Court Opinion

ID: 6739047
Source: CourtListenerOpinion
Date Created: 2022-07-20 23:20:37.316409+00
Date Added: 2024-06-11T16:01:53.751753
License: Public Domain

Birdzell, J.
(dissenting). The opinion of the majority in this case, in my judgment, ignores both sound principles of public policy *238which have long been incorporated in legislative acts, and well-established, controlling legal doctrines. After a strained interpretation of some of the facts, a conclusion is drawn therefrom that seems to me to be wholly unwarranted when the case is carefully examined even in the light of the facts stated, — much less is it warranted if the whole record is considered. The opinion seems to ignore altogether the fact that the capital of the bank was impaired prior to the negotiation of the loan that is the basis for this action, and that the whole transaction was nothing more or less than an arrangement to make good the impaired capital. The following statement from the majority opinion reflects the erroneous viewpoint. It is said: “It is clear, from the record, that Jensen, as well as the other officers of the bank, in the fall of 1912, possessed authority to borrow money for purposes of the bank. There is nothing in the record which inhibited borrowing $9,000 for bank purposes, and to pledge security therefor. Consequently, if Jensen or the other offlcers of the bank had borrowed $9,000, and given these very notes signed by the bank, and had put these lands as collateral security to secure such notes, the bank unquestionably would have been liable therefor, and likewise unquestionably the records of the bank would have shown in its bills payable the amount so borrowed.” To this it might well be added, likewise, unquestionably, a bank examiner performing his sworn duty would have soon closed the doors of the barde. The fact ignored is that the bank was so heavily overloaded with real estate and bad paper that it had no right to continue to transact the business for which it was organized, without making good the impairment of its capital, and this was recogmzed by its own officers. The record shows clearly that the whole transaction, whereby the bank was to be relieved of its surplus prohibited investment of bank capital, was designed as a substitute for an assessment to make good the impairment. By ignoring these facts, the majority reach a conclusion that would be absurd if rendered in the light of all the facts. Though not appearing to do so, it holds the corporation liable for obligations of stockholders to contribute to the capital fund. On the record in this court, when all the facts are considered, this is the real conclusion, and it cannot be escaped by ignoring a portion of the facts.
There are some stubborn facts in this record, which are not men*239tioned by the majority, that should absolutely preclude recovery by the plaintiffs in this action. The statement of condition rendered on September 4, 1912, before the $9,000 was put in, showed an investment in other real estate of $5,538.81, with a further item of expense over profits of $1,325.45. The statement for November 26, 1912, shows only $1,604.23 in the other real estate account. Subsequent statements show that this account kept increasing, and the testimony of the cashier, given upon the trial from the general ledger account, shows that on March 6, 1914, the account had crept up to $8,503.43. And it further shows that this represented an accumulation of land that the bank had taken on during the period following November, 1912. Other testimony of one of the plaintiffs herein shows that in 1912, before the loan in question was made, the bank actually had more of its capital tied up in real estate than was shown on the books; for it appears that the true condition was concealed from the examiner by carrying some of the real estate as bills receivable;
The testimony of the plaintiffs themselves shows that they did not treat this transaction as an ordinary negotiation of a loan by the bank. Plaintiff Atkinson testified: “We had to use the land as a means for raising capital;" and, further, that there were three alternatives open to the bank: (1) To levy an assessment; (2) to borrow money as banks usually do; or (3) use the real estate as security for capital borrowed by the stockholders. It further appears that the bank, at that time, was already indebted to the First National Bank of St. Paul for borrowed money to the extent of $10,000, which indebtedness was carried in the bills payable account. The record leaves no room to doubt that the third alternative was the one chosen as to the $9,000 loan.
There can be no question, on the record as a whole, that the purpose of these very plaintiffs in conducting the transaction as they did was to utilize their personal credit, supported by collateral drawn from the excessive real estate holdings, as a means of raising money to meet their own continuing obligations to keep the capital of the bank unimpaired. It is alleged by the plaintiffs that the lands pledged as security for the $9,000 were alone worth between $15,000 and $20,000, and that “the loan was negotiated to raise money necessary to enable *240said bank to continue in business as a banking institution, and to pay its depositors and other creditors and save them from loss.”
The proceeds of the loan, as shown by the undisputed testimony of the cashier of the bank, were used as follows:
Bills Receivable Cz’edits.
Note, Emily Seibold........................... $1,390.00
Note, Ered Seibold ............................ 1,390.00
Note, Ered Seibold ........................... 315.00
Note, A. J. Yik and wife....................... 958.86
Note, Jacob Kennewischer ...................... 1,076.00
Total proceeds of loan expended to replace capital lost through bad loans ......................... $5,129.86
Credited to z-eal' estate account (to reduce investment of capital therein) ............................ 3,810.14
Total .................................. $9,000.00
Yet the majority of the court persists in treating this transaction as an ordinary loan by the bank to secure needed capital to transact its business. They seem to ignore the legal requirements that make it necessary for stockholders in banking corporations to keep the capital unimpaired as a condition of being allowed to transact a banking business. In the face of this showing of the manner in which the proceeds of the loan were absorbed in replacing the questionable assets of the bank, I am utterly unable to understand how the transaction can be treated as though it were one ordinarily pursued to acquire additional funds for use in ordinary banking.
The extent to which the majority opinion seems to be based upon a misapprehension of the facts relative to the $9,000 loan is further illustrated by the following statement in the opinion. Referring to a statement of real estate items which, it is claimed, was sent by Bowman to Thorson at the time Thorson was negotiating for the stock, it is stated: “This statement tells a big tale in itself. It contains the very lands that were deeded to Jensen. It contains a purported state-*241xnent of the value of such lands, and a list of the amounts that were credited to each of such pieces of land so deeded out of the $9,000 received on the notes.” The statement or exhibit referred to does not indicate the source of the $9,000, and is not a clear statement of the condition of the real estate account. It shows, however, a loss of over $3,000 on the supposition that $9,000 of the total investment in the real estate had been previously charged off. In other words, on the supposition that the bank had previously expended capital in real estate to the extent of $25,383.31, which was at the time valued at $22,200, the purchaser of the stock, if he received this statement, would be charged with notice of the impairment of the capital to the extent of $3,183.31, provided that the real estate were worth the appraised value. And he would also be notified that in connection with whatever stock he would buy in the banking enterprise, capitalized at $16,000, he was acquiring an interest in real estate valued as a bank asset at better than 135 per cent of the capital. It is little wonder that the stock was priced at 50 cents on the dollar, and that immediately after Thorson acquired it he levied an assessment, the necessity of which was even recognized by Eosholt when he sold out. Then, if the $9,000 represented as a previous investment of bank capital in the real estate, be considered, as against a purchaser of stock, a debt still owing by the bank and chargeable to stockholders, as found by the majority, the exhibit is made to work a barefaced fraud upon the purchaser. He is required to advance his proportionate share of $9,000, which is represented to have been already paid out. In short, this statement says to him: “We are overloaded with real estate, and our capital is impaired on account of the loss sustained thereby. We have more real estate than it is permissible for us to carry, and more than is consistent with good banking. It stands us at more than $25,000 and is worth perhaps a little better than $22,000. If you will take the stock with our real estate account in this condition, you may have it at 50 cents on the dollar. Perhaps you can levy an assessment and raise sufficient added capital to meet the requirements of the state banking department.” The majority opinion allows the individuals who have made this kind of a representa*242tion to work a fraud upon the purchaser by compelling him to com tribute a proportionate share of the $9,000 which they represent as having been already expended on account of the real estate. Indeed, “This statement tells a big tale in itself,” or, if it does not, it is made to do so. Suppose the bank had owned an automobile for which the vendors of the stock represented that the bank had paid $3,000, and it should be discovered later that the note of these same stockholders given in payment was outstanding. According to the majority opinion, notice that the automobile had cost $3,000 would be notice to the purchaser of the stock that the corporation was under obligation to reimburse the stockholders who had given the note and made the representation that the automobile was paid for. It may well be that the corporation would be liable to the seller for the price of the car, but, if the law still recognizes estoppels, stockholders who made such representations, upon paying their note, would surely be estopped, as against the purchaser of the stock, to seek reimbursement.
Following the negotiation of the loan in 1912, the bank continued business, with the result that it was compelled to take in more real estate in liquidation of bad loans. The real estate account was again overloaded, notwithstanding the previous reduction in 1912. Such was the condition when Thorson purchased his stock, and in this real estate there was tied up what was supposed to be live banking capital not charged off, to the amount of $16,383.31, — that is, according to the telltale exhibit.
There is every reason to believe that after the transaction in 1912, as a result of which the asset value of the real estate was reduced by the contribution of new capital, the accounts were made to conform to the reduction, and it is admitted that the books contained no entry showing the liability of the bank on account of the money borrowed by the stockholders to effect the reduction. If the views of the majority are correct, the officers of the bank have doubtless been guilty during the years following 1912 of falsifying the condition of the bank in the reports to the bank examiner. Yet, though they stand so convicted by the majority opinion, they are also rewarded in the same opinion by being allowed a recovery predicated upon facts which they themselves have apparently secreted from the public examiner. *243I confess I cannot comprehend the elements of justice in a situation where the plaintiffs succeed by first convicting themselves of forgery (Comp. Laws 1913, § 5174), and where they must necessarily do so to support their claim. A judgment in favor of the plaintiffs under these circumstances might possibly be justified in order to prevent some greater injustice, but in the instant case the plaintiffs allege that the lands held by Bowman as security are worth more than the amount they seek from the bank. So, certainly no injustice would result to them by adopting their own allegations as to value, and leaving the real transaction to conform to the ostensible transaction as they themselves wrote it in the books.
The statute is very definite as to the contents of the reports of condition the banks are required to make the public examiner; It says: “Every banking association, savings bank, and trust company organized under this chapter, shall make at least five reports each year to the state examiner, in such form as the state banking board shall prescribe ; such forms to be as nearly as possible like those prescribed by the comptroller of the currency for similar reports for national banks. Such report shall exhibit in detail, under appropriate heads, the resources and liabilities of the association at the close of the business on a past day by him specified* which shall, if practicable, be the same day for which similar reports are required from national banking associations within the state by the comptroller of the currency of the United States. Each report must be verified by the oath of the president or the cashier and attested as correct by at least two of the directors, and must be transmitted to the examiner within seven days after receipt of the request for the same, and an abstract of the same in a form prescribed by the board shall be published, at the expense of the association, in some newspapers in the city, town, or village where such bank is located, and in case there is no such newspaper, then in any other newspaper in the county in which such association is located.” (Comp. Laws 1913, § 5167.)
Though the officers must have made a number of these reports, based on the condition as shown by the books, they are now permitted to recover on the theory that all of such reports were false. The testimony, in fact, of one of the plaintiffs in this action, shows ex*244pressly not only that the $9,000 obligation was not disclosed to the bank examiner, but' that the condition of the real estate account was likewise concealed.
I not only regard the conclusion of the majority as being erroneous for the reasons above stated, but it seems to me that, even conceding that there might be a bank liability to reimburse the stockholders on account of the payment of their personal obligations under the circumstances stated by the majority, they should be able to enforce the obligation as against a new stockholder, acquiring a controlling interest in the bank, only by advancing clear proof that it was an element of the bargain. Yet, not a single plaintiff in' this action claims that, he communicated any facts to the purchasing stockholder concerning the alleged $9,000 obligation; and they come into court acknowledging that it was concealed and not entered on the books. It was so successfully concealed in fact as to deceive the bank examiner. They are nevertheless permitted by the majority of the court to overcome the estoppel that arises on the face of their own books by a mere conjecture of knowledge on the part of the purchaser, — a knowledge he could not have obtained without delving into the transactions which the plaintiffs themselves attempted to conceal. In short, their attitude is this: “We concealed this transaction, but your auditor, being an expert, either did or should have detected our concealment. Therefore, we are not estopped to assert this liability against you.” Common honesty, it would seem, would require that the plaintiffs, if they intended the purchasers of the bank to reimburse them for the payment of the notes in question, should have stated frankly that the notes were outstanding, and that they represented an obligation which should be met by the bank. Yet there is mo suggestion of the slightest attempt to conform to this elementary requirement of fair dealing.
Another remarkable feature of the judgment in this case is that it goes against the bank, and leaves the security in the hands of the individual. No reason is assigned for any departure from the ordinary rule, according to which equity, when it obtains jurisdiction, proceeds to administer complete justice, and does not do things by halves. The query arises as to what disposition the majority will make of the land, and what further proceedings, if any, are contemplated *245as being necessary. Tbe judgment in this case should be for tbe defendant and for tbe interveners, and tbe bolder of tbe legal title to tbe land should be declared a trustee for tbe plaintiffs, who would thus be given tbe benefit of tbe profit which, according to their own pleadings, they are attempting to thrust upon an unwilling defendant.