Corsicana National Bank of Corsicana v. Johnson - 251 U.S. 68 (1919)
U.S. Supreme Court
Corsicana National Bank of Corsicana v. Johnson, 251 U.S. 68 (1919)
Corsicana National Bank of Corsicana v. Johnson
Argued January 16, 1919
Decided December 8, 1919
251 U.S. 68
A loan made by a national bank to two persons jointly, or in form one half to each but in substance as a single loan, violates the National Bank Act if in excess of the limit set by Rev.Stats., § 5200, and, in a complaint filed by the bank to recover resulting damages from a director under § 5239, a designation of the borrowers as a firm is descriptive merely, and not essential. P. 251 U. S. 80.
There was substantial evidence in this case from which the jury might find that there was a single, excessive loan to two persons, in making which defendant, as a director of the plaintiff bank, knowingly participated, rather than two loans, neither of them excessive, made to the borrowers severally. Id.
Contingent liabilities incurred by one person avowedly and in fact as surety or as indorser for money borrowed by another are not " liabilities . . . for money borrowed" in the sense of Rev.Stats. § 5200. P. 251 U. S. 82. Cochran v. United States, 157 U. S. 286; Rev.Stats. § 5211, distinguished.
And where the surety signs ostensibly as joint maker, a director who knew and relied upon his suretyship is entitled to prove it when sued under § 5239 for participating in the making of an alleged excessive loan. P. 251 U. S. 83.
A director's liability for knowingly participating in the making of a loan in excess of the limit prescribed by Rev.Stats. § 5200 is not affected by the supposed standing of the borrowers, the propriety of his motive, the continued prosperity of the bank, its failure to sue other officers or directors, or to sue him until after a change in the stockholding interest or control, or by the fact that incoming stockholders purchased their shares with knowledge of the loan and of his alleged liability and may profit by a recovery against him. Id.
An action in Texas by a national bank against a former director under Rev.Stats. § 5239 for damages resulting from an excessive loan
is not barred in two years, but in four. Vernon's Sayles' Civ.Stats. 1914, Arts. 5687, 5690. P. 251 U. S. 85.
The liability imposed upon the director under Rev.Stats. § 5239 is direct, not contingent or collateral; the cause of action and the damages are complete when the money is loaned, and, while the damages may be diminished by what the bank collects from the borrowers, it is not obliged to proceed primarily against them. P. 251 U. S. 86.
The excessive loan being unlawful in toto, the bank's damage in such cases is not measured by the part in excess of what might have been lent lawfully, but by the whole amount plus interest and less salvage. P. 251 U. S. 87.
When a director and vice-president of a national bank makes an excessive loan, and, afterwards, knowing the borrowers to have become insolvent, joins in causing their paper to be transferred for full consideration but "without recourse" from the bank to a loan corporation, closely affiliated with the bank and having identical officers, directors, and shareholders with ratable distribution of shares, the transaction, not having been ratified or acquiesced in by the shareholders, is subject to rescission by the loan company through resolution of a majority in interest at a regular shareholders' meeting, followed by appropriate action of its directors and officers, and an acquiescence in such rescission upon the part of the bank, through its shareholders, directors, and officers, is not to be regarded as a voluntary reacceptance of the paper in such a sense that the damages resulting from nonpayment of the loan must be treated, in an action against the director under Rev.Stats. § 5239, as flowing from such voluntary action, and not from the unlawful loan itself. P. 251 U. S. 88.
In such a case, although the two corporations are distinct insofar that a loss on the paper to the loan company would not be the same in law as a loss to the bank, the shareholders nevertheless have a right to consider the practical effect of the transfer upon their common interest, and to be guided by that interest in determining whether and upon what terms to rescind the transfer. P. 251 U. S. 89.
Since the transfer would operate only provisionally to satisfy the damages to the bank from the excessive loan, the rescission leaves the director liable for the damages in full; nor is it open to him to object that the rescission was brought about for the purpose of holding him so liable, through changes in the boards of directors involving the introduction of figureheads or "dummies," nor to criticise the terms of the retransfer agreed to by the two corporations. P. 251 U. S. 93.
The case is stated in the opinion.