Case Name: Finney & als. v. Bennett
Court: Supreme Court of Appeals of Virginia
Jurisdiction: Virginia
Decision Date: 1876-03
Citations: 27 Gratt. 365
Docket Number: 
Parties: *Finney & als. v. Bennett.
Judges: 
Reporter: Virginia Reports
Volume: 68
Pages: 502–507

Head Matter:
*Finney & als. v. Bennett.
March Term, 1876,
Richmond.
Banks — Dissolution—Creditor’s Bill — Receiver. —The bank of P. was ruined' by the late war; and no officers of the bank have been elected nor has there been a meeting of the board since April 1865, and it has done no business since, and in fact it had been abandoned and ceased to exist. In April 1866 H. and M. suing as well for themselves as for all the other stockholders, creditors and depositors, &c.,' filed their bill against the bank and the president, for a settlement of its affairs and a distribution of its assets. The court appointed a receiver in the case, and in June 1866 there was a decree for an account. Held:
1. Same — Same—Same.—It is a proper case for a creditor’s suit.
2. Same — Purchaser of Debts — Rights.—A debtor of the bank purchasing debts due, from the bank after the decree for an account, is only entitled to stand in the shoes of Ms assignor, .and receive Ms proportion of the assets realized.
The principal case is cited in the following cases: Universal, etc., Co. v. Binford, 76 Va. 109, where it is distinguished; Nunnally v. Strause, 94 Va. 260, 26 S. E. Rep. 580, where it is approved; Richmond, etc., Ry. Co. v. N. Y., etc., Ry. Co., 95 Va. 389, 28 S. E. Rep. 573.
3. Same- Action by Receiver — Record as Evidence.— In an action by the receiver against a debtor of the Mude the record in the chancery cause is evidence for the plaintiff.
This is a supersedeas to a judgment of the circuit court for the county of Pittsyl-vania, rendered in an action of debt brought by Coalman D. Bennett, “who styles himself treasurer of the Pittsylvania Savings Bank at Pittsylvania court-house,” against William A. J. Finney, Jesse Carter and Philip Thomas, surviving promisors of themselves and George Craft, deceased.
The action was brought in April 1868, on a note for S3,100, dated Pittsylvania courthouse, March 23d, 1861, signed by said Finney, Carter, Craft and Thomas, ^payable sixty days after date to said Bennett, treasurer as aforesaid, or order, without offset for value received. The declaration was in the usual form. The defendant demurred to the declaration, plead payment, and filed an account of offsets. The plaintiff joined in the demurrer, and also joined issue on the plea. On the 6th day of November 1868, the court overruled the demurrer; and the issue on the plea of payment was tried by a jury, which found a special verdict, in which were set forth all the facts proved upon the trial, in substance as follows:
The defendants proved three certificates of deposit in the said bank, two by Elizabeth Stone, one for $1,662.33, No. 1890, dated September 25th, 1858, and the other for $2,696.66, No. 1836, dated August 2d 1858, and the third of the said three certificates of deposit was by Watoley Anderson, for $605.51, No. 2521, dated October 8, 1861; and proved that said three certificates were regularly assigned in writing to William A. J. Finney, the principal debtor in the note aforesaid, before the commencement of the suit; which said certificates and assignments were embodied in the special verdict. And the defendants further proved, that the amount as shown on the back of each of said certificates, No. 1890, and No. 1836, is still due and unpaid by the said Pittsylvania Savings Bank, to-wit: on No. 1836 the ampunt due as of the 17th January 1865 is $2,695.66, and on No. 1890 the amount due as of the 16th of June 1864 is $1,662.33, and that the a mount, due on certificate 2521 as of the 16th of August 1866 is $619.40.
The jury further found, that the defendant Finney acquired ail the said certificates after the order of account was made at May term 1866, in a chancery suit now pending in the circuit court of Pittsylvania, in *the name of George W. Hall and R. W. Martin, against Pittsylvania Savings Bank and others. But that the certificates No. 1836 and No. 1890 were acquired before the order of injunction in said cause, made at October term 1867. And the jury found that the said suit in chancery is still pending, and they set out in their ver-diet the record of the said suit; from which it appears that,
The bill was filed on the 28th of April 1866 by Geo. W. Hall and R. W. Martin, suing as well for themselves as for all the stockholders, depositors and creditors of the Pittsylvania Savings Bank, who will come forward and contribute to the costs of the suit; and the said bank, and Richard White, late president thereof, were made defendants to the bill. The complainants among other things, state in substance in their bill that the said bank was incorporated on the 15th of March 1850 by an act of the legislature of Virginia; that it went into operation soon after its charter at Chatham, in the said county, and was prosperously engaged in the business of banking until during the war, when it became utterly insolvent; that it has been broken up and destroyed by the result of the war, since which it has not been engaged in business, nor has there been any election of officers, nor any meeting of the hoard of directors since April 1865; and that by mutual consent, and general understanding of all parties interested, it had been abandoned, and in fact ceased to exist; that there was “a large amount of money due to the said bank by negotiable notes discounted by it while doing business, most of which are well secured, or at least were so,” &c. “That these notes, all the books, records and effects of the bank are now in the hands of some "one or more of the officers last elected by the directors; *that no one has been appointed by the directors or stockholders to take charge of the said notes, books, records and effects, in order to wind up and settle its accounts, but they remain in the custody in which they were when the bank ceased to do business;” that the stockholders and depositors in said bank are very numerous (some of them infants, and others laboring under disability), so that they could not all be united in a suit without great inconvenience, expense and delay; that the complainants are depositors and creditors of said bank, and directly interested in the assets belonging to it; and that there are no liens on the same. They therefore pray that defendants he made to the bill as aforesaid; that all the stockholders, depositors and creditors who will come forward and prove their claims, &c., be allowed to do so, and to have the benefit of any decree that may be made in the suit; that a receiver may be appointed, all necessary accounts settled, the debts due to the bank collected, the rights of all parties interested ascertained, its debts paid, and the proceeds divided among complainants and the other parties entitled thereto; that an injunction might be awarded (if necessary) to stay proceedings at law against said bank; and for general relief.
On the same day on which the bill was filed, the defendant, Richard White, late president of the bank, filed his answer; in which he admitted all the allegations of the bill to be true, and submitted to the court to make such decree as might seem.right and proper.
On the 28th day of April 1866, on the petition of the said complainants, the judge of the said court, in vacation, appointed a receiver in the case, who was the said Coal-man D. Bennett.
On the 9th of June 1866, there was a decree in the *cause for an account bv a commissioner, of the debts due by and to the bank, and that the commissioner should, bv notice, set up at the courthouse door of the county, and inserted for at least four successive weeks in a newspaper published in the town of Danville, warn and require all creditors of the bank to prove their debts or demands before him at such time as he should appoint for taking said accounts, and the commissioner was directed to make report to the court.
It appears that commissioner Neal made a report in pursuance of the said decree of the 9th of June 1866, but a copy of it is not in the record. It appears, however, that he ascertained and reported that the creditors of the bank would be entitled to 48 4S-100 per cent, on the amount of the debts due to them respectively by the bank, as their ratable portions of the assets of the bank which were available, but that only 30 per cent, on said amount could for the present be paid to them.
On the 9th of November 1867 the cause came on again to be heard on the papers formerly read, and the report of commissioner Neal, to which there was no exception; when the court — Wingfield J.' — delivered the following opinion:
This is a suit brought by certain depositors in and creditors of the bank, suing for themselves and all other creditors of the bank, upon the ground that the bank has, by the calamities of the late war, become insolvent, ceased to do business, and is practically dissolved.
Has a court of equity jurisdiction in the premises? is a question raised by the counsel of some of the creditors of the bank, who suppose they have obtained a legal advantage over others by the assignment of *their certificates of deposit to debtors of the bank, to be used as offsets against the debts due from the latter to the bank, and they insist that the remedy of the creditors of the bank is by actions at law, and that this court has no jurisdiction.
This bill seems to have been brought upon the principle of a creditor’s bill against the estate of a deceased insolvent debtor in the hands of his personal representative.
In considering the subject, one cannot but observe the striking analogy between the creditors of an insolvent corporation and those of an insolvent decedent’s estate in the hands of his personal representative. In each case the remedy of the creditor at law is complete — if he obtained his judgment, he became entitled to satisfaction to the exclusion and prejudice of the rest. In each case the maxim, that equality is equity, disposes the court to intervene — in each case the discovery of assets and the settlement of intricate accounts is necessary before justice can be done. Insolvency to a corporation produces in many respects the same consequences that death does in the case of a natural person. Its labor in its vocation ceases — its vital functions are ended — it no longer does or can .pursue the objects of its creation. It goes into liquidation, which to it is administration on its effects. A natural person who has become insolvent still lives and works, and may retrieve his fortune. The insolvent corporation has ipso facto ceased its life work forever; that which formed the motive power for carrying it on (the value of its stock) is annihilated; its property can only be used for the payment of its debts. When this is done, it is a thing of the past.
The creditors of the bank are of various classes. Some of them are under the disability of coverture *and infancy, and could not sue at law in their own names. Many of the certificates are for funds deposited by orders of chancery courts, upon which no proceedings can be taken until the chancery courts can have an opportunity to authorize proceedings at law.
Meanwhile the other creditors may, by motion on ten days’ notice, unless restrained, acquire liens which will absorb the whole of the assets. Upon the whole, I think that upon the same- principle that á court of equity has jurisdiction in the case of a creditor’s bill or bill of conformity (if there were no other ground), the court of equity ought to take jurisdiction in cases like this.
But it may be said, there is no precedent for such a case. Concede this. Yet it does not follow that when a case arises which comes within the principles of its constitution and ordinary jurisdiction, the court ought not to take cognizance of it because it is a new case and not to be found in the reports. It ought to be borne in mind that these savings banks are institutions of recent origin; and that no question as to the administration of their effects, upon going into liquidation upon insolvency, has probably gone up to the higher courts; and. an eminent recent chancellor of England has declared, that “it is the duty of every court of equity to adapt its practice and course of proceedings, as far as possible, to the existing state of society, and to apply its jurisdiction to all new cases, which, from the progress daily making in the affairs of men, must certainly arise.” (Uord Cottenham, 4th Mylne & Craig, 141.) The right of a court of equity to jurisdiction in such a case seems to have been held by an eminent Virginia judge in the case of Barksdale v. Finney, 14 Gratt. 338. The president, Judge Allen, apparently replying to an argument from the bar, at -page 360, says: “They (the appel-lees) were asserting their individual claim against their personal debtor. It is not a creditor’s bill, calling for the distribution of the assets of an insolvent corporation among all entitled to participate,” &c. It seems clear, from the context in which this occurs, that it was his opinion that a creditor’s bill would lie for the distribution of the assets of an insolvent corporation.
The fact that the creditors of the bank had each a remedy by action at law, furnishes (I think) no sufficient objection to the jurisdiction of a court of equity in cases like the one under consideration. If so, the same objection might have been originally taken to a bill of conformity, or a creditor’s bill. It was not because the creditors had not a remedy at law that the courts originally took jurisdiction of a creditor’s bill. But. it was to prevent an unseemly struggle between the creditors, each trying to get an advantage over the other, so as to appropriate the assets to himself, to the exclusion of others who had equal claims in justice to satisfaction, and also to administer the assets equally among all the creditors, upon the principle that equality is equity. (See 1 Story’s Eq., § 547), where he states the equity of the creditor’s bill thus: “As executors and administrators have vast powers of preference at law, courts of equity ought, upon the principle that equality is equity, to interpose upon the application of any creditor by such a bill to secure a distribution of the assets without preference to any one or more creditors.” (And the same reason applies here; for the officers of the bank, in whose hands the assets were left, might have applied them to the payment of such of the creditors as they preferred, and left the others wholly unpaid.) Therefore, on a creditor’s bill, as soon as the court has taken jurisdiction *and made a decree for an account, it will prevent any of the creditors from proceeding elsewhere by en joining them, so as to protect the executor against vexatious and unnecessary suits, and to prevent them also from disturbing the equitable distribution of the assets. This is the doctrine of the court, although the assets are legal exclusively. $ 560. It was adopted, at a time when the order of distribution was unsettled, so that diligence gave preference. And this fact, that diligence gave preference, was the cause of the courts intervening by injunction to prevent it. Creditors who had not sued are restrained from suing at law at all; and those who have brought suits are stayed at whatever stage their actions may happen to be when the decree for an account passes. 1 Story’s Eq-, $ 549; Daniel’s Chan. Prac. 1844. The principle is stated by Story as follows: “The object of the court is to compel all the creditors to come in and prove their debts before the master, and to have the proper payments and discharges made under the authority of the court, so that the executor may not be harrassed by a multiplicity of suits, or a race of diligence be encouraged between different creditors, each striving for an undue mastery and preference.”
This principle of the courts of equity was established in the reign of Charles the Second, and we have seen it enacted into statute law in our own time. And (I think), therefore, that causes similar in principle ought to be administered and governed by the same rule. There is besides (on grounds of public policy) another reason why courts of equity ought to take jurisdiction in cases like this. These corporations are not created merely for the benefit of the corporators, but for the public convenience and benefit — to encourage industry, frugality and economy in the people, *and to afford them a safe and profitable depository for their earnings and small gains as their industry and other exigencies of their business may enable them to acquire and lay up for future emergencies; and we all know, in fact, that the capital put into these savings banks by those who are called the actual stockholders is but a mite compared with the operative capital put in by the depositors, who, if not actual, may be regarded as quasi stockhold-, ers, in having afforded the principal means upon which the bank operated; arid as the effects of the bank, when it ceased to do business, arose from a common fund cori-tributed by all of the depositors, they have in justice a right to follow it where it was invested by those who had the custody and management of it by the bank while it was in existence; and when recovered, it ought by the rule of right and justice to be divided ratably among all who so contributed, and ought not to be appropriated by a part of them to the exclusion of the others.
But if the court had not jurisdiction upon the principle of its constitution and ordinary jurisdiction, it would, in this case, have a substantive ground of jurisdiction to prevent the vast multiplicity of suits at law that must necessarily have arisen out of the subjects of this suit.
The court having (as I have endeavored to show) properly taken jurisdiction of the whole subject, appointed a receiver to take possession of the assets of the bank, and hold them for the benefit of all its creditors, decreed an account to be taken of the assets and of the debts due to and from the bank. The next question is, will it protect the funds which it has taken into its own hands? Unless it will, the result will be that while some of the creditors are properly proceeding upon a case of equitable jurisdiction to obtain *from this court such a disposition of the whole case as would be equal justice to all, and while they are prohibited by known rules from suing, as to the same subject of litigation in a court of law, others who have been cited to establish their claims in this forum may refuse, and proceed to frustrate all the work of the commissioner, destroy the principle of equity, absorb the entire subject which the court has undertaken to deal with, and thus wholly to defeat its jurisdiction. This can never be allowed by the court. To do so would be to abandon fundamental maxims upon which its jurisdiction is founded, and by which its relation to the law courts are regulated.
The order sequestering the effects of the bank, and putting them into the hands of a receiver for the benefit of all its creditors, and the decree for an account, for the purpose of their equitable distribution, were, in effect and principle, very much the same as an assignment in bankruptcy; and each of the creditors then became entitled to his ratable share of such effects, and had no right afterwards, by a contrivance with a debtor of the bank, to get his whole debt by the assignment of his certificate of deposit to such debtor, so as to enable him to get the whole amount allowed as an offset, and thus deprive other creditors of getting even their ratable proportion of the assets. Such a shift and inequitable contrivance ought not to be tolerated in a court of equity, and will not be allowed in this case. Therefore that statement of the commissioner which allows credits to the debtors of the bank for certificates of deposit acquired by them after the decree for an account was passed, only for their equal ratable proportion of such certificates, is approved, and the holders of such certificates will be enjoined from offsetting or pleading, or attempting to offset against *the debts due froih them any greater amount of any such certificate than the equitable ratable amount allowed thereon by the commissioner in the statement approved by the court as aforesaid.
The receiver will be directed to sell the letter-press mentioned in the report, and to proceed to collect the debts in his hands, and to report in order to a distribution.
The court approved and affirmed a portion of said report, and disapproved and rejected another portion thereof, and decreed among other things that the said receiver should proceed to collect the debts in his hands due to said bank, and to pay the costs of the suit, &c. And all parties who had appeared and proved their claims before the commissioner, or whose debts were reported by said commissioner in the statement approved by the court as aforesaid, were enjoined and restrained from finally setting off, or offering to set off, against their debts to the bank a larger amount than their pro rata share of the assets of said bank; but for the present were enjoined from so setting off a greater amount than 30 per cent, of their debt so reported as due to the bank, the court for the present reserving the difference between 30 and 48 45-100 per cent, on the amount of said debt, as a. fund to cover any deficiency that may occur on account of the failure to collect any of said,debts on account of the insolvency of the debtor or otherwise, and to insure equality in the distribution of the effects of the bank among all those entitled thereto; but for the present,' and until the further order of the court, the said receiver was directed not to collect from the debtors who hold such offsets, and whose offsets at par appear to be equal to, or greater than, the amount of *their debts to the bank, any, greater sum on the amount of such debts than the excess over 48 45-100 per cent, thereon; but in all cases where debtors have such offsets, he is to allow them credit at present for 30 per cent, on the amount as ascertained to be due from the bank to the holder of such offsets by the report aforesaid; and the receiver was directed to report his proceedings to the court.
And the jury further found that the certificates of deposit aforesaid were included by commissioner Neal in a report made by him in pursuance of an order made in the chancery suit aforesaid, and approved by the said court; but that the said certificates were never presented by the holder thereof, or by any other person before said commissioner, or attempted to be proved. If upon the above facts the defendants were only entitled to a credit of 30 per cent, upon their certificates of deposit, then the jury found for the plaintiff the debt in the declaration mentioned, with interest 'from the 25th of May 1861, subject to a credit of $1,648.37, as of the 16th of August 1866. But if the defendants were entitled to the full amount of their said certificates, then the jury found for the defendants.
The court rendered judgment for the plaintiff upon the special verdict.
An exception was taken by the defendants to the ruling of the court in the progress of the trial, in admitting the record of the suit in chancery aforesaid as evidence, and instructing the jury that they should only al-' low 30 per cent, of the certificates filed by the defendants, by way of offset to the plaintiff’s demand. An exception was also taken by the plaintiff to another ruling of the court in the progress of the trial, but it is not material to the decision of the case.
To the judgment aforesaid the defendants applied *to a judge of the late district court at Bynchburg for a supersedeas; which was accordingly awarded.
Dabney, Tredway & Barksdale, for the appellants.
Ould & Carrington, for the appellee.

Opinion:
Moncure, P.,
delivered the opinion of the court.
After stating the case he proceeded:
The only question in this case is, whether the bill in the proceedings mentioned, filed on the 28th day of April 1866 by George W. Hall and R. W. Martin, suing "as well for themselves as for all the stockholders, depositors and creditors of the Pittsylvania Savings Bank, who will come forward and contribute to the costs of the suit," is what is called a "creditor's bill," or has the same effect? Por if it is, or has, it is perfectly certain that the decree for an account, rendered in the suit on the 9th day of June 1866, operated as a decree in favor of all the creditors of the said savings bank, all of whom might come forward and prove their-claims under the said decree, and placed them all on an equality in the distribution and application of the assets of the said bank, except such as at the time of said decree may have had specific liens on the said assets or any part thereof, which liens would, of course, remain in full force, notwithstanding such decree. So that in that view the plaintiff in error, Wm. A. J. Fin-ney, having obtained the assignments of the certificates of deposit in the proceedings mentioned after the date of the said decree of the 9th day of June 1866, acquired only the rights to which his assignors were then entitled in regard to the assets of the said bank, which were to a ratable proportion of *the said assets with the other creditors of the bank, which ratable proportion has been accorded to the said assignee by the judgment of the court below; and the said judgment ought therefore in that view to be affirmed.
The learned judge of the court below, in an able opinion delivered by him, and made a part of one of the decrees rendered in the said chancery suit, maintained this view; and as we entirely concur in that opinion, we adopt it as our own, which makes it unnecessary for us to say much, if anything more, in the case. Besides the cases referred to in that opinion, that of Exchangee Bank of Va. &c. v. Knox &c., 19 Gratt. 739, since decided by this court, has an important bearing upon the question; and much of what is said by Judge Christian in that case, in whose opinion the other judges concurred, is strongly confirmatory of the same view; and so are the cases, or many of them, referred to by the counsel for the ap-pellees, among which are the cases cited from 21 Howard 112, and 22 Id. 380. The nature, object and effect of a "creditor's bill," and the course of proceeding therein, are set forth in 1 Story's Eq., sections 547-550; and in Story's Eq. PI., sections 99-104. See also the cases referred to in the notes to those sections. That this case comes within the same reason, and is subject to the same principle, which apply to an ordinary creditor's bill, in regard to the distribution of assets among creditors, seems to us to be very clear. Here is a case in which, by a sttdden and extraordinary convulsion of war, a bank has been rendered insolvent, and totally unable to prosecute its business. Its stockholders have been deprived of all their property, and the remaining assets of the bank are insufficient to pay its debts, or even fifty per cent. *of their amount, if apportioned rata-bly among the creditors. There has been no recent election of officers of the bank; and there is no responsible person in charge of its assets, whose duty it is to collect and apply them to the payment of the debts of the bank; and there is danger of a general scramble among the creditors for priority, by bringing suit, obtaining judgment, and suing out execution against the bank. What more suitable case could there be for a creditor's bill, and the application of the rules and principles which apply to it? — and for the application of the rule of equity, that "equality is equity'?" Here is a trust fund, amounting, it is said, to about 5100,000, without a trustee, and distributable among a large number of creditors. The law affords no adequate remedy for such a case, none that will not producé the greatest confusion, and end in the rankest injustice. Is it not a case vs'hich loudly calls for equitable relief — the institution of a suit by some in behalf of themselves and all the other creditors, the appointment of a receiver, and the collection of the assets and distribution of them ratably among all the creditors? Surely cases already decided by courts of equity warrant this court, if not expressly, at least by strong implication and analogy, in pursuing that course. And if there be no case' expressly in point, it is the province of a court of equity to provide a suitable and adequate remedy for such a case. A necessity for new remedies, or rather for the application of old remedies to new cases, is continually arising in the progress of affairs and the transactions of mankind; and our system of law and equity is so wisely and happily framed, that it can be moulded to suit any new case -which may arise. The opinion of Bord Cottenham, in the case of Taylor v. Salmon, 4 Myl. & Cr. 133, 141 (18 Eng. Ch. *R.), referred to by the judge of the court below, is well expressed on this subject. "I have before, taken occasion to observe," says his lordship, "that I thought it the duly of this court to adapt its practice and course of proceeding as far .as possible to the existing state of society, and to apply its jurisdiction to all those new cases which, from the-progress daily making in the affairs of men, must continually arise, and not from too strict an adherence to forms and rules established under very different circumstances, decline to administer justice, and to enforce rights for which there is no other remedy."
In regard to the admissibility of the record of the chancery suit aforesaid, as evidence in the case, we are of opinion that there is no error in the ruling of the court below, as mentioned in the bill of exceptions tendered by the defendants. They were in effect parties to that suit, and conclusively bound by it.
Upon the whole, we are of opinion that there is no error in the judgment of the court below, and that it ought to be affirmed.
Judgment affirmed.