Opinion
12627
April 3, 1929.
Before L.E. CROFT, Special Judge, Anderson, March, 1928. Affirmed.
Action by Bertha A. Fant and Hattie McWhorter Fant, as administratrices with will annexed of O.H.P. Fant, deceased, against W.L. Brissey and others. From an order overruling a demurrer to the complaint, defendants appeal.
The amended complaint is as follows:
"The plaintiffs above named, pursuant to order herein, by their amended complaint, respectively show to the Court:
"(1) That they elect to retain the cause of action in favor of trust estate of A. Davis Fant, in the original complaint as amended herein, and to bring a separate action by leave of the order of the Supreme Court herein, for and in behalf of the trust estate of T. Prue Fant.
"(2) That accordingly, plaintiffs allege, that on or about the 7th day of October, 1902, one O.H.P. Fant, a former resident and citizen of Anderson County, State of South Carolina, departed this life, leaving of force and effect, a last will and testament, which was submitted to probate in the County of Anderson, state aforesaid, on the 7th day of October, 1902, and is a matter of record therein, in Will-Book, No. 6, page 154 et seq., and indexed as part of File No. 4793, in said office, to which reference is craved and may be had.
"(3) That under said will, said O.H.P. Fant, made certain devises from his estate, to his son, Handy B. Fant, in trust, for the use and benefit of his two other sons, one of whom was A. Davis Fant, and under Paragraph VII of said will, the testator specifically charged said trust estate, with the necessity of being invested by the trustee, or his successor, in such property, or good interest-bearing securities, as would suit the several parties best; that he also provided that in the event of death or failure to qualify on the part of any one of the trustees therein designated, then that the Court of Common Pleas, appoint some strong bank, to act or 'direct the investment and management' of said trust estate, by its proper officers. That the said Handy B. Fant, was also nominated and appointed by said testator, as the executor of his said last will, and accordingly, said Handy B. Fant, upon the death of the said O.H.P. Fant, and the admitting of his will to probate, qualified as such executor, and continued to act in said capacity up till the time of his death.
"(4) That the People's Bank of Anderson, S.C. was, on or about the 12th day of January, 1899, organized and chartered under the general laws of the state for the purposes of a banking institution, with an authorized capitalization of two hundred thousand ($200,000.00) dollars, all of which was claimed by the incorporators, as having been paid in full. That said bank continued to do business as such, and in addition thereto, exercised its privileges under the law, to act as guardian, administrator, and as trustee, in certain cases, and that said bank accordingly, applied for, and was granted letters testamentary, de bonis non and with will annexed, of the will of said O.H.P. Fant, deceased, on or about the 15th day of July, 1919, succeeding in said capacity, and to all the liabilities attaching under the will and under the law, to Handy B. Fant, both as administrator and as trustee, for the estate and interest of the said A. Davis Fant.
"(5) That said People's Bank of Anderson, as administrator with will annexed, of O.H.P. Fant, deceased, and as trustee for the interests of A. Davis Fant, received from W.C. Fant, executor for the estate of Handy B. Fant, deceased, moneys, bank stock, mill stock, etc., in the aggregate of ten thousand ($10,000.00) dollars.
"(6) That on May 3, 1921, an annual meeting of the defendants herein as directors of said bank, was held. That at said meeting, it was decided and voted, that on account of the then-existing condition of the bank, the usual dividend to stockholders, would be postponed. That notwithstanding, said directors, the defendants herein, voted a resolution authorizing the officers of the bank, to make loans to the directors of the bank, specifying them by name, and among whom was Lee G. Holleman, at the time, president of the bank and a director. That said resolution was 'blanket' in form, is a matter of record in the Minute Book of the bank, at page 150, to which reference may be had. That said resolution contained no reservation or provision whereby the board of directors were to have submitted in proper form, applications for such loans, and first scrutinize and approve, or disapprove the security offered and the amounts, for which application should be made. That thereafter, and pursuant thereto, the said Lee G. Holleman, borrowed from said bank, from the trust fund held for A. Davis Fant, the sum of $5,565.00 without first submitting his application and such collateral as he cared to offer, and without having had first the approval in writing of two-thirds of the bank's directors, and soon thereafter ended his life and left a hopelessly insolvent estate.
"(7) That at said annual meeting, all former officers and directors of the bank were re-elected to succeed themselves, to wit: Lee G. Holleman, president, H.H. Watkins, vice president, E.P. Vandiver, cashier, T.S. Banister, assistant cashier, Donald E. Brown, assistant cashier, F.L. Tucker, assistant cashier. Directors: E.P. Vandiver, H.H. Watkins, W.L. Brissey, W.H. Tucker, E.P. Gambrell, T.W. McCarley, J.F. Watson, H.V.G. Cooley, L.E. Dean, B.A. Henry, C.C. Jones, W.C. Fant, J.R. Findley and Lee G. Holleman, and with the exception of Lee G. Holleman and T.W. McCarley, since deceased, the defendants herein named, to wit: W.L. Brissey, L.E. Dean, W.C. Fant, J. R. Findley, B.A. Henry, C.C. Jones, H.V.G. Cooley, W. H. Tucker, E.P. Vandiver, H.H. Watkins, J.F. Watson and E.P. Gambrell, are directors of said bank and are individually residents of the County of Anderson, state aforesaid.
"(8) That at the close of business December 27, 1920, the State Bank Examiner, noted and called to the attention of the bank, as a result of his official audit, the following 'excess' loans: Lee G. Holleman, $16,203.19; Lee G. Holleman, 'overdraft' $4,415.77; Lee G. Holleman, endorser for $25,613.54; Overland-Holleman Company, of which it is alleged, Lee G. Holleman, was sole owner and proprietor, $25,000.00. That these obligations had not been reduced or paid at the time of the annual meeting of the directors, May 3, 1921.
"(9) That on June 1, 1921, when the capital of said bank was seriously impaired and when it was totally devoid of actual 'surplus' and when it was heavily involved, and when Lee G. Holleman, its president and one of its directors, was individually and as endorser and as owner of the Overland-Holleman Company, indebted to said bank considerably in excess of what the law of the state, allowed, and pursuant to 'authority' or permission, of the bank's directors at their meeting may 3, 1921, borrowed from the bank, from the fund held by said bank for A. Davis Fant, the sum of $5, 565.00. That he executed to the bank as 'trustee,' his promissory note therefor, of date of said loan, bearing interest at the rate of eight per cent. per annum, and contemporaneously therewith, executed to said bank as 'trustee,' a real estate mortgage as security therefor, said mortgage being without renunciation of dower, and covering far less valuable lands than was represented by the obligations, and 'security,' from which there could, in no event, be realized the face of the loan.
"(10) That other obligations, which together with the obligation to the bank for the said Fant fund as alleged, were secured by mortgages on the same lands. That said lands have been sold by the administrator of the estate of Lee G. Holleman, and the proceeds pro-rated among the creditors holding mortgages thereon. That out of the net proceeds said administrator, paid to the plaintiffs for the credit to the A. Davis Fant-estate fund, the sum of $1,649.37, leaving a balance due plaintiffs for the benefit of said A. Davis Fant-trust estate or fund, $3,915.63, to which extent, the said trust-estate and the plaintiffs as Administratrices and as Trustees, have been damaged.
"(11) That because of serious impairment of the bank's working capital and other resources, its doors were temporarily closed Jan. 17, 1922, and that after a desperate effort to resuscitate itself, the board of directors, by resolution adopted, placed the bank in the hands of the State Bank Examiner for liquidation as an insolvent banking institution, January 5, 1923.
"(12) That some time thereafter, to wit, on or about the 25th of August, 1924, by proper order of Court, the People's Bank of Anderson, in its fiduciary capacity as administrator, etc., with will annexed, O.H.P. Fant estate, and as trustee for the alleged trust estate A. Davis Fant, was removed, and on or about August 28, 1924, the plaintiffs, Mrs. Bertha A. Fant, and Mrs. Hattie McWhorter Fant, respectively, qualified as successors to said People's Bank, and said plaintiffs are now the duly qualified and acting administratrices of said will, and are trustees of said trust estate of A. Davis Fant.
"(13) That plaintiffs have exhausted their other legal remedies herein. They are without remedy against the bank, as such, or against its general assets; these are subrogated to the rights of depositors and other creditors of the bank, and they are without remedy against the bond of the bank, for this is secured only by the statutory and constitutional liability of the stockholders, and all such liability has been made to respond to the demands of the depositors, who under the law, had a superior and exclusive claim thereto. Plaintiffs are accordingly without other adequate legal remedy.
"(14) That in permitting Lee G. Holleman to borrow the sum of $5,565.00 from the trust fund of A. Davis Fant, when he, the said Lee G. Holleman was president of said bank, a director therein, and both individually and as endorser, heavily indebted to said bank; when all his available collateral had been pledged except one small, and comparatively worthless tract of land in Hall township; when the security offered or pledged, was deficient in quantity and value and grossly inadequate; when the bank itself was on the verge of liquidation, and when it was in fact, insolvent; when he, the said Holleman, was indebted, to the directors' own knowledge, to the bank, far in excess of what the law allowed; without requiring that the said Holleman first submit his proposed security with his application for loan, and then having the board of directors, or its loan board, scrutinize and pass upon said application and security, and without having had two-thirds of the directors, approve in writing, said loan; without demanding that said Holleman first furnish good security, as required by the will creating the trust, the directors of said bank, the defendants herein, breached said trust, and willfully and negligently and in disregard of their duties under said trust and the law governing such transactions, directly and proximately caused loss and damage to said trust estate in the sum of $3,915.63, with interest, for which amount, plaintiffs pray judgment against the defendants named, individually, severally, and jointly, in the said sum of three thousand, nine hundred, fifteen and sixty-three one-hundredths ($3,915.63) dollars, with interest thereon, at the rate of eight per cent. per annum from date of note, and for such other and further relief as to the Court may seem proper."
The order overruling the demurrer is as follows:
"This matter came before me for hearing on demurrer to the amended complaint herein, the action under said amended complaint being in behalf of the trust fund of A. Davis Fant, under the will of his father, O.H.P. Fant, deceased.
"It appears that the action, together with that for, and in behalf of the trust fund of T. Prue Fant, was begun under original summons and complaint, of date February 4, 1926, to which defendants, or certain of defendants, demurred. The appellate Court sustained the demurrer on the ground of misjoinder of causes of action, and allowed plaintiffs the privilege of amending the original complaint by striking out one cause of action, and bringing a separate case on remaining cause of action.
"The defendants, excepting H.V.G. Cooley, now demur to this amended complaint upon the alleged ground that the complaint does not set out a cause of action inuring for the benefit of the cestui qui trust, but that if there exist a cause of action arising out of the facts alleged, it is one to be brought for the benefit of the bankrupt estate, and by the bank or its Receiver. After hearing argument, it is ordered: That the demurrer be, and it is hereby overruled, and the defendants named, are given twenty days, exclusive of this date, to answer the complaint."
Messrs. W.T. Allen, and Watkins Prince, for appellants, cite: Creditor of insolvent corporation may not maintain action in nature of creditor's bill to recover assets where not brought for benefit of all parties entitled to share in assets; demurrer proper here: 133 S.C. 446; 145 S.E., 702; 148 S.C. 446; 50 A.L.R., 459.
Mr. S.M. Wolfe, for respondents, cite: "Res adjudicata": Ar. 5, Sec. 8, Const. 1895; 6 Enc. Pr. Pl., 330; Pom. Code Rem. (4th Ed.), 709; 51 S.C. 33; 76 S.C. 193; 34 L.R.A., 326; 1 A.L.R., 1268; 8 A.L.R., 1033; 2 R.C.L., 224; 1 R.C.L. Supp., 460; 4 R.C.L., Supp., 94; 5 R.C.L. Supp., 84. Cases distinguished: 53 S.C. 519; Parties in interest to sue: Sec. 354, Code Proc.; 118 S.C. 446.
April 3, 1929. The opinion of the Court was delivered by
This is an appeal from an order of his Honor, L.E. Croft, Special Judge, overruling a demurrer by the defendants to the complaint.
The action was originally instituted by the plaintiffs, to recover from the directors of the closed People's Bank of Anderson balances due by it, as trustee of Davis Fant and as trustee of Prue Fant. The ground of alleged liability was irregularities in loans of the funds of the trust estate, to Lee G. Holleman, then president of the bank.
Upon a former appeal ( 143 S.C. 264, 141 S.E., 450), it was held that the complaint was demurrable upon the ground of a misjoinder of separate and distinct causes of action; the one involving a tort against the trust estate of which Davis Fant was beneficiary, and the other involving a tort against the trust estate of which Prue Fant was beneficiary. The judgment of this Court was that the order overruling the demurrer be reversed, and that the case be remanded to the Circuit Court, with leave to the plaintiffs to amend their complaint by striking out one of the alleged causes of action and to proceed by a separate action upon the other. Accordingly, the plaintiffs amended their complaint, and elected to retain the cause of action in favor of the trust estate, affecting the interest of Davis Fant beneficiary, and to bring a separate action in favor of the trust estate affecting the interest of Prue Fant beneficiary.
The defendants have demurred to the complaint upon the following ground: "That the Complaint does not state a cause of action in that while plaintiffs seek to enforce an alleged liability of the defendants for their sole benefit, any right of action against the defendants arising out of the acts of negligence and wrong doing alleged in the complaint is one which is vested in People's Bank of Anderson, S.C. or its Receiver, and can only be enforced by said corporation or in its right for the benefit of all those lawfully entitled to an interest in the assets of said corporation."
There can be no controversy as to the proposition that a cause of action against the directors of a bank for losses to the bank, as a result of the negligent mismanagement of the affairs of the bank by the directors, lies in the corporation, as an asset of the corporation, and that a creditor of the bank can sue only in the right of the corporation, after having taken the necessary steps to induce action by the officers of the corporation.
That doctrine is clearly announced in the case of Browne v. Hammett, 133 S.C. 446, 131 S.E., 612.
A distinction, however, is palpable between such a cause of action and one which is inherently a personal claim of a creditor on account of wrong done to him, not to the corporation. The distinction is clearly developed in the case of Killen v. Barnes, 106 Wis. 546, 82 N.W., 536: "There are numerous cases where the distinction has not been clearly recognized, if at all, between a wrong to a depositor of a bank committed by its officers, for which they are personally liable directly to such depositor on the ground of deceit, and a wrong by such officers to the corporation for which they are liable to such corporation and through it to the creditors. Delano v. Case, 121 Ill., 247, 12 N.E., 676 [2 Am. St. Rep., 81], is a good specimen of such cases."
We think that in the present case the cause of action set out in the complaint is one involving a personal wrong to the trustees of the particular trust estate of which Davis Fant is beneficiary. It consists in the alleged negligent conduct of the defendants in authorizing a loan from the bank as trustee of the fund at that time, in which Davis Fant was beneficiary. In this cause of action the bank as a corporation has no interest. If it should be allowed to recover from the directors the money which they unlawfully authorized Holleman as president to lend to himself out of the trust estate, it would naturally inure to the benefit of the trust estate. The circumambulation of requiring a suit to be brought in the right of the corporation, to recover a fund immediately upon recovery to be turned over to the present trustees, appears entirely unnecessary.
The judgment of this Court is that the order appealed from be affirmed.
MR. CHIEF JUSTICE WATTS and MESSRS. JUSTICES BLEASE, STABLER and CARTER concur.