Fidelity And Deposit Company of Maryland v. Ware
| Decision Date | 06 January 1936 |
| Docket Number | Civil 3562 |
| Citation | 47 Ariz. 12,53 P.2d 415 |
| Parties | FIDELITY AND DEPOSIT COMPANY OF MARYLAND, a Corporation, Appellant, v. JOHN P. WARE, Appellee |
| Court | Arizona Supreme Court |
APPEAL from a judgment of the Superior Court of the County of Maricopa. J. C. Niles, Judge. Judgment reversed and cause remanded with directions.
Messrs Silverthorne & Van Spanckeren, for Appellant.
Mr Frank H. Swenson and Mr. Herbert B. Shoemaker, for Appellee.
Sid W Ellery was the state superintendent of banks from November 1, 1931, to August 4, 1932, and the defendant Fidelity & Deposit Company of Maryland was surety on his bond.
The plaintiff, Ware, brought this action against the surety to recover as damages the balance of his deposit, and the balances of the deposits of his several assignors (98 in number), in the Arizona Bank on June 24, 1932, the date said bank was taken over by Ellery for liquidation, claiming that it was through the negligence and unlawful acts of said Ellery in the performance of his official duties that said deposits were lost.
Originally the complaint claimed damages for the loss of deposits made in the bank after Ellery became state superintendent of banks, but on the day of trial the court permitted plaintiff to amend his complaint so as to include the deposits of plaintiff and his assignors made prior to Ellery's appointment as superintendent. The complaint alleges that while the surety bond is conditioned that Ellery will well, truly, and faithfully perform the duties of the office of state bank examiner, it was intended by Ellery and the surety company that it should be his bond as state superintendent of banks, and that the misdescription was merely clerical.
The complaint was drafted against both the superintendent Ellery and the surety, but the superintendent was not served with process and did not appear as a party to the case.
It is alleged that theliquidation of the bank was carried on by Ellery, after he took possession of it on June 24, 1932, until his successor, Lloyd Thomas, was appointed and by Thomas until his successor, Y. C. White, was appointed, and by White thereafter; that Thomas instituted an action in the superior court of Maricopa county against the directors and stockholders of the bank to recover the sum of $575,000 unlawfully and fraudulently taken from the bank on or about December 18, 1930, and to recover from the stockholders $384,000, their liability as such. (It appears from the evidence that this suit was compromised for $850,000, and that these plaintiffs have received, or will receive, therefrom 54 per cent. of their deposits.)
The answer put in issue, by denials, all the allegations of the complaint charging Ellery as superintendent of banks with failure well, truly and faithfully to perform his official duties.
The case was tried with a jury and resulted in a verdict and judgment for the amount of the surety bond, to wit, the sum of $20,000.
The defendant appeals and assigns a great number of errors. We will consider these assignments or such of them as we find necessary for a disposition of the case.
The facts generally may be stated as follows: Up to December 18, 1930, the Arizona Bank was known as the Arizona Central Bank and had its principal place of business at Flagstaff, Arizona, with branches at Williams, Winslow, and Kingman. Its authorized capital was $1,000,000, divided into 10,000 shares of $100 per share. Its issued, outstanding, and paid-in capital stock was $500,000. It had a surplus of $250,000 and undivided profits of $125,000. On December 18, 1930, the officers, directors, and stockholders of the Arizona Central Bank took $250,000 of the capital, $200,000 of the surplus, and $125,000 undivided profits and paid it out to the stockholders for their stock; and on that day, or soon thereafter, changed the bank's name to the Arizona Bank, reduced its capital to $250,000 and its shares of stock to 2,500 at $100 per share, and transferred the bank to one Leo M. Meeker and certain of the former stockholders, who thereupon changed the bank's principal place of business to Phoenix, reduced the Flagstaff office to a branch and added branches at Chandler and McNary. Under this new and changed arrangement, the Arizona Bank opened for business in Phoenix on or about January 1, 1931. This was all done and accomplished under the supervision and with the approval of Ellery's predecessor, who continued in office until Ellery's appointment and qualification on November 1, 1931. When the bank opened for business in Phoenix and when Ellery came into office its capital was $250,000, and its surplus $50,000, and its undivided profits $29,907.65.
The evidence is undisputed that Ellery knew nothing about the transaction of December 18, 1930, which resulted in a reorganization of the bank with greatly reduced resources, until on or about January 27, 1932, when there was laid before him a report, as of December 31, 1931, of the bank's resources and liabilities with a description thereof made by examiners Roach, Bailey, and King, deputed by Ellery for that purpose. The examiners' report showed the bank's resources and liabilities to be $4,222,252.14. Of the assets $2,257,569.26 were loans; $1,027,045.94 were invested in United States, state, county, and municipal bonds, state and county warrants and other bonds and securities; $217,325.19 in banking house furniture, fixtures, city and county realty; and $614,916.31 in cash and due from banks, etc. The total deposits were $3,847,117.64 and the total cash and due from banks was $614,916.31; the reserve 15.98 per cent.; estimated losses were placed at $74,382.25; and doubtful, loss probable $97,454.11.Indorsed on the report of the examiners were the following "criticisms":
A copy of this report was served on the bank, and the superintendent, Ellery, wrote it instructions to charge off enough of the excess loans to bring them within the 15 per cent. limit. It appears that at the time the bank was closed all of the excess loans, except one, had been paid by the bank's taking from the loanees the security in payment of the debt.
Ellery was called by plaintiff for cross-examination and was questioned upon the disclosures in the examiners' report. He testified he concluded after examining the report that the bank was safe and sound and that it was expedient for it to continue in business, and that he believed it to be safe and sound up to the time it closed; that it became unsafe and unsound because of the withdrawals of deposits the last few weeks prior to closing; that the heavy withdrawals were due to the depression and a general feeling of unrest; that the deposits were reduced by June 24, 1932 to $2,587,000, and that the last few days before closing there was an insidious run by depositors.
The court permitted one J. C. Darcey, a certified accountant who had also had experience in banking, over objection by defendant, to testify that the face of the report of the examiners showed that the bank's capital was impaired, and that it was unsafe and inexpedient for it to continue in business. This evidence was admitted on the avowal of the plaintiff that it in connection with other evidence would, or tend to, show that superintendent Ellery's conclusion that the bank was safe and sound and that it was expedient for it to continue in business, was arrived at in bad faith and not in the exercise of a sound discretion.
It was shown that Ellery had been tried and convicted for borrowing (very soon after he became superintendent of banks) $5,000 from the Arizona Bank, in violation of section 214, Revised Code of 1928.
It was the position of defendant below, and it is his contention here, that Ellery was guilty of no misconduct, nonfeasance, or bad faith, but that he honestly and in good faith examined into the condition and resources of the Arizona Bank, the mode of managing and conducting its affairs, the official actions of its board of directors, its investments and disposition of its funds, and whether it was violating any of the provisions of the law relating to banks, as early after his appointment as reasonably possible, and had determined therefrom that the bank was safe and sound, and that it was expedient for it to continue business, and that even though his judgment was erroneous there was, under the facts and circumstances, no liability.
The position taken by plaintiff, broadly speaking, is, that the superintendent of banks is liable for any loss sustained by depositors, not only through his fault or negligence, but through the fault or negligence of his predecessor as well, and that such liability extends to the surety on his official bond.
The defendant insists that the evidence shows conclusively that Ellery acted in good faith in permitting the Arizona Bank to remain open...
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