Case ID: neb_65/html/0416-01.html
Source: Caselaw Access Project
Author: {"author": "Oldham, 0. Pound, C.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

State of Nebraska, appellee, v. German Savings Bank of Omaha et al., appellees, Impleaded with M. Wollstien & Co. et al., appellants.
    Filed July 1, 1902.
    No. 12,484.
    Commissioner’s opinion, Department No. 2.
    1. Evidence: Judicial Discretion: Approving Compromise. Evidence examined, and held not to show any abuse of discretion of the trial court in approving a compromise of doubtful claims with stockholders of defendant.
    2. Receiver of Insolvent Bank: Compounding Doubteul Debts. The power conferred on the receiver of an insolvent bank by section 35, chapter 8, Compiled Statutes, to “compound all bad or doubtful debts when approved by the court or judge,” includes the right to compromise doubtful claims against stockholders of such bank for the double liability imposed upon them by the constitution of this state in section 7, article 116.
    Appeal from the district court for Douglas county. Heard below before Fawcett, J.
    
      Affirmed.
    
    
      Brome & Burnett, Virgil 0. Strielcler and James H. McIntosh, for appellants.
    
      Ralph W. Breckenridge and Joel W. West, contra.
    
   Oldham, 0.

This is the ninth time that the reviewing jurisdiction of this court has been appealed to, either for relief from some order, judgment or.finding of the district court for Douglas county, in closing up the affairs of the defendant, German Savings Bank, or for mandates to compel the judge to settle bills of exceptions, or to approve bonds in this matter. On the 23d day of July, 1896, Thomas H. Mc-Cague was duly appointed receiver of the defendant, the German Savings Bank, and after much litigation and many vexatious delays, he had succeeded in the early part of 1901 in disposing of the assets of the bank. From the proceeds of the sale of these assets a dividend of 33 1-3 per cent, was paid to the depositors, and on the 6th day of May, 1901, the court found that all the assets of the bank had been exhausted, and that there had been about $300,000 due depositors when the bank failed, and that after applying the proceeds of the sale of all the assets, there still remained due the depositors about $200,000. The court further found that there had been subscribed and issued of the capital stock of the German Savings Bank $500,000, divided into 5,000 shares of the par value of $100 each. It also found that there was no way left to pay all the debts, except by collecting the liability due from the stockholders, and ordered the receiver to bring suit against the stockholders for their unpaid subscription of stock, as well as for their double liability. Concerning these orders and findings of the district court there is no complaint. Shortly after suit had been ordered to be instituted by the receiver against the stockholders, a proposition of compromise was made by certain stockholders to the receiver in which they proposed to pay, in round numbers, the sum of $103,000 in settlement of their liabilities as stockholders. The report of the receiver on this proposition is duly verified, and his recommendation was as follows: “Your receiver reports that a careful investigation of the financial condition of the several stockholders in the German Sayings Bank discloses the following facts: A considerable number of the stockholders of the bank have died. Many others have moved beyond the jurisdiction of the court. Others are insolvent. Others are not financially responsible to the extent of their several liabilities. Others deny their liabilities upon various grounds and while a considerable proportion of the stockholders of the bank are solvent, yet your receiver believes that it will be for the interest of the estate of the German Savings Bank to accept the offers herein reported as a compromise of the liabilities of the said stockholders whose names are herein reported to the depositors of the bank. Wherefore your receiver asks the instructions of the court in the premises.” This report was filed on the 5th day of July, 1901, and on the 8th day of July, 1901, after notice had been duly served upon and accepted by the bank, the court, after hearing the testimony as to the advisability of the settlement, accepted the report and directed a settlement as therein offered. Grant S. Cobb and others, the appellants in this cause, representing about one-fourth of the creditors, attempted to intervene on the 9th day of July, 1901, for the purpose of resisting the order; and subsequently, on the 18th day of July, 1901, eight of the appellants filed a motion to modify and set aside tlie order of the court of July 8th approving this report. The term of court adjourned on the 20th day of July, 1901, without action on these motions and objections. On the 10th day of September a “supplemental motion to vacate the order entered herein July 8th, 1901,” was filed by appellants. On the 2d day of October, 1901, the receiver filed a special and supplemental report containing the offer of nineteen other stockholders to pay certain sums therein named in compromise of their liability. The appellants filed an answer to this special report on the 7th day of October, 1901, objecting to its acceptance. On the 18th day of November after a hearing of all the motions and objections filed by the appellants to the receiver’s report approved July 8, 1901, and the supplemental report filed October 2, 1901, the court overruled all objections and confirmed both reports, and from this judgment, the creditors have appealed.

There is nothing in the record in this proceeding which shows that the trial judge was guilty of any abuse of the discretion reposed in him in directing the acceptance of this compromise. There is much evidence in the record tending to support the statements contained in the report of the receiver, before set out, with reference to the probability of the collection of these claims from the different, stockholders. It is urged by the appellants, however, that the court was without power and authority to direct the acceptance of this compromise, because it had no jurisdiction over the different stockholders to enforce their compliance with the agreement when it was accepted, and because the receiver had no authority to compromise the liability of the stockholders created by the constitution of this state in section 7, article 115.

If the first objection had been folloAved by a showing that the stockholders had refused to comply with the terms of the agreement, it would have been worthy of serious attention; but the record shows that after the approval of the settlement the various stockholders did comply with the order of the court and paid the various sums which they had offered in compromise of their liability to the receiver, and that all the creditors, except the appellants, who refused to do so, have received about 50 per cent, of the remainder of their claims from the proceeds of this settlement.

In support of the second objection it was strongly urged by the appellants that the liability imposed upon stockholders by section 7, article 115, sapra. is a contractual obligation between the stockholders of the bank and the creditors of that institution, “certain as though it was evidenced by promissory note,” and one which the court and receiver had no authority to vary without the consent of each of the creditors of the bauk; that the power conferred by section 35, chapter 8, Compiled Statutes, upon the receiver to “sell and compound all bad or doubtful debts when approved by the court or judge,” does not confer on the receiver the right to compromise the double liability imposed upon stockholders of .a bank by section 7, article 115, supra. In State v. Bank of Rushville, 57 Nebr., 608, it was said that “a court appointing a receiver for an insolvent bank may authorize the receiver to settle and compromise a suit instituted by himself in behalf of the estate, where it appears that as large a sum will probably be realized in that way as if the litigation was continued, or it is disclosed that the best interests of the estate require that such settlement be effected.” The only difference between the issues involved in State v. Bank of Rushville, supra, and the issues involved in the case at bar, was that the receiver in the former case had begun an action against' the stockholders of the bank to enforce the double liability imposed upon them by the constitution before the offer of compromise was made, while in the case at bar suit had been ordered, but had not been actually instituted, when the offer of compromise was made and accepted. In the later and unreported case of Morrison v. Lincoln Savings Bank and Safe Deposit Co., 1 Nebr. [Unof.], 449, a compromise of the same liability with the stockholders, made by the direction and with the approval of the trial court, Avas sustained by this court. But it is urged that no distinction was made in either of the cases just cited betAveen the right to compromise doubtful claims OAving to the bank, and the right to compromise liabilities of stockholders to creditors of the bank avMcIi could not be enforced at a suit of the bank against its stockholders. If the receiver simply acted as the representative of his suspended bank, this objection would be Avell taken; but in the case of State v. Nebraska Savings & Exchange Bank, 61 Nebr., 496, this court, speaking through Holcomb, J., says: “The office of the receiver is to aid and assist the court in the collection and distribution of the assets of the insolvent bank. He is, as it Avere, a special officer of and under the orders and direction of the court. ‘He is the arm of the court.’ ” In. discussing the rights and duties of a receiver in Avinding up the affairs of an insolvent corporation, the supreme court of Minnesota, in the case of Minnesota Threshing Mfg. Co. v. Langdon, 44 Minn., 37, 39, 46 N. W. Rep., 310, says: “The sequestration of the property of a corporation by an adjudication of its insolvency, and the appointment of a receiver of its property and effects, under the provisions of chapter 76, is in the nature of an attachment or execution in behalf of all its creditors. The receiver has substantially the same powers and functions as an assignee in bankruptcy, or a receiver upon a creditor’s bill or proceedings supplementary to execution. He succeeds to the rights of the creditors as well as of the insolvent corporation, and has the power to enforce the rights which the creditors, but for the proceedings, might have enforced in their own behalf. The proceedings were intended to provide a complete and full remedy; and this they could not do unless their scope is to apply, to the satisfaction of the creditors, all property which, but for the proceedings, they could have so applied.” See, also, Howarth v. Lombard, 175 Mass., 570. We are therefore of the opinion that the receiver, as “the arm of the court,” representing .the interests alike of the insolvent bank and of all the creditors of it, may, under the authority conferred by section 35, chapter 8, supra, by the approval of the court, compromise and compound doubtful and uncertain claims against the stockholders of a bank for the double liability imposed upon them by section 7, article 115, supra, and we recommend that the judgment of the district court be affirmed.

Barnes, C., concurs.

By the Court: For the reasons stated in the foregoing opinion, the judgment of the district court is

Affirmed.

Pound, C.,

concurring.

The difference in terms and subject-matter between section 4 of the article of the constitution relating to miscellaneous corporations, and section 7 of the same article, is such that if the question Avere a new one it would deserve very serious consideration. But a long line of decisions seems to have established a construction of the latter section which can not be departed from at this time without mischievous consequences. In Farmers’ Loan & Trust Co. v. Funk, 49 Nebr., 353, and Hastings v. Barnd, 55 Nebr., 93, the provisions of section 4 as to the conditions precedent to enforcement of the liability were read into section 7. In Farmers’ Loan & Trust Co. v. Funk it was held also that the liability created by section 7 must be enforced by the receiver of the corporation, if there is a receiver; and in Brown v. Brink, 57 Nebr., 606, that a creditor has no standing in a suit brought under said section unless the.receiver is mismanaging his trust. This court had previously stated in Farmers’ Loan & Trust Co. v. Funk that the effect of section 7 was to create a trust fund to be collected and administered for the benefit of creditors, and that proposition was reiterated in Pickering v. Hastings, 56 Nebr., 201.. The logical result of these decisions is to be found in State v. State Bank of Rushville, 57 Nebr., 608, and Morrison v. Lincoln Savings Bank & Safe Deposit Co., 1 Nebr. [Unof.], 449. If the liability in question is considered as creating a trust fund, to be administered by the receiver if there is one, or if none, by the court in a suit in equity, for the benefit of creditors generally, and not a relation of debtor and creditor between stockholders and creditor directly, these decisions are inevitable. Where there are many creditors, the trust fund must be administered in the general interest. Although some individuals might desire that every stockholder be required to pay the full sum for which he is holden, even if the litigation necessary to that end consumed the entire proceeds, the receiver, as trustee, and the court in supervising his acts as such, must consider the advantage of the creditors as a whole, and take such proceedings as will be likely to promote their interests; not forgetting that expedition and saving of expense are sometimes as much to be desired as holding each stockholder to his full duty. The general rule is that any trustee, acting in good faith, may compound a debt due to the trust estate. 2 Perry, Trusts, sec. 482. Compromises by executors, administrators and other trustees are provided for by statute. After this court had determined that said section 7 creates a trust fund, the construction of section 35, chapter 8, Compiled Statutes as authorizing a settlement of the stockholders’ liabilities, was a matter of course.

It seems proper to say, also, that while I concur in the opinion and conclusions of my Brother Oldham, I think this court ought to state clearly and emphatically, that compromises of this sort should be thoroughly investigated and maturely considered before they are authorized. This does not mean that undue delay or expense should be suffered by reason of factious opposition, desire to harass individuals claimed to be liable, or attempts to extort money. But the proceeding is undeniably capable of abuse, and it would be most unfortunate to permit any impression to go abroad that ill-considered or collusive compromises will .be tolerated.