Court Opinion

ID: 6518643
Source: CourtListenerOpinion
Date Created: 2022-07-19 18:29:02.354521+00
Date Added: 2024-06-11T15:55:05.549800
License: Public Domain

TYSON, J.
We shall first dispose of the questions raised by the assignments of error on the cross-appeal.
When this case was here on former appeal (114 Ala. 601) the equities of the bill were fully discussed and settled. In the opinion delivered, the averments of the bill are set out im extenso and the two theories under which relief is sought are pointed out and shown not to be inconsistent or repugnant, the one with the other. The purpose of the bill under the second or alternative • aspect presented in it, is to seek satisfaction of the complainants’ demand out of the debtor’s property, which is alleged in effect to have been fraudulently conveyed or attempted to be placed beyond the reach of execution. Or to state the proposition in another form, it is to subject to the satisfaction of complainants’ debt equitable assets in the hands of Henderson which have been converted by him. For if it he true as averred that Woolfolk and Saportas as officer's of the corporation, the A. T. & I. Co., purchased the stock of nender*481son. in tliat corporation for tliat company and Henderson was paid for it out of tlie assets of the corporation, with notice, though perhaps binding inter partes, which however we do not here decide, it is very certain that it was voidable at the instance of creditors of the corporation, as a fraud upon them, if the corporation’s ability to pay its debt was impaired by the transaction. This is not upon the principle that the assets of a corporation are trust funds to be held by it as a trustee for the benefit of its creditors, but is rested upon the doctrine that it is a voluntary conveyance or transfer as against creditors by the corporation to its stock- • holders of its assets. A business corporation primarily has no assets other than those-which it derives from the subscription to its capital stock. In organizing it and subscribing’ for shares of stock, the stockholder acquires simply “a right to participate according to the amount of his stock in the- surplus profits of the corporation on a division, and ultimately on its dissolution, in the assets remaining after payment of its debts.”—Cook on Stock and Stockholders and Corp. Law, § o and note 1. A stockholder has no right to demand that the corporation pay to him the value of his stock, nor has the corporation any legal right to do so as against creditors. Its obligation to redeem its stock can never arise until dissolution and, even then, it is subordinate to its obligation to pay its creditors. To permit a corporation to purchase without restriction shares of stock issued by it, would in effect license stockholders by resorting to sales of their shares to it to deplete the assets of the corporation, and give to them a preference over creditors, which was never contemplated, and to confer upon them a right which they never contracted for, and to which they were not entitled when they made the contract by which they became the owners of their shares, nor at the time the creditor extended to the corporation. A permissive recognition of the unrestricted right of a corporation to purchase the shares of one of its stockholders, as against creditors, necessarily concedes the same right to the corporation to purchase the entire capital stock. If this *482right- be accorded a corporation and it is exercised to its full limit, we would have the case of a corporation having distributed its entire capital to its stockholders, leaving it as the owner if its own promises obligatory with which to pay its debts to its creditors. Of these, it would seem, the creditors had a sufficiency. At least, more promises made to the creditors would add no Amine to those already held by them. Indeed, an examination of the general statutes on the subject of creating corporations and regulating their organization AAriil disclose that they require a certain per coibtmu of the proposed capital stock to be paid by the subscribers and their written obligation executed and delivered to some one for the balance of their subscription, usually denominated commissioners, before a charter is granted. See Chapter 28 of• Code. Distinctly showing that their policy is that no fic.tituras cor-corporations shall exist in this State. That when a corporation is organized and authorized to do business under our Iuavs, those who deal with it may do so upon the assurance that its capital has been either fully paid up or the corporation lias the Avritten obligation of its subscribers as -assets, out of AAdiicli the money due to it by them may be realized. . To say that these subscribers, after paying up their subscription obligations, may make a sale of their stock to the corporation and witlidraAV the money paid by them to the corporation would not only he a fraud upon the creditors of the corporation, but upon the Iuav. Of course, -should such a coAirse he adopted by the unanimous consent of all the stockholders and there are no creditors, there Avould he no one to complain.
We are aware that the courts of this country are di Added upon the question as to the poAver of corpora-' tions to acquire and hold its own stock. But in no jurisdiction is the poAver of a corporation to purchase its oavu shares sustained, if the purchase is made AAdth the intent to injAire its creditors or to defeat them in the collection of their claims or if it has such effect. 7 Am. & Eng. Ency. LaAV, pp. 818, 819, 820, and notes.
*483We have said this much on the subject of the power of corporations to acquire and hold their own stock in order that we may clearly have in mind the scope of the bill and in order that we may deal intelligently with the issues tendered by its averments.
We have made no mention of the first theory presented by the bill based upon the averment that Henderson has not paid his subscription note executed by him to the A. T. & I. Company for stock. This is unsupported by the testimony in the case and is not insisted upon as a ground for relief.
After the cause was reversed on the former appeal, the bill was amended by incorporating into it the averment that the complainants became the owners of the debt held by the Farley National Bank against the A. T. & I. Company with the right to collect the same for the benefit of the stockholders of said bank and also", by making H. M. Hall a party complainant in whose name the indebtedness of the bank against the A. T. & I. Co. was reduced to judgment. After these amendments were made, a number of grounds of demurrer was assigned to the 'bill as amended. It is argued in. support of the 6th and 7th grounds that the judgment in favor of Hall as receiver is a nullity because theaverments of the bill show his discharge as receiver before the rendition of the judgment and the assets of the bank returned to it and transferred to the other complainants, Hall and Farley as trustees. The argument is that the suit in which the judgment was recovered abated, by reason of Hall’s discharge as receiver, and therefore the judgment was void. The insistence is that section 26 of the Code requires all suits to be prosecuted in the name of the parties really interested. But the exception made by the statute is that in actions upon bills of exchange and promissory notes payable at a bank, or banking house or at a designated place and other commercial instruments, the suit must be instituted in the name of the person having the legal title. We will presume in support of the judgment that such was the character of the instrument' sued upon and evinced the debt for which the judgment was ren*484dered. If Hall had not the right or capacity to maintain the suit, the defendant corporation should have availed itself of it by proper defenses. It is certainly not void on its face and, therefore, not open to an attack collaterally.
The case of Rice v. Rice, 106 Ala. 636, ansAvers the contention made in ’support of the 8th, 9th, and 10th grounds of the demurrer,, that the cestui que trust of Hall and Farley as trustees should be parties to this cause.
The making of H. M. Hall a party complainant, relieved the necessity of any averment of a formal transfer or assignment of the judgment or proof of such assignment or transfer. Nor did it bring the case Avithin the application of the general doctrine that all complainants must recoArer or none can. These principles are settled in the folloAAdng cases: Gunter v. Williams, 40 Ala. 572; Blevins v. Buck, 26 Ala. 292; Plowman v. Riddle, 14 Ala. 169; McLane v. McLane, 19 Ala. 180, and it will serve no purpose to discuss them at length. This disposes of the 11th and 12th and 1st grounds of demurrer to the bill as amended by making Hall a qmrty.
It is stated, in brief, in support of the first, second, third and fourth grounds of demurrer to the alternatire phase of the bill, that they, should be sustained because the averments of the bill are too indefinite and uncertain, in that it fails to show when the assets Avere received by Henderson, Avhat the assets consisted in, hoAv they Avere received, Avhether as director and treasurer of the company in his official capacity, or whether in his individual capacity and whether all were received at one time or at different times. These are matters peculiarly within the knowledge of the A. T. & I. Co. and Henderson, the respondents to the bill. We do not understand it to be a rule of pleading that the eAddential facts upon Avliich the pleader relies shall be set forth in his pleading. The charge is, that Henderson, subsequent to January 5, 1891, being a director and treasurer of the company, received assets of said company amounting to $30,000 or other large sum, *485knowingly and without proper and legal consideration to said company, which he is liable for with interest. The preceding averments of the bill sufficiently disclose the relations of all the parties to each other, the liability of Henderson to the company in the sum of $30,000 on account of his subscription for stock, the sale of the stock by him either directly to the company or indirectly to it through Woolfolk and Saportas. And, indeed, a liability on the part of Henderson, in receiving the assets of the corporation in payment for his stock. It is manifest from this statement that there is no merit in these grounds of demurrer.
The fact of the insolvency of the Alabama Terminal & Improvement Co. is sufficiently proven by the evidence. But this fact is immaterial under the view we take of this case.. For if it be true that Henderson received the assets of the corporation knowingly or under such circumstances as to put him upon inquiry that the money paid to him for his stock was the money of the corporation in consideration of a sale by him of the stock to the corporation direct, or through Woolfolk and Saportas to the corporation, or if the consideration enuring to the corporation was his stock, then it is in effect a gift by the corporation to him of its assets, which is fraudulent as to creditors whether the corporation was actually insolvent at'the time the bargain for the sale of the stock was made or not. There can be little doubt, if that were important, that it was on the road to financial disaster when the alleged sale was-made and was hopelessly insolvent long before Henderson received many of the payments made to him. Morawetz on Corporations, § § 793, 794. Nor do we understand the fact to be controverted that all the money Henderson received on account of his alleged sale of the stock was paid out of the assets of the corporation. There is no room under the evidence for such a disputation, for it points with unerring certainty to this conclusion.
The chancellor rendered a decree against Henderson for $8,719.01 and interest, and refused to charge him with the other money, assets of the corporation, received by him. In dealing with Henderson’s liability, he *486did so as though Henderson had no connection with the company as director and as its treasurer. He bases bis decree upon the proposition that the checks evidencing the various sums which aggregate the $8,719.61, gave actual notice to Henderson that he was receiving assets of the corporation. The contention of. Henderson’s counsel is that in this there was error. Á long and ingenious argument is made to show that many of these checks were drawn by Woolfolk and others as individuals, and were not binding obligations upon the A. T. & I. Co., and therefore they were insufficient to convey notice to Henderson that he was receiving money belonging to tlie corporation, and not to those persons whose names appeared as 'drawers. It is is sufficient answer to all this to say that these checks were paid out of the funds belonging to the company, «and that they bore on their face the appearance of being drawn by officers or agents of some principal upon a deposit, not the money of the agents, but of their principal. A number of them were signed “J. W. Woolfolk, Prest.” and others were signed “J. AM Dimmick, Vice-Prest.” Each of these named persons were officers of the A. T. & I. Co., which was correctly designated by 'the words following their respective names. As a director and officer of the same corporation, Henderson was bound to know and did know that they were acting in that capacity in signing these cheeks. These indicia on the checks, had he heeded the inquiry which they naturally suggested, would liave led him upon investigation to a knowledge that it was funds of the corporation upon which they were drawn, and out of which he was being paid for his stock, which lie says lie sold to AAroolfolk and Suportas. Wolffe v. The State, 79 Ala. 206, and authorities there ■cited.
The remaining contention made by Henderson, the ■cross-appellant, is predicted upon an estoppel which is ■alleged in his ansHver and which lie insists is supported by the proof in the cause. We quote from his counsel’s brief as showing what defense is alleged in the answer: ■“The answer in this case, filed May 15th, 1897, and refiled with the amendment April 16, 1898, in the sixth paragraph on page 6, sets up as a defense that Hender*487son transferred Ms shares of stock to Woolfolk, and Woolfolk, for the company, transferred the same to the Farley National Bank as collateral security for a part of the debt on which this suit is founded, and the Farley National Bank transferred the same to the. complainants in this case, and that they hold it, and have neA'er returned or offered to return said stock to Henderson or to 'Woolfolk, and that they had full knowledge of the facts at the time they receiA'ed said stock, or that they have retained the same after obtaining full knowledge of all of the facts.”
If Ave treat the insistence as laid in argument, that the proofs sustains the averments of the ansAver, the Avhole matter might be disposed of by pointing out the fact that the eA’idence shows that this stock stands in tire name of one John W. Hess, and has never, as a matter of fact, been transferred to these complainants. True the assignment to Hall and' Farley as trustees shows 400 shares of stock is embraced in it. But the record sIioays that the corporation had purchased quite a large amount of its stock from other stockholders. Whether this 400 shares mentioned in the assignment is the stock bought of Henderson or the other Troy stockholders, does not clearly appear from the evidence. But aside from this, in the transaction between Henderson and Woolfolk, AA’hich is sIioavu to have taken place about March 13, 1891, by \Arhich this stock'Avas surrendered by Henderson to Woolfolk, Henderson got, in lieu of it bonds as collateral security. The bank is not shown to have been a party to the negotiations between them AA'hicli resulted in this exchange of securities, or to have had anything Avliatever to do with it, except to become the transferee solely for the purpose of becoming a conduit by Avhich the Chatham National Bank of New York city might become, its owner as the property of Woolfolk. This purpose is clearly disclosed in Woolfolk’s letter to Henderson. But conceding that the Chatham National Bank desired, and held this stock as collateral security for an indebtedness due it by the Farley Bank, AAre can perceiA'e no injury'to Henderson on that account. He receiA'ed a quid pro quo from Woolfolk for the stock he surrendered. If he after-*488wards surrendered the bonds to Woolfolk, which he got in lieu of the stock, it is not shown that the Farley Bank by any representation or by any act upon which he relied, induced him to do so. If Woolfolk got the better of him in the exchange of securities, no complaint is made of it in the pleadings or the evidence. Furthermore, as we have said, the bank is not shown to have induced him in any way to make the exchange, or to have derived title to the stock from him.
It is further argued in support of the proposition that the averments of the answer are proven by these facts, viz., that on March 28, 1891, Henderson sent to the Farley Bank a note of Woolfolk to him in the sum of 13,333.33 for collection, and on May 1 a similar note for $4,000 for the same purpose, which were paid by checks drawn by Woolfolk on that bank, signed by him as “President.” The evidence discloses that the consideration of these iiotes which were ostensibly given, along with others, by Woolfolk and Saportas, was for the purchase of Henderson’s stock in the corporation. However, there was nothing on their face indicating this. It is true the bank undertook their collection and that on presentation of them by it to Woolfolk, he gave checks on it signed by him “President,” which were paid by the bank, and the amounts remitted to Henderson. Confessedly all this does not, in the remotest degree, tend to prove that the stock was transferred to the bank, or that the bank transferred the stock to the complainants, as averred in the answer.
But it is said that the bank, by honoring these checks out of the deposits of the A. T. & I. Co. in payment of notes which showed on their face that they were the individual indebtedness of Woolfolk and Saportas, committed a wrong upon Henderson. This wrong consisted in not informing Henderson that Woolfolk was paying his debt to him out of the funds of the corporation and not his own. How did the bank know that Woolfolk was misappropriating trust funds? If it can be charged with such knowledge, it must be made to rest upon the fact that the checks were signed “Wool-folk, President,”—a strange and anomalous position for Henderson to assume. He had, prior to this time, *489received more than $10,000 upon the sale of his stock, and every dollar of it was money belonging to the corporation. He had himself received checks signed in the same way which he collected and appropriated; and he. prosecutes this appeal asserting as one of his grievances that the checks which he received did not carry notice to him that Woolfolk was using funds of the corporation. Had the bank notified him that it had declined to receive the checks from Woolfolk, it is evident he would have instructed it to do so. Or had the bank informed him that it had accepted the checks, it is very evident, judging from his conduct prior to that time and afterwards, that he would not have repudiated the transaction. But the bank was under no such duty to him. It was simply under the duty to present the notes for payment, receive the money and remit it to-him. This it did. The deposits of the A. T. & I. Co. with it was the money of the corporation, and not his. Whatever may have been its duty to that company with' respect to paying these checks, it is a matter of no concern to Henderson. I-Te is not asserting his claim in privity of right or interest through it. On the contrary, he is asserting that he received no money which belonged to the company—positively denying its title-to the money received by him.
Nor are the complainants’ rights under the aspect of the bill under consideration, dependent upon the-right of the corporation to assert its title to this money.. The transaction, as we have shown, was fraudulent as-against these complainants. Being fraudulent, their-rights to subject their debtor’s property fraudulently conveyed is in nowise dependent upon the right of their debtor to recover the money of Henderson.
Upon what principle an estoppel could be said to rest as to the money of the corporation received by Henderson, other than the two sums collected for him by the bank, so as to preclude the rights of these complainants, even if it be conceded that the bank owed Henderson the duty to notify him that Woolfolk liad offered to pay these notes by checks'drawn on the deposits with it belonging to the corporation, we are unable to see. Certainly not upon the doctrine of' ratification. The bank *490is not shown to have had any knowledge that Henderson had made the sale of its stock to the corporation, nor is it shown inferentially or otherwise that it knew that Henderson had been paid more than $10,000 of the corporation’s funds by Woolfolk prior to March 23, the date of the collection of the first note by it; and certainly its conduct with respect to receiving these checks, had no influence upon Henderson by way of inducing him afterwards to receive from Woolfolk money belonging to the corporation in payment of other notes maturing later. As to payments 'subsequently made to him, the doctrine of ratification certainly has no application. It is not asserted in the pleadings, that as to the two items collected by the bank, that there is an estoppel. The defense, if it can be said to be asserted at all in the .answer, goes to the entire bill, and in bar of all the relief sought under it. Care, however, being taken not to confess the cause of action as laid in the bill, but on the contrary, to deny it; yet, in argument, it is insisted, notwithstanding Henderson’s refusal to confess, that he should have the benefit of his avoidance of liability—a benefit entitled to be invoked only by those who are willing to and do confess and seek to avoid by proper .averments in their pleadings. An estoppel in, pais, in general, must be pleaded, and the facts supporting it must be clearly made out by the party relying upon it. Estoppels never arise from ambiguous facts, but must be established by such as are unequivocal and not susceptible of two constructions. An estoppel must not rest in mere inference or argument, but must be a precise affirmation of that which makes it.—8 Encyc. PL .& Pr. p. 10 and notes.
It follows from what we have said that Henderson takes nothing by his appeal.
Of the $29,102.57 of the A. T. & I. Co.’s money received by Henderson in payment for his stock, the learned judge in the court below only charged him, as we have said, with $8,719.61, and refused to charge him with the following items: $2,500 paid February 24, 1891; $7,530 paid on the same day; $3,342.96 paid March '23; $4,010 paid May 1; and $3,000 paid June 6, aggregating the sum of $20,382.96. From a reading of his *491opinion it is manifest that he regarded the sale of the stock as one to Woolfolk and ¡Suportas and not to the corporation, and that he gave little or no weight to the entries upon the books of the corporation introduced in evidence. His reason for his refusal to charge Henderson with these sums is put upon the ground that the evidence is insufficient to put Henderson on notice that these sums were moneys of the corporation. Was the sale of the stock by Henderson to Woolfolk and Saportas a bona fide one to them? Or was the taking of their notes a mere device to cover up a sale by him to the corporation? In solving these questions, it will be well to bear in mind the relation of these parties to the corporation; the known opposition of Henderson and other Troy stockholders to the project of' Woolfolk to construct, the M. T. & M. Railroad out of the funds belonging to the A. T. & I. Co.; the kiting operations indulged in by Woolfolk as president of the A. T. & I. Co. by which that company was enabled to get credit from the Farley Bank for an enormous sum of money; the valuable aid rendered by Henderson to Woolfolk in consummating these kiting operations by accepting as treasurer hundreds of drafts drawn on him as such for large amounts, which were discounted by the Farley Bank, when he had not one dollar in his possession belonging to the company; notwithstanding Henderson’s claim to have been only nominally performing the function of his office as treasurer of the corporation at a salary of $900 per annum; the absolute want of any necessity for the drawing of these drafts in due course of business, as Woolfolk was clothed with full power to check upon any depository in which the corporation had funds, without Henderson’s consent; the failure of Henderson to make known to the business world, and especially to the Farley Bank, whom he knew was discounting' Woolfolk’s drafts upon him, that he had no funds as treasurer subject to draft, and that he was simply filling the office in a perfunctory way to accommodate Woolfolk. Also to bear in mind the further fact that Henderson accepted money in part payment of his alleged debt against Woolfolk and Saportas, known to him to be funds belonging to the corporation *492of which he was a director and its treasurer, whose duty as an officer required him to protect its assets figaist the spoliations of Woolfolk; and the fact that Woolfolk and Saportas were insolvent, especially the former, who had been since the organization of the company its debtor in a large sum on account of stock subscriptions, which he never paid. But these facts are not all which legitimately tend strongly to show that the stock was sold by Henderson to the company, and not to Woolfolk and Saportas, and that he knew he was receiving money belonging to the company in payment of their alleged indebtedness to him. The most potent probative evidence tending to establish a sale by Henderson to the corporation and a knowledge by him that he was being paid out of its assets is to be found in the books of the corporation—entries upon the cash hook of the company. We repeat, the most potent probative evidence tending to establish these facts are to be found in these books, for the reason that if the facts disclosed by them stood alone, in connection with the admitted fact that Henderson was a director and treasurer of the corporation at the time the entries were made, the facts as disclosed by those entries would have made at least a prima facie sale by him to the corporation of the stock, and of course notice to him that he was receiving assets of the company, his vendee, in payment for it.
The entries upon the cash book disclose “Bills payable January 5th, 1891 : 3 notes account of A. 0. Saportas and J. W. Woolfolk for the A. T. & I. Co. for $10,000, each due as follows:
One note 30 clays after date................$10,000
One note 45 days after date................ 10,000
One note 60 days after date................ 10,000
$30,000
On credit side of cash book:
Investment account—
Bought of Fox Henderson 3,000 shares capital stock of A. T. & I. Co. :
In suspense..............................i,.$30,000
*493A. record of the renewal and extension notes executed by Woolfolk and Saportas, as well as all payments made by the corporation to Henderson, appear in the ■entries upon this cash book. Henderson says, to all this, that lie did not keep this book, and had no knowledge of its contents. It was presumptively his duty as treasurer to have kept this book or to have some one to do so for him. He cannot, under the facts of this case, avoid as against creditors of the corporation, the probative effect of these entries by invoking his own dereliction of duty. Especially is this true, when taken in connection with the fact that he was accepting drafts drawn upon him as treasurer, known by him to have been discounted upon the faith of his acceptance of them, and that he had funds of the corporation with which to pay them. The doctrine is stated by Thompson on Corporations, section 5308, to be; “It is a sound view, at least in so far as the question respects the rights •of third parties, that the directors of a corporation are in law conclusiArely presumed to know its condition, its business, its receipts and expenditures, and all the general facts Avhicli go to make up that condition and business, as shoAvn by the entries on its regular books. The reason for this is that it is their duty to know these things in the exercise of their official functions. This doctrine is said to be one founded in public policy, essential to the safety of third parties in their dealings Avitli corporations, and to the protection of the stockholders interested in the Avelfare and safe management of corporations.”
Justice Brewer, now of the Supreme Court of the United States, Avliile a member of the Supreme Court of Kansas, in the case of National Bank v. Drake, 29 Kan. 326, said: “The directory, as has been said, is the visible representatiAre of the bank. Persons dealing AA'ith it meet only this visible representative, and have a right to presume that it knows all of the affairs of the bank, all that the bank as a principal ought to knoAV of its condition and business. On the other hand, the stockholders and depositors—the persons avLo are pecuniarily interested in the safe management and prosperity of the bank—look to the directors as the chosen *494guardians of their interests, and have a right to demand of them that they watch over all those interests in their minute details. So that all of these .parties have a right to assume that the directors know all the transactions, business and condition of the bank; because they ought to know them, and because otherwise they do not discharge their full duties to these various parties.’’
The case of United Society v. Underwood, 9 Bush, 609, was several actions of trover brought to recover of directors of an insolvent bank by those who had placed certain bonds in the custody of the bank, on naked bailment, as a special deposit. The declarations charged that the bonds so deposited had been converted to the use and emolument of the bank; that they had been abstracted from the. package of special deposit by officers of the bank, and sold, and the proceeds used in the business of the bank; that, the defendants, being directors, had notice of the fact of such conversion, or could by the most ordinary diligence, have had notice, as well from the ledgers, books and accounts of the bank as from its correspondence, etc. To the declarations a demurrer was sustained by the lower court. The Supreme Court, reversing the rulings of the lower court, said: “Bank directors are not mere agents, like cashiers, tellers, and clerks. They are trustees for the stockholders; and as to their dealing with the bank, they not only act for it and in its name, but, in a qualified sense, are the bank itself. It is "the duty of the board to exercise a general supervision over the affairs of the bank, and to direct and control the action of its subordinate officers in all important transactions. The community have the right to assume that the directory does its duty, and to hold them personally liable for neglecting it. Their contract is not alone with the bank. They invite the public to deal with the corporation, and when any one accepts their invitation lift has the right to expect reasonable diligence and good faith at their hands; and if they fail in either they violate a duty they owe not only to the stockholders, but to the creditors and patrons of the corporation.—Hodges v. New England Screw Co., 1 R. I. 312. * * * It is *495further objection that the allegation of notice is so far qualified as to render insufficient the averment of its existence. It is stated that- appellees ‘and each of them, had, or could have had by the use of the most ordinary diligence and investigation, ample notice.’ It is also alleged by Davenport that they each ‘had notice as well from the ledgers, books and accounts of said, bank as from its correspondence, reconcilements and statements.’ It is the duty of bank directors to use-ordinary diligence to acquaint themselves with the business of the hank, and whatever information might be acquired by ordinary attention to their duties, they may, in controveries with persons transacting business-with the bank, be presumed to have. They can not he-heard to say that they were not- apprised of facts shown to exist by-the ledgers, books, accounts, correspondence,, reconcilements, and statements of the hank, and which would have come to their knowledge except for their gross neglect or inattention. It is not necessary in many cases to show directly that the directors actually liad their attention called to the mismanagement of the affairs of the bank, or the misconduct of the subordinate officers. It is sufficient to show that the evidences of the mismanagement or misconduct were such that it must have been brought to their knowledge unless they were grossly negligent or willfully careless in the-discharge of their duties. If it shall turn out upon the-trial of these actions that the ledgers, books, etc., of the bank showed that the special deposits of these appellants were being sold, and that this fact would have1 been discovered by appellees by the use of ordinary diligence, then the presumption of actual knowledge will arise. It follows, therefore, that the allegation of notice is sufficient.”
These principles are also declared in Martin v. Webb, 110 U. S. 7; Merchants’ Bank of Lincoln v. Rudulf, 5 Neb. 527; Bank of Wulfekuhleh, 19 Kan. 527; Arlington v. Peirce, 122 Mass. 270; Bank v. Dandridge, 12 Wheat. 64.
The competency of the entries in the books as evidence against a director is recognized, though the presumption raised is not held' to be conclusive or indis-*496putable, in Merchants’ Bank v. Taylor, 21 Ga. 334; Hubbard v. Weare, 79 Iowa, 678; First Nat. Bank v. Tisdale, 84 N. Y. 655; Huntington v. Attrill, 118 N. Y. 365; Bedford v. Sherman, 68 Hun. 317; Spellier Electric Time Co. v. Geiger, 147 Pa. 399; Olney v. Chadsey, 7 R. I. 224; Lane v. Bank of West Tenn., 9 Heisk. 419.
Under the facts of this case, it is unnecessary to go ¡to the length of holding the presumption raised against Henderson, conclusive. According to these entries, the force of a disputable presumption of the truth of the facts stated in them, when taken, and weighed in connection with the facts we have pointed out above, as shown outside of the book entries, our conclusion is, that Henderson’s statement, and that of Woolfolk’s, that the stock was sold to Wool folk and Suportas, and not to the corporation, is insufficient to overcome their probative effect. The sale being to the corporation, it follows as a matter of course, that Henderson knew that he was being paid by it, his vendee.
A decree will be here entered affirming the decree upon the appeal prosecuted by Henderson, and reversing the decree upon the appeal of Hall and Farley. A decree will also be here rendered in favor of Hall and Farley as trustees for all the money paid to I-Ienderson on account of this sale.