Stone v. Rottman

• Decision Date: 02 July 1904
• Parties: STONE, Receiver, v. ROTTMAN et al., Appellants
• Court: Missouri Supreme Court

82 S.W. 76

183 Mo. 552

STONE, Receiver, v. ROTTMAN et al., Appellants

Supreme Court of Missouri, Second Division

July 2, 1904

Appeal from St. Louis City Circuit Court. -- Hon. W. B. Douglas Judge.

Affirmed.

Johnson Houts, Marlatt & Hawes for appellant.

(1) Bank directors serve without remuneration. They are liable only as mandataries. They are only responsible to their bank for fraud or such gross negligence as amounts to fraud. Briggs v. Spaulding, 141 U.S. 132; Spering's Appeal, 71 Pa. 11; Fusz v. Spaunhorst, 67 Mo. 256; Swentzel v. Bank, 147 Pa. St. 140; Movius v Lee, 30 F. 307; Wheeler v. Bank, 75 F. 784; Wallace v. Bank, 15 S.W. 455; Coddington v. Canaday, 157 Ind. 243; Killen v. Barnes, 106 Wis. 574. (2) The Mullanphy Savings Bank had the right to take over the property of the Consumers Coal Company and to operate it, in order to make it productive and to satisfy the debt of the former owner of the property to the bank. The directors were not liable for the losses incurred in the conduct of the business so long as they acted in good faith for the protection of the bank. Morse on Banks & Banking (4 Ed.), sec. 78; Reynolds v. Simpson & Ledbetter, 74 Ga. 455. (3) A bank director is not liable for excusable mistakes concerning the law or for errors of judgment. Godbold v. Bank, 11 Ala. 191; Cockrill v. Abeles, 86 F. 505; Witters v. Sowles, 31 F. 1; Wallace v. Bank, 89 Tenn. 630; Watts Appeal, 78 Pa. 370; Hodges v. New England Screw Co., 53 Am. Dec. 624. (4) There was a fatal variance between the allegation of the petition and the proof adduced so far as it refers to the indebtedness of the Consumers Coal Company. An allegation of negligence can not be supported by proof of an intentional injury. 22 Ency. of Plead. & Prac. 591; O'Brien v. Loomis, 43 Mo.App. 29; Bindbeutel v. Railroad, 43 Mo.App. 463; Shearman & Redfield on Negligence (4 Ed.), secs. 5-7; Railroad v. Burdge, 94 Ind. 46; Railroad v. Smith, 98 Ind. 42; Harold v. Jones, 98 Ala. 348.

Granville S. Hoss and Manton Davis for respondent.

(1) Directors of a bank are liable to the bank, or its receiver, for losses sustained from improvident loans and advances, made by the directors recklessly and through their gross negligence. 1 Morawetz on Private Corporations (2 Ed.), secs. 552, 554; Morse on Banks and Banking (4 Ed.), sec. 128; 21 Am. and Eng. Ency. Law (2 Ed.), 876; Marshall v. Bank, 85 Va. 684; Bank v. Bosseiux, 3 F. 817; Hun v. Cary, 82 N.Y. 65; Brinkerhoff v. Bostwick, 88 N.Y. 52; Bank v. Hill, 56 Me. 389; Bank v. Hill, 148 Mo. 391. (2) Directors of a bank are ordinarily not liable for overdrafts allowed by its cashier. But, if they know, or by the exercise of reasonable diligence might know, that the cashier habitually and frequently allows irresponsible persons to overdraw, and thereafter such directors take no steps to prevent subsequent overdrafts, then they are liable to the bank or its receiver for losses on subsequent overdrafts, regardless of their knowledge of, or assent to them. Scott v. Depeyster, 1 Edw. Ch. 541; Percy v. Millaudon, 8 Mart. N. S. (La.) 68; Briggs v. Spaulding, 141 U.S. 132; Cook on Stock and Stockholders (5 Ed.), sec. 703; Williams v. McKay, 40 N.J.Eq. 196; Williams v. McKay, 46 N.J.Eq. 25; Ouderdirk v. Bank, 119 N.Y. 272; Cutting v. Marlor, 78 N.Y. 460; Bank v. Hill, 148 Mo. 392; Movius v. Lee, 30 F. 307; Campbell v. Watson, 50 A. 120; Wheeler v. Aiken County, etc., 75 F. 785; Morawetz on Private Corps. (2 Ed.), sec. 561; Bank Commissioners v. Bank of Buffalo, 6 Paige 497; Cox v. Robinson, 70 F. 763; State v. Satterly, 131 Mo. 491; Wallace v. Bank, 89 Tenn. 630. (3) A willful injury, creating an absolute liability therefor, does not arise unless not only the act causing the injury, but also its injurious consequences, were intentional. An intentional act, causing an unintentional injury, is negligence. Shearman and Redfield on Negligence (4 Ed.), secs. 5, 6; O'Brien v. Loomis, 43 Mo.App. 34; Bindbeutel v. Railroad, 43 Mo.App. 463; Railroad v. Burdge, 94 Ind. 46; Railroad v. Smith, 98 Ind. 42; Harold v. Jones, 98 Ala. 348; Holmes v. Atchison, 48 Mo.App. 79; Wharton on Law of Negligence, secs. 11, 15. (4) Though the Mullanphy Savings Bank purchased all the stock of the Consumers Coal Company, a corporation, the separate existence of the two corporations continued and the identity of the latter was not merged in the former. Cook on Stock and Stockholders (5 Ed.), sec. 709; Baldwin v. Canfield, 26 Minn. 43; Button v. Hoffman, 61 Wis. 20; Wilde v. Jenkins, 4 Paige 481; Humphreys v. McKissack, 140 U.S. 304; Fitzgerald v. Missouri Pacific, etc., 45 F. 812; Bank v. Bank, 155 Mo. 95; Randall v. Dudley, 111 Mich. 437; Harrington v. Connor, 51 Neb. 214; Gas Co. v. Kaufman & Straus, 105 Ky. 131; Banking Co. v. Eiseman, 19 L. R. A. 684. (5) The judgment of the trial court is correct, for the right party, and should be affirmed. Vaughan v. Daniels, 98 Mo. 232; Conley v. Doyle, 50 Mo. 235; Dunn v. Raley, 58 Mo. 134; Bridge Co. v. Ring, 58 Mo. 496; Wolfe v. Dyer, 95 Mo. 550; Barkley v. Cemetery Assn., 153 Mo. 317; Redman v. Adams, 165 Mo. 71.

OPINION

FOX, J.

The judgment in this cause is predicated upon the first count in the petition. It 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 enquire 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 first day of December, 1886, until the first day of March, 1896, said overdraft account gradually increased from month to month and from year to year until on the first 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 T. S. Teuscher, of St. Louis, Missouri then and ever since insolvent, had an account with the bank extending from the first 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 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 T. 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...