representation is by conduct and not by express words. If the officer knew, or ought to have known, or through negligence did not know, of the bank's condition he is guilty of the misrepresentation. However in the preceding ways, he made the representation, he will not be heard to say that he did not intend to defraud.5 A bank is not insolvent under this rule as long as it is meeting its liabilities in due course of business and there is an expectation entertained on reasonable grounds of belief by those who are familiar with its business that it will continue to meet its obligations. The action above some courts in their confusion have called negligence or gross negligence, while others have called it the violation of a trust duty which the officers owed to the depositor. But the slightest analysis shows that it is neither, but simply an action of deceit. To such a case, it being a tort committed by the officer against the depositor, the cor called in Ashley v. Frame, 45 Pac. R. 927. There was a statute which was wholly useless and was a correct statement of the common-law principle, yet the court had the hardihood to declare the liability created a penalty. 3 See Rochester Printing Co. v. Loomis, 45 Hun, 93, 120 N. Y. 659. 4 Delano v. Case, 17 Bradw. 531; Baxter v. Coughlan, 72 N. W. R. 797; Cassidy v. Uhlman, 50 N. Y. Supp. 318. Negligence in not know ing is the same as knowledge. Wolf v. Simmons, 23 S. R. 586. The case of Pierrat v. Young, 49 S. W. R. 694, failed to notice this fact. 5 Seale v. Baker, 70 Tex. 283; Giddings v. Baker, 80 Tex. 308; Gerner v. Mosher, 78 N. W. R. 384. But the allegation must show a reliance upon the representation. Baker v. Ashe, 80 Tex. 356. And it seems the allegation must be that the depositor would have withdrawn his deposit, not that he allowed it to remain. Pierrat v. Young, 49 S. W. R. 964; Brady v. Evans, 78 Fed. R. 558. 6 Minton v. Stahlman, 96 Tenn. 98. This case is unsound on an other point. 7 Hodges v. Screw Co., 1 R. I. 312; Savings Bank v. Caperton, 87 Ky. 306. 8 Delano v. Case, 17 Bradw. 531, 121 Ill. 247. It must have been an exceedingly astonishing thing for the attorneys for the plaintiff who carefully drew a declaration based upon deceit, which is an admirable precedent in its way (see 17 Bradw. 531), to find themselves allowed to recover because they sued for a breach of trust. How the court could make such an absurd error in a state where the common law and chancery jurisdictions are kept separate almost surpasses belief. All judges ought to know the remedies for breaches of trust are equitable. poration or its receiver need not be made a party 9 unless the depositor or creditor so injured desires to hold the bank also responsible as a joint tort-feasor. Many and various may be the phases of such an action against officers of a bank, and they would all be governed by the same rule.10 The foregoing principles apply also to national banks. They are wholly independent of statutes, for they exist by force of the common law." The corporation or its receiver has nothing to do with this action.12 § 86. Liability of officers to creditors for negligence and illegal acts.- A bank officer is a trustee for the bank, and in the performance of that trust may be guilty of violations of the trust that make him responsible to the bank, or those officers whose duty it is to supervise the affairs of the bank may, as heretofore seen,1 be guilty of negligence in supervision, whereby the injury to the corporation takes place. Such acts dissipate the property of the bank; its creditors have the right to follow that property, but since it cannot usually be followed, the creditors may by a creditors' bill, enforce their claim upon what the corporation has left, which is simply a right of the bank to hold the officers liable in damages for a breach of trust. Those rights of the bank are choses in action, which are equitable assets in the sense that they are rights to recover for breaches of trust. They are assignable, and survive against the personal representative of the deceased officer. But the judi 9 Solomon v. Bates, 118 N. C. 311; Tate v. Bates, 118 N. C. 287. The court reached a correct result, although it did not seem to understand the nature of the action at all. The text-writers only serve to add to the confusion. 10 The confusion of the text-writers is extreme. Take the case proposed by 3 Thomp. Corp., secs. 4138, 4139. The directors could be sued under this section for deceit. 11 Prescott v. Haughey, 65 Fed. R. 353. The uselessness of statutes upon this matter is apparent. The common law presents a full remedy. Its deficiencies are due to the ignorance of those who apply it. 12 They cannot release the liability. Mallon v. Hyde, 76 Fed. R. 388; Houston v. Thompson, 29 S. E. R. 827; Barnes v. Poque, 29 Wkly. Law Bul. 382; and see § 334, post, note 12. 1 See § 79, ante. 2 Wilkinson v. Dodd, 41 N. J. Eq. cial mind has nowhere shown itself of a higher specific gravity than in dealing with this question. Judges have become confused as to the trust between the bank and its officers and the creditor's right to enforce the trust. Thus some courts have triumphantly demonstrated that there is no trust relation between the bank officers and its creditors, and thought that they have thus disposed of the question;3 but, as a matter of fact, they have not touched it, because the creditor's right is not founded upon a trust, but is based upon his rights to have the bank assets. On the other hand, we find courts insisting that there is a right in the creditor to claim that the bank is a trustee for him, and that in this action he sues for a breach of that trust. But if that is 566; Stephens v. Overstolz, 43 Fed. R. 771. Some courts and law writers may find difficulty, because of the fact that the breach of duty on the part of the officer consists of negligence in the performance of his duties, and hence such a right of action might not be as signable. But this consideration overlooks the fact that the negligence is a breach of trust towards the beneficiary, which is the bank, and the right to recover for a breach of trust was never governed by the rules of the common law, but by the rules of equity. Such rights of the beneficiary were always assignable and are one of the accompanying circumstances of an equitable estate. They not only survive to the heirs of the beneficiary, but they survive against the personal representative of the trustee. No difficulty, therefore, can be met from this phase of the question. 3 Thus Dedrick v. Bank of Commerce, 45 S. W. R. 786, is an admirable disquisition proving that the There officers of a bank are not trustees 4 Marshall v. Farmers' Bank, 85 Va. 676; Savings Bank v. Caperton, 87 Ky. 306; Banning v. Loving, 82 Ky. 370; Conant v. Bank, 1 Ohio St. 298, and Morse on Banking (2d ed.), 133, all show this misconception at its worst. See § 84, ante. These authorities appear to think that this action lies at law, and the law has been so wrenched from its moorings by crude thought upon this subject that the action at law true, the fruits of the litigation would not be assets for the bank, but would belong to the creditors. Again, this right of the creditor can never be insisted upon except when the bank is insolvent, for as long as the bank is able to pay, and does pay, its creditors, no creditor is injured by or can complain of the officer's breach of his duty toward the bank. But the bank being insolvent, two principles come into play: first, the assets ought to be equally distributed among the creditors; and second, the suit being a creditors' bill, all creditors have a right to come into the action, and must come into that action. This fact being conceded, the necessity for a judgment at law and a return of "nulla bona" is dispensed with. Such being the nature of the action, it is quite useless for us to say that without a statute such an action does not lie at law; because no creditor's bill lies at law. But since the right against the officer which the creditor is asserting belongs to the bank, the corporation must be made a party, just as the debtor whose rights are being asserted must be made a party. In the next place, if the bank has an assignee or a receiver, he must be made a party, because the bank's choses in action belong to him; and since he is the custodian of those rights, 8 has been held to lie for this cause of action. In Warren v. Robison, 57 Pac. R. 287, where the suit was by both creditors and stockholders, the court actually proposed contributory negligence as a defense. 5 This follows from the principle stated in § 61, ante; and Cunningham v. Pell, 5 Paige, 607, shows the propriety of bringing the action on behalf of all creditors, because the fruits of the litigation are corporate assets. But the dicta in Collins v. Brierfield Coal Co., 150 U. S. 371, would seem to require a judgment. But a judgment in such a case would be entirely useless. 6 Funz v. Spanhorst, 67 Mo. 256; Vose v. Grant, 15 Mass. 505; Harris v. Dorchester, 23 Pick. 112. And see note 4 to this section. 7 Chester v. Halliard, 36 N. J. Eq. 313. The court of New Jersey has done much to explain this question. 8 Hand v. Atlantic Bank, 55 How. Pr. 231. The case of Solomon v. Bates, 118 N. C. 311, was an action for deceit, and hence was rightly decided. So was the case of Foster v. Bank of Abingdon, 88 Fed. R. 604, rightly decided, because the suit was not by stockholders. The case of Robison v. Warren, 57 Pac. R. 287, inferentially decides otherwise (see note 5 to the preceding section); but the court, in its opinion, displays such an amazing misconception of the nature of this if he is a receiver, an officer of the court, no suit ought to be brought unless he has refused to bring a suit and thus renounced his intention of enforcing the obligation on behalf of the bank. But since a creditor need not make a demand upon his debtor to enforce his choses in action, so the creditor of the bank need not, under the ninety-fourth equity rule, make a demand upon the bank to sue.1o The action being equitable, it should be brought by one creditor on behalf of all." Since the court of equity can mould its decree, the creditor may unite all rights which he is insisting upon, both those which he is enforcing in right of the bank, and rights which he claims on account of fraudulent representations made by the bank officers to his injury.12 The bill is not multifarious, because the defendants are not all equally liable, or are not liable upon the same act.13 The fruits of the litigation where the bank's choses in action are enforced are assets of the bank for the purpose of distribution among its creditors." The laches of the bank would action that it is forced upon us to say that the most charitable construction to put upon that case is that, although it was a bill in equity, the court thought it was a common-law action for breach of duty. 9 Ackerman v. Halsey, 37 N. J. Eq. 356; Hand v. Atlantic Bank, 55 How. Pr. 231; Nelson v. Burrows, 9 Abb. N. C. 280. The case of Ex parte Chetwood, 165 U. S. 443, recognizes the principle as a proper one. Brinckerhoff v. Bostwick, 88 N. Y. 52. And see § 80, note 2, for the principle as applied to stockholders. 10 Foster v. Bank of Abingdon, 88 Fed. R. 604. The reasoning of the court is absolutely beside the question. So it is in Solomon v. Bates, 118 N. C. 311; Tate v. Bates, 118 N. C. 287, but they are correctly de cided. See, however, the authorities in the last note; and Howe v. Barney, 45 Fed. R. 668; National Ex. Bank v. Peters, 44 Fed. R. 13, say the suit cannot be brought by creditors at all if there is a receiver. But see last note. 11 Cunningham v. Pell, 5 Paige, 607, and note 5, supra. 12 Foster v. Bank of Abingdon, 88 Fed. R. 604; Tate v. Bates, 118 N. C. 287; Solomon v. Bates, 118 N. C. 311. But it is wrong to permit such joinder, because of the difficulty of dividing by decree assets from what the plaintiffs individually own. 13 Hayden v. Thompson, 71 Fed. R. 60; Stephens v. Overstolz, 43 Fed. R. 771. But see O'Brien v. Fitzgerald, 143 N. Y. 347. 14 Dewing v. Perdicaries, 96 U. S. 193. But see note 12, supra. |