Corsicana Nat. Bank of Corsicana v. Johnson

Background

A national bank in Corsicana, Texas, sued its vice president and director after he arranged loans to Fred Fleming and D. A. Templeton totaling about $30,000 (less discounts) in June 1907. The bank said those loans exceeded the legal limit under §5200 and that the director knowingly joined in the transaction, exposing him to personal liability under §5239. The notes were taken in the form of two $15,000 instruments, renewed in December, and later the bank transferred them “without recourse” to a newly formed, affiliated state loan company whose stockholders and officers largely overlapped with the bank’s. The loan company later rescinded the transfer and the bank then sued; at trial the judge directed a verdict for the director and the appeals court affirmed without opinion.

Reasoning

The Court held there was substantial evidence that the two notes might actually be one $29,100 loan and that the director may have knowingly participated — issues that should have gone to a jury. The Court accepted the Comptroller’s longstanding practice that surety or indorser liabilities are ordinarily not counted in computing the §5200 limit. It ruled the bank’s claim accrued when the money was paid in June 1907 and that the four-year statute of limitations applies, not a two-year rule. The Court also explained the transfer to the affiliated loan company could be voidable because the same people managed both corporations and the stockholders properly rescinded the deal.

Real world impact

The judgment is reversed and a new trial ordered so a jury can resolve disputed facts. The opinion warns bank directors that arranging or disguising loans to avoid statutory limits can expose them to personal liability. It also makes clear that transfers to closely affiliated companies will not automatically eliminate the bank’s claim and that the full amount of a single unlawful loan may be treated as the measure of damages.