Anderson v. Gailey

• Decision Date: 02 July 1929
• Docket Number: No. 481.,481.
• Citation: 33 F.2d 589
• Parties: ANDERSON v. GAILEY et al.
• Court: U.S. District Court — Panama Canal Zone

33 F.2d 589 (1929)

ANDERSON v. GAILEY et al.

No. 481.

District Court, N. D. Georgia, Atlanta Division.

July 2, 1929.

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Robert M. Tuck, of Covington, Ga., and Smith, Hammond & Smith and W. L. Bryan, all of Atlanta, Ga., for plaintiff.

Spalding, MacDougald & Sibley, of Atlanta, Ga., Clarence Vaughn, of Conyers, Ga., Watkins, Asbill & Watkins, of Atlanta, Ga., J. H. McCalla and J. R. Irwin, both of Conyers, Ga., and Lamar C. Rucker, of Athens, Ga., for defendants.

SIBLEY, District Judge.

A national banking association failed and a receiver was appointed April 17, 1925. On December 8, 1927, he filed suit in equity as for an accounting against eight of the directors seeking recovery in behalf of the association, its stockholders and creditors, under the common law and under 12 U. S. Code, § 93 (12 USCA § 93), for numerous acts and negligences from 1919 to 1925, especially in making loans contrary to 12 U. S. Code, § 84 (12 USCA § 84), and in negligently handling these and others to the loss of the bank. Motions are made to strike various portions of the petition as barred by the statute of limitations. The Georgia law applies, and four years from the accrual of the cause of action is the limitation period. Anderson v. Anderson (D. C.) 23 F.(2d) 331, affirmed Anderson v. Pennington (C. C. A.) 28 F. (2d) 1007. Each misconduct is a separate cause of action against those who participated. In the case of excess loans the right of action accrues so soon as the loan is made and the bank parts with its money.

It has no right to receive the paper, and if it is left among the assets of the bank by the directors it is only in the nature of "salvage." Corsicana National Bank v. Johnson, 251 U. S. 68, 86, 87, 40 S. Ct. 82, 64 L. Ed. 141. In the handling of the salvage they owe due diligence, as in handling all the bank's business. Their acts of clear misconduct, as in making a loan to an insolvent or buying and not properly reselling the bank's own stock, also give rise immediately to a cause of action, though the extent of the damage may not at once be apparent. But some neglects are not actionable until some damage actually ensues, and as to these the statute cannot begin to run until there is a right to sue. 25 Cyc. 1116, 1136. In most instances of the latter sort, complete insolvency and loss of the asset is placed in this petition at a date so early as that some of the directors who came into office since cannot have contributed to the loss by their neglect, and as to others previously in office limitation has clearly run, unless prevented by some exception.

1. That the forum is in equity makes no difference. Items of an account barred at law are barred in equity. The causes of action here are really torts and equity will not enforce them if barred at law. Hays v. Urquhart, 63 Ga. 324; 25 Cyc. 1057, 1060.

2. Directors as respects their corporation and its stockholders are not technical trustees in whose favor limitation does not run at all during the continuance of their trust. Their relationship is fiduciary, and trust doctrines are sometimes applied to effectuate equities as respects rights in property; but as respects liability for misconduct and limitation of action therefor they are more exactly agents or mandataries. Briggs v. Spaulding, 141 U. S. 132, 11 S. Ct. 924, 35 L. Ed. 662; 10 Cyc. 758. It cannot be said generally that a director has no protection by the statute of limitations so long as he continues in office.

3. But it is claimed to be otherwise when, as here, the directors sued constitute a majority of the board and dominate it. In so far as any special right of action in stockholders or creditors under 12 U. S. Code, § 93, or otherwise may be involved there is no ground for the contention. Nothing stood in the way of their suing at any time. In so far as the right of the corporation itself to sue is concerned there is more reason for the contention, as the managing directors would be the persons sued. Where suit is a legal impossibility, judicial exceptions to the statute are implied, as where there is no competent plaintiff or defendant or no forum to sue in. Otherwise not. Weaver v. Davis, 2 Ga. App. 455, 58 S. E. 786.

In none of the cases here complained of do all the directors in office at the time seem to have been involved. There are several directors who are not claimed to have been involved in any of them. In considering in a directors' meeting suit by the corporation for any act, the proposed defendants would be disqualified to vote. 10 Cyc. 790. If the qualified directors were not a quorum, the matter might have been referred to the stockholders and other directors elected, or direct action taken by themselves. After exhausting corporate remedies, a single director or stockholder could have asserted the corporation's right in court. Colquitt v. Howard, 11 Ga. 556; Ex parte Chetwood, 165 U. S. 443, 457, 17 S. Ct. 385, 41 L. Ed. 782; Herrmann v. Edwards, 238 U. S. 107, 35 S. Ct. 839, 59 L. Ed. 1224; Huff v. Union Nat. Bank (C. C.) 173 F. 333, and other cases collected in 12 U. S. Code Anno. under section 93, at page 234.

Whether the conduct of the majority is wise and diligent under all the circumstances, or wrongful, is often a close question, and controversy over it needs the quieting of limitation as much as any other controversy. Without it business men would hesitate to become bank directors. Adams v. Clarke (C. C. A.) 22 F.(2d) 957, involved the entire board. I do not think the rule can be established that no limitation begins to run so long as the majority continue in control, provided there is no fraudulent concealment of the cause of action, and provided the cause of action is not itself a fraud. Curtis v. Connly, 257 U. S. 260, 42 S. Ct. 100, 66 L. Ed. 222.

4. Where the cause of action is itself a fraud cognizable in equity, the general rule is that limitation begins to run only when the fraud is discovered, or could by ordinary diligence have been discovered, by the complainant. 25 Cyc. 1173. The more rigid rule of the law courts that the statute runs from the commission of the fraud, though undiscovered (25 Cyc. 1180; Pendergrast v. Foley, 8 Ga. 1), is not of force in Georgia because of the statute passed in 1856 (Civ. Code 1910, § 4380): "If the defendant, or those under whom he claims, has been guilty of a fraud by which the plaintiff has been debarred or deterred from his action, the period of limitation shall run only from the time of the discovery of the fraud." This statute has been considered applicable where legal relief because of fraud was sought, Kirkley v. Sharp, 98 Ga. 484, 25 S. E. 562; and also equitable, Short v. Mathis, 107 Ga. 807, 33 S. E. 694. It applies, also, where the cause of action was not an original fraud, but where its existence was fraudulently concealed. The fraud in the latter instance must be an actual moral fraud, and not a mere constructive one. Anderson v. Foster, 112 Ga. 270, 37 S. E. 426; Maxwell v. Walsh, 117 Ga. 467, 43 S. E. 704. The statute...