Ventress v. Wallace

• Decision Date: 21 February 1916
• Docket Number: 17245
• Citation: 111 Miss. 357,71 So. 636
• Court: Mississippi Supreme Court
• Parties: VENTRESS ET AL. v. WALLACE

71 So. 636

111 Miss. 357

VENTRESS ET AL. v. WALLACE

No. 17245

Supreme Court of Mississippi

February 21, 1916

APPEAL from the chancery court of Wilkinson county, HON. R. W CUTRER, Chancellor.

Suit by D. H. Wallace, receiver, against L. T. Ventress and others. From a decree overruling their demurrer, defendants appeal.

The facts are fully stated in the opinion of the court.

Affirmed in part and reversed in part and cause remanded.

Bramlette & Bramlette, A. H. Jones and Green & Green, for appellant.

J. McC. Martin and Watkins & Watkins, for appellee.

OPINION

STEVENS, J.

Appellants appeal from a decree overruling their separate demurrers to the amended and supplemental bill of complaint exhibited against them by D. H. Wallace, duly qualified receiver of the Citizens' Bank of Wilkinson county. There was an original bill, to which was interposed a demurrer. Thereafter the amended and supplemental bill was filed, and separate demurrers were exhibited thereto, considered by the court, and overruled. The original bill avers in detail the appointment of receiver, the insolvency of the bank, and the administration of the bank's assets under the supervision of the court. The bill further charges that the directors and officers of the bank were guilty of willful, wanton, and gross negligence in the management and supervision of the affairs and business of the bank; that they employed a cashier, and intrusted to him the work and responsibility not only of cashier, but of bookkeeper, correspondent, and general manager of the bank, with full control and possession of the funds, securities, and property of the bank; that the cashier kept all the accounts, handled all moneys, and from time to time juggled the accounts, misused and appropriated the funds of the bank, and became a pronounced defaulter; that after the discovery by mere accident that the cashier had misused and mismanaged the assets of the institution, a liquidator was selected, and an audit company was employed to examine into the affairs and true condition of the bank, and that this company made its report to the directors, submitting, among other things, the following:

"While pointing out, however, that had any examination of the books ever been made previous to the date of January, 1913, the defalcations and irregularities would most certainly have been disclosed, and probably would not have amounted to such a large figure as is now the case."

The bill further charges that during all of the nine years in which the cashier served, no examination or audit of the books and affairs was ever had or made by any one whatever; that the directors accepted the cashier's reports and statements in reference to what the books showed, or as to the condition of the bank; that the charter and by-laws of the bank required an examination or inspection from month to month, but none was ever made or ordered by the directors; that they failed to appoint a finance or other committee to audit or examine the affairs of the bank, and accordingly no examination or audit was ever made; that the directors failed to use ordinary care in the management, failed to keep informed, and violated every duty imposed upon them by and as an incident to their office of director; that the law required the board to hold regular meetings and keep an accurate and complete record of all proceedings had at their said meetings, to make personal inspection of the bank's affairs and books in January, April, July, and October of every year, and to certify their finding to the auditor of public accounts under oath, and that none of these duties required by law was performed or regarded, but that all statements of the condition of the institution were prepared by the said faithless cashier and accepted by the directors as true and correct without verification. The bill sets out in further detail the obligations and duties of the directors and the alleged gross violation of these duties; the appropriation of the funds and securities of the bank by the cashier, false entries entered by the cashier on the books, the taking from the bank of valuable notes, which the cashier had not accounted for, and the appropriation thereof by the cashier. It is charged that A. G. Shannon, J. H. Jones, and W. P. S. Ventress were directors of the bank, along with the other living directors who are named as defendants to the bill, but that Mr. Ventress departed this life November 23, 1911, Mr. Jones, December 10, 1911, and Mr. Shannon, December 31, 1912. The executrix of Mr. Jones and the administrator of Mr. Shannon and the heirs at law of Mr. Ventress are named as defendants to the bill, no administration having been taken out on the estate of W. P. S. Ventress, deceased. Claim was made against the estates of the said decedents, along with the living directors, for losses of the bank occurring during their lives and while they were members of the board of directors, and against the surviving directors alone for losses occurring after the death of the directors mentioned and up to the final suspension of the bank.

The bill attempts to hold the heirs at law of Mr. Ventress liable for all losses of the bank occurring while he was a director to the extent of the value of the real and personal property left by Mr. Ventress and received by his said heirs. The bill prays for an accounting and full adjustment and prorating of the obligations of the several defendants and their estates. The amended and supplemental bill reiterates many of the averments of the original bill, and further sets out in detail the assets and liabilities of the bank and full list of the creditors. The amended bill charges that a bond in the sum of ten thousand dollars was given by the cashier as security for the faithful performance of his duty; that under the provisions of this bond it could be renewed and continued in force from year to year; that this bond had been lost or misplaced, and could not be found among the papers and securities of the bank; that the directors did not examine or pay any attention to the bond, and failed to see that the same was properly renewed and kept in force. It is charged, further, that the cashier was a defaulter from year to year from the time of his appointment, April, 1904 to 1913, and the annual shortage is tabulated, aggregating the total sum of seventy-three thousand three hundred and two dollars and five cents. The amended and supplemental bill abounds in charges of bad faith and bad management on the part of the cashier and the grossest kind of negligence on the part of the directors. The prayer is for an accounting, for personal decree against the living directors, and the personal representatives of the two deceased directors whose estates are being administered upon, and a charge against the property received by the heirs at law of Mr. Ventress from his estate. The demurrers, both general and special, submit every conceivable objection to the bill. Without setting out in detail the twenty grounds of the general demurrer and the many grounds of the special demurrer to many paragraphs of the bill, we discuss the main points of the case stressed by counsel for appellant in oral argument.

It is contended that after the filing of the amended and supplemental bill the original bill is no part of the pleadings in this cause. The amended and supplemental bill however, is asked by the pleader "to be taken as and for an amended and supplemental bill of complaint, and as part of his original bill herein," and that relief be granted "upon the final hearing of this bill of complaint, along with complainant's original bill herein." Under the facts of this case, therefore, we do not take the amended bill as an abandonment of any of the averments of the original bill, but, as indicated by the language of the amended bill itself, as supplemental thereto. Both documents together constitute the bill of complaint in this case.

The right of the receiver to maintain this suit is earnestly challenged. Counsel for appellants construe and term this an action of the creditors of the bank, attempted to be prosecuted by and through the receiver. This, however, is not a creditors' suit. It is true that the caption of the bill describes the complainant as "suing herein by order of court, for benefit of all creditors of said bank." The bill as a whole shows that this is really and truly a suit in equity by the receiver for and on behalf of the defunct corporation, the affairs of which he is administering under the supervision of the court. In a sense the suit, if successful, will inure to the benefit of creditors. But the right of complainant to sue must not be limited or measured by the expression referred to. The question is not so much what the complainant calls himself as what action he in truth and in fact states. In Morse on Banks and Banking (4th Ed.) section 129, it is stated that:

"If the liability of a director accrues for dishonesty, negligence, or incompetency, the claim of the bank against him becomes a part of the assets of the institution. An assignee, receiver, commissioner, or other party whomsoever, who may come into possession of the property for the purpose of collecting it and distributing it among the creditors and shareholders, is obliged to regard the rights of action against such delinquent directors as a part of the available assets."

Mr. Thompson, in his excellent work on Corporations, paragraph 1316, says:

"It is now practically everywhere conceded, that the receiver succeeds to the title of the corporation, and whatever rights it may have asserted against its unfaithful directors such receiver may also enforce against them. The jurisdiction of the courts of equity to compel unfaithful directors to account to...