Mutual Bldg. Fund & Dollar Sav. Bank v. Bosseiux

• Decision Date: 17 August 1880
• Citation: 3 F. 817
• Court: U.S. Court of Appeals — Fourth Circuit
• Parties: TRUSTEES OF THE MUTUAL BUILDING FUND & DOLLAR SAVINGS BANK v. BOSSEIUX and others, Directors, etc.

3 F. 817

TRUSTEES OF THE MUTUAL BUILDING FUND & DOLLAR SAVINGS BANK v. BOSSEIUX and others, Directors, etc.

United States District Court, E.D. Virginia.

August 17, 1880

Thomas G. Jackson and James Neeson, for complainants.

John A Meredith, John B. Young, and C. C. McRae, for defendants.

HUGHES D.J.

The Mutual Building Fund & Dollar Savings Bank of Richmond suspended payments in September, 1873; made an assignment in liquidation in January, 1874; and was adjudicated a bankrupt by this court on the twenty-sixth of March, 1874. The complainants were appointed in due course of proceedings as trustees, instead of assignees, in bankruptcy, and brought this bill within the period of two years, limited by law.

The bill is brought against 14 defendants, alleged to have been directors in the years 1872 and 1873. It sets out a series of acts ultra vires; charges gross negligence and inattention alleges great losses of capital and funds in consequence; and prays that the directors defendant may be required to make good the losses of the bank alleged to have been sustained from the negligence charged.

The case stands and is before me after argument upon the demurrer of the defendants, which, for the purposes of pleading admits as true the allegations of the bill. These allegations, which are, in the bill, drawn out in technical form and detail, are, in substance, as follows: The assets of the bank are almost worthless, while its indebtedness amounts to $135,000. The directors kept no minutes of their proceedings during the years 1872 and 1873. After the failure, to-wit, in October, 1873, the directors, by public newspaper card, invited new deposits, promising to hold them as a special fund to meet checks drawn against it; and in the same card promised to pay the bank's then existing indebtedness in pro rata instalments, as the bank should collect and realize from loans and securities. Yet, after this notice, the directors settled with some of the creditors in full, or in sums exceeding each creditor's pro rata share of assets,-- either by transferring assets of the bank, or by sale of assets at ruinous discounts,-- to the amount of $56,444, as shown by a list filed as an exhibit. The bill charges that this preference was unlawful and unjust, and that the directors either made the transactions themselves, or, by reckless neglect, abandoned their trust and duty, and permitted the president and cashier of the bank to do so for them.

This cashier, Thomas S. Armstead, who held the office from January, 1868, to December, 1873, gave a bond to the directors, on receiving his appointment in 1868, in the penal sum of $15,000, with sureties; but John E. Bossieux, who was president at the time, nows nothing of the bond except that he placed it in the vault of the bank, and the said bond is lost, or else has been destroyed. Complainants are, therefore, unable to ascertain whether the bond was conditioned for the faithful performance of his duty for the year 1868, or for the period of his service as cashier. Complainants charge that if the bond did not cover the years 1872 and 1873, during which the losses of the bank from his misconduct occurred, then the directors are liable for not requiring a bond for those years. Complainants have brought suit against said Armstead and his sureties to set up said bond, but fearing that it may be proved that the bond did not cover the years 1872 and 1873, they ask to be permitted to proceed against the defendants in this suit-- to hold them responsible for their negligence in having failed to require of the cashier a proper official bond for those years.

The bill charges that the directors permitted John E. Bossieux to overdraw his account in 1872 and 1873 to the amount of $1,990; that the same has not been paid. It charges that they permitted James Hunter, Jr., a depositor, to overdraw in 1872 and 1873 to the amount of $3,550; that this sum has never been paid, and that the directors had cause to believe that he was not responsible for the amount, and knew that he was also largely indebted to the bank at the time, on negotiable notes, inadequately secured. It charges that the directors permitted A. A. Hutchinson, now a bankrupt, to overdraw in 1872 and 1873 to the amount of $15,000, although he was at the time also largely indebted to the bank on negotiable notes inadequately secured. It charges that the directors, in July, 1873, declared a dividend of 6 per cent. upon the face value of the capital stock of the bank, amounting to $5,921, that being dividend No. 12; and that this dividend was unlawfully paid out of the money of depositors and capital stock, and was paid to share-holders, whether their subscriptions to the capital stock had been fully paid or not. It charges that the directors declared and paid a dividend in January, 1873, known as dividend No. 11, amounting to $5,897, which was paid out of capital stock and deposits under like circumstances to those charged as to dividend No. 12. The same charge is repeated as to dividends No. 10 and 9, paid respectively in July, 1872, and in January, 1872-- one of them amounting to $4,643, and the other to $5,636; all these dividends being of 6 per cent. on the nominal value of the capital stock.

The bill charges that the said four dividends were declared and paid, although the least investigation would have disclosed that the capital stock of the bank had already been exhausted by eight previous dividends which the bank had declared and paid-- the first being of 10 per cent., and amounting to $907; the second, of 13 1/2 per cent., amounting to $2,076; the third, of 10 per cent., amounting to $2,236; the fourth, of 10 per cent., amounting to $7,019; the fifth, of 5 per cent., amounting to $8,835; the sixth, of 8 per cent., amounting to $8,420; the seventh amounting to $7,634; and the eighth to $2,576. The bill charges that the directors, after all the profits and capital of the bank had been absorbed by 'enormous dividends' declared up to 1872, and by loans upon worthless and inadequate securities, nevertheless did, in the years of 1872 and 1873, with the capital and the funds of depositors, buy up stock of the bank, as set out in a list exhibited, paying therefor $10,777. It charges that in 1872 and 1873 the directors declared and paid dividends to the holders of stock who had paid little or nothing whatever of what was due upon it, as a list exhibited will show.

It charges that in the years 1872 and 1873 the directors entirely abandoned all their duties as such, except to hold semi-annual meetings, and left the entire management and control of the bank to Bossieux and Armstead, president and cashier, 'who recklessly squandered' what then remained of its capital and funds, by 'discounting and guarantying worthless paper, and permitting their favorites to overdraw their accounts to large amounts. ' It charges that after the suspension of the bank it discounted and guarantied paper to a large amount out of the funds of the depositors, much of the paper being worthless, a list of such paper being exhibited. It charges that the directors permitted President Bossieux to transact a portion of the business of the bank in his individual name. It charges that the directors so neglected their duties as to permit Cashier Armstead, in 1872 and 1873, to be in default in his cash to the amount of $9,162; and as to permit the president and cashier to guaranty the paper of A. A. Hutchinson (whose account at the time was overdrawn $15,000) to the amount of $3,845, as a list exhibited sets forth. It charges that during the years 1872 and 1873 the directors, through neglect, were in absolute ignorance of the condition of the bank, and yet made and published the reports upon its condition, which appeared in the public prints of the times, copies of which are exhibited; and that this ignorance, and the fallacy of these reports, are virtually confessed by the directors in a report of a committee of their body, made on the eleventh of December, 1873, in which they say that they cannot make a report of the condition of the bank in consequence of the inaccuracies in the books of the bank, which report caused an assignment by the stockholders of the effects of the bank in liquidation.

The bill charges that the directors so neglected their duties as to permit the president, cashier, and book-keeper to so negligently keep the books of the bank between its suspension in September, 1873, and the assignment in January, 1874, that no dates appear to the entries made, and the bill charges that heavy loss has been incurred by the bank in consequence of such omissions. It charges that Armstead, the cashier, is in default to the bank in the sum of $9,162, and that other losses have occurred to the bank in consequence of certain of his acts; that he is utterly insolvent, and that the directors are responsible for the default and the losses referred to. Such, in condensed form, are the allegations of the bill, which the demurrer of the defendants admits to be true for the purpose of pleading. I am to assume that they are true, in considering the questions raised by the demurrer.

In what will be said further on in this opinion all the several objections of the demurrer, except that mentioned in the third specification, will be either virtually or expressly considered. It is objected in this third specification that the causes of action set out in the bill did not accrue within two years before the institution of this suit. This objection is not well taken. It is not necessary that a cause of action should originally accrue or arise within two years before suit is brought by an assignee in bankruptcy. It is only necessary that it shall exist at the filing of the petition in...