First Nat. Bank v. Noyes

257 F. 593, 168 C.C.A. 543, 4 Alaska Fed. 774, 1919 U.S. App. LEXIS 2244

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 12, 1919
• Docket: No. 3142
• Status: Published

Opinion

GILBERT, Circuit Judge

(after stating the facts as above).

The appellant assigns error to the findings of the court as contrary to the evidence to the refusal of the court to make findings as requested by the appellant, and to the conclusions of law because unsupported by the findings. The five causes of action are grouped in two classes. The second is for damages for the declaration of an illegal dividend. The others are based on loans made in excess of the amount permitted by the National Banking Law. As to the first and third causes of action for damages for the so-called loans to the Bonnifield and Cleary branches, the appellant relies upon reports to the Comptroller of the Currency, which were signed by the appellee, to show that the appellee had knowledge of the excessive amount of the loans. This contention is based on the theory that those branches were in fact banks separate and distinct from the appellant bank, and it is said that this is conclusively established by the finding of fact of the court below from which finding no appeal has been taken. It is also contended that the appellee is estopped to deny that the Bonnifield and Cleary branches were separate entities, for the reason that he, together with five other directors, signed his name to reports to the Comptroller of the Currency, representing them to be separate institutions, and because the appellant, relying thereon, brought the present suit. The question of estoppel may be disposed of in few words. The appellant knew all the facts in regard to the so-called branches, and it knew the exact” nature of its own dealings therewith, and it has not been injured by the appellee’s signature to the reports to the Comptroller, nor has it acted thereon to its own detriment.

It is true that the court below made a finding that the Bonnifield and Cleary institutions “were separate institutions from the First National Bank.” That is not a finding of fact, however, but a conclusion of law. This is shown, first, by the opinion of the court below, in which it was said of these branches: “They have every indication of being a part of the First National Bank. No characteristic is lacking.”

But the court proceeded to say that, owing to the provision of law that a national bank cannot establish branch banks except in the manner provided by statute, “we must conclude that these banks must be held to be separate from the First National Bank.”

•Tt is shown, second, by the facts in regard to the relation of the appellant to the two branches as set forth in the findings of the court below, which prove beyond question that the Bonnifield and Cleary offices were part and parcel of the appellant bank, and that it was so generally understood by the public. Those offices were established by the appellant. They had no organization as banks and no capital stock. They acted under the directions of the appellant. They made loans out of funds furnished by the appellant, and only as authorized by the appellant. Their principal business was to purchase gold dust with the appellant’s funds and forward- the same to - the appellant, and to receive for transmission to the appellant gold dust to be deposited to the credit of depositors who had accounts with the appellant. Each office was in charge of a manager or agent appointed by the appellant. The branch offices reserved no profits to themselves. All that they did was for the benefit and profit of the appellant. The appellant authorized a bank in Seattle and a bank in New York to cash drafts drawn by the appellant’s agent at Bonnifield, and to charge the same to the appellant. It ’gave like authority to the Seattle bank and to a bank of San Francisco to cash drafts drawn by the agent at Cleary. The appellant conducted these gold dust purchasing agencies in competition with two other banks of Fairbanks, which had offices at the same places and for the same purposes. The Dome and Cleary Creek agencies sent statements to the appellant of their condition and their transactions,' and the latter took and retained possession of all their books and records when the agencies were closed, and it still retains the same. In brief, the so-called Bonnifield and Cleary Banks were" but agencies belonging to and operated by the appellant, and were not separate banking institutions.

The statements, therefore, found in the reports to the Comptroller, showing the condition of the accounts between the appellant and its respective agencies, and charging the agencies with moneys appearing in the form of indebtedness from those branches to the appellant, were not evidence of loans to the agencies, and were not notice to the appellee of loans to borrowers made under the authority of the appellant. There is no ground for charging the appellee with negligence in not discovering that excessive loans were being made at the local branches on Dome Creek and Cleary Creek. There was nothing on the books of the appellant at its place of business in Fairbanks to show that loans were made to borrowers at either of those branches. It is true that Bonnifield and Manley borrowed from those branch offices sums of money in excess of the amount which the bank was permitted to loan. The appellee did not know this, however, and he was informed by Bonnifield and Manley that all money sent out to the branch offices was for.the purpose of purchasing gold dust. The appellee had no reason to doubt this, and he should not be charged with negligence for his failure to go out to Dome Creek and Cleary Creek to examine the local books. A complete answer to the whole contention is that the appellee is not charged in the complaint with participation in excessive loans made by the local branch offices. The charge is that as director he participated in making loans to the branch offices. As we have seen, no such loans were made.

The declaration of the dividend which is the basis of the second cause of action was but a transaction on the books of the appellant for the purpose of closing up the Cleary agency and transferring to the appellant at its bank at Fairbanks the assets of the agency. It was a dividend in form only, for the .whole amount of the dividend declared, except $160, was immediately transferred by the stockholders to the bank. Again, the condition of the business of the appellant at that time, as the court below has found, was such as to justify the declaration and' payment of the dividend, when account is taken of certain assets of the Cleary agency, then in control of the president of the bank, and subsequently turned over to the bank. We find no merit in the technical objection that those assets could form no basis for the declaration of the dividend, for the reason that they were not then collected, or that they had been assets of the Cleary agency.

The fourth and fifth causes of action require but brief consideration. The appellant admits that the only question arising upon these two causes of action is whether the appellee was chargeable with knowledge of the loans. There is nothing in the record to show that the appellee had or was chargeable with such knowledge. The loan to Witte resulted from cashing Witte’s drafts. This was the act of the president and cashier of the bank, and the appellee had no notice of it or participation in it. The loan to Corson was likewise made without the knowledge or consent of the appellee, and in fact, as the court below found, it was not a loan in excess of the amount which the bank was permitted to loan when the usurious interest reckoned therein is eliminated.

We are led to the inquiry: What is the measure of the appellee’s legal liability to the bank of' which he was director in causes of action such as are here brought before us? The appellee contends that the only rule of liability is that which is defined in Yates v. Jones National Bank, 206 U.S. 158, 27 S.Ct. 638, 51 L.Ed. 1002, where the court held that the National Banking Act itself affords the exclusive rule by which to measure the right to recover damages from directors based upon loss resulting solely from their violation of the duty expressly imposed upon them by a provision of the act, and that under that act proof of something more than negligence is required, and that there must be proof that the violation was in effect intentional. In that case the charge against the directors was that they had made false reports of the condition of the bank, and the decision was controlled by the consideration that in making and publishing the official reports of the condition of the bank the directors were acting in obedience to the National Banking Act, and that, where a statute creates a duty and prescribes a penalty for nonperformance, the rule prescribed in the statute is the exclusive test of liability. That decision was followed and its doctrine was applied in Williams v. Spensley, 251 F. 58, 163 C.C.A. 308, where the suit was against directors on their liability for declaring dividends voted out of the capital stock, and where the court said: “Appellant contends that the liability of a national bank director for voting and declaring dividends out of the capital is an absolute liability, and no question of good faith, diligence, or knowledge on the part of a director that such dividends may impair the bank’s capital is involved. This contention must be rejected, both on principle and authority. See Yates v. Jones National Bank, 206 U.S. 158, 27 S.Ct. 638, 51 L.Ed. 1002.”

The appellant in its brief admits that this is not an action founded upon the common-law liability of the appellee, but observes that under the facts developed at the trial the appellee was liable for willful neglect of his duty as director, within the doctrine of the decision of this court in McCormick v. King, 241 F. 737, 154 C.C.A. 439, where we held that the! statutory liability of directors of a national bank, as prescribed in section 5239, Rev. St. (12 U.S.C.A. § 93 and note), is the measure of the right of recovery against them for loss resulting solely from, their violation of the express provisions of the statute, but that that does not exclude their common-law liability for negligence in the management of business of the bank in violation of their oath of office which results in loss to its creditors and stockholders.

In the present case, in the first, third, fourth, and fifth causes of action, the appellant expressly counts upon violations of that provision of the National Banking Act which prohibits loans in excess of the amount permitted by the .act. As to those causes of action we think it clear that the rule of liability is that which is defined in Yates v. Jones National Bank, 206 U.S. 158, 27 S.Ct. 638, 51 L.Ed. 1002. But if we were to apply to all of these causes of action the common-law rule of liability recognized by this court in McCormick v. King, there is still nothing in the evidence to show that the appellee has been guilty of negligence in the management of the bank which has resulted in loss to its creditors or stockholders. In Briggs v. Spaulding, 141 U.S. 132, 11 S.Ct. 924, 35 L.Ed. 662, the court announced the rule of liability of directors, saying that directors of a national bank must exercise ordinary care and prudence in the administration of the affairs of the bank, but that they shall not be permitted to be shielded from liability because of want of knowledge of wrongdoing, if that ignorance is the result of gross inattention, and that they cannot be held responsible for losses resulting from the wrongful acts of other directors, unless the loss is the consequence of their own neglect of duty. In the McCormick Case this court said: “No one would contend that a director must look into details of management, or keep closely in touch with routine matters, or know intimately to whom credits are given.”

The appellee became a director of the bank in consequence of the insistence of the other directors. He was not a banking man. He knew nothing of the banking business, and when he discovered evidences of irregularity in the management of the bank’s business he resigned his office. At times he protested against the method in which the business was done. He urged that the branch agencies be closed. In declaring the dividend which gives rise to the second cause of action, the directors acted under the advice of McGinn, the regularly retained attorney for the bank, who is now a director and one of the principal stockholders of the corporation which brings this suit.

We find no error. The judgment is affirmed.