Court Opinion

ID: 6978095
Source: CourtListenerOpinion
Date Created: 2022-07-24 02:14:36.496295+00
Date Added: 2024-06-11T16:09:05.069170
License: Public Domain

Mr. Chief Justice Craig, dissenting: The LaSalle Street National Bank gave its cashier’s check to the Central Trust Company, and on that cashier’s check the Central Trust Company advanced the national bank the sum of $1,250,000, which by direction of the officers of the national bank was placed to the credit of the LaSalle Street Trust and Savings Bank, the new State institution being organized. This amount was deposited to the credit of the LaSalle Street Trust and Savings Bank, was drawn by the president of the latter bank and exhibited to a representative of the State Auditor in cash as the capital and surplus of that institution, after which it Was used to pay the cashier’s check or obligation of the LaSalle Street National Bank, which obligation, with all other obligations of the latter, the LaSalle Street Trust and Savings Bank had assumed in the merger. As far as the Central Trust Company was concerned, it advanced this money on the credit of the LaSalle Street National Bank, which transaction was entirely proper and lawful, and similar transactions occur constantly between banks. It was in the nature of a loan from one bank to the other. In law the national bank became indebted to the Central Trust Company. The evidence of the indebtedness was the cashier’s check, which remained an obligation to be collected by the Central Trust Company. The national bank was the only institution with which the Central Trust Company had any dealings whatever. There would have been no essential difference in the transaction if the national bank had deposited or assigned certain of its notes or other assets as collateral security for this obligation or had sold them outright to secure the cash needed. It had a right to get the money in the way it did, and the Central Trust Company had a right to loan it and take the obligation of the national bank and to have it paid. Suppose the national bank had sold and transferred notes or negotiable paper held by it to the amount of $1,250,000 to the Central Trust Company and received the cash for the said notes, and after the transfer the national bank, or the State bank, its assignee, had bought back these notes with the same cash, would there have been any essential difference in the transaction? And on what theory would the Central Trust Company be liable to the creditors of the State bank if the latter bank failed two years afterwards? In this connection it must be remembered that, so far as the Central Trust Company and any of its officers were concerned, the transaction was in entire good faith and without any knowledge or intimation on their part but that the national bank was perfectly sound and solvent and the cashier’s check,—the obligation which it had taken,—was perfectly good and would be re-paid. It must also be remembered that the Central Trust Company or its officers had no interest whatever in the change of the national to the State bank or in the organization of the latter bank, and the entire transaction was a mere accommodation rendered by the Central Trust Company to the LaSalle Street National Bank. It is not pretended that the officers of the Central Trust Company had any idea of deceiving or defrauding anyone. For this reason the authorities cited in support of the holding that the Central Trust Company was liable do not apply. It must also be borne in mind in this connection that at the time of' this transfer the national bank was a going concern and apparently solvent. The stockholders in that bank, with one exception, transferred their stock dollar for dollar for that in the new bank. The stock Of the LaSalle Street National Bank was being bought and sold at about its book value, and after the transfer, and up to the time of the failure of the State bank, the stock of that institution was bought and sold and traded in extensively at about its book value, as shown by the record and by the large number of stockholders who bought and sold stock at different times and are denying liability. The national bank had been regularly examined by bank examiners and reports of its condition had been sent to the comptroller of the currency. These examiners were witnesses in the trial of this case in the circuit court. They had made some criticisms and recommendations as to some of its loans, but up to the time of the transfer they did not regard the institution as insolvent or even in bad shape, and it would certainly seem that if they had so regarded it they would have recommended that it be liquidated, and they, in effect, so testified. This is of some importance as showing how the bank was generally regarded or would be regarded in financial circles as to whether its obligation or cashier’s check would be good. The fact that it had not been admitted to the Clearing House Association was no positive criterion as to its soundness. Even if the LaSalle Street National Bank was actually insolvent and those who effected the merger knew it, which is not shown by the evidence, the officers of the Central Trust Company had no such knowledge. The part taken by the Central Trust Company in furnishing the cash representing the amount of capital stock has been, in my opinion, given undue importance. Section 5 óf the Banking act requires that when a State bank is organized the Auditor shall be satisfied that the authorized capital has been paid in and the association has the full amount dedicated to the business. It does not require that it be paid in in cash. Such requirement simply rests on the ruling of the Auditor’s department. When a national bank or private bank is changed into a State' bank it is a new organization, and while it is true there is no provision in the State Banking law, as in the National Banking act, for such merger in case of a State bank, yet these transfers or mergers have been made frequently and have been a matter of common occurrence ever since the State Banking law went into effect. In such cases what actually takes place is a merger of one institution into the other. Every bank, national, private or otherwise, has capital on which it does business. This capital is not kept intact in currency in the bank’s vaults but is used in its business. It is loaned out and invested. Every bank also keeps books and makes statements showing its resources on the one hand and liabilities on the other. Its liabilities, generally speaking, are its capital stock, surplus and undivided profits, if any, and deposits which it owes to its depositors. Its assets are its cash on hand, amounts deposited with reserve agents and its notes or bills receivable. One balances the other. In other words, its capital stock and deposits are loaned out or kept in cash and with reserve agents. If the bills receivable or assets of a bank are good and collectible, and if its cash means, including what is deposited with reserve agents, and its bills receivable, together equal its liabilities represented by its capital and deposits, then the bank is solvent and its capital or capital stock is good and is actually worth the amount represented by said capital, surplus and undivided profits, generally spoken of as book value. In the case of such a ‘ bank, whether private or national, merging into a State bank, if the capital or the capital stock is good and unimpaired there can be no possible objection to exchanging such capital in the case of a private bank, or capital stock in case of an incorporated bank, dollar for dollar for stock in the new State bank; and if that is done, then the capital stock of the new institution can truthfully be said to be fully paid in dollar for dollar, and the furnishing and exhibiting of the amount of capital stock of the State bank in currency is altogether a matter of form, as, ordinarily, cash equal to the capital stock of a bank is not kept on hand unless its deposits would require such amount to be so kept. Hence in this case the really vital question is, as conceded in the majority opinion, what was the actual value of the stock of the national bank at the time of the transfer or merger?—as it must be admitted that if, as a matter of fact, no matter what the form of the transaction or the part taken by the Central Trust Company or anyone else in furnishing the $1,250,000 in cash representing the capital of the new bank, the stock of the national bank at that time was unimpaired and was worth what it was represented to be by its statements, then no one was injured or affected in any way by the transaction, as the new bank, the LaSalle Street Trust and Savings Bank, started upon its business career with $1,250,000 perfectly good, unimpaired capital stock, which stock had originally been subscribed and paid in cash. The statement of the condition of the LaSalle Street National Bank on October 21, 1912, as shown by the books of the bank, was as follows: Resources Oct. 21, ipi2. Loans and discounts..............................$2,521,264.74 U. S. bonds to secure circulation................... 650,000.00 Premium on U. S. bonds.......................... 7,104.00 Bonds to secure postal savings..................... 77,361.50 Other stocks and bonds........................... 186,605.00 Bank Bldg., furniture and fixtures.................. 32,000.00 Overdrafts ....................................... 3,265.92 Due from U. S. treasurer 5% fund................. 32,500.00 Cash and due from banks.......................... 1,049,080.04 $4,559,i8i.20 Liabilities Capital stock .....................................$1,000,000.00 Surplus.......................................... 250,000.00 Undivided profits.................................. 17,815.72 Reserved for taxes................................ 6,000.00 Circulation....................................... 647,495.00 Deposits ................................... 2,637,870.48 $4,559,i8i.20 According to this statement the bank had nearly the amount of capital and surplus, $1,250,000, available at that time. If the capital stock of the national bank was not worth its book value then the capital stock of the State bank was not fully paid in as required by law, and those who subscribed to that stock are primarily liable for any deficiency as unpaid portions of their subscriptions in addition to their superadded liability as stockholders. The Central Trust Company had no interest in the organization of the bank and took no part in it that could have deceived anyone or that would injure or deceive anyone and had nothing to do with its subsequent failure. By furnishing the money in the manner aforesaid it cannot be fairly said that it or its officers were parties to a scheme to organize the new bank without capital stock, even if there was such a scheme. In my opinion it is no more liable in this case than the treasury of the United States, from which the money that was counted as the capital stock of that bank originally came. To hold the Central Trust Company liable in this case for losses to creditors caused by the failure of the bank two years after it was organized, such failure being unquestionably due to bad loans and bad management during its existence, is contrary to all reason and authority. The majority opinion concedes that the Central Trust Com-' pany is not liable for the full amount of the capital stock but is only liable for the difference between its actual value and its book value, and it seems to me that the opinion is in this respect inconsistent, because if the stock of the national bank was worth its book value then no one was injured. . If it was not worth what it was represented to be, then the stock subscribers are liable to make up the deficiency. I do not concur in the holding of the foregoing opinion that the provision of section 11 of the Banking act authorizing the enforcement of the liability of stockholders to creditors by a receiver, as provided in that section, is unconstitutional. It is true that the liability of stockholders to creditors of the bank is created by the constitution, but does the statute in any way take away such liability or prevent its enforcement ? The statute was enacted to meet modern business conditions, and its purpose is to assist in enforcing such liability and provide an additional and effective remedy for the stockholders and creditors, so that in case of the failure of a bank the assets may be collected and realized upon and the stockholders’ liability be declared and the creditors paid in one proceeding, as far as possible, without a multiplicity of suits and the confusion and loss thereby entailed. In this case, which is probably a fair illustration of what may happen in any large bank failure, there are several hundred stockholders and several thousand creditors, and if it is to be left to - such action as each individual interested sees fit to take, it is very certain that hopeless confusion and great expense and loss will result. Some creditors will probably sue some stockholders and many of the creditors will never be paid, unless, perhaps, some stockholders who may not be sued will advertise that fact and invite the unpaid creditors to begin action. There is nothing in the statute, reasonably construed, that is at all repugnant to the constitutional provision in question, any more than are the Practice act or other methods of procedure, that have been provided by the legislature for the purpose of securing rights guaranteed by the constitution. It is true that in Wincock v. Turpin, 96 Ill. 135, in which there was a contest between a receiver and the creditors, a depositor was left free to prosecute his individual suit at law, but as stated in the opinion in that case (p. 143) : “It may be a state of facts might exist which would authorize a court of equity to bring before it all the stockholders and depositors and determine their rights and adjust equities, marshal the fund and distribute it pro rata, but no such case is made by this bill, and until such a case shall be made we must leave the depositors to pursue their remedies under the law.” And that case was distinguished in the later case of Eames v. Doris, 102 Ill. 350, in which it was held that there might be resort to a court of equity to enforce a stockholder’s liability, and that one creditor might, at the instance of the whole body of the other creditors, be restrained from the prosecution of his individual suit where such prosecution would be to the prejudice of the equal interests of all the creditors. And this would seem to be a proper case for intervention by a court of equity. As to the liability of Burnham & Co., while it is true that one corporation is prohibited by statute from holding stock in another corporation, the liability of Burnham & Co. as a stockholder is fixed by the constitution; and besides, it was not an investor in stock but was engaged in buying and selling stock for others as a broker, and was authorized so to do by the charter issued to it under the laws of the State of Maine. For this reason I think it was liable and that the authorities cited in support of its non-liability are not applicable. The same thing is true of the trustees of the Ellwood estate. Their liability as stockholders was a constitutional one and superior to the statute. - As to the liability of Elbridge Hanecy, it is sought to make him pay, along with other stockholders, an amount equal to the stock he held in the bank. He proved clearly, and it is not denied, that he has already paid this super-added liability. Because of the failure he lost the amount represented in the stock of the national bank which he originally subscribed for and paid in cash, and he also loses an amount equal to that which he paid in and will now have to pay another sum equal to his capital stock. In other words, he will have to lose three times the amount of his original investment whereas the other stockholders will only lose twice that amount. This is an equitable proceeding, and in equity he should be relieved from further liability as a stockholder. For these reasons I think the decree should have been reversed as to the Central Trust Company and Elbridge Hanecy and affirmed as to Burnham & Co. and the trustees of the Ellwood estate.