Pocomoke City National Bank v. Crockett

⁴³⁷ Adkins, J., delivered tlie opinion of the Court. The bill of complaint in this case was filed by James M. Crockett, receiver for the Pocomoke Building and Loan Association, against Robert J. Lambden, John W. Ennis, J. Harry Young, Willard J. Stevenson, Joshua hi. Miles, attorney for John W. Ennis, and the Pocomoke City National Bank of Pocomoke City, Maryland. The bill alleges the appointment of Crockett and one Charles O. Melvin as receivers of said association, in a suit of certain creditors against the association; the qualification of said receivers and the taking possession by them of the books and other assets of said association, and the subsequent death of Melvin, leaving Crockett as the surviving receiver.

It further alleges that said association was incorporated on the 18th day of April, 1803, under the general incorporation laws of the State, and organized by the directors named in the certificate of incorporation, and that bylaws were adopted, a copy of the certificate of incorporation and of the by-laws being' filed as exhibits; that on September l+th, 1020, the defendants, Ennis, Lambden, Young, and Stevenson, “acting or claiming to ad as directors of said corporation,” undertook to execute on behalf of said association a promissory note payable to the order of the defendant, the Pocomoke City National Bank, on demand, for the sum of nine thousand dollars; that said note was signed by said Robert J. Lambden, as secretary, and delivered to said Pocomoke City National Bank, but the said Pocomoke Building and Loan Association received no part of any of the proceeds of said note from said bank; “that on the contrary, your orator is advised, and believes, and, therefore, charges that the said note signed by the said Robert J. Lambden as secretary aforesaid was used by the said defendant, John W. Ennis, who was then and there also cashier of the said Pocomoke City National Bank, to replace in said bank either the personal obligation of the said John W. Ennis or .of the partnership composed of the said John W. Ennis and others trading under the firm name of I. II. Merrill ⁴³⁸ Company, and that the said Ennis or his aforesaid partnership, * * * received the whole of any consideration that was paid by said bank on said alleged note; that at or about the time of the delivery of said alleged note to the Pocomoke City National Bank as¡ aforesaid, the said Ennis deposited with the said Robert J. Lambden, acting or claiming to act as secretary of said Pocomoke Building and Loan Association, a note executed by the said John W. Ennis and Minnie M. Ennis, his wife, under date of September 4, 1920, payable to the order of the Pocomoke City National Bank for the sum of ten thousand dollars, which said note bears the endorsement T. H. Merrill Company/ which shows a credit of one thousand dollars under date of September 14, 1920, the original of which said note, which has come into the possession of your orator from the hands of the said Robert J. Lambden, is herewith filed,” etc.; that in or about the month of January, 1922, numerous creditors of said Ennis and wife and of said company discovered that they and it were insolvent, and by agreement Joshua W. Miles, as attorney for the said John W. Ennis, was authorized to collect all the assets of said Ennis and wife and of said company, and to distribute the same among the creditors in the order of their legal priorities, and that said attorney has made such distribution on the basis of twenty-m’ne per cent.; that plaintiff, without full information as to who was the lawful holder of said last mentioned note, has filed a copy thereof with said attorney so that it should receive its proper distributive share from the proceeds of the property of said debtors, and that said attorney now has in hand and has tendered himself ready to pay over on account of said note to the party legally entitled to the same the sum of $2,990.32; that there have been payments made to said bank on the note signed by Lambden as secretary of said association, by said Lambden “by and with the advice, authority, and consent of the said Ennis, Stevenson, and Young, claiming to act as directors of said building and loan association,” as follows: April 13, 1921, $1,300.00; May 4, 1921, $650.00; May 18, 1921, ⁴³⁹ $400.00; July 19, 1921, $900.00; Dec. 6, 1921, $550.00; Feb. 8, 1922, $650.00; Feb. 22, 1922, $475.00; March 9, 1922, $66.87; that the said Ennis, Lambden, Stevenson, and Young, claiming to act as directors of said association, were without authority under the charter and by-laws of the said association to bind it by any obligation such as was attempted in the said alleged note, and that said bank, through its cashier, the said Ennis, knew of the absence of such authority; that said note was issued solely for the use and benefit of the said Ennis, and given to the said Ennis to enable him to obtain credit or money thereon from said bank, all of which was known to the said bank through its cashier, Ennis ; that said note, having been issued for the purpose aforesaid, is void, and all money belonging to said association paid on account thereof was wrongfully appropriated by said parties claiming or pretending to act as directors of said association; that the total assets of said association at the time of the execution of said note amounted to little more than double the amount of said note, and “that if the said Lambden, Ennis, Stevenson, and Young had authority as directors of said building and loan association to lend the credit of the said association to the said Ennis to the extent of nine thousand dollars, or to borrow from the Pocomoke City National Bank such sum of money to be loaned to the said Ennis, who was or claimed to be also the vice-president of the said building and loan association, then such loan under the circumstances aforesaid constituted gross negligence on the part of said Stevenson, Ennis, Young, and Lambden, which has resulted in serious loss to the said association as aforesaid.” The prayer of the bill is: 1. That said note to the bank be declared null and void as against said association. 2. That said Lambden, Ennis, Stevenson, Young and the Pocomoke City National Bank be required to repay to plaintiff the sum of $4,991.87 paid by the said Lambden from the funds of said association on account of said note ⁴⁴⁰ to the bank with interest on the several payments constituting said sum from their respective dates. 3.

That the court decree and determine who may be entitled to said sum now in the hands of said Joshua W. Miles, attorney. 4. For further relief. The bank answered, admitting the original charter of the association as set out in the bill, but averring that said charter was amended by chapter 34T of the Acts of 1906; neither admitting nor denying the allegations as to the organization and adoption of by-laws of the association: admitting the execution of the said note to the bank, but denying that the association received no part of the proceeds thereof, and denying that said note was used by Ennis to replace notes he had with the bank, or that Ennis or the I. IT. Merrill Company received the full benefit of said loan, or any part thereof, and denying that the note for $10,000, dated September 4, 1920, bearing a credit of $1,000 on Sept. 14, 1920, was ever the property of the bank; denying that Ennis, Lambden, Stevenson, and Young were without authority under the charter and by-laws of the association to bind said association by an obligation of the character of the note signed by Lambden as secretary, and that the bank knew at the time it accepted said note that the directors of the association were without authority to execute or to authorize the execution of said obligation; denying that the note was issued for the benefit of Ennis, or to enable him to obtain credit or money thereon from the bank, or that such purpose was known to the bank; averring that if Ennis had any such knowledge, he did not disclose it to any officer or director of the bank; denying that if Lambden, Ennis, Stevenson, and Young had authority as directors of the association to lend the credit of the association to Ennis to the extent of $9,000, or to borrow such sum from the bank to be loaned Ennis, that such loan constituted gross negligence on the part of said directors. ⁴⁴¹ Demurrers were filed by Ennis, Lambden, and Young, which were overruled; whereupon they answered, each denying allegations of the bill in so far as they charged wrongdoing or negligence to him; and all setting up the act amending the original charter*.

Stevenson answered, denying that he was ever a director, or that he had any participation in the transactions referred to in the bill. The answer of Joshua W. Hiles admits that he is holding the amount of money mentioned in the bill and for the purpose therein stated. The bank appealed from the decree holding the note from the association to it null and void; and the receiver took a cross appeal from the ruling that the directors could not be held accountable in this case. The two appeals are in one record.

There is no allegation of fraud in this bill, nor does the evidence disclose the slightest trace of it. The evidence does disclose many irregularities in the method of conducting the business of the association, and a glaring one on the part of the bank in the matter of crediting' the proceeds of the note to it from the association. At the time of the transaction in question there had not been a stockholders’ meeting of the association, so far as the minutes disclose, since July 13th, 1908, and the last recorded meeting of directors was June 25th, 1916. There were meetings of directors from time to time after that, but not regular meetings.

The bylaws provided for the election by the directors of two examiners, whose duty it was “to examine and estimate the value of all properties offered as security for loans or advances and report in writing to the board of directors, and preform such other duties as may be prescribed by the constitution and by-laws or by order of the board of directors.” These by-laws were adopted under the original charter of the association, by which charter its purposes and powers were stated to be “to accumulate a fund for the benefit of its members, to borrow and loan money, to buy and sell real estate, and to do all other acts essential to the proper carry ⁴⁴² ing on of a building and loan association.” By Chapter 347 of the Acts of 1906 the charter was amended in the following respects: The name of the corporation was changed from "The Pocomoke City Building and Loan Association of Pocomoke City, Maryland,” to “The Pocomoke Building and Loan Association”; its; authorized caplital stock was increased, and by section 7 it was provided: “That the following powers and privileges are also granted to said corporation: First, to purchase, invest in and sell any kind and all kinds' of property, real, personal or mixed, and to execute deeds, conveyances, assignments and transfers thereof; second, to receive deposits of money, securities and other property from any person or' corporation, and to accumulate the same, and to issue certificates of deposit therefor, payable at such times and on such terms and allowing such rates of interest therefor as may be agreed upon, not exceeding the legal rate of interest; provided such certificates or bonds do not at any time exceed twice the amount of the capital stock actually paid in; and third, to loan money on promissory notes, bills, obligations or. other evidences of debt, and to borrow money at such rate of interest not to exceed the legal