Benedum v. Bank S.

• Decision Date: 25 February 1913
• Citation: 72 W.Va. 124
• Parties: Benedum v. First Citizens Bank et als.
• Court: West Virginia Supreme Court

72 W.Va. 124

Benedum

v.First Citizens Bank et als.

Supreme Court of Appeals of West Virginia.

Submitted March 12, 1912.

Decided February 25, 1913.

1. Banks and Banking Insolvency Receivership Effect.

The appointment of a receiver in a creditor's suit, brought to wind up the business of an insolvent bank and distribute its assets, does not preclude creditors other than the plaintiff in the bill from setting up in the same suit, by cross-bill, grounds of relief against the plaintiff, the officers, stockholders and other creditors, not set forth or admitted in the bill. (p. 128).

2. Same-Insolvency Assets.

In such case, the assets of the bank, including rights of action against its officers and stockholders for losses occasioned by their misconduct and misappropriation of funds, constitute a trust fund for the benefit of creditors and they may come in, not only to share in the distribution thereof, but also to require collection of the assets. (p. 128).

3. Same.

If, in such case, grounds of relief against officers and stockholders have been omitted from the bill and the receiver has not instituted any suit or other proceeding to enforce such claims, cross-bills by creditors, not seeking to withdraw such assets from the suit, nor to interfere with the custody or possession of the receiver, may be filed, (p. 130).

4. Same Insolvency Assets Right of Action Offset.

An officer of an insolvent bank, held liable in such a suit for all of his indebtedness to the bank and losses occasioned by his misconduct or neglect of duty, required to restore all of his misappropriations and deprived of the benefit of all preferences he has obtained, so far as claims against him on such accounts are passed upon in the decree, cannot properly be denied participation in the distribution of the assets on account of his deposits and other claims against the bank. In such case, his entire liability should be ascertained and decreed against him and then he should be allowed to participte in the distribution, on payment or collection of a sufficient amount to insure ratable distribution among all creditors including himself. (p. 131).

5. Same.

A creditor of an insolvent bank, though an officer and held liable for losses, misappropriations and preferences, may set off, against his deposits, liability on his individual debts and notes and on his joint and several notes, but not his liability as surety or endorser, nor as a joint debtor. (p. 134).

6. Same Insolvency Claims Effect of Assignment.

It is error to postpone, in a decree of distribution of the assets of an insolvent bank, the assignee of deposit accounts therein, though he is an officer held liable for losses and misappropriations and preferences. In this respect, such claims should be treated as if they had been his originally, unless there is an equity against them in favor of the bank. (p. 133).

7. Same Insolvency Liability of Officers.

In the settlement of the affairs of an insolvent bank, its president is properly chargeable with the amounts of worthless notes and overdrafts of corporations, promoted and controlled by him and his associates, discounted by the bank with his knowledge, under his direction and with notice on his part of the financial ability of the makers, inferable from his relation with them and participation in the management and control thereof. (p. 136).

8. Same Officers Resignation.

An officer of a bank who has sold his stock and tendered his resignation is nevertheless a de facto officer, if his resignation has not been accepted nor the vacancy in the office filled and his acts and the surrounding circumstances prove he continued to act for the bank and participate in the management and control of its affairs. (p. 135).

9. Same Insolvency Liability of Officers.

An officer is liable for withdrawal from an insolvent bank, after knowledge of its insolvency, of deposits made and controlled by him, though he is not sole owner thereof. (p. 139).

10. Same Insolvency Preferences.

Transformation, by an officer of a failing bank, of its certificates of deposit held by him into a well secured debt held by the bank, by surrender of the certificates in part payment of the debt and taking a new note from the debtor, secured and payable to himself, constitutes a preference, the benefit of which must be surrendered in the settlement of the affairs of the bank(p. 140).

11. Bills and Notes Certificates of Deposit Bona Fide Pur-

chasers.

Certificates of deposit in a bank, fraudulently issued, are valid obligations in the hands of a holder thereof for value without notice of the fraud. (p. 141).

12. Banks and Banking Officers Liability.

Officers of a bank, participating in misapproripations and transactions occasioning losses, are jointly and severally liable for such misappropriations and losses, and there may be a separate decree against any of them. (p. 141).

13. Same Insolvency Assets Subscriptions of Stock.

In the settlement of the affairs of an insolvent bank, the unpaid subscriptions of stockholders constitute a part of the assets and stockholders may be required to restore dividends unlawfully and improperly declared out of funds and assets other than profits, and paid in cash or applied in satisfaction of unpaid subscriptions, (p. 141).

14. Same Insolvency Liability of Stockholders.

In a creditor's suit against an insolvent bank, the statutory liability of stockholders for amounts equal to their subscriptions in addition thereto may be invoked and such amounts brought in for distribution with the assets of the bank. (p. 141).

15. Same Insolvency Creditor's Suit.

In such suit, a transfer of stock, made with intent to avoid the statutory liability and defraud creditors of the bank may be assailed by cross-bill, if it has not been attacked by the plaintiff of the receiver. (p. 142).

16. Appeal and Error Decisions Reviewable Provisional Orders

and Decrees.

Provisional orders and decrees, not final in character, but reserving for future adjudication matters in litigation are not appealable. (p. 144).

Appeal from Circuit Court Marshall County.

Bill in equity by M. L. Benedum against the First Citizens' Bank and others. From the decree, plaintiff and defendants John A. Howard, special receiver, and August Wendt appeal.

Reversed in part. Modified in pari. Affirmed in part. Remanded.

T. S. Riley, J. M. Ritz, George J. Wolf, John S. Wetter, John 0. Wicks, Wm. M. 0. Dawson and Malcolm Jackson, for appellants.

J. C. Simpson, Caldwell & Caldwell and McCamic & Clarke, for appellees.

Poffenbarger, President:

The appellant, M. L. Benedum, to whom there was decreed, in this suit brought to wind up the affairs of the First Citizens Bank of Cameron, more than $94,000.00 on account of deposits in his own name and those of other persons by him and interest thereon, and against whom large amounts were decreed, far in excess of the amount allowed him, on account of his liability on certain notes to which he was a party as maker or endorser, overdrafts alleged to have been permitted by him as president and director of the bank, preferences given by withdrawal of deposits and losses occasioned by his negligence and misconduct, was denied the right of set off as to the notes on which he was liable and also participation in the distribution of the assets of the bank, as to all sums decreed to him, until after all other creditors shall have been paid; and he has appealed from the decree.

The bank closed its doors on the 24th day of December, 1903, in pursuance of an order of the board of directors thereof, made on the preceding day. Benedum commenced this suit on the 26th day of December, 1903, and, on that day, secured the appointment of a receiver to take charge of the assets of the bank. The bank itself and most of the stockholders were made parties defendant. In response to notice of the application for the appointment of a receiver, the bank, by its president, Wm. M. Kincaid, filed an answer, admitting substantially all the allegations of the bill. On the first day of March, 1901, J. M. Marsh and numerous other creditors of the bank filed their petition praying to be made defendants which prayer was granted. On the 18th day of June, 1901, George N. Hoffman, G. W. Hazen and W. A. Hazen filed a similar petition the prayer of which was granted, and on the 2d day of July, 1904, these defendants and others filed answers and cross bills in the cause, setting forth numerous grounds for relief against M. L. Benedum, former president, A. E. Fox, former cashier, Wm. M. Kincaid, president, and all of the directors and stockholders. These cross bills charge many gross acts of negligence on the part of Benedum and Fox and violations of law both by them and the stockholders and other directors, among which were two unauthorized declarations of dividends, one of which was averred to have been credited on unpaid subscriptions and the other paid in cash. Large losses due to the negligence and misconduct of the directors and stockholders were charged. It is also alleged that Benedum and Fox, knowing the insolvent condition of the bank, fraudulently disposed of their stock to avoid statutory liability thereon. Liability of the stockholders under the statute in amounts equal to their respective subscriptions and in addition thereto, as security for creditors, was asserted and the benefit of the statute invoked. A demurrer to the cross bills, assigning their insufficiency as a whole and the insufficiency of certain parts thereof, was overruled except as to three portions, those charging liability on account of the dividends declared, the fraudulent assignment of stock by Benedum and Fox and the statutory liability of the stockholders in excess of their subscriptions. Thereupon Benedum filed his answer and special reply to the cross bills and put in issue all of the allegations thereof against him.

The propriety of the overruling of the demurrer is challenged upon two principal grounds, the exclusive right in...