Pitts v. People's Bank

Cook, J.,

delivered the opinion of the court.

The People’s Bank of Baldwin having become insolvent, was taken over by the State Banking Department for liquidation, its affairs being administered under the direction of the chancery court of Lee county. The appellant filed a petition in the matter seeking to have the court order the State Banking Department to issue a guaranty certificate in his favor for fifteen thousand dollars, represented by three certificates of deposit, and, from a decree denying the relief prayed for, this appeal was prosecuted.

During the month of February, 1921, the appellant, L. S. Pitts, deposited in the People’s Bank of Baldwin, Miss., a state bank, operating under the State Guaranty Law, the sum of fifteen thousand dollars. This deposit was evidenced by three certificates of deposit, bearing four per cent, interest per annum, one of these certificates being1; dated February 7, 1921, one February 10, 1921 'and one February 18, 1921. As to the circumstances under which these deposits were made, and his dealings with the bank, the appellant testified, in substance, that in the early part of 1921 he was a conductor on the Mobile & Ohio Bailroad, his train run being from Okolona, Miss., to Mobile, Ala., and that he then had on deposit with the Merchants’ & Farmers’ Bank of Meridian the sum of fifteen thousand dollars; that in the early part of that year he had a conversation with one L. D. Beed, who was in the lumber business at Tupelo, Miss., in which conversation Beed’s lumber business was'discussed, and appellant suggested to him that he was anxious for his son to learn the business, and requested Beed to take his son into the business with him.

According to the testimony of the appellant, Beed stated that he could not take another person into his business because he was not financially able to do an amount of bhsiness that would justify the employment of another man. Beed then requested the appellant to loan him some money on good collateral, but appellant declined this arrangement, assigning as a reason that he was under written contract to take care of a note in Meridian, and would have to keep his money where he could get it when needed. Beed then proposed to the appellant that, since he would not loan him the money, if be would move it to the People’s Bank of Baldwin, he. Beed, would be able to secure from that bank such accommodation as he needed. Beed stated to appellant that the People’s Bank was under the Guaranty Law the same as the bank with which he was then carrying his money, and that he had been advised by the People’s Bank that it would loan him additional money if it could secure some additional deposits. The arrangement between Beed and appellant proceeded no further at that time, but a week or ten days later they again met, and according to the witness, the following conversation took place:

“He asked what I thought about changing my money, and wanted to know if I still wanted my boy to learn the lumber business, and I said, ‘Yes; I am very much interested in that, and I don’t see any reason why I could not deposit my money there, and if you can negotiate with the bank, that is your business, I will take my money and deposit it for four per cent., the same as I am getting, and if you can make arrangements with the bank, that is your business. ’ And he said, ‘ That will be perfectly all right.’ ”

The appellant then testified that he agreed with Beed to take his son into the business, and that a few days later he sent his son to work for Beed, giving him a five thousand dollar certificate of deposit for deposit in the People’s Bank; that a few days later he went to Tupelo and Baldwin and looked over Beed’s business and the situation generally, and that everything looked so prosperous, and he was so impressed with the president of the People’s Bank, that he made two other deposits of five thousand dollars each, for which he received the certificates of deposits hereinbefore referred to. He further testified that Beed told him that if he put his money up there, and the boy was dissatisfied with the lumber business and did not stay with him, that, if he made anything that year, he would compensate him for his kindness to him. The appellant’s son remained with Beed only a short time, and appellant further testified that about a month before the maturity of his certificates of deposit he met Dr. Cox, the president of the People’s Bank, in Okolona, and had a conversation with him in which he inquired about the business of Beed and the affairs of the bank; that Dr. Cox told him that Beed had a very prosperous year, and had made good money; that the bank had made twenty-two per cent, dividends for the year, and that no stock thereof was for sale; that he informed Dr. Cox that he was thinking about moving his money to a bank at his home in "Waynesboro; that Dr. Cox urged him to leave it with his bank for another year, stating that the same guaranty was behind each of these banks and both paid the same rate of interest, to-wit, four per cent., and that he finally agreed to leave the money with the People’s Bank another year; that, about the time his certificates matured, he received from Dr. Cox, president of the People’s Bank, a letter inclosing the bank’s check for six hundred dollars, being four per cent, interest on the amount of his three certificates, and also a check on the said People’s Bank for six hundred dollars, signed by L. D. Beed; and that when he received these checks he supposed Beed had made considerable money and wanted to compensate him by making him a present, as he said he would, and that he had handed the check to Dr. Cox to be forwarded to him. He further testified that there was no definite contract or obligation on Need’s part to pay him anything, but that “it was only an honor proposition on his part.”

Upon receipt of the letter from Cox inclosing the two six hundred dollar checks, Pitts returned to the bank the three original certificates of deposit and received three new certificates for the same amounts; the letter returning these original certificates to Dr. Cox, president of the bank, being, in part, as follows: “I am inclosing you the three certificates in this letter. . . . Bee’cl che letter and checks O. K.” These three new certificates, which were introduced in evidence, and upon which this suit is based, were each for five thousand dollars, and were dated respectively February 7, February 11, and February 18, 1922, and .provided for interest thereon at four per cent, per annum payable twelve months after date. Before the maturity of these certificates the bank was declared insolvent, and was taken over by the State Banking* Department for liquidation. The check for six hundred dollars which was signed by L. D. Reed and received by Pitts about February 8, 1922, was deposited for collection, and paid by the People’s Bank out of the funds of the bank.

L. D. Reed, as a witness for the defendant bank, testified that the six hundred dollar check to which his name was signed, and which had been forwarded to appellant by Dr. Cox, was a forgery; that he did business with this bank during the first part of the year 1921, but that, at the time this check was issued in February, 1922, he had no account with this bank, and that he authorized no one to pay any sum to the appellant, Pitts. He admitted the several conversations with Pitts in reference to transferring his money to the People’s Bank, and the agreement ot take appellant’s son into his business, and testified that he told the appellant that if his son did not make good in the lumber business, if he made good money out of the business, he would like to give him something anyway to show his appreciation of the assistance rendered him by placing the money in this bank so that he would be able to borrow a sufficient amount to meet his needs. He testified however, that no particular amount was specified or agreed upon, and that, in fact, he made no money out of the lumber business in the year 1921. He further testified that during the summer of 1921, he disclosed to Dr. Cox the fact that he had hoped to be able to pay Mr. Pitts something to show his appreciation of this assistance to him.

Section 1, chapter 207, Laws of 1916 (section 3596, Hemingway’s Code), providing for the guaranty of state bank deposits, is, in part, as follows:

“All deposits not otherwise secured and all cashier’s checks, certified checks or sight exchange issued by banks operating under this law shall be guaranteed by this act. The guaranty as provided for in this act shail not apply to a bank’s obligation as indorser upon bills rediscounted, nor to bills payable, nor to money borrowed from its correspondents or others, nor to deposits bearing a greater rate of interest than four per cent, per annum. ’ ’

Applying this statute, the court below found upon this evidence that the six hundred dollars paid to the appellant, Pitts, by the bank on the check signed by Reed was in effect a payment by the bank of more than four per cent, for the year 1921, and that it was paid in pursuance of some understanding or agreement between the bank and Pitts, or with knowledge on the part of Pitts that it was a payment by the bank, thereby rendering the 1921 certificates without the protection of the bank guaranty fund; and also that the certificates of deposit issued in 1922 were merely a continuity of the old contracts created by the original deposits, and that the excess interest paid at the time of the maturity of the 1921 certificates should be applied as interest or a bonus for the entire two years, thereby infecting the 1922 certificates with the same infirmity as were the 1921 certificates.

It seems to be established on reason and authority that a depositor will not be denied protection under the Guaranty Law because the deposit was solicited by a third party, not an agent of the bank, and who, to advance his own interest, paid the depositor a bonus to procure the making of the deposit, and it seems clear that such would be the case where the bonus was actually paid out of the funds of the bank, if the depositor had no such understanding or agreement with the bank, and no knowledge of the fact that the bank was paying the bonus.

In the case of Farm Mortgage Trust Co. v. Wilson, 110 Kan. 786, 205 P. 610, the supreme court of Kansas had under consideration a provision of the Kansas Banking Law which in effect is the same as ours, the difference upon this point being that our statute fixes a maximum rate of four per cent, interest that may he paid on guaranteed deposit, while the Kansas law authorizes the state bank commissioner to fix the maximum rate that' may be paid, and the commissioner had fixed this rate at four per cent. In the Mortgage Trust Company Case, supra, a bonus of one hundred dollars had been paid to the trust company for making the deposit, and in stating the issues involved the court said:

“After the bank became insolvent, a demand was made upon the hank commissioner to issue a certificate on the bank guaranty fund, but he declined to issue it on the ground that the trust company had received a rate of interest in excess of four per cent., and the advancement of the one hundred dollars by the insurance agents to bring the rate of the trust compeny equal to six per cent.”

There were other questions involved but in deciding this issue the court held:

“A deposit in a bank for which a certificate was issued bearing interest at the rate approved by the bank commissioner is not rendered invalid nor taken out of the protection of the state guaranty fund because it was solicited by a third party not the agent of the bank, and who to advance his own interest paid the depositor a bonus to procure the making of a deposit.”

In the case of Farmers’ & Merchants’ State Bank v. Foster, 112 Kan. 141, 210 P. 490, the president and cashier of the bank, in order to secure a deposit, agreed that in addition to four per cent, to be paid by the bank, they would personally pay an additional amount of three per cent, of the amount of the deposit. The court held that it was not shown that it was the act of the bank in making this payment, and that the deposit was within the protection of the Guaranty Law.

In the case at bar there is no testimony whatever to show, or from which the conclusion may be drawn, that in soliciting this deposit Eeed was the agent of, or in_ any way connected with, the bank, and it is difficult to understand upon what evidence the court found that there was an understanding or agreement between appellant and the bank that more than four per cent, would be paid, or that more than four per cent, was paid by the bank with the knowledge of the appellant. The certificates of deposit on their face bear the authorized rate of four per cent. If the testimony of the appellant is true, he received the bonus in good faith, believing that it was paid by Reed. The testimony of Reed, a witness for the bank, tends to support the version of the appellant, rather than to contradict it. If the testimony of the appellant on this point is untrue, then there is no evidence to support the contrary finding except the fact that the president of the bank mailed- to the appellant a forged check, and that this check was accepted by him. However, without expressly deciding that the circumstances surrounding the receipt and acceptance of this check are insufficient to support the finding of the chancellor that more than four per cent, was paid on the 1921 certificates, a majority of the court is clearly of opinion that there is nothing in the- record to justify the finding that the six hundred dollars interest or bonus, or any part thereof, was paid on the 1922 certificates. The certificates on their face bear interest at the rate of four per cent, per annum, and the record is entirely silent as to .any other contract in reference to these certificates.

We also are of the opinion that the chancellor was in error in holding that the deposits for 1921 and the deposits for 1922 constituted one continuous transaction, and that the excess interest paid at the time of the maturity of the 1921 certificates should be applied as interest or a bonus for the entire two years. As we said in the case of Fourth National Bank v. Wilson, 110 Kan. 389, 204 P. 719, “in creating a deposit, pure formalities may be dispensed with, such as taking money across the counter on a matured certificate of deposit, and passing it back to obtain a new certificate,” and when the appellant surrendered the 1921 certificates of deposit, and the bank issued and mailed to him the 1922 certificates, this was not a continuation of the old contract created by the original deposit, but it constituted a new contract just as though the depositor had received in cash the amount of his deposit, and had later redeposited it in the bank and accepted new time certificates. The record being’ silent ás to any payment or any agreement or contract to pay more than four per cent, interest or any bonus of any kind, for the year 1922, the judgment of the court below will be reversed, and judgment will be entered here directing the issuance of the guaranty certificates as prayed for in appellant’s petition.

Reversed and judgment for appellant.

Sykes, J., dissents. Anderson, J., took no part in the decision of this case.