Plyler, Receiver v. Southern

153 S.E. 277, 156 S.C. 416, 1930 S.C. LEXIS 114

• Court: Supreme Court of South Carolina
• Decided: May 17, 1930
• Docket: 12914
• Status: Published

Opinions

The opinion of the Court was delivered by

Mr. Justice StabeER.

This action was brought by the receiver of the Industrial Loan & Investment Corporation against the directors of that defunct institution, charging them with negligence and gross negligence in various particulars in the management of the affairs of the corporation, and claiming damages in the sum of $50,000.00. This corporation, organized under the laws of this state, was a money-lending institution, engaged in making loans mainly to industrial workers on indorsed paper; there were no depositors nor was the institution under the supervision of the state bank examiner.

The trial Judge instructed the jury that in order for the plaintiff to recover he must show by the preponderance of the evidence that the directors had been guilty of gross negligence. The jury returned a verdict in favor of the defendants. On motion of plaintiff, a new trial was granted by the presiding Judge on the following ground: “I instructed the jury that plaintiff must show by the preponderance of the evidence that defendant directors were guilty of gross negligence before he could recover. I was in error. Am satisfied I should have charged the jury that plaintiff could recover if it was shown by preponderance of the evidence that defendant directors were guilty of negligence.”

The question raised by the appeal is: Did the Court err in granting a new trial?

The appellants contend that the directors of a corporation other than a. bank are liable for their acts of gross negligence, but not for their acts of negligence in the management of its affairs; that the institution'of which plaintiff is receiver is not a bank; and that therefore the liability attached to bank directors cannot be imposed in this case. The respondent says in reply that the corporation involved is in fact a bank “in the strict commercial sense,” in that it performed at least one of the functions of a bank; that is, the lending of money.

In 7 C. J., 474, we find the following:

“Banks are of three kinds: (1) Banks of deposit, which include savings banks and all others which receive money on deposit; (2) banks of discount, being those which loan money on collateral or by means of discounts of commercial paper; and .(3) banks of circulation, which issue bank notes payable to bearer. But the same bank generally performs all these several operations.

“As has been indicated, the principal attributes of a bank are the right to issue negotiable notes, to discount notes, and to receive deposits; and while, as a matter of modern practice, banks usually exercise any two, or even all three, of these functions, it is said to be true that an institution exercising any one or more of these functions is a bank in the strictest commercial sense.”

See also Oulton v. Savings Institution, 84 U. S. (17 Wall.), 109; 21 L. Ed., 618; Reed v. People, 125 Ill., 592, 18 N. E., 295; 1 L. R. A., 324; Williams v. Fidelity Company, 142 Va., 43, 128 S. E., 615, 45 A. L. R., 664.

Whether the corporation here involved is or is not a bank is immaterial, as we do not rest our decision on that point. It is concededly a “money-lending institution,” organized for that purpose, and we think the same rule of responsibility of its directors, for damage resulting from their negligence in the management of its affairs, should apply as in the case of directors of banks. The distinction in name, under the facts disclosed, does not imply such a difference in the duties to be performed, as between directors of such a loan institution and directors of a bank, as to justify the application of a different rule. Williams v. Fidelity Company, supra.

Under this view of the matter, the following principle, announced in the case of Daniels v. Berry, 148 S. C., 446, 146 S. E., 420, 421, is governing: “Unquestionably directors, as the agents of the bank, owe to the bank itself the duty to exercise ordinary care- in the management of its affairs. A violation of that duty would constitute negligence, and the bank or its receiver, when one has been appointed, or the creditors, if the receiver should refuse to sue, may bring an action for the benefit of the bank against the directors for such negligence.”

The appellants argue, however, that, as the question in the Daniels case was only whether the directors of a bank owe any duty to its depositors, that part of the opinion above quoted was not in response to any issue in the case, did not decide any point raised by the appeal, and was therefore purely obiter dicta. Even if this pronouncement was not necessary to the decision of any issue involved in that case, yet it was made only after very careful consideration and is a correct principle of law.

The judgment of the Circuit Court is affirmed, and the case remanded for a new trial in accordance with the order of Judge Sease.

Mr. Justice Brease and Mr. Acting Associate Justice ArbErt E. Hire concur. Mr. Chiee Justice Watts and Mr. Justice Carter dissent. Mr. Justice Coti-iran disqualified.