The farmer and mechanic. [volume] (Raleigh, N.C.) 18??-19??, 1898-04-19
FOR FALSE STATEMENTS
RESPONSIBLE FOR TIE BANKS
SOLVENCY.
The BRANCH BANK AT W%ADESBORO
All its Assets and Property Belong to the
Parent Bank at Wilmington--Hard
on the Wadesboro De-
Dositors.

Two important bank decisions have
recently been handed down by the Su-
preme court of North Carolina.
One involves the liability OF the dircc-
tors of National banks. and the other adj
Judges that the funds of Il branch bank
belong absolutely to the parent bank.
The tirSt-named case is IN action
hrought-by Mrs. Sophia y. Houston. OF
Chatham county. against Frank w.
Thornton and others, as directors of the
Peoples National bank of Fayetteville,
which failed aud went into the hands OF
a receiver i'll January, 1891. The plain
tiff alleged that, by the false statcmcnt>
of the banks condition published by the
defendants, she was induced to buy
eleven shares Isl. 100 of the capita
stock of the bank. which stock became
worthless through the gross negligence
of the defendants. The case was tricd
at the last Fall term of Chatham Super
ior court, and Judgment has been rem
dered in favor of the plaintiff for the full.
amount She had paid for the stock and
interest thereon.
From the Judgment the ~defendants
appealed to the Supreme court. and that
tribunal has now affirmed the judgment
of the lower court.
The evidence in this case showed the
most culpablc negligence on the part
of the board of directors. For instance
the last published statement Of the bank,
made by order Of the directors, showed
that the capital stock was $4,000. the
deposits. $4,000; the surplus. $4,000
and undivided profits. &6.795 This state
ment was untrue. There was no sur
plus, no undivided profits and the bank
did not even nave it's capital stock. Had
the directors examined the papers. the
court says, they would have known
the Insolvency of the bank, for the presi-
dent lAIoore) owed the bank between
100000 and S12O.00O: one of the direc-
tors GThorntonl owed it about 100000:
mother director Mc\eilD owed it $40
mh0. and still another tStarrD owed be
tween $4,000 and $1,000. making be
tween $4,000 and S1S7. 900 due the
bank from its officials, three of whom
CMcNeill. Moore and Thornton were
known to he iusolycnt. 1t was in wi
ucnce and not denied that all the direc
tOdS We're present when the dividend OF
January. 1890, was declared, and Starr
alone voted no. as to whom a non-suit
was entered.
In writing the opinion Of the court
Judge Clark says it is not necessary
that these defendants participated in the
fraudulent statements" but if the state
ments were given to the public by au-
thority of the board Of directors anG
were in fact, false and fraudulent. and
the plaintiff relying thereon was induced
10 buy stock, or had made deposits.
whereby she suffered injury. all the di-
ro'torS are liable whether they "partici-
pated" i'll the fraud or not.
There is no principle of law or NOR
ais the opinion goes on to say. that
will permit the selection of non-reSidcn
directors Of good character, whose
names shall be Il pledge of honest a
agcment upon which the public shall.
make deposits and buy Of the stock OF
the bank. and then when the crash
comes Will excuse such directors from
liability. because. being non-reSldents
they could not give proper attention tc
their duties, and by private arrange
ments it was agreed that they should
not be required to do so. Such arrange
mcnt, if it had been shown, Would not
have released them from their duties
as prescribed by an Act Of Congress
nor from their common law liability fol
negligence or fraud. There is no allega-
ton or proof that these defendants were
guilty or had actual knowledge of tht
frauds, or that they knew the rcprcscn
~taticnS in the published reports were
fraudulent.
"On the contrary the basis Of the ac
ton is that these defendants were MOI
of high character. who would not parti
cipate in or connivc at fraud, and fol
that very reason. when the reports of the
bank were published, the plaintiff, rely
ing ON the we'll known character o.
these defendants, trusted implicitly 10 the
correctness Of such statements ana was
misIcd into buying eleven shares Of The
capital stock Of the bank, which were
wholly worthless.
1T is no answer to this to say tina
the defendants themselves were alSt
miSlcd as to the condition of the banl
and suffered loss. They had opportunlt!
so know the true condition Of the bank
They ought to have known. 1t wa
their duty to know. They should no
nave permitted statements to go on
8,ou their authority as to the CONDITION
of the bank. which were untrue, ana re
wing upon which the plaintiff was le'
INTO loss. 1t may be Il hardship upon
these defendants. but it would be Il great
rr hardship upon the public, ana des'ruc
i've OF confidence in banks, if directors
IF good character, whose names are use
fI in drawing patronage, are absolvct
rom responsibility from fraudulent rep
H~rntations, whereby the public ar
@uped and dcfrauded, because such dl
4,ntors had no actual knowledge of tn
frauds and did not participate in them
Ignorance Will not excuse when the.
had means Of knowledge. The court
hold that sulpable negligence III sucl
matters is iii law equivalent to fraud
and the sureSt guarantee against it is tn
verdict of Il jury for the damages in
ll.cted."
THE WADESBORO BANK.
I'm the second case (State Treasurer VS.