141 U.S. 132 (1891), Briggs v. Spaulding

Citation:141 U.S. 132, 11 S.Ct. 924, 35 L.Ed. 662
Party Name:BRIGGS v. SPAULDING et al.
Case Date:May 25, 1891
Court:United States Supreme Court

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141 U.S. 132 (1891)

11 S.Ct. 924, 35 L.Ed. 662




United States Supreme Court.

May 25, 1891

Appeal from the circuit court of the United States for the northern district of New York.

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[11 S.Ct. 924] Smith (subsequently succeeded by Hadley, Hadley by Movius, and Movius by Briggs) exhibited his bill, as receiver of the First National Bank of Buffalo, in the circuit court of the United States for the northern district of New York, on the 4th of May, 1883, against Reuben Porter Lee, Francis E. Coit, Elbridge G. Spaulding, William H. Johnson, and Thomas W. Cushing, as directors of that bank, and Anne Vought as executrix of John H. Vought, and Frank S. Coit and Joseph C. Barnes, as administrators of Charles C. Coit, former directors. Francis E. Coit died pending the suit, and Caroline E. Coit, executrix, was made a party defendant. The bill alleged the organization of the bank as a national banking association under the acts of congress in that behalf, that it carried on the business of banking from February 5, 1864, to April 13, 1882; that on the 14th of April, 1882, being then insolvent, it suspended business under and by direction of a bank examiner; and that on the 22d of April complainant was appointed receiver by the comptroller of the currency, qualified April 26th, and took possession of the bank's books, records, and assets of every description. That on December 7, 1863, at a preliminary meeting of the subscribers to the stock of the bank, certain articles of association were duly adopted and executed, a copy of which was annexed; that these articles remained unchanged, except that the number of directors was reduced from nine to five; that by-laws were adopted by the board of directors December 13, 1863, a copy of which was annexed, and continued unaltered from thence forward; and that on January 7, 1879, at a meeting of the directors, a resolution was adopted requiring the directors to meet regularly at the bank once in each month to look after the affairs of the bank, and transact such business as might come before them. It was further alleged that defendant Lee was a director from January 12, 1877, to April 14, 1882; that defendants Spaulding and Johnson were directors from January 10 until April 14, 1882, 'except as the defendant Spaulding was disqualified by the sale of his stock on April 11, 1882;' that [11 S.Ct. 925] defendant Francis E. Coit was a director from May 20, 1881, and so remained, except as disqualified

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by the sale of his stock, April 11, 1882; that defendant Cushing was a director from June 7, 1879, to January 10, 1882, on which day his successor was elected; that John H. Vought was a director from January, 1865, and remained such, except as he was disqualified by the sale of his stock, January 18, 1882; and that Charles T. Coit was elected a director January 11, 1870, and continued to act as such until about December 11, 1881, when he died intestate, and letters of administration were issued to Frank S. Coit and Joseph C. Barnes as administrators. It was further averred that from June 7, 1879, to December 11, 1881, Charles T. Coit was president of the bank, and defendant Lee its cashier; that down to about October 3, 1881, Charles T. Coit continued in the active discharge of his duties as president, and on that day was given a leave of absence for one year from those duties, and the defendant Lee was made vice-president, and placed in charge of the bank; that Lee also continued to be cashier, and one McKnight was assistant cashier thereof; and that on January 10, 1882, a new board of directors was elected consisting of the defendants Spaulding, Johnson, Francis E. Coit, Lee, and Vought, who elected officers for the ensuing year,--Lee as president, Francis E. Coit as vice-president, McKnight as cashier, and one Bogert as assistant cashier. The bill then charged that down to about October 3, 1881, being the date when the defendant Lee was made vice-president and placed in charge of the bank, 'the said bank was solvent, and engaged in a prosperous business; that the capital stock of said bank was one hundred thousand dollars, which was entirely paid up, and was divided into shares of the par value of one hundred dollars each, and that said shares were then salable at not less than one hundred and fifty dollars each, and were actually worth about that sum; that from the time of its organization down to said last-mentioned date the said bank had declared and paid dividends on its said capital stock, amounting in the aggregate to upwards of 285 per cent. thereon; that said bank then had a surplus or reserve fund representing undivided profits of said bank amounting nominally to seventy-four thousand two hundred and seventy-seven dollars and

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three cents, ($74,277.03,) and had actually a large surplus;' that on April 14, 1882, the bank was largely insolvent; that its surplus and capital stock had been exhausted; that its total liabilities to its creditors, not including the amount of its capital stock, or other liability to its stockholders as such, amounted to $1,160,763.77; that its assets were nominally not less than $1,351,199.69, not including the liability of the stockholders on their stock; that a large portion of such assets were utterly worthless, and that the deficiency then existing in the good assets as compared with its liabilities was not less than $535,163.42, or about 46 per cent. of the liabilities; that statements of the nominal financial condition of the bank, as shown by its own books, as of the dates October 3, 1881, January 9, 1882, and April 14, 1882, are annexed; but those of January 9th and April 14th fail to show that 'any of the bills discounted or cash items, as therein stated, were worthless or uncollectible, or that the said bank had suffered any considerable loss by reason of bad debts or wasteful management, contrary to the facts as hereinbefore and hereinafter stated.' The bill further averred that the greater part of the losses of the bank during the period between October 3, 1881, and April 14, 1882, and the consequent failure of the bank, were due to the misconduct of the officers and directors of the bank, and to the failure of the directors to perform faithfully and diligently the duties of their office; and it was particularly alleged that it was the duty of the directors, 'by reason of the nature of their office and of the principles of the common law applicable thereto, and under and by virtue of the provisions of the Revised Statutes of the United States, and of the acts of congress relating to national banks, and of the articles of association and by laws of the said bank, hereinbefore referred to, diligently, carefully, and honestly to administer the affairs of the said bank; to employ none but honest and competent persons to serve as officers of the said bank; to take from all persons so employed sufficient security for the faithful performance of their duties; to keep correct books of account of all the affairs, business, and transactions of the said bank; to see that the business of the said bank was prudently conducted,

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and that the property and effects of the said bank were not wasted, stolen, or squandered,' etc. It was then charged that the directors utterly failed to perform each and every of their official duties, and during all the period from October 3, 1881, to April 14, 1882, paid no attention to the affairs of the bank, failed to hold or call meetings, or to appoint any committee of examination, or to require bonds, or to make personal examinations into the conduct and management of its affairs and into the condition of its accounts, but allowed the executive officers to manage it without supervision.

The bill further charged that the defendants permitted the reserve of the bank to remain below the amount required by section 5191, Rev. St., and that a large part of the losses of the bank arose from the unlawful extension of its line of discounts, and would have been prevented if the directors had performed their duty and prevented the increase; that on or about November 7, 1881, the surplus and undivided profits had been exhausted, and the capital stock impaired, and this should have been reported to the comptroller, whereby the capital would have been made good, or the said bank would have necessarily been put into liquidation, and further losses thereafter incurred by continuance of its business would have been stopped. It was also asserted that, independently of the provisions of the acts of congress, the directors were trustees for the bank and its stockholders and creditors, and it was their duty to have ascertained whether the [11 S.Ct. 926] bank had sustained losses, and made known the facts and the general condition of the bank and the methods of its management, which duties they neglected and failed to perform, and by reason thereof the bank sustained great losses, amounting in the aggregate to at least $685,163.42. It was further alleged that it was unlawful for the bank to allow any one person, company, corporation, or firm to become indebted to an amount exceeding one-tenth of the capital stock, excepting by a discount of bills of exchange drawn in good faith, and of business or commercial paper actually owned by the person negotiating it; but that the directors

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from October 3, 1881, to April 14, 1882, permitted this to be done, and thereby a loss of at least $556,215.62 was occasioned; that it was the duty of the directors and officers of the bank to make accurate reports to the comptroller, and they did October 1, 1881, submit a report, and on December 31, 1881, and March 11, 1882, further reports, but the reports dated December 31, 1881, and March 11, 1882, were false and misleading, and particularly in representing that the bank had a surplus fund and undivided profits, amounting to...

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