Houston v. Thornton

• Decision Date: 05 April 1898
• Citation: 29 S.E. 827,122 N.C. 365
• Parties: HOUSTON v. THORNTON et al.
• Court: North Carolina Supreme Court

29 S.E. 827

122 N.C. 365

HOUSTON v. THORNTON et al.

Supreme Court of North Carolina

April 5, 1898

Appeal from superior court, Chatham county; Adams, Judge.

Action by Sophia A. Houston against F. W. Thornton and others. A judgment was rendered against certain of the defendants for part of the amount claimed, and both parties appeal. Affirmed.

Douglas J., dissenting.

H. A London, for plaintiff.

Womack & Hayes, for defendant, Scott.

CLARK J.

The issues tendered by the defendants presented the question whether there had been fraud and misrepresentation on the part of the defendants. Those settled by the court at the close of the plaintiff's evidence presented the inquiry whether there had been negligence and wrongful acts by which the plaintiff had been damaged. The latter were proper upon the pleadings. The plaintiff complained that the board of directors of the People's National Bank, among whom were the defendants, in February, 1890, and at sundry other times before and after, caused to be published reports of the status of the bank, which showed it to be amply solvent whereby the plaintiff was induced, in April, 1890, to purchase 11 shares of the capital stock of said bank, whereas at the times aforesaid the bank was hopelessly insolvent, and had been so for at least five years; that the said directors either knew this to be the true condition of the bank, or with proper care could have knows it. The complaint is full and contains a detailed statement of the acts of negligence alleged against the defendant. The bank was declared insolvent on the 31st of December, 1890, and the receiver took charge in February, 1891. The plaintiff not only lost the whole sum ($1,100) invested in the purchase of said 11 shares of the stock of the bank, but under the liability clause of the national banking act has been assessed 50 per cent. on her stock, and a judgment has been obtained against her by the receiver for $550 on that account in the federal court. The published statement of the bank, January 2, 1890, showed that the capital stock was $125,000, the deposits $87,300, the surplus $32,000, and undivided profits $6,795. The former cashier of the bank testified, without contradiction, that this statement was made by the order of the directors; that it was untrue; that there was no surplus, no undivided profits, and that the bank did not even have its capital stock; that, if the directors had examined the papers, they would have known the insolvency of the bank; that at that time the president (Moore) owed the bank between $100,000 and $120,000; that one of the directors (Thornton) owed the bank about $40,000, another director (McNeill) owed it $20,000, and Starr, another director, owed it between $6,000 and $7,000,--thus between $166,000 and $187,000 being due the bank from these officials, of whom McNeill was then known to be insolvent; Moore was also insolvent, and failed in November, 1890, and Thornton in the spring of 1891; that the bank never had a finance committee; that in November, 1889, Moore owed the bank on his unsecured paper $100,000, of which $30,000 had been due three to ten years. It is needless to go through the evidence, which shows the most culpable negligence on the part of the board of directors, for this is sufficiently shown by the above-recited facts if nothing further had been proved. At the meeting of the directors on January 14, 1890, a dividend of 4 per cent. out of the profits was declared, all the directors being present, and the defendants voting for the declaration of the same; thought this divident, like all the other semiannual dividends for the five years previous was in fact paid out of the deposits, and not out of the earnings.

The defendants asked the court to charge:

1. "That upon the facts in evidence the plaintiff cannot recover, because any negligence of the defendants, they being directors of a national bank in the hands of a receiver, becomes an assest of the bank, for which the receiver alone can sue, and the jury will therefore answer the second issue 'No."' This prayer was properly refused. The wrong complained of is not one towards the company, not any negligence in the duty to guard its interests and to comply with the requirements of the national banking act, but a wrong to the plaintiff in permitting a false and fraudulent statement of the condition of the bank to be published, whereby the plaintiff, trusting in the truth thereof, and the high character of the defendants, was misled into parting with $1,100 for the purchase of 11 shares of the capital stock of the company, which at that time was worse than worthless. This is not a cause of action that, under any circumstances, could have passed to the receiver. 3 Thomp. Corp. §§ 4132, 4144, 4304. If this action had been brought by a depositor, "the settled doctrine of the law is that if, in the pretended performance of duties imposed upon them by law, the directors of a bank used their official station to make false representations which are believed and acted upon by third parties, they are liable to respond for the injury done to the one defrauded thereby, and that the liability provided for in the national banking act cannot be deemed to preclude the right to maintain a common-law action for deceit for such false and fraudulent representation." Prescott v. Haughey, 65 F. 653, 659, which distinguishes Bailey v. Mosher, 11 C. C. A. 304, 63 F. 488; Delano v. Case, 121 Ill. 247, 12 N.E. 676; 3 Thomp. Corp. § 4304. The allegations and proof as to declaring dividends out of deposits and allowing an official to borrow more than one-tenth of the capital stock are not the basis of this action. If they were, then the receiver should have brought the action; but they are merely evidential to show the negligence whereby the plaintiff, not the bank, was injured, and to support her action for the injury to herself.

2. "That the plaintiff cannot recover unless the jury shall believe from the evidence that these defendants participated in the fraudulent statement made by other officers of the bank; and, unless the plaintiff has shown such participation the jury will answer the second issue 'No."' Refused, and the defendants excepted. There was no error in refusing this prayer. The ground of recovery is not the participation of the defendants in fraud, but that, by their gross negligence, they permitted the statements to be put forth upon their authority showing the bank to be amply solvent, with large surplus, and the declaration of 4 per cent, semiannual dividends out of profits, when there had been no profits, as to all of which the defendants should have been informed. It was in evidence, and not denied, that all the directors were present when the dividend of January, 1890, was declared, and Starr alone voted "No," as to whom a nonsuit was entered. As was said in Solomon v. Bates, 118 N.C. 311, 24 S.E. 478, and reaffirmed in same case, 118 N.C. 321, 24 S.E. 746, and Caldwell v. Bates, 118 N.C. 323, 24 S.E. 481: "If false and fraudulent statements of the condition of the corporation are put forth under the authority of the directors, it is not necessary that they should know them to be such. It is their duty to know them to be true, and they are liable for damages sustained by any one dealing with the corporation, relying upon the truth of such reports." 1 Morse, Banks, §§ 132, 137; Kinkler v. Junica, 84 Tex. 116, 19 S.W. 359. So salutary and just a rule is supported by ample authority elsewhere; and, if it were not, it is correct in itself, and a just protection, to which the public are entitled. It is not necessary, as the...