W.G. Jenkins & Co. Bankers v. Standrod

• Decision Date: 04 August 1928
• Docket Number: 4960
• Citation: 46 Idaho 614,269 P. 586
• Court: Idaho Supreme Court
• Parties: W. G. JENKINS & CO., BANKERS, a Corporation, Appellant, v. D. W. STANDROD and D. L. EVANS, Respondents

269 P. 586

46 Idaho 614

W. G. JENKINS & CO., BANKERS, a Corporation, Appellant, v. D. W. STANDROD and D. L. EVANS, Respondents

No. 4960

Supreme Court of Idaho

August 4, 1928

BANKS AND BANKING-DIRECTORS-FIDUCIARY RELATION-FRAUDULENT MISREPRESENTATIONS - STATUTES OF LIMITATIONS - STATUTES OF FRAUD.

1. Complaint, showing that banking corporation's suit against directors thereof for losses incurred through their fraudulent conduct was brought within three years after discovery of alleged fraud, held not demurrable under C. S sec. 6611, subd. 4, requiring that action for relief on ground of fraud or mistake be brought within three years after cause of action accrues.

2. Directors of a bank bear a fiduciary relation to it, and act as trustees of property entrusted to their care.

3. The directors of a bank are bound to perform their duties as such with the utmost good faith.

4. It was the duty of bank directors, as trustees of property entrusted to their care, to disclose to other directors proposing to buy notes owned by another bank, of which the former were also directors, any information they had affecting former bank's interest.

5. Bank directors, inducing other directors to accept notes, which the former knew were worthless, were guilty of breach of trust, whether such inducements were by way of actual misrepresentations of facts or merely by concealment of facts known to them.

6. Bank directors' concealment of facts known to them as to worthlessness of notes, which other directors proposed to buy from another banking corporation, of which the former were also directors, was a violation of duties they owed former bank in their official capacity, they being affirmatively interested in transaction adversely to such bank.

7. Though a director may deal with his corporation through other members of the board, if the contract be fair and no advantage taken, directors chosen by stockholders of bank for prime purpose of safeguarding its investments cannot lay aside their trust at will and deal as strangers with other directors so as to foist worthless securities on bank by concealing facts within their knowledge affecting value thereof.

8. C S., sec. 7978, requiring that representation as to credit of third person or some memorandum thereof be in writing subscribed by party to be charged, held not intended to cover oral representations in violation of fiduciary relationship, such as that of bank director to bank.

9. In bank's action against certain directors thereof for losses incurred through their fraud in inducing purchase of notes owned by another bank of which they were also directors, it was not necessary to allege whether their statements that they would guarantee such notes were in writing.

APPEAL from the District Court of the Fifth Judicial District, for Bannock County. Hon. O. R. Baum, Judge.

Action for damages. Judgment for defendants. Reversed and remanded.

Judgment reversed and cause remanded, with directions. Costs to appellant.

J. H. Peterson and D. Worth Clark, for Appellant.

"The directors or officers of a corporation are liable for their fraudulent acts and representations to persons who are injured thereby." (14a C. J. 181.)

"As between a bank and its directors, the relationship of trustee and cestuis que trust exists and in the scrutiny of possible breaches of duty the rigid rules which govern trustees have been applied." (Michie, Banks and Banking, p. 271.)

"When a fiduciary relation is established between the parties, by which the dominant party secures any profit or advantage, at the expense of the person under his influence, transactions between the parties in this relation are presumptively fraudulent." (McDougall v. McFall, 37 Idaho 209, 215 P. 847; Nelson v. Jones, 38 Idaho 664, 38 A. L. R. 85, 224 P. 435,)

"One who sustains damage by reason of mistake or fraud may commence his action to recover damages within three years after discovery of the fraud." (Hillock v. Idaho & C. Co., 22 Idaho 440, 126 P. 612, 42 L. R. A., N. S., 178.)

D. W. Standrod, for Respondents.

C. S., sec. 7976, and exceptions to this section under C. S., sec. 7977; Reed v. Samuels, 43 Idaho 55, 249 P. 893; McKee v. Rudd, 222 Mo. 344, 133 Am. St. 529, 121 S.W. 312; Hurst Hardware Co. v. Goodman, 68 W.Va. 462, Ann. Cas. 1912B, 218, 69 S.E. 898, 32 L. R. A., N. S., 598; Burns v. Bradford-Kennedy Lumber Co., 61 Wash. 276, 112 P. 359; Goldie-Klenert Distributing Co. v. Bothwell, 67 Wash. 264, Ann. Cas. 1913D, 849, 121 P. 60; 25 R. C. L., sec. 79, p. 495 (bottom of page), sec. 14, pp. 444, 445, and cases cited thereunder.

BRINCK, Commissioner. Varian, Baker, CC., Wm. E. Lee, C. J., Taylor and T. Bailey Lee, JJ., concurring. Givens, J., disqualified. Budge, J., took no part in opinion.

OPINION

BRINCK, Commissioner.--

Plaintiff, a banking corporation of Mackay, brings this suit against D. W. Standrod and D. L. Evans, who were two of its five directors, to recover from them damages consisting of losses incurred by plaintiff through what is alleged to be fraudulent conduct of defendants as such directors.

Defendants were directors not only of plaintiff bank, but of another banking corporation known as D. W. Standrod & Company, operating a bank at Blackfoot until 1923, when it was taken in charge by the Commissioner of Finance. It is alleged that defendants were at all times familiar with the assets and condition of both banks; that in November, 1920, defendants prevailed upon plaintiff to purchase certain promissory notes aggregating some $ 40,000, and owned by the Blackfoot bank, advising the plaintiff's board of directors that all of said notes were good and were worth face value and would be paid and liquidated in the ordinary course of banking; that at said time the makers of said notes were financially irresponsible and unworthy of credit and not the owners of any property, all of which was known to defendants; that plaintiff's other directors acquiesced in said purchase by reason of defendants' said representations and the trust and confidence they had in the defendants on account of their official position, and that they relied upon defendants' said representations; that at various times after said transaction took place the Blackfoot bank exchanged other notes for the notes so taken by plaintiff, at the maturity of the latter, and that such process of exchanging new notes for notes that had matured continued until January 16, 1923, it being represented by defendants to the other members of plaintiff's board of directors that all such notes received in exchange by it were likewise good notes and worth their face value; that none of the notes so received by plaintiff in the course of such dealings was of any value whatever, but that the makers of all of them were insolvent at the times said exchanges were made, all of which was known to defendants but unknown to the other directors of plaintiff, who acquiesced in the purchases in reliance upon defendants' representations; that in January, 1923, the plaintiff's other directors caused the matter to be investigated, and then ascertained for the first time that none of the notes they had received were of any value, whereupon they made a further exchange with the Blackfoot bank of the notes then in plaintiff's possession which it had received in the course of transactions, receiving therefor certain notes aggregating $ 39,817.79; that plaintiff accepted said last-mentioned notes solely because they were of more value than the notes it then held, and for the further reason that defendants, after having been advised by plaintiff of the facts it had discovered with reference to the previous notes, had agreed that if plaintiff would accept the last lot of notes, defendants would personally guarantee the payment of the same. It was further alleged that plaintiff has endeavored to collect all of the notes last received by it, but has been able to collect only $ 3,680.45, and that the notes are otherwise worthless. The complaint alleges damages in the sum of $ 36,137.34, for which judgment is demanded against defendants.

To this complaint the defendants demurred upon the following grounds (1) That the complaint does not state sufficient facts to constitute a cause of action; (2) that the action is barred by C. S., sec. 6611, subd. 4; (3) that the complaint is unintelligible, ambiguous and uncertain, in that it cannot be determined therefrom whether the action is for damages for fraud, or is based upon defendants'...