Clark v. Union.

• Decision Date: 13 May 1913
• Citation: 72 W.Va. 491
• Court: West Virginia Supreme Court
• Parties: Clark, Trustee, v. Bank oe Union et al.

72 W.Va. 491

Clark, Trustee,

v.Bank oe Union et al.

Supreme Court of Appeals of West Virginia.

Submitted February 6, 1912.

Decided May 13, 1913.

1. Banks and Banking Insolvency Assets in Hands of Trustee.

The liability of a bank's officers for gross neglect of duty and wilful mismanagement of its affairs, and the double liability of stockholders, are both assets in the hands of the trustee of an insolvent bank, to be administered for the benefit of its creditors. (p. 493).

2. Same Insolvency Administration of Assets.

It is proper to administer both of said assets in a suit brought by the trustee against the bank, its stockholders and creditors. (p. 494).

3. Same Insolvency Enforcement of Liability of Officers.

If the trustee, by his bill, does not seek to enforce the officers' liability, the defendant stockholders may do so by answers in the nature of cross-bills. (p. 494).

4. Same Insolvency Liability of Officers and Stockholders.

In such suit to which all the parties interested are parties, in order that the court may do complete equity, the extent of the officers liability should be ascertained before assessing any portion of the double liability upon the stockholders. (p. 494).

Appeal from Circuit Court, Monroe County.

Suit by B. L. Clark, Trustee, against the Bank of Union, A. E. Johnson, and others. From a decree for plaintiff, defendant Johnson and others appeal.

Reversed mid Remanded. John W. Arbuckle, for appellants.

J. II. Crosier. H. Kemp Morion,. T. N. Read, and Rowan & Meadows, for appellee.

Williams, Judge:

The Bank of Union becoming insolvent, its stockholders met on the 29th of February, 1908, and passed a resolution authorizing and empowering the president of the bank to make a conveyance of all of its assets to B. L. Clark, trustee, for the benefit of its creditors. Pursuant to the resolution, the president, on the same day, made a conveyance of all the assets to said trustee. In August following, the trustee brought this suit, in the circuit court of Monroe county, making the bank, its stockholders and creditors parties defendant to his bill. He avers the bank's insolvency, and the consequent necessity of requiring the stockholders to pay a portion of their double liability in order to procure funds with which to pay the creditors. He later filed an amended bill. Among other things, he prays that the assets of the bank in his hands be.collected, administered and disbursed under the order and direction of the court; that the stockholders., who are liable, be assessed in the manner directed by law, and that a sufficient amount of money be thereby raised to pay off the indebtedness of the bank, and for general relief.

A. E. Johnson, John Osborne and a few other stackholders filed answers, in the nature of cross-bills, charging the directors and officers of the bank with gross neglect and mismanagement of the corporation's affairs, as the cause of its failure, and prayed that the amount of their liability might be ascertained and enforced. They aver that the cashier was a defaulter for a number of years prior to the bank's assignment, and that this fact was known to the directors; and charge that the directors had made no examination of the affairs of the bank from 1891 to 1905, and that they negligently permitted a system of bookkeeping which showed that the bank had on hand a surplus, when in reality there was a deficit. They also charge that the president of the bank was permitted to discount paper at the bank without security, or with less security than the by-laws of the bank allowed; that Allen Caperton, another director, was permitted to borrow large sums of money in the same maimer, and to overdraw his account more than five thousand dollars; and that the president was permitted to endorse paper for the cashier, and the cashier for the president, with full knowledge of the directors and in violation of the by-laws of the bank. Insolvency of the bank is not denied.

The court sustained a demurrer to the original and amended bills, and held them bad in so far as they sought to enforce the double liability of the stockholders; and also sustained a demurrer to the cross-bill answers filed by A. E. Johnson, John Osborne and others, and dismissed them. From that decree they have appealed.

When the court pronounced its decree, there was pending in the same court a suit brought by II. B. and L. B. Dunn, the two largest creditors of the hank, for the purpose of enforcing the double liability against the stockholders. These creditors had been made parties defendant to the original bill, but had not appeared. They brought their suit more than a year after the trustee's suit was brought. The same parties were parties to both suits. The trustee and a number of the stockholders filed their several pleas in abatement to the bill in the second suit, setting up the pendency of the former suit by the trustee. The court struck out these pleas, and heard the two causes together, and referred them to a master commissioner for an accounting.

The decree sustaining the demurrers and dismissing the cross- bills settle the principles of the cause. It is, therefore, an appealable decree. What is thereafter done will only be done in carrying out, or executing the court's decrees.

The bank being insolvent, the double liability of the stockholders was properly en forcible by the trustee, for the benefit of the creditors, and it was error to sustain the demurrer to the trustee's bill because it sought to enforce that liability.

If the directors and officers of the bank had incurred liability on account of gross neglect and wilful mismanagement of the bank's business, that liability was also an asset of the bank, enforcible by the trustee for the benefit of creditors, and...