183 Mo. 552 | Mo. | 1904
The judgment in this cause is predicated upon the first count in the petition. It sets ont “the appointment and qualification of the plaintiff as receiver. In it the plaintiff charges, that the defendants were negligent in the performance of their duties to the bank; that they neglected to observe the by-laws; that they failed at their meetings to faithfully and diligently enquire into the affairs of thé bank and to ascertain the condition of the accounts and property of the bank; that the discount committees grossly neglected their duty, in that they approved of improvident and worthless loans to irresponsible and insolvent persons and companies; that the president and directors left the entire management of the bank to the cashier, who loaned the money of the bank as he saw fit to wholly irresponsible and insolvent persons, his personal friends, without security; that in the exercise of ordinary care in the performance of their duty the defendants could have prevented the cashier from paying out large sums of money to financially irresponsible persons and corporations. ”
These general charges of negligence are limited by certain specifications of negligence with reference to the accounts of four persons, to-wit: Consumers Coal Company, Schwartz Bros. Commission Company, Nol-te & Dolch Fertilizer Company and T. S. Teuscher.
The plaintiff alleges:
That on the-day of November, 1886, there was organized what was known as the Consumers Coal Company, to sell coal, operate coal mines, etc. That the organization and launching of said enterprise was purely a speculative venture on the part of its promoters and that certain of the directors of said bank during the whole time of its operation and existence were owners, proprietors and managers of said coal company. The said corporation was started without capital, or the capital necessary to operate the same.
Further complaining that one T. S. Teuscher, of St. Louis, Missouri, then and ever since insolvent, had an account with the bank extending from the first of January, 1894, to April 6, 1896. That Teuscher was engaged in speculating in futures, buying and selling grain, whiskies and other commodities for future delivery; that said business was highly speculative and hazardous; that the defendants were fully acquainted with the character of the business and could have ascer
That Schwartz Brothers Commission Company had had a running account with the bank from the year 1886 and prior thereto, to the date of the failure of the bank. That said commission company was engaged in the business of dealing in futures, buying and selling grain and other commodities for future delivery on account of their customers and also .on their own account. That the business was purely speculative and admittedly hazardous. That the character of their business was known to the defendants for more than ten years last past, but that notwithstanding that fact, the cashier of the Mullanphy Bank, with the express and implied consent of the defendants, permitted said company to continue from the year 1890 to continually overdraw its account without giving any security therefor, knowing at the time that the entire amount of said indebtedness was liable to be lost on account of the hazardous and speculative business in which said commission company was engaged. That said commission company would be permitted to overdraw its account with
That on or about the-day of-, 1891, the Mullanphy Bank became the owner of a certain plant and machinery used and operated for the purpose of manufacturing fertilizing material used in enriching cultivated lands, acquired in the collection of debts for which said plants, machinery, etc., had been given as security; that said bank sold for $60,000 the same to what was known as the Nolte & Dolch Fertilizer Company, then and ever since insolvent, a corporation in
That during the entire period of time, when defendants negligently permitted said overdrafts on the part of the insolvent persons and corporations aforesaid to be paid, the defendants herein, with a view to. concealing said fact from the bank, the public and the officers of the law, so manipulated their books, and so permitted the same to be manipulated that none of said overdrafts appeared upon the general daily balance book of said bank. That said conduct on the part of these defendants in so permitting the books of said Mullanphy Bank to be so kept as not to show a true and correct condition of the bank’s affairs, was an act wrongfully and grossly negligent on their part and showed a total disregard of their duties to the stockholders and creditors of said bank. That on account of the grossly negligent, careless, wrongful and unfaithful conduct of the defendants as set forth, the bank has
To this count the defendants pleaded the general denial and the five-year statute of limitation running from April 2, 1903.
On October 21, 1898, this cause was by proper order of record referred to Judge James A. Seddon as referee to try all the issues.
The referee proceeded to hear the evidence, and having completed such hearing, he, on March 4, 1901, filed with the court the testimony taken in the cause, together with his report and findings thereon.
The referee recommended in his report that a judgment be entered in favor of plaintiff and against the appellants in this cause for the sum of $57,665.16.
Defendants duly filed exceptions to the report of the referee, which were by the court overruled and judgment rendered upon the report.
From this judgment, the appeal in this cause was prosecuted and the record is now before us for review.
This action is predicated upon negligence of the directors and officers of the bank, and the first count of the petition restricts the acts of negligence to the four accounts mentioned in the petition.
First: Consumers Coal Company.
This was a corporation, the entire capital stock of which was hypothecated with the bank to secure a loan to one William Freudenau, amounting to $21,977-.22. In 1889 this collateral was sold, the bank becoming the purchaser thereof, at a price equalling the amount of the loan, $21,977.22. This amount was then carried to the bank’s investment account. One share each of this stock was transferred to defendants Elbrecht and Klages, who were put in as representatives of the bank to operate the coal company. “The bank actually sanctioned the extension of the business by leasing a new
In the operation of this business from its beginning in June, 1889, to January, 1891, there was lost to the Uank, in addition to its original outlay, the sum of $54,639.48; from this time until August 7, 1891, there was a further loss of $10,140.01; from this time until December 2, 1892, the bank lost an additional $14,901.98, and in the three months from December 2, 1892, to April 2, 1893, a further loss of $5,426.13 accrued. On April 2, 1893, the original investment of $21,977 had so increased by subsequent losses' that it then had reached the sum of $106,944.81. At this time the total assets of the coal corporation, as valued by these .defendants themselves, did not exceed' $55,000, but not content with this enormous loss they continued operations and thereafter a further loss of $31,106.89 accrued np to November 2, 1894; of $17,078.96 to January 18, 1895; of $6,247.36 to February 1, 1895.
There was a recession of $925.02 between February 1, and February 16, 1895, but this was more than offset by March 1.
Losses thereafter were, up to July 5, 1895, $3,410.-13; up to January 10, 1896, $9,927.42; up to April 16, 1896, $1,779.80, when the total outlay, original investment and losses, amounted to $159,611.85, when operations seemed to have ceased, as the figures did not change from then until the close of the bank on March 1, 1897.
The total assets of this corporation, as estimated by the defendants, were not of value exceeding $55,000, at any time.
“He was also the treasurer and a director of the coal company throughout.”
Second: Schwarts Brothers Commission Company.
This company was engaged in the building and operating of grain eleyators. They also owned all the stock of a steamboat line. As early as January, 1891, which is as far back as the inquiry of the referee went, it had an overdraft with the Mullanphy Savings Bank of $4,773.55. In December, 1892, it was $26,939.44, and April 1, 1893, $27,015.39; on October 26, 1894, $24,584.-94, when notes were given covering it. Immediately thereafter another overdraft began to accumulate which, on April 2, 1895, was $536.59, increasing later to $697.87, when notes were again given. Another overdraft amounting to $1,154.18 had accumulated July 5, 1895, when notes were given for it. The account was again almost continually overdrawn until the close of the bank when there was an overdraft of $3,566.40. On the several notes taken covering the different items of indebtedness of this company there was lost to the bank the sum of $66,953.26, and from the collateral given to secure them but $19,185.92 was realized. Yet the referee finds the “discount committee acted with proper care and prudence as a board in accepting them.”
The referee finds that this company had a credit balance as late as May 18, 1896, on its open account
“But the referee finds that though the overdrafts were taken up from time to time by good notes and the overdraft at the close of the bank was only $3,566.40, the cashier disregarded all rules of prudence in reference to the entire overdraft account of this company. That the company owed the bank $3,566.40 at its close was due to his gross carelessness.”
Third-. Nolte & Dolch Fertilizer Compcmy.
The bank became the owner of a fertilizer plant by the sale of some collateral held by it. A corporation was organized by Louis Nolte, a director of the bank, .and one E. W. Dolch; Kammerer, the bank’s cashier, taking two shares nominally. To the Nolte-Dolch Fertilizer Company, the corporation so formed, the bank sold the fertilizer plant for $60,000 in notes; $30,000 signed by the corporation and secured by a deed of trust on the property purchased; $15,000 signed by Louis Nolte and secured by fertilizer company stock as collateral, and a like amount signed by E. W. Dolch with same security. This corporation had no cash as a working capital.
This corporation lived off the bank; on the first day of its existence it had an overdraft of $1,208.60, which was increased gradually until on January 1,1892, it amounted to $13,027.38; on January 14, 1892, it was $14,641.81, when it was reduced by a note for $10,000.00 secured by-a mortgage of the debtor’s stock in trade. On January 28, 1893, the overdraft again reached the proportions of $23,173.49, which later was reduced by a note for $12,300, secured as the first. The overdraft beginning again, reached the sum of $11,139.16 in January, 1897, but similar notes were taken later, so that
Fourth: T. 8. Teuscher.
This party was a whiskey merchant in St. Lonis. On April 2,1893, he-was a debtor of the Mnllanphy Sav-ipgs Bank in the snm of $33,470.02, on unobjectionable commercial paper and $233.40 on overdraft. The overdraft seems to have been kept within reasonable bounds nntil Jnne 15, 1894, when he was allowed to overdraw his account $16,955.58, which overdraft continued in slightly varying amounts until June 29, 1894, when the overdraft was paid. After this, and until August 1, 1894, overdrafts in amounts varying from $5,449.64 to $50,057.09, existed against this party. Between July 16, 1894, and August 21, 1894, Teuscher was allowed to withdraw from the bank the sum of $218,547.36. This was on worthless checks made by Teuscher, paid by the bank and refused by the drawee, $55,000; cashier’s checks issued by the bank, $9,000; worthless drafts on non-resident drawees, $43,547.36, and withdrawals of deposits credited but never actually made, $111,000. This so-called “defalcation” was reduced to $175,000 by payments forced from Teuscher, and for this sum his unsecured notes were taken. After these transactions, and when Teuscher was known to be insolvent, he was allowed from time to time to make further overdrafts, and when the bank closed in. 1897, an overdraft of $944.20 existed. The allowing of these overdrafts, the referee finds “is not consistent with sound business principles, ” “ improvident and hazardous. ’ ’ And ‘ ‘ the conduct of the cashier in allowing T. S. Teuscher to overdraw his account between August 1, 1894, and December 11, 1895, was grossly careless and reprehensible. ’’
The referee did not believe any liability arose against the defendants for any of the Teuscher claim, except the final overdraft of $944.20, and on this theory judgment was rendered.
“The members of the examining committee as a committee were grossly negligent in not making the proper examinations of the conditions of the bank and in not reporting the same and in not reporting the facts known to them relating to the conduct of the cashier in making loans and the facts relating to these four accounts. If they had done their duty with even the slightest care and had insisted upon the affairs of the bank being managed on prudent business principles it would never have failed.
‘' The members of the discount and examining committees were grossly negligent of their duties in their individual capacities as directors in not properly supervising the action of the cashier and the president and in permitting the reckless conduct of these latter in allowing the bank to sink large sums in the coal business and in making loans to customers, especially to Schwartz Brothers Commission Company, Nolte & Dolch Fertilizer Company and T. S. Teuscher in the way of overdrafts without first having them approved by the discount committee and in failing to have the board take the proper action in reference to- these matters.
“Messrs. Marks and Klages, from January 1,1891, to February 27, 1897, knew of the conduct of the cashier in allowing overdrafts to customers as he saw fit; they knew all about the bank engaging in the coal business and assisted in embarking it in the enterprise. Klages, as cashier of the coal company, drew the money out of the bank which it invested in this enterprise. They knew about the overdrafts of the Nolte & Dolch Fertilizer Company, Schwartz Brothers Commission Company and T. S. Teuscher, though they did not know of the defalcation in July and August, 1894, until
“ None of the committee or directors ever made any formal report to the hoard showing the illegal conduct of the cashier in allowing overdrafts or the condition of these four accounts and took no steps to have the cashier I’emoved or to cause him to amend his conduct. They practically left the management of the hank to the cashier, president, except in the matter of discounting paper, which was done by the discount committee.
“In the absence of any evidence to the contrary the referee finds that the discount committee was not chargeable with any neglect in the matter of discounting any note or notes in the account of the Schwartz Brothers Commission Company. They were all secured by collateral. In the absence of any evidence to the contrary and as to the value of said collateral, the referee finds that they were well secured and that the discount committee acted with proper care and prudence in their action as a board in accepting and discounting them. But the referee finds that though the overdrafts were taken up from time to time by good notes and the overdraft at the close of the bank was only $3,566.40, the cashier disregarded all rules of prudence in reference to the entire overdraft account of this company. That the company owed the bank $3,566.40 at its close was due to his gross carelessness.
“The discount committee, though charged only in the by-laws with the duty of discounting paper, were looked upon and acted as the managing committee of the bank. They had full opportunities to know the condition of the large accounts of the bank and especially the account of the Consumers Coal Company, Schwartz Brothers Commission Company, Nolte & Dolch Fertilizer Company and T. S. Teuscher. If they did not know the history and the condition of these accounts, their ignorance was the result of gross neglect. They
“The president from time to time objected to the conduct of the cashier in assuming to loan the money of the bank in the shape of overdrafts. He frequently made these objections and instructed the cashier to have the overdrafts made good and not allow any more. This was specially true in regard to the overdrafts of the Consumers Coal Company, Schwartz Brothers Commission Company, Nolte & Dolch Fertilizing Company and T. S. Teuscher.
“ Klages and Marks both admitted that they knew of this course of conduct of the cashier, and that they themselves frequently spoke to the cashier about it, but he persistently ignored all instructions and warnings all the time, from January 1, 1891, to the close of the bank. They were ignored almost daily to the knowledge of the president and the members of the discount committee and also of the examining committee, yet the president did not remove the cashier nor did the president and members of the committee ever bring the matter to the attention of the board of directors, or take any steps to remove the cashier, or to cause him to desist from such illegal actions in loaning the money of
This is a sufficient reference to the findings of the referee to indicate the correctness or incorrectness of his conclusion of law.
OPINION.
The conclusion of the referee, as disclosed in his report, is that the appellant in this cause was guilty of such negligence in the discharge of the duties imposed upon him by reason of the position he occupied in the hank, as rendered him liable to the plaintiff, who is the representative of the bank corporation.
The proposition confronting this court upon this appeal is simply narrowed down to the one question: Are the conclusions of law, by the referee, predicated upon his finding of facts, correct or incorrect?
The referee in this cause, after referring to the essential allegations in the first count in the petition upon which this judgment is based, proceeds in his report, as applicable to this case, to state his conclusions. They are thus clearly stated:
“The referee is of the opinion that the general charges of negligence are confined to the specific charges of negligence made in reference to the accounts of the Consumers Coal Company, Nolte & Dolch Fertilizer Company, Schwartz Brothers Commission Company and T. S. Teuscher. [Waldhier v. Railroad, 71 Mo. 514.]
“All of the parties acted upon this theory,- as no attempt was made to establish negligence in reference to any other particular account than the four accounts above specified. To this count the defendants pleaded the general denial and the five-year statute of limitations running from April 2, 1893.
“The referee holds that this being an action for negligence the five-year statute of limitations is well
“The question then on the first count is whether the defendants are liable for the losses to the hank on these four accounts accruing since the second of January, A. D. 1893.
‘‘ The first question to he solved is, what is the degree of care which the directors of .a bank are bound to exercise in the performance of their duties ? They may he liable for misfeasance or positive and active wrongdoing, or nonfeasance, the passive neglect to perform their duty.
‘‘ There is a marked difference between the duty which the directors of a bank owe to the bank and that which they owe to strangers or creditors. Much of the cqnfusion in the cases will be removed, if they are examined with this distinction kept thoroughly in mind. In some of the cases the two duties have been hopelessly confounded.
“The relation of a corporation to a depositor is that of debtor and creditor arising from contract. Aside from statutory liability, which creates an individual cause of action in favor of creditors as a class, the directors of a corporation are not liable to creditors for mere nonfeasance. Aside from .statutory liabilities they are not liable individually to depositors for mere nonfeasance. ‘Nothing short of active participancy in,a positively wrongful act intendedly operating injuriously to the party complaining (creditor) will give origin to individual liability.’ [Fusz v. Spaunhorst, 67 Mo. 264.] Judge Marshall, in a very able opinion rendered in the case of Utley v. Hill, 155 Mo. 259, said: ‘The relation of a depositor to a bank is that of ordinary debtor and creditor. “The relations
“Doubtless in a proper case the creditors might bring a suit in equity to subject to the payment of their demand claims of the corporation against directors for nonfeasance. But such a suit would be like any other suit to reach other older assets of the bank. Such a suit would be really prosecuted in the right of the bank. In this sense the receiver represents the creditors as
‘ ‘ The referee is of the opinion that the evidence in support of the first count does not show a case of fraud or such gross negligence as amounts to fraud or willful neglect of duty and that there is shown in this count no individual liability of the defendants to the creditors.
“If there is any action at all against the defendants it arises from a mere omission to perform their duty.
“Nonfeasance consists in passive neglect to exercise the proper degree of care of directors in the performance of their duty.
‘ ‘ The referee is of the opinion that the directors of a hank are not to he charged as strict technical trustees. In a certain sense they are undoubtedly to be considered trustees, but only in that sense in which an agent or bailee entrusted with the care and management of property is considered a trustee. A director more nearly resembles a managing partner. [Spering’s Appeal, 71 Pa. St. 11.]
“The degree of care directors, are bound to exercise can not be better stated than in the opinion of Chief Justice Puller in the leading case of Briggs v. Spaulding, 141 U. S. l. c. 150: ‘No one of the defendants is charged with the misappropriation or misapplication of, or interference with, any property of the bank, nor with carelessness in respect to any particular property; but with the omission of duty, which, if performed, would have prevented certain losses, in respect of which complainant seeks to charge them. . . . Treated as a cause of action in favor of the corporation, a liability of this kind should not lightly be imposed in the absence of any element of positive misfeasance, and solely upon the ground of passive negligence,- and it must be made to appear that the losses for which defendants are required to respond were the natural and necessary consequences of omission on their part.
“Judge Hughes said in Trustees v. Bosseiux, 3 Fed. 817; s. c., 4 Hughes 387: ‘If, by reckless inattention to the duties confided to them by their corporation, frauds and misconduct are perpetrated by officers, agents, and codirectors, which ordinary care on their part would have prevented, then, I think it may be said with truth that it is now elementary law, to be found in all the books, that directors are personally liable for the losses resulting, i. e., for gross negligence, or what the jurists call crassa negligentia.’ [Stapleton v. Odell, 47 N. Y. Supp. 15; Savings Bank v. Caperton, 8 S. W. 885.]
“The referee is of the opinion that the director of a bank is only required to act in good faith and to exercise such a degree of care as a reasonably prudent man would exercise under the same circumstances., He is not bound to exercise the same degree of care which a prudent man would exercise in his own business. This
“ A director is expected to attend the meeting of the board with reasonable regularity and to exercise a general supervision and control. Pie is not required to know the details or contents of the books and papers. ‘ The framers of the organic and of the statute law must be held to have understood how the business of a bank is conducted. They must have known that the directors are drawn from the busiest men in the community; men who have carved success out of chaos, who have succeeded where the great multitude have failed; men who are not expected, and could not afford, to give their whole time to the business of the bank. The lawmakers knew that the active management of a bank usually devolves upon the president and cashier, and that to the latter is usually entrusted the management of the details. They knew that few directors had the time, and fewer still the capacity, to examine the books of a bank and ascertain its solvency; that even in their own business they could not take off a trial balance from the books they employed experts to keep for them, either because they had not the time to do so for themselves or because they did not have the capacity to do so.’ [Utley v. Hill, 155 Mo. l. c. 265; Queen v. Hincks, 10 Cent. L. J. 127 (cited in Thompson on Liability of Agents, etc., p. 477); Dunn v. Kyle, 14 Bush (Ky.) 134; Savings Bank v. Caperton, 87 Ky. 306.]
“Upon the orgnization of the Mullanphy Savings Bank by-laws were adopted. These provided for the creation of a discount and examining committee to whom were entrusted the duties of looking after details of the business management. These by-laws were afterwards, in January, 1880, early in the history of the bank, formally ratified by the stockholders. This mode of conducting the business of the bank was well established long before any of the defendants became members of the board. It is too late now to charge that it was not proper.
“The directors of a bank should exercise the greatest care and prudence in appointing the president, cashier and the members of the managing committee, and having used such care to select honest and capable men they can not be held liable as insurers of their fidelity. [Clews v. Bardon, 36 Fed. 621.]
“In the case of Percy v. Millaudon, 8 Mart. N. S. (La.), 68, cited with approval by the plaintiff in his brief, the court said: ‘If nothing has come to their knowledge to awaken suspicion of the fidelity of the president and cashier, ordinary attention to the affairs of the institution is sufficient. If they become acquainted with any fact calculated to put prudent men on their guard, a degree of care commensurate with the evil to be avoided is required, and a want of that care certainly makes them responsible.’ [Williams v. McKay, 40 N. J. Eq. 189; Movius v. Lee, 30 Fed. 298.]
“In the absence of any just ground of suspicion
“On this point we can adopt the language of the highest court in this country as applicable to the case at bar with equal force as in the case in which it was used.: ‘They (directors) are not required to adopt any system of espionage over their officers (and committeemen), or to entertain any suspicion without some apparent reason and until some circumstance transpires to awaken a just apprehension of their want of integrity. They have a right to assume that they are honest and faithful. Should any circumstance transpire to awaken a just suspicion of their want of integrity, and it be suffered to pass unheeded, a different rule would prevail.’ [Briggs v. Spaulding, 141 U. S. 9.]
“In treating his conclusion of the liability of the defendants under the facts found, the referee has been guided by the principles of the decision laid- down in the case of Briggs v. Spaulding, supra, rather than by those laid down in the dissenting opinion in that case.
“Mr. Bottman was the president of the bank. He knew, and if he did not know, he could have known by the exercise of the slightest attention to his duties, the whole history of the account of the Consumers Coal Company with the bank and that the bank was carrying on a coal business which was like a rat hole, into which its money was being poured. The conduct of Bottman and of all the other parties who permitted the bank to invest the money which it did in this company was utterly reprehensible. It was entirely illegal to permit the bank to carry on this business one day, after there had elapsed a reasonable time to enable the bank to dis
“The statutes of Missouri expressly forbid that the money of a bank should be invested directly or indirectly in any trade or commerce.
“This statute is merely declaratory of-the common law. The statute provides ‘that banks may sell all kinds of property which comes into its possession as collateral security for loans,’ etc. This implies that a sale should be made within a reasonable time. The bank purchased all the stock of the Consumers Coal Company in 1889. Certainly it should have disposed of the property and wound up its business, if it was necessary to conduct the business at all, long prior to 1893. The referee thinks that the defendant Rottman, owing to his gross neglect of duty as president of the bank, is liable for all money which the bank invested in this business between the second day of April, 1893, and the sixteenth day of April, 1896, when it wound up the business of the coal company, thus putting an end to the loss. The indebtedness of the coal company on April 16,1896, was $159,611.85; on April 2,1893, it was $106,944.81. There was an increase, therefore, in the indebtedness between those dates of $52,667.04.
“The referee is of the opinion that J. H. Rottman is liable for this increase, to-wit, the sum of $52,667.04. He is also of the opinion that the pleadings are sufficient to support a judgment in his view that the investment of the money lost in this coal business was illegal. The money drawn by the coal company took the shape of overdrafts. The pleadings allege that the defendants negligently permitted these overdrafts. The fact that the overdrafts were illegal is consistent with and tends to sustain the allegation that the defendants were negligent in permitting thenh
‘‘ There is no evidence that there was any negligence of the defendants in reference to the original in
‘‘ The referee is of the opinion that defendant Rottman is liable for the overdraft of $3,566.40, which existed against Schwartz Brothers Commission Company, at the close of the bank, but that he is not liable for the overdrafts of this company, as they were afterwards fully settled by notes as in the case of Nolte & Dolch Fertilizer Company. For the same reasons which are stated in reference to the latter company Rottman should not be held liable for subsequent losses by the ban!?: on these funded overdrafts. The overdraft of $3,566.40 was allowed after Schwartz Brothers Commission Company was in financial straits and should never have been allowed at all by the cashier.
“The referee is of the opinion that defendant Rottman is liable for the amount of the overdrafts existing on account of T. S. Teuscher at the close of the bank, to-wit, $944.20. It occurred after the defalcation transaction, and after Teuscher was in desperate financial straits. It was made by the cashier and should never have been permitted.
“For the same reasons stated in reference to the defendant Rottman, the referee is of the opinion that defendants, Klages and Marks, are liable for the the same amounts for which the defendant Rottman is liable. ’ ’ ;
It is made apparent from the expression of the views of the referee that he bases his conclusion of liability of the defendant Klages, who was one of the directors of the Mullanphy Bank, as well as a member of the discount and examining committee of said corporation, upon the gross negligence and inattention to the duties imposed upon him by reason of his relative position to the bank.
In support of his. legal conclusions, the referee cites one of the leading cases upon the subject — Briggs v. Spaulding, 141 U. S. 132 — in fact, he expressly states that he was guided in his legal conclusions, as to the liability of defendants, by the principles announced in that case.
We have given the legal conclusions reached by the referee our most careful attention, have considered the authorities cited by learned counsel for appellants and respondent in their able and exhaustive briefs now before us, and we are of the opinion that his conclusions, based upon his finding of the facts, are correct.
This court has plainly indicated its views upon this proposition. In Bank v. Hill, 148 Mo. l. c. 392, Burgess, J., in discussing the conduct of the directors in that case said:
“And while it is not pretended that they misappropriated any of the funds of the bank, or that they were guilty of any fraudulent conduct, they were guilty of gross neglect in leaving the entire management of the business of the bank to the cashier. And it is no excuse for the want of diligence to say that they had no benefit from it, and that their services were gratuitous,
While in that case it will be observed that the court held that the directors were not liable in the suit of the general creditor, during the course of the opinion, the clear announcement of the rule, as applicable to this case, was made. It was there said: “The directors having been guilty of negligence in the discharge of their duties by reason of' which losses were sustained by the bank, they were liable in an action at law to the corporation while a going concern for losses due to such loans, or to the assignee after the assignment, or in equity to the stockholders, in the event of the declination of the assignee to bring suit.”
This case was approved in Utley v. Hill, 155 Mo. l. c. 259. Marshall, J., speaking for the court in that case, after pointing out the relation between the creditor and the bank, citing Briggs v. Spaulding, 141 U. S. 132, and Bank v. Hill, supra, said:
“Accordingly, it was held in Bank v. Hill, supra (which was a suit by the creditors of the same bank against these same defendants to recover the deposits lost by the expeditors by reason of the negligence of the defendants in managing the affairs of the bank), that there could be no recovery by depositors against directors of a bank because of the negligence of the directors in managing the affairs of the bank; that the directors are liable for negligent performance of duty to the bank, or to its assignee, or to a receiver thereof, but not to the creditors, because of want of privity of contract or duty between them.”
In view of these plain expressions of this court upon the proposition of liability of directoi-s for negligence in the management of the business of the bank, we deem it unnecessary to burden this opinion with a review of all the authorities on this subject; it is sufficient to say that the conclusion reached in this cause is
It is contended by appellant- that there was a fatal variance between the allegations of the petition and the proof so far as it refers to the indebtedness of the Consumers Coal Company in this, that the averment relates to negligence, and the proof, if any, is that of intentional injury. We are unable to give our assent to this contention. It will be noted, that even after the purchase of all the stock of the coal company a separate existence of the two corporations continued. The investment of money by the bank in the coal business was illegal and the illegality of that investment was accomplished through overdrafts, and the negligence complained of is in permitting these overdrafts. The overdrafts were illegal and it was negligence in the management of the bank, with full knowledge of the business of the coal company, to continue to recognize and honor them. While the referee finds that the investment of the bank in the coal business and the carrying on of that business was illegal, and so far as those acts were concerned, were intentional, yet he does not, find that the injury resulting from such acts was intentional and willful, but simply the result of negligence.
In other words, the finding, in effect, is that there was no dishonesty practiced in the transaction with the coal company; but that in permitting the overdrafts in view of the surrounding conditions of the coal company there was, in fact, gross negligence. The referee, in his conclusions, finds that the pleadings were sufficient to support a judgment and he says, “That the investment of the money lost in this coal business was illegal.
We are of the opinion that this conclusion was correct, and that there was no variance in the proof and the averment in the petition respecting this subject.
It is unnecessary to pursue this subject further; the conclusions reached by the referee, upon the other accounts involved, were correctly based upon his finding of the facts, and finding no reversible error in the action of the trial court in approving the report of the referee and entering judgment in accordance with the facts found by him, the judgment should be affirmed, and it is so ordered.