80 W. Va. 511 | W. Va. | 1917
Lead Opinion
The object of this suit is to recover of the defendants-funds belonging to the plaintiff bank, alleged to have been wrongfully misappropriated by C. H. Shattuck, now deceased, and Reese Blizzard when they were directors thereof. C. H. Shattuck died in the year 1911, testate, and the defendant P. D. Neal qualified as his executor. At the time of and for many years prior to his death, Shattuck was president of the bank. Shattuck and Blizzard also owned and controlled the stock of the Parkersburg Publishing Company, a corporation, publishing a daily newspaper in the city of Parkersburg-called the West Virginia Dispatch-News, and Robért and Ben W. Morris owned and controlled the stock of the State Journal Company, another corporation, publishing a daily and weekly newspaper called the State Journal. On the 20th of
“It is agreed and represented.by -the parties of the first part that the indebtedness of the State Journal Company shall not exceed the sum of Twenty-Thousand Dollars ($20,-000.00), and that the parties of the first part are to execute their four (4) negotiable, promissory notes to themselves, and endorse the same, and attach thereto as collateral security, in equal amounts, the Twenty-Thousand Dollars ($20,-000.00) of stock of the Parkersburg Publishing Company to be issued to them.
“And the parties of the second part hereby agree that on proper renewals of the said notes,.with collateral attached, they will, by endorsement or otherwise, have the said notes, carried for the parties of the first part for the period of four-(4) years from this date, and should the parties of the first part pay off any of the said notes, they are entitled to take.-, down or withdraw said collateral so attached to said note.
“A sufficient amount of the proceeds of the said notes shall be used to pay off and discharge all of- the debts of the State Journal. Company, and to procure a release of any and all liens that may exist against the property, good will and franchises thereof.
“The parties of the second part further agree that should the parties of the first part desire to sell the total amount of their said stock within two (2) years from this date, at the par or face value thereof, then the parties of the second part*514 agree to secure purchasers for the said stock at the par or face value thereof, or if unable to do so within thirty (30) days agree to become the purchasers thereof themselves at the par value thereof. And in all events, if the parties of the first part sell said stock, or any part thereof, the parties of the second part are to have the preference of purchasing the same at whatever price sold; and should the parties of the second part sell or offer for sale any or all of the said stock so owned by them, the parties of the first part are to have the preference in purchasing the same at whatever price sold.”
It was stipulated that the consolidation was to become effective as of the 22nd day of November, 1909. The four negotiable promissory notes were never executed by the Mor-rises, nor was any certificate for the capital stock of $20,000 in the new company ever turned over to them. The parties .became dissatisfied and it was mutually agreed to rescind'the agreement, and this they did in writing, signed by all of them, on the 16th of May, 1910. But while the contract was in force the State-Journal Company drew numerous checks upon the plaintiff bank, in payment of its floating indebtedness when it had no funds therein to its credit; and at the direction of C. H. Shattuck, who was the bank’s president and practically managed it, the cashier paid these checks and made no entry thereof on the bank’s books, and carried the checks simply as cash. At the time the contract was rescinded these cheeks or overdraft amounted to $5,000, or more. The rescission agreement provided that the Morrises should protect Shattuck and Blizzard from liability on account of the original contract. At the same time, the State Journal Company executed its note to the bank for the sum of $5,100 to take the place of another note for $5,000 which said Shattuck had procured to be made by Ben ~W. Morris and endorsed to the bank by Leland Morris, on the 22nd of the preceding January. The last mentioned note was discounted and the proceeds applied to discharge the overdraft. This note was taken for a temporary purpose, was payable in thirty days and was not paid or renewed when it became due, but was carried in the overdue file until May 16th when the note of
Mr. Flaherty, who was cashier of the bank at the time these transactions took place, states positively that the attention of the directors was never, at any time, called to them, and that he paid the checks of the State Journal Company under the express direction of Mr. Shattuck who practically controlled the bank; that he did nothing in connection with the bank’s business without his direction. He swears that, at the time the Ben and Leland Morris note was taken, Mr. Shat-tuck, who was then ill, called him to come to his house and bring the checks representing the overdrafts, and he did so, and turned the checks over to Mr. Shattuck in the presence of the defendant Reese Blizzard; that the existence of the checks, or the manner in which they were disposed of, was never called to the attention of the board of directors; that he attended the directors’ meetings and acted as their secretary and no note or minute was ever made of this matter. There is no proof of what Shattuck did with the checks. It is proven that neither Ben nor Leland Morris had any property and consequently their note was of no value. The note of the State Journal Company was later secured by a second deed of trust upon its property and franchise, a prior one, covering the same property, having been executed by it to secure $15,000 of debts owing to a number of banks in the city of Parkersburg, one of which was the plaintiff bank. These secured debts and the floating debts which were paid by plaintiff bank on the worthless cheeks of the State Journal Company made up the $20,000, to pay which Shattuck and Blizzard had agreed to lend their credit to the Morrises, by endorsing their notes “or otherwise.” The State Journal Company’s property was sold under the deeds of trust, and the
There is no material conflict in the evidence, establishing the foregoing state of facts.
The cause was heard on pleadings and full proof and on the 7th of December, 1916, a decree rendered holding the defendant Reese Blizzard and the estate of C. H. Shattuck, deceased, liable to the bank, and decreeing a recovery against said Blizzard and P. D. Neal as executor of C. H. Shattuck, deceased, for $7,060, and they have appealed.
It is insisted, on the part of Mr. Shattuck’s executor, that his testator acted in good faith in honoring the checks of the State Journal Company, and therefore his estate is not liable; that the board of directors assented to the taking of its note for $5,100, and the bank is estopped by their action. On the part of defendant Blizzard, it is contended he did not participate in allowing the overdraft, ’knew nothing of it at the time, and is consequently not liable. And as a defense equally applicable to both, the doctrine of laches is invoked. They both occupied a confidential relation to the bank as its officers and agents, and in their dealings affecting its interest were required to act in perfect good faith. Mr. Shattuck could not, without violating his duty, use his official connection with the bank to its detriment, in order to further undertakings of his own in which the bank had no interest. This principle is too fundamental to require support by citation of authorities. The proof is, the checks of the State Journal Company were paid out of the bank’s fund, when it had no money therein to its credit, upon Shattuck’s express direction to the cashier. In view of the contract then in force between the Morrises and Shattuck and Blizzard, these checks were not paid in the sense of a loan, as is sometimes done in the regular course of banking for the accommodation of a good customer of the bank. Mr. Shattuck then knew the State Journal Company was indebted to the extent of the value of all its property, the Parkersburg Publishing Company, owned by Shattuck and Blizzard, had consolidated with it and taken its property at the price of $20,000, the amount of its debts. He also knew its property was covered by a deed
While it does not appear that Mr. Blizzard actually participated in allowing the overdraft, yet it is apparent that it was for the joint benefit of Mr. Shattuck and himself. They were jointly interested in acquiring the property of the State Journal Company, and were equally obligated to endorse the notes of the Morrises, or otherwise assist them in procuring the money with which to pay that company’s debts. Can he avoid liability on the ground of ignorance of, and failure to participate in the commission of the wrong? We hardly think so. He and Shattuck were partners, consequently each was the agent of the other within the scope of the partnership. The cheeks were paid in furtherance of their joint contract, and their payment was intended for their joint benefit. The
The bank has done nothing to release defendants from liability, nor to estop itself from asserting it. Discounting the Ben and Leland Morris note did not have that effect, for that was done by Mr. Shattuck himself and without the knowledge of other directors. The testimony of the cashier proves that note was taken to satisfy the bank examiner who complained of the checks being carried as cash. It was a thirty days’ note, and was not paid or renewed when it became due, but placed in the overdue file and carried until the note of the State Journal Company for $5,100 was executed. Mr. Blizzard says he was not consulted in regard to the payment of the checks and knew nothing more in regard to them than he did of other matters pertaining to the bank which, he says, was conducted almost exclusively by Mr. Shattuck. But he
After the overdraft had been made, a conference was held between the Morrises and Shattuck and Blizzard at which the manner in which the business of the consolidated company was being carried on was discussed. Considerable dissatisfaction was expressed and a violent controvery arose between Ben Morris and Mr. Blizzard. It then developed that the consolidation scheme was not going to be a success. But notwithstanding, Mr. Blizzard says he told Mr. Shattuck he was unwilling to let go of the contract, and Mr. Shattuck replied in substance: “Leave it to me, we are going to take a deed of trust on it in addition to what we already have, and the Morrises will not make money out of it like you would (indicating me) and the paper will finally be for sale and we can buy it in, I called his attention to the fact that it would run over years under an arrangement of that kind and he said no, that the other banks had been wanting him to join with
What was Mr. Blizzard’s duty, as an officer of the bank, when, as he says, he was informed for the first time by Mr. Shattuck of the overdraft? There is but one correct answer to this question. He should have notified the directors of it, and thus given them an opportunity to approve or disapprove Mr. Shattuck’s act. It was a matter of vital importance to the bank, and his silence is tantamount to an approval of Mr. Shattuck’s action. That Mr. Shattuck was a man of reputed integrity, financial ability and practically controlled the bank, could not relieve Mr. Blizzard from the discharge of his official duty to it. He could not help knowing why the overdraft had been allowed, but chose not to inform the other directors. He was jointly interested with Shattuck, and their personal interest in the transaction prevented their knowledge of it from becoming notice to the bank. Bank v. Bryan, 72 W. Va. 29; American Bank of Bluefield v. Ritz, 70 W. Va. 409; Bank v. Lowther-Kaufman Oil & Coal Co., 66 W. Va. 505; and Rusmissell v. White Oak Stave Co. et als., decided at the present term.
The liability having once attached, could not be discharged by the substitution of notes of third persons by the wrongdoer, without the bank’s knowledge and consent to such arrangement. There is no proof that any of the-directors, except Shattuck and Blizzard, were ever advised of the purpose for which the note of B.en and Leland Morris had been taken, after they learned the bank held it. Mr. Blizzard said it was taken for temporary purposes, but there is no proof that the bank ever knew it existed until after the note for $5,100 of the State Journal Company was taken, .and while it may be
The equitable doctrine of laches does not apply. The real nature of the transaction was hidden by the manner in which the cashier kept the books. The proof shows he acted, in respect to the matter, under the direction of Mr. Shattuek. Hence the bank’s books disclosed nothing which could have the effect of notice to the directors, nothing to arouse suspicion of any irregularity. The bank had no information concerning the overdraft'until a short time before the bringing of this suit. The present president of the bank, G-. L. Watson, says he accidentally heard a rumor, to the effect that the $5,100 note of the State Journal Company was, in reality, the debt of Mr. Shattuek and Mr. Blizzard. An investigation was then made and the facts, as herein. stated, discovered. Laches can not be imputed without lack of reasonable diligence, and no want of diligence is possible where the wrong is concealed and there are no means of discovering it.
The decree is affirmed.
Concurrence Opinion
Note by
I cannot dissent from the legal propositions enunciated in the opinion, nor deny their application to the facts as presented by the record. But in concurring I do not wish to be understood as intending in any way to impute to Mr. Shat-tuek wrong doing or intent to conceal from the directors of the bank the transactions complained of, or to misappropriate the funds of the bank. The record shows that the transaction especially complained of occurred during his last illness, and the loss to the bank did not appear until long after his death.
