National Bank of Commerce v. Wade

• Decision Date: 04 December 1897
• Court: United States Circuit Court, District of Washington
• Parties: NATIONAL BANK OF COMMERCE OF TACOMA, WASH., v. WADE et al.

84 F. 10

NATIONAL BANK OF COMMERCE OF TACOMA, WASH., v. WADE et al.

United States Circuit Court, D. Washington, Western Division.

December 4, 1897

W. H Bogle, and Charles Richardson, for complainant.

W. C Sharpstein, Crowley & Grosscup, and Sullivan & Christian, for defendants.

HANFORD District Judge.

The complainant, a national banking association organized under the laws of the United States, having its place of business at Tacoma, in this state, brings this suit against the defendants, who are citizens of this state, and in its bill of complaint charges that, while the defendants were members of its board of directors, and holding, respectively, the offices of president, vice president, and cashier, and, as such directors and officers, intrusted with the control and management of its business, by their malfeasance in office and violations of the statutes of the United States, in knowingly loaning the money of the bank in some instances without security, to an irresponsible and insolvent borrower to be used in speculation, and in other instances making loans in excess of the amount permitted by the statutes to be loaned to a single individual, and by renewing said loans without collecting the accrued interest thereon, the complainant has suffered heavy losses. The bill also avers that, after said loans had been thus improvidently made certain real estate was conveyed to the bank as security for some of the loans, but said property was burdened with prior incumbrances, and is of trifling value, as compared with the amount of indebtedness to the bank intended to be secured thereby; and that collateral notes, which were obtained as additional security, are worthless, the makers being insolvent. The defendants have demurred to the bill on the following grounds: First. There is no question of federal law involved, and, as the parties are all citizens of this state, there is no ground for the exercise of jurisdiction by this court. Second. The facts stated do not show any ground for equitable relief. Third. The suit is barred by the statute of limitations of the state of Washington.

1. In their argument upon the first and second grounds of the demurrer the defendants' counsel assumed that the case must be treated as an action by a principal against agents to recover damages caused by negligence on the part of the agents in the transaction of business for their principal, and that the common law alone furnishes the measure of their liability. The true test of jurisdiction in this class of cases is fairly given in that part of the opinion of the supreme court in the case of Cooke v. Avery, 147 U.S. 375, 13 Sup.Ct. 340, which is quoted in the defendants' brief, as follows:

'Whether a suit is one that arises under the constitution or laws of the United States is determined by the questions involved. If, from them, it appears that some title, right, privilege, or immunity on which the recovery depends will be defeated by one construction of the constitution or a law of the United States, or sustained by the opposite construction, then the case is one arising under the constitution or laws of the United States. Osborn v. Bank, 9 Wheat. 738; Starin v. City of New York, 115 U.S. 248-257, 6 Sup.Ct. 28. In Carson v. Dunham, 121 U.S. 421, 7 Sup.Ct. 1030, it was ruled that it was necessary that the construction either of the constitution or some law or treaty should be directly involved, in order to give jurisdiction.'

By this rule, it is plain that the jurisdiction would have to be denied in this case, if the argument in support of the demurrer were based upon a correct understanding of the elements which the complainant has introduced into its case by the bill. But from the pleading I cannot infer that the complainant intends to rest its case upon evidence proving merely that the defendants were inattentive or negligent in loaning the funds of the bank upon securities which proved to be inadequate, and which, by the exercise of diligence, they might have ascertained to be insufficient, before making the loans; nor that it hopes to recover upon such evidence. The bill charges directly that loans were made to an individual and to a corporation, each amounting to aggregate sums largely in excess of 10 per cent. of its entire capital, in violation of the express prohibition contained in section 5200, Rev. St., and that heavy loans were made to another individual, without any security other than the note of the borrower; and counsel for the complainant insists that the provisions of section 5136, Rev. St., conferring power upon national banking associations to carry on the business of banking by loaning money on personal security, by implication restrict the power of such banking association, so that it was a violation of said section for the defendants to loan the funds of the bank without additional personal security and the complainant contends that section 5239, Rev. St., is a law of the United States, creating a liability on the part of the defendants for all damages which the complainant has sustained in consequence of their having knowingly violated the national banking act in the particulars above specified. If, upon the trial of this case, the facts alleged in the bill should be proved, then the right of the complainant to recover will depend upon the proper construction and application of these statutes; if the facts shall not be proven as alleged, the plaintiff must fail, even though it should be made to appear that it has sustained damages by reason of negligence on the part of the defendants. For the purpose of this demurrer, the bill must be taken as true. Therefore, tested by the above rule, it is quite plain that the case is one arising under the laws of the United States, for the questions to be decided involve the construction of laws of the United States. Convincing evidence that there is a federal question in the case is to be found in the defendants' brief, a considerable portion of which is devoted to a discussion of the important question as to whether or not an action can be maintained against directors to enforce liability under section 5239, Rev. St., before the violations of the statute have been determined and adjudged by a proper court, in a suit brought for that purpose by the comptroller of the currency, and a dissolution of the association, as provided by said section. Counsel for the defendants affirm that no action against directors to recover damages which the association shall have sustained in consequence of violations of the statute can be commenced until after the association has ceased to exist. More concisely stated, the proposition is that the same law which creates a liability denies to the injured party all right to enforce it. The following authorities are relied upon: Welles v. Graves, 41 F. 459-468; Bank v. Peters, 44 F. 13-16; Hayden v. Thompson, 67 F. 273-277;...