
    In re Liquidation of State Exchange Bank of Stryker.
    
      Banks and banking — Depository for public funds — Directors’ contract, pledging bank’s collateral to indemnify them as sureties, void.
    
    'Contract of directors' of bank individually with themselves as directors by which certain collateral of bank was pledged to one of their number as trustee to indemnify them as sureties on bonds given to secure school district’s deposits held void as lacking two contracting parties.
    (Decided May 2, 1927.)
    Appeal: Court of Appeals for Williams county.
    
      Mr. Edward C. Turner, attorney general, Mr. L. F. Laylin and Mr. J. A. Godown, for the State.
    
      Mr. Edwin G. Peck and Messrs. Winn & Goller, for Stubbs.
   Richards, J.

The State Exchange Bank of Stryker was taken over for liquidation in April, 1926, by the state superintendent of banks, and inventories were filed in the court of common pleas of Williams county, pursuant to statute. Thereafter an application by the state superintendent of banks was filed in the case to require Walter L. Stubbs to deliver certain securities claimed to belong to the bank.

The court of common pleas, on hearing the case, adjudged that Walter L. Stubbs, as trustee, and his associates, were entitled to an equity in these securities to indemnify them for- certain liability which they had assumed, and from that decision the state appealed to this court.

The evidence discloses that among the assets of the hank were four certain promissory notes of the par value of $80,810, executed by the Bruns-Bowersox Land & Lumber Company, secured on real estate in Gallatin county, 111., but the real value of these promissory notes does not appear from the evidence. The evidence discloses that the bank was desirous of securing a deposit of public moneys of the village of Stryker, of the sinking fund trustees of the village, and of the Stryker village school district, but that the public authorities having the funds in charge would not continue depositing funds with the bank unless proper security was furnished therefor. The bureau of accounting had ordered that new bonds should be given before any further deposits should be made in the bank, and had ordered that, unless such bonds were given, the public moneys held by the bank should be returned. The State Bank of Stryker therefore had the problem of qualifying so that it could continue as depository of these public moneys.

In March, 1926, this matter came up for consideration by the bank. Directors of the bank refused to obligate themselves as sureties to secure these deposits unless they received indemnity therefor, and the authorities of the village and the board of education refused to continue deposits unless they were indemnified. After full consideration of the matter, it was determined by the bank that the only feasible way for the bank to qualify as a depository of the funds was for the directors to execute bonds to the village and board of education, and that it was necessary, in order to bring this about, to secure the persons so signing such bonds. Thereupon bonds in due form of law were executed by the bank, with Walter L. Stubbs and his associates as sureties thereon, and the promissory notes and mortgage already mentioned were pledged to Stubbs as trustee, to indemnify the sureties on the bonds, and were in fact delivered to him and placed by him in a safety deposit box.

This agreement, providing for the pledging of notes and the mortgage securing the same, amounting to $80,810, was undertaken to be made by the ij directors of the bank individually contracting with ¡I themselves as directors. It was assumed to be accomplished by the adoption of a resolution, each of the seven directors voting for the adoption of the resolution. By the terms of the resolution the bank was to transfer to W. L. Stubbs, as trustee for the benefit of the directors, the notes and mortgage already mentioned; the trustee Stubbs himself being one of the seven directors. As already stated, this was no more than a contract made by themselves individually with themselves as directors, and it requires no citation of authorities to show that such a contract is a nullity, for the simple reason that there were not two contracting parties. Such a contract, so-called, could not lawfully remove from the possession of the bank the notes and mortgage securing the same, and it would be as impossible for the directors, in undertaking to contract with themselves, to accomplish any redi suit as it would be for them to undertake to lift ^themselves over a fence by their bootstraps.

Authorities have been cited sustaining the proposition that an official of a bank who becomes surety for funds to be deposited in the bank may be protected by the bank, even to tbe extent of transferring to the surety securities owned by the bank, but we know of no authority which holds that the entire board of directors may accomplish such a result by contracting with themselves as individuals.

For the reasons given, a judgment and decree will be rendered in behalf of the state superintendent of banks.

Decree accordingly.

Williams and Lloyd, JJ., concur.  