Jones National Bank v. Yates

39 N.W. 844, 93 Neb. 121, 1913 Neb. LEXIS 27

• Court: Nebraska Supreme Court
• Decided: January 31, 1913
• Docket: Nos. 17,276,17,277,17,278,17,279
• Status: Published

Opinions

Hamer, J.

The cases designated by the foregoing titles and numbers are before this court a second time. By our former decisions (74 Neb. 734) we affirmed the judgments of the district court for Seward county, in which the plaintiffs were successful. The cases were taken on error to the supreme court of the United States, where our judgments were reversed (Yates v. Jones Nat. Bank, 206 U. S. 158; Yates v. utica Bank, Yates v. Bailey, and Yates v. Bank of Staplehurst, 206 U. S. 181), where it was held that plaintiffs’ petitions were insufficient to charge the defendants with a common law liability for fraud and deceit. When the mandates were received by this court, the causes were remanded to the district court for Seward county for further proceedings. Thereafter plaintiffs amended their petitions by interlineations, and thereby sought to change their causes of action so as to avoid the federal question. Upon a second trial the plaintiffs again liad the judgments, and from these judgments the defendants have appealed.

Defendants contend, among other things, that the amendments above mentioned were wholly insufficient to ■change the plaintiffs’ causes of action; that they still charge a violation of the national bank act; and that question will be first considered.

An examination of the record discloses that the interlineations by which it was sought to amend the petitions consisted of some slight amplifications of the statements contained in the original petitions as theretofore amended. The amendments contain no material additional statement of facts,' and the petitions still charge the defendants with making false statements to the comptroller of the currency as to the condition of the Capital National Bank, and this is the main foundation or basis for recovery. By the amendments plaintiffs attempt to charge that the' defendants knowingly and fraudulently, and with the intent to deceive the plaintiffs, made such statements, and that thereby they induced the plaintiffs to become depositors in the Capital National Bank. To the petitions thus amended, each of the defendants demurred. The demurrers were overruled, and the defendants excepted. It is probable that the demurrers should have been sustained; but defendants answered over and admitted that the Capital National Bank was organized under the national banking act, but denied that they signed the statements or reports made to the comptroller as stated in the petition; alleged that they had no knowledge of the falsity or untruth of any of them, or of the true condition of the Capital National Bank at the times mentioned in the amended petition; denied that they caused the reports to be published in the newspapers; denied that they caused them to be sent out to the public or to the plaintiffs; denied that they had any knowledge that they were so sent by any of the officers or agents of the bank; they also pleaded a former adjudication, and averred that the only acts performed- by them were done in compliance with the provisions of the national banking act, and that their liability, if any, was measured by the terms of that act, and not otherwise. Plaintiffs’ replies were a general denial of the facts stated in the defendants’ answers. Trials were had to the court without the intervention of a jury. There was a general finding for the plaintiffs, together with certain special findings as to each of the defendants, some of which are inconsistent with the general •finding; and upon such findings the judgments appealed from were rendered. Defendants have renewed their objections to the sufficiency of the plaintiffs’ amended petitions, and also contend that the testimony is insufficient to sustain the general finding upon which the judgments in question are predicated.

It is impracticable, considering the length of the petitions and the manner in which they were amended by interlineations, to set them forth in this opinion, and it is sufficient to say that we are of opinion that the amendments in no way changed the nature of the plaintiffs’ causes of action; and, unless the supreme court of the United States shall recede from its decision of these cases, the petitions will be held insufficient by that court to state a common law liability for fraud and deceit as against the defendants, 'who were simply directors of the Capital National Bank.

Coming now to the consideration of the additional evidence introduced upon the second trial of these cases, we are of opinion that it is insufficient to charge the defendants with a personal liability for fraud and deceit. The testimony is clear, and practically without dispute, that when defendants Yates and Hamer signed the reports of December 9, 1892, and December 28, 1886, which are the ones upon which this action is in fact predicated, neither of them had any personal knowledge of their falsity, but signed them in good faith, believing that they exhibited the true condition of the Capital National Bank. It is not shown that either Yates or Hamer ever had any communication or conversation with the plaintiffs, or any of them, in regard to tbe condition of the Capital National Bank. It is hot shown that they, or either of them, had any knowledge that any published statements or cards containing any information as to the condition of the bank were ever sent to the plaintiffs, or any of them, by any officer or agent of the bank.

It follows, therefore, that the evidence is insufficient to charge them, or either of them, with ever having knowingly made any false statement in regard to the condition of the bank, or participated in sending any advertising matter, published statements, or any of the things mentioned in the plaintiffs’ petition to them, or any of them; and, having taken no part in said transactions, it cannot be said that they knowingly participated in any of them. There being nothing in the record sufficient to bring defendants Yates and Hamer within the rule of liability announced by the supreme court of the United States in these cases and others, we are of opinion that the judgment as to them must be reversed.

As to the defendant David E. Thompson, it appears from the record that he did not sign either of the statements in question. Some evidence was introduced which tends to show that before the last report was signed Thompson had notice of a letter from the comptroller of the currency questioning the correctness of the former reports made to him by the directors, and requiring the bank officers to charge off certain worthless notes or obligations held by that institution; that thereafter Thompson refused to sign any statements to the comptroller of the currency, and took no part in the management of the bank; that he disposed of some of his stock; that he was not informed in any way of the fact that published statements of the condition of the bank were sent by any agent or officer of the bank to the plaintiffs, if any such were sent. While it may be said that for a considerable length of time before the bank was closed by the comptroller he had some knowledge that its financial condition was questioned, still, so far as the record shows, defendant Thompson did not personally participate in any of the acts of which the plaintiffs complain, and they do not claim that he ever had any conversation with, or made any statement wh atever to, the plaintiffs, or any of them.

As we view the opinion of the supreme court of the United States in Yates v. Jones Nat. Bank, supra, there was required in this case of the directors of the bank only tii at standard of conduct expressly imposed by section 5239 of the Revised Statutes of the United States, and no higher duty may be rightfully established and demanded. A bank director is guaranteed immunity from liability under the very law that permits him to become a director. As an inducement to him to act in that capacity, the law assures him that he is not to be. liable except for that which he knowingly does. A knowledge must be brought home to the director that he is deceiving the individual wronged and may thereby occasion a loss to him. The director is not liable for his own mistakes or blunders, or for the mistakes or blunders of his brother directors; neither is he liable for the frauds and wrongs of the officers of the bank, unless he has personal knowledge thereof or participates in such fraudulent acts. If it were not so, there would be great difficulty in securing men to assume the position of national bank directors. The rule for which plaintiffs contend, if carried to its ultimate conclusion, would make the director of the national bank, who has himself been imposed upon and deceived by its officers, and who has thereby suffered loss, liable to the depositors for the fraudulent acts of such officers. Such has not been the views expressed by the supreme court of the United States in any cases. The opinion of Justice White in Yates v. Jones Nat. Bank, supra, is based on a single proposition; that is: “Where a statute creates a duty and prescribes a penalty for nonperformance, the rule prescribed in the statute is the exclusive test of liability.” In the argument on behalf of the appellees it is said: “We sought to avoid the application of this rule for the reason that, while the national banking act expressly commanded the publication of the official report, it did not require the publication of a true report, and that therefore the publication of a false report did not violate any express mandate of the statute.” Cochran v. United States, 157 U. S. 286. The argument was that the making of a false report was not a violation of the United States bank act, and that the remedy provided by section 5239 for violations of the statute did not reach the case, and therefore the contention was that there was no statutory remedy for making a false report, and that the plaintiffs in the court below could resort to their remedy at common law. This is a sort of legal refinement, and the only objection to it is that it does not seem to be along ordinary logical lines. The trouble with this contention is that it would eliminate the federal courts from a construction of the United States statutes and their enforcement. This would make a failure of bank directors to closely observe the terms of the national banking act, though acting under it, an excuse for releasing them from all penalties to be inflicted under tbe act and by its provisions, and the substitution of a different liability from that imposed by the statute.

In Briggs v. Spaulding, 141 U. S. 132, the bill was framed upon the theory of a breach by the defendants, as directors, of their common law duty as trustees of a financial corporation, and of breaches of special restrictions and obligations of the national banking act. There plaintiffs commenced their action under the United States banking act, and claimed a liability because of a violation of the same. It was there said that plaintiffs cannot, in an action to recover because of a violation of the banking act, be allowed, to recover upon some other theory. The plaintiff may not jumble his causes of action together and then say to the defendant: If you are not liable upon that which I have charged you with, then here is another construction that can be placed upon what I have said, and you are liable under that. It may be said, with much plausibility and reason, that it should be the duty of the directors to look into the condition of the bank of which they are directors; but that matter seems to haAre been determined by the supreme court of the United States in the case of Briggs v. Spaulding, supra, Avhere it was said: “Persons Avho are elected into a board of directors of a national bank, about which there is no reason to suppose anything Avrong, but Avhich becomes bankrupt in 90 days after their election, are not to be held personally responsible to the bank because they did not compel an investigation, or personally conduct an examination.” That decision holds that, if the bank directors fail to look into the condition of the bank, they are not guilty of an ordinary want of care, so far as the statute is concerned; section 5239 states in terms the nonliability of bank directors who fail to investigate the conditions of the bank. It may be that, when one deposits money in a bank or takes stock in a bank, thus putting his property in immediate control of other persons, he has a rigid to expect that the directors, Avho are supposed to manage the bank, aa'ill exercise at least ordinary care and prudence in the management of the bank’s affairs; but the degree of care required rests of course with congress, which has control of the legislation.

In Briggs v. Spaulding, 141 U. S. 132, Chief Justice Fuller, in delivering the opinion of the court, among other things, said: “(1) Our attention has not been called, however, to any duty specifically imposed upon the directors as individuals by the terms of the act. (2) If any director participated in, or assented to, any violation of the law by the board he would be individually liable. * * * (3) It does not follow that the executive officers should have been left to control the business of the bank absolutely and without supervision, or that the statute furnishes a justification for the pursuit of that course. Its language does enable individual directors to say that they were guilty of no violation of a duty directly devolved upon them.” (4) He cites 1 Morawetz, Private Corporations (2d ed.) sec. 556, to the effect that: “The liability of directors for damages caused by acts expressly prohibited by the company’s charter or act of incorporation is not created by force of the statutory prohibition. (5) The performance of acts which are illegal or prohibited by law may subject the corporation to a forfeiture of its franchises, and the directors to criminal liability; but this would not render them civilly liable for damages. (6) The liability of directors to the corporation for damages caused by unauthorized acts rests upon the common law rule which renders every agent liable who violates his authority to the damage of his principal. * * * (7) The degree of care required depends upon the subject to which it is to be applied, and each case has to be determined in view of all the circumstances. (8) They (bank directors) are not insurers of the fidelity of the agents whom they have appointed, who are not their agents, but the agents of the corporation; and they cannot be held responsible for losses resulting from the wrongful acts or omissions of other directors or agents, unless the loss is a consequence of their own neglect of duty, either for failure to supervise the business with attention or in neglecting to use proper care in the appointment of agents. 1 Morawetz, Private Corporations (2d ed.) sec. 551 et seq.} and cases.- * * * (9) The relation between the corporation and them (bank directors) is rather that of principal and agent, certainly so far as creditors are concerned, between whom and the corporation the relation is that of contract and not of trust. * * * (10) There are many things which, in their management, require the utmost diligence, and most scrupulous attention, and where the agent who undertakes their direction renders himself responsible for the slightest neglect. There are others where the duties imposed are presumed to call for nothing more than ordinary care and attention, and where the exercise of that degree of care suffices. The directors of banks from the nature of their undertaking fall within the class last mentioned, while in the discharge of their ordinary duties.”

The plaintiffs having failed to allege and prove that the defendants personally knew of, or personally participated in, the acts of the officers of the bank of which they now complain, it seems clear that, if we follow the decision of the supreme court of the United -States in these cases, they are not entitled to recover, and the judgments of the district court should be.reversed as to all of the defendants. It also is apparent that plaintiffs cannot produce any other or additional evidence which will render the defendants liable in these cases, and therefore the judgments are reversed and the actions are dismissed.

Bevebsed and dismissed.

Beese, O. J., not sitting. Sedgwick and Fawcett, JJ., dissenting.