Dittey v. First National Bank , 112 Ala. 391 ( 1895 )

HEAD, J.

This case turns up the question whether the First National Bank of Hillsboro, when its attachment against the estate of Clarence M. Overman was levied by the sheriff of Morgan county, Ala., upon the shares of stock in controversy, was chargeable with notice of the prior transfer of the shares by Overman to the Citizens’ National Bank of Hillsboro. The other contentions, of either party, are without merit.

Under the management of Clarence M. Overman, its president, The Citizens’ National Bank of Hillsboro, Ohio, failed, on the 9th day of June, 1893. The First National Bank of Hillsboro, was then in business in the same city. Overman was indebted to the Citizens’ National Bank in more than an hundred thousand dollars, and to the First National, more than $9,000. The Citizens National also owed the First National about $27,000. Overman owned considerable property which will be referred to further on. O. S. Price was cashier, Jas. H. Reece, assistant cashier, and J. J. Pugsley, vice-president of of the Citizens’ National Bank. S. P. Scott was president, and Lyne S. Smith cashier of the First National Bank. Scott was a stockholder in the Citizens’ National, and Smith was largely indebted to it. He, Smith, was a cousin to Price, the cashier of the Citizens’ National, and they were accustomed to indorse for each other. Until July 2d (after the failure of the Citizens’ National) Scott, the president of the First National, had very little part in its management, and Smith, the cashier, had practically the entire management of its affairs, and continued therein, until Scott took active management, July 2d. About June 6th, Mr. Betts, National Bank Examiner, began investigation of the condition of the Citizens’ National Bank, and soon discovered it was probable he would have to close its doors; and about one o’clock p. m. on June 8th, he called on Smith, the cashier of the First National, in the latters’ private office in that bank, and stated his apprehensions in regard to the Citizens’ National, and advised him to put his own bank in order to stand a run if it should happen. The indications are that, pending the examiner’s investigations, action was had by and between these two banks touching the condition of the Citizens’ National, for on the 8th or morning of the 9th of June, money was loaned by the First National to the Citizens’ National, on collaterals. Evidently, the transaction was had by and between Smith, as cashier and practically sole manager of the First National, and Over-man, the president and prime manager of the Citizens’ National. It was had without the knowledge, at the time, of Betts, .the examiner. Pending the investigation, and up to the afternoon of June 9th, after the failing bank had been closed, Smith and Overman held several private interviews, at both banking houses. Betts observed them together, in private intercourse, in the Citizens’ Bank, on the morning of the 8th, and also in the afternoon, after he had advised Smith to prepare for a run. Then again, at the same place, in the afternoon of June 9th. On the morning of June 9th, Overman, being the owner thereof, transferred and delivered to the Citizens’ National Bank, to secure his indebtedness, the following shares of corporate stock, viz., 100 shares of the McKeehan-Hiestand Grocery Company of Hillsboro,,, Ohio ; 350 shares of the Scatcherd Lumber Company of Decatur, Alabama, 50 shares in the Citizens’ National Bank, and 20 shares of the Hillsboro Gas and Electric Light- Company. All these shares were of the par value of $100 per share, except the last twenty, which were $50. He, also, at the same time, conveyed his title and estate in and to about 80 acres of land in Finney county, Kansas; also lots Nos. 513 and 514, in Hillsboro; also about 182 acres of land in Liberty Township,'Highland county, Ohio ; all his interest in about 450 acres of land in Paint Township, same county and State, and assigned all his interest in the personal estate of Elias Overman, deceased, and other personal securities. This was all the property he owned, except an undivided one-half interest in a farm in Marshall Township — the farm being owned by him and said cashier, Smith, in equal interests. This undivided interest, he conveyed to Smith to be applied to his indebtedness to the First National Bank. Smith says he thinks this conveyance was made on the 8th. On that day the Citizens’ National Bank transferred to the First National, securities very nearly sufficient to pay its indebtedness to the latter, amounting, as we have seen, to about $27,000. That occurred on the morning of June 8th. Smith says lie made no effort to get from Overman any other security or securities for his indebtedness to the First National Bank. These two banks had, for a long time, had daily business intercourse. There was no clearing house in the city, and check balances were settled between them every day. Besides, they had many other monetary transactions. On the day of the failure, June 9th, the First National Bank obtained a judgment, in the court of common pleas, at Hillsboro, against Overman covering his indebtedness, and which now forms the basis of the present attachment. It is in view of these conditions, that we must notice the testimony of Overman and Smith touching directly the question of notice to Smith, in his capacity of cashier and general manager of the First National Bank, of the transfer by Overman to the Citizens’ National Bank of the stock in controversy, towit, the 350 shares of Scatcherd Lumber Company, of Decatur, Ala.

Overman testifies, on direct examination by complainant: 1 ‘On June 8th I had some talk with Lyne S. Smith, cashier of First National Bank, about the affairs of the Citizens’ National Bank. I don’t think I told him about any transfer then, but on the morning we closed I think I told him about the transfer, of which I think he already had knowledge. In talking with Mr. Smith, I know he and I thought that no record ought to be made of the transfers made on the preceding day; I mean records in the County Recorder’s office. Mr. Smith advised that no such record of any transfer be made.” On cross examination, he testified: “The transfers which Mr. Smith advised should not be put on record were transfers of real estate. I don’t know that real estate was mentioned, but that would be the inference, as only conveyances - of real estate would be recorded. I don’t know that the term, ‘real estate,’ was used. My talk was had in the back office of the Citizens’ Bank in the back room. My recollection is that Madison Betts, the bank examiner, and Mr. Pugsley and some other of the directors, Mr. John L. West, I think, and perhaps Mr. Spence, were present. I was informed on the morning of June 9th, that the conveyances I made in real estate had already been put' on record, but I don’t know of my own knowledge. I never examined the record. I had n.o conversation with Mr. Smith about what the transfers were. When, on June 9th, 1898, the record of the transfers was mentioned, I thought from the way in which he talked, that he knew what they were, and so no pai'ticular ones were mentioned. In none of my conversations with Smith was the stock in the Scatcherd Lumber Company mentioned sx>ecifically. Nothing was said about it, and I did not tell him that I had transferred it to the Citizens’ National Bank.” Re-examination : ‘ ‘All my conversations with Mr. Smith on June 8 and 9, 1893, were in the banking house of the Citizens’ National Bank. I think, in one of those conversations, I mentioned that I had transferred my property to the Citizens’ Bank, except the piece he (Smith) was interested in. The other piece I did not think of at the time. I told him that, as he owned one-half of the Marshall Township farm, I had thought.it no more than right to transfer that to him, as I owed the First National Bank, understanding that he would apply it on my indebtedness to the First National Bank. In my statement, on cross examination, that the stock in the Scatcherd Lumber Company was not specifically mentioned, I did not mean that it was not included in my general description to Mr. Smith of the transfer of my property. There was no specific property mentioned whatever — no real estate, stock or anything. I just told him I had made transfers of my property to the Citizens’ National Bank, and wanted to transfer that to him.”

Smith testified as follows : “Shortly after the failure of the Citizens’ Bank, the First National Bank caused a' suit in attachment to be brought against the said C. M. Overman in the city court- of Decatur, Ala. The first information that I got that C. M. Overman had transferred or assigned to the Citizens’ National Bank any certificates or shares of stock in the Scatcherd Lumber Company, of Decatur,- Ala., I obtained through our attorneys after our attachment ivas made. I can’t state as tot-lie time. What I mean to say is this, that I had no knowledge that Mr. Overman had any stock in the Scatcherd Lumber Company until so informed by our attorneys. Our attorneys did not inform me that the Citizens’ National Bank claimed it. I did not have any knowledge from any source that the Citizens’ Bank claimed the stock of Overman in the Scatcherd Lumber Company until after the suit in attachment had been brought, but I can’t say how long after, as I did not charge my mind with the dates; to the best of my recollection it was several weeks after bringing the attachment suit. I do not think that any notice was ever served on me by the Citizens’ Bank, or its receiver, that said Citizens’ Bank claimed to be the owner of said Overman’s stock in the Scatcherd Lumber Company. I was at the Citizens’ National Bank on the 8th and 9th days of June, 1893, for the purpose of assisting them, if possible, out of their difficulties. On the 9th I was aware that said Overman was indebted to said bank, but not to the extent that he was. Tot-he best of my recollection, I received no information from Mr. Overman on the 8th or 9th of June, 1893, at the banking house of the Citizens’ Bank, that he had transferred his property to said bank, and I do not tnink I would have advised him not to put such transfer on record if I had been so informed. I have no recollection of giving him such advice. I never saw the paper which is attached to the original bill as Exhibit A, nor the original, of which it purports to be a copy, before to-day.”

Scott, the president, and Richards, Barrett and Weaver, directors of the First National Bank, testified that they knew nothing of the transfer. Pugsley, the vice-president, and Spence, who Overman thought were present at his interview with Smith about the transfer, were not examined.

John L. West testified: “On and prior to June 9, 1893, I was a director of the Citizens’ National Bank of Hillsboro. I was at said bank on June 7th, -8th, and 9th. I was called in to assist in the investigation, settlement, etc., of the affairs of the bank. I was there as a director. I was sent for and went there about 5 o’clock p. m. on June 7th. I know Lyne S. Smith, who is cashier of the First National Bank of Hillsboro, Ohio. He was in the Citizens’ Bank very frequently — I would say several times — in consultation with the officers of Citizens’ Bank, and he offered assistance. He seemed to take a very active part in the matter and seemed to desire that the thing go on. Mr. Beecher, Mr. Betts and myself were there. Mr. Smith was there frequently in consultation with Mr. Overman after the transfer was made by Overman to the Citizens? Bank.”

On June 17th, 1893 — eight days after the failure of the Citizens’ Bank — J. B. Worley, who lived in Ohio, appeared before the clerk of the city court of Decatur,' and as attorney for the First National Bank of Hillsboro, Ohio, applied for attachment against the estate of Over-man, and made the affidavits required by the statute, as to the indebtedness and non-residence of Overman, and that to the best of his knowledge, information and be-, lief, the defendant had not sufficient property within the State of his residence wherefrom to satisfy the debt. Attachment was issued and levied on the stock in question .

The foregoing is, substantially, all the evidence in the record necessary to the decision of the question under consideration. We have given it repeated consideration and discussion, and have reached a conclusion in accord with that of the chancellor. The evidence does not show actual notice of the transfer, and the complainant' has not shown such a state of facts as discharges the burden resting upon him to prove that the First National Bank was put upon inquiry, which, if followed up, would have led to knowledge of the transfer.

If the fifteen days limitation mentioned in section 1671 of the Code of 1886 (see the phraseology of that section as contained in section 2044 of the Code of 1876), applies to the time of the transfer of stock, and not to the time of the Adoption of a by-law by the corporation requiring transfers to be made on the books of the corporation — a question not now considered — it exerts no influence upon the present case for the reason that the transfer was not registered within fifteen days.

Affirmed.