The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1895-02-14
DIRECTORS LIABILITY
AN IMPORTANT DECISION REM
DEREn BY JUDGE BAKER.
Bank Directors Personally Resnonst
PIE to DeDositors If False State
ments Are Rendered.

Judge Baker yesterday gave a decision in
the suit of William b. Prescott president
OIL the International Typographical Union,
against Theodore p. Haughey and the other
directors of the defunct indianapolis Ma
uonal Bank, in which the doctrine is laid
down that depostors who lost money by
the failure have ground OF action against
the directors individually. This opinion was
given in the course of an order demanding
the litigation to the Superior Court of
Marion county, from whence it was sent to
MN by Judge Winters, who held that there
was federal question involved The attor-
ney for the plaintiff is William Y. Rocker.
ana for the defendants Miller, Winter &
Elan, Baker & Daniels, Duncan & Smith,
Hawkins & Smith, A. j. Beverdge, r. W.
harrison of Martinsville and Anderson &
Dusnane The amount involved in this suit
IS $4,000, which the union had on deposit at
the time of the failure, and which it's Off
GERS aliege they were induced to deposit,
owing, among other things, to the favorable
reports issued over the sworn affidavit of
the directors
Judge Baker, in speaking of the decision
SAID: This is a new case in federal court.
maintain that l have laid down a rule
which upholds honesty. The national bank
ing law does not contemplate that when
fraudulent bank reports are made that the
receiver, for instance, may be held response
Die. do not believe that bank officers may
make lying statements and escape UNI
scathed 1t is not the bank as contem-
plated under the law. that is to be blamed
1t is the officials who make the false repre-
sentatons.' The decision in full, is as fol-
lows:
mis- was an action instituted in the Ssu-
perlor Court of Marion county, Indiana, and
removed into this court by the defendants
cd fn6n
question which gave this court jurisdiction
me parties, both plaintiffs and defendants
Indiana, and were such at the time of re-
noval The ground on which the right of
removal is bottomed Is that the plaintiffs
In and by said suit seek to recover from the
defendants a sum of money exclusive Of in
terests and costs exceeding in amount two
thousand dollars, damages sustained by
the plaintiffs by reason of misfeasance of
duty ON the part of the defendants as Ill
rectors of the Indianapolis National Bank'
1T Is insisted by counsel that the plaintiffs
cannot maintain any action against the de-
Ienuants for or on account of. the matters
terS do not constitute any breach of duties
imposed upon them by the acts Of Congress
acts done or omitted by them as directors
OF said bank have they violated any such
manner as to create a right of action in
favor of the plaintiffs against them upon
the facts stated in the complaint 1t is
further insisted that if any cause of action
exists for the alleged wrongful acts COM
planned of, it is cause of action which
must be prosecuted by the receiver of the
inscivent bank for the benefit of all the
THE question for determination, there
fore, depends upon the construction which
the complaint is one which seeks to recover
damages for the wrongful acts of the de-
tendants, which gave a right of action to
the bank it has passed by the appointment
of a receiver for the bank, to him, and he
Is the proper party to sue for and recover
the same as an asset of the bank for the
benefit of its creditors. The complaint is in
four paragraphs, and. so far as material to
the determination of the question before the
court, they are in substance alike The first
paragraph of the complaint alleges in sub
stance that the defendants have been and
are the directors of the Indianapolis Ma
tional Bank, and that as such directors and
seeking for long time to wit, two years
past, to induce the public generally and the
plaintiffs to deposit moneys and do bank
ing business with said bank, they repeatedly
made in writing ana signed and thereafter
published and caused to be published from
time to time divers advertisements, state
ments and reports, pretending thereby to
bank; that in and by said advertisements,
statements and reports the defendants rep
resented that said 5o,p bank a was
and prosperous business; that the plant
ifs, having right to reply, and relying
duced TO deposit with said bank $4,000,
which was entered to their credit on the
books of said bank; that the plaintiffs had
no knowledge that said representations were
false and that said bank was insolvent;
that each of sa.,. defendants at all times
knew that said bank was hopelessly in
solvent; that said representations were
false, fraudulent and deceptive, and were
known so to be by said defendants; that in
to be made said defendants intended TO
deceive the public generally and the plain
tiffs; that said advertisements, statements
and reports came irto the hands OF the
Plaintiffs and to their knowledge in the
ordinary course of business, that said de-
PENDANTS ought to have known and did
hot sol a6-yor fiQaD mt ct ia
and reports would come as they did come
into the hands and to the knowledge of
the plaintiffs. and that the plaintlits would
tions thereby made; that said representa-
tons did deceive the plaintiffs and by rea-
son of the premises they have been dam
they demand Judgment.
RECEIVER COULD NOT SUE
ut is apparent that the cause of action
does not sound in tort for any acts of
misfeasance or nonfeasance the part of
the defendants, as directors, causing dam
age or loss to the bank 1t does not APP
pear that the bank has suffered any injury
by reason of the fraudulent acts COM
planned Of. On the contrary, it became pos
sessed of $4,000 of the moneys of the plain
tiffs as the direct and intended result of
the false and fraudulent representations
of the defendants. Hence the bank, if
not benefited certainly was not injured
by the fraudulent acts of its directors. 1t
is. therefore, certain that neither the bank
nor the receiver who represents it
could maintain an action for the wrongs
complained of. Unless the plaintiffs can
maintain an action for the redress of the
injury which they alone have suffered the
defendant cannot be made answerable for
their false and fraudulent conduct. 1t
would be- matter of just reproach If the
law We're so impotent to afford no re-
dress to party who has been deprived of
his money or property By false and fraudu-
lent representations
The fraudulent representations charged
in. the complaint, If made under color of
their office. entirely outside of the
official duties of the directors. Neither the
law nor the obligations of their office made
it any part of their duty to utter and pub
lish false and fraudulent advertisements,
statements and reports in regard to the
condition of the bank. The tort for which
they are sued was committed in their pri-
vate and personal capacity, because the law
does not confer upon such officers any
authority to commit frauds of the char
acter complained of. These directors have
used their official stations to enable them
to perpetrate fraud on the plaintiffs,
tirely outside of the legitimate scope of
their duties. 1t could in no event become
part of their duties to procure money
to be deposited in the bank by false and
fraudulent representations.
Morse Banks and Banking. p. 1913,
says: If hank directors do not manage the
affairs and business of the bank according
to the directions of the charter and in good
faith they will be liable to make good all