
    CHARLES MIX COUNTY BANK, Appellant, v. JOHNSON BROTHERS LAND COMPANY, Respondent.
    (159 N. W. 279.)
    (File No. 3783.
    Opinion filed September 9, 1916.
    Rehearing denied November 29, 1916.)
    1. Banks and Banking — Two Corporations, Stock Owned by Partnership — Sale of Bank Corporation Stock by Partnership — Bank’s Money Invested — Land Company Loans — Right to Interest After Loan Sold — Ratification by Bank of Agreement re Interest.
    Plaintiff bank, incorporated by the parties constituting defendant land company, also incorporated, the entire capital stock of -both corporations except ten shares of the bank stock being owned .by the partners, constituting the incorporators of the land company, sued the land company for certain interest on loans made by using the bank’s funds; the ten shares being owned by one who. acted as the bank cashier. Thereafter, the land company sold all of the capital stock except said ten shares, to a ¡purchaser who took' over the entire management of the bank, retaining the cashier under an arrangement that it would pay one-half his salary, the land company to -pay the other one-half. Prior to said stock sale, sundry notes and mortgages owned by the bank were sold to various ■parties, pursuant to an arrangement between the bank and the land company, whereby the former was to receive the interest thereon accruing up to the time when the loans were sold or rediscounted, the bank being repaid the loan moneys at time of such sales, the land company to have the principal and all interest accruing thereafter; it appearing that, when said stock sale was made, items of interest on the loans were not invoiced with the bank’s assets in arriving at the bank value of its stock, and said interest items were thereafter received by the bank and paid over to the -land company. Held, that, there being no evidence of any concealment or misrepresentation in the sale of the bank stock, the bank, if it ever had any right or title to said interest, had parted therewith and was not entitled to recover; it further appearing that the bank continued to pay said items of interest, as collected, to the land company, up to a period several months after the cashier had severed his connection with the bank; and the bank not only purchased their stock with full knowledge of said agreement, but ratified the same and acquiesced therein.
    2. Banks and Banking — Sale of Bank Stock Distinguished From Sale of Bank Property.
    The sale of all capital stock of a bank except ten shares held by the cashier, to a purchaser who took over its entire management, was not a transfer of title of any of tlie bank’s property; it was only a sale of such capital stock and. did not affect the title to the property then belonging to the bank.
    Smith, J., taking no .part in the decision.
    Appeal from Circuit Court, Charles Mix County. Hon. RobiíRT B. Tripp, Judge.
    Action by the Charles Mix County Bank, against Johnson Brothers Land Company, to recover interest on certain mortgage loans made with 'plaintiff bank's money. From a judgment for defendant ,and from an order denying a new trial, plaintiff appeals.
    Judgment and order affirmed.
    
      John H. Tipton, for Appellant.
    
      Ambrose B. Beck, and Trench & Orvis, for Respondent.
   POLLEY, P. J.

Plaintiff, who is also appellant, is a banking corporation at Geddes, S. D. Defendant is a real estate and loan company. Both companies were incorporated by the same parties, to-wit; Ed. S-, Plomer W., and Frank H. Johnson, known os Johnson Bros., and both companies were incorporated at about the same time. For some time after their incorporation, Johnson Bros, owned all the capital stock of both corporations. Both corporations carried on their business in the same offices in Geddes. At some time after the incorporation of said companies — the exact dates does not appear in the record — one V. A. Welcher acquired io shares of the capital stock of the plaintiff company, and became, and thereafter acted as, cashier of the bank. During the month of July, -1911, Johnson Bros, sold all of the capital stock of the bank, except 10 shares, to J. H. and O. V. Mejdiaus and C. M. Krebs (referred to in the record as Mayhaus Bros & Krebs), who took over the entire management of the bank, except that they retained the said Welcher, who continued to act as cashier of the bank until about the 1st of June, 1912. In addition to acting as cashier of the bank, after Johnson Bros, sold out Welcher was also to look after certain interests of theirs, and they were to pay one half of his salary and the bank the other half. While Johnson Bros, were operating the bank, certain notes and mortgages, owned by it, were sold to various parties, in different-parts of the country. These notes were negotiated under an arrangement whereby, when the interest thereon was paid, the defendant company was to receive a certain amount thereof. equal, in some cases, to i per cent, and in others to one-half per cent, of the principal; and, iin the complaint, it is alleged that the defendant—

‘Toy its officers and agents, through the knowledge they had of plaintiff’s affairs, collected * * * dollars so due this plaintiff, as aforesaid; and appropriated it to its own use and benefit.”

The interest that had been paid on each individual note was made the basis of a separate cause of action. The case was tried to a jury; but, at the close of all the testimony, the trial court, upon defendant’s motion, directed a verdict for defendant. From the judgment entered upon said verdict and from an order denying a motion for a new trial, plaintiff appeals.

Appellant bases its right to recover upon the theory that, as the notes and mortgages involved were the property of the bank, any interest or co-mmision that may have been reserved at the time they were negotiated also belonged'to the bank.

Appellant has presented and argued 93 assignments of error, but we do not deem it necessary to consider them in detail because upon the facts as claimed by appellant, it has not shown itself entitled to recover.

Prior to the making of any of the loans evidenced by the said notes and mortgages, and when Johnson Bros, owned all the capital stock of both corporations and had entire control of all the business and affairs of -both corporations, -they had an agreement among themselves, to- the effect that all the profits of the real estate loan business should belong to the respondent; -that, if the bank’s money should be used in making lo-ans, the bank 'should have all the interest that accrued upon said loans so- long as the bank’s money was invested- therein, but, so- soon as a loan was sold, the -money invested therein by the -bank, together with the interest that had accrued -to- that time, should be returned to the bank and the bank should have no further interest in said loan. The loans were procured, in -the first place, by the respondent company, and all commissions thereon and all interest reserved when the loans were sold were to go- to -the respondent. While appellant does not, in -so many words, charge t-h-at this agreement and the various transactions pursuant -thereto- were fraudulent, its contention is, in effect, that they amounted to- a fraud upon the bank. This kind of banking, of course, is not to be commended, but it is not in violation of -any statute, nor, in this case, was any one injured thereby.

At the time the above agreement was entered into, Johnson Bros, being the owners of all the stock in both companies, all profits earned by either company inured directly to. their benefit. They were the only parties in any manner interested, and it was wholly immaterial to any one but themselves which of the two companies was credited with the profit. This agreement being legal, it would continue to be binding upon the bank so far as past transactions are concerned, although the capital stock changed hands and other parties became interested. Or, in other words, the bank having divested itself of all interest in the loan when ■the note and mortgage were sold, it was wholly immaterial to the bank what disposition was made of the interest that was earned by 'fee loan thereafter. It is not claimed that there was any concealment or misrepresentation at the time of the sale to May-haus Bros. & Krebs. All of the loans described in the complaint had been sold and fully paid for before they acquired their interests. All the notes were payable at the bank, and all the items of interest involved were .paid to. the bank, and all paid after May-haus Bros. & Krebs had acquired their interest and were in the active •■management of the bank. As the interest on said notes was paid, the amount thereof to. which Johnson Bros, were entitled, under the terms of -the above agreement, was remitted to them by draft or placed to their credit in the bank. True, Welcher ■continued to .act as cashier until about June, 1912, but it is nowhere claimed that Mayhaus Bros & Krebs were not fully advised of all that was being done in the premises; and it is a fact that they continued to pay the said items of interest, as they were collected, to Johnson'Bros, up until as late as April 1, 1913, a period of some nine months after Welcher had severed his connection with the bank. These circumstances tend very strongly to show that Mayhaus Bros. & Krebs not ■ only purchased their bank stock with full knowledge of the said agreement between appellant and respondent, but that they fully ratified the same and acquiesced therein. But there is another circumstance that tends still more strongly to< show that o Johnson Bros, possessed and retained the right to the said interest as it accrued. The sale of bank stock from Johnson Bros, to Mayhaus Bros. & Krebs was made pursuant -to a written contract whereby Johnson Bros, agreed to sell and Meyhaus Bros. & Krebs agreed to buy 240 of the total of 250 shares of the capital stock of the bank ‘at and for the book value thereof, plus a bonus of $10,000.” It was further agreed that:

“In arriving at the ¡book value, the capital stock, surplus, undivided profits and accrued interest on all notes and bills receivable are to be added together and, from the aggregate of such amount, is to be deducted interest paid in advance on notes, figured at eight per cent, per annum, and accrued interest on certificates of deposit.”

It appears that, in arriving at the book value of the stock, an invoice of the assets of the bank, as they appeared upon the books thereof, was taken, and the value of the stock equaled the aggregate value of the bank’s assets. This implies also that anything that was- not invoiced was not to be considered as an asset of the bank. At the time the invoice was taken, the right to the items of interest involved as .they accrued constituted a valuable asset, the existence of which appeared on the books of the bank. Meyhaus Bros. & Krebs assisted in making the invoice and had access to these books. None of -these items was invoiced nor taken into consideration in arrivng at the value of the stock. The inference is that -they did not belong to the bank, and were not regarded as 'an asset of the bank by any of the parties the transaction. Of course we do not mean to imply that the mere failure to invoice an item of property, whether tangible or intangible, would divest the bank of its right to such property, if in fact it belonged to the bank; but, when, as in this case, -all parties at -the time of the sale and for nearly two> years thereafter assumed that the property involved belonged to the respondent, the only inference is that -the bank had parted with its title thereto at some previous time, if indeed it ever had any title at all.

We -have not overlooked the fact that the sale of Johnson Bros, to Mayhaus Bros. & Krebs was not a transfer of title of any property belonging to the bank. It was only a sale of a stipulated amount of the capital stock of the bank, and- title to the property that belonged to the bank at that time was in no wise affected by such sale.

The judgment and order appealed from are affirmed.

SMITH, J., took no part in this decision.  