Douglass v. Dawson

• Decision Date: 12 November 1925
• Docket Number: 161.
• Citation: 130 S.E. 195,190 N.C. 458
• Parties: DOUGLASS ET AL. v. DAWSON ET AL.
• Court: North Carolina Supreme Court

130 S.E. 195

190 N.C. 458

DOUGLASS ET AL. v. DAWSON ET AL.

No. 161.

Supreme Court of North Carolina

November 12, 1925

Appeal from Superior Court, Craven County; Barnhill, Judge.

Action by Pollie A. Douglass, executrix of Miley Jones, and others against Guy Dawson and others, directors of Farmers' Bank & Trust Company, to recover damages for loss of money deposited by Miley Jones with said company, and lost by reason of its insolvency, alleged to have been caused by negligence and wrongful acts of defendants. From a judgment sustaining defendants' demurrer to the complaint plaintiffs appeal. Affirmed.

Under statute, depositor has no cause of action in individual capacity against directors of insolvent bank for wrongful acts to corporation generally.

Test of whether cause of action is in receiver or individual creditors is ownership of sum sought to be recovered.

Ward & Ward, of New Bern, for appellants.

Rouse & Rouse, of Kinston, for appellees.

CONNOR J.

The facts as alleged in the complaint are as follows: The Farmers' Bank & Trust Company is a corporation, organized under the laws of North Carolina. Prior to December 16, 1920 said company was engaged in the banking business at La Grange, N.C. On September 24, 1920, said company issued to Miley Jones, a certificate of deposit for the sum of $1,400, in renewal of a certificate for said sum issued to her prior to said date. On December 16, 1920, the said Miley Jones transferred and assigned said certificate to plaintiffs A. D. Ward and W. F. Ward, to secure certain liabilities which they had assumed for her. Miley Jones died on June 20, 1922, and plaintiff Pollie A. Douglass has duly qualified as executrix of her last will and testament.

Defendants were, on December 16, 1920, and had been for some years prior thereto, directors of the Farmers' Bank & Trust Company. The said company is now in process of liquidation, with all its assets in the hands of a permanent receiver appointed on December 16, 1920. These assets, including all sums that may be realized by the receiver from an assessment of 100 per cent. made upon the stockholders of said company, will not be sufficient to enable the receiver to pay any substantial dividend upon the claims of unsecured creditors and depositors. The company is wholly insolvent. No dividend has been paid upon the certificate of deposit issued to Miley Jones; there are no assets of said company available for payment of dividends of any appreciable amounts upon same by the receiver.

Plaintiffs allege that said company became and was insolvent as the result of the failure of defendants to perform the duties imposed upon them as directors of said company by its by-laws, rules, and regulations, and by the laws of the state of North Carolina; that it was the duty of said directors to actively manage and superintend the business of said company, to examine regularly the discount book of said company, containing a statement of all loans, to whom made, the securities taken therefor, and when due, to appoint periodically a committee of the board of directors to examine the books of said company, and to report to the board of directors, to investigate and examine the liabilities of said company for borrowed money, and the collaterals hypothecated to secure said liabilities, and also to make, from time to time, true reports to the Corporation Commission of North Carolina, showing the assets and liabilities of said company, and to cause statements of the true condition of said company to be published as required by statute, to the end that Miley Jones and other creditors and stockholders and customers and prospective customers of said company might know its true condition.

Plaintiffs further allege that, by reason of the failure of said defendants to perform their duties as aforesaid, loans in large amounts were made by the company and its officers upon inadequate security, to insolvent persons, friends, pets, and favorites of defendants and of officers of said company; that, as a result of the wrongful acts, both of commission and omission, of defendants, the company became insolvent; that, after the company became insolvent, defendants made annual statements to its stockholders, showing the company to be solvent, its capital stock unimpaired, and its surplus intact; that defendants, while the company was insolvent, declared dividends to stockholders; that, after the company became insolvent, with knowledge of such insolvency, and with intent to cheat and deceive Miley Jones and other customers, and prospective customers of said company, defendants wrongfully and fraudulently caused statements to be made to the Corporation Commission of North Carolina, and to be published in newspapers, showing the company to be solvent; that such statements were made and published for the purpose of showing the company to be solvent, and worthy of credit, and a safe banking institution; that defendants knew at the time such statements were made and published that they were false and untrue; that Miley Jones knew that such statements had been made and published, and believed that same were true; that, relying on the truth of such statements, the said Miley Jones made the deposit hereinbefore referred to, taking a renewal certificate therefor on September 24, 1920; that said Miley Jones did not know or learn of the insolvency of said company until after the appointment of the receiver on December 16, 1920; and that, by reason of the negligence and wrongful acts, and the deceit and fraud of defendants and each of them, the said Miley Jones and these plaintiffs have lost the sum of $1,400, and interest on same from September 24, 1920.

Plaintiffs further allege that defendants knew and were required by law to know that said company was insolvent and unworthy of credit, and that with such knowledge, actual or imputed by reason of their relation to said company, defendants fraudulently, and with intent to deceive the public and said Miley Jones, permitted the said company to continue in business and to receive deposits and to keep the deposit of Miley Jones, who was ignorant of the true condition of said company, and who relied upon the statements made and published by defendants, showing that said company was solvent and worthy of credit, and that by reason of such wrongful conduct of defendants, Miley Jones and the plaintiffs have lost the sum of $1,400 and interest on same from September 24, 1920.

Plaintiffs further allege that the defendants negligently and fraudulently, with intent to deceive and mislead the said Miley Jones and the public, permitted standing advertisements to be published, falsely setting forth the solvency of said company, with the purpose of inducing Miley Jones and the public in general to deposit and keep on deposit money with said company; that, at the time such statements were made and published, the company was insolvent, as defendants well knew or ought to have known; and that Miley Jones, relying upon the truth of such statements, made in the advertisements as aforesaid, made and kept said sum on deposit with said company, and thereby the said Miley Jones and the plaintiffs lost the sum of $1,400 and interest from September 24, 1920.

Defendants demurred to the complaint on the following grounds:

(1) That this action is premature, in that the law prescribes the procedure which the receiver shall follow in winding up insolvent corporations and enforcing liability, if any, against the stockholders, officers, and directors, and that plaintiffs do not allege that these statutes have been complied with.

(2) That the cause of action, if any against the defendants, is vested in John G. Dawson, receiver of the Farmers' Bank & Trust Company, and that it does not appear from the complaint that demand has been made upon the said receiver to institute the action, and that the said receiver has willfully and wrongfully refused to institute said action.

(3) That the complaint does not state facts sufficient to constitute a cause of action against the defendants.

The procedure for the voluntary liquidation and dissolution of a corporation, organized, and engaged in the business of banking under the laws of North Carolina, is prescribed by statute. Such dissolution may be had upon the affirmative vote of stockholders owning two-thirds of its stock, taken at a meeting of stockholders called for that purpose by resolution of the board of directors. No such dissolution may be had, however, without the approval of the Corporation Commission, whose approval shall not be given until the said commission is satisfied that provision has been made to satisfy and pay off depositors and creditors of said corporation. During the process of voluntary liquidation, for the purpose of dissolution, the corporation shall be subject to examination by the Corporation Commission, and shall furnish such reports from time to time as may be called for by the Corporation Commission. Public Laws 1921, c. 4, § 15; 3 C. S. § 218(a). The procedure is similar to that prescribed for the voluntary dissolution of a national bank. R. S. U.S. § 5220 et seq.; U.S. Comp. St. § 9806 et seq.

The procedure for the involuntary liquidation of such corporation is also prescribed by statute. If the Corporation Commission shall, at any time, find that such corporation is insolvent or if such corporation shall neglect or refuse to obey or comply with any order made by the Corporation Commission, in the exercise of powers vested in said commission by law, the Corporation Commission shall have authority to take charge of such corporation, and if, upon investigation, it appears to be to the interest of creditors, depositors, and stockholders that a receiver should be appointed, it may...