Tate v. Bates

Clark, J.: The grounds of demurrer which were not cured by the amendments allowed to the complaint, and which were overruled by his Honor, are in substance: (1.) “ That a cause of action for the negligence and mismanagement of the defendants is ex contractu and cannot be joined in an action against them for fraud and deceit.” The same point was raised in Solomon v. Bates and Caldwell v. Bates, at this Term, and it was there held that the plaintiff’s contract of deposit was with the corporation, not with the defendant directors, and hence the cause of action'against the directors for the'loss of the deposit caused by their neglect and mismanagement was necessarily in tort, not in contract, but if it had been in contract it could have been joined with the causes of action for fraud and deceit because all the causes of action “ arose out of the same subject matter.” (2.) “ That the plaintiff, a single depositor, cannot maintain the action in his own name, but must bring a .creditor’s bill.” The directors being trustees for creditors and stockholders, as well as for the corporation, any creditor or stockholder who has been misled to his hurt by their fraud and deceit, or injured by their misconduct and gross neglect in discharge of the trust, can miintain an action for such injury against them, personally in his own behalf. If this were a proceeding to wind up the affairs of the corporation and apply its assets to the debts, then a creditor’s bill would have been eminently proper, but such is not the object of this action. There is no fund to be taken in hand to be administered and disbursed. 4 (3.) “ That the allegation of a cause of action for fraud and deceit is not sufficient unless it is specifically charged that the defendants knew or believed the bank to be [308] insolvent. The allegation of th > complaint is that the defendants wilfully and fraudulently made false and misleading statements- of the condition of the bank, and declared and paid annual dividends of over $20,000, when there were no net earnings out of which they could be declared, and that such statements of the condition of the bank and of the declaration of the dividends were published in the press with the knowledge and consent of the directors, and that they also wilfully and fraudulently caused to be published semi-annual statements, sworn to by the president or cashier, and verified by three directors, showing in substance that the bank was solvent, its capital unimpaired, and that it had a surplus on hand ; that this was done to conceal the true condition of the bank, which •was utterly insolvent, and to induce the public to make deposits therein, and that the plaintiff’s predecessor in the office of State Treasurer was misled thereby and made this deposit, and that the plaintiff, succeeding to the office, also relying upon such official statements, allowed such part of the fund as was not drawn out for incidental purposes to remain and permitted further sums tobe deposited therein to his credit by sheriffs. This is a brief summary of the allegation, which is stated more fully in the complaint. It would seem that this was a quite explicit charge that the defendants ‘ knew or believed that the bank was insolvent.’ Put if it were not, the directors are conclusively presumed to know the condition of the bank. Hauser v. Tate, 85 N. C., 81; Morse on Banks, Sec. 131; Finn v. Brown, 142 U. S.; United Society v. Underwood, 9 Bush., (Ky.,) 609, and other eases cited in Solomon v. Bates, at this Term. If the directors did not know the s bank was insolvent it was their duty to have known it. It jwas fraudulent in them to put forth official statements that jthe bank was solvent, when they did not know it to be [309] true, and they are liable to those who were deceived f) thereby into having dealings with the bank, or making deposits therein, for any losses sustained. If this were not ! so, the dire tors of a bank would be privileged to be negli- | gent, and the more ignorant they could manage to be about b its condition the more secure they would be from any liabil- l itv. (4.) “ That the defendants were not liable for money ■which the plaintiff’s predecessor deposited in bank and which the plaintiff permitted to remain.” The complaint avers that the plaintiff, misled by the false and fraudulent statements put forth by the directors as to the condition of the bank in order to conceal its insolvent condition, and relying thereon and upon similar statements made to him as Treasurer, as required by law, not only made new deposits but permitted a part of the deposit already in said bank to remain. If the defendants are liable as to one, they are as to the other. To hold otherwise would be to make “ a distinction without a difference.” (5.) “ That it is not alleged that the bank or the receiver had been requested to bring this action and had refused.” This was not requisite, nor was the bank or receiver nec-\, essary parties to this action against the directors (Solomon v. Bates, at this Term) but if it were otherwise, all these objections were removed by the amendment making the bank and the receiver parties to this action. All the grounds of demurrer, based 'upon Clayton Giles being a party, are also removed from consideration by the non joros. which was entered as to him. No Error. Plaintiff’s appeal in same case. Clark, J.: That the vice-president permitted the president and cashier to borrow large sums of money for them [310] selves, or for corporations practically owned by them, upon inadequate security and fraudulently suppressed such loans in making up the official reports of the condition of the bank, and that the directors knew or by due diligence ought to have known of such conduct, is admitted to be true by the demurrer. A cause of action on this ground, if otherwise sufficiently stated, is not a misjoinder, for it is simply an allegation of one of the many acts of negligence, recklessness and failure of duty which go to make up the’liability of the defendants as set forth in the first and second causes of action, nor was there a failure to state a cause of action for any <>f the reasons set out in the demurrer, i. e., that the bank or receiver had not been requested to bring the action, (which in point of fact is alleged,) nor because there was no privity between the plaintiff and defendants, nor because the deceit was not sufficiently charged, nor because the plaintiff is not averred to have made any new deposit, but had merely permitted the deposit already in the bank to remain there after his succession to office. All these grounds are disposed of by tin- opinion in the defendant’s appeal in this case. It seems to us, however, that there was a failure to state a cause of action in the third cause of action, in that, though it is averred in the complaint that the loans recited in that cause of action were made “ upon inadequate security” and were suppressed and not included in the official reports, it is not averred that’ they were lost or earr ot now be collected, or that their loss caused the insolvency of the bank or in anywise affected the plaintiff injnri rasly. His Honor therefore correctly held that a cause of action was not stated in this third cause of action, for a defect of that kind can be taken ex mero motu by the court below, or here, though not specifically assigned by demurrer. No Error.