Webb v. Cash

• Decision Date: 26 October 1926
• Docket Number: 1239
• Citation: 35 Wyo. 398,250 P. 1
• Parties: WEBB v. CASH, ET AL. [*]
• Court: Wyoming Supreme Court

250 P. 1

35 Wyo. 398

WEBB v. CASH, ET AL. ^[*]

No. 1239

Supreme Court of Wyoming

October 26, 1926

APPEAL from District Court, Johnson County; HARRY P. ILSLEY, Judge.

Action by Adams Webb against J. J. Cash and others. Judgment for plaintiff, and defendants appeal.

Reversed and Remanded.

R. E McNally and Burt Griggs, for appellants.

The first question to determine is whether the action is one of deceit at common law, or for recovery upon a statutory liability provided by 5150 C. S.; the question arose in Bailey v. Mosher, 63 F. 489 (8th Cir.) where it was held that the action was based on a statute; our state banking laws are quite similar to the National Banking Act where statutory violations are made the basis of recovery, a statutory remedy is exclusive; Yates v. Bank, 206 U.S. 158; Huff v. Bank, 173 F. 333; Bank v Peters, 44 F. 13; Bank v. Crow, (Okla.) 111 P. 210. Respondent has attempted to allege a cause of action based on violations of the statutes relating to state banks, and is therefore restricted to the remedy provided by statute; Chesbrough v. Woodworth, 244 U.S. 72, 61 L.Ed. 1000. In order to recover, it was incumbent upon respondent to establish by a preponderance of evidence: (1) A collectible obligation. (2) Inability of bank to pay. (3) Amount of damages. (4) Insolvency due to violation of banking laws. (5) Appellants' assent to violations. Mason v. Moore, 73 O. S. 275, 76 N.W. 932. In this respondent failed; a direct action by a depositor against directors is not maintainable; all depositors should be represented through a Receiver; 7 C. J. 793; Stone v. Cottman, (Mo.) 82 S.W. 76; Magee on Banks and Banking, (3d Ed.) 131-134. The liability of directors is an asset belonging to all creditors; 7 C. J. 792; Morse on Banks and Banking, Vol. 1, Sec. 129; Howe v. Barney, 45 F. 668. The case of Boyd v. Schneider, 131 F. 223, stands alone in holding that there was privity between depositors and directors; no such privity exists; Bank v. Peters, supra; Stephens v. Overstolz, 43 F. 771; Dawkins v. Mitchell, (La.) 90 So. 396. The bank must be made a party; Zinn v. Baxter, 65 O. S. 341; Ellis v. Co., (Miss.) 43 L. R. A. N. S. 982. The suit was prematurely brought; the damages cannot exceed the difference between the deposit and the value of the claim after the failure of the bank; 8 R. C. L. 438; 17 C. J. 753; directors' liability is a fund for all creditors; Horner v. Henning, 93 U.S. 228; McLaughlin v. O'Neil, 51 P. 243.

Metz, Sackett and Metz, for respondent.

The action is predicated on Section 5150 C. S.; bank directors are obligated to investigate and know the condition of their bank; Bank v. Johnson, 251 U.S. 68; Williams v. Brady, 221 F. 118. The statute involved in the case of Horner v. Henning differs from ours; a creditor may maintain the action; Bailey v. O'Neal, (Ark.) 122 S.W. 503; Patterson v. Co., (Minn.) 16 A. S. R. 671. The object of the statute is to make the officers of a bank liable to its creditors for neglect; Railroad Co. v. Pedrick, 222 F. 75. Receivership does not take away the creditors' right of action against directors; Patterson v. Co., supra; Foster v. Bank, 88 F. 604. The liability of directors is not secondary, as is the liability of shareholders under Section 3186; the directors are primarily, severally liable for injury caused by intentional wrong or wrongs committed under such circumstances that they are in effect intentional; Briggs v. Spaulding, 141 U.S. 132; Bank v. Johnson, supra; Williams v. Brady, supra; Boyd v. Schneider, 131 F. 223. A suit against directors, where the affairs of the bank are in liquidation, is not prematurely filed; Williams v. Brady, supra.

BLUME, Justice. POTTER, C. J., and KIMBALL, J., concur.

OPINION

BLUME, Justice.

This is an action brought by the plaintiff against the defendants, who were the directors of the Powder River State Bank. Judgment was recovered against the defendants and from this judgment they appeal. The action is based upon an alleged violation of section 5150, W. C. S. 1920, and particularly for violating the law in making excessive loans. The parties will be referred to herein in the same manner as in the court below. A summary of the facts is as follows:

Adams Webb, the plaintiff in this case, deposited the sum of $ 10,000 in the Powder River State Bank of Kaycee, Wyoming, in the years 1917 and 1918, but he withdrew, sometime prior to August, 1920, the sum of $ 3500, leaving in the bank $ 6500, the amount in controversy in this case and for the recovery of which the defendants are sued in this case. According to the claim of plaintiff, he was an ordinary depositor in the bank. It was agreed, however, between him and J. J. Cash, the cashier of said bank, that he should receive interest thereon at the rate of eight per cent per annum. According to the testimony of Cash, the bank borrowed this sum of money from the plaintiff for the purpose of investing and reinvesting it for him from time to time. The money was taken out of the account of plaintiff and invested in loans made, and the note or notes representing the loan or loans were thereupon placed among the papers of the plaintiff. Cash himself ultimately became, or perhaps always was, the borrower of this money. Two loans, aggregating the sum of $ 6500, were represented by notes made by Cash himself, one for $ 5,000, made August 30, 1920, and one for $ 1500, made November 10, 1921, both of these notes being made to J. Elmer Brock, endorsed by the latter and placed among the private papers of plaintiff. These notes were renewals, as testified to by Cash, of notes made by him previously. The loan or loans so made for plaintiff were, however, shown on the books of the bank and as though made by it directly and then sold to plaintiff. The defendants, aside from Cash, testified that they had no knowledge whatever that the plaintiff had any money in the bank aforesaid, or that any loan whatever was made to Cash out of the money of the plaintiff. Cash himself testified that he did not know whether the plaintiff's money, or the loan or loans made for plaintiff, were ever mentioned by him to the Board of Directors. The plaintiff filed a claim with the receiver as an ordinary depositor, and the receiver allowed it as a general claim.

The Powder River State Bank, hereinafter frequently referred to simply as the bank, became insolvent and went into the hands of a receiver on February 2, 1922. It had, during the period in controversy in this case, a capital stock of $ 50,000 and a surplus of $ 50,000. A loan to any one party was, accordingly, under the statutes of this state, limited, in any event, to the sum of $ 20,000. It appears that the bank made numerous loans from time to time, generally secured by mortgages on live stock or land or both; that a number of customers of the bank, however, were in need of more money than the bank itself was able to loan. Arrangements were, accordingly, made--in accordance with a custom all over the United States--under which loans made to any one party in excess of the amount which the bank itself was authorized to loan, would be transferred to and held by correspondent-banks without recourse. After the organization of the Federal Reserve Banks, a ruling was made by these banks that they would not handle any commercial paper without recourse. This ruling, so the testimony shows, disarranged the system theretofore in vogue among the banks of the country, and the bankers in the reserve cities advised and instructed the bankers in other places that thereafter loans in excess of the power of a bank to carry, should be taken in the name of an individual, by him endorsed and forwarded to the correspondent-banks to be held and carried by the latter, who, in turn, would be enabled to discount these loans in the Federal Reserve Banks. According to the testimony, this practice was adopted and in vogue all over the United States, with the approval of the Federal Reserve Banks. This method, in other words, was a method adopted to take the place of the former method whereby banks outside of the reserve cities sold loans to banks in such cities without recourse. In the case at bar, most of the loans of this character were taken in the name of J. Elmer Brock, were by him endorsed and forwarded to and bought by the correspondent-banks of the Powder River State Bank. These correspondent-banks, however, exacted from the directors of the Powder River State Bank--and that, too, in accordance with a prevailing custom in the country generally--additional security by means of a so-called directors' guaranty; that is to say, the payment of the loans negotiated and sold to correspondent-banks, was guaranteed by the members of the Board of Directors of the Powder River State Bank. Under this guarantee the defendant Young paid, after the failure of the Powder River State Bank, the sum of approximately $ 136,000, and the defendant W. J. Thom surrendered all of his property, but whether for the purpose of liquidating part of the notes so guaranteed, or for the purpose of liquidating other debts of the bank is not shown.

Despite the fact, however, that the loans so negotiated were not made to the bank in question here, it was the custom, as testified to by Thom, for the correspondent-banks to treat the bank in question here--and other banks similarly situated--as responsible for the loans so sold and negotiated, and would, when any loan would become due, send the note or notes to the bank to be collected or renewed. Under this practice the Powder River State Bank made many loans, the Omaha National Bank alone holding at one time about $ 100,000 of such paper. The notes would be taken at ten per cent interest per annum, and were carried by the correspondent-banks at...