Boyd v. Applewhite

• Decision Date: 22 March 1920
• Docket Number: 20630
• Citation: 84 So. 16,121 Miss. 879
• Court: Mississippi Supreme Court
• Parties: BOYD et al. v. APPLEWHITE et al

84 So. 16

121 Miss. 879

BOYD et al. v. APPLEWHITE et al

No. 20630

Supreme Court of Mississippi

March 22, 1920

March 1920

1. BANKS AND BANKING. Directors and majority stockholders permitting excessive loans to directors are liable to minority stockholders for loss of their stock.

The directors of a bank who own a majority of the capital stock and who permit improvident and excessive loans to be made by the bank's officers to the individual directors themselves, causing the bank to become insolvent and go into the hands of a receiver and the capital stock to become worthless, are liable in damages to the minority stockholders for the loss of their stock.

2. BANKS AND BANKING. Directors not examining books and securities to determine bank's condition do not exercise ordinary care.

The directors of a bank who never make or cause to be made an examination of the books and securities of the bank to determine its condition and the way it is being conducted do not exercise ordinary care and prudence in the management of the bank's affairs.

3. BANKS AND BANKING. Directors whose negligent supervision renders minority stock valueless cannot plead ignorance.

Directors of a bank who negligently fail to exercise reasonable control and supervision of the bank's officers cannot, as against the claims of innocent stockholders whose stock has been rendered worthless by such negligence, plead ignorance of that which by proper diligence and inquiry the directors ought to know.

4. BANKS AND BANKING. Evidence held to sustain chancellor's decree for minority stockholders against directors permitting excessive loans.

In a suit in equity by stockholders against the directors to recover losses sustained through neglect of duty, misconduct and negligence of the directors causing the bank to become insolvent and the capital stock valueless, the findings of fact by the chancellor and his decree in complainant's favor cannot be said to be clearly wrong, where there is testimony tending strongly to prove that the paid-in capital stock of the bank was one hundred thousand dollars and that the directors by inattention, by failure to enact by-laws governing the officers, by failure to examine the books, papers, and securities of the bank, negligently permitted the president and cashier to lend the individual members of the board of directors the aggregate sum of two hundred and twenty-nine thousand dollars, a part of which is evidenced by large overdrafts, as a result of which the institution was wrecked and the capital stock rendered worthless.

5 JURY. Statute making negligence and contributory negligence jury questions has no application in equity case.

Chapter 135. Laws of 1910 (section 503, Hemingway's Code) providing "all questions of negligence and contributory negligence shall be for the jury to determine," has no controling application in an equity case.

6. BANKS AND BANKING. In suit by minority stockholders against directors for losses resulting from their negligence directors cannot plead invalidity of charter.

Where it is shown incorporators apply for and obtain a charter incorporating a bank under a law that is valid, issue stock in due course, elect officers and a board of directors, and actually conduct business in the corporate name, the chosen directors, who accept the position and assume to discharge the duties of their office, cannot in a suit in equity against them by minority stockholders plead that because the charter of the bank is invalid they are not directors of a corporation.

7. BANKS AND BANKING. Liability of directors for negligence is tortious, so that they may be sued jointly or severally.

The liability of bank directors for negligence in the performance of their duties does not rest upon contract, but is based upon the violation of duty and is in the nature of a tort, and stockholders who are injured by their negligence may sue one or several of the joint participants.

8. LIMITATION OF ACTIONS. Suit by minority stockholders for loss from directors' negligence is not governed by the three-year statute of limitations.

A suit in equity by stockholders against the directors of a bank for violation of their duties, as a result of which the bank becomes insolvent and the stock worthless, is a suit based upon negligence and the three-year staute of limitations governing actions based upon contracts, express or implied, has no application.

9. BANKS AND BANKING. Director sued for loss to stockholders from excessive loans to himself cannot plead that he did not act for the bank.

A bank director who applies for and receives loans in excess of the capital stock of the bank, causing the bank's failure, is, in a suit by stockholders against him and the other directors for gross negligence, as a result of which the stock is made worthless, estopped to plead that he did not act for the bank in making such improvident loans to himself.

10. BANKS AND BANKING. Receiver's written assignment of bank's claims against negligent director construed to preserve minerity stockholders' action against such director.

Where an insolvent bank is placed in the hands of a receiver as a result of the gross negligence of the directors, and the directors execute a writing guaranteeing depositors and stockholders against loss, and the receiver under the approval and by decree of the chancery court executes a written assignment to a purchaser of the notes, securities, and claim of the bank against one particular director, a provision in the written assignment expressly excepting from the operation of the conveyance the director's "individual guaranty to depositors and stockholders" preserves the right of action by stockholders against such negligent director whose indebtedness is thereby assigned for negligence resulting in the loss of the capital stock.

11. BANKS AND BANKING. Assignment by bank's receiver of its claim against director should be construed with reference to the circumstances.

The written assignment by a receiver of an insolvent bank of the bills and accounts receivable and the claim of the bank against an individual member of the board of directors in pursuance of a decree authorizing the receiver to sell the bank's said claim should be construed and its scope determined by the circumstances and the purposes to be accomplished.

12. BANKRUPTCY. Negligent bank director sued by minority stockholders cannot plead discharge in bankruptcy where demands were not reduced to judgment when discharge was granted.

A discharge in bankruptcy cannot be pleaded in bar to a suit in equity by stockholders against a negligent director for losses occasioned by mismanagement of the bank's affairs, where the demands sued for were unliquidated and had not been reduced to a judgment at the time such discharge was granted.

13. BANKRUPTCY. Director is "officer" within exception of debts created by fraud or defalcation.

The director of a banking corporation is an "officer" within the meaning of section 17, subd. 4, of the Bankrupt Act (U. S. Comp. St. section 9601), excepting from discharge debts created by fraud, misappropriation, or defalcation of a bankrupt while acting as an officer or in a fiduciary capacity.

14. EXECUTORS AND ADMINISTRATORS. Unliquidated claim against negligent bank director is not a claim for probate against his estate.

Stockholder's unliquidated claim for damages against a negligent bank director, who dies pending litigation, is not a claim for probate against the estate of a deceased person under section 2107, Code of 1906 (section 1775, Hemingway's Code).

15. BANKS AND BANKING. "Cashier" is bank's chief executive officer.

The "cashier" of a bank is the chief executive officer through whom the whole financial operations of a bank are conducted.

16. BANKS AND BANKING. Cashier is liable for losses resulting from his tortious acts.

The cashier of a bank is liable for losses resulting from his illegal, fraudulent, or tortious acts, or from his negligence.

17. BANKS AND BANKING. Directors' authorization no defense as to cashier's negligence.

The cashier is responsible for losses suffered directly from his failure to exercise reasonable skill and ordinary care and diligence in the discharge of his official duties. It is no defense that the directors, or any one of them, authorized him to do that which he knew, or ought to have known, was unauthorized or unlawful.

18. BANKS AND BANKING. Cashier making excessive and unauthorized loans to a director is liable for resulting losses.

A cashier who negotiates excessive and improvident loans to a director without authority from a majority of the board of directors is responsible for losses directly occasioned by such negligence.

19. BANKS AND BANKING. Pledgee of stock may join in suit against directors for negligence.

A bona-fide pledgee of bank stock may join as a party complainant in a stockholders' suit in equity against the directors for negligence resulting in the destruction of the stock.

20. BANKS AND BANKING. One negligent director may not sue his associate directors for gross negligence.

One negligent director may not sue his associate directors for gross negligence resulting in the bank's failure and a destruction of the capital stock.

21. BANKS AND BANKING. Trustee of negligent bankrupt director cannot join in stockholders' suit against other directors for losses from their negligence.

A trustee in bankruptcy for one negligent director, who has been adjudicated a bankrupt, should not be permitted to join as a party complainant in a suit by stockholders against the directors for gross negligence resulting in the destruction of the capital stock.

22. BANKS AND BANKING. Executrix of negligent director cannot sue surviving...