Movius v. Lee

• Decision Date: 23 March 1887
• Parties: MOVIUS, Receiver, etc., v. LEE and others.
• Court: U.S. District Court — Northern District of New York

30 F. 298

MOVIUS, Receiver, etc., v. LEE and others.

United States Circuit Court, N.D. New York.

March 23, 1887

Ansley Wilcox, for plaintiff.

E. C Sprague, for defendant Spaulding.

Benj. H. Williams, for defendant Johnson.

David F. Day, for defendant Cushing.

Humphrey & Lockwood, for defendants Coit and Barnes, Ex'rs.

WHEELER J.

The First National Bank of Buffalo was organized December 7 1863, under the provisions of the national bank act of February 25, 1863, for which the national bank act of June 3 1864, was substituted, (13 St.at Large, 100,) with a capital stock of $100,000, divided into 1,000 shares at $100 each. At the annual meeting of its shareholders holden January 11 1881, Charles T. Coit, R. Porter Lee, Thomas W. Cushing, John H. Vought, and George Coit were elected directors. They took the oath of office required by law, and chose Charles T. Coit president, and R. Porter Lee cashier, George Coit died, and May 20, 1881, the rest of the directors filled the vacancy caused by his death by electing Francis E. Coit a director in his place, who took the required oath of office. Mr. Cushing sold his stock, by bargain made at the bank, to Charles T. Coit, the president, September 24, 1881, at the price of $125 per share, to be paid and transfer to be made afterwards. In consequence of this trade, he then and there, so far as he could be words, resigned his office of director to the president, and never afterwards assumed to be or to act as a director. The health of the president became poor; and at a meeting of the four directors, including himself, remaining after the withdrawal of Cushing, he stated that fact, and that he desired to be relieved somewhat of his official duties, whereupon they voted that he be given leave of absence for such intervals and at such times as he might see proper, for one year from that date, which was October 3, 1881. They then chose the cashier, R. Porter Lee, vice-president, and Theodore W. McKnight assistant cashier. The bank then had an apparent surplus of $50,000, and undivided profits to the amount of $24,277.03, and it is not claimed in this suit but that these items were real. Mr. Charles T. Coit paid Cushing for his stock at the price agreed upon October 7, 1881, and took a transfer of the certificates signed in blank, which was entered on the books of the bank in November, as made September 24, 1881. Charles T. Coit sold most of his stock, 510 shares, to Lee, was absent from the bank on account of his health, and took no part in its management afterwards. He died December 11, 1881. The control and management of the bank was left to Lee, who used its funds in the form of discounts to his associates in business and speculations until great losses were incurred. Prior to the annual election in 1882, he spoke of the vacancies in the board of directors to the defendant Spaulding, and also to the defendant Johnson, and proposed to transfer stock to them, and that each should become a director. Spaulding was president of another national bank, and connected with other corporations, and did not wish to assume new responsibilities, and so told Lee, but consented to the arrangement, and Johnson did likewise. At the meeting January 10, 1882, Spaulding, Johnson, Francis E. Coit, Vought, and Lee were elected directors, who took the oath of office required by law. Lee was chosen president, and McKnight was elected cashier. The control and management of the bank were left to Lee as before. Vought sold his stock to Lee, January 19, 1882, and did not act as director afterwards. Spaulding was engaged with his other business, the family of Johnson was sick, and his son died, and neither of them did anything about the management of the bank. Coit went once, and looked over the loans and discounts. Lee stood well in the community as a man of honor and integrity, as financier and bank manager, and neither of them had any suspicion that the affairs of the bank were not being well and faithfully attended to by him. Lee sent a request to Spaulding, April 11, 1882, for the return of the stock transferred to him, and Spaulding signed a transfer upon the back of the certificate and returned it, in pursuance of an understanding between them that he would return it on request, and, as he supposed, ended his connection with the bank. The bank had become helplessly insolvent and stopped business April 13, 1882, and was soon afterwards placed in the hands of a receiver. The whole capital surplus, undivided profits, and reserves were gone, and the individual liability of the directors would not pay the depositors. The losses incurred amount in all to more than $600,000. This bill is brought to charge the directors who are living, and the estates of those who are dead, with the amount of these losses.

The bill alleges, in substance, that the defendant Spaulding sold and transferred his stock in the bank on the eleventh day of April, 1882. The evidence shows that he signed the transfer of the stock in blank, and delivered the certificate to the messenger from Lee, without any negotiation with Lee, or any one, at that time, with reference to a sale of the stock. The plaintiff's counsel moved on the hearing to amend the bill to have it allege that the transfer was formal merely, without consideration, and that there was not any sale or valid transfer in effect. It is argued, in support of the amendment, that this would make the bill conform to the proofs merely, and that it should be allowed for that reason. The evidence shows, however, in addition to this, that Spaulding had not paid Lee anything for the stock, and that it was understood between them that Lee might have the stock back for some one else, if he should so desire, at any time. It appears from the whole transaction that, when Lee sent the messenger for the stock, it was in pursuance of that understanding, and that Spaulding acted upon the understanding in complying with the request. There was therefore an agreement for and an actual resale of the stock. The blank in the transfer was filled with the name of a third person to whom Lee had sold the stock, but there was merely a method of carrying out the two sales, and required no negotiation between Spaulding and the other person to make it effectual. The bill now, therefore, alleges the sale as it in fact was, and there is no occasion for the amendment. Johnston v. Laflin, 103 U.S. 800.

Some question has been made, and discussion had, with reference to the right of the plaintiff to enforce the liability of the defendants, if any exits, for the benefit of stockholders, creditors, or depositors, as the results might, if realized, eventually inure to them, respectively. It seems, however, that the receiver, as the name implies, has in his hands the rights of the bank itself against all and any persons, however the rights may have arisen, to enforce for the benefit of whoever may be entitled to the avails of them; and these rights may be enforced by him in his own name, or in the name of the bank whose corporate existence is continued for that purpose. Kennedy v. Gibson, 8 Wall. 498; National Bank of the Metropolis v. Kennedy, 17 Wall. 19; Case v. Terrell, 11 Wall. 199. If the bank had a right or claim in this respect which it could enforce against the defendants, or any of them, the plaintiff has the same now, which he is entitled to enforce to the same extent; and none appears to have accrued to him which the bank in its own right did not have. The right rests entirely upon the alleged non-performance or negligent performance of duties as director of the bank. The defendants stand upon different grounds, in some respects, in their defenses to this claim to charge them.

The defendant Cushing sets up in defense, among other things that he was not a director at all, and therefore owed no duty in that behalf, at the time when the alleged losses took place. Whether he was or not depends upon the effect of what occurred about the sale of his stock and resignation. He bargained for its sale on the twenty-fourth of September, 1881, and orally resigned his office of director, so far as he so could, to the president of the bank, in his place of president at the bank. This was prior to the time of any of the losses as alleged. He delivered the stock certificate, with authority to transfer, on the seventh of October following, and receiver his pay for it. This may be after some of the losses occurred. The transaction of September 24th may therefore be of importance. The statues provide that every director must own in his own right at least 10 shares of the capital stock of the association of which he is a director; and that any director who ceased to be the owner of 10 shares of the stock shall thereby vacate his place. Rev. St. U.S. Sec. 5146. The purpose of this statute obviously is to require the office of director to be kept in the hands of those who are personally and pecuniarily interested in the affairs of the bank. When Cushing bargained his stock, he ceased to be so interested. Good faith to the other shareholders, as their interests were guarded by these provisions of the law, would seem to require that he should then cease to be a director. He appears to have taken this view, and to have done what he could to carry it out. There was no calamity impending or contemplated by him to be avoided by vacating his office, or which he could prevent by retaining it. There was no reason why he should not resign if he could. He was an officer elected to his place; it was an office that he was not obliged to accept, and would seem to be one that he was not obliged to hold. U.S. v. Wright, 1 McLean, 509; People v. Porter, 6 Cal. 26; Olmsted v. Dennis, 77 N.Y. 378. No mode of resignation was provided by law, and...