Shornick, Rec. v. Butler

ON PETITION FOR REHEARING. In his petition for rehearing the appellant says that this court acted under a misapprehension of facts in stating that the notes involved were to be turned over and set aside as a collateral pledge, and that all collections on the notes in question should be held as the property of the appellees for the purpose of the agreement.

In his original brief the appellant does not point out any finding of fact which is not supported by the evidence. Nevertheless, we have examined the record and find evidence 4. to support all of the findings. The court found the agreement to be that notes in the amount of $30,000.00 were to be selected from the assets of the bank to be held in trust to secure and indemnify the signers of the bond. The president of the bank was authorized to endorse the notes, and it was agreed that notes might be substituted from time to time with the approval of the committee representing the signers of the bond. Collections would, in fact, therefore, be the property of the trust until, with the consent of the committee, new notes were substituted, which was the only consideration upon which notes could be removed from the trust. The agreement was carried out according to the finding. The committee representing the signers of the bond met at the bank and selected the notes. The notes selected were then endorsed for said bank by its president, and were put together in an envelope marked, in substance, "Notes indemnifying signers of bonds for public funds," and the notes were then given to Butler, who was president of the bank, to place in the bank for safe keeping and where he could have access to the same in case the obligors desired to pay. The notes continued to be held apart and separate from the notes of the bank, and from time to time notes were substituted and placed in the separate package, with the approval of the committee, and it is found that at all times they were treated as a trust fund set apart for the express purpose of the contract. After the notes were selected by the committee and endorsed and placed in the envelope, it is found that "said notes were then given to said Butler to place the same in said bank for safe keeping and where he could have access to the same." This is sufficient to indicate a delivery to the committee. The notes were endorsed and kept separate from the funds of the bank. It is clear that Butler, although the president of the bank, acted for the committee in holding the envelope with notes for safe keeping in the bank, and that it was contemplated that he, and not the general employees of the bank, should have supervision over the notes for the purposes of the trust. This was a sufficient delivery. Matthewson v. Caldwell (1898), 59 Kan. 126, 52 P. 104; Buffalo Mfrs., etc., Nat. Bank v. Gilman (1838), 7 Fed. 2d 94; In re Cincinnati Iron Store Co. (1909), 167 Fed. 486.

There was an express finding that the whole transaction was in good faith and that there was no fraud.

It is asserted in the petition for rehearing that the bank at the time the arrangement was made had public funds on deposit which would have been instantly withdrawn unless a bond was 5. filed. Appellant in his original brief does not point out any evidence in the record which establishes that any of the funds secured by the bond were on deposit at the time the bond was given. Such fact does not appear in the findings, nor does the original brief point out a lack of these facts in the findings, but assuming they were true, it follows that a withdrawal of the funds would have affected payment in full to the public and, hence, if the bank was insolvent, would have decreased the percentage that other depositors would have received; and, hence, depositors generally profited since finally the public deposits were paid only in part, and thus the amount available for other depositors is increased.

It must be noted that by signing the bond and becoming responsible for full payment of public funds, and thus procuring those deposits to remain in bank, the signers of the bond, if they knew the bank was insolvent, became personally liable for the difference between the percentage that would be paid to general depositors and the full amount of the public deposits, without any consideration flowing to them, and that the difference in amount remained in the bank for the benefit of general depositors; so that no injury, but, on the contrary, a benefit, resulted to the general depositors at the expense of the signers of the bond, if the condition was such as asserted by the appellant. But the special findings expressly find that the sums deposited were deposited after the signing of the bond and the designation of the bank as a public depository.

It is further asserted in the petition for rehearing:

"The bank being in fact insolvent, it was a criminal act and against public policy to receive public funds or private moneys on deposit; and, appellees do not come into court with clean hands, and can not recover on a contract or transaction made or done in violation of public policy and against positive law."

There is no finding that the signers of the bond knew the bank was insolvent, but if there was such a finding, as we have pointed out above, no creditor was injured by the bank's receiving the deposit. The public funds were protected against loss by the bondsmen at their own expense, and the other depositors were benefited by the deposit remaining in the bank. The depositors may not in conscience complain of a transaction which, even though illegal, benefits them, and seek further benefits at the expense of one who has not profited by the transaction.

It is contended that the contract was made wholly between and among the officers and directors of the bank on one side, without any other person to represent the creditors or depositors and that, therefore, it is void. The contract was made between the bank by its officers, and the signers of the bond as individuals. The bank received the benefit thereof and is bound. It was found to have been made in good faith. The depositors were not injured thereby and can not assert its invalidity.

The acceptance of deposits when the bank was insolvent is illegal, and the officers of the bank who, with knowledge of the insolvency, accepted deposits, are liable. Their liability, 6. however, would not be to depositors who made deposits previous to that time, but only to depositors whose deposits were accepted while the bank was insolvent, and, therefore, an action against such officers so accepting deposits would not lie in favor of the receiver of the bank, but only in favor of the individual depositors affected. The appellees were not all officers of the bank, and, in the instant case, sued as sureties on the bond and as individuals, and not as representatives of the bank, and since it was found that the transaction was in good faith they stand before the court as though they were not officers or stockholders, but merely accommodation sureties. If the public deposits were received when the bank was insolvent, there can be no complaint since the bondsmen are liable to pay in full and there is no loss. If any of the signers of the bond, while acting as officers of the bank, accepted a deposit from any person knowing that the bank was insolvent, their liability will be to that person whose deposit was accepted. That liability can not be determined in this action, nor can this action be affected by it.

Petition for rehearing denied.

Treanor, J., dissents for reasons stated in opinion dissenting from original opinion.