Little v. Newhouse

• Decision Date: 30 January 1933
• Docket Number: 30394
• Citation: 145 So. 608,164 Miss. 619
• Court: Mississippi Supreme Court
• Parties: LITTLE v. NEWHOUSE et al

145 So. 608

164 Miss. 619

LITTLE v. NEWHOUSE et al

No. 30394

Supreme Court of Mississippi

January 30, 1933

Division B

1. BANKS AND BANKING.

Complaint seeking to enforce bank directors' liability held insufficient because not alleging facts showing wherein loan to director was excessive or dishonestly made and names of directors knowingly permitting or making loan (Code 1930 section 3812).

2. BANKS AND BANKING.

Executive officers of bank are liable to creditor damaged by loan to director, whether excessive or not, without consent of others required by statute (Code 1930, section 3812).

3. BANKS AND BANKING.

Heirs should not be joined in action to enforce liability of deceased bank director, unless estate in executor's hands is insufficient, and heirs have participated in distribution thereof (Code 1930, section 3812).

HON JNO. A. FINLEY, Chancellors.

APPEAL from chancery court of Prentiss county, HON. JNO. A. FINLEY, Chancellors.

Suit by J. C. Little against W. L. Newhouse and others. From an adverse decree, complainant appeals. Reversed and remanded.

Reversed and remanded.

C. R. Lacy, of Booneville, and Stone & Stone, of Coffeeville, for appellant.

The law on banks and banking on which appellant bases this lawsuit is 3812 of the Code of 1930.

The demurrer challenged the bill because no claim was probated against the estate of M. A. Sanders, one of the directors, and whose administrator and distributees were summoned in this case. This proposition is absolutely set at rest, as well as most other propositions in this lawsuit by the case of Boyd v. Appelwhite, 121 Miss. 879.

Section 3812 of the Code is positive in saying that it is unlawful to lend to a director without the approval of a majority of the board of directors or of an executive board or discounting committee, which selection shall have been recorded in the minutes and approval of the loan being a part of the records of the bank. The provision is plain; the violation of the plain provision of the statute as set up by the sworn bill is equally plain and positive.

Mr. Gray, the guardian of Richard Sanders, son of the deceased bank director, M. A. Sanders, sets up that the child and his mother are not proper parties to the suit; it is a fact that we have also summoned in the Administrator of the estate of M. A. Sanders, but we set out that M. A. Sanders died seized and possessed of land as well as personal property, so we summoned his heir-at-law as well as his administrator into court.

$ %Counsel insist that any claim against M. A. Sanders should have been probated against his estate but that is right in the face of the holding in the case of Boyd v. Appelwhite, 121 Miss. 879.

Appellee's counsel says that there is no contention in the bill that the loan was made in a dishonest manner, when the whole bill is pregnant with the idea that the dishonest character of the loan was in the straight-out positive deliberate violation of the law in allowing a director to get a loan without its approval.

J. A. Cunningham, of Booneville, for appellees.

The action of a bank official in making this loan to a director in violation of statute, could not have any causal relation whatever to an injury which appellant is in fear of sustaining years afterwards because of insufficient collateral.

45 C. J., Negligence, sec. 479, p. 902; City Ice Delivery Company v. Lecari, 98 So. 901; Shafer v. Myers, 112 So. 230; Clisby v. Mobile & Ohio Railroad Company, 29 So. 913; Illinois Central Railroad Co. v. Wright, 100 So. 1.

The authority cited and relied upon by appellant only shows that the official making this loan should have obtained the consent of the board of directors of record, and that is all his authority shows pertinent to this case.

Nowhere in the statute nor in the authorities cited, do we find it to constitute a tort on the part of the directors of a bank for its president to sell a note over its counter.

The selling of the note by the president of the bank is the only proximate transaction to the appellant's rights, and he does not complain of this.

E. C. Sharp, of Jackson, for appellees.

Appellant relies upon section 3812 of the Code of 1930. And upon the case of Boyd v. Appelwhite, 121 Miss. 879.

Appellees contend that neither are applicable to the case at bar, and that section 3812 has no application to a transaction of this kind.

It will be noted that this provision only makes directors personally liable where they permit the officers, directors or employees of the bank to borrow the funds in an excessive or dishonest manner, or in a manner incurring great risk or loss to the bank, and there is no contention or allegation in the bill that the loan in question was excessive or made in a dishonest manner, or that the bank incurred any great risk or suffered any loss whatever.

Appellees contend that the action, insofar as it affects or attempts to hold the estate of M. A. Sanders, deceased, liable, should have been against the executor and not against the heirs, and that this suit is therefore not maintainable against them, and that the demurrer was property sustained on that ground.

The present case is not founded upon an unliquidated claim for damages or for a tort, but upon alleged contract statutory liability, and director M. A. Sanders having died after the closing of the bank, the case is governed by the case of Bank Examiners v. Grenada Bank, 99 So. 903, 135 Miss. 242, for the reason the liability, if any, was fixed and acquired before the death of M. A. Sanders, and which did not require a liquidation of the assets of the bank to ascertain the amount due, if any, to appellant.

Argued orally by W. I. Stone, for appellant, and by E. C. Sharp, for appellees.

OPINION

Anderson, J.

Appellant filed his bill in the chancery court of Prentiss county against appellees, officers and directors of the Booneville Banking Company, and the executor and heirs of a deceased director, and the superintendent of banks, to recover a loss alleged by appellant to have resulted through the fault of the officers and directors of said bank. The cause was heard on original bill and amendment thereto and demurrer. The demurrer was sustained, and this appeal granted to settle the principles of the cause.

At the time of the filing of the bill, the Booneville Banking Company had failed, and was then, at the time of the hearing, in charge of the state banking department for liquidation. One of the directors of the bank was appellee W. L. Newhouse. On January 17, 1928, he borrowed from the bank the sum of three thousand six hundred seventy-two dollars and eighty-three cents, payable to the bank or bearer. This note was due the 1st of January, 1929, and bore eight per cent interest payable annually. Appellant had money to lend; the Booneville Banking Company knew this, and wanted to borrow money. Accordingy this arrangement was made: Appellant lent the Booneville Banking Company the face of this Newhouse note, three thousand six hundred seventy-two dollars and eighty-three cents; to secure the loan the bank transferred and turned over to appellant the note and deed of trust securing the same. The note was secured by a deed of trust on land. Appellant was willing to lend his money at six per cent. They agreed that the bank should collect the interest on the note, eight per cent, retain two per cent, and turn over six per cent of the amount so collected to appellant. This was done, and continued until the bank went into liquidation.

Appellant charged in his bill that on account of the insolvency of the bank he would be unable to collect his indebtedness out of the assets of the bank, and sought to recover any deficiency after the assets of the bank had had been prorated amongst its creditors and depositors, by foreclosure of the Newhouse...