Taylor v. American Nat. Bank

• Decision Date: 03 December 1924
• Docket Number: No. 129.,129.
• Citation: 2 F.2d 479
• Parties: TAYLOR v. AMERICAN NAT. BANK OF WICHITA FALLS, TEX., et al.
• Court: U.S. District Court — Northern District of Texas

2 F.2d 479 (1924)

TAYLOR v. AMERICAN NAT. BANK OF WICHITA FALLS, TEX., et al.

No. 129.

District Court, N. D. Texas, Wichita Falls Division.

December 3, 1924.

Bullington, Boone & Humphrey, of Wichita Falls, Tex., for plaintiff.

C. Kyron Walsh, of Wichita Falls, Tex., for defendant Emert.

Kay, Aiken & Kenley, of Wichita Falls, Tex., for other defendants.

Smoot & Smoot, of Wichita Falls, Tex., for intervening creditor.

ATWELL, District Judge.

This suit is brought under the provisions of section 23 of the Federal Reserve Act of Dec. 23, 1913 (Comp. St. § 9689) and section 5220 of the United States Revised Statutes (Comp. St. § 9806), and is in the nature of a creditors' bill. Briefly, the bill alleges: That the American National Bank at Wichita Falls had a capital stock of $200,000. That early in the summer of 1921 it was necessary to pledge certain of its assets to the First National Bank of Wichita Falls for the realizing of sufficient cash to pay off its depositors. That before such an arrangement could be made the plaintiffs were compelled to become guarantors to the First National, which guaranty, among other things, provided that the paper that the First National was taking over for security for such advancements would be retaken by the guarantors, and cash turned over to the First National in its place, if the First National so demanded. Such contract of guaranty expressly reserved the liability of the shareholders of the American National. Shortly thereafter the American National voted to go into liquidation, it having arranged for its depositors' checks to be honored by the First National. That demand was made upon plaintiffs, guarantors, by the First National, that several hundred thousand dollars worth of the pledged paper should be taken up by plaintiffs and cash paid over in its stead, which was done. That losses much in excess of $200,000 resulted. They prayed for certain equitable relief in the way of a complete ascertainment of such losses, the value of securities, etc., and asked for judgment for a full assessment against each shareholder.

The defendants answered that the act of the plaintiffs in making a guaranty to the First National Bank was voluntary and not arising in the due course of the business of the American National Bank; that the shareholders had made a prior payment upon an assessment levied by the Comptroller of the Currency; that the directors and active officers of the bank fraudulently induced certain shareholders to purchase stock, and for that reason such shareholders would not be liable upon their assessment in an action brought by such directors and active officers as creditors. Certain shareholders asserted cross-actions against certain officers and directors as individuals; two of the shareholders pleaded coverture; one shareholder pleaded that he was a pledgee. Likewise it was asserted that one R. M. Waggoner was at one time a director, and that the bank had settled with him. The defendants also sought to exact information concerning the condition of the liquidated bank, the value of its assets, the amount of its liabilities, and a complete disclosure of its affairs.

A master was appointed, who worked out the details of the inside affairs of the bank, so far as its liabilities and assets and its expenditures were concerned. Upon hearing an exception was sustained to the cross-actions. The parties stated in open court that they had agreed, after the completion of the master's report, that a sale of the existing assets of the bank should be made, and that the same was made, and that $50,000 in cash was realized. This eliminated any controversy over the amount of assets, or amount of liabilities, or correctness of expenditures, etc. This report and agreement show that the amount of liabilities was largely in excess of $200,000, after deducting the $50,000 received from the sale of the assets.

1. The testimony shows that in the fall of 1920 a national bank examiner discovered that the American National was insolvent, and its capital stock impaired. He went to a Mr. Kell, who resided in Wichita Falls, and who was a member of the Federal Reserve Board, and acquainted him with the situation (Mr. Kell having no knowledge of the condition of the bank, and having no connection therewith whatsoever), and solicited him to avert such a financial catastrophe as would follow the closing of the bank, which had at that time deposits greatly in excess of $1,000,000. The examiner advised Mr. Kell that it would be necessary to take certain paper out of the bank, and to resubscribe for the entire capital stock of $200,000. Mr. Kell was a substantial and a philanthropic citizen, interested in the good name of Wichita Falls, and he called into conference a score or more of other citizens, and they, arranged to, and did in fact, raise $200,000 in cash and put it in the bank. This $200,000 was to be used for taking the stock of any old stockholder who did not see fit, or who was not able, to pay the assessment of 100 cents. There were many who came within this category, and as a result Mr. Kell took about $20,000 of the stock, and several other gentlemen thus became stockholders. They made no personal examination of the paper, but relied upon the information furnished by the examiner, and by a committee of expert bankers chosen from the other banks in the city, who took from the bank and charged off such paper as they thought worthless, so that when they had finished they represented that the bank was solvent, with unimpaired capital.

The old active officers of the institution were displaced, and new officers took charge some of whom drew no salary. The bank continued in business from then until the summer of 1921, when it arranged with the First National to take over the payment of its depositors, as stated in the first part of this opinion. In the meantime, and during the time from the fall of 1920 to about April 10, 1921, some of the defendants had purchased stock, believing that the bank was all right, and that its new officers would make a creditable and dividend-paying institution out of it.

Considerable testimony was introduced tending to show that Wichita Falls was in the oil belt of Texas, and that its banking institutions dealt with refineries and men and concerns interested in the oil industry, and that a large part of its paper had been executed by such customers; that some time in the early winter of 1921 oil prices and properties became greatly depressed; that oil decreased from $3 or $4 per barrel to $1 per barrel; that leases which were thought to be valuable prior to that time became almost worthless, and that the general liquidation through which the country at large went also affected the bank; that the bank, which was solvent in the fall of 1920, became extended and in...