30 F. 298 | U.S. Circuit Court for the District of Northern New York | 1887
The First National Bank of Buffalo was organized December 7,1863, under the provisions of the national bank act of February 25,1863, for which the national hank act of June 3, 1864, was substituted, (13 St. at Large, 100,) with a capital stock of $100,000, divided into 1,000 shares of $100 each. At the annual meeting of its shareholders holden January 11, 1881, Charles T. Coit, R. Porter Lee, Thomas W. Cushing, John H. Vought, and George Coit were elected
The bill alleges, in substance, that the defendant Spaulding sold and transferred his stock in the bank on the eleventh day of April, 1882. The evidence shows that he signed the transfer of the stock in blank, and delivered the certificate to the messenger from Lee, without any negotiation with Lee, or any one, at that time, with reference to a sale of the stock. The plaintiff’s counsel moved on the hearing to amend the bill to have it allege that the' transfer was formal merely, without consideration, and that there was not any sale or valid transfer in effect. It is argued, in support of the amendment, that this would make the bill conform to the proofs merely, and that it should be allowed for that reason. The evidence shows, however,in addition to this, that Spauld-ing had not paid Lee anything for the stock, and that it was understood between them that Lee might have the stock back for some one else, if he should so desire, at anytime. It appears from the whole transaction that, when Lee sent the messenger for the stock, it was in pursuance of that understanding, and that Spaulding acted upon the understanding in complying with the request. There was therefore an agreement for and an actual resale of the stock. The blank in the transfer was filled with the name of a third person to whom Lee had sold the stock, but that was merely a method of carrying out the two sales, and required no negotiation between Spaulding and the other person to make it effectual. The bill now,-therefore, alleges the sale as it in fact was, and there is no occasion for the amendment. Johnston v. Laflin, 103 U. S. 800.
Some question has been made, and discussion had, with reference, to the right of the plaintiff to enforce the liability of the defendants, if any ■exists, for the' benefit of stockholders, creditors, or depositors, as the results might, if realized, eventually inure to them, respectively. It seems, however, that the receiver, as the name implies, hae in his hands the rights of the bank itself against all and any persons, however the rights may have arisen, to enforce for the benefit of whoever may be entitled to the avails of them; and these rights may be en forced by him in his own name, or in the name of the bank whose corporate existence is continued for that purpose. Kennedy v. Gibson, 8 Wall. 498; National Bank of the Metropolis v. Kennedy., 17 Wall. 19; Case v. Terrell, 11 Wall. 199. If the bank had a right or claim in this respect which it could enforce against the defendants, or any of them, the plaintiff has the same now, which- he is entitled to enforce to the same extent; and none appears to have accrued to him which the bank in its own right did not have. The
The defendant Gushing sets up in defense, among other things, that he was not a director at all, and therefore owed no duty in that behalf, at the time when the alleged losses took place. Whether he was or not depends upon the effect of what occurred about the sale of his stock and resignation. He bargained for its sale on the twenty-fourth of September, 1881, and orally resigned bis office of director, so far as he so could, to the president of the bank, in bis place of president at the bank. This was prior to the lime of any of the losses as alleged. He delivered the stock certificate, with authority to transfer, on the seventh of October following, and received his pay for it. This may be after some of the losses occurred. The transaction of Beplombor 24th may therefore be of importance. The statutes provide that every director must own in his own right at least 10 shares of the capital stock of the association of which he is a director; and that any director who ceases to he the owner of 10 shares of the stock shall thereby vacate his place. Rev. 81. U. 8. § 5146. The purpose of this statute obviously is to require the office of director to bo kept in the hands of those who are personally and pe-cuniarily interested in the affairs of the bank. When Cushing bargained his stock, he ceased to bo so interested. Good faith to the other shareholders, as their interests were guarded by these provisions of the law, ■would seem to require that he should then cease to be a director. He appears to have taken this view, and to have done what ho could to carry it out. There was no calamity impending or contemplated by him to bo avoided by vacating his office, or which ho could prevent by retaining it. There was no reason why ho should not resign if he could. He was an officer elected to his place; it was an office that he was not obliged to accept, and would seen) to be one that ho was not obliged to hold. U. S. v. Wright, 1 McLean, 509; People v. Porter, 6 Cal. 26; Olmsted v. Dennis, 77 N. Y. 378. No mode of resignation was provided by law, and an oral one would be as good as any. Rex v. Mayor of Rippon, 1 Ld. Raym. 563. Tlio president was the head of the board of directors, who alone could fill the vacancy, and a resignation to him ■would be a resignation to the board. Port Jervis v. First Nat. Bank, 96 N. Y. 550. The statute provides that the directors shall bo elected at meetings to be held on such day in January of each year as shall be specified in the articles of association, and that they shall hold office for one year, and until their successors are elected and have qualified. Section 5145. It is urged that this section prohibits resignation during the year. This is not, however, understood to bo its effect. The apparent purpose of the provision in regard to the term of office is hr make it conform to the time of the new election, and not to absolutely require every director to serve the full term. Buck provisions as to terms of office are common for this purpose. It is said in argument that, if he might resign, lie would not be relieved from duty until his place should be
The liability of Charles T. Coit also stands upon different footing from that of any of the others. His health had failed, and was failing him, so that he was and was being disabled for the performance of the duties of his office. He had owned more than half of the stock up to near that time, and, so far as appears, had been diligent and faithful in the performance of all his duties. Of his associates in the board, Vought had been director since 1875, Lee since 1877, and Francis E. Coit then since the May previous, and for several years at a time previous, and all were in good repute. He could resign, or accept their leave of absence, which was tantamount to an undertaking and assurance on their part that they would perform the duties which might otherwise devolve upon him. They were a majority of the board, and, if they would, could control, whether he was present or absent. The oath of office required by law bound him, so far as the duty devolved on him, diligently and honestly to administer the affairs of the bank. Section 5147. The duties which they could perform, and assumed to and did perform, would not appear to have devolved on him so as to make him chargeable in any degree for the manner of their performance. He did nothing himself for which it is claimed that he became in any manner chargeable; and it does not appear that he was so responsible for what the others did that their misdoings could make him chargeable.
Neither Lee, nor the executrix of Vought, make any defense to this suit, and the bill has been taken for confessed against them.
The positions of Francis E. Coit, Spaulding, and Johnson, with reference to the bank, were so similar in most respects that the questions as to the liability of each of them may be examined somewhat together. It is necessary for this purpose to look into the manner of the losses more closely.
The losses appear to have begun by the discount of the paper of persons engaged with Lee in business and speculations not adequately responsible for the amount of the discounts. The paper was usually indorsed by him, and sometimes secured, to some extent, by collaterals resulting from the avails of the discounts. Great losses from the transactions in which he was engaged fell upon him, and, through him, upon the bank. As the paper fell due, it was renewed .or replaced by other
As there was no misconduct, default, or irregularity on the part of the cashier, or of the clerks or agents of the bank in any respect that occasioned these losses, and what was done that did occasion them was done by Lee, and by bis express direction, the question is whether these directors by their conduct became liable to the bank for what their associate director Lee did. By the bank act of 1864 it was enacted that these associations should be bodies corporate, and, by the names designated in their organization certificates, should have succession for 20 years unless sooner dissolved; that by such names they might make contracts, sue and be sued, and elect or appoint directors, and by tlioir boards
Directors may doubtless be liable for many things which are not express violations of the statute. Brinckerhoff v. Bostwick, 88 N. Y. 52, and 99 N. Y. 185, 1 N. E. Rep. 663. This would probably be the case with respect to any gross mismanagement in the actual transaction of the bank’s
In Cargill v. Bower, 10 Ch. Div. 502, it was held that directors were not liable for the frauds of their co-directors unless they participated in the frauds, or wholly abstained from inquiry in order that they might be committed. Fuy, J., said: “1 think that there was great negligence, but that if was merely negligence, and undue trust in Feigan, and that there was not any intention to allow him bo commit fraúd, and therefore I cannot hold them responsible for his acts.” Feigan was a director.
In Perry's Case, 34 Law T. (N. S.) 716, Perry had consented to be a director at the request of Duncan, on the understanding that his qualification in paid-up shares would be found for him, and was appointed
“1 think that no case is made against Mr. Perry. Mr. Bradford’s argument is that, inasmuch as he accepted paid-up shares in order to qualify him as director, he is to be treated as the paid agent of Mr. Duncan to do whatever Mr. Duncan desired him to do. It is very easy to say that, but I see no kind of foundation for it. It is said that Mr. Duncan misconducted himself in various ways, and that Mr. Perry is liable for all the consequences of that because he was Duncan’s paid agent. It would be monstrous to entertain any sucha proposition. He became director, and is liable for ail that he did as director, but he was not bound to attend every meeting of the directors. It is not part of the duty of a director to take part in every transaction which is conducted at a board meeting. His business or his pleasure may call him elsewhere, and it would be a most unheard-of thing to say that if anything wrong was done at a board meeting, he being named among the directors, but not present, he is liable for what is done in his absence. ”
In Joint-stock Discount Co. v. Brown, L. R. 8 Eq. 376, in speaking of the liability of directors for acts of others in which they took no part, or measures to prevent, James, V. C., said:
“How, with regard.to Mr. Gillespie, I have held that there is no sufficient evidence of his concurrence or connivance to make him responsible. I have, however, thought it not right to give him his costs, although I dismiss him from the suit, because I think a man who is director, and goes on as director for months when a transaction of this kind is going on, is not justified in saying: ‘ I really did not pay the slightest attention to it. I liad a sort of vague notion of What was goingon. I was apaid director, but I left it to the other directors to attend to. I did nothing. I took for granted it was all right.’ I think he is entitled to go; that 1 cannot fix him with liability; but I think it is not too much of a penalty for him to pay for his negligence that he shall not have any costs of the proceedings which have been rendered necessary in this court by proceedings of his .co-directors which he took no pains to inquire into or interfere with.”
In Weir v. Bell, 3 Exch. Div. 238, in speaking of the liability of Bell as a director, Lord Chief Justice Cocicburn said:
“In the result Bell has been guilty of no fraud. He is not a principal deriving a benefit from a fraud committed by his agent in procuring that benefit; nor, indeed, has he'derived any benefit from the fraud committed by the subagents whom he was authorized to employ on behalf of the company. Upon this state of facts I think the plaintiff fails to establish the liability of the defendant Bell.”
The same viewrs pervade other English cases. Turquand v. Marshall, L. R. 4 Ch. 386; Land Credit Co. v. Lord Fermoy, L. R. 8 Eq. 7. In Charitable Corporation v. Sutton, 2 Atk. 400, much relied on for the plaintiff in this case, only the committeemen, who formed what wras called a confederacy or conspiracy, were held chargeable.
That a director is not liable for the faults or frauds of a co-director appears to be well recognized in New York. Wakeman v. Dalley, 51 N. Y. 27; Arthur v. Griswold, 55 N. Y. 400. In Hun v. Cary, 82 N. Y. 65, where the trustees of a savings bank who participated in a misappropria
The measure of the duty of directors is frequently and emphatically laid down, and -is clear and plain; but it is nowhere adjudged that all must always act, or that they must not trust one another to act, or that any are liable for the mere omission to watch and restrain the others, without wrong intention on their own part, or actual knowledge of the wrong on the part of the others. Neither are there cases where persons standing in similar relations to the property of others have been held liable for the acts of others standing in the same relation, without some fraud or connivance on their own part. The general rule as to trustees is that they are responsible only for their own acts, and not for the acts of each other, unless by express agreement, “ or they have by their own voluntary co-operation or connivance enabled the other to accomplish some known object in violation of the trust.” Story, Eq. § 1280. In Perry on Trusts the law is stated to the same effect. Section 417. The law is the same as to executors and administrators. Bac. Abr. “Executors,” D; Brazer v. Clark, 5 Pick. 96; Peter v. Beverly, 10 Pet. 532. In the latter case, Mr. Justice Thompson said: “For it is a well-settled rule that one executor is not responsible for the devastavit of his co-executor any further than he is shown to have been knowing and assenting at the time to such devastavit or misapplication of the assets; and merely permitting his co-executor to possess the assets, without going further and concurring in the application of them, does not render him answerable for the receipts of his co-executor. Each executor is liable only for his own acts, and what ho receives and applies, unless he joins'in the direction and misapplication of the assets. Hargthrope v. Miljorth, Cro. Eliz. 318; Hovey v. Blakeman, 4 Ves. 596; Briggs v. Law, 4 Johns. Ch. 23; Manahan v. Gibbons, 19 Johns. 427.” And a bailee of goods without reward is only liable because they actually come to his hands, and he is guilty of some wrong in respect to thorn while there. Coggs v. Bernard, 2 Ld. Raym. 909.
After the careful and thorough presentation of this case in all its aspects by counsel on all hands, and much and repeated consideration of the facts and principles involved, no just ground of liability on the part
These conclusions make it-unnecessary to consider whether this cause of action, if made out, would survive against the personal representatives of Francis E. Coit, or those of Charles T. Coit. The bill must, upon the conclusions reached, be dismissed as to them, and as to the defendants Cushing, Spaulding, and Johnson. The expressions of Vice-chancellor James, as to costs, in Joint-stock Discount Co. v. Brown, supra, seem reasonable, and applicable to the directors Francis E. Coit, Johnson, and Spaulding; and no costs were allowed in Hand v. Burrows, supra, to the director not held to be liable. Those cases are followed, and no costs are allowed to the defendants Johnson and Spaulding and the representative of Francis E. Coit. There is nothing sufficient to take the cases of Cushing and Charles T. Coit out of the usual rule as to costs. No question has been made as to completion of the decrees already entered against Lee and the executors of Vought.
Lot a decree be entered dismissing the bill of complaint as to the defendants Spaulding, Johnson, and Caroline E. Coit, execlitrix, without costs; and as to the defendant Cushing and the defendants Frank S. Coit and Joseph C. Barnes, administrators, with costs.