Dawkins v. Mitchell

• Decision Date: 02 January 1922
• Docket Number: 23625
• Citation: Dawkins v. Mitchell, 149 La. 1038, 90 So. 396 (La. 1922)
• Court: Louisiana Supreme Court
• Parties: DAWKINS v. MITCHELL et al

90 So. 396

149 La. 1038

DAWKINS v. MITCHELL et al

No. 23625

Supreme Court of Louisiana

January 2, 1922

Appeal from Sixth Judicial District Court, Parish of Ouachita; Fred M. Odom, Judge.

Action by Tom Dawkins against W. R. Mitchell and others. From a judgment for defendants, plaintiff appeals.

Judgment vacated and set aside, and suit dismissed as to certain defendants, and remanded as to the remaining defendants.

Dawkins & Dawkins, of Alexandria, for appellant.

John M Munholland, of Monroe, for appellees Allen and others.

Stubbs Theus, Grisham & Thompson and Sandel & Clarke, all of Monroe for appellees Mitchell and others.

OVERTON, J. PROVOSTY, J., dissents. DAWKINS, J., recused.

OPINION

OVERTON, J.

In May, 1912, plaintiff purchased 30 shares of the capital stock of the Union National Bank, paying therefor $ 3,300, which at that time was the value of the stock. On the last day of December, 1914, there was a surplus in the bank amounting to $ 47,156.98; and according to the allegations of plaintiff's petition, his portion of this surplus, based on his shares, amounted to $ 690. In June, 1915, the bank was placed in the hands of a receiver, due to the fact that it had become insolvent. The receiver sold the assets of the bank. From the sale there was realized the sum of $ 115,400. The amount realized left nothing for the shareholders; and hence plaintiff's stock became absolutely worthless. It does not appear that the receiver has been discharged.

Plaintiff attributes his loss to the negligence and mismanagement of the bank's directors, and especially to their permitting loans, in large and small amounts, to persons who were without the financial standing to justify the loans, and especially to their electing repeatedly a cashier who they knew, or should have known, was wrongfully using the funds of the bank for his own profit, or for that of his two sons. Basing his demand upon such misconduct and negligence of the bank's directorate, he sues, in this proceeding, each member of the board of directors, in solido, for damages by him sustained, amounting to the value of his stock and to his pro rata of the share of the bank's surplus, as shown by the last statement of the bank made to him before the appointment of a receiver.

Each of the several defendants pleads against plaintiff's demand the prescription of one year applicable to damages arising exdelicto. Three of the defendants, to wit, J. Arthur Smith, V. E. Barringer, and H. D. Apgar, also filed exceptions of no cause of action.

The case in the court a qua was determined on the plea of prescription of one year; and from the judgment maintaining that plea and dismissing plaintiff's demand he prosecutes this appeal. In this court the three defendants who filed exceptions of no cause of action have answered the appeal by praying that these exceptions be maintained, and that the judgment in other respects be affirmed.

Plaintiff contends that the prescription of one year is not applicable. He assumes the position that, as he was a stockholder of the bank, the members of the board of directors were his mandataries; that the indebtedness to him grows out of a breach of the contract of mandate; and hence that the prescription of 10 years alone applies. He contends that this contractual relation arose from the election of the directors as such by the shareholders, and from their acceptance of the positions to which elected.

The cause of action which plaintiff seeks to allege arises under section 5239 of the United States Revised Statutes (U.S. Comp. St. § 9831), which reads:

"If the directors of any national banking association shall knowingly violate, or knowingly permit any of the officers, agents, or servants of the association to violate any of the provisions of this title [referring to the National Banking Law] all the rights, privileges, and franchises of the association shall be thereby forfeited. Such violation shall, however, be determined and adjudged by a proper Circuit, District, or territorial court of the United States, in a suit brought for that purpose by the Comptroller of the Currency, in his own name, before the association shall be declared dissolved. 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."

The directors of a national bank, as indicated by the oath which they are required to take on assuming the duties of their office, undertake to administer the affairs of the bank faithfully, and not to violate knowingly or permit the violation of the National Banking Laws. U.S. Rev. Stat. § 5147 (U.S. Comp. St. § 9685).

Opinion.

When the shares that plaintiff holds were issued, their value was paid to the bank. The money paid for them became its property, and was supposed to remain so until the dissolution of the corporation, the payment of its debts, and the distribution of the remainder of its assets among the shareholders.

However, according to the allegations of plaintiff's petition, which, for the purposes of these exceptions, are taken as true, the assets of the bank, due to the gross negligence and mismanagement of its directors, have been wasted to such an extent as to make the shares of stock worthless. The loss resulting from the alleged acts of the bank's directorate affects all stock alike. It is a loss of a large part of the bank's capital. As that capital belonged to it, and not to plaintiff, the damage resulting is one of its assets, and not an asset of plaintiff. It should go to the bank: First, for the payment of its liabilities, for these do not appear from plaintiff's petition to have been paid in full; and, secondly, should the bank be permitted to continue business no longer, which is likely, then for distribution among the shareholders.

Such being the case, section 5239, U.S. Rev. Stat., in granting a cause of action to the shareholders, does not contemplate that one of them may sue, for his exclusive benefit, for damages properly belonging to the bank. He may sue, however, the directors who assented to or who were parties to the negligence and maladministration for the loss sustained by the bank in his own behalf and in behalf of all other stockholders, the judgment, when recovered, to inure to and be paid the bank, or its receiver, as the case may be. In such a proceeding it should be alleged, if the bank be in the hands of a receiver, as is the case here, that demand was made on the receiver to sue, and that he failed or refused to bring the suit, or else facts should be alleged showing that it would have been vain to have made such a demand. The receiver, under such circumstances, should be made a party defendant. Chetwood v. California Nat. Bank et al., 113 Cal. 414, 45 P. 704; Zinn v. Baxter, 65 Ohio St. 341, 62 N.E. 327; Howe v. Barney et al. (C. C.) 45 F. 668; C. J. vol. 7, p. 793, § 678.

Plaintiff therefore, does not show a cause of action; for he sues to recover for himself that which does not belong to him, but which belongs to the bank, and which he has no right to withdraw from the bank's capital. He also does not show a cause of action, because he does not allege a demand on the receiver to sue, nor does he allege facts that justify the belief that such a demand would have been a vain one, and therefore unnecessary. The statute contemplates such a demand; for otherwise suits to recover the same damage might be filed independently of each other by the receiver and the stockholders, since both may sue. As the damages are an asset of the bank, the receiver has the first right to sue; and it follows, in the orderly administration of justice, that the right of the shareholders to bring the action arises only when the receiver, after demand, fails or refuses to sue. Hence the exception of no right nor cause of action filed by J. Arthur Smith, V. E. Barringer, and H. D. Apgar must be maintained. As the remaining defendants have filed no such exception, and as the court cannot supply it, it will be necessary to pass to the...