Sigwald v. City Bank

• Citation: 64 S.E. 398,82 S.C. 382
• Parties: SIGWALD v. CITY BANK et al.
• Decision Date: 09 April 1909
• Court: South Carolina Supreme Court

64 S.E. 398

82 S.C. 382

SIGWALD v. CITY BANK et al.

Supreme Court of South Carolina

April 9, 1909

Appeal from Common Pleas Circuit Court of Greenwood County; Geo. W Gage, Judge.

Action by Lucy M. Sigwald against the City Bank and others. A demurrer to the complaint was overruled, and defendants appeal. Affirmed.

Grier & Park and Ellis G. Graydon, for appellants.

Caldwell & Gaston, for respondent.

JONES J.

This appeal is from an order of Judge Gage overruling a demurrer to the complaint. The demurrer was based upon two grounds (1) That plaintiff had not legal capacity to sue; (2) defect of parties defendant. The suit is by a stockholder of the City Bank of Greenwood, S. C., now insolvent and in the hands of a receiver, in behalf of herself and all other stockholders who shall come in, against the said bank and its directors, including James F. Davis, its president, who is also a receiver of the bank, charging gross negligence in the management of the bank to the loss of the stockholders, and demands an accounting by said directors. The complaint is quite lengthy, and we accept for the purpose of this appeal the following condensed statement of the material facts alleged as stated in the argument of appellants' counsel (1) Plaintiff is a stockholder in City Bank. (2) The bank failed on May 20, 1903, and was placed in hands of receiver defendant James F. Davis on May 27, 1903, and is now in hands of said receiver. (3) The defendants Bailey, Marse, Tinsley, Klugh, and Davis were directors of the bank at the time of failure, and Davis was president. (4) Other persons than those defendants had been officers and directors of the bank at various times, during the period of time for which the defendants are asked to account, to wit, Jordan (who died December 7, 1901), Maxwell (who died July or August, 1899), Joel S. Bailey (who died September 3, 1900), and Barksdale (resigned, time not stated)-none of whom are parties to this action. (5) During this time certain statements were made by the officers of the bank showing the bank to be in good condition. (6) Dividends were paid regularly until the bank suspended. (7) Jordan, who is not a party, and Davis, who is, made returns for taxation showing the value of the capital stock to be above par. (8) That the assets of the bank will not pay stockholders over 25 per cent. of their holdings. (9) That Davis was elected a director and president, and was not the owner of stock in the bank, in violation of law. (10) That the directors never attended meetings of the board, and the defendant Davis was allowed to run the bank according to his own notions. (11) That during Jordan's presidency (who is not a party) and during Davis' presidency large unauthorized loans were made on insufficient security and on unrecorded mortgages of both real and personal property. (12) General charges of mismanagement, carelessness, and negligence on the part of the defendant directors, resulting in loss to the bank.

It is contended that plaintiff has no legal capacity to sue (1) because the alleged cause of action belongs to the corporation, and cannot be properly brought except by the receiver; (2) because the complaint fails to show that plaintiff obtained leave of the court to bring the action; (3) because the court, having appointed a receiver to manage the affairs of the corporation, should not grant plaintiff power to bring the action.

The general rule is that, when directors or officers of a corporation are charged with the mismanagement of the corporate property, the action to redress should be instituted by the corporation, but to this rule there is a well-established exception that a stockholder may be permitted to bring such action in his own name when it is apparent that an application for redress through corporate action would be useless. Latimer v. Railroad Co., 39 S.C. 44, 17 S.E. 258; Wenzel v. Brewing Co., 48 S.C 80, 26 S.E. 1; Stahn v. Catawba Mills, 53 S.C. 528, 31 S.E. 498; Matthew v. Bank, 60 S.C. 183, 38 S.E. 437; Klugh v. Milling Co., 66 S.C. 106, 44 S.E. 566. Such is the situation in this case. The corporation is in the hands of a receiver, and therefore no application for redress could be successfully made at a meeting of stockholders or before the board of directors charged with mismanagement, and, as the receiver is one of the parties charged with wrongdoing, he would not...