MacRackan v. Bank of Columbus

Allen, J.,

dissenting: The plaintiff ought not to recover upon the facts in this record, unless the law is clear and unmistakable in his favor, and then only in obedience to the mandate of the law, which must be the final arbiter for the judge in his efforts to attain'justice.

The-plaintiff is an attorney at law, who drew the charter of the defendant bank, and while he denies that he was the general counsel of the bank, he admits that he has now an uncollected claim against it for legal services, which he says were rendered during the time of the transactions complained of. He was at all times a director of the bank, a member of its finance committee, a member of its loan committee, and a member of its examining committee.

He testified, among other things: “I was a stockholder 'in the bank at the time, and was a director at the time' the note was given. I. cannot say whether or not I was at the time it *41was paid. I resigned' about that time. I cannot say that I passed on the loans as director. I applied for -the loan and obtained it. I was either a member of the loan committee or the finance committee; I cannot say which. They are not the same thing. I did not pass on the loans of the bank or fix the rate of interest or help to do it. I was on the examining committee. I had been director from the time the bank was organized. I was not general attorney for thp bank. I have 'the bank sued for some special services rendered. I drew the charter when the bank was organized. I was director of the bank at the time I borrowed this money and at the time I paid it back, and also a member of the loan and examining and a member of the finance committees.”

The cashier of the bank also testified: “Mr. MacBackan advised the board of directors to charge 8 per cent all the time. That was always his advice, but we did not charge 8 per cent all the time.”

= And upon these admitted facts and upon the evidence, his Honor, in an action by the plaintiff to recover the penalty for charging and receiving usurious interest — double the amount of the interest paid — has excluded from the consideration of the "jury everything except the'amount of interest paid, and has charged the jury to answer the issue in favor of the plaintiff if the rate of interest was greater than 6 per cent.

He also refused to give the special instruction prayed for by the defendant.

In my opinion, there was error in the charge given and in refusing the one requested.

The plaintiff was a director, and as such, clothed with a trust in behalf of the corporation, stockholders and creditors, and he had no legal or moral right to divest himself of the trust and assume a hostile relation.

The directors elect the officers; their acts are corporate acts; they control and manage the property of the bank, and. say to whom money shall be loaned and upon what terms: Invested with these powers, and recognizing that the money of depositors and stockholders cannot' be safeguarded unless officers are diligent and honest, the law imposes corresponding duties.

*42“Tb© bigh degree of confidence and responsibility resting upon directors of corporations has often led tbe courts to regard them as trustees, and to declare tbe relationship existing between them and tbe stockholders to be that of trustees and cestuis que trustént, respectively. If this^can be asserted with regard to tbe generality of corporations, it is peculiarly and exceptionally true with regard to banking corporations, in whose solvency tbe whole neighboring, community must be at least indirectly interested. A bank of issue may properly be regarded as a gmsi-public corporation. Tbe directors of a bank are not trustees for tbe stockholders alone, but they owe an even earlier duty to tbe depositors, and if tbe bank exercises tbe privilege of -circulation, still a prior duty to tbe ppblic at large. Tbe law is, as it ought to be, very jealous in exacting tbe strict and thorough performance of these duties, and it is in tbe scrutiny of .possible breaches of them that tbe rigid rules which govern trustees have been applied. It is not enough to exculpate a director, that no actual dishonesty can be shown, that he cafl-not be positively proved to have been 'influenced by interested motives. Like a trustee, he is absolutely prohibited from the performance of those questionable acts wherein his conduct may be wholly free from blame, but where the bias of self-interest is strong, and may influence him even without his own recognition of the fact. 'A director, who wishes to keep completely, within the protection of the law, must look to- something more than the mere integrity.of his own intentions.” "Morse on Banking, sec. 125.

This principle has .been' declared and enforced in this Court. In Townsend v. Williams, 117 N. C., 336, the present Chief Justice, quoting from Shea v. Mabry, 1 Lea, 319, said: “Directors are not mere figureheads- of a corporation. They are trustees for the company, for the stockholders, for the creditors, and for the State. They must not only use good faith, but also care, attention, and circumspection in the affairs of the corporation, and particularly in the safe keeping and disbursement of the funds committed to their custody and control. They must see that these funds are appropriated -as intended for the *43purposes of the trust, and if they misappropriate them or allow others to- divert them-from those purposes, they .must answer for it to their cestui que trust ” .

Applying this doctrine to the facts, the plaintiff was a trustee, and the defendant bank, its stockholders, and depositors, were his cestui que trust.

The purpose of the trust was to make legal contracts, not illegal ones; and if he allowed the funds of the bank to be diverted from this purpose, he became ■ liable to his cestui que trust.

Suppose as director he had approved a loan to a stranger at an illegal rate of interest, and the stranger had paid and then recovered the penalty, can it be doubted that the stockholders ■ and depositors could have compelled him to make good the loss? If so, his position cannot be stronger because the penalty is in his own pocket instead of in the pocket of a stranger; and if he could be made to refund, the law will not permit him to recover.

In Gund v. Ballard, 73 Neb., 548, the Court so declared. “The president and director of a bank cannot enter into a contract with the corporation in which he is such an officer to pay an usurious rate of interest on money owing by him to such corporation, and thereby escape the payment of all interest on such indebtedness under the statute denouncing usurious contracts. The law will not permit him, acting in the dual capacity in which he was, and in a sense the agent of his principal, the bank, to enter into a usurious contract with himself and his principal, and thereby escape all liability for the payment of interest on the principal sum of the indebtedness for which he. thus became obligated. It must be accepted, we think, as fundamentally correct that he could not be permitted to profit by his own wrongful action, nor by the action of the bank on the one’ part and himself on the other, to the prejudice of the stockholders, he holding, as he did, the fiduciary relations then existing between him and the corporation and those it represented.”

There is another reason for denying a recovery to the plaintiff, if we have regard to the spirit of the statute, “which giveth life,” instead of to its letter, “which killeth.”

*44Tbe lender and borrower in a usurious transaction are parties to an illegal contract, and tbe general rule is that tbe courts will not aid either party to sucb a contract. An exception is, however, made in favor of tbe borrower, but on tbe distinct ground that as be is under tbe control of tbe lender, “in chains,” • as expressed in the brief of appellee, bis payment is not voluntary, and that while in delicto, be is not in pari delicto.

How is it with tbe plaintiff? He drew the charter of tbe bank and aided in its organization.- It was tbe child of bis own loins, and as attorney, director, member of tbe finance committee, member of tbe loan committee, and member of tbe examining committee, be bad the authority and control of a parent.

Why, then, should we give him relief, unless we return to tbe days when it was seriously contended that a statute against “letting blood on tbe streets” embraced a surgeon who bled bis patient to save bis life ?

I not only think the opinion of tbe Court wrong, but it appears to me to establish a policy which will weaken confidence in banks, and will furnish opportunity to officers to deplete tbe funds of tbe bank, with impunity, at tbe expense of innocent stockholders and creditors.

If one director can borrow at a usurious rate, and after payment, recover tbe penalty, so can all. If they can borrow a small amount, they can borrow tbe capital of tbe bank, and tbe larger tbe rate of interest they charge each other, tbe greater will be tbe recovery when they sue for the penalty.