — If execution of contract is mere abuse of power it cannot be impeached on ground of ultra vires by corporation, where corporation receives and retains benefits thereof.
This is so, if contract is not tainted by fraud, or prohibited by statute, or condemned by sound public policy.
9. Banks and Banking. — Banking commissioner has no greater right to question fully executed contract on ground of ultra vires than has corporation itself (Ky. Stats., secs. 165a-1 to 165a-22).
10. Banks and Banking. — Even if trust agreement under which trust company delivered collateral as security for bonds issued by it made no provision for trust company's insolvency, trustees possession of collateral would be protected (Ky. Stats., secs. 579, 612a, 614, 4706, and secs. 165a-1 to 165a-22).
11. Banks and Banking. — Neither banking commissioner nor insolvent trust company which issued bonds could have more than mere contingent equity in collateral securing bonds for benefit of unsecured creditors, if any, until bonds and costs of administration of trust agreement were satisfied (Ky. Stats., secs. 579, 612a, 614, 4706, and secs. 165a-1 to 165a-22).
12. Banks and Banking. — Trustee must retain collateral securing bonds issued by insolvent trust company for use and benefit of bondholders.
Appeal from Jefferson Circuit Court
W.G. DEARING and J.M. ROBISON for appellants.
SQUIRE OGDEN and HENRY M. JOHNSON for appellee.
Affirming.
This appeal presents for interpretation and the application of sections 165a-1 to 165a-22, Ky. Statutes, inclusive, to the facts appearing herein, in respect to the authority, power and duty of the banking commissioner when a bank organized under the laws of this state posts on its front door a notice signed by a majority of the directors in their own handwriting, stating, "This bank is in the hands of the banking commissioner" and forthwith notifies him of such act.
A bank within the meaning of the statutes includes all banks, trust companies, savings banks, combined banks, real estate mortgage companies engaged in the business of making mortgage loans on real estate and the selling and offering bonds or its own obligations secured by such notes or bonds, and combined banks and trust companies.
The status of the commissioner, when acting by virtue of the statutes, is that of a trustee, assignee, or receiver (Cartmell v. Commercial Bank & Trust Co., 153 Ky. 798, 156 S.W. 1048; Ex parte Smith, Banking Commissioner, et al., 160 Ky. 83, 169 S.W. 582), but, whether he be regarded as the one or the other, his duties are the same.
The procedure prescribed by the statutes, for the liquidation of an institution designated therein, is exclusive. The statutes prescribe an adequate and safe method for liquidating the insolvent corporations included therein. Commonwealth ex rel. Denny, Banking Commissioner, v. Hargis Bank & Trust Co. et al., 233 Ky. 801, 26 S.W. (2d) 1045. However, the vital question in this case is not so much a question of duty or power of the commissioner as it is a question of his right and power under the facts of this particular case.
In July, 1926, the Title Guarantee Trust Company was incorporated under the laws of this commonwealth. The nature of its business to be promoted, transacted, and carried on, and its objects and purposes, are set forth in its articles of incorporation. The third article thereof states the business to be that of a trust company, "with the power and right to receive deposits and pay interest thereon." The appellant in his presentation of the case has considered it as a bank engaged in the business of banking. The appellee concedes this, and claims that it was at the same time engaged in the business of a trust company. This relieves us of the duty of determining whether it was or was not engaged in the banking business or that of a trust company, or both.
A corporation may not engage in a business other than that expressly authorized by its articles of incorporation or amendments thereto. Section 192, Constitution of Kentucky; section 567, Ky. Stats.; German Ins. Co. v. Com., 141 Ky. 606, 133 S.W. 793. Its powers are only such as are conferred by its charter, and such as are necessarily incident thereto, or necessary to carry into effect those expressly granted. Hind v. Cook & Co., 202 Ky. 526, 260 S.W. 349.
On the 22d day of June, 1931, the board of directors of the Title Guarantee Trust Company closed its doors, posted the notice required by the statutes, and so informed the banking commissioner, C.S. Wilson.
Thos. W. Sweat was first appointed by Wilson as liquidating agent. Sweat resigned, and Oscar Bishop was appointed in his stead, and qualified as provided by law. The business and assets of the Title Guarantee Trust Company were turned over by it to the liquidating agent for the banking commissioner, in accordance to the statutes. Its capital stock was $300,000, divided into 3,000 shares of common stock of the par value of $100 each. The highest amount of indebtedness authorized to be incurred by it at any time was not exceeding $10,000,000, except its liability on account of trust funds as a fiduciary and to depositors, and its obligations as indorser, guarantor of bonds, notes, or other instruments, secured by mortgage or unsecured, was unlimited. Desiring to engage in loaning money in the state of Tennessee, a corporation was organized in that state for that purpose. Its capital stock was $300,000 which was loaned in that state. The Title Guarantee Trust Company desired to issue and to sell its mortgage bonds in the denomination of $100, $500, and $1,000. To effectuate its purpose, on the 14th day of April, 1927, it entered into a written agreement with the Louisville Trust Company, a corporation organized under the laws of the state of Kentucky, wherein the duties and obligations of both the Title Guarantee Trust Company and the Louisville Trust Company were elaborately set forth in detail. The Louisville Trust Company accepted the office of trustee, and agreed to perform the trust as set forth in the instrument. The bonds of the Title Guarantee Trust Company were payable to bearer and the form thereof was set out in the trust agreement. One provision of the bond is in this language:
"To secure the payment of this bond and of all other bonds provided for in said agreement (the trust agreement) together with the interest thereon, there has been assigned to and deposited with the Louisville Trust Company as trustee, securities which are authorized for investment by the trust company under the laws of the State of Kentucky which have been approved by the trustee, or bonds secured by first mortgage on real estate, notes or other obligations or cash as described in said trust company agreement, the principal (estimating first lien real estate bonds at par and other securities pledged at 95% of their market value) not less than the par value `of all bonds issued under this agreement and to be held in trust by said trustee and its successors and assigns for the benefit of the holders of said bonds according to the above mentioned trust agreement.'"
In section 3 of the articles of trust agreement it is provided:
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