The news & observer. [volume] (Raleigh, N.C.) 1894-current, 1898-04-14
FOR FALSE STATEMENTS
RESPONSIBLE FOR THE BANK S
SOLVENCY.
THE BRANCH BANK AT WADESB0R0
All its Assets and Property Belong 10 the
Parent Bank at Wilmington Hard
on The Wadesboro De-
positors.

Two important bank decisions have
recently been handed down by the SUI
preme court OF North Carolina.
One involves the liability of the direc-
tors of National banks, and the other ad-
judges that the funds of a branch bank
belong absolutely to the parent bank
The frst-named case is an action
brought ~by Mrs. Sophia \. Houston. of
Chatham county, against Frank W.
Thornton and others. as directors of the
Peoples National bank of Fayetteville,
which failed and went into the hands of
a receiver in January, 1891. The plain
tiff alleged that. by the false statements
of the banks condition published by the
defendants, she was induced to buy
eleven shares Isl 100 of the capital
stock of the bank, which stock became
worthless through the gross negligence
of the defendants. The ease was tried
at the last Fall term of Chatham Super
Tor 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 culpable 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
hot ~ .tal -ha
deposits. 1900; the surplus, So, 900
and undivided profits, $6.795. This state
ment was untrue There was no sur
plus, no undivided profits and the bank
did not even have 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 tMoore) owed the bank between
100000 and $4,000; one Of the direc-
tors tThornton) owed it about $4,000;
another director (McNeilD owed it $780,
600, and still another Starr owed be-
tween $4,000 and $1,000, making be-
tween $I66,000 and S1ST,000 due the
bank from its officials. three of whom
tMcNeill, Moore and Thornton were
known to be insolyent. 1t was in xvi
lence and not denied that all the direc-
tods were 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 and
were in fact. false and fraudulent, and
the plaintiff relying thereon was induced
to buy stock. or had made deposits,
whereby she suffered injury, all the di-
rectors are liable whether they ''partici-
patod' in 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 nonresident
directors Of good character, whose
names shall he 4 pledge of honest man
agement 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-residents,
they could not give proper attention TO
their duties, and by private arrange
ments il was agreed that they should
not be required to do so. Such arrange
ment, 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 for
negligence or fraud. There is no alega-
ton or proof that these defendants were
guilty or had actual knowledge of the
frauds, or that they knew the represen-
tations in the published reports We're
fraudulent.
ION the contrary the basis of the ac-
ton is that these defendants were men
of high character, who would not parti-
cipate in or connive at fraud, and for
that very reason, when the reports Of the
bank Were published, the plaintiff, rely
ing on the well known character of
these defendants, trusted implicitly TO the
correctness Of such statements and was
misled into buying eleven shares of the
capital stock of the bank, which were
wholly worthless.
1T is no answer to this to say that
the defendants themselves were also
misled as to the condition of the bank
and suffered loss. They had opportunity
to know the true condition of the bank.
They ought to have known. 1t was
their duty TO know. They should not
nave permitted statements To go out
upon their authority as to the condition
of the bank, which were untrue. and re-
lying upon which the plaintiff was led
into loss. 1T may be hardship upon
these defendants, but it would be great
er hardship upon the public. and destruc-
tive of confidence in banks, if directors
of good character, whose names are use
full in drawing patronage. are absolved
from responsibility from fraudulent rep.
reservations. whereby the public are
duped and defraHded, because such di
rectors had no actual knowledge of the
frauds and did not participate in them
Ignorance will not excuse when they
had means of knowledge. The courts
bold that eillpable negligence in sucl
matters is in law equivalent to fraud
and the surest guarantee against it is tn,
verdict Of a jury for the damages in
fiicted."
THE WADESBORO BANK.
In the second case Estate Treasurer VS.
Bank of New Hanover) the court de
cides that the branch bank at Wades