Stone v. Rottman

• Decision Date: 02 July 1904
• Citation: 82 S.W. 76,183 Mo. 552
• Parties: STONE v. ROTTMAN et al.
• Court: Missouri Supreme Court

82 S.W. 76

183 Mo. 552

STONE v. ROTTMAN et al.

Supreme Court of Missouri, Division No. 2.

July 2, 1904.

BANKS — DIRECTORS — NEGLIGENCE — LIABILITY.

1. Where, in an action by the receiver of a bank against the directors for negligence in managing the bank, certain specific charges of negligence were made in the petition, plaintiff was confined to them.

2. In an action by the receiver of a bank against the directors for negligence in managing the bank, the five-year statute of limitations was applicable.

3. Aside from statutory liability, which creates an individual cause of action in favor of creditors as a class, the directors of a corporation are not liable to creditors for mere nonfeasance.

4. The director of a bank is only required to act in good faith and to exercise such a degree of care as a reasonably prudent man would exercise under the same circumstances; not that which a prudent man would exercise in his own business.

5. The custom of appointing discount and examining committees to attend to the details of the management of the business of a bank is a reasonable one.

6. A statute declares that a bank may sell all kinds of property coming into its hands as collateral security for loans, but forbids an investment of funds in trade or commerce. A bank, on a sale of corporate stock of a corporation which it held as security, purchased the stock, and through its officers ran the company, which traded in coal, for four years at a continual loss. Held, that the directors of the bank were liable for the loss in a suit by the receiver.

7. Where, in a suit by the receiver of a bank against the directors, the pleadings alleged that certain overdrafts were "negligently" permitted, the allegation was sustained by proof of illegal overdrafts.

8. In a suit by the receiver of a bank, the directors were liable for sums loaned borrowers who were at the time insolvent, to the knowledge of the directors.

Appeal from St. Louis Circuit Court; W. C. Douglass, Judge.

Suit by William J. Stone, as receiver of the Mullanphy Savings Bank, against John H. Rottman and others. From a judgment for plaintiff, defendants appeal. Affirmed.

Johnson, Houts, Marlatt & Hawes, for appellants. Granville S. Hoss and Manton Davis, for respondent.

FOX, J.

The judgment in this cause is predicated upon the first count in the petition, which sets out "the appointment and qualification of the plaintiff as receiver. In it the plaintiff charges that the defendants were negligent in the performance of their duties to the bank; that they neglected to observe the by-laws; that they failed at their meetings to faithfully and diligently inquire into the affairs of the bank, and to ascertain the condition of the accounts and property of the bank; that the discount committees grossly neglected their duty, in that they approved of improvident and worthless loans to irresponsible and insolvent persons and companies; that the president and directors left the entire management of the bank to the cashier, who loaned the money of the bank as he saw fit to wholly irresponsible and insolvent persons, his personal friends, without security; that in the exercise of ordinary care in the performance of their duty the defendants could have prevented the cashier from paying out large sums of money to financially irresponsible persons and corporations. These general charges of negligence are limited by certain specifications of negligence with reference to the accounts of four persons, to wit: Consumers' Coal Company, Schwartz Bros. Commission Company, Nolte & Dolch Fertilizer Company, and T. S. Teuscher.

The plaintiff alleges: That on the ____ day of November, 1886, there was organized what was known as the "Consumers' Coal Company," to sell coal, operate coal mines, etc. That the organization and launching of said enterprise was purely a speculative venture on the part of its promoters, and that certain of the directors of said bank during the whole time of its operation and existence were owners, proprietors, and managers of said coal company. The said corporation was started without capital, or the capital necessary to operate the same. The said corporation, being insolvent from the beginning, the defendants herein, certain of whom were directors and officers of said coal company, in order to procure the necessary money wherewith to maintain the existence of said coal company, procured overdrafts to be drawn on the part of said coal company on the bank, which overdrafts were honored and cashed by the cashier of the bank. That from the 1st day of December, 1886, until the 1st day of March, 1896, said overdraft account gradually increased from month to month and from year to year until on the 1st day of July, 1895, said account aggregated the sum of $80,927.61. That after said sum was settled by note said coal company was again permitted to overdraw its account in the sum of $62,000, said last-mentioned overdrafts extending over a long period of time, and on that account $142,927.61 was and is lost to said bank and its creditors. That from the time of the organization of said coal company until it finally ceased to do business it was an insolvent and bankrupt concern, and so known to be by those in charge of its management, as well as by the defendants herein, and that during the entire time of the existence of said company it was a sink hole into which the money of the Mullanphy Savings Bank was being poured at the instigation and with the consent and upon the advice of the defendants herein, for the purpose of endeavoring to extricate it from its insolvency and to save the money previously spent in the enterprise.

Further complaining: That one F. S. Teuscher, of St. Louis, Mo., then and ever since insolvent, had an account with the bank extending from the 1st of January, 1894, to April 6, 1896. That Teuscher was engaged in speculating in futures, buying and selling grain, whiskies, and other commodities for future delivery. That said business was highly speculative and hazardous. That the defendants were fully acquainted with the character of the business, and could have ascertained the same at any time by examining into the character of said Teuscher's account and of the vouchers from which the same was made up, as shown by the books of said Mullanphy Bank. That, having the permission and consent of the defendants herein so to do, the said cashier of said bank permitted said F. S. Teuscher to become indebted to said bank without security by overdrawing his account with said bank in the sum of $175,000. That the total amount of the security required of said Teuscher for all of said indebtedness was not worth more than the sum of $30,000, thus leaving a net loss to said Mullanphy Savings Bank on account of said line of loans to said Teuscher in the sum of $145,000. That on account of the grossly careless and negligent conduct of the defendant in permitting said Teuscher to so get possession of the money of said bank without security, the sum of $145,000 was lost to said bank and its creditors.

That Schwartz Bros. Commission Company had had a running account with the bank from the year 1886, and prior thereto, to the date of the failure of the bank. That said commission company was engaged in the business of dealing in futures, buying and selling grain and other commodities for future delivery, on account of their customers and also on their own account. That the business was purely speculative and admittedly hazardous. That the character of their business was known to the defendants for more than 10 years last past, but that, notwithstanding that fact, the cashier of the Mullanphy Bank, with the express and implied consent of the defendants, permitted said company to continue from the year 1890 to continually overdraw its account without giving any security therefor, knowing at the time that the entire amount of said indebtedness was liable to be lost on account of the hazardous and speculative business in which said commission company was engaged. That said commission company would be permitted to overdraw its account with said bank until said overdraft account reached from $20,000 to $25,000, when a note would be taken for the account of said overdraft and said note approved by the defendants, whereupon said commission company would again be permitted to overdraw its said account until it would again run up to thousands of dollars, when a new note would be taken for the second overdraft, which said note would also be approved by the discount committee and sanctioned by the directors, defendants herein; the indebtedness increasing each year, until on the 1st day of July, 1894, the indebtedness of said commission company to said bank, in the matter of overdrafts alone, amounted to the sum of $31,000. That it was again permitted to overdraw its account, extending over a period of three years from that date, until said lastmentioned overdrafts reached the sum of $55,000, which was due and owing from said commission company and said bank at the date of its seizure. That of all this indebtedness of Schwartz Bros. to said bank the defendants took little or no security, or such securities as might have been known by, and were known by, defendants to be worthless or wholly inadequate to secure the credit extended to said commission company. That said Schwartz Bros., at the time of contracting said indebtedness, was insolvent. That the sum of $86,000, loaned negligently and unlawfully, in the manner aforesaid, to said company, has been lost to the bank on account of the gross negligence of the defendants.

That on or about the ____ day of ____, 1891, the Mullanphy Bank became the owner of a certain plant and machinery used and operated for the purpose of manufacturing fertilizing material, used in enriching cultivated lands, acquired in the collection of debts for which said plants, machinery, etc., had been given as security. That said bank sold for...