Montgomery B. & T. Co. v. Walker

Bill to Colled ancl Preserve Assets of Insolvent Bank. 1. Constitutional haw; Duo Process; Banks and Banking. — The fourteenth amendment to the Federal Constitution does not deprive the slate of the power to determine by what process legal rights may be asserted or legal obligations enforced; hence, the provisions of Acts 1911, p. 59, see. 10, do not work a deprivation of property without due process of law. 2. Banks and Banking; Insolvency; lliylils of Bank Superintendent. —Under the provision of sec. 10, Acts 1911, p. 59, the superintendent is.in reality a receiver, and there is no change in the ownership or legal title of the property. 3. Same; Bower of Superintendent. — Under the provisions of section 10, Acts 1911, ]). 59. the superintendent has power to sue in the name of the bank to avoid a fraudulent transaction made by the bank officials. 4. Same: Trust Fund. — Regardless of tbe provision of section 3509, (lode 1907, the assets of an insolvent bank must be regarded as a trust fund for the payment of creditors, and the stockholders, directors and agents of the bank are trustees for their benefit, and as such may be made to discover and account in chancery. 5. Same; Action by Superintendent; Remedy at Law. — Where the superintendent of banks desires to avoid a transaction whereby the officers of an insolvent institution pledged collateral to another bank for an antecedent debt, as well as one presently created, and challenged the authority of the officers, but offered to do equity, he had no plain ancl adequate remedy at law, and the jurisdiction of equity was properly invoked. 6. Same. — Where the superintendent of banks filed a bill to set aside a pledge of the assets of an insolvent bank made by its president, and averred that the president had no such authority, it was not necessary that the bill should negative special authority, as that was a matter of affirmative defense. 7. Same; Power of President. — The rule that presidents of corporations have no ex-officio power to sell or mortgage the property of the corporation, applies to bank presidents, and such officials have no right to pledge the assets of the bank, particularly to secure an antecedent and questionable debt. -8. Same; Power of Cashier. — While the cashier of a hank is its' chief executive officer, and his authority exceeds that of the president and while he may sell the banks negotiable security in the regular course of business, his power is not unlimited, and he cannot pledge the assets of the bank for the payment of an antecedent debt.

Appeal from Geneva Chancery Court. Heard before Hon. L. D. Gardner. Bill by A. E. Walker, as Superintendent of Banks, against tbe Montgomery Bank & Trust Company to collect and preserve tbe assets of tbe Bank of Geneva, of which he had taken charge by virtue of his office. From a decree overruling demurrers to the bill, respondent appeals. The bill alleges, among other things, that the Bank of Geneva was, prior to June, 1912, engaged in the banking business at Geneva, Ala., and was organized and incorporated under the laws of this state; that it did a general banking business, and had a capital stock of |50,000; that J. B. Clark Avas elected president of said bank, and he assumed the duties thereof and acted as such continually until June 3, 1912; and that a board of directors, consisting of five persons, Avhose names are set out, were elected to and did serve as directors of said bank. In the fourth paragraph it is alleged that within tAvo or three years after its organization the bank became insolvent, and that such condition remained and grew worse, and further alleges that the bank is now insolvent. In the fifth paragraph it is alleged that during the active existence of the bank it became connected in a business way with the Montgomery Bank & Trust Company, the respondent below, and that at times the Montgomery Bank & Trust Company made loans to the Bank of Geneva and extended it credit. In the same paragraph it is alleged that J. Lee Holloway was a stockholder and director in both banks, and was related to J. R. Clark, president of the Bank of Geneva; that said Holloway and other officers and directors of the Montgomery Bank & Trust Company had opportunity to know, and did know, the financial condition of the Bank of Geneva at the times set out later in the bill; that Clark had confidence in the Montgomery Bank & Trust Company and in T. E. Lovejoy, its president; and that the relations between the two banks were cordial and friendly until a short time prior to June 3, 1912. In the sixth paragraph it is alleged that the Montgomery Bank & Trust Company claimed that the Bank of Geneva was indebted to it in the sum of $25,753.24, maturing and coming due some four or five years prior to this date; that in fact the greater portion of the amount arose prior to the organization of the Bank of Geneva, being due and owing by the First National Bank of Geneva, and alleges that lie does not know the nature of the claim, but he does allege that it was not in the form of a bill receivable; and that the Montgomery Bank & Trust Company held no written obligation of the Bank of Geneva to pay the same until the spring of the year 1912, and shortly prior to June 3, 1912. He alleges also in the paragraph that the Bank of Geneva did not owe the alleged claim or demand, and was in no wise connected with it, and that the Bank of Geneva never entered the same upon its books as a liability or bills payable, and that the Bank of Geneva denied and disputed said alleged claim or demand, which fact was known to the Montgomery Bank & Trust Company prior ta June 3, 1912. In the seventh paragraph he alleges that T. E. Love-joy, president of the Montgomery Bank & Trust Company, knew that the Bank of Geneva was hopelessly insolvent, and with that knowledge on his part, and through him on the part of the Montgomery Bank & Trust Company, and with the purpose and intent and the ultimate design of securing the alleged indebtedness of $25,753.24, caused many wrongs to be committed against the Bank of Geneva and its creditors, and obtained physical possession, in the way of collateral security, of much of its assets to which it was not and is not entitled; that during the winter or spring of 1912, the Bank of Geneva being in desperate straits and being almost forced to cease business on account of insufficient funds, a fact which the bill alleges was' known by the Montgomery Bank & Trust Company, for speedy and immediate relief in the way of borrowing from it a certain sum of money, the Montgomery Bank & Trust Company, being afraid to loan the Bank of Geneva money, required the Bank of Geneva to put up collateral to secure a loan of from $5,000 to $7,000. And in the same paragraph the bill alleges that the Montgomery Bank & Trust Company, in acquiring and taking over the collaterial for said loan and to secure the same, and with the purpose and intent on their part to secure its alleged claim against the Bank of Geneva, and for the purpose of securing a preference for said alleged indebtedness, and in fraud of the rights of the creditors of the Bank of Geneva, required Clark, president of the Bank of Geneva, to assign, pledge, and turn over to said Montgomery Bank & Trust Company a large amount of securities owned and held by the Bank of Geneva, to wit, $60,000, and of the value of $32,000; in accordance with such requirement the said Clark turned over and delivered to Montgomery Bank & Trust Company said, collateral. In the eighth paragraph the bill alleges that the Bank of Geneva was cited to appear before the State Banking-Board at Montgomery on, to Avit, June 3, 1912, to shOAv cause why said Bank of Geneva should not cease as a-going concern and its business and affairs be Avound up and liquidated by said board; that on that day no cause being shoAvn, and, in fact, consent being given, the affairs and business of said Bank of Geneva Avere taken-over by said Banking Board and process of liquidation commenced by A. E. Walker, as Superintendent of Banks; that the property, assets, and affairs of the Bank of Geneva are held by A. E. Walker, as Superintendent of Banks, for the purpose of liquidation and the collection of its debts and payment of its liabilities; and he alleges that the assets are not sufficient to pay the liabilities, setting out the amounts; and in the same paragraph charges that Lovejoy, and probably others connected Avith the Montgomery Bank & Trust Company, kneAV that the Bank of Geneva had been cited to appear before the said Banking Board and knew, or honestly believed, that said Bank of Geneva Avould cease business and its affairs Avould be Avound up through the Banking Board; that in anticipation of such course, and in furtherance of the design, intent, and scheme of the Montgomery Bank & Trust Company to collect the alleged debt and to appropriate for that purpose a substantial portion of -the assets of the Bank of Geneva, and in fraud of the rights of the creditors, the Montgomery Bank & Trust Company on, to wit, June 2, 1912,. sold, or pretended to sell, collateral held by it, or substantially all of it, and claims to have purchased it at and for the sum of fl,500, leaving thereby a large balance due on said alleged debt. And it is further averred and charged that the Banking Board, or the Superintendent of Banks, had no knowledge of the alleged sale until two or. three weeks thereafter, and that, if notice was given, it was done by insertion in some newspaper of small circulation; and it further alleges that the Montgomery Bank & Trust Company is now holding the collateral and asserting rights to all of it and refuses to surrender it to the Superintendent' of Banks. In the tenth paragraph the bill charges that the pledge of said collateral to the Montgomery Bank & Trust Company was and is absolutely void for that J. R. Clark, ■ as president of the Bank of Geneva, had no authority, as president or otherwise, to pledge or dispose of the assets of the Bank of Geneva in that manner. In the eleventh paragraph he says that, if he is mistaken in that, then he charges that the contract or agreement whereby the Montgomery Bank & Trust Company acquired said collateral was and is wholly void for that the Bank of Geneva had no authority or right to pledge said property without authority of its board of directors, and no such authority was given as required by law. In the twelfth paragraph he says that, if he is further mistaken, he then charges that the pledge of said collateral was and is wholly void for that the same was acquired by the Montgomery Bank & Trust Company with the intent .to have itself preferred and with intent to hinder, delay, and defraud creditors of the Bank of Geneva from their lawful and just demands and claims. In the thirteenth paragraph he says that, if he is mistaken in all that he has heretofore alleged, then he alleges that the transfer and pledge of said collateral to the extent of the excess of the amount claimed by-Montgomery Bank & Trust Company over and above the $7,000 borrowed and admitted is void as to any other and further amount for that said Bank of Geneva did not owe the Montgomery Bank & Trust Company said' amount of $25,753.24, or any portion thereof, as claimed and alleged by the Montgomery Bank & Trust Company, and that therefore the pledge of collateral to secure said fictitious claim was and is void. And also in the same paragraph the bill says that, if mistaken as to the existence of the debt, then he says that Clark had no authority, and the Bank of Geneva had no authority, to pledge its property and assets to secure a past-due debt and give such creditor preference over other creditors; the said Bank of Geneva at the time being insolvent, and this fact being known to the Montgomery Bank & Trust Company. In the fourteenth paragraph of the bill he alleges that, if mistaken in all the other allegations and charges, he says that if the Montgomery Bank & Trust Company is rightfully and legally entitled to hold said collateral, or any portion of same, for and on account of any valid debt due the Montgomery Bank & Trust Company by the Bank of Geneva, the complainant is willing and offers to redeem such collateral by paying such amount as may be required by this court, and for that purpose submits itself to the jurisdiction of the court. To this bill the respondent filed demurrers raising the following questions: 1. That there was no equity in the bill for the reason that A. E. Walker, as Superintendent of Banks, had no authority under the laws of the state of Alabama to file or maintain the bill in this case; that he did not have title to the property; that he Avas not authorized to bring the suit; that the provision in the banking act authorizing him to take possession of the property of banks was in violation of the Consti tution of the state of Alabama and of the United States; that the complainant had a clear and adequate remedy at law; that the president of the institution being a banking institution, had a right to pledge the property of the bank as collateral for its debts Avith power to bind the bank; that the allegations' with reference to the preference of creditors was entirely inadequate; that the bill shoAved, that at the time of the sale of the collateral and the purchase by the Montgomery Bank & Trust Company, there Avas an amount due by the Bank of Geneva to the Montgomery Bank & Trust Company Avhich Avas unpaid; that pledged collateral after sale cannot be redeemed, and other points. It takes the judgment of a court of competent jurisdiction to be due process of laAV. — 8 Cyc. 1080-1085. Hence, if the act gave ■the Superintendent of Banks title to the property in such sort as would authorize him to maintain this suit, it is violative both of the Constitution of the United States, and of the state of Alabama, as denying due process of laAV. The Superintendent of Banks has no authority under laAV to file or maintain the bill in this case. —16 Cyc. 159-B, 190 (2) ; 15 Ene. P. & P. 590-4; ParTcman v. Aircardi, 34 Ala. 399; 30 Cyc. 94. At most the superintendent of banks is a mere agent under the statute and agents are not proper parties to a suit in chancery. — 16 Cyc. 197; 15 Ene,. P. & P. 598. The corporation, and not its officers must sue to redress wrongs of the corporation. — 22 N. J. E. 63; 28 W. Ya. 750. A real party in interest is not tlie superintendent of banks in this instance. — 30 Cyc. 44, 83. Even if authorized to maintain this suit, he had a plain and adequate remedy at law. The president of a bank is such a general executive officer as may within the scope of his apparent authority bind the bank by a transfer of its assets to secure its obligations. — 5 Cyc. 469; First Nat. Bank v. First Nat. Bank, 116 Ala. 521; Wynn v. Tallapoosa Bank, 168 Ala. 469. It is within the apparent authority of a cashier of a bank to borrow money and pledge collaterals. — 11 L. R. A. (N. S.) 598; 24 L. R. A. 264; 19 L. Ed. 1008; 5 Cyc. 457; Ala. Nat. Bank v. O’Neal, 128 Ala. 196. The fact that one of the directors of the • Bank of Geneva was also a director of the Montgomery Bank & Trust Company was not notice to the latter of any limitations or other facts known to the former.— Scott v. Choctaw Bank, 59 South. 184. It is a matter of common knoAvledge that the affairs of the bank are left largely to the management of the president and cashier, and hence, their transactions will be held good. —24 L. R. A. 264. The bank had a general lien on all collaterals in its possession to secure its indebtedness. —Wynn v. Tallapoosa Bank, supra; 31 Cyc. 831. The banking law in some of its features is modeled largely after the National Banking laws, and in this case, section 10, of the Acts of 1911, p. 59, is similar to section 5234, of the National Banking Act, and gave the superintendent authority as a receiver with poAver to maintain such suits as these, or other suits- to collect and reduce the assets of the insolvent state bank.- — 8 Ben. 357; 14 Wall. 383; 17 Wall. 19; 34 Cyc. 186; Banks v. Spears, 103 Ala. 436; Calhoun v. Fletcher, 63 Ala. 574; Oa,tes v. Smith, 57 South. 440; JTowarth v. Lombard, 175 Mass. 570. The remedy at law was inadequate, 'and the bill was properly filed in the chancery court. — Sec. 3509, Code 1907; 16 Cyc. 1264. The property of the corporation cannot be pledged, mortgaged or disposed of without affirmative action on the part of the board of directors, and neither the president nor the cashier of the bank can do so without authority from the board. — Subd. 3, sec. 3481, Code 1907; Buchald T. Go. v. Burst, 19 A. & E. Ann. cases, 619; 115 Ala. 322; 50 Am. Dec. 394; 23 Id. 728; 56 Id. 116; 25 Am. Rep. 506; 78 Am. St. Rep. 560; 79 Mo. App. 352. There is no doubt about the constitutionality of the act, and it is not to be criticized as withholding due process of law. — 145 Ala. 662; 151 Ala. 469; 152 U. S. 377; 181 U. S. 183; 139 U. S. 462; 182 U. S. 427; 48 L. R. A. 679; 28 L. R. A. 769; 8 Cyc. 1095.