YATES v. JONES NAT. BANK(1907)
Messrs. Halleck F. Rose, J. W. Deweese, and Frank E. Bishop for plaintiffs in error.
Mr. Justice White delivered the opinion of the court:
This writ of error is prosecuted to secure the reversal of a judgment of the supreme court of the state of Nebraska, [206 U.S. 158, 163] affirming one entered by a court of Seward county, in that state, upon a verdict of a jury awarding damages against the defendants below, plaintiffs in error here, because of certain acts charged to have been done by them as officers and directors of the Capital National Bank of Lincoln, Nebraska.
We briefly summarize a statement contained in the opinion of the court below concerning a prior action between the same parties. That action, and three others of like character, brought by different plaintiffs, were begun in a county different from that in which the present one was commenced, and recovery was sought, with one exception, from those who were defendants below in this case, of the sum of a loss occasioned by the insolvency and suspension of the Capital National Bank, a corporation organized under the national bank act. The actions referred to were removed into a circuit court of the United States, and in each a motion to remand was overruled, and in one of the cases (brought by Thomas Bailey) the circuit court sustained a demurrer to the petition and dismissed the cause, and the judgment so doing was affirmed by the circuit court of appeals. 11 C. C. A. 304, 27 U. S. App. 339, 63 Fed. 488. The plaintiffs in the other cases thereupon dismissed their actions and commenced new ones, as also did Bailey, in Seward county, of which the case before us is one. The same persons who were impleaded in the prior actions were made defendants, and in two of the actions one Thompson, a director of the bank, who had not been previously sued, was joined as a defendant. The defendants were sought to be made liable for acts done as officers and directors of the Capital National Bank, although it was not expressly alleged that the bank was organized under the national bank act. Reliance in each action was placed upon alleged untrue written and oral statements and representations of the financial condition of the bank, alleged to have been made and published by the defendants, which were fully set out in various forms of expression, but in none of the averments was it specifically asserted that the acts in question were done in consequence of and in com- [206 U.S. 158, 164] pliance with the provisions of the national bank act, although the exhibits attached to the petition disclosed the character of the written reports, which were in part relied upon. The state court overruled an application to remove, and, a transcript of the record having been filed in the circuit court, on motion the action was, by that court, remanded to the state court, upon the ground that the petition was 'clearly based, not upon the provisions of the national banking act, but upon the liability claimed to arise under the principles of the common law.' See Bailey v. Mosher, 74 Fed. 15.
An amended petition was filed, changing somewhat the averments originally made, and supplementing the same by new allegations. After a considerable lapse of time a second amended petition was filed. This latter enumerated many acts of negligence and mismanagement in the conduct of the affairs of the failed bank charged to have caused its insolvency, in addition to the averments which had been made in the original petition. The defendants demurred on the ground of want of jurisdiction, because the result of the pleading as amended was to demonstrate that the whole cause of action relied upon was based upon the violation by the defendants of provisions of the national bank act, and because, under that act, no cause of action in favor of the plaintiff was stated. The day the demurrer was filed the action was removed by the defendants to the circuit court of the United States. That court overruled a motion to remand (see Bailey v. Mosher, 95 Fed. 223), and subsequently the court sustained the demurrer and dismissed the action. Reviewing the action of the circuit court, however, the circuit court of appeals held that in any event the removal had been made too late, 'and that the judgment of the lower court dismissing the plaintiff's case was rendered without lawful jurisdiction over the case.' 46 C. C. A. 471, 107 Fed. 561. As a result the case went back to the state court, and in that court the demurrer to the second amended petition was argued and overruled.
There was judgment against Stuart, one of the defendants [206 U.S. 158, 165] for failure to answer the original petition, and this judgment was affirmed by the supreme court of Nebraska. Stuart v. Bank of Staplehurst, 57 Neb. 570, 78 N. W. 298. A separate answer to the second amended petition was filed on behalf of the defendant Thompson and a joint answer on behalf of the defendants Yates and Hamer. In the answer of Thompson it was averred that, while a stockholder, he was not a director of the Capital National Bank at the time the plaintiff made its various deposits; it was denied that any of the reports set out and referred to in the petition were signed or attested by Thompson, and specifically for himself he denied 'all alleged misconduct and mismanagement of said bank on his part, and all of the alleged neglect of duty and the causing of the insolvency of said bank, as charged in the said amended petition.'
The following paragraph was also set up in the answer:
Matter alleged to constitute an estoppel against the further prosecution of the action, and to operate as a bar to recovery, [206 U.S. 158, 166] was set up in special defenses, which need not, however, be further noticed.
The answers of Yates and Hamer were similar in effect to that of Thompson, except as to the allegation that Thompson was not a director when the plaintiff made his deposits.
The cause was put at issue. Before the trial three of the defendants- Walsh, Hamer, and Phillips-died, and the action was revived against the administrator of Walsh and Hamer, but was not prosecuted further against the estate of Phillips. The companion actions brought by different plaintiffs were tried with the case at bar by a jury, and there was verdict against all the defendants then before the court, upon which judgment was entered except as to the administrator of Walsh, in whose favor judgment was entered by the court upon special findings as to him made by the jury. After the correction of an error in the amount of the judgment the case was taken to the supreme court of Nebraska, where the judgment was affirmed. 105 N. W. 287. This writ of error was then sued out, apparently on behalf of all the defendants. We assume, however, that Charles W. Mosher and R. C. Outcalt, two of the defendants below, have abandoned the prosecution of the writ. We so assume because no cost bond appears to have been furnished by either; because neither has appeared at the bar by counsel and no brief in their behalf has been filed, and, on the contrary, in the brief of the defendants in error it is stated that the persons named did not prosecute error, which we take to mean that the parties referred to have abandoned in this court the prosecution of the writ of error which was sued out in their names, and because the bill of exceptions does not contain the answers of those defendants nor the evidence relating to their case, which would be pertinent to consider if we were called upon to determine whether prejudicial error was committed as to them. None of the remaining plaintiffs in error were officers of the bank, and they were sued simply for acts done as directors thereof. [206 U.S. 158, 167] A motion to dismiss first requires attention. The asserted want of jurisdiction in this court in based upon the contention that no Federal question was raised in or decided by the state court. But, as will hereafter appear, the record plainly shows that both in the trial and appellate courts an immunity was claimed under 5239 of the Revised Statutes (U. S. Comp. Stat. 1901, p. 3515), at least in respect to the rule of liability applied below, and such immunity was expressly denied by the state court, and there is, therefore, jurisdiction, even if, in other respects, jurisdiction might not be exercised, as to which we are not called upon to decide. Schlemmer v. Buffalo, R. & P. R. Co. 205 U.S. 1 , 51 L. ed. 681, 27 Sup. Ct. Rep. 407; Tullock v. Mulvane, 184 U.S. 497 , 46 L. ed. 657, 22 Sup. Ct. Rep. 372; Metropolitan Nat. Bank v. Claggett, 141 U.S. 520 , 35 L. ed. 841, 12 Sup. Ct. Rep. 60; Logan County Nat. Bank v. Townsend, 139 U.S. 67 , 35 L. ed. 107, 11 Sup. Ct. Rep. 496.
To dispose of the controversy presented by the record before us we need only consider the following assignments of error:
The basis for these assignments is found not only in instruction given by the trial court, but in refusals to give instructions asked by the defendants. The instructions given, which are pertinent to the assignments, and which were duly excepted to below, read as follows:
Of the instructions refused, to which exceptions was taken, we need only quote the following:
Concering the cause of action and the proof required to justify a recovery, the supreme court of Nebraska said:
... * *
It is not to be doubted that, although the plaintiff alleged the making of false verbal and written statements, there was no attempt to establish any verbal misrepresentations. It is [206 U.S. 158, 171] also certain, even if it be conceded, arguendo, that there was some evidence tending to show the making of alleged written representations other than those contained in the official reports made by the association to the Comptroller of the Currency, and published in conformity to the national bank act, that such latter statements were counted upon in the amended petition, and were, if not exclusively, certainly principally, the grounds of the alleged false representations covered by the proof. Under this state of the record, irrespective of the nature and extent of the proof required to maintain an action of deceit at common law, the question is: Did the supreme court of Nebraska rightfully decide that the plaintiff was entitled to recover against the defendant directors upon proof merely of the following facts: '(1) That the defendants published the statements purporting to show the financial condition of the Capital National Bank or participated in the publication thereof; (2) That such statements were false; (3) That the plaintiffs severally relied upon such statements and believed them to be true, and were thereby misled, to their injury?' And the exact import of the propositions which were thus stated by the court below and were made the test of the right of the plaintiff to recover is plainly shown by an opinion of the Nebraska court cited in its opinion in this case; viz., Gerner v. Mosher, 58 Neb. 135, 46 L.R.A. 244, 78 N. W. 384, which involved the liability of the directors of the very same national bank with whose failure this record is concerned. The court said:
... * * [206 U.S. 158, 172] 'In our view, whether the attesting directors possessed knowledge of the falsity of their reports is wholly immaterial. They were in fact false and untrue, and those who deposited money with the bank, or who purchased stock of the corporation, in reliance upon the truthfulness of the contents of those reports, were as much deceived and damaged thereby as though the directors, when they signed the reports, knew them to be false. That they were innocent of the true situation or condition of the affairs of the bank is wholly an unimportant consideration, since proof of a scienter is not necessary to a recovery. This court has frequently asserted that, to maintain an action for false representations, it is not essential that it be shown that they were intentionally or knowingly made by the defendant. This is the rule in ordinary causes, and no valid reason can be suggested or pointed out why the same principle should not apply in actions for deceit against the directors of a banking corporation. Certainly no case has come under out observation which has made an exception in their favor.'
The proper solution of the question above propounded necessitates a consideration of the legislation of Congress respecting national banks.
By 24 of the national bank act of February 25, 1863 (chap. 58, 12 Stat. at L. 665, 671), each association was required to make and forward to the Comptroller of the Currency quarterly reports, containing 'a true statement of the condition of the association making such report,' in respect to enumerated items, and it was provided that such report 'shall be verified by the oath or affirmation of the president and cashier, and all wilful false swearing in respect to such report shall be perjury, and subject to the punishment prescribed by law for such offense.' It was made the duty of the Comptroller to publish full abstracts of such reports, as to specified items, in newspapers printed in the cities of Washington and New York, 'and a separated report of each association' was required to be published, at the expense of the association, in a newspaper [206 U.S. 158, 173] published in the place where such association was established. Associations located in a number of the leading cities were also required to publish, in a newspaper published where the association was located, a statement, under the oath of the president or cashier, of the condition of the association, showing the average amount of loans and discounts, specie, deposits, and circulation. By 45 the cashier of each association was required after each dividend to make, under oath, 'a full, clear, and accurate statement of the condition of the association,' sociation,' enumerating specified particulars, which statement was to be forthwith transmitted to the Comptroller of the Currency. The national bank act of June 3, 1864 (chap. 106, 13 Stat. at L. 109), substantially reenacted, in a much condensed form, the requirements as to quarterly reports of the financial condition of each association. The abstract of such reports was required, however, to be published by the Comptroller only in the city of Washington, and every association was required to make a monthly statement of its condition under the oath of the president or cashier. For each day after five days' delay in making a report each bank was made liable to a penalty of $100. The act of 1864 did not contain a requirement for the making and transmittal to the Comptroller of a statement following the declaration of a dividend.
By an act approved March 3, 1869 (chap. 130, 15 Stat. at L. 326, U. S. Comp. Stat. 1901, p. 3498), in lieu of the reports required by the national bank act of 1864, it was made the duty of each association, on the requisition of the Comptroller, to make not less than five reports in each year. These reports were not only required to be verified 'by the oath or affirmation of the president or cashier of such association,' but to be 'attested by the signature of at least three of the directors.' Publication of such reports was required to be made in a newspaper published in the place where the association was established, and a penalty of $100 for each day's delay after a specified time in making and transmitting the report was authorized to be retained by the Treasurer of the United States out of interest due the associa- [206 U.S. 158, 174] tion. Each association was also required to make a report, attested by the oath of its president or cashier, whthin ten days after the declaration of a dividend, stating the amount of each dividend and the amount of net earnings in excess of such dividends.
As embodied in the Revised Statutes the provision became 5211 (U. S. Comp. Stat. 1901, p. 3498), and is copied in the margin. 1
By 39 of the act of 1863, as well as by 9 of the act of 1864, a director of a national bank was required, inter alia, as he is now required by 5147, Rev. Stat. (U. S. Comp. Stat. 1901, p. 3464), to 'take an oath that he will, so far as the duty devolves on him, diligently and honestly administer the affairs of such association, and will not knowingly violate, or willingly permit to be violated, any of the provisions of this title.' In the acts of 1863 and 1864 the concluding word used was not 'title,' but 'act.'
Sections 50 and 52 of the act of 1863 (12 Stat. at L. 679, 680, chap. 58) were practically identical, and 53 and 55 of the act of 1864 (13 Stat. at L. 116, chap. 106, U. S. Comp. Stat. 1901, pp. 3515, 3497) were also substantially alike, and by those sections civil and criminal liabilities were authorized to be assessed against and imposed upon directors of banking associations in certain contingencies. Section 52 of the act of 1863
[206 U.S. 158, 175] and 55 of the act of 1864-as supplemented by the act of April 6, 1869 ( chap. 11, 16 Stat. at L. 7), construed in the act of July 8, 1870 (chap. 226, 16 Stat. at L. 195, U. S. Comp. Stat. 1901, p. 3497), making it an offense to aid or abet an officer or agent of any association in doing the acts prohibited in 55 of the act 1864, with intent to defraud or deceive- became 5209 of the Revised Statutes (U. S. Comp. Stat. 1901, p. 3497). It is copied in the margin. 1
Section 50 of the act of 1863 and 53 of the act of 1864 became 5239 of the Revised Statutes, reading as follows:
It thus becomes obvious that the national bank act imposes upon directors duties which would not rest upon them at common law, and that among such duties is the furnishing to the Comptroller of the Currency reports concerning the condition of the bank and the publication thereof. Although the statutory provisions subsequent to the act of 1863, relating to the making and publishing of such reports, do not, as did [206 U.S. 158, 177] the act of 1863, expressly require that the report, when made, should contain a 'true' statement of the condition of the association, yet, by necessary implication, such is the character of the statement required to be made, and by the like implication the making and publishing of a false report is prohibited.
Considering the text of the national bank act, as now embodied in the Revised Statutes, including 5239, we think the latter section affords the exclusive rule by which to measure the right to recover damages from directors, based upon a loss alleged to have resulted solely from the violation by such directors of a duty expressly imposed upon them by a provision of the act. By the first sentence of the section mentioned a forfeiture of the charter is entailed 'if the directors of any national banking association shall knowingly violate, or knowingly permit any of the officers, agents, or servants of the association to violate, any of the provisions of this title.' And the last sentence ordains the rule by which civil liability is to be determined, by providing that 'every director who participated in or assented to the same shall be held liable in his personal and individual capacity for all damages which the association, its shareholders, or any other person shall have sustained in consequence of such violation.' As the section thus comprehends all the express commands to do or not to do, as to directors, contained in the national bank act, and besides specifies the nature of the conduct of directors from which their civil liability for violation of such commands may arise, it results that liability cannot be entailed upon them by exacting a different and higher standard of conduct as regards such commands than that established by the statute without depriving directors of an immunity conferred upon them. That the words 'shall knowingly violate, or knowingly permit,' etc., found in the first sentence of 5239, Rev. Stat., were intended to express the rule of conduct which the statute established as a prerequisite to the liability of directors for a violation of the express provisions [206 U.S. 158, 178] of the title relating to national banks, is additionally shown by the oath which a director is required to take, wherein, as already stated, he swears 'that he will, so far as the duty devolves on him, diligently and honestly administer the affairs of such association, and will not knowingly violate, or willingly permit to be violated, any of the provisions of this title.' Mark the contrast between the general common- law duty to 'diligently and honestly administer the affairs of the association' and the distinct emphasis embodied in the promise not to 'knowingly violate, or willingly permit to be violated, any of the provisions of this title.' In other words, as the statute does not relieve the directors from the common-law duty to be honest and diligent, the oath exacted responds to such requirements. But as, on the other hand, the statute imposes certain express duties and makes a knowing violation of such commands the test of civil liability, and oath in this regard also conforms to the requirements of the statute by the promise not to 'knowingly violate, or willingly permit to be violated, any of the provisions of this title.'
And general considerations as to the spirit and intent of the national bank act (Easton v. Iowa, 188 U.S. 220 , 47 L. ed. 452, 23 Sup. Ct. Rep. 288; Davis v. Elmira Sav. Bank, 161 U.S. 275 , 40 L. ed. 700, 16 Sup. Ct. Rep. 502) also render necessary the conclusion that the measure of responsibility concerning the violation by directors of express commands of the national bank act is, in the nature of things, exclusively governed by the specific provisions on the subject contained in that act. Thus, a contrary conclusion would lead to a varying measure of responsibility in the several states in which the question of liability might arise, depending upon the conceptions of the state courts of last resort as to the meaning of the act of Congress imposing the duty. Hence, it would follow that the same provision of the statute might mean one thing in one state and a different thing in another. The confusion which would result is aptly illustrated by a review made by the supreme court of Ohio in the recent case of Mason v. Moore, 73 Ohio St. 275, 4 L.R.A. (N.S.) 597, 76 N. E. 932, of the conflicting state adjudications as to the [206 U.S. 158, 179] proper rule to be applied to fix the liability of bank directors to third persons in an action of deceit at common law. The frustration of the public policy embodied in the national bank system by the crippling of the usefulness of such institutions, which would result from holding that directors, in performing the duties imposed upon them by the national bank act, might be held liable civilly, not by the standard of conduct which the act provides for a violation of its express commands, but by another and different one, is apparent. Under such a conception it might well be that prudent and responsible persons would decline to assume the discharge of the duties imposed by the statute because of the hazard of an uncertain pecuniary liability which the statute imposing the duty did not contemplate.
The civil liability of national bank directors, then, in respect to the making and publishing of the official reports of the condition of the bank, a duty solely enjoined by the statute, being governed by the national bank act, it is self-evident that the rule expressed by the statute is exclusive, because of the elementary principles that where a statute creates a duty and prescribes a penalty for nonperformance, the rule prescribed in the statute is the exclusive test of liability. Farmers' & M. Nat. Bank v. Dearing, 91 U.S. 29, 35 , 23 S. L. ed. 196, 199, and cases cited. The error in the decision below becomes at once apparent when its correctness is tested by the rule that the statute is applicable and prescribes the exclusive test of liability. The doctrine, as we have seen, upon which the court below rested its judgment, was that directors of a national bank who merely negligently participated in or assented to the making and publishing of an untrue offical report of the condition of the bank were civilly liable to anyone deceived to his injury by such report. Indeed, in one aspect, the ruling below went further than this, since it was, in substance, decided that, despite the exercise of diligence by the director, if he attested an untrue report he was civilly liable, because he did so at his risk, since it was his duty to know or to refrain from acting. That this imposed a [206 U.S. 158, 180] higher standard of conduct than was required by the statute is obvious, but is clearly also established by previous decisions of this court, pointing out that where by law a responsibility is made to arise from the violation of a statute knowingly, proof of something more than negligence is required; that is, that the violation must in effect be intentional. McDonald v. Williams, 174 U.S. 397 , 43 L. ed. 1022, 19 Sup. Ct. Rep. 743; Potter v. United States, 155 U.S. 438, 446 , 39 S. L. ed. 214, 217, 15 Sup. Ct. Rep. 144, and cases cited. See, also, Utley v. Hill, 155 Mo. 232, 264, et seq. 49 L.R.A. 323, 78 Am. St. Rep. 569, 55 S. W. 1091, and cases cited.
Of course, in what has been said we have confined ourselves to the precise question arising for decision, and therefore must not be understood as expressing an opinion as to whether and to what extent directors of national banks may be civilly liable by the principles of the common law for purely voluntary statements made to individuals or the public, embodying false representations as to the financial condition of the bank, by which one who has rightfully relied upon such representation has been damaged. And because we have applied in this case to the duty expressly imposed by the statute the standard of conduct established therein we must not be considered as expressing an opinion upon the correctness of the views enunciated by the court below concerning the standard which should be applied solely under the principles of the common law, to fix the civil liabilities of directors in an action of deceit. See Briggs v. Spaulding, 141 U.S. 132 , 35 L. ed. 662, 11 Sup. Ct. Rep. 924.
There is a suggestion that the subjectmatter of this controversy is so inherently Federal that, although the judgments of the circuit court and of the circuit court of appeals, remanding the cause to the state court, may not be re-examined (25 Stat. at L. 435, chap. 866, U. S. Comp. Stat. 1901, p. 509), nevertheless it should now be decided that the state court was wholly devoid of jurisdiction. This claim is predicated upon the provision of 5239, Rev. Stat., conferring exclusive jurisdiction on courts of the United States to declare a forfeiture of the charter of a national bank as the result of wrongs committed by the directors, and the contention that a declaration of such forfeiture is a prerequisite to [206 U.S. 158, 181] an action to enforce the civil liability of directors, and that such action could only be brought in the court of the United States after a forfeiture has been adjudged. We content ourselves with saying that we think these contentions are without merit.
It follows from what has been said that, as to Mosher and Outcalt, two of the persons named as plaintiffs in error in the writ and citation, the writ of error is dismissed for want of prosecution; as to the other plaintiffs in error, the judgment below is reversed and the case is remanded for further proceedings not inconsistent with this opinion.
Sec. 5209. Every president, director, cashier, teller, clerk, or agent of any association, who embezzles, abstracts, or wilfully misapplies any of the moneys, funds, or credits of the association, or who, without authority from the directors, issues or puts in circulation any of the notes of the association; or who, without such authority, issues or puts forth any certificate of deposit, draws any order or bill of exchange, makes any acceptance, assigns any note, bond, draft, bill of exchange, mortgage, judgment, or decree; or who makes any false entry in any book, report, or statement of the association, with intent, in either case, to injure or defraud the association or any other company, body politic or corporate, or any individual person, or to deceive any officer of the association or any agent appointed to examine the affairs of any such association; and every person who, with like intent, aids or abets any officer, clerk, or agent in any violation of this section,-shall be deemed guilty of a misdemeanor, and shall be imprisoned not less than five years nor more than ten.