Witters v. Sowles

• Citation: 31 F. 1
• Parties: WITTERS, Receiver, etc., v. Sowles and others.
• Decision Date: 06 April 1887
• Court: U.S. District Court — District of Vermont

31 F. 1

WITTERS, Receiver, etc., v. Sowles and others.

United States Circuit Court, D. Vermont.

April 6, 1887

Chester W. Witters, for orator.

Albert P. Cross, for defendant Burton.

Edward A. Sowles, for himself.

WHEELER J.

This bank was organized and continued in existence, with a capital stock of $100,000, under the laws of the United States relating to national banks. It failed and stopped doing business April 8, 1884, and was soon after placed in the hands of a receiver. The defendants, except Hall, Edward A Sowles being president, and Albert Sowles cashier, were directors, with George W. Foster, now deceased after February 11, 1880, and with H. H. Bowman until 1882 when he died, and with Hall since January 11, 1883. At the time of the failure, there were among the assets of the bank large amounts of paper, in various forms, taken for loans and discounts to one Marshall; large amounts taken for loans and discounts to Albert Sowles for his own use, and for others for whim he was surety and indorser; and to the amount of $30,000 for loans to Edward A. Sowles. The loans and discounts to Marshall, to the amount of $35,308.75, and all of the others, were made after February 11, 1880, and all were almost wholly uncollectible and valueless when the failure came. No dividends were declared in 1880, or in the first six months of 1881, and the bank had July 4, 1881, surplus and surplus funds to the amount of $64,000, or thereabouts. A dividend of 6 per cent. was declared on that day; another, of the same amount, November 1st; another December 6th; one of 5 per cent., July 4, 1882; one of 10 per cent., December 5, 1882; one of 3 per cent., May 1, 1883; and one of 5 per cent., November 6, 1883,-- all of which were paid. Some of these dividends were declared when there were not sufficient assets, in view of subsequent events, to warrant making them. This bill is brought to charge the defendants, as directors, with the losses to the bank in consequence of these bad loans and discounts, and with the amounts of these dividends taken from its assets.

The directors all resided at St. Albans, where the bank was located, except Burton, who resided at Burlington. The business of the bank was managed principally by the cashier, who was of large experience, able, and competent, and of good reputation, and, until near the time of the failure, of considerable wealth. All the loans and discounts were approved of and made by him, and he voted for and concurred in all the dividends. The increase of the debt of Marshall appears to have been accomplished by bills of exchange drawn against existing values, and by the discount of business paper owned by him to such an extent as not to be in violation of any express law. Those who took part in it on behalf of the bank appear to have acted, in view of the liabilities he was already under to the bank, and of the condition of his business as then understood by them, in good faith, and as they thought would be for the best interests of the bank. They had no interest with him, nor any apparent object to accomplish by increasing his accommodations aside from taking the wisest course for the interests of the bank. As these loans and discounts have resulted, they were unwise and hazardous looked back upon, but they are to be considered as they could be looked forward to, and not from the present stand-point. In this view there is no just ground upon which any of the directors can be properly charged for that debt. Scott v. Depeyster, 1 Edw.Ch. 513; Spering's Appeal, 71 Pa.St. 11; Thomp. Liab. Off. 233.

The loans to Albert Sowles, and some of those for which he became liable as surety or indorser, appear to have been in violation of the provisions of section 5200, Rev. St. U.S., by which liabilities of any person to a national bank for money borrowed in excess of one-tenth of the capital stock are prohibited. None of the directors who are living, and are defendants, is shown to have knowingly participated in or assented to any of the loans or discounts constituting the debts against him, or those for which he is liable as surety or indorser. The liability of Edward A. Sowles originated in a direct loan to him soon after February 11, 1880, of $36,000. This loan was in excess of one-tenth of the capital stock, and in direct violation of the provisions of section 5200. All those who were then directors, which include all the defendants except Hall, knew of and assented to this loan. This is not disputed. Section 5239 provides that if the directors of any national bank shall knowingly violate, or permit any officer, agent, or servant to violate, any of the provisions of that title, which includes section 5200, the rights, privileges, and franchises of the bank shall be forfeited; and that in cases of such violation every director, who participated in or assented to the same, shall be held liable in his personal and individual capacity for all damages sustained in consequence of such violation. By force of these provisions, the defendants Albert Sowles and Burton, by their participation in and assent to this loan, became liable to the bank, as now represented by the orator, for all damages in consequence of it. The loan was made to Edward A. Sowles. He procured it in his own behalf, and became liable as debtor for it. He would not appear to be liable as participating in or assenting to it on behalf of the bank. U.S. v. Britton, 108 U.S. 193, 2 S.Ct. 526.

This bill is not brought to charge the defendants for money received...