Bowerman v. Hamner
| Decision Date | 09 June 1919 |
| Docket Number | No. 289,289 |
| Citation | 250 U.S. 504,39 S.Ct. 549,63 L.Ed. 1113 |
| Parties | BOWERMAN v. HAMNER |
| Court | U.S. Supreme Court |
Messrs. Oliver O. Haga and James H. Richards, both of Boise, Indaho, for appellant.
Mr. James M. Stevens, of Pocatello, Idaho, for appellee.
This is a suit, commenced in the United States District Court for the District of Idaho, Eastern Division, by the receiver of the First National Bank of Salmon, against the former executive officers and directors of the bank, to obtain an accounting and decree for money lost by the alleged unlawful and negligent a nagement of the affairs of the bank.
The sole appellant, Bowerman, was a director, but not an executive officer of the bank, from its organization in January, 1906, until its failure in August, 1911, and, as owner of $10,000 of the capital stock, he was the largest stockholder but one.
The bank was located in a small town in Idaho. It had a capital stock of only $25,000, which was increased in February, 1910, to $50,000, and it had a book surplus of $15,000-$5,000 of which was improperly carried to the surplus account in July, 1910, when the capital was certainly impaired.
When the plaintiff rested, the appellant moved that the bill be dismissed as to him, announcing that he would not introduce any evidence in his own behalf, and at the conclusion of the trial the District Court granted his motion. On appeal the Circuit Court of Appeals reversed this judgment, found Bowerman liable, and in the decree, which we are reviewing, remanded the case to the District Court, with direction to enter a decree in conformity with the views expressed in its opinion.
The amended bill, on which the case was tried, is framed in fact, though not in form, in the alternative, averring, first, that the executive officers made, and that the directors negligently permitted them to make, three designated loans, each in excess of one-tenth part of the paid-in and unimpaired capital stock and surplus of the bank, in violation of section 5200 of the Revised Statutes of the United States (Comp. St. § 9761). It then proceeds to allege: That, beginning with January, 1910, the affairs of the bank were grossly mismanaged by the excutive officers, with the negligent permission of appellant and other directors; that of the three designated loans, on which large losses were sustained, the first was made to the Salmon Lumber Company, a corporation without financial resources to justify such a loan without security, and with its capital stock owned principally by members of the family of the president of the bank; that the two other designated loans were negligently made to persons without financial standing and without security sufficient to justify the making of them; that overdrafts aggregating large amounts were permitted to be made by many persons, in violation of the by-laws of the association, and that a dividend on the capital stock was declared and paid in July, 1910, when the capital stock and surplus of the bank had been much impaired and its assets greatly depreciated. This gross mismanagement, it is averred, caused the failure of the bank and the loss for which recovery is prayed.
With respect to appellant, Bowerman, it is specifically alleged that, in disregard of his oath as a director to diligently and honestly administer the affairs of the bank, he negligently and willfully failed to attend a single meeting of the board of directors, to at any time examine, or cause to be examined, the books and papers of the bank, to ascertain its condition, or to in any manner inform himself as to the loans and overdrafts that were being made during the long period of mismanagement by the executive officers. It is alleged that the exercise by him as a director of a proper supervision of the affairs of the bank would have prevented the mismanagement complained of, and the loss which resulted from it.
Appellant's answer to the bill is substantially a general denial.
The evidence applicable to the allegations against Bowerman may be summarized as follows:
He was a director during the entire 5 1/2 years of the existence of the bank, but never attended a single directors' meeting, regular or special. The only justification or excuse he offers for such conduct is that he lived about 200 miles from the town in which the bank was located, and that communication between the two places was difficult.
In a letter, which is in evidence, written by him to the president of the bank in 1911, after the failure, he refers to himself as 'a nominal die ctor,' and says that, prompted by a published statement of the bank, which he had seen in 1910, he began writing to the president, warning him of the consequences if the 'very hazardous manner of conducting the bank' was not changed, 'various matters corrected, more of the notes collected, and the reserve kept up.' In this letter he says that he had never been 'consulted as to the management of the bank, its business transactions, or its policy,' and that he had never received a statement of its condition, either the usual published statement or one for his personal use, without making request for it, and that in some cases he had been obliged to write several times before one was sent to him. The record, however, does not show that any communication of the kind described in this letter was ever written by him prior to the failure.
The only certified copies in evidence of the oath taken by Bowerman as a director are for the years beginning in January, 1909, and in January, 1910. They are in the form prescribed by statute, that the affiant will 'diligently and honestly administer the affairs of the association, and that he will not knowingly violate or willingly permit to be violated any of the provisions' of the statutes of the United States under which the association was organized.
The by-laws of the bank are in evidence, and they require 'that regular meetings of the directors shall be held on the first Tuesday of each month'; that a 'loans committee,' to be composed of the president, cashier, and one director, shall make a report to each meeting of the board of directors of all bills, notes, and other evidences of debt discounted and purchased since its last previous report; that no officer or clerk shall pay any check drawn upon the bank, unless the drawer at the time of its presentation had sufficient funds on deposit to meet it; that a committee of three directors shall examine the affairs of the bank every month, to see whether it is in sound and solvent condition, and to recommend charges which may seem desirable in the manner of doing business.
In addition to these, there was a special by-law adopted on January 18, 1910, upon the suggestion of the Comptroller of the Treasury, requiring that——
'The board of directors of the bank, shall, at each monthly meeting, or oftener, examine and approve all loans and discounts, and such approval shall be recorded in a book to be kept for that purpose.'
Some of these by-laws were flagrantly disobeyed for years before the failure, and the others were observed in a manner so perfunctory as to amount to a disobedience of them. The three large loans complained of were never reported to the board of directors, except fragmentarily from time to time, when indistinguishably incorporated with other overdrafts, although they were gradually accruing during many months.
When the bank failed its liabilities were $273,719.14 and its assets, nominally $325,624.12, from which, assuming that the stockholders' liability was not included in them (as to which the record is not clear), there was realized about $220,000, thus showing a shrinkage of approximately $100,000 in the resources of a bank with a capital and surplus of $60,000.
The District Court, with the full record before it, found the aggregate of the three excessive loans at the time the bank failed to be $35,700. Each of these loans was made up by allowing unsecured overdrafts to accumulate over a considerable period of time and then permitting them to be converted into unsecured notes.
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