Judges： Clarke, Quin, Sampson, Thomas, Whole
Filed Date： 12/16/1919
Status： Precedential
Modified Date： 11/9/2024
Opinion op the Court by
Reversing.'
This action was instituted in the name of the Commonwealth, under section 567 of the Kentucky Statutes, against the Clark County National Bank to escheat a storehouse and lot situated on Main street near the business center of the city of Winchester. It is the prog> erty of the Clark County National Bank and was erected in the year 1880 by that institution. It appears that the bank had been in business many years before, and in 1880 decided to find a new location for its business, and accordingly on January 24, 1880, it appointed a committee consisting of its president and certain members of its board of directors “to select a suitable house and see what it could' be purchased for and the- probable cost of fitting it up, and report to the board on the following Saturday, January 31, 1880.” The committee appointed reported, on January 31, that it had found a suitable ipiece of property commonly known in that city as the Webster House which was “the best and most centrally located,” which could be purchased for $5,250.00. A committee was then appointed by the bank
It is the statute law of this state that a corporation may not own and hold real property not necessary and proper for carrying on its legitimate business for a longer period than five years. Sections 567 and 582 Kentucky Statutes. These two statutes are based upon a provision of the state Constitution, section 192. This court in construing the constitutional provision and the statutes has held that where a corporation in good faith acquires real property for a necessary or proper purpose in the conduct of its business and with a bona fide purpose to employ the same in carrying on its legitimate business, it may hold such property for a longer period than five years without it becoming subject to escheat. German Insurance Co. v. Commonwealth, 141 Ky. 606; Louisville School Board v. King, 127 Ky. 824; Commonwealth v. Chicago, &c., R. Co., 124 Ky. 497; Commonwealth v. Louisville Property Co., 139 Ky. 689; Commonwealth v. Thomas, 140 Ky. 789; First Nat. Bank of Elizabethtown v. Commonwealth, 143 Ky. 816.
In the case of the German Insurance Company v. Commonwealth, supra, in considering a very similar question, we in substance said the Constitution permits a corporation to acquire real property in good faith for
“The hoard met this day in their hanking office. Present: John W. Dean, A. Hood Hampton, James S. Lane, James Hodgkin, A. Howard Hampton and J. W. Parrish. The cashier was requested to read over the loans' from a paper held by the bank, which was done and the paper approved. The president then presented before the' board a proposition as to seeking a better and more centrally located location for their banking house, believing it to be the interest of the bank to secure a inore suitable house and more centrally located for business. After considerable talking upon the matter by the board, the president was requested to and did appoint the following committee, namely: John W. Bean, A. Hood Hampton, M. Gr. Taylor and V. W. Bush, to select a suitable house and see what it could be purchased for and the probable cost of fitting it up, and report to the board on the following Saturday, January 31st, 1880. There being no further business the board then adjourned.
“John W. Bean, President.
“M. Gr. Taylor, Secretary.”
The next order is as follows:
“Winchester, Ky., Jan. 31st, 1880.
“The board of directors met this day in their banking office. Present were: John W. Bean, Á. Hood Hampton, James Hodgkin, A. Howard Hampton and J. W. Parrish. The committee that was appointed at the last meeting reported that after duly considering the matter and looking at several houses and pricing the same that they considered the Webster House as the best and most centrally located, believe the cost of fitting up> a good and convenient banking house less than any other place that could be had. That'the house and grounds could be bought, for $5,250.00. After some consultation it was deemed in the interest of the bank to purchase said property and erect a suitable and ' nice banking house on the south end of the lot fronting on Main street and a nice store room and business house on the north side, which they can rent or sell as they deem best. Y. W. Bush and A. Hood Hampton were ordered to close the trade with Webster at the $5,250.00.
“John W. Bean, President.
“M. Gr. Taylor, Secretary.”
“Winchester, Kentucky, Feb. 10th, 1880.
“The hoard met this day. Present: John W. Bean, James S. Lane, James Hodgkin, A. Hood Hampton, J. W. Parrish and Howard Hampton. Mr. A. Hood Hampton reported that Mr. Bush and himself, the committee appointed at the last meeting, had purchased the Webster House property at $5,250.00, which purchase was approved by the board. The board then adjourned until half after one p. m. The board met this p. m. to hear propositions from Mr. Lewdin as to his, price for plans and specifications for building, etc. At 1:30 p. m., the board met in their banking office when Mr. Lewdin presented a pencil sketch of building and agreed to draw plans and specifications for said building and superintend the building of the same for the sum of $200.00, which proposition was accepted by the board. John W. Bean, A Hood Hampton and M. S. Taylor were then appointed as the building committee with full power to make and let our contracts*.
“John W. Bean and M. Gr. Taylor.”
For the Commonwealth it is argued that these minutes clearly manifest an intention on part of the board of directors of the bank to build two separate houses, one for banking purposes and the other for a store or other business house, the latter to be rented or sold whichever in the opinion of the board of directors might appear to be best for the institution, and this contention is strongly borne out by the language of the order which reads:
“After some consultation it is deemed in the interest of the bank to purchase said property and erect a suitable and nice bankmg house on the south end of the lot fronting on Maim street and a nice store room and business house on the north side, which they can rent or sell as they deem best.”
There is no order or evidence contradicting the purpose of the board of directors thus expressed in that order even up to the time of the taking of the depositions in this case. The next order respecting the property and its use, after the ones quoted above, was made on January 9, 1917, almost thirty-seven years later, and it reads:
“S. D. Goff. ¡President.
“R. P. Taylor, Secretary.”
Following this and on February 16th, we find an. order which reads:
“The -following directors were present at a board meeting held in the office of the bank on February 16th, 1917. S. D. Goff, T. G. Barrow, T. W. Brock, W. P. Hampton, A. Howard Hampton, Yic Bloomfield, George Hon, and B. T. Fox. After discussing the notes and condition of the bank a committee was appointed to have an architect draw plans and estimate the cost of erecting office rooms above the bank property and report back to the board. No further business. The board adjourned.
“S. D. Goff, President'.
“R. P. Taylor, ’Secretary.”
Before this last order was entered, this suit had been instituted. From a careful reading of the last two orders made by the board of directors, we observe that the committee of three appointed on January 9, 1917, “to get estimates of the cost of remodeling the inside of the offices of the bank and report back to the board of directors” was expected to get estimates and plans for remodeling the offices over the bank proper in the banking building, but not the banking room proper in which the corporation conducted its banking business. This is manifest from the order made by the board of February 16, 1917, in which it says: “A committee was ap>pointed to have an architect draw plans and estimate the cost of erecting office rooms above the bank proper.” Mr. Taylor, secretary of the board, testifies that these are the only orders made by the board of directors relative to the acquisition of the banking property and the use to be made of the several properties. He says, however, that the bank contemplated making improvements in the building by enlarging it to take care of its increased business. His evidence upon this point is as follows:
“Q. Has the bank been contemplating any improvement in its building, any enlargement to take care of its
He then testifies that in the banking house proper are the offices of the county sheriff and also of a building and loan association, and that in all some seven or eiarht persons work there. Proceeding with the interrogation the witness was asked:
“Q. State your best opinion and belief as to whether the part of the banking building now occupied by the Bloomfield store (the part in controversy) will be needed, or any part of that, for the enlargement of the banking facilities of the Clark County National Bank? A. If the business continues to increase, it unquestionably \Vill •Q. Would it or not be practical, if you did not have that additional space, to acquire additional space next to the bank that would be convenient for enlarging those banking rooms? A. We have no way of condemning the property adjoining, we would have to purchase. . . . Q. Has there been any definite conclusion by the officers or directors of the bank as to what improvements should be made and additions, if anything, should be made to the banking room and banking facilities? A. No definite arrangements. Q. How long has that matter been under discussion? A.- Since last January. Q. Was it ever discussed in the board of directors to that time? A. Not when I was present. . . . Q. Why was that action taken by the board of directors on the first day of January, or early in January, to enlarge the banking room? A. Because we were so crowded that we felt we would have to have additional room. Q. Is the banking business there at the present time too large for the present quarters? A. Yes, sir, it is. Q. Is it practical to occupy any of the second floor with that business? A. Totally impractical. Q. Was that action of the board taken before this suit was instituted? A. It was. Q. Was it before any rumors or information concerning this suit, or
By his evidence it is further shown that the banking house proper is about thirty-five feet wide and about sixty feet deep, although the lot runs back more than 200 feet. Continuing Mr. Taylor testified:
“Q. Have you made any examination of the books of the bank to see when this property was purchased by the Clark County National Bank? A. It was purchased in 1880. Q. Did you make any examination of the business of the bank at that time to see what were ,its deposits and what were its loans and discounts in that year? A. Yes. Q. Please state what they were? A. In 1880, June 30th, the deposits were $139,718.00; and loans and discounts were' $270,225.00. Q. I will ask you then if-you can give us what were the deposits and the loans and discounts in the year 1910? A. June 30th, the deposits were $275,000.00 in round numbers, and the loans and discounts were $580,000.00. Q. Can you give us the deposits and loans and discounts at the close of the year 1916? A. The deposits were $650,362.00, and the loans and discounts were $871,100.00. Q. Can you give us the deposits and loans and discounts at the present time? A. I can of September 4th. Q. What does that show? A. 'In round numbers the deposits were $949,000.00 and the loans and discounts and bonds were $1,057,796.00. Q. I will ask you to state whether or not the other business of the bank correspond with these figures you have given showing the deposits, loans and discounts bore the same relation to each other? A. Yes, about the same relation. Q. Does that or not show the true condition of the business at those respective periods? A. Yes, it does. Q. Can you state whether or not that growth as shown by the banking figures that you have given, is permanent and substantial? A. We believe it is. Q. What makes you believe that? A. Well, it has been a steady growth from 1910 up. Q. What about the general business of the city and the community in which the bank is located? A. It has greatly improved in the last two years. Q. Did the improvement extend any further back than two years? A. Yes, I think it does, it has been a steady growth, but very much more rapid in the last two years. Q. What would you say about the
Vic Bloomfield, one of the directors of the bank, testified as follows:
“Q. Prior to the filing of this suit, do you know whether or not any plans have been made by any architect for remodeling the banking house? A. We have only talked about this the first week in January, and I was appointed as committee to get an architect to remodel this banking building. I didn’t get any and I went to New York. I sent Mr. Crone to Mr. Taylor and Mr. Taylor told me he had negotiated with two men from Cincinnati, and then I left for.New York. Q'. No plans
It is admitted that- the bank has never used the Bloomfield store building in connection with its banking business through all the thirty-seven years it owned the same prior to the institution of this action. There is a solid brick wall extending all the way between the banking house and the store house and there is no door or passway between. The three photographs in the record show the front and back of the buildings. The design of the front of the banking building is very different from that of the store building. It appears to be several feet taller and the floors are not on the same level- — the floor in the bank room being about two feet higher than that
The property sought to be escheated was acquired by the bank with the avowed purpose of building a store house on it for rent or sale, and not to be used in connection with its banking business. It immediately began to rent the store house and to receive the rents. This continued for thirty-seven years before the bringing of this action. The bank had not changed its purpose or intention with respect to the use of the lot and store house in question from the time it acquired it until the bringing of this action, so far as this record shows. It never intended, if we read the evidence aright, to employ the ground on which the store house stands in connection with its legitimate banking business, but only to rent or sell it, as might prove most advantageous. On the 9th day of January, 1917, and only eight days before the
The facts in this caso do not bring it within the rule announced by this court in the case of Commonwealth versus Mehlar & Eckstenkenter Lumber Co., 183 Ky. 11, where we said:
“Mr. Mehler, the defendant’s president, testified in substance that it is now and has been since the purchase of this lot the settled purpose of this company to establish branch yards in different sections of the city, to enable it to make deliveries to its patrons throughout the city, more promptly and less expensively; that the lot involved in this action, together with another lot subsequently purchased in the same block and facing the same street with but seventy-five feet intervening between the two, was being held by the company in pursuance of said policy, with the ever present intention of using these lots in connection with other property to be acquired adjacent thereto, as a branch lumber yard in that section of the city, for which purpose this property is peculiarly adapted; that the company had not sooner completed its design with reference to the lot in question, although it is at present engaged in improving property for use as a branch yard in another section of the city, because of the temporary depression in its business during- the period immediately preceding- the war, and the abnormal cost of material since the beginning of the war; that its business in this section of the city approximates $8,000.00 a year; that the company is a “close” corporation, having only about nine stockholders, all or most of whom are related; that the meetings of its directors have been infrequent, and that the minutes of these meetings do not furnish a record of any considerable part of the transactions of the company; that he, as the president and sole executive officer, has for about twenty years, managed, developed and protected the company’s business, in accordance with the wishes of the directors as expressed in informal discussions, rather than in formal orders of the board. This evidence in our judgment under the circumstances, was competent evidence to
In the Mehler case the uncontra dieted evidence showed that the corporation purchased and held the lot in question with the settled purpose to employ it in its regular business and that the lot as well as others owned by the company was being held by the company in pursuance of said policy and “that there was an ever present intention of using these lots in connection with other property to be acquired adjacent thereto as a branch lumber'yard in that section of the city.”
In the case at bar just the opposite is proven. The property was acquired and held for the purpose of renting or selling, and not to be employed in its regular business, and there was never “an ever present purpose” to use the property for any necessary purpose connected with the bank, and the rule applied in the Mehler case cannot therefore be applied in this case.
It is insisted that the land sought to be escheated was acquired by the bank before the adoption of the present state Constitution in 1891, and, therefore, the corporation had a vested right which was unaffected by the adoption of the new Constitution and the enactment of section 567 Kentucky Statutes; that there could be no impairment of the obligation of contract or rights acquired and vested before the making of the law. This constitutional question was considered in the ease of Germania Insurance Co. v. Commonwealth, supra, where we said:
“It may also be here noted that although the Constitution of the United States forbids any state from impairing by constitution or law the obligations of a contract, there is yet the exception to this general rule that the state cannot contract away its police power or its right to abrogate or annul contracts- it has made in contravention of this power. And, so, although the state may have entered into a contract that would ordi-, narily be binding upon it, and beyond its power to impair, it may yet avoid a contract so entered into, if by
It is said by appellant that as this is a national bank, organized under the laws of the United States and not of this state, its property is not subject to escheat under the laws of Kentucky, but with this contention we cannot agree. There is nothing in the nature of a national bank which will prevent a state from providing for the es-cheat of lands taken by the bank to secure a debt, after they have been held for the five year period allowed by the federal banking law. 10 R. C. L. 608. The same author in vol. 3, page 657 says:
“It has been held that in view of the fact that the national banking act prohibits a national bank from holding for more than five years real estate purchased to
This text is largely rested upon the case of the First National Bank v. Commonwealth, 143 Ky. 816. An editorial note appended to the opinion in the above- styled case in 34 L. R. A. (N. S.) 55, says: “An extended search for additional cases adjudicating the question whether a state has the -right to escheat land held by a national bank confirms the statement that First National Bank v. Commonwealth is one of first impression. The decision seems to be correct. There is no conflict between the Federal Statutes and Kentucky law with reference to the period of time a national bank, on the one hand, and all corporations, on the other, shall be allowed to hold land for such a purpose as it was held for in the case at bar. It was upon this fact that the decision was made to turn.”
The Supreme Court of the United States in McClelland v. Chipman, 164 U. S. 347, held in substance that as national banks are subject to the laws of the state in which they operate and are governed in their daily course of business more by the law-st of the state than of the nation, they must conform thereto. Proceeding the opinion says: “Their (banks) acquisition and transfer of property, their rights to collect their debts, and their liability to be sued for debts, are all based on state law. It is only when the -state law incapacitates the banks from discharging their duties to the government that it becomes unconstitutional.'”
In the case of the First National of Elizabethtown v. Commonwealth, supra, we held in substance that nar tional banks cannot hold real estate not necessary in the conduct of their business beyond five years, and the protection afforded by the congressional act, ends when the five years expire, and thereafter the state laws become effective, and lands held for a longer time than five years by a national bank not to be used in connection with its business, are subject to escheat under the Constitution and statutes of the state. This conclusion is sustained by numerous authorities therein cited.
All of the lot in question occupied by the store building for more than five years next before the commencement of 'this action, as well as that part of the lot back of the building laid off to the storeroom, were subject to escheat at the time this action was commenced, and the trial court should have so held. The center of the solid brick wall which divides the store room from the banking house is the line at which the property should be severed for the purpose of forfeiture. That part of the building north of the solid brick wall between the bank and the storeroom as well as that part of the ground which lies back of the storeroom, occupied for the five years before the institution of this action, is and should be escheated to the Commonwealth, and upon a return of the case to the lower court a judgment will be entered forfeiting said property to the Commonwealth, and for further proceedings in conformity to this opinion.