Union Nat. Bank v. Hill

• Decision Date: 21 February 1899
• Citation: 49 S.W. 1012,148 Mo. 380
• Parties: UNION NAT. BANK OF KANSAS CITY et al. v. HILL et al.
• Court: Missouri Supreme Court

49 S.W. 1012

148 Mo. 380

UNION NAT. BANK OF KANSAS CITY et al. v. HILL et al.

Supreme Court of Missouri, Division No. 2.

February 21, 1899.

BANKS — DIRECTORS — NEGLIGENCE — RIGHTS OF GENERAL CREDITORS.

1. Rev. St. 1889, § 2748, provides that the affairs of banking corporations organized thereunder shall be managed by a board of directors. Section 2758 prohibits such corporations from loaning money or becoming indebted to any one in a sum exceeding 25 per cent. of the capital stock. Held, that where directors of a bank left its affairs solely in charge of the cashier, who made loans to several persons in excess of the capital stock, without security and in some cases to insolvent, and the bank thereafter became insolvent, they were guilty of gross neglect, for which it was no excuse that they had no benefit from their neglect, and that their services were gratuitous.

2. For the mere failure of bank directors to exercise ordinary care in managing the bank's affairs, whereby the bank sustains loss and becomes insolvent, such directors are not liable to general creditors of the bank in a suit by them.

Appeal from circuit court, Saline county; Richard Field, Judge.

Action by the Union National Bank of Kansas City, Mo., and others against Philip M. Hill and others. From a judgment for defendants, plaintiffs appeal. Affirmed.

Leslie Orear, A. F. Rector, F. M. Black, Nathan Frank, C. W. Bates, John W. Beebe, I. N. Watson, and D. V. & E. S. Herider, for appellants. Thos. W. Shackleford, Davis & Duggins, John A. Rich, S. B. Burks, W. M. Williams, and Johnson & Lucas, for respondents.

BURGESS, J.

On the 17th day of October, 1894, the Citizens' Stock Bank of Slater, Mo., having become insolvent, made an assignment to defendant Com. P. Storts, for the benefit of its creditors, and the plaintiffs, whose demands were allowed by the assignee, prosecute this suit against the bank, the assignee, and the administrator of the estate of Joseph Field, deceased, who was cashier, and against Field's estate, and the other defendants, directors, upon the alleged ground that the insolvency of the bank was brought about by their neglect and mismanagement. After a demand upon, and a refusal by, the assignee to institute suit, this suit was brought by plaintiffs. There was judgment for defendants in the trial court, and the case is here on plaintiffs' appeal for review.

The Citizens' Stock Bank was organized under the laws of this state on the 1st day of September, 1882, with a capital stock of $30,000. On the 7th day of November, 1887, the capital stock was increased to $100,000, and the bank made an assignment on December 17, 1894, for the benefit of its creditors. The petition charges the defendants with negligence in failing to take any part in the management of the affairs of the bank; in turning the management of the business thereof over to Joseph Field, the cashier, during the existence of the bank; in making loans to various persons and firms when they were insolvent; and in making to each of certain named persons, firms, and corporations loans in excess of 25 per cent. of the capital stock of the bank, — by reason of all which said sums of money so loaned were lost, and said bank became insolvent. The plaintiffs sue for themselves and all other persons similarly situated. The total amount of the assets which came into the hands of the assignee, including real estate, furniture, cash and cash items, sums due from other banks, overdrafts, notes less credits, 50 shares of stock in the St. Louis National Bank (which was held by the Chemical Bank of St. Louis as collateral security and was worth $5,000), and notes held by other banks and persons as collateral security, at face value, amounted to $673,339.22. There were also other notes held as collateral by other banks which were not included in the inventory. The claims allowed by the assignee amount to $554,592.32, aside from $10,000 or $12,000 of other unadjusted demands. The assignee, after diligent effort to collect the money due the bank up to the time of the trial, had only been able to collect some $45,000 or $46,000, not including some $18,000 adjusted by way of offsets, and had paid a dividend of 3 per cent. only. His evidence was to the effect that a very large portion of the notes which came into his possession are worthless, because of the insolvency of the persons liable thereon, and that most of the notes held by other banks and individuals are of no value for the like reason. On the 7th day of November, 1887, the defendant directors increased the stock of the bank from $30,000 to $100,000, and in doing so caused an alleged surplus of $30,000 to be applied in payment of new stock issued to the existing stockholders, when in fact there were no surplus earnings on hand. At the time the capital stock of the bank was increased the Mead Mercantile Company was indebted to the bank on notes $42,155, and overdraft $2,261.21, making in all $44,420.21, which was more than the entire capital stock before the increase, and more than 25 per cent. after the increase. The indebtedness of this company continued to be greatly in excess of 25 per cent. of the capital stock of the bank up to the date of the assignment, when it amounted to $84,825.98. Only a small portion of this indebtedness was ever secured. At the time the capital stock of the bank was increased, the firm of Storts & Eubanks owed the bank $37,380.99, which was more than its capital stock before the increase, and more than 25 per cent. after the increase. This indebtedness continued to increase up to June, 1892, when it amounted to $117,294 more than the amount of the capital stock. This firm failed in business on the last-named date. For this money the bank never had any security. The members of the firm are the sons of two of the directors of the bank. In addition to the amount owing by this firm, one of its members, W. B. Storts, at the time of the assignment by the bank, owed it on his personal account the sum of $53,103.52, for borrowed money, from time to time for the last two years next preceding the assignment, for which the bank had no security, and the loss a total one. The indebtedness of one Joseph Baker to the bank in June, 1892, exceeded 25 per cent. of its capital stock, and so continued up to the time of the assignment, when it amounted to $67,709.41. For this indebtedness the bank never had any security. In addition to the above, we have the indebtedness of the firm of B. P. Storts & Co., of which firm Joseph Field, the bank's cashier, was a member, and of Joseph Field, amounting to $67,979, and a loss of not less than $40,000 to $50,000. While the books of the bank show that the notes of these parties were discounted, and the proceeds placed to their respective credits, there is nothing on the books, in many instances, to show when and for what time the discounted notes were renewed. It is the same with respect to many other notes held by other banks as collateral security. Of the $629,000 and over of notes shown by the inventory to be in the hands of the assignee, and in the hands of other banks and other persons as collateral security, $307,355.38 do not appear to have gone through the bank, — that is to say, they do not appear upon the books of the bank; and $286,055.85 in notes which were discounted, and do not appear by the books to have been paid, are not found in the inventory, either as in the possession of the assignee or in possession of other banks as collateral security. It is probable that in the $307,355.38 there are renewal notes to the amount of $286,055.85. It may be stated that the bank kept no separate account of bills payable. It seems to have been the custom of Field, the cashier, in borrowing money from other banks, to make a note signed by him as cashier, and secure the same by notes held by his bank, but the books of his bank contain no record of the notes turned over as collateral security. The information as to notes held by other banks comes from the correspondence turned over to the assignee.

On September 1, 1882, the incorporators of the bank met and adopted the following bylaws: "(1) The officers of this bank shall be a president, vice president, a secretary, a cashier, and an assistant cashier. The offices of secretary and cashier may both be filled by the same person. (2) The board of directors shall appoint such clerks as they may think necessary, regulate the salaries of all officers and clerks, determine the amount of dividend to be paid, the time and number of payments of dividends, and guard the interests of the bank. (3) The cashier shall be general manager of the business of the bank, and have supervision over it in all of its details. He shall have full power and authority to create indebtedness against the bank; to sign all issues of indebtedness and make indorsements for the bank, and receive and receipt for, and pay out, money for the bank; to appoint clerks, subject to the confirmation of the board, and prescribe their duties." Joseph Field was elected cashier of the bank at the time of its organization, and continued in that capacity to the time of the assignment. The directors met about once a year, but, having implicit confidence in the integrity and business capacity of the cashier, they paid no attention whatever to the business of the bank, but left it entirely to him. Several of them had large deposits in it at the time it closed its doors. The defendant Com. P. Storts, assignee, is a son of the defendant Perry C. Storts, and was clerk in the bank prior to, and at the time of, the assignment. There were other losses sustained by the bank which it is not thought necessary to set forth specifically, as those already stated are sufficient to a decision of the case.

The board of directors of a bank have a general superintendence over, and the management of, all its business affairs and transactions which ordinarily vest with it; and it...