A bill in equity filed by a judgment creditor of an insolvent
national back which alleges that the president of the bank, under
cover of a voluntary liquidation, was converting its assets, in a
manner stated in the bill, in fraud of the rights of the
complainant and other creditors, and which prays a discovery of all
the assets, and of what moneys and assets have come into the
president's hands, and what disposition has been made of them, and
that the sales and conveyances of corporation property may be set
aside, and that the property of the bank may be delivered up to the
court, and that a receiver be appointed, and that the proceeds of
the property may be applied to the payment of the complainant's
debt is in fact a bill to obtain judicial administration of the
affairs of the bank and to thus secure the equal distribution of
its property, and an amended bill which states that it is filed on
behalf of the complainant and of all the creditors who may become
parties, and which charges that some stockholders named have parted
with their stock for assets of the bank after it had gone into
liquidation and in fraud of the creditors, and which prays that all
the stockholders may be individually subjected to the liability
created by the statute, and that the fund realized from the assets
and from this liability may be distributed among the creditors is
germane to the original bill, and does not materially change the
substance of the case nor make it multifarious, so as to make the
allowance of the amendment an improper exercise of the discretion
of the circuit court within the rule laid down in
Hardin v.
Boyd, 113 U. S.
761.
Under the original act respecting national banks, and before the
Act of June 30, 1876, 19 Stat. 63, a court of equity had
jurisdiction of a suit to
Page 121 U. S. 28
prevent or redress maladministration or fraud against creditors
in the voluntary liquidation of such a bank, whether contemplated
or executed, and such suit, though begun by one creditor, must
necessarily be for the benefit of all.
The Act of June 30, 1876, 19 Stat. 63, whether considered as
declaratory of existing law or as giving a new remedy, warranted
the circuit court in granting leave to file the amended bill in
this case.
The rights under a statute of limitations of a creditor who
becomes party to a pending creditors' bill depend upon the date of
the filing of the creditors' bill, and not upon the date of his
becoming a party to it.
The statutory liability of a shareholder in a national bank for
the debts of the corporation survives against his personal
representatives.
A stockholder in a national bank continues liable for the debts
of the company, under the statutes of the United States, until his
stock is actually transferred upon the books of the bank or until
the certificate has been delivered to the bank with a power of
attorney authorizing the transfer, and a request, made at the time
of the transaction, to have the transfer made; a delivery to the
president of the bank as vendee and not as president is
insufficient to discharge the shareholder under the rule in
Whitney v. Butler, 118 U. S. 655.
Without express authority from the shareholders in a national
bank, its offices, after the bank goes into liquidation, can only
bind them by acts implied by the duty of liquidation.
Creditors of a national bank who, after it suspends payment and
goes into voluntary liquidation, receive in settlement of their
claims bills receivable, endorsed or guaranteed in the name of the
bank by its president, cannot claim as creditors against the
stockholders, as the original debt is paid, and the stockholders,
in the absence of express authorization, are not liable on the
contract of endorsement or guarantee made after suspension.
A shareholder in a national bank, who is liable for the debts of
the bank, is liable for interest on them to the extent to which the
bank would have been liable, not in excess of the maximum liability
fixed by the statute.
The expenses of a receivership of a national bank appointed in a
creditors' suit, contesting a voluntary liquidation of the bank,
cannot be charged upon stockholders as part of their statutory
liability, but must come from the creditors at whose instance the
receiver was appointed.
No person is entitled to share as a creditor in the distribution
under a creditor's bill who does not come forward to present his
claim.
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 complainant had
recovered a judgment against the bank for the sum of $12,408.51
damages, besides costs, an execution on
Page 121 U. S. 29
which had been returned unsatisfied; that on or about October
11, 1873, the bank had suspended payment and business and, in
pursuance of § 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 guaranteed 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 twenty-four 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,
Page 121 U. S. 30
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 12th 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 or 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 26th 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 1st 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
Page 121 U. S. 31
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 endorsed 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 42d 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
Page 121 U. S. 32
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 cancelled 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 cancelled 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
Page 121 U. S. 33
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 among 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
Page 121 U. S. 34
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 9th of May, 1877, the complainant James Irons 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
Page 121 U. S. 35
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 23rd 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 5th 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 6th 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 1st 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 follows: 1st, for clerical services to
the bank, $183.31; 2d, for past services of the receiver and his
attorneys, $4,437.04; 3d, claims arising before the failure of the
bank, upon which no
Page 121 U. S. 36
collaterals were taken, $179,231.81; 4th, 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 ninety percent. 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 percent of assessment to be levied
thereon, and the amount due and payable from him upon such
assessment. These stockholders were also classified as embracing
1st, stockholders who had been duly served with process or entered
their appearance in the cause; 2d, stockholders who had obtained a
discharge in bankruptcy and were not liable to stock assessments on
that account, and 3d, 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 1st, the indebtedness of the
bank at the time of the failure; 2d, subsequent actual payments
upon indebtedness; 3d, net amount of indebtedness, with interest on
same at the rate of six percent per annum from the time of the
failure of the bank; 4th, the necessary assessment upon the
stockholders to pay said indebtedness, including the expenses of
the receivership.
In pursuance of this direction, on the 25th 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 23rd day of September, 1873, amounted in
Page 121 U. S. 37
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 23rd of September, 1873, when the bank failed, down to May 21,
1886 at the rate of six percent 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 twenty percent
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
percent 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 twenty percent 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 Alonzo Richmond, Charles Comstock, Thomas
Lord, and William Henri Adams, administrator
de bonis non
of the estate of William H. Adams, deceased, severally
appealed.
Page 121 U. S. 43
MR. JUSTICE MATTHEWS, after stating the case as above reported,
delivered the opinion of the Court.
Some of the questions raised by the assignments of error are
common to all the appellants, and others are peculiar to the
individual cases. So far as necessary to the disposition of the
case, they will be considered in their order.
The first assignment of error relates to the pleadings. It is
objected that the court erred in permitting the complainant to file
the amended bill of October 5, 1876, and also in permitting the
amendment made at the hearing on July 23, 1883, and we are asked to
reverse the decree on that account, and, on remanding the cause, to
direct that the amended bill as amended be dismissed. The grounds
of objection to the amendments as made are 1st, that the amended
bill stated a case entirely different from that contained in the
original bill, and 2d, that it made the bill, as amended,
multifarious. The changes made in the case as originally stated in
the bill are alleged to be 1st, that it converted a creditors'
bill, the object of which was to subject to the payment of the
complainant's judgment assets of the corporation which could not be
reached at law, into a bill for the additional purpose of enforcing
the statutory liability of the stockholders of the bank to answer
for its contracts, debts, and engagements, and 2d, that it
converted the bill filed by the complainant in his own right into a
bill on behalf of himself and all other creditors of the
corporation.
It is a mistake, however, to assume that the bill as originally
filed was strictly and technically a creditors' bill merely, for
the purpose of subjecting equitable assets to the payment of the
complainant's judgment. That undoubtedly was a part of its purpose
and prayer, and in pursuance of it a small amount of the assets of
the bank were recovered by the receiver, converted into money, and
applied to the payment of the costs in the cause; but the whole of
this recovery amounted only to $3,346.96, and it was not until
after this result became manifest that application was made and
leave given to file the
Page 121 U. S. 44
amended bill. But the main purpose of the bill as originally
framed was to obtain a judicial administration of the affairs of
the bank on the ground that its capital stock and property was a
trust fund for the benefit of its creditors, the company being
insolvent and in liquidation, and that under the management of its
officers and directors this trust was being violated and perverted.
The bill contained allegations that Holmes, the president and
manager of the bank, had converted its assets to his own use and to
the use of others in violation of his trust and in fraud of
creditors, applying the assets of the bank so as to prefer some
creditors over others and otherwise dissipating and squandering
them. It accordingly prayed for a full discovery of all the
transactions on the part of Holmes in reference to the affairs of
the bank since its suspension, for an injunction prohibiting any
further transfers of its assets, for the appointment of a receiver
with the general powers of receivers in like cases, and for general
relief.
If this bill had been prosecuted, as originally framed, to final
decree and had resulted in the recovery of assets of the bank
applicable to its purposes, it would necessarily have been made to
appear during the progress of the suit that there were other
creditors of the bank equally entitled with the complainant to
share in the fruits of the litigation. The relief that would have
been granted in such circumstances would have been by means of a
decree distributing the assets obtained equally among all the
creditors, including the complainant, who, in respect to such
assets, would have been entitled to no priority, either by virtue
of having reduced his claim to judgment or by reason of having
first filed a bill to enforce the trust. In the case of an
insolvent corporation thus brought into liquidation and wound up by
judicial process at the suit of a creditor, whether he sues in his
own right or on behalf of himself and other creditors, the rule of
distribution is the same, and is founded upon the principle of
equality in which equity delights, unless a claimant or some other
judgment creditor had, previously to the filing of the bill,
obtained a lien at law upon some portion of the property
distributed or could establish a superior equity existing at
the
Page 121 U. S. 45
time of the filing of the bill.
Curran v.
Arkansas, 15 How. 304;
Wood v. Dummer, 3
Mason 308;
Ogilvie v. Knox Ins.
Co., 22 How. 387;
Sawyer v.
Hoag, 17 Wall. 610.
When the amended bill was filed, the resources of the bank
discovered and delivered to the receiver had been exhausted. The
amended bill set out the names of all the stockholders and all of
those claimed to have been stockholders at the date of the
suspension by name, with the number of shares belonging to each. It
charged that certain of them combined and confederated with the
defendant Holmes for the purpose of committing a fraud upon the
creditors of the bank by surrendering and transferring their shares
of stock, receiving in exchange therefor a portion of the assets of
the bank applicable to the payment of its debts. It accordingly
prays as a part of the relief that these transactions may be
inquired into and set aside; that the assets of the bank so
received by any of these stockholders may be decreed to be
delivered up and applied to the payment of the debts of the bank,
and that, in addition thereto, an account be taken of all the
present indebtedness of the bank and of the amounts due from each
of the 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."
In some respects it is quite true that this amended bill is a
departure from the case as stated in the original bill. It was,
however, germane to the original bill to have included in it the
statements of the amended bill in respect to such of the
stockholders as were charged by name with having, in combination
with the president of the company, sold their stock, receiving
assets of the bank in payment therefor, after it had gone into
liquidation, or in contemplation of insolvency and in fraud of the
creditors. Assets of the bank received by any of them in such
circumstances were such as were clearly within the purview of the
bill as originally framed, and those
Page 121 U. S. 46
allegations were certainly the subject of a proper amendment.
Having thus brought in a number of the stockholders properly as
defendants to subject them to a decree to account for assets of the
bank received by them in breach of trust and in fraud of creditors,
it does not seem inappropriate or foreign to the general purposes
of the bill for the court having jurisdiction over them in behalf
of the complainant, who, as we have seen, necessarily represented
all creditors entitled to share in the results of the suit, to
proceed upon the basis of granting the additional and complete
relief prayed against them as stockholders, requiring them to
answer under the statute for all the contracts, debts, and
engagements of the bank. But to do this made it necessary to bring
in all other stockholders of the bank within the reach of the
process of the court, although they may not have been charged as
participating in the alleged breaches of trust and frauds. The
various matters, therefore, contained in the amended bill and the
original bill were thus connected with each other in such a way as
fairly to bring the question of granting leave to file the amended
bill within the discretion of the court below. In reviewing the
exercise of that discretion on this appeal, we should not feel
justified in any case in reversing the action of the circuit court
if it appeared that the appellants were not put to any serious
disadvantage or materially prejudiced thereby. The amendment made
at the hearing, whereby the amended bill was changed so as to state
that it was filed by the complainant on behalf of himself and all
other creditors, we regard as purely formal, and properly permitted
for the purpose of making the bill explicitly to conform to all
that had taken place previously in the progress of the cause. The
litigation had been conducted, from the time of the filing of the
first amended bill, upon the supposition and theory that it
included in its scope all creditors of the bank alike. The
defendants therefore could not have been taken by surprise by the
amendment, and would not be deprived of the benefit of any defense,
or put to any disadvantage, on account thereof.
The action of the circuit court in permitting these amendments
we think is justified by the rules on that subject as
Page 121 U. S. 47
stated by this Court in the case of
Neale v.
Neales, 9 Wall. 1; in
The
Tremolo Patent, 23 Wall. 518, and
Hardin v.
Boyd, 113 U. S. 756. In
the last-mentioned case it was said (p.
113 U. S.
761):
"In reference to amendments to equity pleadings, the courts have
found it impracticable to lay down a rule that would govern all
cases. Their allowance must at every stage of the cause rest in the
discretion of the court, and that discretion must depend largely on
the special circumstances of each case. It may be said generally
that in passing upon applications to amend, the ends of justice
should never be sacrificed to mere form or by too rigid an
adherence to technical rules of practice. Undoubtedly great caution
should be exercised when the application comes after the litigation
has continued for some time, or when the granting of it would cause
serious inconvenience or expense to the opposite side. And an
amendment should rarely, if ever, be permitted when it would
materially change the very substance of the case made by the bill
and to which the parties have directed their proofs."
By the original National Banking Act, § 5151 of the Revised
Statutes, it was declared that
"The shareholders of every national banking association shall be
held individually responsible, equally and ratably, and not one for
another, for all contracts, debts, and engagements of such
association to the extend of the amount of their stock therein at
the par value thereof, in addition to the amount invested in such
shares."
By § 5220, it was also provided that "Any association may
go into liquidation and be closed by the vote of its shareholders
owning two-thirds of its stock." But no provision is contained in
the original act specifying what course may or shall be taken in
case of voluntary liquidation to enforce the individual liability
of the shareholders. It is provided by § 5234 that when the
Comptroller of the Currency has become satisfied of the default of
the association under §§ 5226 and 5227 to redeem any of
its circulating notes, he may forthwith appoint a receiver who,
under his direction, shall take possession of the books, records,
and assets of the association, collect all debts, dues, and claims
belonging to it,
"and may, if necessary to pay the debts of
Page 121 U. S. 48
such association, enforce the individual liability of the
stockholders. Such receiver shall pay over all money so made to the
Treasurer of the United States, subject to the order of the
Comptroller, and also make report to the Comptroller of all his
acts and proceedings."
It thus appears that in the case of an involuntary liquidation
under this section, the business of liquidation, as defined and
required by the law, involved the appointment of the receiver, who
should, in addition to the collection of the ordinary assets of the
bank, also enforce against the stockholders their individual
liability so far as necessary to create a fund sufficient to pay
all the debts of the association. It can hardly be supposed that
the omission in the statute to provide an express and specific
course of proceeding by way of judicial remedy in case of voluntary
liquidation left the creditors of such an association in such
circumstances without remedy against either a deficiency of assets
or the results of a fraudulent maladministration. Section 5151
imposes upon the shareholders of every national banking association
an individual responsibility for all its contracts, debts, and
engagements, and the terms in which the obligation is created are
unconditional and unqualified, except that the liability shall be
equal and ratable as among the shareholders.
As all the shareholders are bound in that way to all the
creditors, any proceeding to enforce this liability must be such as
from its nature would enable the court to ascertain for what the
stockholders ought to be made liable, to whom, and in what
proportion as respects each other. This can only be done by the
methods and machinery of a court of equity. Besides this, it must,
we think, be admitted that a court of equity would be entitled,
upon the general principles of its jurisdiction, to entertain a
bill by one or more creditors whose suit would necessarily be for
the benefit of all, against the association and its officers and
managers, and all those participating in its voluntary liquidation,
for the purpose of preventing and redressing any maladministration
of fraud against creditors, contemplated or executed. In the
liquidation of such an association, those entrusted with its
management
Page 121 U. S. 49
occupy the relation of trustees, first for creditors, and the
terms of that trust implied by law require them to reduce the
assets of the association to money, or its equivalent, and to pay
out those assets or their proceeds equally among creditors.
The omission in the original banking act of 1864 to provide
expressly similar remedies in case of voluntary liquidation to
those specified in case of involuntary liquidation, was supplied by
the Act of June 30, 1876, 19 Stat. 63; Supplement to Revised
Statutes, 216. The first section of that act provides for the
appointment of a receiver by the Comptroller of the Currency, as
provided in § 5234 of the Revised Statutes, whenever any
national bank shall be dissolved and its charter forfeited as
prescribed in § 5239 of the Revised Statutes, or whenever any
creditor shall have obtained a judgment against it which has
remained unpaid for the space of thirty days, or whenever the
Comptroller shall become satisfied of its insolvency after due
examination. This receiver, it is declared, shall proceed to close
up such association and enforce the personal liability of the
shareholders. Section 2 of the Act of June 30, 1876, is as
follows:
"That when any national banking association shall have gone into
liquidation under the provisions of section five thousand two
hundred and twenty of said statutes, the individual liability of
the shareholders provided for by section fifty-one hundred
fifty-one of said statutes may be enforced by any creditor of such
association by bill in equity, in the nature of a creditors' bill,
brought by such creditor on behalf of himself and of all other
creditors of the association against the shareholders thereof in
any court of the United States having original jurisdiction in
equity for the district in which such association may have been
located or established."
This section was in force when the first amended bill was filed
in October, 1876. Whether we regard it as merely declaratory of the
law as it stood under the original banking act or as giving a new
remedy which could not have been resorted to before, we think it
warranted the court below in permitting the complainant to file his
first amended bill.
In the case of involuntary liquidation under the supervision
Page 121 U. S. 50
of the Comptroller of the Currency, the receiver appointed by
him is authorized and required not only to collect and apply the
proper assets of the bank to the payment of its debts, but also, so
far as may be necessary, to enforce the individual liability of the
shareholders. It thus appears that the enforcement of this
liability is a part of the liquidation of the affairs of the bank
-- at least so closely connected with it as to constitute but one
continuous transaction. When, in case of voluntary liquidation, the
proceeding is instituted by one or more creditors for the benefit
of all by means of the jurisdiction of a court of equity, there
seems to be no reason why the nature of the proceeding should be
considered as changed. The intention of Congress evidently was to
provide ample and effective remedies in all the specified cases for
the protection of the public and the payment of creditors, by the
application of the assets of the bank and the enforcement of the
liability of the stockholders. Admitting that this liability is not
strictly an asset of the bank, because it could not be enforced for
its benefit as a corporation nor in its name, yet it is treated as
a means of creating a fund, to be applied with and in aid of the
assets of the bank toward the satisfaction of its obligations. The
two subjects of applying the assets of the bank and enforcing the
liability of the stockholders, however otherwise distinct, are by
the statute made connected parts of the whole series of
transactions which constitute the liquidation of the affairs of the
bank. It was therefore proper to describe the bill to be filed by
and on behalf of creditors as in the nature of a creditors' bill,
so as to enlarge the scope and purpose of a bill that might be more
strictly limited as a creditors' bill merely.
We think, therefore, that if such a bill would have been
objectionable without the statute, it is warranted by the statute.
It is no objection that the original bill was filed prior to the
passage of the Act of June 30, 1876. The bill as amended, being
authorized by the statute in force at the time the amendment was
filed, would justify such a proceeding in a pending suit to which
it was made germane by the statute itself, as well as an original
bill then for the first time
Page 121 U. S. 51
filed. Neither do we consider the objection valid that it does
not purport to have been filed in pursuance of the Act of June 30,
1876, and is not filed by the complainant on behalf of all the
creditors. The scope and prayer of the bill, under the operation of
the statute, made it a bill for the benefit of all the creditors,
notwithstanding it erroneously claimed priority on behalf of the
complainant individually. The only proper decree that could have
been rendered upon it would have been for the equal distribution of
the fruits of the litigation among all the creditors of the bank
who in the meantime had come in and proved their claims. The final
amendment, as we have already seen, only had the effect to make the
bill conform to the course of the proceeding which had actually
been had under it, and was therefore purely formal. Its only effect
was to make the bill profess to be what in law it was and what in
point of fact it had been considered to be.
Mr. Daniel, Chancery Practice, c. 5, § 1, p. 245, 4th ed.,
says:
"The court will generally at the hearing allow a bill, which has
been originally filed by one individual of a numerous class in his
own right, to be amended so as to make such individual sue on
behalf of himself and the rest of the class."
Our conclusion on this point is that the court below committed
no error in permitting the amendments complained of to be made.
The assignment of error next to be considered arises upon the
defense made on behalf of the defendants below, of the statute of
limitations. The limitation relied upon is that prescribed by an
act of Illinois, which provides that
"Actions on unwritten contracts, expressed or implied, or on
awards of arbitration, or to recover damages for an injury to
property, real or personal, or to recover the possession of
personal property, or damages for the detention or conversion
thereof, and all civil actions not otherwise provided for, shall be
commenced within five years next after the cause of action
accrue."
Pub.Laws Ill. 1871-1872, 559, § 15; Hurd's Rev.Stat.Ill.
1881, 705.
It is not necessary to decide in this case whether the statute
of Illinois relied upon is applicable, because, in the view
which
Page 121 U. S. 52
we have already taken of the nature of the amended bill filed in
October, 1876, the statute, if applicable, ceased to run against
the creditors of the bank entitled to the benefit of the decree at
that date. That amended bill is to be considered, from the date of
its filing, as a bill on behalf of all the creditors of the bank
who should come in under it and prove their claims. When any
creditor appeared during the progress of the cause to set up and
establish his claim, it was necessary for him to prove that at the
time of filing the bill he was a creditor of the bank. Any defense
which existed at that time to his claim, either to diminish or
defeat it, might be interposed either before the master or on the
hearing to the court. The creditor, having established his claim,
became entitled to the benefit of the proceeding as virtually a
party complainant from the beginning, and the time that had elapsed
from the filing of the bill to the proof of his claim would not be
counted as a part of the time relied on to bar the creditor's right
to sue the stockholders. In other words, if he proves himself to be
a creditor with a valid claim against the bank, he becomes a
complainant by relation to the time of the filing of the bill. This
being so, it is not disputed that in October, 1876, the bar of the
statute had not taken effect, even on the supposition that the
statute applied.
In the case of
In re General Rolling Stock Company, Joint
Stock Discount Company's Claim,, L.R. 7 Ch. 646, Mellish,
L.J., stated that in a case where the assets of a debtor are to be
divided among his creditors, whether in bankruptcy or in insolvency
or under a trust for creditors or under a decree of the Court of
Chancery in an administration suit,
"the rule is that everybody who had a subsisting claim at the
time of the adjudication, the insolvency, the creation of the trust
for creditors, or the administration decree, as the case may be, is
entitled to participate in the assets, and that the statute of
limitations does not run against his claim, but as long as assets
remain unadministered, he is at liberty to come in and prove his
claim, not disturbing any former dividend."
Mr. Daniel, 1 Chancery Practice c. 15, par. 2, p. 643,
Page 121 U. S. 53
4th ed., states that
"A decree for the payment of debts under a creditor's bill for
the administration of assets is also considered as a trust for the
benefit of creditors, and will in like manner prevent the statute
from barring the demand of any creditor coming in under the decree.
The creditor's demand, however, must not have been barred at the
time when the suit was instituted, for if the creditor's demand
would have been barred by the statute before the commencement of
the suit, the statute may be set up. It is to be remarked upon this
point that it has been held that it was the decree only which
created the trust, and that the mere circumstance of the bill
having been filed, although it might have been pending six years,
would not take the case out of the statute, but according to the
later decisions it seems that the filing of the bill will operate
by itself to save the bar of the statute, though the plaintiff by
delay in prosecuting the suit may dissentitle himself to
relief."
He also says, c. 29, par. 1, p. 1210:
"It may be observed here that where a person not a party to the
suit carries in a claim before the master under the decree, the
party representing the estate out of which the claim is made has
the right to the benefit of any defense which he could have made if
a bill had been filed by the claimant in equity or an action had
been brought at law to establish such claim. Therefore, as we have
seen, an executor may, in the master's office, set up the statute
of limitations as a bar to a claim by a creditor under the decree,
provided such claim was within the operation of the statute before
the decree was pronounced."
The authorities abundantly sustain the proposition also that a
creditor who comes in under and takes the benefit of a decree is
entitled to contest the validity of the claim of any other creditor
except that of the plaintiff whose claim is the foundation of the
decree. 2 Daniel's Chancery Practice c. 29, § 1, p. 1210, n.
4, and cases cited.
In
Sterndale v. Hankinson, 1 Simons 393, decided in
1827, it was stated by Vice-chancellor Leach that
"Every creditor has to a certain extent an inchoate interest in
a suit instituted
Page 121 U. S. 54
by one on behalf of himself and the rest, and it would be
attended with mischievous consequences to estates of deceased
debtors if the court were to lay down a rule by which every
creditor would be obliged either to file his bill or bring his
action."
It is supposed by counsel for the appellants that the authority
of this case is shaken by what was said by Jessel, M.R., in his
decision of
In re Greaves; Bray v. Tofield, 18 Ch.Div.
551. It is true that in this case, the Master of the Rolls said
that creditors had better not rely upon that decision for the
future, but he points out as the reason that at the time he was
speaking (in 1881), bills in equity had been abolished in England,
and that wherever it is an action to recover a debt upon a
contract, the Statute of James was binding upon the high court in
every case in which it applies, and that it was no longer the
practice, so far as personal estate was concerned, to bring an
action by one creditor on behalf of others, because of a provision
in the act of 1852, since the passing of which the practice had
been abandoned of suing by one creditor on behalf of all, except in
cases relating to real estate, as to which the section of the
statute does not apply, unless it has been ordered to be sold or
there is a trust or power of sale, and that therefore there were no
longer any suits brought by any creditor, except for the payment of
his own debt. In the present case, the suit, although in the nature
of a creditors' bill, is not a bill merely for the administration
of the assets of an insolvent corporation. There is no fund
formerly belonging to the corporation in court for distribution. It
is a suit for the enforcement of a personal liability of the
defendant stockholders to pay the debts of the corporation, in
which the creditors are the complainants. Each creditor becomes a
party to the suit, it is true, only when he appears to prove his
claim. His right to proceed depends upon the fact of his being the
owner of a valid claim against the corporation; but if he proves
such a claim, then he does prove himself to be a creditor, and as
such is entitled to come in under the decree, and has a right to be
considered
Page 121 U. S. 55
as a party complainant from the beginning by relation to the
time of filing the bill. The beginning of the suit as between the
creditor and the stockholder is the date of the filing of the bill,
if during its progress and pendency he proves his right to be
considered as a co-complainant. It follows, therefore, that the
statute sought to be applied in the present case ceased to run as
against the complainants from the date when the bill was filed, in
October, 1876, under which they subsequently established their
right to come in as participants in the benefits of the decree.
Whether or not the statute of limitations of Illinois would in any
case operate to bar such a suit as the present, being a bill in
equity in the circuit court of the United States, founded upon an
obligation arising under an act of Congress, is a question which we
are therefore not called upon to consider or decide.
Another assignment of error is peculiar to the appeal of the
administrator
de bonis non of William H. Adams, deceased.
William H. Adams in his lifetime was one of the defendants in the
amended bill of 1876, and at the time of the suspension of the bank
a stockholder to the extent of 240 shares. He died June 6, 1882,
during the pendency of the suit, which stands revived as against
his administrator
de bonis non. The administrator
contended that the personal liability of his intestate did not
survive as against the administrator, and that therefore no decree
could be rendered against him subjecting the estate of Adams in his
hands for administration. The judicial decisions more directly
relied upon by the appellant in support of this contention are
those of
Dane v. Dane Manufacturing Co., 14 Gray 488;
Bacon v. Pomeroy, 104 Mass. 577;
Ripley v.
Sampson, 10 Pick. 370;
Bangs v. Lincoln, 10 Gray 600;
Gray v. Coffin, 9 Cush. 192. These cases, however, so far
as they are in point, are based upon the particular language of the
statutes of Massachusetts, materially differing from that contained
in the National Banking Act. Under that act, the individual
liability of the stockholders is an essential element in the
contract by which the stockholders became members of the
corporation. It is voluntarily
Page 121 U. S. 56
entered into by subscribing for and accepting shares of stock.
Its obligation becomes a part of every contract, debt, and
engagement of the bank itself, as much so as if they were made
directly by the stockholder, instead of by the corporation. There
is nothing in the statute to indicate that the obligation arising
upon these undertakings and promises should not have the same force
and effect, and be as binding in all respects, as any other
contracts of the individual stockholder. We hold, therefore, that
the obligation of the stockholder survives as against his personal
representatives.
Flash v. Conn, 109 U.
S. 371;
Hobart v. Johnson, 8 F. 493. In
Massachusetts it was held, in
Grew v. Breed, 10 Met. 569,
that administrators of deceased stockholders were chargeable in
equity, as for other debts of their intestate, in their
representative capacity.
The next assignment of error to be considered arises upon the
separate appeal of Charles Comstock, who is charged by the decree
with an assessment upon 150 shares of the capital stock of the bank
standing in his name as owner at the time of its suspension. In his
answer, which is under oath as called for, Comstock
"admits that at the time of the said suspension, he was the
owner and holder of certain shares of capital stock thereof; that
previous to _____, about in the year 1872, he was the owner of one
hundred and fifty shares of said stock; that on or about the 8th
day of February, 1873, this defendant sold, assigned, and delivered
fifty shares of the said stock to Ira Holmes, and on or about June,
1873, this defendant sold, assigned, and delivered fifty other
shares of said stock to Preston C. Maynard; that he endeavored
repeatedly to have said stock transferred on the books of the bank,
but that said Maynard refused to allow said stock to be so
transferred, although he had before promised to have the same
transferred; that at the time of the said several sales of stock as
aforesaid, the said banking association was carrying on its regular
business of banking, and was in fact solvent and fully able to pay
its debts, and, as he is informed and believes, not indebted to any
of the present creditors of said bank; that afterwards, on or about
the 23d day of September, 1873,
Page 121 U. S. 57
this defendant sold, assigned, and delivered to the said Ira
Holmes his other fifty shares of stock in said bank, with other
property, receiving in payment therefor, and for the other property
sold to said Holmes at the same time, certain promissory notes of
one William Patrick, payable to the said Ira Holmes, and was
secured with certain other notes by mortgage from said William
Patrick to said Ira Holmes, which said notes and mortgage have
proven to be of little value to this defendant, and in consequence
of the encumbrances and taxes upon said property, and the expense
of foreclosing, and how much of the value of said notes and
security should be attributable to the consideration of this sale
of said stock, this defendant is unable to state; but he insists
that at the time of said sale to said Holmes, this defendant was
informed and believed said bank was able to pay all its debts in
full, and the consideration received by him was paid by said Holmes
out of his individual property, and not from the assets or property
of said bank."
The stock books introduced on the part of the complainant show
that fifty shares of this stock were transferred September 23,
1873, fifty more on September 24, 1873, and fifty more were
cancelled on the last date, and the testimony of Holmes is that, as
to the last fifty shares, they must have been transferred at the
same time. The transfers in each case were to Ira Holmes. It is
found by the decree of July 23, 1883, that the bank became
insolvent and suspended payment September 23, 1873, and went into
voluntary liquidation on September 26, 1873. The resolutions of the
shareholders of the bank, instructing the directors to put the bank
into voluntary liquidation, were passed at a meeting held on
September 25, 1873. One of the resolutions is as follows:
"That this bank, in its endeavors to continue business through
the existing panic, has substantially exhausted its cash resources
and is unable to continue cash payments, and that we regard it for
the best interest of the stockholders and depositors alike that its
affairs be placed in voluntary liquidation in accordance with the
forty-second section of the National Currency Act in that behalf
provided."
The directors, at a meeting
Page 121 U. S. 58
held on the same day, resolved to go into voluntary liquidation,
and close up the affairs of the bank in pursuance of this
resolution. The notice to the public, addressed to the creditors of
the bank, was issued and advertised the next day. As to the fifty
shares of stock sold by Comstock to Holmes on September 23, 1873,
we think the conclusion cannot be resisted that the transaction was
made in contemplation of the insolvency of the bank, and although
both parties may have believed that the bank would ultimately be
able to pay all of its debts notwithstanding this transaction, we
think that, as against creditors, it was fraudulent in law, and to
that extent Comstock is chargeable as a shareholder. The sale of
fifty shares in February, 1873, and of the other fifty shares in
June, 1873, there is no reason to suppose were not made in entire
good faith and without any expectation on the part of the parties
of the insolvency of the bank. Notwithstanding that, Comstock
continued to be upon the books of the bank the owner of these
shares until September 23d and September 24th, when they were
respectively transferred.
By § 5139 of the Revised Statutes, those persons only have
the rights and liabilities of stockholders who appear to be such as
are registered on the books of the association, the stock being
transferable only in that way. No person becomes a shareholder,
subject to such liabilities and succeeding to such rights, except
by such transfer; until such transfer, the prior holder is the
stockholder for all the purposes of the law. It follows, therefore,
that Charles Comstock, in respect to the shares sold by him in
February and June, 1873, was the statutory owner on the 23d day of
September, 1873. His liability as such stockholder is the same as
if he had that day sold and transferred the stock to Ira Holmes,
but such a sale and transfer could only have been made that day by
Comstock, who was himself a director, in contemplation and actual
knowledge of the suspension of the bank. It would operate as a
fraud on the creditors, an effect which the law will not permit.
The case is not within the rule laid down in
Whitney v.
Butler, 118 U. S. 655.
Here there is no proof, as there was in that case, of the delivery
of the certificates to the bank
Page 121 U. S. 59
and a power of attorney authorizing its transfer, with a request
to do so made at the time of the transaction. The delivery was to
Holmes not as president, but as vendee. We are therefore
constrained to hold that the decree below, in charging Comstock
with liability as the owner of 150 shares, was not erroneous.
The next assignment of error is based upon that part of the
decree which directs payment of the claims reported by the master
under the denomination of Class D, amounting in the aggregate to
$185,119.34. They are designated by the master as claims "arising
before the failure of the bank, upon which worthless collaterals
were subsequently received." It is averred by the appellees that
they are claims arising, for the most part, if not in all
instances, upon endorsements and guarantees made in the name of the
bank by Holmes, its president, after the suspension of the bank,
and while it was in liquidation. It appears clearly from the
evidence that in many cases, parties having claims against the bank
accepted from Holmes commercial paper held by the bank which it had
received in the course of its business, and which constituted a
part of its assets, running some of it several months and some of
it several years, bearing interest, some at the rate of eight and
some at the rate of ten percent per annum, endorsed and guaranteed
in the name of the bank by Holmes as president. The books of the
bank show that in these cases, the paper so received was charged
against the account of the party receiving it, thus closing the
account as settled. In these cases, it is testified by Holmes that
the creditors gave their checks to the bank for the amount standing
to their credit. In some cases, the creditors or their agents
testifying to the transactions, without contradicting Holmes in
respect to what was in fact done, nevertheless state that the paper
accepted by them was received not in payment, but as security. It
is obvious, however, that in most if not all instances, the
witnesses are referring to the security which they supposed they
had received and were entitled to rely upon, by means of the
endorsement guarantee of the paper thus received, made by Holmes,
as president, in the name of the bank. They
Page 121 U. S. 60
certainly acted upon this belief, for in many instances they
proceeded to obtain judgments against the bank, after the maturity
and dishonor of the paper so received, upon these endorsements and
guarantees, and in this proceeding proved their claims in that form
by transcripts of such judgments. It is true that in the final
decree the master was directed to correct his computation of
interest so as to equalize the claims of the creditors by allowing
interest at a uniform rate from the time of the suspension upon the
amounts as they appeared to be due from the books of the bank; but
all the claims in Class D, notwithstanding the settlements made,
were included in the amounts found due and ordered to be paid. In
this respect we are of the opinion that the decree is erroneous.
Those creditors who made settlements after the bank was put into
liquidation, and received from the president in that settlement
paper of the bank, or as in some cases the individual notes of
Holmes himself, endorsed or guaranteed in the name of the bank, are
not to be considered as creditors of the bank entitled to subject
the stockholders to individual liability. The individual liability
of the stockholders, as imposed by and expressed in the statute, is
indeed for all the contracts, debts, and engagements of such
association, but that must be restricted in its meaning to such
contracts, debts, and engagements as have been duly contracted in
the ordinary course of its business. That business ceased when the
bank went into liquidation. After that, there was no authority on
the part of the officers of the bank to transact any business in
the name of the bank so as to bind its shareholders, except that
which is implied in the duty of liquidation, unless such authority
had been expressly conferred by the shareholders. No such express
authority appears in this case, and the power of the president or
other officer of the bank to bind it by transactions after it was
put into liquidation is that which results by implication from the
duty to wind up and close is affairs. That duty consists in the
collection and reduction to money of the assets of the bank and the
payment of creditors equally and ratably so far as the assets prove
sufficient. Payments, of course, may be made in the bills
receivable and
Page 121 U. S. 61
other assets of the bank
in specie, and the title to
such paper may be transferred by the president or cashier by an
endorsement suitable to the purpose in the name of the bank; but
such endorsement and use of the name of the bank is in liquidation,
and merely for the purpose of transferring title. It can have no
other effect as against the shareholders by creating a new
obligation. It does not constitute a liability, contract, or
engagement of the bank for which they can be held to be
individually responsible. Every creditor of the bank receiving its
assets under such circumstances knows the fact of liquidation and
is chargeable with knowledge of its consequences. He takes the
assets received at his own peril. He is dealing with officers of
the bank only for the purpose of winding up its affairs. If he
accepts something in lieu of an existing obligation looking to
future payment, it must be from other parties. It is not within the
power of the officers of the bank, without express authority, by
such means to prolong indefinitely an obligation on the part of the
shareholders, which is imposed by the statute only as a means of
securing the payment of debts by an insolvent bank when it is no
longer able to continue business and for the purpose of effectually
winding up its affairs. This is the very meaning of the word
"liquidation." Mr. Justice Story said in
Fleckner v. Bank of the
United States, 8 Wheat. 362:
"Its ordinary sense, as given by lexicographers, is to clear
away, to lessen debt, and, in common parlance, especially among
merchants, to liquidate the balance is to pay it."
In
White v. Knox, 111 U. S. 787,
it was said: "The business of the bank must stop when insolvency is
declared." In
National Bank v. Insurance Co., 104 U. S.
54, the liquidation of such an association was said to
be like that which follows the dissolution of a co-partnership.
In this view, it is contended, on behalf of the creditors
interested, that as they relied upon the continuing liability of
the bank and of its shareholders by virtue of these endorsements
and guarantees, if they are deprived of the benefit of the latter,
the settlements themselves should be set aside, and they, the
creditors, restored to the situation in which they
Page 121 U. S. 62
were at the time of the suspension of the bank. But this is
clearly inadmissible; such a restoration cannot in fact be made.
The circumstances of the situation have greatly changed by the
lapse of time. The creditors who entered into these settlements
have no ground of complaint against the bank as a corporation or as
against its stockholders. They were not misled to their hurt by any
fraudulent misrepresentations or concealments of any matters of
fact. Whatever mistake was made was their own, and it was a mistake
consisting merely in a misapprehension of their legal rights. They
were bound to know, as well as Holmes, the limits of his authority,
and ought to have acted on the presumption that he had no right to
bind the bank or its shareholders in futuro by any new engagement.
If they chose, in their eagerness to obtain a settlement in advance
of other creditors equally entitled, to accept a part of the assets
of the bank or the personal obligation of its president in
settlement of their claims, they must abide by the election which
was then made, and which cannot now be set aside. They made their
settlements in view of their own estimate of the present advantage.
They cannot now undo them to the disadvantage of other creditors,
over whom they sought to obtain preferences, nor to the prejudice
of the stockholders, who have a right to be exonerated from the
payment of all contracts, debts, and engagements of the bank
contracted since the date of its suspension.
In respect to these claims in Class D, Ira Holmes, the
president, testified as follows:
"A. In each case where you settled with the creditor of the
bank, and turned him out bills receivable of the bank, how was that
settlement -- was it a payment, or what was the transaction?"
"A. It was a full payment of the demand. He gave me his check on
the bank for the amount, the same as if we were doing a regular
business, and the parties should come in and buy so much bills
receivable and give me a check on another bank."
"Q. Was there any case in which there was any other
understanding than that he took these bills receivable in payment
of his demand against the bank?"
"A. Not any. "
Page 121 U. S. 63
On his cross-examination he is asked:
"Q. If creditors agree to take paper in full payment, why would
the bank guarantee it?"
"A. I didn't say they agreed to take it in full; a great many
people took the paper without guarantee, and others would not take
it unless they had a guarantee; only when it got down to the last
settlement, and they would not take it unless the bank would
guarantee it."
The force of this testimony is, we think, that the party
accepted the paper, with or without the guarantee, in settlement of
the claim as it stood on the books of the bank on the day of the
suspension. Those who insisted upon the guarantee or endorsement by
the bank undoubtedly relied upon it as an obligation which they
might thereafter enforce; but their reliance was upon that
contract, and not upon the original claim. It does not detract from
the binding nature of the settlement that this guarantee was given
and received and relied upon. The only mistake now asserted as a
ground for going behind the settlement is that the guarantee or
endorsement is not effective as an obligation of the bank for which
the stockholders are individually responsible. But this is not a
mistake as to what the parties intended to do. It is only a mistake
as to the effect of what they did. As the bank was in liquidation,
and the officers were not authorized to enter into new contracts,
the presumption is, in every case where the creditor accepted paper
in settlement of his claim, that it was received in payment and
operated as a satisfaction. If there was any other agreement by
which that paper was received merely as collateral to the original
debt, and received as security, and not in payment, it must be
affirmatively shown.
We have carefully examined all the evidence contained in the
record in respect to each of the claims embraced in Class D of the
master's report. We are not able to find as to anyone claim that it
is an exception from the general rule as to settlements established
by the testimony of Holmes. In several instances, it is true that
the witnesses with whom the settlements were made alleged that the
notes with the endorsements or guarantees were not taken in payment
and satisfaction, but as additional security for their claims, and
that the
Page 121 U. S. 64
transactions were made upon the faith that the remedy against
the bank and against its stockholders was not thereby impaired. But
it is quite evident, we think, that in each of these cases, the
reliance was not upon the liability arising upon the claim as it
stood prior to the settlement, but upon the endorsement or
guarantee of the bank, and the belief that the liability of the
stockholders remained unaffected by the transaction. The facts in
each case are that the claim as it stood upon the books of the bank
was settled between the parties by the creditor accepting bills
receivable out of the assets of the bank, or the individual note of
its president endorsed or guaranteed in the name of the bank;
supposing that, in the event of default in payment by the other
parties to the paper, the obligation of the bank itself was
preserved by the endorsement or guarantee, and that for that
contract the stockholders continued to be liable. Upon this view of
the facts, the stockholders are by law exonerated from the
obligation to contribute to the payment of any claims of this
class. All those enumerated in Class D in the master's report
therefore should have been excluded from the benefits of the
decree.
Three other questions raised upon the record remain to be
disposed of. The first is whether interest upon the debts of the
bank should be allowed as against the stockholders from the date of
the suspension. As the liability of the shareholder is for the
contracts, debts, and engagements of the bank, we see no reason to
deny to the creditor, as against the shareholder, the same right to
recover interest which, according to the nature of the contract or
debt, would exist as against the bank itself, of course not in
excess of the maximum liability as fixed by the statute. In the
case of book accounts in favor of depositors, which was the nature
of the claims in this case, interest would begin to accrue as
against the bank from the date of its suspension. The act of going
into liquidation dispenses with the necessity of any demand on the
part of the creditors, and it follows that interest should be
computed upon the amounts then due as against the shareholders to
the time of payment.
The next question arises upon the objection of the
appellants
Page 121 U. S. 65
to the allowance made by the decree of twenty percent of the
amount of the debts of the bank due at the date of the suspension,
in addition thereto, to cover the expenses of the receivership.
This sum, we think, ought not to have been allowed. The ordinary
costs of the cause are, of course, taxable against the defendants
as in other cases; but we see no reason why the stockholders should
be required to contribute, as a debt due from the bank or
themselves, to a fund for the payment of the expenses of the
receivership. The receiver in this case was appointed under the
original bill, before any claim was set up on behalf of the
complainant and the other creditors against the stockholders upon
their individual liability. The purpose for which the receiver was
appointed was to collect the proper assets of the bank and reduce
them to money so that they might be applied to the payment of its
creditors. This office he performed, and the fund so realized may
be and was properly charged with the expenses of its collection;
but the receiver was not necessary to the enforcement of the
liability of the stockholders in this suit. That liability was in
progress of enforcement by the creditors themselves. Nothing was
necessary to that end except the ordinary procedure by means of a
master to ascertain what amount of debts was due, to what
creditors, with the names of the stockholders who were such on the
books of the bank at the date of its suspension, and the number of
shares held by each. The case differs in this respect from that of
an involuntary liquidation under the supervision of the Comptroller
of the Currency. The receiver appointed by him is the only person
authorized to enforce the liability of the stockholders as well as
to collect and distribute the assets of the bank. Everything to be
done must be done by and through him and in his name. He is the
only person charged with all the active duties and responsibilities
of the liquidation of the bank, including the enforcement of the
individual liability of the stockholders. The fund realized for
distribution must, of course, include the costs and expenses
necessarily incurred by him in the performance of these statutory
duties. The equivalent for them, in the case of creditors who, upon
the voluntary liquidation of the bank, seek to enforce
Page 121 U. S. 66
the individual liability of the stockholders, is the ordinary
costs of the court taxable in the cause. No receiver is necessary
in ordinary cases, and there is nothing in the circumstances of
this case to make it an exception. Whatever costs and expenses
should be paid on account of the receivership in this case beyond
any allowance made heretofore and paid, if any, should come out of
the creditors as whose instance the receiver was appointed, and not
out of the stockholders.
It is also objected to the decree that it included, among the
claims directed to be paid out of the assessment upon the
shareholders, an amount, alleged to be about $5,000, in behalf of
persons assumed to be creditors, but who did not appear in the
cause or before the master to file and prove their claims. This was
erroneous. No person is entitled to recover as a creditor who does
not come forward to present his claim. The only proof in reference
to such claims in the present case consisted in affidavits made by
Henry B. Mason one of the attorneys of the receiver, that he
had
"made a personal investigation of all the claims against the
Manufacturers' National Bank, and, from the evidence introduced in
the cause and from outside knowledge confirmatory thereof, states
that the Manufacturers' National Bank of Chicago is justly indebted
to the several persons mentioned in the schedule hereunto annexed,
and made part of this affidavit, in the principal sums set opposite
their several names, with interest thereon from March 12, 1875 at
the rate of six percent per annum in each case,"
etc. No one appeared as claimant, and no authority is shown to
anyone to act for him or in his own name. These claims should have
been disallowed.
The decree of the circuit court is accordingly reversed, and
the cause is remanded with directions to proceed therein as justice
and equity may require in conformity with this opinion, and it is
so ordered.
