Cupit v. Park City Bank

20 Utah 292 | Utah | 1899

McCarty, District Judge,

after stating the facts, delivered the opinion of the court:

The grounds upon which appellant relies for reversal of the judgment of the trial court may be summarized as follows: (a) That the assignment is void because made without authority, and never ratified by authority, (b) That Richardson had no authority to make the assignment, because such act did not by common usage pertain to his position, and because at the time his office was vacant by reason of his indebtedness to the bank, (c) That the election of Gregor as director by Richardson, Gunn and Cahoon was void, (d) That the alleged ratification of the assignment of June 16, was invalid because neither Gregor nor Richardson were directors, and were not even de facto officers, (e) That the meetings of May 17th and 18th, and of June 16th, were called meetings and notice was not given to the absent directors, (f) 'That the findings are unsupported by the evidence.

The undisputed evidence, as shown by the record, is, that in 1890, Jerry M. Richardson obtained from the Cresent Mining Company a lease on certain mining property. On the 10th day of November, 1891, by an instrument in writing, he assigned an interest in the lease to A. B. Richardson, one of the bank directors, and they continued to act together under the lease until the bank failed. On this point J. M. Richardson, testified as follows: “ After the assignment of a portion of the lease to A. B. Richardson, myself and Richardson continued to act under the lease and assignment until the bank closed its doors. I did the active managing work. A. B. Richardson was in the bank. We did the money and financial business at the Park City Bank. It was done by drawing checks on the Park City Bank, signed J. M. Richardson. * * *

“ Q. How was it you came to draw checks in your own name instead of Richardson & Richardson, or Jerry and A. B. Richardson?

A. I don’t know the reason why, only I bad been accustomed to draw checks as J. M. Richardson previous to the partnership and there was nothing said about altering it. My checks were honored at the bank. * * *

Another witness testified, that A. B. Richardson in speaking of the lease to him, stated: “ I own one-third of that lease and am going to make some money out of it.” There was other evidence introduced showing his relationship with Jerry M. Richardson, and that he owned an interest in the lease mentioned. At the time the bank failed there was an overdraft at the bank in the name of J. M. Richardson of $38,151.97, all of which was on the lease account, and for which A. B. Richardson was.personally liable, except $6,115.00, of the amount, which was incurred by J. M. Richardson before A. B. Richardson became interested in the lease. First Nat. Bank v. Reed, 36 Mich. 203.

This overdraft at stated intervals, as shown by the books of the bank, stood as follows:

October, 1892,....$10,200 00

November 30, 1892,.... 13,586 26

December 31, 1892,.... 15,788 16

January 31, 1893,_._ 18,297 95

June 8, 1893,___ 38,150 97

The evidence shows that on the last mentioned date, J. M. Richardson, at the request of A. B. Richardson, gave a note in favor of the bank for $38,150.97, signed “J. M. Richardson, Crescent, leaser.” A. B. Richardson remarking at the time: “It don’t make any difference, I favored you; it’s only a matter of personal favor, it don’t amount to anything. The bank commissioner will be along in a few days, and I want to straighten up my accounts.”

We think the evidence conclusively shows that A. B. Richardson at the time the assignment was made, and for months prior thereto, was indebted to the bank, in a sum in excess of $10,000, hence the ninth finding of the trial court,, above set out is erroneous. Section 2515, C. L. of Utah, 1888, provides as follows: “No officer of any bank or savings institution organized under this law, shall borrow money from such bank or savings institution unless he furnish security in at least double the amount of the loan made, and no loan by any officer of said institutions shall be made for a period of over three months; * * * nor shall any officer of such banking association become an endorser or security for loans to others. The office of any director or officer who acts in contravention to the provisions of this section immediately thereupon becomes vacant, and any loan he shall have made in contravention of the provisions of this section shall be immediately due and payable, and the bank shall take immediate steps to collect the same.”

As stated by counsel for appellant in their brief, “If we * * * loot beyond the language of the statute, we at once ascertain the intention of the legislature. To permit officers of a banking corporation who are entrusted with the power to loan at will the monies deposited by the public for safe-keeping, to themselves, is to open wide the doors to fraud and embezzlement.” And the experience of the past has shown that whenever the officers of a banking institution take advantage, which is too often the case, of the opportunities thus afforded them to use without restriction for their own private uses, the funds entrusted to their care, it almost invariably results in the wreck and ruin of the institution itself.

The legislature, in order to guard against such disastrous results, and to create confidence in and give stability to our banking system, has by the enactment of the foregoing statute undertaken to control and regulate the question. The statute is mandatory and its language plain and imperative. It limits the amount of any loan to a bank officer to $10,000, and in every case requires security in double the amount of the loan made. And it further provides that no such loan shall be made for a period of over three months. A violation of either of the foregoing provisions by an officer or director of a bank renders the office of such director or officer immediately vacant.

Over $30,000.00 of the loan represented by the overdraft above mentioned, was for money borrowed in contravention of the foregoing statute. The statute being self executing, the office of A. B. Richardson, as director and cashier, was rendered vacant at the time the first money was obtained on the overdraft for the use of the partnership of which he was a member, and from that time until the bank failed he had no authority to act for the corporation. Chem. Nat. Bank v. Colwell, 132 N. Y. 250; Bartholomew v. Bently, 1 Ohio St. 42.

Counsel for respondent contend that even if it be true that Richardson became indebted to the bank in violation of the foregoing provisions of the statute, and the evidence conclusively shows such to be the case, the proprietors of the corporation having permitted him to remain in the bank and in control of the business, he became and was an officer de facto; therefore, the validity of his acts cannot be raised in this kind of an action. And they further contend that the only process by which Richardson’s right to act for the bank can be raised is by quo warranto proceedings. We think the position taken by counsel is untenable. To hold otherwise would permit officers of a banking corporation, by means of their failure to perform the duties required of them by law, to thwart and render nugatory the mandatory provisions of the statutes, and to evade the consequences and penalties prescribed for the violation thereof.

Richardson’s office as director having become vacant by operation of law, it was beyond the power of the corporation, either by direct or indirect means, to make of him a de jure or a de facto officer so long as his disability continued by reason of his indebtedness to the bank. When he began using the funds of the bank for speculative purposes and to carry on enterprises in which he was personally interested, it became- the duty of the bank, acting through its officers, to take immediate steps, not only to take the management of the bank out of the hands of one who was thus in direct violation of law wrecklessly depleting its vaults, but to proceed to collect the money already borrowed and represented by the overdraft referred to. The neglect and failure of the officers of the bank to perform their duty in this respect ought not to, prejudice the plaintiff and estop him from denying the authority of Richardson to act for the bank in making the assignment. Especially so in view of the fact that at the time plaintiff made his last deposit of two thousand dollars, Richardson acting for the bank and as its vice president, fraudulently accepted the money knowing the bank, at the time, to be insolvent.

If, as claimed by counsel for respondents, a proceeding in quo warranto is the only process by which the validity of Richardson’s acts, and the question of his authority to act for the bank in making the assignment, can be determined, then plaintiff is without a remedy. Before plaintiff discovered that the bank was insolvent and that he had been defrauded of his money, Richardson had made the assignment in question, and turned the entire management of the bank over into the hands of the assignee, and be, Richardson, no longer bad or claimed to have anything whatever to do with its affairs. Under these circumstances, on an examination into the purpose and object of the writ, and the conditions under which it will issue, it becomes evident, that it would not have furnished plaintiff any relief whatever. It is well settled by abundant authority that the writ will not issue and cannot be invoked for the purpose of determining merely a private right, in which the public is not interested. Spelling, Extra. Relief, Sec. 1773 and cases cited; High, Extra. Rem. Sec. 620.

Assuming that, in theory, Richardson is still exercising the functions of a director and officer of the bank, it must be conceded that proceedings in quo warranto would succeed only in ousting him from the office; and plaintiff would still be left to his remedy at law for redress.

When plaintiff discovered that he had been victimized by the bank acting through its officers with Richardson at the head and in control of its management, he immediately commenced suit and sued out a writ of attachment and seized the property in question; thereby pursuing the only speedy and adequate remedy provided by law in such cases. Comp. Laws 1888, Sec. 3308.

The corporation having suffered Richardson to remain in control of the management of the affairs of the bank and having profited by his unlawful acts, of course would not be permitted to deny the validity of the transactions entered into by him in the name of the bank on the ground that his office has become vacant by operation of law; a different rule, however, governs when such acts or transactions are challenged by innocent third parties who may have been damaged thereby and who, after discovery of the fraud practiced on them, have not expressly or impliedly by any act of theirs affirmed what has been done.

The rule is well settled by the great weight of authority that an officer of a corporation has no inherent power by reason of his office, to make a general assignment of the property of the corporation for which he assumes to act, unless such power is specially conferred on him by the corporation acting' through its board of directors duly assembled. It therefore, necessarily follows that Richardson had no power to make the assignment under consideration, being at the time neither a director nor an officer of the corporation. The record affirmatively shows that what he did in the premises was on his own responsibility, and without the knowledge or consent of the officers and directors of the bank. This brings us to the only remaining question for our consideration in this case, viz.: Was the ratification of June 16,1893, such as to make the act of Richardson in making the assignment, the act of the corporation? In order to decide this question, we must first determine whether the ratification was made at a meeting of the board of directors duly assembled, at which a quorum of the directors was present.

The meetings of May 17, and 18, 1893, were pursuant to call, and no notice of either of these meetings was given to Dodridge, one of the directors. At the first of these meetings only Richardson, Cahoon, and Gunn were in attendance. As we have observed, Richardson, by reason of his indebtedness to the bank, was not an officer or director, leaving the meeting without a quorum. At this meeting Cahoon resigned as director, thereby leaving only one director present. Notwithstanding this, however, one Gregor was installed to succeed Cahoon as director. At the meeting of May 18, 1893, Richardson, Gunn and Gregor, only were in attendance. Richardson, as above stated, had been removed from office by operation of law and could not act, and Gregor having been installed at a meeting attended by one director only, who was competent to vote, had no authority to act for the corporation. At this meeting, which was without a quorum, Richardson was installed as Nice president and Gunn as cashier. The same condition of affairs existed at the meeting of June 16, 1893, when Richardson, Gunn and Gregor attempted, by resolution, to ratify the unauthorized act of Richardson in making the assignment. No notice of the meeting having been given to director Dodridge, and there being less than a quorum of directors in attendance, it is plain that they were not lawfully assembled as a board, therefore the attempted ratification was not the act of the corporation. Simon v. Sevier Asso., 54 Ark. 58; Smith v. Dorn, 30 Pac. 1024; Ogden v. Murray, 39 N. Y. 207; Baldwin v. Campbell, 26 Minn. 43; Harrington v. Liston, 47 Ia. 11; S. & G. Turnpike Road Co. v. Graber, 45 Pa. St. 386; 1 Morawetz Priv. Corp. 531-2; 2 Cook, Corp. Sec. 713 a. (Fourth ed.); 3 Thomp. Corp. Sec. 3905; 7 Thomp. Corp. Sec. 84-86; Singer v. Copper Co., 53 Pac. 1028 and cases cited.

We are of the opinion, and so hold, that neither the assignee nor his successor, the receiver, acquired any title to the property in controversy, and that it is subject to piaintiff’s judgment lien.

The cause is reversed, with directions to the trial court to enter a decree releasing the property in question from the receivership, and that it be sold to satisfy plaintiff’s judgment lien. The costs of this appeal to be taxed against respondents.

Baskin, J. concurs. Miner, J. concurs in the judgment.