Millsaps v. Chapman

Woods, C. J., delivered the opinion of the court. The bill charges combination and confederation by the directors of the bank whereby and in pursuance of which they have wasted the assets of the bank, have used the deposits of creditors to pay obligations on which they were liable, and have violated their duty as directors, ■ being trustees for creditors and depositors, all the while saving themselves harmless by thus using and appropriating the funds of the bank and those of depositors. In the nineteenth and twentieth paragraphs of the bill two specific objects are sought. In the nineteenth paragraph it is charged that the defendant, Millsaps, having resigned as director for that purpose, bought from the sorely straitened and really insolvent bank, for about one-half its value, certain real estate belonging to the bank, to wit: the Harris-Andrews and Weesinger properties, and soon after such purchase was re-elected a director. It is charged that he paid for the properties $7,500 in cash, and $2,500 in stock of the bank, then worthless, and that the properties were of the actual value of $10,000 to $12,000. The prayer of the bill is to set aside the sale, divest the title out of Millsaps, and revest it in the bank. If mistaken in this, the complainants seek a decree against Millsaps for the difference between the $7,500 cash paid by him and the actual value of the properties [953] at the time of the sale, inasmuch as the bank could not legally accept for property owned by it stock held by a director, and especially where the stock was worthless. Was Millsaps a director at the time of the purchase? He was first elected a director in the year 1891, and he formally accepted. He was re-elected as a director in 1892, and was re-elected in the years 1893 and 1894. In his answer he states that he was not informed of his re-election in the years 1893 and 1894, and that he promptly resigned in February, 1894, on ascertaining the fact of his re-election for the year 1894. But it is shown that his name was continuously published to the public as a director in a newspaper issued in the town where the bank was located. It appears, moreover, that he presented to the bank his account for expenses incurred in attending the meeting held in February, 1894, and received the amount of the account as a director, as we must assume. There is nothing to indicate that stockholders had been paid by the bank their expenses incurred in attending a stockholders’ meeting at which they were looking after their own interests only. It is significant, too, that, after his formal resignation in February, he purchased this property in April of the same year, and in May, the month following his purchase, he was again elected a director and formally accepted. He must, therefore, under these circumstances, be treated as a director and held to liability as one. That the bank was in the year 1895, and had long been prior thereto, insolvent seems not open to controversy. While the rule requiring directors of a bank, because of their fiduciary character, to act with the utmost good faith, and forbidding them to deal in the funds or property of the bank for their own personal advantage, is of universal recognition, we are of- opinion that, substantially, the rule had proper enforcement in the court below. At the option of the bank, or its depositors and creditors, the sale of its corporate property to a director may be set aside, the purchasing director being [954] treated as a trustee of the property for the bank. The contract of purchase may be wholly annulled, if actual fraud entered into it, and the fraudulent and faithless director denied any reimbursement. If not corrupted by fraud in fact, the court may vacate the purchase, because made in violation of law, or may uphold it, and, in either case, where only constructive fraud is shown, require the fiduciary to account for profits, or the difference between the price actually paid and the real value of the property at the time of the purchase. The remedy will be moulded to meet the circumstances of each particular case. In this case the respondent, Millsaps, appears to have been not anxious to make this purchase, as his letters to his co-directors show. They show also, we think, that he made the purchase without any willfully fraudulent purpose. But these letters likewise abundantly show that he believed, and had strong ground for believing, that the transaction could not legally be made, at least to the extent of using stock as part payment of the purchase price. He was so advised by his counsel. But he yielded to the solicitations of others, and while saying he “would ne’er consent, consented,” just as other mortals have done and will continue to do. The court below did not think Millsaps should be treated as a trustee ex maleficio, and denied reimbursement to the extent of the $7,500 in cash actually paid by him, but that the purchase was fraudulent in law only, and that the purchaser, while entitled to be protected in his title, should be required to pay to complainants the profits derived by him from his purchase—that' is to say, the difference between $7,500, which he paid in money, and the actual value of the property at the date of his purchase. This difference was found by the master, who took and stated an account tobe about $4,600, including interest. The evidence as to the value of the property was conflicting. The court below confirmed the master’s report, and we are not disposed to disturb that action. On the cross appeal from the [955] decree of foreclosure on the cross bill of Millsaps and Tribbette, we see no error in the decree of the court. This was a loan, pure and. simple, made by Tribbette, who was never a director, and Millsaps, of $8,000, on two years’ time, and, we entertain no doubt, entitled the mortgagees to foreclosure for the satisfaction of their debt. The item of attorney’s fees allowed Millsaps and Tribbette was strictly in accordance with the terms of the contract made between them and the bank. The mortgage, it is true, provided only for a reasonable attorney’s fee, if the property should be sold by the trustee named in it, but the note, whose payment was secured by the mortgage, stipulated for a fixed attorney’s fee if the note had to be placed in the hands of an attorney for collection, and by foreclosure decree as prayed in the cross bill of Millsaps and Tribbette, the attorney’s fees were a proper charge against the mortgagor. Affirmed on direct and cross appeal.