Delano v. Case

• Decision Date: 30 November 1885
• Parties: JOHN A. DELANO ET AL.v.GARDNER CASE.
• Court: United States Appellate Court of Illinois

17 Ill.App. 531

17 Bradw. 531

JOHN A. DELANO ET AL.

v.GARDNER CASE.

Appellate Court of Illinois, Third District.

November Term, 1885.

OPINION TEXT STARTS HERE

APPEAL from the Circuit Court of Macoupin county; the Hon. W. R. WELCH, Judge, presiding. Opinion filed December 4, 1885.

Messrs. PALMERS, ROBINSON & SHUTT, for appellants; that the directors are not liable for mere non-feasance, cited Fusz v. Spaunhorst, 67 Mo. 257; Harman v. Tappenden, 1 East, 555; Zinn v. Mendel, 9 W. Va. 580; Hodges v. New England Screw Co., 53 Am. Dec. 637; Shearman & Redfield on Negligence, § 111; Crowley v. Smith, 31 Albany Law Journal, 471.

Messrs. GREENE, BURNETT & HUMPHREY, for appellee; as to duties of directors, cited Morse on Banking, 116; Shea v. Mabrey, 1 R. I. Lea (Tenn.), 319 United Society, etc., v. Underwood, 9 Bush (Ky.), 609.CONGER, J.

This was an action on the case. The declaration charges substantially that on the first day of July, 1877, “the Bunker Hill Bank,” was a body corporate, etc., engaged in the business of banking, receiving money on deposit, etc., and so continued up to October 22, 1877, when it closed its doors and ceased payment. That on the 30th day of July, 1877, appellee was a creditor and depositor of said bank to the amount of $1,154.57, and that relying on the solvency of the bank he continued from time to time to make deposits up to and including October 6th, when the bank owed him for money so deposited and for interest, $5,000. That long before the 1st of July, 1877, and until it failed, the bank was insolvent and that appellee never received payment; avers that it was the duty of appellants, who were directors of the bank, to ascertain and know the financial condition of said bank, to examine at short intervals into its affairs, and if they had performed their duty in that respect they would have known by the exercise of ordinary care that the bank was totally insolvent long before and during all the time appellee was making his deposits. Charges that they wholly failed in this respect, but held out the bank to the public during all this time as financially safe and solvent. Whereby appellee was deceived and defrauded into making such deposits, and in consequence lost them. Trial in the circuit court and judgment for appellee for $2,370.50. Without attempting to give even a synopsis of the evidence we think it establishes upon the part of the appellants and their co-directors the grossest negligence and incompetency. After the bank had suspended and a full examination was had, it appeared that Beach, the cashier, and Compton, the assistant cashier, had been for some time systematically robbing it. The general ledger on Dec. 31, 1876, showed the total amount due depositors to be $11,350.73, while in truth the bank actually owed to depositors on that day $36,779.27, as shown by another book in the bank, called the individual ledger. On Sept. 18, 1877, the general ledger showed the amount due from the bank to depositors to be $10,368.65, whereas the true amount as shown by the individual ledger was $49,616.50, showing a discrepancy of $39,247.85. So too in the accounts showing the amounts of outstanding certificates of deposit on the 1st of September, 1877, the difference between the amount shown upon the general ledger and the true amount was $32,422.56. In short, it appears that during all the summer and fall of 1877 the difference between the amounts these officers were reporting to the directors and the examining committee, as the indebtedness of the bank, and the true amount was about $75,000. Mr. Mayfield, an expert, agreed upon by the parties, and appointed by the circuit court to make this examination, says: “The true condition of the bank at the dates named, as appearing from the books by my examination, was insolvent, very much so, and the books very plainly show it at the date of each and every exhibit I have attached hereto. An ordinarily careful examination of the books of the bank at any time during 1877 would have disclosed irregularities of the cashier and the insolvency of the bank. If they had examined the books in a proper manner they would have discovered the very glaring discrepancy in the condition of the certificates of deposit, as shown by the stub book and the general ledger. If the directors examined the books and counted the cash, they could locate the day of its first discovery.” The degree of care and diligence on the part of the directory and the finance committee is shown by the testimony of the president, Mr. Klinefelter. He says: “That he was president of the Bunker Hill bank and was also a director and stockholder. Became president in the year 1870 and continued to be so until the failure of the bank in 1877. The defendants were all connected with the bank, at the time of the failure, as directors, and had been so connected with the bank before that time for three years. The stockholders elected the directors and the directors elected the officers. The bank ceased to do business October 20, 1877. The bank closed because it had been robbed by the cashier and assistant and was insolvent. Don't know how long before the failure of the bank it was robbed. When it closed the money was all gone except about $8,000. Can not tell how much money there ought to have been in the bank. While he was president the affairs of the bank were managed by the directors. The directors met once a year to elect officers and declare dividends. About once a month the finance committee counted the money, and returned to Mr. Beach, the cashier. What he did with it he had no idea. The finance committee, in 1877, were directors Cross, Bahr and himself. Can not say that the finance committee at any time made any great investigation. It met once a month as a general thing, would look over the accounts, count the money and hand it back to the cashier. Did not examine and verify the books, and compare their statements with the assets, etc., which the books called for; and no such examinations were made by any of the directors to his knowledge. Beach was cashier of the bank from the time of its organization. Compton was first a clerk, and then assistant cashier many years. Some ten months before the failure of the bank witness suspected that Compton was stealing from the bank. Witness thought that he was spending too much money buying property, living extravagantly in Bunker Hill, and traveling. After he conceived the suspicion in regard to Compton, he and Cross went around and notified the directors of his belief that Compton was stealing from the bank. They refused to believe it. Saw all the directors except Bauman. They would not believe anything was wrong. Nothing more was done, but witness went to the bank and told Beach and Compton what his suspicions were. This was about ten months before the...