Green v. Officers and Directors of Knoxville Banking & Trust Co.

• Decision Date: 14 December 1915
• Citation: 182 S.W. 244,133 Tenn. 609
• Parties: GREEN v. OFFICERS AND DIRECTORS OF KNOXVILLE BANKING & TRUST CO.
• Court: Tennessee Supreme Court

182 S.W. 244

133 Tenn. 609

GREEN v. OFFICERS AND DIRECTORS OF KNOXVILLE BANKING & TRUST CO.

Supreme Court of Tennessee.

December 14, 1915

Appeal from Chancery Court, Knox County; R. H. Sansom, Special Chancellor.

Bill by John W. Green, as receiver, against the officers and directors of the Knoxville Banking & Trust Company. From a decree dismissing the bill upon demurrers, complainant appeals. Demurrers overruled, except those based on multifariousness, and cause remanded.

Green Webb & Tate and Wright & Jones, all of Knoxville, for appellant.

James B. Wright, Shields & Cates, L. H. Spilman, Lindsay, Young & Donaldson, and Johnson & Cox, all of Knoxville, for appellee.

NEIL C.J.

It appears from the bill that the receiver was appointed by the chancellor in a suit heretofore brought by the creditors and stockholders of the Knoxville Banking & Trust Company to wind it up as an insolvent concern. It also appears that by an order entered in that case the receiver was directed to file the present bill against the officers and directors. Its purpose was to hold them liable for fraud, willful mismanagement, and negligence whereby the beforementioned insolvency was brought about and the bank utterly ruined. Twenty-four grounds of demurrer were filed, all of which were overruled by the chancellor except the last, and as to his action upon the latter no appeal has been prosecuted to this court. The complainant, however, has appealed from the decree dismissing his bill upon the 23 grounds referred to.

It will be unnecessary for us to consider these grounds of demurrer in detail, presenting as they do very many attacks upon the bill from various angles. The counsel in their briefs have practically agreed upon the chief questions presented, and to these we shall in the main confine our attention, only referring to the demurrers themselves where it may be necessary to render our views, or the reasons for our decision, more clear.

The first ground is that the action is premature. We do not think this objection is well taken.

It is true the bill concedes that a considerable percentage may be collected from some of the large loans alleged to have been improvidently made, and now in part insolvent; and it must follow that the extent of the liability of defendants for these cannot be ascertained until such special matters are settled by exhaustion of the debtors, yet that need not delay the bringing of suit to recover from the directors as to those loans, improvidently made, if they are otherwise liable, where the debtors have been exhausted or it has been lawfully made to appear that they are insolvent, that is that the corporation has suffered loss in respect of these matters by reason of the negligence of the defendants. The bill states many instances in which loans, alleged to have been improvidently made, were, at its filing, wholly insolvent; indeed, wholly insolvent when made.

The cases of Johnson v. Churchwell, 1 Head (38 Tenn.) 146, Allison v. Coal Co., 87 Tenn. 63, 9 S.W. 226 Jackson v. Meek, 87 Tenn. 69, 72, 73, 9 S.W. 225, 10 Am. St. Rep. 620, and Albitztigui v. Guadalupe, etc., Mining Co., 92 Tenn. 600, 603, 22 S.W. 739, cited by defendants, do not apply.

In Johnson v. Churchwell the action was against the directors of a bank, under certain provisions of its charter, to hold them personally liable, on certain circulating notes issues of the bank, alleged to have been overissues, on the ground that they had violated the terms of the charter in making such issues, and that the bank having failed, leaving the notes unredeemed, and its refusal to pay them having been made on demand, the plaintiffs were injured to the extent of the face of the notes. The court held there could be no action brought under the charter to recover the amount of the notes until there had been a prior judicial determination of the violation of the charter, and likewise until there had been an exhaustion of the assets of the bank. As to the latter point, it was said that the measure of the liability of the directors would be the amount which the assets of the corporation would fall short of discharging its liabilities, caused by the defendants' dereliction. Of course, it is true, as we have already intimated, that the present suit is premature as to those alleged improvident loans that are not wholly insolvent, but out of which collections may yet be made. This results, not from what may be held in any given case or authority, but from the fact that the basis of the liability of the directors, in a case of the kind before us, is negligence, and there can be no recovery without injury or damage resulting from the negligence, and this cannot be ascertained as to certain loans mentioned until the borrowers under the loans have been exhausted. But in the case before us hundreds of improvident loans are alleged, very many of which are charged to have been insolvent and uncollectible at their inception, and ever since. As to such loans there is no question of waiting for an exhaustion of the debtors. It is true that a special demurrer directed to those special parts of the bill in which it is alleged that collections are yet to be anticipated from certain loans, on the ground that as to these the bill is premature, would be bound to be successful; but there is no such demurrer. On the contrary, the demurrer is to the bill as a whole, and not being good to the whole must be held bad in toto. The theory of the demurrer seems to be that the suit is premature because the assets of the corporation were not first exhausted. This objection is necessarily altogether inapplicable, because this suit is one by the corporation itself, that is, by its receiver, in right of the corporation, to hold its agents, the directors liable for negligence, and the measure of damages is the amount of the alleged negligent loans finally lost after due efforts to collect, that is, if the directors are liable at all, under the facts stated in the bill. There are, it is true, some allegations in the bill, to which we shall later refer, quite unusual in, if not inapplicable to, a bill of the corporation or its receiver, and generally appearing only in a suit filed directly by creditors, themselves; but, in any event, such matters cannot change the controlling fact that the present bill was filed pursuant to the order of the chancellor, made in an insolvency proceeding instituted in the Chancery Court by creditors and stockholders for the purpose of winding up the corporation. The bill, in its essential nature, then, is a bill by the corporation to hold its directors liable (Wallace v. Lincoln Savings Bank, 89 Tenn. [ 5 Pick.] 630, 634, 635, 15 S.W. 448, 24 Am. St. Rep. 625), and can lawfully contain only matters fit for such a pleading. All foreign matter contained in it must be disregarded. The bill being one of the kind just indicated, of course no contention can be made that the assets of the corporation must be exhausted as a preliminary to their collection, as this would be a patent contradiction both in word and act.

Allison v. Coal Co., supra, is a case substantially similar to Johnson v. Churchwell. The case of Jackson v. Meek, supra, rests on the same principle. There an effort was made by an employé to hold the stockholders of a corporation liable, under a charter provision, for wages unpaid by the latter, and it was held that such a suit would not lie until the assets of the corporation had been exhausted. The case of Albitztigui v. Guadalupe, etc., Mining Co., supra, stands on the same general ground. There an effort was made by the creditors to compel the shareholders and directors of a corporation to pay the amount of debts incurred in excess of the corporate stock, and it was held the suit could not be maintained because it appeared there were plenty of assets on hand to pay all of the debts.

The present bill, anticipating the defense of prematurity, alleges that if all of the assets already in the receiver's hands shall be realized, and likewise the whole demand made against the directors be successfully prosecuted, still there will not be enough produced to satisfy even the debts. We do not think this fact is material, as the defendants correctly insist, because, since the rights sued on, so far as applicable to the frame of the bill, belong to the corporation, it would, through its receiver, be entitled to collect, if its demands are well based, first for the payment of creditors, and next for distribution among the stockholders. The allegation, however, is pertinent to another aspect of the case, under which it is contended, in support of one of the demurrers, that the bill cannot be maintained for the benefit of stockholders, since it does not appear there were any stockholders other than the defendants themselves, and the court would not collect from them money to be immediately returned to them.

There being, as already indicated, no demurrer directed solely to those parts of the bill seeking a recovery in respect of loans not wholly insolvent, the bill must for the present stand as to these matters along with the rest, and the question in respect of such matters can hereafter arise only on objections made to the testimony that may be offered to show damages accrued in respect of them, unless in the course of the proceedings facts may develop showing that pending the present suit, before closing the account, the debtors referred to have been exhausted, so that the damages arising may be shown.

The next question is whether there was a misjoinder of parties complainant. This must be answered in the negative.

It is insisted for defendants that the bill is substantially one filed by creditors and stockholders as such to enforce their respective rights...