Smith v. Fischer
| Decision Date | 20 July 1931 |
| Docket Number | 6739. |
| Citation | 237 N.W. 718,58 S.D. 510 |
| Parties | SMITH v. FISCHER et al. [a1] |
| Court | South Dakota Supreme Court |
Appeal from Circuit Court, Haakon County; John F. Hughes, Judge.
Action by F. R. Smith, substituted for John Hirning, as Superintendent of Banks acting in charge of and in behalf of the Cottonwood State Bank, a corporation, against Frank G Fischer, Anton S. Fischer, and others. From a judgment for defendants named and an order denying a motion for a new trial, plaintiff appeals.
Reversed and remanded.
Sutherland Payne & Linstad and T. B. Thorson, all of Pierre, for appellant.
Martens & Goldsmith, of Pierre, for respondents.
This action is brought by the superintendent of banks on behalf of the Cottonwood State Bank, which is in the hands of the superintendent of banks for liquidation. The action is based on the provisions of sections 8980 and 8990 of the Revised Code 1919. Section 8980 reads as follows:
Section 8990, so far as applicable to this case, reads as follows: "Every officer and director of any bank shall be held personally liable for all excessive loans made by his bank, in such amount as such loan may be in excess of the amount limited by law."
The complaint alleges that during the years 1919, 1920, 1921, and 1922 and up to the suspension of the said bank on September 25, 1923, the defendants as directors of said bank made excessive loans to the following parties and in the following amounts, to wit:
A. R. Morse ....... $ 1,741.00
John Penzein ........ 3,189.55
Rozenberger Bros ... 10,000.00
Hall Bros ........... 9,482.78
P. W. Hickman ....... 5,000.00
To illustrate the theory of the plaintiff, and the manner by which he arrives at the amount due on account of the loans made to each debtor, we set out the details of the Penzein loans as follows:
On October 4, 1920, the bank had loaned John Penzein $7,115.99, of which amount $2,245.36 was in excess of the amount to which he was entitled under the provisions of section 8980. Thereafter, payments were made on said indebtedness by Penzein which reduced his indebtedness to an amount within the legal loan limit. Thereafter his loans were increased until they exceeded the legal limit to the extent of $115.99. Again his indebtedness was reduced by payments to an amount within the legal limit. Thereafter his indebtedness was increased to an amount $291.60 in excess of the legal loan limit. Again his indebtedness was reduced to an amount within the legal loan limit and then increased to an amount $536.60 in excess of the loan limit. These four amounts added together equal $3,189.55, and this is the amount of the excess claimed on account of the Penzein loans. The amount of the excess on the loans of other debtors was arrived at in the same manner and aggregate the sum of $29,413.33. In computing the amount of the indebtedness for the purpose of ascertaining the amount of the excess, unpaid interest has properly been excluded.
Prior to the suspension of the bank, payments had been made by or on behalf of all of these debtors sufficient to reduce the balance due by them to the legal loan limit of the bank, and the trial court made a finding of fact relative to each of the said defendants, as follows: "That prior to the time the said bank closed and was taken into custody of the said Superintendent of Banks, the directors of said bank paid or caused to be paid, into said bank all of the indebtedness of the said Penzein which exceeded twenty per cent of the capital and surplus of said bank, and the notes representing said excessive indebtedness were removed from the assets of said bank." The court held that such payments paid all of said loans that were in excess of the legal loan limit and that defendants were thereby released from liability under the provisions of the above quoted statutes. Judgment was entered in favor of the defendants, and from such judgment and an order overruling his motion for a new trial, the plaintiff appeals.
It is the contention of the respondents that where excessive loans have been made and the directors have become liable for the excess under the provisions of section 8990, the debtor may pay an amount equal to the excess thereby reducing the amount of the loan to within the legal limit and that this would release the directors from liability; or that the directors may pay into the bank an amount equal to the excess and take an assignment from the bank of an equal amount of the debtor's paper, and thereby become released from liability for the excess. With this contention we are not able to agree. The purpose of enacting section 8980 was to prevent the loaning of too great a percentage of the bank's capital and surplus to one person or company, and the purpose of section 8990 was to make the directors liable for the amount of loans in excess of the amount permitted by section 8980. It was the intent of the Legislature in enacting section 8990, to add to the liability of the debtor the liability of the directors to the extent of the excess. Payment by the debtor of an amount equal to the excess does not release the directors, neither does advancing that amount by the directors, if they take out an equal amount of the debtor's paper. If this were allowed the directors could then reimburse themselves by collecting from the debtor and in this way exhaust the ability of the debtor to pay without benefiting the bank. In this way they would be taking out as much as they put in. If a debtor made a loan of $5,000 of which amount $1,000 was in excess of the legal limit, and then paid $4,000, this would not release the directors of their liability for the amount of the excess; but if the debtor paid all or any part of the remaining $1,000, such amount would apply on the liability of the directors and reduce their liability to that extent. On the other hand, if a loan were made of $5,000 of which amount $1,000 was in excess of the legal limit and the directors paid part or all of the excess, they would be released from liability on such loan to the extent of the amount so paid.
The liability of the directors arises immediately upon the making of an excess loan and continues until the directors pay the amount of the excess or until the debtor pays the entire debt. Farmers' State Bank v. Youngers, 47 S.D. 592, 200 N.W. 1019.
To put upon this law the construction contended for by the respondents would work a practical nullification of the law. If a debtor made a loan of $5,000 of which amount $1,000 was in excess of the legal limit and then was able to pay but $4,000, the $1,000 excess would be lost because the first $1,000 paid by the debtor would be applied on the liability of the directors and they could not be called upon to pay anything. It was to take care of just such cases that the law was enacted.
Section 8990 makes every officer and director liable only for "excessive loans made by his bank." "The discount of bills of exchange, drawn in good faith against actual existing values, and the discount of commercial paper actually owned by the person negotiating the same, shall not be considered as money borrowed by such person." Section 8980. It is contended by respondents that there is no evidence showing or tending to show that the loans involved in this case were not discounts of commercial paper actually owned by some other person and sold to the bank, and that there is no proof to show that the notes involved were not forgeries. This contention is not supported by the record. The contents of the books of the bank were introduced in evidence. The entries in these books indicate that all the transactions with these debtors were cash transactions. There is nothing to indicate that these notes were taken in payment for "property sold." When a note was taken the maker was credited with cash, indicating that the note was taken for money loaned to the maker. The bank president testified in regard to some of the transactions and referred to them as so much money loaned. An expert witness who testified for the plaintiff testified positively that the transactions shown were loans made by the bank, and one of the defendants while on the stand explained in his testimony that the loans in question became excessive because the borrowers were big stockmen and were obliged to borrow heavily from the bank in order to get their stock through the winter. All these facts and circumstances are sufficient, prima facie, at least, to show that the transactions involved were loans, and whether the transactions involved were other than loans, or the...
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