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Button v. Nevin

Supreme Court of Arizona

October 4, 1934

A. M. NEVIN, Appellee

APPEAL from a judgment of the Superior Court of the County of Maricopa. M. T. Phelps, Judge. Judgment affirmed.

Mr. Thomas A. Flynn, for Appellant Button.

Mr. Henderson Stockton and Mr. Emmett Feighner, for Appellant National Surety Company.

Mr. Herbert B. Shoemaker and Mr. Frank H. Swenson, for Appellee.


[44 Ariz. 249] LOCKWOOD, J.

This is an action brought by A. M. Nevin, hereinafter called plaintiff, on his behalf and as assignee of some thirteen other parties, against James Benjamin Button, at one time

Page 569

superintendent of banks of the state of Arizona, and National Surety Company, a corporation, the surety on Button's official bond, hereinafter called defendants, to recover from them certain sums of money deposited by plaintiff and his assignors, in Farmers' Commercial State Bank, hereinafter called the bank, after the bank had been closed as in an unsafe condition and later permitted to reopen by Button acting in his official capacity. The complaint is voluminous, and we do not set it forth in full, but it alleges, in substance, that Button, as such superintendent, after closing the bank, wilfully and knowingly allowed it to reopen while it was in an unsafe, unsound, and insolvent condition, whereby plaintiff and his assignees lost their deposits. The case was tried to a jury, which returned a verdict in favor of plaintiff in the sum of $20,000, and, after the motion for new trial was overruled, this appeal was taken.

There are forty-one assignments of error, which are presented by defendants under twenty propositions [44 Ariz. 250] of law, and we shall consider them according to the legal issues raised in such order as seems most logical. In order to do this, it is necessary that we first make a brief statement of the facts in the case as necessarily found by the jury.

For some time prior to the 27th of February, 1930, there had been in existence in Yuma county a state bank known as the E. G. Caruthers State Bank of Somerton, conducting a general banking business in that town. On the date named defendant Button, then superintendent of banks, received a telephone call from the cashier of the bank to come to Somerton immediately. He did so, and some time before noon of February 28th ordered the bank closed, and then commenced, through his assistants, a general inventory of the assets and liabilities of the closed bank, notifying its various correspondents and depositors of his action. Commencing with the 10th of March, Button spent some nine days personally in Yuma county meeting people interested in the bank and investigating local conditions as they related to it. When the inventory was completed, it was apparent to Button that the condition of the bank was such that it should not be allowed to reopen unconditionally, but for various reasons he deemed it best to allow such reopening if certain conditions were complied with. The inventory showed a total of nominal assets of approximately $398,000. Of this $290,000 was represented by loans and discounts, while the bank owed in demand deposits, cashier's checks, and similar items about $350,000. Its capital stock was then $15,000, and it has no surplus or unearned profits, so that any considerable impairment of the loans and discounts would entirely wipe out the capital stock and leave the bank in a hopelessly insolvent condition. In addition to this, [44 Ariz. 251] a very large percentage of the loans has been made in violation of section 223, Revised Code of 1928, which reads in part as follows: "The total liability to any bank of any person for money borrowed shall at no time exceed fifteen per cent. of the amount of the capital stock paid in and of the surplus earned and set aside as a surplus fund of such bank.... If the superintendent finds that a bank has allowed loans to be made in excess of the amount provided for in this section, he shall immediately instruct the officers and directors of said bank to charge off enough of said loan or loans to bring it within the required limitation,..." and Button had repeatedly notified the bank before it closed that the bulk of these loans were either slow, doubtful, or a loss.

Under these circumstances, he laid down certain conditions for the reopening of the bank. The first was that the capital stock should be increased to $75,000. The second was that three lines of indebtedness, amounting in the aggregate to about $160,000, should be substantially reduced, and the third that 400 shares of the new capital stock of the bank should be deposited with it as security against any losses that might be incurred through loans. To meet these conditions, the following things were done: Omitting the technical manner of procedure, three parties to whom the bank owed, either on deposits, rediscounts or cashier's checks, various sums, accepted capital stock at par to the amount of $60,000, which they paid for by cancellation of part of what the bank owed them, and in addition donated $15,000 of such deposits to be held as a surplus account by the bank. The only actual cash which was added to the bank's resources by the transaction was $5,000, which was newly deposited in the bank, and then a [44 Ariz. 252] check therefor given by the depositor to the bank. The indebtedness of $160,000 was reduced in the following manner: One debtor owed $72,000, and two of the creditors of the bank consented to an application thereon from what the bank owed them of $52,000 leaving this particular debt amounting to about $20,000. The second debtor originally owed about $36,000. The president of the bank transferred to it certain certificates of capital stock of the Yuma Trust & Holding Company at an agreed value of $25 per share, and $23,000 of the debt was

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thus canceled, leaving a balance due the bank of about $13,000. The third line of indebtedness amounted to $53,000, which was secured by a second mortgage on real estate in the sum of $25,000, and by a chattel mortgage on certain farming implements and crops. When the bank was reopened, this indebtedness was carried forward as an asset of the reopened bank, but shortly thereafter, in accordance with a previous understanding with Button, the mortgage was foreclosed under circumstances which would indicate that the bank realized $12,000 on the debt and had for the balance thereof a deficiency judgment against the debtor of $20,000 and apparently about the same amount in unsecured notes. After these things were done, Button secured from about two-thirds of the depositors of the bank an agreement that, if it did reopen, they would change their general deposits to time deposits for a certain period, but the agreement expressly provided that it should not in any way affect new deposits. Plaintiff and his assignors were not among those signing the agreement. The consideration was that the bank should perform all the requirements imposed on it by Button as a condition to reopening.

Not satisfied, however, with doing this, Button filed a petition in the superior court of Yuma county entitled [44 Ariz. 253] "In the Matter of the Estate of the Caruthers State Bank, now Farmers Commercial State Bank." In this petition he set up that he, as superintendent, had closed the bank on the 29th of February; that the bank had amended its articles of incorporation changing its name and increasing its capital stock of $75,000, which change and increase had been approved by him; that the capital stock had been paid, and that satisfactory arrangements had been made by the then creditors and depositors of the bank and its stockholders and directors to insure a continuance of its operation; that he had taken no steps towards liquidation of the bank, and did not believe it was in a condition which needed liquidation, and his prayer was that his action should be confirmed and the bank authorized to reopen. This petition was filed ...

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