Orlansky v. Johnson

Sykes, J., delivered the opinion of the court. The appellant, A. Orlansky, filed an original bill in the chancery court of Leflore county against W. T. Johnson and certain other parties who were, or had been, directors and officers of the Bank of Leflore, and also against R. V. Pollard, receiver of said bank. Defendants filed demurrers to the original bill, which demurrers were sustained and an amended bill was then filed. Before the filing of this amended bill the complainant had petitioned the receiver of the bank to file this suit himself, and the receiver had declined to do so, giving his reasons therefor. Permission was then obtained from the chancellor to make the said receiver a party defendant to this suit. The gravamen of the amended bill is as follows: The complainant was a stockholder in the bank at the time of its failure and filed the bill on behalf of himself and other stockholders who desired to join with bim in the suit. The amended petition further alleged that the bank of Leflore was a bank organised under the laws of the state of Mississippi, incorporated in 1902, and domiciled at G-reenwood. It then names the directors elected in 1910 and the officers then elected by the directors. That complainant purchased his stock in February, 1910. At that time one Robert Wilson was cashier of the bank, but in January, 1912, Robert Wilson resigned, and G. L. Ray was elected cashier. At this same meeting in 1912 W. A. Swift and H. L. Walton, two of the defend [329] ants herein, were elected as additional directors of the bank. It alleges that before complainant purchased his stock the bank had suffered heavy losses, and its capital stock had been misappropriated, lost and wasted until it was practically worthless; that the officers and directors knew of this fact, or should have known it, at the time he bought the stock; that he, the complainant,' was ignorant of the financial condition of the bank; that before and at the time of the purchase of this stock the officers and directors of the bank held it out to the public as a safe and solvent banking institution and made false written reports of its condition; that the officers and directors of the bank had represented to complainant that the bank was solvent and that he believed this, when as a matter of fact it was all untrue; that before he purchased the stock, through certain sham manipulations, the bank purchased from one A. G-. McLémore, who was then an officer and director of the bank, five hundred and twenty-three and one-half shares of the stock of the bank for which they paid more than one hundred thousand dollars; that this transaction weakened the bank and rendered it practically insolvent, which fact was known to the officers and directors; that the bank sustained other heavy losses by making unlawful and improvident loans without adequate security; that when the bank was organized it adopted certain rules and by-laws which were in full force and effect when the bank failed; that these rules and by-laws were binding on the officers and directors of the bank; that under these rules the directors were required to appoint a committee to count the cash, compare the assets and liabilities, examine the books of the bank, and perform other duties; that the directors failed to carry out these rules and by-laws; that a short time before the bank failed certain of its officers and directors, knowing its weakened condition, and being heavy depositors in the bank, withdrew their deposits from said bank, thereby causing it to collapse; that, notwithstanding the insolvency of the bank caused [330] by the unlawful McLemore deal, tlie directors declared large dividends each year; that it was the duty of the directors to exercise care and skill in managing the affairs of the hank; that in January, 1913, the bank became insolvent and failed, and E. V. Pollard was appointed receiver; that the receiver had been requested by him to bring this suit in his capacity as receiver, but that the said receiver declined to do so, as is shown by a letter from the said receiver to the counsel for the complainant, together with a letter from Messrs. Gwin & Mounger, counsel for the receiver; both of these above letters are attached to the bill and made exhibits thereto; that permission was then obtained from the chancery' court to join the receiver as a party defendant. The complainant asked that the receiver in. his answer. show the condition of the bank on the date of the purchase of the stock of the complainant in the bank and show whether or not the officers and directors had perpetrated a fraud upon the complainant and the other stockholders and show how the bank was conducted and carried on from time to time. Along this line the bill, in short, asks that the receiver in his answer give an entire history of all of the transactions of the bank from the date of its incorporation to the date of its failure. The prayer 'for relief, after asking for all of the information from the receiver that he could "obtain from an audit of the bank books by an expert accountant through its entire history, then prays that on final hearing complainant be awarded a personal decree against all of the officers and directors of the bank for the amount of the stock owned by him and other stockholders, parties to this suit, which was rendered worthless by reason of the insolvency of the bank by neglect; fraud, and unlawful action of the -officers and directors (no other stockholders joined in the suit). It then stated the usual prayer for general relief. Th? letter of the receiver in which he declines to bring this suit and the letter from Messrs. Gwin & Mounger, both of which letters are made exhibits to the bill, show that [331] the reason the receiver declined to bring this suit was that during the pendency of the receivership in the chancery court of Leflore county that court entered an order authorizing the receiver to make a settlement with certain of the officers and directors of the bank for the sum of seventy-seven thousand, five hundred dollars; that all of the parties defendant to the amended bill have made settlement under this decree of the chancery court except H. L. Walton and W. A. Swift. Demurrers were filed by all' of tiie defendants to the amended bill. The demurrers of H. L. Walton, W. A. Swift, and R. V. Pollard, receiver, were overruled, and the demurrers of the other defendants were sustained. Complainant prosecutes this appeal from the decree sustaining these demurrers, and Messrs. Walton and Swift prosecute a cross-appeal from the decree overruling their demurrers. No cross-appeal is prosecuted by the receiver. We think the action of the court below was correct in sustaining the demurrers of the appellees. The letter of the receiver and of his attorneys show that these appel-lees made a settlement with the receiver by virtue of a decree of the chancery court of Leflore county. There was no appeal from the decree authorizing this settlement to be made. It was withiri the jurisdiction of the court to authorize this settlement, and it is therefore a valid and binding one, and these appellees by accepting and making that settlement have been discharged from all liabilities to the bank or its stockholders or other creditors. That this settlement was made was shown by the exhibits to the amended bill, and was not denied or controverted in said bill; consequently we must accept as true the contents of the exhibits. House v. Gumble, 78 Miss. 259, 29 So. 71; McNeill v. Lee, 79 Miss. 455, 30 So. 821; Weir v. Jones, 84 Miss. 610, 37 So. 128; McKinney v. Adams, 95 Miss. 832, 50 So. 474. The gravamen of the bill is that the officers and directors and cashier of the bank were guilty of negligence and [332] neglect of duty and misappropriation of the bank’s funds all prior to tlie year 1912, when H. L. Walton and W. A. Swift became directors in the bank. There are no charges whatever in the bill of any negligence or mismanagement on the part of the directors from January 1, 1912, to the time the bank'went into the hands of a receiver in January, 1913, or during the incumbency of office as directors of Messrs. Walton and Swift. There is neither a general nor specific charge of negligence, misappropriation, or neglect of duty on the part of either of these directors within that time. For this reason the court should have sustained their demurrers to the amended bill. The case will be affirmed on direct appeal, reversed on cross-appeal, and remanded. Affirmed on direct appeal, reversed on cross-appeal, and remanded.