City Nat'l Bank of Mangum v. Crow

• Decision Date: 13 September 1910
• Docket Number: Case Number: 558
• Citation: 1910 OK 265,27 Okla. 107,111 P. 210
• Parties: CITY NATIONAL BANK OF MANGUM v. CROW et al.
• Court: Oklahoma Supreme Court

1910 OK 265

111 P. 210

27 Okla. 107

CITY NATIONAL BANK OF MANGUM v. CROW et al.

Case Number: 558

Supreme Court of Oklahoma

Decided: September 13, 1910

Syllabus

¶0 BANKS AND BANKING--National Banks--Excessive Loans--Liability of Directors. In an action by a national bank to recover damages sustained by it in consequence of excessive loans made by former directors, in violation of section 5239 of the Revised Statutes of the United States (U. S. Comp. St. 1901, p. 3515), the issues proper to be submitted to a jury are (1) whether the loans made were made at the time when the person to whom they were made was already indebted to the bank in a sum equal to one-tenth of the capital actually paid in; (2) whether such loans were knowingly made or assented to by such directors; and (3) what portions of the moneys so loaned were lost.

Error from District Court, Greer County; G. A. Brown, Judge.

Action by the City National Bank of Mangum against Charles Crow and C. W. Gilliland. Judgment for defendants, and plaintiff brings error. Reversed and remanded.

T. P. Clay, J. L. Carpenter and Charles M. Thacker, for plaintiff in error.--Citing: Witters v. Sowles, 31 Fed. 1; Cockrill v. Cooper, 86 Fed. 7, 29 C. C. A. 529; Stephens v. Overstoltz, 43 Fed. 465; Cooper v. Hill, 94 Fed. 582; Boyd v. Schneider, 124 Fed. 239; Nat. Bank v. Wade, 84 Fed. 10; Brown v. Bank, 88 Tex. 265; Zinn v. Baxter, 65 Ohio St. 341, 11 Enc. Pl. & Pr. 162, 168, 664.

T. M. Robinson and J. A. Powers, for defendants in error.

KANE, J.

¶1 This was an action commenced by the plaintiff in error, plaintiff below, against the defendants in error, defendants below, the former president and cashier, respectively, of said bank, to recover losses alleged to have been sustained by reason of excessive loans made to one J. A. Calhoun, an alleged insolvent person, in violation of sections 5200, 5239, Rev. St. U.S. (U. S. Comp. St. 1901, pp. 3494, 3515). The petition stated the facts in relation to the losses, in substance, as follows: That plaintiff's capital stock was and is $ 25,000; that its unimpaired surplus fund never exceeded $ 5,000; that defendants, without adequate security and solely upon the security of certain baled cotton, made numerous loans of plaintiff's money to J. A. Calhoun, an insolvent person, upon an open account and at an orally agreed rate of interest of 12 per cent. per annum on daily balances, commencing with a loan on October 5, 1905, and ending with a loan on December 23, 1905; that after the first loans in the early part of October, 1905, the daily balance, exclusive of interest, far exceeded one-tenth of both the said capital stock and surplus fund; that the said security was duly sold and the proceeds properly applied as credits upon the said indebtedness; that when, on January 9, 1906, defendants severed their connection and retired from plaintiff bank, the said indebtedness of the said Calhoun to plaintiff exceeded $ 26,939.34, including interest, which indebtedness was, on January 11, 1906, reduced by a credit of $ 18,019.75, derived from a prior sale of said security, and on February 16, 1906, by another credit of $ 6,857.40, derived from a sale exhausting the remnant of said security; that, after properly exhausting said security and making all proper credits on said account, the said indebtedness of said Calhoun on said account was and is $ 3,054.77, with interest thereon from said date, February 16, 1906, at 12 per cent. per annum until paid; that said defendants, without the knowledge and without the consent of plaintiff's board of directors, and each member thereof, except E. J. DeArman, who protested against said loans, wrongfully made said loans, the same being in no part for discount of bills of exchange drawn in good faith against actually existing values nor the discount of commercial or business paper, but in violation of section 5200 of the Revised Statutes of the United States as amended (Act June 22, 1906, c. 3516, 34 Stat. 451 [U. S. Comp. St. Supp. 1909, p. 1331]), and section 5239 of said statutes. In a second cause of action it is further alleged that defendants, knowing said Calhoun to be insolvent at the time, in violation of their duty and trust as said officers of said bank, made the aforesaid loans to him.

¶2 The answer consisted of (1) a general denial, except as to such matters as are elsewhere in the answer specifically admitted; (2) that the loans to Calhoun were approved at a stockholders' meeting; that the defendants were released from liability and responsibility on that account, and that plaintiff was thereby estopped to maintain its action; (3) that the 12 per cent. rate of interest charged was illegal, and that, deducting the same, the plaintiff has sustained no loss, and Calhoun is not indebted in any amount; (4) that, when said defendants retired from the bank, the remnant of cotton held as security was worth more than enough to satisfy the Calhoun account, and that, if any loss occurred, it was due to the neglect of their successors to sell said cotton and apply the proceeds to the satisfaction of said account, knowing as they did the insolvent condition of the said Calhoun; that their successors in the conduct of the bank continued to pay for cotton purchased by the said Calhoun, and to charge the same to his account for a long period after defendants had ceased to be officers of said plaintiff bank or members of the board of directors thereof, notwithstanding said bank and its officers-elect knew that said Calhoun was insolvent.

¶3 Thereafter the plaintiff filed its demurrer to the said answer. Thereafter the court sustained said demurrer to the third defense and overruled it as to the first, second and fourth grounds, whereupon the plaintiff filed its general denial. Upon the issues thus joined, the cause was tried to a jury, which returned a verdict for the defendants upon which judgment was duly entered, to reverse which this proceeding in error was commenced.

¶4 The grounds of reversal relied upon by counsel for plaintiff in error arise out of the instructions given and refused by the court, and evidence admitted and excluded over the objection and exception of plaintiff. We have examined the record with considerable care, and are convinced that unless the theory of counsel for plaintiff in error, as stated in their brief, is correct, there was no prejudicial error committed by the court below. It appears beyond controversy that the loans were in excess of the limit imposed by the federal statutes, the substance of which is set out in the petition of plaintiff as the basis of its action. Section 5239, supra, provides:

"And in cases of such violation, every director who participated in or assented to the same shall be held liable in his personal and individual capacity for all damages which the association, its shareholders, or any other person, shall have sustained in consequence of such violation."

¶5 Counsel for plaintiff in error contend that, the unlawful action of the defendants being the primary cause of the loss, it is immaterial what intervening contributory causes there may have been; that when defendants violated the legal limit placed upon loans for the protection of the association, its shareholders, and any other person in a position to suffer loss thereby, they became unconditional insurers that no loss should be sustained by the bank, its shareholders, its depositors, or any other person having any demand against the bank in consequence of such loans; that their liability for the consequences of their act in this regard could not be affected by any conceivable action of their successors nor of their associates, the inchoate right of action against them being from the moment of the violation an asset of the bank which the policy of the national banking laws would not permit to be thrown away or impaired by these successors or associates; that the bank's officer could as well waive or estop the bank from demanding unpaid portions of its capital stock, or release a shareholder from other individual liability created by statute. One of the instructions complained of indicates the view of the court upon the law of the case. It reads as follows:

"If you believe and find from the evidence that J. A. Calhoun is insolvent, and that the officers of plaintiff bank acted in good faith, and as to them appeared to be necessary for the protection of the bank in the manner in which they held and finally

...