Warner v. McMullin
| Decision Date | 06 January 1890 |
| Docket Number | 236 |
| Citation | 131 Pa. 370,18 A. 1056 |
| Parties | HENRY WARNER, ASSIGNEE, v. M. K. McMULLIN |
| Court | Pennsylvania Supreme Court |
Argued November 11, 1889
APPEAL BY DEFENDANT FROM THE COURT OF COMMON PLEAS NO. 2 OF ALLEGHENY COUNTY, IN EQUITY.
No. 236 October Term 1888, Sup. Ct.; court below, No. 166 July Term 1886, C.P. No. 2 in equity.
On April 26, 1886, Henry Warner, assignee of the Penn Bank, for the benefit of ereditors, filed a bill in equity against M K. McMullin, W. N. Riddle and John P. Beall. Answers of the respondents having been filed, the cause was referred to Mr W. B. Rodgers, appointed examiner and master, whose report, filed on October 5, 1887, was in part as follows:
The plaintiff in his bill avers tat the Penn Bank was a corporation engaged in the banking business until May 26, 1884, receiving and having large deposits; that on that day it became insolvent and closed its doors, and shortly afterwards made a voluntary assignment to the plaintiff, who accepted the trust; that W. N. Riddle, one of the defendants, was cashier of the bank until the year 1882, and from that date until the closing of the bank was its president and received a salary; that as president he had control of the officers and employees of the bank, and personally and through his subordinates largely superintended and controlled the business of the bank and had possession and control of its money and assets; that during 1883 and a portion of 1884 the defendants unlawfully and repeatedly withdrew, and at their instance had withdrawn from the bank, large sums of money aggregating $1,000,000 and other assets; that said money was withdrawn and used by the defendants, and at their instance, in illegal and unlawful dealing in oil or certificates therefor; that the transactions for which said money was withdrawn and used were gambling transactions; that no portion of the money so withdrawn and used by defendants, or at their instance, could be lawfully withdrawn, or used for such purposes; that it was Riddle's duty as president to see that no portion of the money of the bank was withdrawn except for the legitimate business of the bank, yet in disregard of his duty he allowed and procured said money to be withdrawn and used, and in doing so he was aided and assisted by the other defendants; that the defendants in the withdrawal of said money acted in pursuance of a common purpose to procure and have procured said money illegally and for an illegal purpose; that by reason of said acts of defendants the bank was financially ruined, and money and property, above all credits, to a value exceeding $1,000,000 abstracted from the bank; that the accounts are complicated, intricate and involved, and no adequate remedy at law could be had in reference thereto; that portions of the money and property so withdrawn, but how much is not known, have come into the hands of the defendants who refuse to account therefor, and that there is danger of defendants disposing of the same.
The bill asks for a decree, inter alia, that the matters and things referred to are matters of account; that defendants shall pay all such sums of money and the value of all property illegally and improperly withdrawn by the defendants in 1883 and 1884, etc.
The defendants filed separate answers. The answer of Mr. Riddle denies that he had control of the officers and employees of the bank, or its money or assets, but that the directors had such control, and that the assets of the bank were under the control of F. B. Laughlin, a member of the board and treasurer, and that he (Riddle) during 1883 and 1884 was absent for long periods by reason of illness. He denies any improper or illegal withdrawal or use of the funds of the bank, or any combination with the other defendants in relation to any matter or thing connected with the bank. He also denies that there were any transactions between himself and the bank involving mutual accounts, or that the accounts are complicated, intricate and involved, and avers that plaintiff has an adequate remedy at law. He also denies the right of the plaintiff to maintain the bill, because at No. 26 October Term 1884, in this court, an action at law was brought against him, with others, for the same cause for which this bill is filed; that when said cause was called for trial the plaintiff, with consent of defendants, discontinued the suit and paid the costs. He also avers that as president he made frequent and accurate reports to the directors, and during the time covered by the transactions in controversy the directors had knowledge of and approved the transactions which are alleged to have resulted in the insolvency of the bank.
Mr. Beal's answer denies that he withdrew or had withdrawn any money or property of the bank for the purposes stated, or that he combined with the other defendants, or any one else, to unlawfully abstract any money or property of the bank. He also denies that he had any dealings with the bank, or any accounts, save only as an employee receiving a salary. He denies any necessity for discovery, so far as he is concerned, as he had repeatedly offered to plaintiff all knowledge in his possession, which offers had been declined. He avers that down to August, 1883, he was engaged as a book-keeper having charge of the oil accounts of the bank, in which capacity he acted under the direction and with the knowledge of the officers and directors of the bank; that a large portion of his work was performed, and all his books and accounts of such oil transactions were kept openly and publicly in the directors' room and at the vice-president's desk; that all the money lost to the bank was lost before August, 1883, and before he bought or sold any oil for the bank; that from August, 1883, to May 24, 1884, as an employee of the bank, he bought and sold oil for it as directed from time to time by his superior officers, upon which transactions there was a large profit, all of which was accounted for by him.
The answer of Mr. McMullin denies that he withdrew or had withdrawn any money or property of the bank for the purposes stated, or that he combined with the other defendants or any one else to abstract any money or property of the bank. He denies that his accounts with the bank are complicated, involved and intricate, but avers that his accounts had been adjusted by the plaintiff and showed a balance due him of about $70,000, upon which he had received a small dividend, and with this exception, he denies that the bank had any accounts, dealings or transactions with him, or in his name, or on any account, with his knowledge, authority or consent. He also denies that any money or property of the bank had come into his possession and denies the plaintiff's right to discovery.
The case involves transactions in oil by what was called in the testimony, the Penn Bank syndicate. These transactions began about May, 1883, and ended with the insolvency of the bank in 1884.
* * *
The plaintiff seeks to hold the defendants upon the following grounds:
1. Riddle was president of the bank. He was therefore trustee of the bank. In so far as he handled the funds of the bank he dealt with trust funds. Under the proofs in the case, Riddle used the trust funds of the bank in a speculation in oil, by which it was sought to raise or depreciate the market value of oil. This was ultra vires the power given to the bank in its charter, and ultra vires the power of Riddle as president, because without the knowledge and consent of the directors of the bank. McMullin and Beal both knew that Riddle was president, and that the bank was in the syndicate, and that the money of the bank was being used in oil deals. This was an unlawful use of the money, and as they assisted in such use and actually used the funds of the bank themselves, and assisted in extracting such funds for use in the oil deals, they are personally liable, the same as Riddle, for all the money so abstracted, and for all losses in the oil deal; and that Beal and McMullin were liable even if the bank were not a party to the syndicate, because it would still be an unlawful use of the trust funds of the bank.
2. Riddle, however he may be regarded, and irrespective of his trust position, was engaged in an oil deal for the Penn Bank, the purpose of which deal was to raise and depress the market price of oil. The vast amount of oil dealt in, the manner in which it was handled, the fact that in reality the oil was bought on margin, and the other circumstances, show that it was a gambling speculation in oil. So far as the Penn Bank was concerned, both Beal and McMullin were with Riddle, principals. They actively co-operated with Riddle in the gamble for the bank, and as this was ultra vires the charter, and also ultra vires the power of Riddle, all of the defendants are liable for the losses so sustained by the bank.
3. The defendants were engaged in a combination to raise and depress the market price of oil; in other words, to produce a corner. They were, therefore, engaged in an unlawful act, and are liable for the losses thereby occasioned, whether they did or did not know that the funds of the bank were being used.
Mr Riddle did not appear before the master, either personally or by counsel, and no testimony was offered on his behalf. A subpoena was served on him in New York to appear and testify for plaintiff, but he failed to appear. There was, therefore, no explanation from him as to his connection with the matters alleged in the bill. Mr. Beal was called for cross-examination, and examined by plaintiff. He, however, failed to appear or offer any testimony in defence, or to otherwise contest the plaintiff's claim. Mr. McMullin appeared personally and by his counsel at all the meetings, and produced...
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