Buell v. Warner

33 Vt. 570

• Court: Supreme Court of Vermont
• Decided: January 15, 1861
• Status: Published

Opinion

Barrett, J.

This is an action on the case to recover damage alleged to have' been sustained by the plaintiff, as a stockholder in the Farmers & Mechanics’ Bank, through the violation of duty by the defendants, as directors of said bank. It rests upon the provisions of sec. 74, as amended in 1851, and sec. 56 chap. 84 of the Compiled Statutes. Sec 56 provides “ that the directors shall be liable to pay the creditors and stockholders of such bank all losses which may be sustained in consequence of any violation by them of the provisions of the banking laws of the State, or other unfaithfulness in the discharge of their official duties; and any number of such directors may be sued in the same action by any claimant under the provisions of this section.”

I, The right of the plaintiff, severally, to maintain a suit against the defendants for loss sustained by her as a stockholder, in consequence of their violation of the banking laws, or other unfaithfulness in the discharge of their official duty, seems hardly open to question.

The language of the statute is explicit in its terms, and clear in its spirit and purposes ; showing the object of the legislature to have been, to afford the greatest immunity to creditors and stockholders against loss by reason of unlawful or unfaithful conduct on the part of the directors, by providing a most effective inducement, in their personal liability, for a scrupulous observance of the law, and for constant faithfulness.

In this view, the argument from the inconvenience and hardship, to which the directors would be subjected if each stockholder should be permitted, severally, to sue for his individual loss, would seem, more in point for the plaintiff than for the defendants; for we think that this very inconvenience was in mind as a reason for making the provision, as making “ assurance doubly sure” against defaults of official duty on the part of the directors. Though needless, therefore, to discuss various views presented in the argument, yet it is obvious to be remarked, that a large modification of well established rules would be necessary, in order to the enforcement of such liability by suit at all, in favor of the stockholders, if it were to be held that one could not, severally, maintain an action. If not one, then of course no number less than the whole of the stockholders; which would present the incongruous necessity, either of having some of the parties on both sides of the record, or of denying the right of any suit at law at all. Then, too, to hold that all should join in such suit would require a disregard of the well known rule, that only those who have a joint right should join in a suit for its enforcement; for the right of the stockholders is emphatically several. We think nothing short of an explicit provision of statute would warrant the court in disregarding these old rules of the common law.

II. As preliminary to disposing of the technical questions raised by the pleadings, it may be well to consider some of the elements upon which the pleadings are predicated:

1st. What would constitute an indebtedness to the bank up to the limit prescribed by the law ?

The provision is, that no individual, etc., shall be directly or indirectly indebted to a greater amount than ten per cent, etc., subject to the exception as to deposits made for redeeming, etc., and as to the purchase of bills of exchange.

Any indebtedness up to that amount, and not falling within the exceptions, would fill up the prescribed limit. The obvious purpose was to prevent the hazard of loss and injury resulting from large credits to particular persons, companies, corporations, as well as to secure both the ability and disposition in the bank to diffuse its favors of loan and discount to every practicable extent amongst those needing accommodations for business purposes.

Touching the hazard of loss in consequence of the large accumulation of credits to single persons, companies, or corporations,. it could make no difference in what way, or for what purpose such credit had accrued. The fact of an existing indebtedness up to the prescribed limit, and not within the exceptions, was the substantive and important thing; and outside of the exceptions, it was of no practical consequence in what way such indebtedness had accrued.

Hence it seems to us that no aid can be derived by recurring to sec. 33 of the act of 1840, (being sec. 79, ch. 84 Comp. Stat.) For, however the point made in the argument might stand consideration, if this was a criminal prosecution under that section, we are of opinion that, as to the civil liability imposed by the statute, the only point as to the indebtedness is, whether in fact it existed up to the prescribed amount; it being immaterial in what way it accrued, or in what form it exists, provided it is not within the exceptions ; and we concur in holding that, as to such civil liability, the statute should be construed to prohibit the allowing or causing of an indebtedness beyond the amount prescribed, to be created, by reason of any further loan or payment of money by the bank, or on account of any new indebtedness created in favor of the bank, by reason of any money or other property parted with by the bank, as the ground and consideration of such new indebtedness.

2d. The bank was incorporated in 1834, by an act which was declared to be a public act. Its charter was extended in 1846, with a provision subjecting it to the general laws that should be in existence on or after the 31st day of December, 1849, when said extension, if accepted, would take effect. Said extension was accepted, and the bank has continued in active operation under it.

The courts are therefore bound to take notice of the provisions of the original act of incorporation, as well as of the act extending it, and of the general statutes on the subject of banks, without their being recited in the pleadings.

III. Cause for special demurrer must be so assigned as to show by precise indication the particular defect relied on. If the alleged defect be duplicity, the particulars in which it consists should be stated, and not left as in the second special cause in this case. Saying that “ each of said counts sets out and attempts to count upon more than one distinct and independent wrongful act or neglect of said defendants,” is only giving a definition of duplicity, instead of showing its existence in the counts referred to. As this cause is here assigned, it casts upon the court the work that belongs, in the first instance, to the pleader, of taking up the entire declaration to ascertain whether any, and if so, which, and in what respects, the counts are double. Defective assignment of special cause is not aided by the fulness and astuteness of the argument, any more than the lack of assignment can be supplied ore tenus. These remarks, and their illustration by the reference to the second assigned cause, will account for any neglect of specific reference to other assigned causes ; and so far as they may not be severally discussed, it is for the reason that we regard the special cause to be insufficiently assigned.

TV. The act of incorporation provides that the board of directors shall consist of seven. The first count, in connection with the provision of the act, sufficiently sets forth, if it were necessary that the fact should appear, that the board consisted of seven members, and did so during the year 1854, and that the defendants were members of that board during that year, and were so at the time of the doing of the acts complained of.

In the argument no notice is taken of any defect in the setting forth of the organization of the bank, except in not setting forth the number of the board of directors.

Both the original act of incorporation and the general statutes as to banks and banking, expressly provide, or sufficiently indicate what the duties of the directors are to be. Without undertaking to mark the distinction between the bank, as a legal entity, a body corporate, in doing the act of loaning money or otherwise participating in the creation of debts in its own favor, and the directors, through whom, as the actual and only appreciable instrumentality, the corporation has any operative vitality, we are clearly of the opinion that, if the directors, as such, or any of them were the procuring cause, designedly, of the creation of a debt to the bank, contrary to the prohibition of the statute, such directors would be guilty of such unfaithfulness as would subject them to liability under the statute for any resulting loss, and equally so, if any of them, in concurrence with their associates, should knowingly and wrongfully suffer, permit, consent to, and direct said bank to loan and pay out its money to an amount exceeding the limit prescribed by the statute, and thereby loss should accrue.

Does the first count sufficiently set forth the existence of the prohibited indebtedness ?

As before intimated, it must be an indebtedness beyond the . allowable ten per cent., the excess existing concurrently with the lawful indebtedness. Any such excess, whatever its amount, if wrongfully permitted, would fix the liability, the extent of such excess being of no moment except as affecting the extent of the loss occasioned thereby, and the amount the plaintiff would be entitled to recover.

The declaration alleges that between the 15th day of January, 1854, and the 10th day of October, 1854, the defendants, as directors, did knowingly and wrongfully suffer, permit, consent to, and direct said bank to loan, advance and pay out its money from time to time, upon the name, promise and obligation of Wilkins, and that said Wilkins should thereby become indebted therefor to said bank at one time to the amount of twenty-five thousand dollars in the-whole, beyond the sum of fifteen thousand dollars, for which said sum of fifteen thousand dollars the said Wilkins at such times respectively was indebted to said bank upon and by reason of divers promissory notes, drafts, checks and accounts unpaid, and which the said Wilkins then was bound to pay 'to said bank.

Thus far it appears to us to be quite intelligibly and positively stated, that within the period named, the defendants suffered, permitted and directed the bank to loan, advance and pay out its money to the amount of twenty-five thousand dollars, and that Wilkins should become indebted therefor at one time to that amount, and at the time of said several acts of permission and direction said Wilkins stood and was indebted to the bank on notes, drafts, checks and accounts unpaid, in the sum of fifteen thousand dollars, being ten per cent, of the capital stock actually paid in.

Such being the alleged condition of the indebtedness of Wilkins to the bank, when such permission and direction were given, the declaration then proceeds to aver that, through and by reason of such wrongful sufferance, permission, consent and direction of the defendants, as directors, within the period named, the bank did advance and pay out its monies upon the name, promise and obligation of said Wilkins to the amount of twenty-five thousand dollars, whereby he became indebted to said bank in that sum at one time, beyond the said sum of fifteen thousand dollars, and in excess of the amount of ten per cent, of the capital stock actually paid in.

We are not able to give any other meaning to this language of the declaration, than that of a direct charge that, at the times when Wilkins stood indebted to the bank up to the line of prohibition, within the period named, the bank did, by the sufferance, permission, consent and direction of the defendants, as directors, advance and pay out its monies upon the name and credit of Wilkins, so that his indebtedness therefor amounted at one time to twenty-five thousand dollars beyond the permitted amount. This being so, if it sufficiently appears that said indebtedness of fifteen thousand dollars does not come within the exception, and any part of the alleged excess is not covered by the exception, then so far as the defendants’ liability depends on the amount of indebtedness, the declaration would seem to be good.

The fifteen thousand dollar indebtedness is alleged to have been “ by reason of divers promissory notes, drafts, checks and accounts unpaid.” Prima facie this does not fall within the exception; for it by no means imports that it was created upon the purchase of bills of exchange. It excludes that idea, -as much as it does that it was created by reason of deposits for purposes of redemption. Following upon this, and in strict pursuit of the legal sense of the former language of the declaration, it is dis* tinctly averred that Wilkins, in the manner stated, did become and was indebted to said bank at one time to an amount greater than ten per cent., of the capital stock, etc., “ and which said indebtedness was not for deposits made by said bank, etc., nor did it arise from the purchase of bills of exchange, all which was well known to the defendants,” etc.

This comprehensive averment, excluding the alleged indebtedness from the exception in the limitation of the amount, applies to and covers as well the alleged indebtedness of fifteen thousand dollars, as the twenty-five thousand dollars in excess. As to the twenty-five thousand dollars, it is averred to have accrued by fhe bank’s loaning, advancing and paying out its monies on the name, promise, and obligation of said Wilkins ; which does not import a purchase of bills of exchange, nor any transaction by way of deposits for the redemption of bills; and so the comprehensive averment, excluding it from said exception is congruous and effective to that intent.

These views seem to dispose of the grounds of general demurrer, as well as of the special, so far as cause was sufficiently assigned, as to the first count. Hence, without discussing questions of taste as to mere matter of style, we regard that count sufficient in both substance and form.

V. The holding thus as to the first count, disposes of several grounds of objection taken to the other counts; and the views above taken, as to setting forth the permitting and directing of the transaction, out of which the unlawful indebtedness arose, apply equally to the indebtedness of Catlin and of Peck, as alleged in the second and third counts, mutatis mutandis, as to the subject matter, and the specific provisions of the statute, applicable to the indebtedness of the officers of the bank. It is needless to repeat them, by way of special application to these two counts.

The only special cause of demurrer to the fourth count, that was urged in the argument, and not specifically disposed of in our decision as to the first count, falls under the head of duplicity. We refrain from discussing it under that head, for the reason stated as to the other counts.

The judgment of the county court is affirmed.