A national bank erected a building on leased property, the lease
securing the landlord by a lien on the building and the personal
obligation of bank. While a large amount of rent and taxes were
unpaid, the bank became insolvent, the property was not paying
fixed charges; after notice to, and no objections by, the
stockholders, and no creditors intervening, the bank conveyed the
property with the building back to the landlord in consideration of
his releasing the bank and the stockholders from all liabilities
accrued and to accrue under the lease.
Held that the proceeding was not
ultra vires,
and that, as the judgment of the stockholders and officers had been
prudently exercised in good faith, the landlord acquired title to
the land and building, and was not liable to account for the value
of the building in an action brought by a creditor who had
knowledge of, and had not protested against, the conveyance when
made.
It is exceedingly disputable whether it is an abuse of
discretion justifying reversal by this Court for the circuit court
to deny a motion to file an amended bill after judgment
entered.
This suit was brought by the predecessor of appellant in the
Circuit Court of the United States for the District of Colorado to
set aside a lease of certain lots in the City of Denver, Colorado,
and the subsequent surrender and cancellation of said lease, as
ultra vires of the power of the National Bank of Denver,
and for an accounting, and that the amount found due on the
accounting be decreed a prior lien upon the lots and the building
erected thereon by the bank. The case was presented upon bill and
demurrers. The demurrers were sustained and the bill dismissed. 112
F. 577. The ruling was affirmed by the circuit court of appeals.
118 F. 981.
The People's National Bank of Denver was incorporated on the
first of August, 1889, as a national bank under the National
Banking Act. Its capital stock was $300,000, and its corporate
existence to be twenty years. In September, 1889, the appellee
Schleier was the owner of lots 1, 2, 3, and 4 in block 75
Page 194 U. S. 19
in the City of Denver, and on that day made a lease thereof to
the bank for the period of ninety-nine years from the first day of
November, 1890, with an option to extend the term for a further
period of fifty years at an annual rental of $13,975, payable
monthly. The bank covenanted to remove at its expense, buildings
located on the lots within a designated period, and to erect
thereon a building four stories in height at a cost of not less
than $100,000, which should at once become part of the realty. The
bank also covenanted to keep the building and premises in repair
and pay all taxes thereon. And it was covenanted that, in case of
default in the payment of rent, taxes, or performance of other
conditions for the period of fifteen days, Schleier should have the
right after thirty days' notice, to sell and dispose of the lease
and all the right and title of the bank thereunder, or to maintain
personal actions for the rent or taxes he might have to pay. The
heirs, representatives, and assigns or successors of the parties
were entitled to the benefits of the lease, and were to be bound by
its covenants.
The bank erected a building on the lots at an expense of
$305,735.30, completing the same January, 1891. The building
contained necessary offices for the use of the bank, which were
occupied by it until it ceased to do business. The building also
contained other offices and rooms which the bank rented to parties
not connected with it, and to the People's Savings Bank, a
corporation organized under the laws of Colorado.
On the July 19, 1893, the bank being unable to pay its
depositors, it was placed in the hands of the Comptroller of the
Currency, and one J. B. Lazier was appointed receiver thereof, who
remained in charge of its affairs until August 21, 1893. On that
day, the bank agreed to make a voluntary assessment to restore the
impairment of its capital, and the receiver was discharged. The
directors and officers of the bank then took charge of its business
and conducted it until the appointment of the receiver herein.
Page 194 U. S. 20
The bill alleges that the affairs of the bank were very "much
involved, mixed, and commingled" with those of the People's Savings
Bank, and by reason thereof the latter was unable to proceed with
its business, and made a general assignment of its assets to Fermor
J. Spencer, who has ever since remained in charge and control
thereof. As such assignee, he sued the People's National Bank and
recovered a judgment for the sum of $475,825.71, which has not been
paid.
In January, 1897, the bank commenced to take steps looking to a
voluntary liquidation and surrender of its charter, and on or about
the April 26, 1897, the stockholders published a notice of the
bank's intention to go into liquidation, and fixed June 27 as the
last day on which claims could be presented. Prior to that day,
Spencer, having commenced suit against the bank for an accounting
and adjustment of the matters between the banks, served a summons
therein, and also having given notice to the Comptroller of the
Currency of the United States of the claims and demands of the
savings bank, an agreement was entered into between Spencer and the
People's National Bank, whereby he agreed to refrain from taking
any further steps in said suit until January 1, 1898, without
prejudice by reason of the delay. The ban, on its part, agreed, in
consideration of the delay, that it would "take no further action
of any kind or nature whatsoever to the prejudice of the savings
bank," or any action for the surrender of its charter or the
disposal of its property "to the prejudice of the savings
bank."
On the September 20, 1897, the People's National Bank called and
gave notice of a special meeting of its stockholders, for the
purpose of considering the proposition to turn over its building to
Schleier, the owner of the land, and at the meeting held October
27, 1897, in pursuance of the notice, it was resolved so to do in
consideration of a release by Schleier to the bank and its
stockholders from all liability which might thereafter accrue under
the terms of the lease. The lease was thereupon cancelled and the
premises surrendered to Schleier. This
Page 194 U. S. 21
is alleged by appellant to have been in violation of the
statutes of the United States, and contrary to the principles of
equity governing the distribution and disposition of assets in the
payment of dividends on dissolution of insolvent corporations.
It is also alleged, on information and belief, that the notice
of the stockholders' meeting stated that the income of the property
was less than the fixed charges, and that it was so stated at the
stockholders' meeting by the officers of the bank and by Schleier's
attorneys and agents, but such was not the case. On the contrary,
it is alleged on information and belief that the income of the
property, even in the condition which the neglect of the bank had
brought it, was sufficient to pay the rents and all charges due
under the lease and keep the building in good order and repair.
The grounds of the demurrers were want of equity and laches. The
demurrers were sustained and the bill ordered to be dismissed.
The judgment of dismissal was entered December 30, 1901. On
February 1, 1902, appellant tendered an amended bill of complaint
and moved for leave to file the same. The motion was denied. This
action is assigned as error as well as the ruling on the
demurrers.
MR. JUSTICE McKENNA, after stating the case, delivered the
opinion of the Court.
The bill prayed for a decree declaring the lease between the
bank and Schleier and the instruments surrendering and cancelling
the same to be declared void and
"
ultra vires of the acts
Page 194 U. S. 22
of Congress of the United States in respect to the powers of
national banks to acquire, own, and hold real estate or to be or
become indebted in the exercise of corporate powers, and that no
title or right, legal or equitable, could be acquired under the
same or either thereof by the said defendant Schleier to the said
bank building and the appurtenances thereunto belonging."
An accounting was also prayed, and that the amount found due be
declared a lien upon the building and lots, and they be sold to
satisfy the lien. The circuit court of appeals regarded the bill as
charging not only the initial, but the dominant and determining,
wrong to be the lease, that being Schleier's participation in the
alleged diversion of the bank's funds, constituting him a trustee
for creditors. It was therefore natural for the court to observe
the theory of the bill was that the lease was void, and that
Schleier was liable for the damages which the creditors of the bank
sustained in consequence of its execution without lawful authority.
The court discussed that theory, and decided (1) that the power
conferred by § 5137 of the Revised Statutes upon national
banks to purchase real estate needed for their accommodation in the
transaction of their business included the power of leasing
property whereon to erect buildings suitable for their wants; (2)
assuming the transaction to have been
ultra vires, the
complainant (appellant) was not, by virtue of his office as
receiver, "authorized to challenge or impeach it."
Appellant now says that the conception of the bill by the
circuit court of appeals was incorrect, and "not only limits, but
completely reverses the theory of the bill, in a manner totally
inconsistent with the admitted allegations." And appellant concedes
"that only the government may complain of an executed
ultra
vires conveyance of real estate to a corporation," and rests
his case upon
"loss of the moneys and assets of the bank -- in the form of the
bank building -- to which Schleier claims title through the
conveyance and surrender on October 30, 1897, under the terms of
his lease to the bank. "
Page 194 U. S. 23
We may take appellant at his word and omit extended discussion
of the first proposition, although he has indulged in much argument
which confuses his concessions. For instance, his counsel say:
"While denying the sufficiency of the lease to lawfully bind
either the bank or its title to its $305,000 capital assets, we
say, very well, then, since in the completed building in the actual
possession of the bank, it still had an asset, the then depositors,
now judgment creditors of this bank, represented by this appellant
receiver, want to know why Schleier, who is not an innocent
purchaser for value without notice, should not be held liable to
account for this asset, the building?"
But pronouncing Schleier not an innocent purchaser, denominating
the building an asset of the bank, does not change the issues in
the case. It is only another way of presenting them. Why should
Schleier account for the building? Necessarily, either because of
the execution of the lease or its surrender. Of its execution we
need not make much comment. The lease certainly was not different
from any other interest in real estate acquired
ultra
vires -- no more vulnerable to attach, no more a diversion of
funds. Whether it would be a gain or loss -- an antithesis made
much of in argument to distinguish between the lease and an
absolute conveyance -- was a matter of judgment. It seems now to
have been a folly for the bank to have put its whole capital in a
building. But maybe that is the confident conclusion which can be
formed after experience. The judgment of the bank in making the
lease and erecting the building seems not to have been thought by
creditors to have been improvident, and the Comptroller of the
Currency did not disapprove. The bill alleges that the Comptroller
of the Currency, in the year 1893, deemed an assessment of twenty
percent sufficient to redeem the bank from embarrassment and
establish it as a solvent concern, and its chief creditor, the
People's Savings Bank, whose affairs, the bill avers, had become
"commingled and mixed" with those of the bank and thereby
associated with its fortunes,
Page 194 U. S. 24
must have had absolute confidence in the value of the building,
even though it represented diverted funds. If depreciation came
afterwards, it was a misfortune. Under the concession of appellant,
therefore, the validity of the lease must be assumed as against
him, and the inquiry confined to the validity of the surrender, and
that depends upon the condition of the bank at the time it was
done. In other words, the lease, with its benefits or burdens, and
the condition of the bank at the time of its surrender, must be the
test of the action of the bank officers and the rights of
creditors.
The bank was insolvent, taxes on the property were unpaid, and
three months' rent was due. Under the terms of the lease, Schleier
could pay the taxes, and for reimbursement and the satisfaction of
the rent could sell the lease and all the right, title, and
interest of the bank therein, or maintain personal actions for such
taxes and rent. Schleier therefore for what was then due and for
his monthly accruing rent, had not only a lien upon the property,
but had, as well, the personal obligation of the bank. Against this
liability, what had the bank? The bill alleges nothing but the
lease, and to that no value is assigned. Its revenue did not exceed
its obligations. It is true it is alleged that the building had
been allowed to get out of order, and that, notwithstanding its
condition, the rents from it would have paid the charges against
it. But the fact establishes nothing definite. What can be inferred
from it? Such disproportion between the value received by Schleier
and that received by the bank as to shock the conscience, establish
fraud, and that the surrender of the lease was an illegal
preference? The situation must be kept in mind. The bank was and
had been insolvent. It was compelled to go into liquidation; it was
in arrears for rent and taxes, and was confronted with
ever-recurring liabilities which it might not be able to discharge.
Certainly could not discharge unless it remained a going concern,
which was not possible. Under such circumstances, the settlement
with Schleier does not seem to have been even bad judgment. And it
was openly done -- advertised
Page 194 U. S. 25
in advance to all who were interested to prevent -- and the
reason for it declared to be that the income of the property was
less than the fixed charges; in other words, had no value --
represented only liabilities. No one intervened. Creditors did not,
and this suit was not brought until December, 1900 -- three years
after the surrender of the lease. The conclusion is irresistible
that the judgment of the stockholders in surrendering the lease was
honestly and prudently exercised. This is fortified by the prayer
of the bill. Appellant does not ask to have the surrender of the
lease set aside and the bank restored to its relations and
obligations to Schleier. He asks that the bank be relieved from all
obligations, and the cost of the building imposed as a charge upon
the real estate.
It is unnecessary to discuss the ruling of the circuit court on
the motion to file an amended bill. The bill tendered was fuller
and more explicit than either the original bill or the amendments
thereto, but it alleged nothing which would affect the legal
conclusions from the facts to which we have adverted. And we may
observe that it is exceedingly disputable whether it is an abuse of
discretion to deny a motion to file an amended bill after final
judgment has been entered.
Decree affirmed.
