Court Opinion

ID: 8836252
Source: CourtListenerOpinion
Date Created: 2022-11-26 16:25:13.796976+00
Date Added: 2024-06-11T17:05:04.791071
License: Public Domain

Me. Justice Thomson dissenting in part: The principles of law, applicable to the questions of fact involved in this case, as announced by our Supreme Court in Golden v. Cervenka, 278 Ill. 409, at 430-433, are binding upon this court. The basic question, upon which I am not entirely in agreement with the foregoing majority opinion, involves the interpretation of the opinion of the Supreme Court. In the case of a number of items among the assets of the National Bank, the opinion of the-majority of this court finds, in effect, that they had a value, as of October 21, 1912, as ascertained by their final collection. As to many items, the form of the finding is that the Central Trust Company should be allowed a credit on the amount of its liability, equal to the amount collected on the items by the Trust & Savings Bank or by the receiver. Under the decision of the Supreme Court, no allowance can be made except on the basis of the value of the items in question, as of the date of the transfer, namely, October 21, 1912. Therefore, if. such credits are given, based upon ultimate collections, in whole or in part, it is in effect a finding that the items on which the credits are given were of the value of the ultimate collections on the date referred to. In my opinion, to hold that wherever the evidence shows that a note held by the National Bank as a part of its assets on October 21, 1912, was ultimately collected in whole or in part by the Trust & Savings Bank or by the receiver, with or without suit, or in partial payments, it therefore had a value, on the date referred to, equal to the amount so ultimately collected or recovered on it, is directly contrary to the opinion of the Supreme Court. In my opinion, there is no proper basis for the conclusion, stated in the majority opinion, to the effect that, on the original hearing of this case, the receiver took the position that allowances should be made for all set-offs and amounts collected by the Trust & Savings Bank, nor is there any basis for the statement there made to the effect that in the decision of the Supreme Court in the case of Golden v. Cervenka, that court, “allowed the amounts collected and obtained by the receiver.” As I understand the decision and opinion, the Supreme Court did not do that, nor did it have any ocea,sion to, for that matter was in no way involved in the record or the issues before the Supreme Court in that case. In its opinion, the Supreme Court, having pointed out that, while the evidence in the record then before the court might indicate an impairment of capital, it did not show a condition of insolvency at the time of the transfer from the National Bank to the Trust & Savings Bank, proceeds to hold that the question of whether or not the amount of the capital and surplus of the National Bank had been impaired, “depends upon the collectibility of the loans which constituted a large part of the resources of the bank.” The decision of the majority, as to those items of assets, on which I feel obliged to dissent, is based upon an interpretation of the opinion of the Supreme Court to the effect that it means that the question of whether the capital and surplus of the National Bank had been impaired at the time of the transfer depends upon whether the loans, which constituted a large part of the resources of the bank, were finally collected. Certainly, if the Supreme Court meant that, it would have said so very clearly and would have fixed the liability of the Central Trust Company at $1,250,000, less the difference between the total amount collected by the Trust & Savings Bank or ultimately recovered by the receiver on the items of assets, and the amount of the liabilities. But, in its opinion, the Supreme Court has not said that, but on the contrary has said that the extent of the liability of the Central Trust Company is the difference between $1,250,000 and the value of the net assets of the National Bank “on the date of the transfer.” That the Supreme Court, in holding that the question of -whether the net assets which came to the Trust & Savings Bank in lieu of the $1,250,000, and representing the capital and surplus of the hank, had been impaired, depends upon the “collectibility” of the loans which constituted a large part of the resources of the bank, did not have in mind the question of what might ultimately have been “collected” on the loans, is to my mind, made absolutely clear by what the court says on the following page (432) of the opinion. After referring to some of the evidence shown by the record, then before the court, and the contentions of the parties, the court proceeds by saying: “The solvency of the bank on October 21, 1912, is not, however, to be determined by the condition of the assets of the Trust & Savings Bank on June 11,1914. (The date the bank suspended and went into the hands of the receiver.) The question is not what was the value of the assets of the bank as ascertained by their final collection, but what was the value on the date of the transfer.” (October 21, 1912.) The court says further: “If upon an examination of the bank at that time, in the judgment of prudent bankers familiar with the credit of the debtors, the value of the loans of the bank was equal to the amount at which they were carried on the books of the bank, the capital of the bank cannot be regarded as impaired at that time because it eventually turned out that a portion of the loans could not be collected.” In other words, the value of a loan carried by the bank on October 21,1912, and appearing among its assets, depends upon its then collectibility, but not upon the amount ultimately collected upon it. For example, the bank may have held the note of A., on October 21, 1912, for $10,000, secured by bonds in the sum of $20,000 in the A. Company. Admittedly, let us say, A. was worth $50,000 over and above his liabilities on October 21, and the bonds of the A. Company had a market value of par or higher. The note was due three months after the transfer. Bnt, a month before it fell due, the A. Company had a disastrous fire which was a total loss. The insurance companies failed and A. became insolvent and the bank recovered little or nothing on the note. "We all agree that, in considering that note as part of the assets of the National Bank, we must value it, as of the date of the transfer, October 21, 1912, at its face value, namely, $10,000. But let us consider the converse of that proposition. Let us assume, the note of A. and the bonds of the A. Company were in fact worthless on October 21. The company shortly thereafter went into bankruptcy and the bonds paid nothing. Suit was brought against A. and judgment recovered and execution levied on a home he had which was worth but little above a mortgage which was on it, and the homestead value. But assume that a brother of A. came to his rescue, and, to relieve him, persuaded the bank to take $2,000 in satisfaction of its judgment. In considering the note of A. as a part of the assets of the bank, the majority would give it a value of $2,000. In my opinion, that course is not warranted by the decision of the Supreme Court nor by anything said by the court in its opinion. It is the value of the note on the date of the transfer that must be found. If it was admittedly of no value, then it can be given no value as a part of the then assets of the bank, irrespective of whether anything was ever collected on it or even though it may ultimately have been collected in full, unless the circumstances of the collection were such as to import value on October 21, 1912. The Supreme Court has held that under our State banking laws, the Trust & Savings Bank should have had $1,250,000, the full amount of its capital and surplus, in hand, in cash and available for use for banking purposes, at the time it received its charter. To comply technically with the law, the Central Trust Company supplied currency to that amount, so that the representative of the State auditor might count it and issue the charter to the new bank, and, that having been accomplished, the Central Trust Company took back its $1,250,000 and the new bank proceeded with a capital and surplus represented by the assets of the National Bank, and having assumed its liabilities. The court further held that if the value of the assets of the National Bank, less its liabilities, then equalled $1,250,000, the creditors may not complain although the law was not complied with. In determining this question the assets must be taken at the value they had on October 21,1912. The creditors and depositors had a right to rely on the representation afforded by the charter, namely, that the bank had $1,250,000 in its hands, in cash, when it organized. The effect of the decision of the Supreme Court is that the creditors cannot complain if it was not cash, provided the full value was then there, and was of such form as to be as available for banking purposes as the cash would have been. It follows that the question is, as to any item included in the assets taken over by the Trust & Savings Bank, what was its value to the bank on October 21, 1912, for banking purposes? Of course, if it could not have been rediscounted anywhere and could not have been collected or turned into money, it was worthless to the bank for banking purposes and should be given no value. The fact that one, two or three years later the bank or the receiver, by suit or through bankruptcy proceedings or a compromise, recovered something on it, should not be held to have the effect of giving the paper value to that extent in the hands of the bank on October 21, 1912. Such value did not improve the condition of the paper in the hands of the bank on that day, for the purpose of running a bank. What the bank’s charter, which had been issued as a result of the representation that the $1,250,000 furnished. by the Central Trust Company was the cash capital and surplus of the Trust & Savings Bank, assured the public and the bank’s creditors and depositors was that the bank had been authorized by the State of Illinois to do a banking business as a State bank, with $1,250,000 in cash and available in its hands for banking purposes, and before any paper that took the place of that cash can be given the value of cash, it must be demonstrated not only that it then had that value but that it was as suitable for banking purposes as cash would have been. To hold otherwise would amount to saying that if a State bank, under the circumstances present here, procured a charter and proceeded to business with little or no cash but, instead, with a lot of commercial paper, which at the time had no cash or rediscount value whatever, and, therefore, was worthless for banking purposes, the creditors nevertheless could not complain, provided, the bank having failed, its receiver succeeded by suit of otherwise in ultimately reducing the paper to its cash value in full. Certainly such is not the law. Wha.t the public has a right to rely upon as the result of a State bank charter is not that the bank started out with a lot of paper that a receivership can succeed in collecting, but with cash, or assets just as available and valuable and suitable for banking purposes as cash. Of course it may well be that a loan held by the National Bank on October 21, 1912, and making up a part of its then assets, may be shown to have been later paid, under such circumstances as to warrant a finding that it was worth its face value on that date. For example, the note of A. for $10,000 held by the bank on October 21, and due November 15, or December 15, may be shown by the bank’s books to have been paid on its due date, apparently in cash by its maker and without any increase in the liability account of the maker, in the bank. In such a case, in my opinion, the facts are such as to lead reasonably to the conclusion that the note was worth its face value to the bank for banking purposes on October 21. There are a number of items thus found by the majority opinion to have been of value equal to their face,, by reason of their payment and where the circumstances surrounding the payment are such as to warrant such finding, in my opinion,—as in the foregoing illustration, and as to such items, I concur in the findings. But where the circumstances are not such as reasonably to lead to a conclusion that the items were of value equal to the payments ultimately accomplished, I feel obliged to dissent for the reason that in my opinion they do not come within either the letter or the spirit of the decision of the Supreme Court. But counsel for the Central Trust Company contends that not to give a note in the National Bank on October 21, the value which ultimately may have been collected upon it, no matter what the circumstances, “would allow the receiver double collection on the item, once from the maker and again from the Central Trust Company.” In my opinion, that contention is entirely beside the question involved here and has no application to the issues presented in this case. This is not a suit between the debtor and creditor, involving proper credits to the debtor on all payments he may have made at any time on his indebtedness. In other words, this case is not one for the application of payments as between debtor and creditor. What the Supreme Court directed to be inquired of by the master is not how much was ultimately collected on a given note but whether on October 21, 1912, it was a collectible note. A note may on that date have been such as to warrant the court in finding it was then collectible, although in fact, by reason of circumstances subsequently arising, nothing was ever collected upon it. On the other hand, a note may on that date have been such as to warrant the court in finding it could not then reasonably be considered a collectible note, in spite of the fact that subsequently the Trust & Savings Bank or' its receiver, succeeded by suit, or as tbe result of bankruptcy proceedings, or by compromise with the debtor, or arrangement with another, collected something on it, or even by a long series of small payments, managed to finally collect it in whole or in part from the debtor himself. In any one of the latter circumstances, I am of the opinion that the subsequent payments or collections on the note are not such as to warrant giving the note value to the bank for banking purposes on October 21, 1912, to the extent of such payments or collections. The difference between the interpretation of the decision of the Supreme Court by the majority and that which I feel obliged to place upon it is well illustrated by item 37 of Division XIII of Loans and Discounts, being the note of one Osbum indorsed by one McNichols. This was a demand note dated November 2, 1910. It was included among the assets of the National Bank on October 21, 1912, and passed, on that day, to the Trust & Savings Bank and remained in the latter bank until it suspended in June, 1914, when the note came into the possession of the receiver. The master gave that note its full face value as a part of the assets of the National Bank and the majority opinion affirms that finding. The record shows that during the time the note was in the bank repeated demands were made for payment of the note, but without result. It was finally collected by the receiver from the indorser in September, 1915. The majority opinion affirms the master’s finding on this item, on the theory that the note must be held to have been a collectible note, within the meaning of that term as used by the Supreme Court in its opinion, because ultimately it was collected by the receiver. On the other hand, I feel obliged to dissent because, the fact that the receiver was finally able to collect the amount due on the note from the indorser in the fall of 1915, the note being a demand note carried by the bank from the fall of 1910 until it suspended, does- not show such circumstances as to warrant a finding that it was “collectible” on October 21, 1912. It certainly was not then collectible and was utterly worthless to the bank for banking purposes in lieu of cash and as a part of its capital -and surplus. In the course of his argument, counsel for the Central Trust Company contends that what is meant by “banking purposes” is not quite clear and it is urged that “it would seem that a note is worth for banking purposes, the same amount it is worth for any other purpose.” In my opinion, that contention is wholly unsound. A note may be worth its face value to an individual looking for a long-term investment and yet be worthless to a bank for banking purposes. To make a note valuable to a bank for banking purposes it must be capable of rediscount. In effect, it must be as valuable to the bank for its purposes in running the bank as cash would be. I concur in the decision of the court as announced in the foregoing majority opinion as to all items making up the liabilities of the La Salle National Bank on October 21, 1912, and also as to all items making up its assets, except those items of assets constituting its overdrafts and certain items included in its loans and discounts, to which specific reference is hereinafter made. TheTe are a few items in which I concur, for reasons other than those given for the decision of the court on those items in the majority opinion, but I shall not prolong this opinion by referring to those items specifically. In referring to those items of assets on which I do not agree with the decision of the court, as set 'forth in the majority opinion, I shall follow the classification there used and I shall not refer to the facts involved in the items, as they are fully set forth in the foregoing opinion of the court,—except in so fa,r as it may be necessary to refer to the facts in giving the reasons for my disagreement. Those items on which I am obliged to dissent, are the following: (Here follows a discussion of the items of assets as to which Judge Thomson does not agree with the majority opinion.) In my opinion, therefore, the total value which should be given the assets of the National Bank as of the date of the transfer of the bank to the Trust & Savings Bank is $3,280,060.33. As stated in the majority opinion, the liabilities of the National Bank as of that date have been found to be $3,352,580.39. I am therefore of the opinion that on October 21, 1912, the bank was, in fact, insolvent to the extent of $72,520.06, and, consequently, that the capital and surplus of the bank were wholly impaired and that the decree entered in this case should be to the effect that the Central Trust Company should pay to the receiver, representing the creditors of the bank, $1,250,000 with interest at 5 per cent from September 24, 1915, together with the further sum of $16,203.52, the receiver’s costs in the trial court. Mr. Justice Taylor concurring, save as to five items. Vast as this record is, we have carefully and thoroughly examined the many congeries of facts that are therein presented for consideration. In reality it contains not one but many lawsuits. The reasoning of the opinion of the Supreme Court shows that we were directed to find the financial condition of the National Bank as of October 21, 1912, so as to determine what loss, if any, the creditors of the Trust and Savings Bank may have suffered. In that opinion, Mr. Justice Dunn, applying appropriate, equitable principles, in predetermining, approximately at least, whether the evidence then before the Supreme Court justified a reversal and remandment, made a computation, and in doing so considered what had been collected since October 21, 1912, either by payment or compromise, as a credit to the Central Trust Company, and, therefore, as sufficient evidence of value as to those particular assets upon which payments had actually been made after October 21, 1912. We do but follow his reasoning and his example, as illustrated by his computations, in holding that what was actually paid after October 21, 1915, should be considered as a credit to the Central Trust Company. Further, wherever the evidence sufficiently proved that .an item had value, it has been allowed according to that evidence and regardless of payment. I concur in the majority opinion except as to three items of assets and two of liabilities. (Here follows a discussion of the five items, which is omitted by direction of the court.) In my opinion the assets of the National Bank on October 21, 1912, which are fixed in the majority opinion in the sum of $3,865,359.85 should be increased by $101,760.62, which latter figure is the aggregate of the David Davis, Topeka Milling Company and Good-will items. The total assets then become $3,967,120.47. In my opinion the liabilities of the National Bank on October 21, 1912, fixed in the majority opinion at $3,352,580.39, should be decreased by the amount of the taxes, $6,000, and the difference between $53,250 and $21,202.02, the liability to nonconsenting stockholders. The total liabilities of the National Bank on October 21, 1912, then become $3,314,532.41. Subtracting the liabilities, $3,314,532.41 from the assets, $3,967,120.47, gives, as the value of the assets of the National Bank on October 21, 1912, over and above all its liabilities, the sum of $652,588.06. The impairment of the capital stock and surplus of the National Bank on October 21, 1912, would, therefore, be the difference between $652,588.06 and $1,250,000, which is $597,411.94, for which latter sum together with interest thereon at 5 per cent per annum from September 24, 1915, to tbis date, tbe Central Trust Company would be liable.