Court Opinion

ID: 6548111
Source: CourtListenerOpinion
Date Created: 2022-07-19 22:21:22.587154+00
Date Added: 2024-06-11T15:56:01.663854
License: Public Domain

Wood, J., (after stating the facts). Under the provisions of chapter 90, Kirby’s Digest, the Auditor of State is charged with the duty of seeing that “all the laws of the State respecting insurance companies are faithfully executed.” To this end he “is impowered to appoint and commission actuaries and examiners to issue and, upon cause shown, to revoke licenses or permits to transact business of insurance, and, when legal cause exists, to suspend the business of any company of this State; * * * to require free access to books and papers belonging to any such company or companies; to summon and examine persons relative thereto,” etc. Kirby’s Dig. § § 4326-30. “No insurance company shall be allowed to transact business of insurance in this State until it shall have a bona fide subscribed capital of not less than one hundred thousand dollars, with a paid-up capital of not less than $50,000. Section 4335, Kirby’s Dig. Other sections prescribe severe penalties against persons, companies or corporations for transacting the business of insurance without complying with the law. Subdivisions eight, nine and ten of section 4330 of Kirby’s Digest prescribe the methods of procedure on the part of the Auditor to cancel the license or suspend the business of an insurance company that is ‘insolvent or fraudulently conducted.’ The purpose of all these provisions of the law is to protect the public, who insure, against worthless insurance companies, and the Auditor of State, who is designated by law to represent the public, is clothed with plenary power in the premises. If the Bank conspired with the Insurance Company to falsely represent to the Auditor of the State that the Insurance Company had on deposit with the Bank the sum of $50,000 for the purpose of inducing the Auditor to grant ■ a license to the Insurance Company to transact business, and if the Auditor upon such representation granted the Insurance Company license, then the bank would be estopped by its conduct from denying that the Insurance Company had such sum of money on deposit with it at the time the license was issued. In a suit at the instance of the Auditor under section 4330, division eighth, Kirby’s Digest, or by the receiver under sections 950 and 954, to recover such sum as an asset of the insolvent insurance company the bank would be estopped from' denying that it held such sum as an asset of the insurance company. This is the doctrine of Ellerbe v. Exchange National Bank, 109 Mo. 446, upon which appellant relies. In that case the cashier of the bank exhibited to the insurance commissioner a false entry of deposit showing that the insurance company had to its credit a certain sum, when in fact the amount was $21,500 less than the sum certified. The false certificate was made for the purpose of enabling the insurance company to pass the insurance commissioner. In a suit by the insurance commissioner against the bank to hold the latter liable for the $21,500 as an asset' of the insolvent insurance company, the court held that, the bank having ¡certified and exhibited books to show that the insurance company had on deposit with it a certain sum of money for the purpose of enabling the company to secure license to transact business, and license having been obtained upon such répresentation enabling the insurance company to transact business and to create obligations, under these circumstances the bank would not be heard to say that it did not have the money as represented. The bank accordingly was held to account for the money as an asset of the insurance company. The doctrine of that case is sound, but it has no application here. For this case differs radically in its facts from that. Here the complaint alleges, and the proof shows, that at the time the secretary of the insurance company exhibited to the Auditor its pass book, or deposit slip, showing that the Insurance Company had on deposit with the Bank the sum of $50,000, such was the fact. This representation was true. While witnesses on behalf of appellant testify that the understanding between the officers of the Insurance Company and the Bank was that the latter should furnish the money to enable the former to pass the Auditor, not one testifies that the loan in fact was not made. Not one testifies that the loan was not made upon the faith of the collateral which was put up to secure it. Only one (Plunkett) testified that the Insurance Company did not obtain possession of the money. But all of the other testimony shows he was mistaken; and indeed the allegations are that the Insurance Company had on deposit with the Bank the sum of $50,000. The deposit slip and the books of the Bank and all the witnesses (except Plunkett) show that the loan was made and the money passed to the credit of the Insurance Company, and was on deposit to its credit when the secretary of the Insurance Company exhibited to the Auditor the deposit slip. So, even if this slip be taken as a. representation or certification by the officers of the Bank to the Auditor that the Insurance Company had on deposit- with it the sum of $50,000, such representation -was true, and the Auditor was not and could not have been deceived and defrauded by such representation. Now, if there was a bona ñde loan of $50,000 from the Bank to the Insurance Company, the Bank could not be liable because the officers of the Insurance Company used the $50,000 as paid-up capital to obtain its license from the Auditor, -nor could it be liable because the officers of the Insurance Company afterwards used the same $50,000 to repay the Bank. The Bank had the right to loan the Insurance Company the money, and it also had the right to accept payment of the loan, even though it knew that the Insurance Company was using its capital stock in making the payment. If the Insurance Company, after obtaining its license, reduced its capital stock below the amount required, the Auditor could have had its license cancelled. He bad full power, as we have seen, under ¡the statutes supra, and it was his duty, to make inquiries and to ascertain the facts and to protect the public against a condition of that kind. That was no concern of the Bank. There is no evidence to sustain the allegation that the Bank accepted the money of the Insurance Company and was to keep it on deposit as a trust fund. The attempt to hold the Bank and Cherry for the unawful diversion or conversion of a trust fund must fail. There are no allegations that the officers of the Insurance Company and the officers of the Bank entered into a conspiracy to procure a license from the Auditor for the Insurance Company to transact business, and that such license was procured upon a false ¡representation, made in pursuance of this conspiracy, that the Insurance Company had on deposit with the Bank the sum of $50,000. These allegations, if made with the others in the complaint, would have brought the case within the rule announced in the case of Ellerbe v. Exchange Nat. Bank, supra. Appellant now contends, however, that the evidence at the hearing developed the whole transaction, and that the so-called loan and deposit was a mere subterfuge to deceive the Auditor and to defraud the public. The evidence does not warrant such conclusion. The officers of the Insurance Company were authorized to negotiate just such loan for the purpose of securing the $50,000 needed for its paid-up capital. The directors not only authorized the loan, but individually signed a note to the Insurance Company which was to be used in procuring the license or the money itself, if the Auditor would not accept the note. This note was bona fide, and saves the whole transaction from the taint of fraud. It is undisputed that the note was worth the sum of fifty thousand dollars, for which it was hypothecated. Cherry knew the men on the note, and considered them good for $150,000. The officers of the Bank took the note as collateral, and made the loan. There is no evidence that the officers of the Bank would have made the loan without this collateral note. That made the Bank secure. After the note to the Bank was paid, the secretary of the Insurance Company held this note of the directors to the Bank as an asset of the company, he says, until the next annual license was issued. While this note was not paid-up capital, in the strict sense, because it was not actually paid, yet there was not a day from the time it was executed until the next annual license was issued that the sum of fifty thousand dollars could not have been realized out of the note. The Auditor seems to have been so well satisfied of this that he did not “make any fuss about it,” and let the company go on, although he knew that the money on deposit as the Insurance Company’s paid-up capital had been withdrawn. The Auditor had correctly held that the' paid-up capital did not have to be cash, but might be in an investment in land or other assets of the value of $50,000. The officers of the Insurance Company, after the license had been obtained, concluded that the individual note of the directors to the Insurance Company was an asset that was worth to the company the full sum of $50,000 required by the law to be paid up. Doubtless, if the Auditor had required it, they could have secured at any time the sum of $50,000 on the note. Hence they concluded to pay off the note to the Bank that was bearing interest against the Company and to take up and hold the collateral note which was bearing interest in the company’s favor. This was done without the direct authority of the Auditor in advance, but since he knew about it, and did not object to it, and was the only one who could object to it, the company had his authority by acquiescence, and the public was not therefore defrauded or imposed upon by this act of the officers of the Insurance Company in paying off the note to the Bank, and in taking and holding the note of the directors to the Insurance Company.' Suppose the officers of the Insurance .Company had converted the note into land or money or some other asset, which, they doubtless could have done. The result would have been the same. Instead, they held the note till the next annual premium day when the Auditor approved a deed to land from one of the signers of the note to the Insurance Company, estimated by him to be worth the sum of $50,000, as paid-up capital of the Insurance Company and issued license. A clear preponderance of the evidence shows that neither Hamilton nor Cherry was present at a meeting of the board of directors of the Insurance Company when the matter of making the loan was discussed. While some of the witnesses say they were present at such meeting, the greater number of witnesses show that they were not present at such meeting. We are of the opinion that the testimony of Hamilton and Cherry, representatives of the Bank which made the loan, •and the testimony of Jones and Holland, representatives of the Insurance Company to which the loan was made, all tends to prove that the loan was bona fide, made in the usual course and upon gilt-edge security. The evidence to sustain the charge of conspiracy contended for here should be clear and convincing. We do not find it so. Therefore the Bank and Cherry are not liable, no matter what disposition the Insurance Company made of the sum borrowed. The judgment is correct. Affirm. McCulloch, C. J., disqualified. Hart, J., concurs in the judgment.