1. A state statute making a bank director individually liable
for deposits, the receipt of which by the bank was assented to by
him with knowledge that it was insolvent, and which provides that
his failure to examine the bank's affairs to learn of its condition
shall charge him with knowledge of its insolvency, and that, in
suits against him for such deposits, the fact of insolvency when
the deposits were received shall be
prima facie evidence
that the director both knew of the insolvency and assented to the
deposits,
held consistent with due process of law. P.
277 U. S.
94.
2. The statute might have made directors liable to depositors in
every case. By accepting the office, they assume the risks it
imposes.
Id.
122 Kans. 675, 691, affirmed.
Error to judgments of the Supreme Court of Kansas affirming
recoveries against a director, and the executor of a deceased
director, of a bank in twelve suits by depositors.
Page 277 U. S. 93
MR. JUSTICE HOLMES delivered the opinion of the Court.
These writs of error are brought by Ferry, formerly a director
of the Butler County State Bank, of Kansas, and by the executor of
a deceased director, to set aside judgments against them in suits
by depositors in the bank on the ground that the statutes of Kansas
purporting to establish the directors' liability were contrary to
the Fourteenth Amendment of the Constitution of the United States.
The statutes were upheld by the state court.
Ramsey v.
Adams, 122 Kan. 675;
ibid. 691.
The plaintiffs (the defendants in error) made deposits in the
bank at a time when it was insolvent but had not closed its doors.
The statutes under which the directors were held liable to
depositors and which are attacked here are Revised Statutes of
Kansas, 1923, Chapter 9, �� 163, 164. The former of
these makes it unlawful for any director to assent to the reception
of deposits by his bank after he shall have had knowledge of the
fact that it is insolvent. The law makes it the duty of the
directors to examine into the affairs of the bank, and, if
possible, to know its condition, and in case of his failure to do
as required, he is to be held to have had knowledge of the
insolvency of the bank, and is made "individually responsible for
such deposits so received." By 9-164, in suits for deposits against
officers
"the fact that such banking institution was so insolvent or in
failing circumstances at the time of the reception of the deposit
charged to have been so received, . . . shall be
prima
facie evidence of such knowledge and assent to such deposit .
. . on the part of such officer, . . . so charged therewith."
It is said that 163 denies due process
Page 277 U. S. 94
of law by creating a conclusive presumption of knowledge from
ignorance and by implying that the director knowingly assented to a
deposit that he should not have received, of which in fact he knew
nothing. As to 164, it is said that facts are made
prima
facie evidence of other facts that they have no rational
tendency to prove. The law as construed by the Supreme Court of
Kansas meets its severest test in the cases against the executor of
Kramer, because Kramer, although not so ignorant or incapable of
knowledge as thought by the court of first instance, was seriously
ill at the time of the deposits, and seemed to have much to be said
in his behalf, if the actual state of his knowledge had any
relevancy as an excuse.
It is said that the liability is founded by the statute upon the
directors' assent to the deposit, and that, when this is the
ground, the assent cannot be proved by artificial presumptions that
have no warrant from experience. But the short answer is that the
statute might have made the directors personally liable to
depositors in every case if it had been so minded, and that, if it
had purported to do so, whoever accepted the office would assume
the risk. The statute, in short, imposed a liability that was less
than might have been imposed, and that being so, the thing to be
considered is the result reached, not the possibly inartificial or
clumsy way of reaching it. If, without any mention of assent or
presumptions or
prima facie evidence, the statute had
said: every director of a bank shall be personally liable to
depositors for every deposit accepted by the bank after it has
become insolvent, all objections would be met by the answer, "You
took the office on those terms." The statute would be none the
worse if it allowed a defence in the single case of the defendants'
having made an honest examination and having been led to believe
that the bank was solvent. The mention of assent and evidence of
knowledge cannot be pressed to conclusions that the statute
manifestly does
Page 277 U. S. 95
not allow. The conclusions that, as construed by the state
court, it does impose, it imposes however much it may cut down the
significance of the assent or knowledge to which it refers. As a
matter of law, there is nothing new in charging a party with
knowledge of what it is his duty to know, in this case the
insolvency of the bank, or with assent to deposits that he must
expect while the bank's doors remain open. But the essential thing
is that whether, in a roundabout or a perfectly natural way, the
statute has said if you take the office you must take the
consequences of knowledge whether you have it or not. In most
contracts, men take the risk of events over which they have
imperfect or no control. The acceptance of a directorship is as
voluntary an act as a contract.
The Supreme Court of Kansas affirmed judgments against Ferry and
reversed judgments in favor of the executor of Kramer based on
Kramer's incapacity to know of or assent to the deposits in
question and ordered judgments against him. In so doing, it
violated no provision of the Constitution of the United States.
Judgments affirmed.
MR. JUSTICE SUTHERLAND, dissenting.
In respect of the
prima facie presumption created by
§ 9-164 of the Kansas statute, I am unable to agree with the
opinion of the Court insofar as that section affects the cases
against Harris, executor of the will of Kramer, deceased. The
evidence shows very clearly that, at the time the deposits in
question were made and for a long time prior thereto, Kramer was
physically incapable of investigating and ascertaining the
condition of the bank, or of assenting to the reception of deposits
by the bank, because of his serious illness which resulted in his
death after undergoing a major surgical operation. It was
substantially so found by the jury in one of the cases, and by the
trial court in the others. Under these circumstances,
Page 277 U. S. 96
the application of the statutory presumption was obviously
injurious. Section 9-163 provides that it shall be unlawful for any
president, director, etc., to assent to the reception of deposits,
etc., after he shall have had knowledge of the fact that the bank
is insolvent. Section 9-164, which creates the objectionable
presumption, provides that:
"The fact that such banking institution was so insolvent or in
failing circumstances at the time of the reception of the deposit
charged to have been so received . . . shall be
prima
facie evidence of such . . . assent to such deposit, . . . on
the part of such officer. . . ."
Of course, the state may provide that proof of one fact shall be
prima facie evidence of another; but this can be done
consistently with the due process of law clause of the Fourteenth
Amendment only where there is a rational relation between the two
facts.
Bailey v. Alabama, 219 U.
S. 219,
219 U. S. 238;
McFarland v. American Sugar Co., 241 U. S.
79,
241 U. S. 86. In
the latter case, this Court said, quoting from
Mobile, J. &
K. C. R. Co. v. Turnipseed, 219 U. S. 35,
219 U. S.
43:
"It is 'essential that there shall be some rational connection
between the fact proved and the ultimate fact presumed, and that
the inference of one fact from proof of another shall not be so
unreasonable as to be a purely arbitrary mandate.'"
To me, it seems clear that there is no rational relation between
the fact of insolvency to the reception of a particular deposit. to
the reception of a particular deposit. Rather, the rational
presumption is the other way, since the law itself requires that an
insolvent bank shall not receive deposits, and the assent of the
director thereto would be an assent to a violation of law. I do not
quarrel with the suggestion that it was within the constitutional
power of the state to create an absolute liability against a
director if, while insolvent, the bank of which he is a director
receive a deposit. But this the state did not do.
Page 277 U. S. 97
Instead, it adopted a statute creating a liability only in case
the director assents to the deposit, and I should have supposed the
liability of the director must be measured by what the state has
enacted, and not by what it had the power to enact. Under such a
statute, without more, it is perfectly plain that proof by the
state of such assent would be necessary. But here, the state by
legislative fiat substituted for such proof on its part the
prima facie presumption set forth. It was said that the
bank was open and doing business, and that it is a reasonable
presumption from that fact that assent was given to the receipt of
particular deposits. But we are dealing with a specific statutory
provision, and must take it as we find it, and, by that provision,
the general transaction of business by the bank at the time it
received the particular deposits is not made the basis of the
statutory presumption. If it were, a different question would be
presented. Under these circumstances, as it seems to me, the rule,
requiring a rational connection between the fact proved and the
ultimate fact to be presumed therefrom plainly applies, and
consequently the statutory provision in question is void.
MR. JUSTICE BUTLER, and MR. JUSTICE SANFORD concur in this
opinion.