Fidelity & Deposit Co. v. Merchants' & Marine Bank of Pascagoula
| Decision Date | 23 April 1934 |
| Docket Number | 30884 |
| Citation | 154 So. 260,169 Miss. 755,151 So. 373 |
| Parties | FIDELITY & DEPOSIT CO. v. MERCHANTS' & MARINE BANK OF PASCAGOULA |
| Court | Mississippi Supreme Court |
December 4, 1933
APPEAL from chancery court of Jackson county HON. D. M. RUSSELL Chancellor.
Suit by the Merchants' & Marine Bank of Pascagoula against the Fidelity & Deposit Company and others. From a decree in favor of plaintiff, named defendant appeals. Reversed and remanded.
Suggestion of error sustained in part and overruled in part.
Reversed and remanded. Sustained in part and overruled in part.
H. P Heidelberg, of Pascagoula, P. M. Milner, of New Orleans Louisiana, and Arthur G. Powell, of Atlanta, Georgia, for appellant.
The bond is not a bond within the definition given in Code of 1930, section 1365. It falls squarely within the definition of a contract of insurance as found in Code of 1930, section 5131.
Craft v. Standard Ins. Co., 220 Ala. 6, 123 So. 271; Fort Smith & Van Buren District v. Johnson, 25 S.W.2d 417; Union Indemnity Co. v. Covington, 178 Ark. 533, 12 S.W.2d 884; F. & D. Co. v. Crane, 178 Ark. 676, 12 S.W.2d 874.
We contend that as to three of the employees--Lindinger, Watts and Hudson--the bank knew of their default, as evidenced by the cash items, at the time the bond went into effect in February, 1931, and, therefore, the bond never went into effect as to any one of them, but only as to other employees of the bank, not here involved.
It must be kept in mind that section 3812 applies only to the loans made to officers and employees personally and not also, as complainant's theory seems to be, to firms and companies in which such officer or employee may be interested. The words "on his own note or obligation," are used; and the statute is to be strictly construed against liability.
Bramlette v. Joseph, 111 Miss. 379, 71 So. 643.
We contend that the making of a loan excessive under the provisions of section 4151 is not a violation of a fidelity bond, even with all the provisions of section 3827 imported into it; for a violation of section 4151 is not a violation of any provision of the chapter on banking; and section 3827 speaks only of violations of the chapter on banking.
State v. Southern Surety Co., 127 So. 805, 70 A. L. R. 296; Corsicana National Bank v. Johnson, 251 U.S. 68, 83, 64 L.Ed. 141, 152; Gamble v. Brown, 29 F.2d 366, 375; Curtis v. Metcalf, 265 F. 293.
Renewal of a loan is not a borrowing of money within the section.
Anderson v. Gailey, 33 F.2d 589; Morenstecher v. Westervelt, 87 F. 157; Curtis v. Metcalf, 265 F. 293, 296.
The bank is conclusively bound by knowledge of any fact entered on its own books. If illegal or excessive loans are entered on the books of the bank, the bank and its stockholders are conclusively charged with knowledge thereof.
Curtis v. Connley, 257 U.S. 260, 263, 66 L.Ed. 222, 226; Boyd v. Applewhite, 121 Miss. 900, 84 So. 16; Martin v. Webb, 110 U.S. 7, 28 L.Ed. 49; fails v. Gates Merct. Co., 103 Miss. 560, 60 So. 649.
Of course after the Superintendent of Banks took charge, knowledge possessed by him or his liquidator in charge is knowledge of the bank, at least so far as complainant, as his assignee, is concerned.
The courts are divided as to whether the statute of limitations runs from the date of the abstraction, in case of illegal loans, or from the date the non-participating directors discover it, in case the facts have been concealed; but all agree that the cause of action arises when the illegal loan is made and is not suspended until after it shall have been determined whether the notes and securities taken in the illegal transaction can be collected or not.
Corsicana National Bank v. Johnson, 251 U.S. 86, 64 L.Ed. 153; Anderson v. Gailey, 33 F.2d 589, 591; Hughes v. Reed, 46 F.2d 435, 441 (3); Payne v. Ostrus, 50 F.2d 1039, 1043 (9).
It is our contention, therefore, that from the moment the bank had knowledge, either from recitals on its minutes, or through the knowledge of its president (except as to the president's own defaults) or of its vice-president or its cashier (except as to the cashier's own defaults) that such an illegal and tortious abstraction of its funds had occurred, whether through the form of illegal or excessive loans or otherwise, as would constitute a default or loss, it had such knowledge as terminated the bond and put in operation the condition of the bond as to giving notice.
Both bonds contained, as a condition of the company's liability, that within ten days after the discovery of a loss, written notice should be given the company. It is undisputed that such notice was not given as to any of the losses claimed in the suit.
25 C. J. 1100, sec. 12B; U. S. F. & G. v. Citizens Bank, 150 Miss. 386, 116 So. 605; Maryland Casualty Co. case, 125 Miss. 792, 88 So. 407.
Equity refuses aid to those guilty of laches.
21 C. J. 210 and 180; Griffith's Mississippi Chancery Practice, sections 32, 33, 41-43.
Ford, White & Morse, of Pascagoula, for appellee.
The testimony of Mr. Jane shows that there is no approval of these loans in the directors' minutes, neither were they authorized by the directors before the loans were made. Liability is based on section 3812, Code of 1930, which is identical with the Laws of 1922, chapter 162, section 44, which was in effect prior to the time the present code was adopted.
Little v. Newhouse, 145 So. 608, 164 Miss. 619; Boyd v. Applewhite, 121 Miss. 879.
Whenever it is shown that an officer of a bank or corporation or other person in a similar fiduciary relation has been dealing with his own institution, it is the universal principle of law that the burden is on him to show that his dealings have been fair and honest, in other words, that his corporation has not suffered as the result of his acts.
First National Bank v. Lang, 9 A. L. R. 1139; 7 R. C. L. 480, sec. 461; Christy v. Clay Products Co., 253 S.W. 106; Hotaling v. Hotaling, 56 A. L. R. 734; Holcomb v. Forsythe, 113 So. 516.
A loan of money shall not be made by a corporation to any stockholder therein.
The total liability to a bank by a person, company, corporation or firm for money loaned including in the liabilities of a firm or company the liabilities of the several members thereof, shall not exceed twenty-five per cent of the aggregate paid in capital and surplus of said bank.
Section 3810, Code of 1930; Section 4151, Code of 1930; Jefferson County v. Arraghi, 54 Miss. 658; Memphis, etc., R. R. Co. v. Scruggs, 50 Miss. 284.
There can be no ratification by the directors of a bank of a contract made by the officer which the bank cannot lawfully make.
7 C. J. 537, sec. 140; Swindell v. Bainbridge State Bank, 3 Ga. 364, 60 S.E. 13; United Order of Good Samaritans v. Meekin, 155 Ark. 407, 28 A. L. R. 89.
It is believed that the loans made to Mr. Lindinger during the years 1929 to 1931, inclusive, were not properly authorized by the directors, were in excess of the legal limit allowed by law, could not be ratified by subsequent action, and that the whole of the loans could be collected.
Corsicanna National Bank v. Johnson, 251 U.S. 68, 64 L.Ed. 146; Federal Surety Co. v. Wolcott, 116 Okla. 186, 243 P. 936, 46 A. L. R. 973; Minor v. Mechanics National Bank, 7 L.Ed. 47; Christy v. Foster, 61 F. 551.
Certainly it is elementary law that a person who occupies trustee or fiduciary position cannot deal with the property of the trust to his own advantage.
7 R. C. L., p. 456, sec. 441, p. 479, sec. 461; Aetna Casualty Co. v. Austin, 285 S.W. 957; National Surety Co. v. State, 161 N.E. 832; Brandon v. Holman, 41 F.2d 586.
Manifestly, Mr. Lindinger had no right to act for the bank and for the fish company at the same time, but the proof shows that this is just what was done.
Citizens National Bank v. Blizzard, L. R. A. 1918A, p. 129; Greenwood Ice & Coal Co. v. Ga. Home Ins. Co., 73 Miss. 46; Riverside Development Co. v. Fire Ins. Co., 105 Miss. 184; Scott County Milling Co. v. Powers, 112 Miss. 798; Cooper v. Robertson Investment Co., 117 Miss. 108; Corsicanna National Bank v. Johnson, 251 U.S. 68, 64 L.Ed. 146.
The sale of a note by a president or cashier to a bank of which he is manager can never be ratified without some action of the directors.
5 Cyc. 466; National Surety Co. v. State, 161 N.E. 573, 62 A. L. R. 412.
Section 3827 of the Code of 1930 controls the provisions of the bond given in January, 1931, the blanket bond.
The other schedule bond covering the years 1929 and 1930, is controlled by the provisions of chapter 185, Laws 1920.
The court will observe that with the exception of the cash items, which began along in 1930, and the overdrafts, which began a short time before the bank closed, the true nature of practically all the other items was concealed, and did not appear until about the time the bank closed. As to them, it was a case of concealed fraud, because Mr. Lindinger's connection with these transactions was not known until the bank failed and the banking department and other outsiders began to dig into it.
3 R. C. L. 420, sec. 476; Gause v. Com. Trust Co., 24 L. R. A. (N. S.) 967.
The law wisely requires that officers shall give bond for the faithful discharge of their duties. It does not contemplate that the bondsmen shall be released through failure of the directors to act or to report a matter which they could not authorize.
The mere neglect of the directors of a bank to examine into the conditions of the bank has been held no valid reason why the sureties on the bond of an officer thereof should not be held liable for his principal's default.
3 R. C L. 485, sec. 114; Minor v. Mechanics National Bank, 7 L.Ed....
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