Court Opinion

ID: 7818539
Source: CourtListenerOpinion
Date Created: 2022-09-07 17:45:25.950468+00
Date Added: 2024-06-11T16:30:40.294910
License: Public Domain

George Rose Smith, Justice. This suit was brought by the appellee, Dr. Joe F. Rushton, to impose liability upon the First National Bank of Magnolia for a number of obligations that Dr. Rushton had incurred in connection with Numark Manufacturing Company, a concern which was declared bankrupt in 1965. It was Dr. Rushton’s theory that he had acted merely as trustee for the bank in incurring the obligations and that the bank was under a duty to reimburse him for the losses he sustained in the various transactions. The bank pleaded several defenses, including estoppel, the clean hands doctrine, ultra vires, and the statute of frauds. At the first trial the chancellor sustained the bank’s various defenses. On appeal, however, we reversed the decree and sent the case back for a complete new trial. Rushton v. First Nat. Bank of Magnolia, 244 Ark. 503, 426 S. W. 2d 378 (1968). Thereafter the Honorable James W. Chesnutt, Chancellor of the Third Chancery Circuit, was assigned to try the case anew. The testimony at the second trial was not materially different from that at the first trial. We need not detail the complicated series of transactions involved in this litigation, because (a) the facts were narrated at length in our first opinion, (b'\ the bank concedes that the chancellor’s findings of fact at the second trial were correct, and (c) the bank’s appeal presents only one aspect of the case for review. The issue now submitted by the bank concerns a promissory note for $97,787.77 which Dr. Rushton signed as trustee and which was eventually satisfied by the sale of securities belonging to Dr. Rushton. Dr. Rushton has contended all along that it was never intended that he be personally liable on the note, that he signed it as trustee for the bank, for the sole purpose of assisting the bank in its effort to recoup losses it had sustained upon loans made to Numark’s predecessor corporations, and that the bank, through its president, W. C. Blewster, had assured Dr. Rushton that he would» be protected against any loss in the transaction. In our opinion the preponderance of the evidence would support a finding that Dr. Rushton was in fact acting as trustee for the bank in signing the note. Numark was created at Blewster’s direction, was dependent upon Blewster for its original financing, and was certainly not an independent entity dealing with the bank upon an equal plane when the $97,787.77 note was signed by Dr. Rushton as trustee. In this view the bank would be liable to Dr. Rushton. The chancellor reached the same end result by a different line of reasoning. The chancellor concluded that Dr. Rushton was acting as trustee for Numark when he signed the note. The bank, however, knew that Dr. Rushton was acting merely as an agent for a disclosed principal. Consequently Dr. Rushton was not personally liable to the bank. Ferguson v. Huddleston, 208 Ark. 353, 186 S. W. 2d 152 (1945). The chancellor accordingly entered judgment in favor of Dr. Rushton for the face amount of the note, with interest and an attorney’s fee. In seeking a reversal the bank does not rely on any of the various defenses which it pleaded in the court below. Instead, the bank now asserts that Dr. Rushton was a director of the bank when the note in question was signed, that as a director Dr. Rushton owed a fiduciary duty to the bank, that the transaction with Numark resulted in the bank’s having exceeded its loan limit of $100,000 to any one borrower, and that Dr. Rushton is therefore liable to the bank under the statutes governing national banks. 12 U. S. C. A. §§ 84 and 93. Regardless of whether the bank’s present theory was raised in the court below, which appears to be doubtful, counsel for the appellee have chosen to answer the argument solely on its merits. We adopt the same course. The bank’s loan limitation was $100,000. Under the federal statute a bank director is liable to the bank for a loss such as this one only if he "shall knowingly violate” the provisions of the statute. 12 U. S. C. A. § 93. The federal cases have consistently emphasized the requirement that the director’s violation of the law must be knowingly committed. As the Supreme Court said in Corsicana Nat. Bank v. Johnson, 251 U. S. 68 (1919): "Under the rule settled by familiar decisions of this court, in order for the Bank to prevail in this action it must appear . . . that defendant, while a director, participated in or assented to the excessive loan or loans not through mere negligence but knowingly and in effect intentionally.” There are many other decisions to the same effect. Our inclination to think that the bank’s present theory was not presented in the trial court stems in a large measure from the marked absence of convincing proof tending to show that Dr. Rushton knowingly and intentionally violated his fiduciary duty as a bank director. There is no proof whatever that Dr. Rushton was familiar with the bank’s loan limit. He testified at great length, but he was never asked even a simple question about this point. In fact, in the bank’s brief in this court counsel merely say that "it is inconceivable to believe that a man of Appellee’s wide business experience and length of service as a bank director would not have known the Bank’s loan limit was $100,000.00.” We appreciate counsel’s argument, but it falls far short of supplying the necessary proof that Dr. Rushton knowingly and intentionally violated the law. Again, it is not shown that Dr. Rushton knew that the $97,787.77 transaction between the bank and Nu-mark had the effect, in view of past transactions between the two companies, of exceeding the bank’s $100,000 loan limit. Here again counsel merely say in the brief that it is “inconceivable” that Dr. Rushton would not have known about Numark’s overdrafts at the bank. In fact, there is no proof that Dr. Rushton had any actual knowledge whatever about the overdraft situation. With such glaring deficiencies in the proof we are unable to sustain the bank’s argument for reversal. It is not inappropriate to add that the equities in the case are with Dr. Rushton. He was a minority stockholder in Numark, with an investment of only $5,000. It is undisputed that when the ■ business encountered financial difficulties he suggested that the stockholders abandon the enterprise and accept their losses. Instead, he was persuaded by the bank’s president, Blewster, to guarantee the payment of various obligations involving huge sums. Blewster’s purpose was unquestionably to rescue the bank from threatened financial losses attributable at least in part to Blewster’s management of the bank, which was admittedly a “one-man” operation. As the chancellor observed, Dr. Rushton’s fellow directors “were fearful that they might be held liable personally for dereliction of duty.” Presumably the statute of limitations has now eliminated that threat. Dr. Rush-ton, however, lost more than a quarter of a million dollars as a result of his efforts to help Blewster and the bank. We do not feel that the chancellor’s decision is contrary either to the law or to the equities in the case. By cross appeal Dr. Rushton seeks to recover various other sums that he was compelled to pay out upon his various Numark commitments. The chancellor found the evidence insufficient to support Dr. Rushton’s contentions in that respect. In this court counsel present no argument, either legal or factual, to indicate that the trial court was in error. Its decision must therefore be upheld. Affirmed. Fogleman, J., dissents.