Richmond v. Irons

The original bill in this case was filed February 3, 1875, by James Irons, the defendants being the Manufacturers' National Bank of Chicago, organized under the national banking act, and Ira Holmes, its president. The bill alleged that the complaint had recovered a judgment against the bank for the sum of $12,408.51 damages, besides costs, an execution on which had been returned unsatisfied; that on or about October 11, 1873, the bank had suspended payment and business, and, in pursuance of section 44 of the banking law, had gone into voluntary liquidation, its affairs having been put into the hands of the defendant Holmes, its president, for that purpose; that the defendant Holmes had thereafter settled a large amount of the indebtedness of the bank by giving notes, made by him as president of the bank, and guarantied by him as such, and by using the assets of the bank in payment of its indebtedness; that he had also converted and appropriated to his own use an amount of the assets of the bank charged to be not less than $250,000; that he also had in his possession and control a large amount of the personal and real property purchased with the funds and moneys of the bank, but which he had fraudulently withheld and disposed of for his own use; 'that the said voluntary liquidation aforesaid, and the proceedings thereunder by the said defendant Holmes, were a pretense and sham, and were suggested, instituted, and carried on for the sole and only purpose of concealing and covering up the transactions of the said bank, and of dissipating and disposing of its assets in such a way and manner most agreeable to the wishes and interests of the said defendant Holmes and those in his interest, and in fraud of the rights of your orator and the other creditors of the said bank;' that the capital stock of the bank actually paid in amounted to the sum of $500,000, owned by 24 stockholders, a schedule of the names of whom, with their respective places of residence, and the number of shares owned by each, are set out in an exhibit to the bill.

The bill prays for a discovery under oath of 'what moneys, cash, notes, bills receivable, United States bonds, and other property and effects the said bank had in its possession and was the owner of at the time of the said suspension thereof, and at the time the same went into voluntary liquidation in the manner as aforesaid, or what moneys, cash, notes, bills receivable, United States bonds, and other property the said bank has since had in its possession or control, or been the owner of, or the said Holmes, as president thereof or otherwise, has since had in his possession or control belonging to the said bank, and what disposition, payment, sale, or transfer has been made of the property and effects of the same, and every part thereof.' It also prays that all sales and conveyances made by the bank or by the defendant Holmes of property belonging to the bank may be set aside as fraudulent, and that all the property and effects of the bank in its possession, or in the possession of Holmes, may be delivered up into the possession and control of the court, and applied, so far as necessary, to the payment of the complainant's judgment; that the defendants may be enjoined from making any further transfers of the property of the bank; that a receiver may be appointed of all the property and effects of the bank; and for general relief.

At various times subsequent to the filing of the bill, other judgment creditors of the bank filed petitions for leave to be made parties, and were allowed to join in the bill as co-complainants. On the twelfth of February, 1875, the defendants interposed a demurrer to the bill. The grounds of demurrer were, among others, that a creditors' bill in behalf of one r more creditors would not lie, because the assets must be equally distributed among all; that a receiver of a national bank could only be appointed and the assets distributed by the comptroller of the currency under the act of congress, and that the court had no power to enjoin a national bank from disposing of its assets in voluntary liquidation. On the twenty-sixth of February, 1875, the demurrer was overruled, and Joel D. Harvey was appointed a receiver, with full power and authority to take and receive possession and control of all the property of the bank, with directions to collect and convert the same into money, to be applied according to the order and direction of the court. On the first of April, 1875, the defendants filed a joint and several answer to the bill. They admit that the bank went into voluntary liquidation on September 26, 1873, and, between that time and the time of filing the bill, that it settled a large amount of its indebtedness, so that there remained due to its depositors only $39,000; and alleges that these settlements were made mainly by paying out to creditors the assets of the bank,-in some cases the defendant Holmes giving his personal obligations, which in a few instances were indorsed by him as president of the bank. The defendant Holmes denies all the fraud charged in the bill, and particularly that he had converted and appropriated to his own use any of the assets of the bank, and denies that he has any of such assets in his possession or under his control, and alleges, on the other hand, that he had given his private obligations in payment of the debts of the bank, which had more than exhausted all his resources and brought him into a state of bankruptcy.

The said Holmes, as president, and for himself personally, also avers in the answer 'that, at the time said bank went into voluntary liquidation as aforesaid, he verily believed that said bank and himself were solvent, and would be able to pay their debts in full by making settlements with the creditors to their satisfaction, and they, these defendants, so believed, while making said settlements; and he was advised by his attorneys, and so believed himself, that all settlements made with the creditors of said bank in the manner aforesaid, pursuant to said forty-second section of the national banking act, would be valid, and that both said bank and its creditors so settled with would be protected, and that said settlements could not be set aside, or in any manner interfered with; that, acting upon this advice, and what he believed to be the unquestioned law in the premises, said bank and its creditors, believing that they were within the letter and spirit of said section of the banking act, effected settlements to the amount of about $900,000, aside from reducing its capital stock to $178,000, and these defendants now claim that said settlements are all valid, and cannot be inquired into.'

On October 5, 1876, leave was given the complainant to file and amended bill, making additional defendants; and it was filed on the same day. The amended bill alleges that the bank suspended payment on September 22, 1873; that it had been previously, and ever since has continued to be, insolvent; that the complainant was a creditor by judgment, as stated in the original bill, on which execution had been returned unsatisfied; that the bank, after suspending payment, went into voluntary liquidation under the management of the defendant. Holmes, who settled a large amount of the indebtedness of the bank, so as to reduce it to about $40,000. The amended bill then sets out the names of the various stockholders of the bank, with the amount of shares owned by each, and alleges that while the bank was contemplating insolvency, and was in fact insolvent, and after the suspension of payment, certain of the persons named as stockholders, and who were also made defendants, combining and confederating with the defendant Holmes, surrendered and delivered up to him, the said Holmes, the certificates of shares of stock held by them respectively, on some pretended contract of purchase, the same having been purchased with the money and assets of the bank, and canceled at the request and by the direction of the said stockholders, for the avowed purpose of releasing them, and each of them, from any personal liability on account thereof to the creditors of the said bank; but that, nevertheless, the same were never in fact canceled or transferred on the books of the bank, but now stand on said books in the names of the said defendants; and it is charged that the said pretended purchase and attempt at cancellation of the said stock was a fraud upon the complainant and the other creditors of the said bank, and should be set aside.

The bill accordingly prays for a discovery from the defendants of the facts in relation to the said transactions, and that the same may be set aside and decreed to have been made in fraud of the rights of the complainant and the other creditors of the bank; and 'that the said stockholders, and each of them, be subjected to the liability created by the statute thereon in the same manner and to the same extent as though such sales, transfers, or surrenders had never been made; and that the said stockholders, or such of them as have sold, transferred, or surrendered, or pretended to sell, transfer, or surrender,' etc., 'the shares of stock so as aforesaid held and owned by them at the time the said bank suspended payment, in the manner as aforesaid, may be decreed to hold the moneys, property, and effects received by them for said stock, in the manner as aforesaid, in trust for the creditors of the said bank, and, upon the respective amounts being ascertained, that they be decreed to pay the same to creditors thereof, or to such person or persons as your honors shall order and direct.' The bill also prays 'that an account be taken of the amounts due from each of the said defendants to your orator and the judgment and other creditors of the said bank as stockholders thereof, upon the basis of the number of shares of stock held by them at the time the said bank suspended payment in the manner as aforesaid, in pursuance of the provisions of the act under which the said bank was organized, and by which the liability of the stockholders thereof is fixed and determined; that a full any complete and accurate account be taken of all the sale, transfers, or surrenders, or pretended sales, transfers,' etc., 'of stock made by the said stockholders of the said bank, or any of them, after the same suspended payment in the manner as aforesaid, and to the amounts received by them respectively for any such sales, transfers,' etc., 'and that they may be decreed to hold the same in trust for the creditors of said bank in the manner as hereinbefore prayed, and that upon such accounts being taken the said defendants, or such of them as shall be found liable to your orator and the judgment and other creditors of the said bank upon the said stock liability created by the said banking act, and such of them as shall be liable for the amounts received by them for the sales and transfers of stock so made by them in the manner as aforesaid, be decreed to pay whatever amount shall be due from them, and each of them respectively, into court, or to the receiver duly appointed by said court, and that out of the fund so created your orator's judgment be paid in full, and the balance thereof be distributed amoung the other creditors of said bank in such way and manner as your honors shall direct.'

All of the defendants named in the amended bill within its jurisdiction were served with process and appeared. On behalf of certain of these defendants a motion was made to strike the amended bill from the files, and others filed demurrers, for the reason, in substance, that it made a new case, different from that set out in the original bill, and inconsistent with it, containing matters and asking relief that could only be properly obtained by an original bill.

On the ninth of May, 1877, the complainant James Iron having died, a bill of revivor was filed in the name of his personal representatives. On October 1, 1878, the motion to strike from the files and the demurrers interposed to the amended bill were overruled, and the defendants required to answer. Subsequently, answers were filed at various times by the several defendants who appeared, the contents of which it is not necessary here particularly to notice, except to say that issue was joined by replication duly filed. On July 23, 1883, on the final hearing, the complainant had leave to amend, and did amend, the amended bill of complaint so as to allege expressly that it was filed on behalf of himself and all other creditors of the Manufacturers' National Bank of Chicago; the prayer being amended so as to require an account to be taken of the amount due the complainant and other creditors of the defendant, striking out those parts which asked that the complainant's judgment be decreed to be a first lien on the property of the bank, and paid first in full out of the fund for distribution, and adding a prayer that the fund so created might be distributed among all the creditors of said bank pro rata, in such a way and manner as should be directed. To this amended bill, as finally amended, various defendants filed several answers instanter, setting up by way of a bar to the relief prayed for against the defendants, as holders of the shares of stock in the banking association, the statute of limitations of five years of the state of Illinois, and also insisting that the bill as amended was multifarious and inconsistent, because it prayed for further and different relief from that authorized by the act of congress approved June 30, 1876. On the same day a decree was entered in the cause, which finds, among other things, as follows: That the Manufacturers' National Bank of Chicago became insolvent and suspended payment September 22, 1873, and, in pursuance of the act of congress, went into voluntary liquidation on September 26, 1873; that debts of the bank are still due and unpaid; that, at the time of the bank's insolvency and suspension of payment, the capital stock of the bank consisted of 5,000 shares, of the par value of $100 each, setting out the names of the owners thereof, with the number of shares owned by each; that after the said bank had become insolvent and suspended payment, certain shareholders of said bank transferred the stock held by them, but that all and each of such transfers were and are in derogation of the rights of creditors, and were and are invalid; and that certain named defendants, shareholders of said bank, setting out their names, are individually responsible, equally and ratably, and not one for the other, for all contracts, debts, and engagements of the bank to the extent of the amount of stock standing in their names, respectively, on the twenty-third of September, 1873, and before any transfers were made that day, at the par value thereof, in addition to the amount invested in such bank. The death of a defendant, William H. Adams, on the fifth of June, 1882, was suggested, and Elizabeth Adams, his executrix, made a party defendant in his stead.

By an order entered May 7, 1879, the case was referred to Henry W. Bishop, Esq., a master in chancery, to take proof and report-First, the amount of the debts of said bank still unpaid, and the amount due each creditor thereof; second, the value of the assets, if any, of the bank; third, the amount of assessment necessary to be made on each share of the capital stock of said bank in order to fully pay the indebtedness of the bank, and the amount due and payable from each shareholder upon such assessment.

On the sixth of January, 1885, the master reported his findings under the decree of July 23, 1883. He reported the amount of the debts of the bank unpaid as of the first of November, 1884, to be $368,971.50; the name of each creditor, and the amount due him, being set out in a schedule. The claims of these creditors are also classified by the master as fl lows: (1) For clerical services to the bank, $183.31; (2) for past services of the receiver and his attorneys, $4,437.04; (3) claims arising before the failure of the bank, upon which no collaterals were taken, $179,231.81; (4) claims arising before the failure of the bank, on account of which worthless collaterals had been subsequently received, $185,119.34. The master further reported that there were no assets of the bank outside of the stockholders' liability, and that the amount of assessment necessary to be made upon each share of the capital stock of the bank, in order to fully pay the indebtedness, was 90 per cent. A schedule attached to the report gives the name of each stockholder, and opposite his name the number of his shares of stock in the bank, the par value thereof, the per cent. of assessment to be levied thereon, and the amount due and payable from him upon such assessment. These stockholders were also classified as embracing (1) stockholders who had been duly served with process or entered their appearance in the cause; (2) stockholders who had obtained a discharge in bankruptcy and were not liable to stock assessments on that account; and (3) stockholders who reside outside the jurisdiction of the court and have not been found within the district.

On February 2, 1885, various exceptions were filed on behalf of the defendant stockholders to this report of the master. An exception thereto was also filed on behalf of the receiver and creditors, so far as it reported in favor of certain stockholders claiming to have been discharged from their liability by their certificates in bankruptcy. Upon the hearing of these exceptions, the court referred the cause again to the master to compute, from the proofs already taken in the cause, (1) the indebtedness of the bank at the time of the failure; (2) subsequent actual payments upon indebtedness; (3) net amount of indebtedness, with interest on same at the rate of 6 per cent. per annum from the time of the failure of the bank; (4) the necessary assessment upon the stockholders to pay said indebtedness, including the expenses of the receivership. In pursuance of this direction, on the twenty-fifth of May, 1886, the master made a supplemental report, in which he finds that the indebtedness of the bank at the time of the failure thereof, to-wit, the twenty-third day of September, 1873, amounted in the aggregate to the sum of $410,064.10; that the subsequent actual payments upon said indebtedness amounted to the sum of $213,018.46; that the net amount of the indebtedness was the sum of $197,045.64; that the interest upon said last-mentioned sum from the twenty-third of September, 1873, when the bank failed, down to May 21, 1886, at the rate of 6 per cent. per annum, is the sum of $149,686.98,-making the total unpaid indebtedness of said bank on the last-mentioned date the sum of $346,732.62; that 20 per cent. upon said last-mentioned sum, amounting to the sum of $69,346.52, is necessary to be added thereto for the expenses of the receivership, making a total sum of $416,079.11; and that the necessary assessment upon the stockholders to pay said indebtedness, including the expenses of the receivership, is 83.2 per cent. upon the capital stock of $500,000.

In addition to those filed to the original report, exceptions were filed to the supplemental report, objecting to the allowance of interest upon the claims of the creditors, and to the addition of 20 per cent. to the amount of the indebtedness, for the purpose of providing for the payment of the expenses of the receivership. All the exceptions to the master's reports were overruled, and a final decree was entered against the defendants according to its findings; a decree being entered against each stockholder defendant severally for the amount computed to be due from him upon the assessment of the stock ascertained to be standing in his name on the books of the bank at the date of its suspension, at the rate of assessment fixed in the report of the master. From this decree, ao nzo Richmond, Charles Comstock, Thomas Lord, and William Henri Adams, administrator de bonis non of the estate of William H. Adams, deceased, severally appealed.

[   H. B. Hurd, Henry G. Miller, and M. W. Fuller, for appellants.

[Argument of Counsel from pages 37-41 intentionally omitted]

Edward G. Mason and D. J. Schuyler, for appellees.

[Argument of Counsel from pages 41-43 intentionally omitted]

''Jas. H. Roberts,'' for Ira and Edgar Holmes.

MATTHEWS, J.