Central Law Journal.

ST. LOUIS, MO., APRIL 20, 1917.

RESPONSIBILITY OF NON-RESIDENT BANK DIRECTOR TO STOCKHOLDERS FOR LOSSES BY PRESIDENT'S USE OF BANK FUNDS.

The case of Wallach v. Billings, 115 N. E. 382, decided by Supreme Court of Illinois, holds that a long continued course of misconduct by the president of a bank in diverting its funds to his private enterprises, whereby losses ensued to the bank, gave no cause of action in favor of stockholders of the bank against a nonresident director.

The facts show that the defendant Billings had been continuously a director for several years; that during that period he had not attended any meetings of the board or passed upon local loans; that his being a director in another city was desirable for his general financial aid to the bank and that the transactions with the bank were correctly entered on its books. Thus it was that a casual examination would have revealed what was being done in the way of letting the president use. bank funds.

the character of title there is in stock ownership. This title greatly resembles that of ownership, in a negotiable instrument. It passes from hand to hand with about the same facility as such paper, and with every change of ownership there is an implied warranty against fraud in the management of the corporation.

Furthermore, if the principle of estoppel could apply in such a case at all, its application might be confined to particular stockholders and not generally. Thus every stockholder has a general right to examine the books of a bank, but it is not necessarily his duty to make such examination. His right is in his own interest and he may waive it.

But if some stockholders are bound because they have expressly agreed that a director shall not perform his obligation under oath or because they know he is a non-resident and could not be expected to perform it, a court is put to it to unravel a tangled web in distinguishing between stockholders, when all of them equally may transfer their stock to innocent purchasers.

This director appears to have taken an oath annually for several years that: "He will, so far as the duties devolve upon him, diligently and honestly administer the affairs of such association," and the court in distinguishing him from resident directors holds there was an understanding

We greatly doubt whether stockholders competently could make any agreement for any director to neglect his duties as trustee. It would seem to be contrary to public policy for any agreement of this kind to be recognized. It involves a maze in fraud that is inconsistent with

tors are. The court said further that: "It must be remembered that this is not a suit by depositors or creditors of the bank but by the stockholders-members of the corporation themselves. It is charged in the bill that Billings by the exercise of reasonable diligence could have ascertained the condition of affairs. Is not the same thing. true of every one of the stock holders? For a period of seven or eight years the president of the bank was making illegal and hazardous loans. The facts charged in the bill as sufficient to have put Billings on in

quiry would also have put the complainant stockholders on inquiry. The transactions of Walsh were in no way concealed from the complainants, and it appears from the arguments of counsel were a matter of general knowledge in the City of Chicago, where the complainants resided and where Billings did not reside. The liabilities as well as the rights of stockholders in banks and other corporations are well defined by law and have been rigidly enforced. They have something else to do besides drawing dividends."

It is true, that stockholders are not in as good a situation as depositors or other creditors might be. It is also true, we think, they are not in as deplorable a plight as directors are. If they are not, it is a case where courts will not regard all as being in pari delicto, and, if there is any policy to be subserved in holding a more guilty one to account, this will be done, not out of regard for the less guilty, but in the interest of that policy. Is there not a very potent, wise, useful policy to be subserved in saying, that a trustee shall be held to the strict terms of his oath in the management of an institution in which the public has an interest?

Take for example the knowledge of a guardian or trustee investing funds of a ward, shall that knowledge jeopardize the rights of cestuis? Take the approval of courts in the investment of funds. Shall deception by those who inform them go over their discretion and excuse one who, because of a bank being an institution under state supervision, has a private understanding with the trustee? Rather should he not be regarded as participating in the deception practiced?

The principle stated involves so many possible exceptions, that it seems to us the rule of policy should admit none of them, and the director should be held to the duty he swore to perform. At least, it does not appear in this case that he was inviegled into undertaking the duties by statute provided to be performed.

NOTES OF IMPORTANT DECISIONS.

COPYRIGHT

DRAMATIZATION FOR STAGE AND FOR MOTION PICTURES. Klein v. Beach, 239 Fed. 108, Second Circuit Court of Appeals, held that the grant of the sole and exclusive right to dramatize a book "for presentation on the stage" did not prevent the author from selling the right to another to make a scenario and to present same in a motion picture performance.

The court admits that it has been held that dramatic rights include motion picture rights, as was decided in Kalem Co. v. Harper, 222 U. S. 55. It says: "If used alone, that is doubtless true, especially if the contract antedate the commercial use of motion pictures."

The real question in this case was, whether there was "a negative covenant against destroying the effect of such a grant by motion pictures."

It was said: "There is no intimation that (plaintiff in injunction) should have further rights to make, not a play, but a motion picture scenario. Such a scenario is hardly a 'play' for 'presentation on the stage.' We have this language to construe at a time when the different requirements of 'screen' and 'stage' were well understood and with them the need of uniting two separate kinds of dramatization. We see no reason in the face of that situation to suppose that the language was used out of its natural meaning, or is in disregard of a wellestablished convention which was applicable."

It appears to us, that the objecting grantee of the right to dramatize for the stage did have the right to object to his rights being seriously impaired and that producing a motion picture of a play should be regarded as greatly interfering with the success of a play. In Herbert v. Shanley Co., 37 Sup. Ct. 232, 84 Cent. L. J. 191, it was held that a copyright of a musical composition was infringed by a performance in a hotel dining room. The court said there was "no need to construe the statute so narrowly."

WORKMEN'S COMPENSATION ACT-APPLICATION TO INTERSTATE CARRIER IN ITS INTRASTATE BUSINESS.-Whatever else the Workmen's Compensation Act may have effected or failed to effect, one thing is certain, that is that such a ruling as that made in Wabash R. Co. v. Hayes, 234 U. S. 86, 79 Cent. L. J. 37, cannot apply in suits in states, where it has been adopted. That case held that a declaration stating a good cause of action under the federal Employers' Liability Act may afford a basis for recovery under state law by striking

out all allegations as to injury occurring in interstate commerce not sustained by proof.

In Raymond v. Chicago, etc., R. Co., 37 Sup. Ct. 268, it is held that, where suit was brought under the federal act and the proof showed the injury sued for did not occur to an employe then engaged in interstate commerce, there was no jurisdiction to bear the cause, because of the provisions of the Washington Workmen's Compensation Act on the same day held by the court to be constitutional. In this case judgment was entered for defendant on the pleadings. In states where the common law remedy could be applied to an amendment, it would have been allowed according to the Hayes case. Therefore, in states having Workmen's Compensation Acts, there is more of peril, or may be, in resort to the federal act, than where it does not obtain-especially if there is a limitation in time for proceedings to be begun.

Also, in the Raymond case it was said: "It is also certain that if the petition be treated as alleging a cause of action under the common law, the court below was without authority to afford relief, as that result could only be attained under the local law according to the provisions of the Workmen's Compensation Act. And this result is controlling, even although it be conceded that the railroad company was, in a general sense, engaged in interstate commerce, since it also has this day been decided that that fact does not prevent the operation of a state Workmen's Compensation Act (New York C. R. Co. v. White, 243 U. S. 37 Sup. Ct. 247)."

A careful reading of the opinion in the White case reveals only the fact that the employer was engaged in interstate commerce, but there is no specific ruling, as above stated.

It pos

sibly was presented in the brief, or in assignments of error, but was not noticed in the opinion.

EXECUTORS AND ADMINISTRATORSALLOWANCE OF JUDGMENT OBTAINED AFTER FINAL SETTLEMENT.-The recent, Missouri case of State, ex. rel. v. Holtcamp, 266 Mo. 347, 181 S. W. 1007, raises a very perplexing question and produces unfortunate results, which possibly only a statute can properly correct.

The proceeding was by writ of mandamus to compel the probate court of St. Louis to allow, as a valid claim against an estate already finally settled, a judgment obtained in the circuit court subsequent to the order of final settlement.

In this case suit upon the claim was not filed in the probate court, as occurs in most cases, but was begun direct in the circuit court, but within the time allowed for the presentation of claims against an estate. No notice was served upon the administrator, however, except that ininvolved in the ordinary service of summons. The case in the circuit court dragged its weary length along, surviving two reversals in the supreme court, and finally terminating in a judgment for plaintiff. When this judgment was then presented to the probate court for 'allowance, that court held that it had no jurisdiction to allow the claim, having over six years before accepted a final settlement of the estate and discharged the executrix without knowledge that there was pending in any other court a suit or a demand against the said estate.

It seems to be well settled in Missouri and some other states having similar administration statutes, that the circuit or district courts of general jurisdiction have concurrent jurïsdiction with probate courts of all claims against the estates of deceased persons and that formal notice of claims litigated in the circuit court need not be given to the executor nor presented for allowance to the probate court until final judgment. Wernse v. McPike, 100 Mo. 487; Stephens v. Bernays, 119 Mo. 146; McCoy v. Jackson, 21 Ark. 472; O'Donnell v. Herman, 42 Ia. 60; Hurley v. Shuford, 11 Ala. 203; Ellison v. Allen, 8 Fla. 206; Kathman v. Skaggs, 29 Kans. 5.

On the other hand, the probate court is given exclusive jurisdiction to appoint, remove and finally discharge executors and administrators. The question, therefore, arises, what is the effect of a final settlement of an estate and the discharge of an executor before the final termination of a suit against the executor in the circuit court?

The court in the Holtcamp case held that the probate court may be compelled by mandamus to reopen the administration six years after final settlement and distribution of the assets, and allow the judgment as a valid claim against the estate. The court held that the order approving the final settlement was without legal effect in view of the outstanding claim still in litigation in the circuit court, saying: "We are of the opinion that a probate court is without the jurisdictional power to approve a final settlement so long as in fact demands are legally pending and undisposed of in either the probate court or other courts of record, and there are available assets for their satisfac

tion."

The justice of the decision so far as the claimant is concerned is apparent. So long as she was permitted by law to choose either of two tribunals in which to present her claims, she should not be deprived of her rights by the unfavorable action of the other. And it may also be admitted that the circuit court could not be divested of its jurisdiction to proceed to final judgment against the executrix by the probate court's discharge of the defendant as the personal representative of the estate on final settlement. The defendant herself would be estopped to deny her liability to pay the claim.

But if the estate itself can be reopened years after final settlement and other claims allowed without an appeal from the order of the probate court or other proceeding directly brought to set aside the order, what becomes of the finality of a discharge in the probate court, and what protection is afforded to innocent third parties dealing with the property of the estate on the assumption that all liabilities of the former owner are properly discharged?

PSYCHOLOGY AND EVIDENCE.

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Psychology, the books tell us, is the science of the mind; but in discussing this subject from the standpoint of the practicing attorney rather than fessional psychologist, it seems to me that psychology, however abstruse some professors would have it appear, is in its best and most practical sense nothing more or less than a study of human nature, a science of human behavior.

Not only is it necessary for the attorney to be able to size up men, but he also has the greatest opportunity to exercise his faculties in this direction. Judges and lawyers, hosts of them, are keen psychologists in their analysis of human nature and its varied expression.

Take for instance, Lincoln. It was his deep understanding of the fundamental instincts of human nature that enabled him as a young country lawyer to handle his first murder case with such masterly skill. Lincoln having first determined that his client was not guilty, knew that the prin

cipal witness on whom the state relied, was lying when he testified that he saw the defendant Crayson shoot and kill Lockwood at ten o'clock at night by moonlight. Lincoln knew that the story was manufactured for a purpose, and that purpose he was bound to discover and did discover in his own original manner, when he produced an almanac showing that the moon on the night in question was unseen, and did not rise until one the next morning. Lincoln knew that this false witness could not fabricate testimony that would fit all the natural requirements of truth, so he watched for the weak spot in the manufactured falsehood, found and exposed it. As Lincoln said at the time, "Nothing but a motive to clear himself could have induced him to swear away so falsely the life of one who never did him harm!" Lincoln was indeed a reader of men.

Going back to biblical times, Solomon, when he was called upon by the two harlots to determine which one was the mother of the disputed baby, exhibited that keen that later insight into human character "The living child distinguished Lincoln. said one. is mine, the dead one thine," said "No," said the other, "the dead child is thine, and the living mine." The case hung thus even; no more evidence on one side than on the other. But Solomon found a means whereby to turn the scales, to untie the hard knot, and to discover the hidden truth. He understood human nature and knew it would respond under emotional strain. He knew that real mother love would respond differently from mere pretensions of the same thing. He knew that the true mother would sacrifice everything to save the life of her offspring; but that the false mother was in the attitude of one in a game to win at any cost.

Daniel is another example. In defending the virtuous Susanna who was charged with adultery, by utilizing the familiar method of separating witnesses Daniel knew that by so doing the two priests who testified. that they had caught poor Susanna in the

act, would contradict themselves in some important particular unless they had rehearsed their parts well beforehand. And so they did tell a different story, one testifying that the offense occurred under an elm tree, and the other, under a palm tree in an opposite side of the garden. And like Lincoln, Daniel discovered their motive for testifying falsely. Because Susanna would not allow them to violate her chastity the priests sought revenge.

Not only were these three great advocates learned in the law, but they also possessed an acquired grasp of the psychologic situation. They had acquired a rich and varied experience in the manifold actions and deeds which go to make up the various types of human personality. They were habituated to a close observation of human behavior, and their long training and experience made them experts in this field. There have been numbers of other jurists and attorneys who have had rich and

deep knowledge of human nature gained

from wide experience, and much excellent psychology is to be found in their decisions, charges and examinations. But formerly the knowledge of these men was not recognized, not done up in convenient packages, so to speak. But the vague experiments of the past, those that have stood the test of time, have gradually been assuming a scientific aspect. The knowledge of psychology has been organized, standardized, and classified, and it is possible for one to acquire many of its principles from text books, thus sparing himself the numerous costly errors which was the price his predecessors had to pay to make possible the sci

ence he now inherits.

The lawyer of to-day can profit by the

arduous labors of at least two generations of scientists who have devoted their lifetime to the accurate study of human behavior, the results of which have been boiled down and enunciated in text books and monographs, enabling him to learn by reasonable study and application what it took others a life time to discover.

All law is psychological. It is a human product drawn up to direct and control human conduct. The trail of the human is over every inch of it. The very atmosphere of the court room is psychological. There they are, the judge and jury, the plaintiff and defendant, their lawyers and witnesses, all human beings with imperfect sense organs, imperfect powers of observation, memory and reasoning, with passions base and noble, prejudices, interests, viewpoints, connections and affiliations, kinks and peculiarities; their personalities, temperaments, habits; their religious, social and political beliefs and feelings, and heaven knows what else, a perfect welter of psychological stuff.1

The contact between psychology and the law is at no point more close and obvious than in the matter of testimony and the utilization of testimony for determining questions of fact.

It is the duty of the lawyer in every case. and nothing but the truth," no matter how he tries to seek "the truth, the whole truth, darkly it may be obscured; but lawyers

are familiar with the fact that this is not an easy matter. There are two sides to every lawsuit, two parties contending for the truth of the matter as testified to by each. The case must be won or beaten is the attitude of each party to the controversy. For either counsel it is a question of his side, or rather whether the opposite which party can develop the true facts on side either is not giving the truth, is withholding some of it, or is unduly coloring the facts. That either or all of these things are current in testimony may be admitted. The object then of cross-examination is, if possible, to discover what is the truth, what are the real facts; and it is therefore profitable and desirable, among other things, that the various psychological defects of any particular witness be brought to light.

As applied to testimonial evidence psychology deals chiefly with the attention, observation, perception, memory and other such traits of the witness.

(1) Morse on The Value of Psychology to the Lawyer.