#### T. G. WALL and LIZZIE WALL v. T. M. HOWARD et al.

(Filed 5 October, 1927.)

Banks and Banking — Insolvency—Depositors—Actions—Individual Liability of Officers — Pleadings—Allegations—Demurrer— Statutes.

In order for tbe depositor in a bank since becoming insolvent and in tbe bands of a receiver, to maintain an action personally against tbe individual officers of a bank for permitting tbe deposits to be received, it is necessary, among other things, to allege and prove tbe insolvency of tbe bank at tbe time tbe deposits were made, and tbe allegation tbat it was either insolvent then or the misconduct of tbe officials afterwards caused its insolvency, is insufficient, the alternative of tbe allegation being a wrong to the bank itself which may be sued upon by its receiver afterwards. 3 G. S., 224(g).

Civil action, before *Granmer, J.,*at March Term, 1927, of Pitt.

Tbe plaintiffs on 7 April, 1923, deposited in tbe Bank of Yanceboro tbe sum of $2,200, receiving from said bank certificates of deposit for said sum. On 13 December, 1923, tbe Bank of Yanceboro was placed in tbe bands of a receiver. On 12 December, 1924, tbe plaintiffs instituted an action against tbe defendants, who are directors of said Bank of Vaneeboro.

Tbe defendants filed a demurrer, wbicb was overruled, and tbe defendants appealed.

*8. J. Everett for plaintiffs.*

*Moore <& Dunn and Slcinner, Cooper & Whedbee for defendants.*

BROgdeN, J.

Tbe cause of action alleged by tbe plaintiffs is thus stated in tbe fifth paragraph of tbe complaint: “Tbat at tbe time of *311receiving tbe said deposit above referred to by the said bank, the defendants in this cause knew that the said bank was insolvent or was being handled in such a reckless mánner and disregardful of the trust imposed in them, the law, safe banking, and good business, that it must become insolvent as a result thereof, as is hereinafter fully set forth, making the defendants personally liable to these plaintiffs by reason of the said acts and failure to perform and do their duty as directors of the said bank.”

In the succeeding paragraphs of the complaint, to wit, 6, 7 and 8, the ‘reckless manner” of operating the bank by the directors is specified in detail, such as excessive loans to officers, failure to keep proper records, and otherwise disregarding the duties imposed by law upon the directors of banks.

The chief ground of demurrer is stated in the second paragraph thereof, as follows: “For that the plaintiffs have no right to maintain this action against the defendants upon the grounds alleged in the complaint, and that if any right of action exists by reason of the matters and things alleged in the complaint, then such right of action is in the receiver of the Bank of Vaneeboro heretofore duly appointed.”

Upon these pleadings only one question of law arises, and that is whether this case, upon the complaint as drawn, is governed by the principle announced in *Douglass v. Dawson,*190 N. C., 458, or *Bane v. Powell,*192 N. C., 387. When money is placed in a bank upon general deposit the relationship of debtor and creditor thereupon arises and the money passes from the depositor to the bank. *Corporation Commission v. Trust Co.,*193 N. C., 696.

As long as a bank is solvent, as defined by law, the officers and directors are authorized to receive deposits and permit the bank to receive them. In other words, in such case deposits are rightfully received. If such deposits, so made, are thereafter misapplied, lost or wasted through the negligence of the officers and directors, and as a result thereof the bank becomes insolvent, this is a wrong done the bank, and it or its receiver alone, nothing else appearing, can maintain the action for damages, and the principle of *Douglass v. Dawson*applies. But if the bank is insolvent at the time the deposit is made, then the officers and directors commit a wrong, under the law, in permitting the deposit to be made. In other words, the taking and receiving money from the depositor, thus swelling the assets of an insolvent bank, is a wrongful act done him personally and individually, for which wrong he alone can sue. In such event, the principle of *Bane v. Powell*applies. Hence, in *S. v. Hightower,*187 N. C., 313, *Stacy, J.,*writes: “The statute was designed to protect the depositing public against this kind of practice *312on tbe part of officers and employees of banks, and tbey will be beld to a strict accountability under its provision wben tbey receive or wben any sucb officer permits an employee to receive deposits therein witb knowledge of tbe fact tbat, by reason of tbe bank’s insolvency, sucb deposits then being received are taken at tbe expense or certain peril of tbe depositors presently making them.” Tbe principle is-further applied by *Connor, J.,*in *Bane v. Powell, supra,,*as follows: “A violation of 3 C. S., 224 (g), by an employee, or by officers and directors of a bank, resulting in damages to a depositor, is a wrong to tbe depositor; he and not tbe bank or its receiver is entitled to maintain an action to recover' tbe damages resulting from sucb wrong.”

Tbe distinction, therefore, between tbe two principles turns in tbe first instance upon whether or not tbe bank was insolvent at tbe time tbe deposit was made. Tbe insolvency of tbe bank is one of tbe essential elements of tbe cause of action, and it must 'necessarily follow tbat sucb insolvency must be alleged in tbe complaint.

There is no allegation in tbe complaint tbat tbe bank was insolvent. There is allegation tbat tbe defendants knew it was insolvent or tbat it would become insolvent at some time in tbe future “if tbe reckless manner” of operating it by tbe officers and directors was permitted to continue for a sufficient length of time. It is, therefore, apparent tbat in tbe complaint, as drawn, an essential element of tbe cause of action against tbe defendants as directors is not alleged, and for tbat reason tbe demurrer must be sustained.

Beversed.