Brown v. Schleier
194 U.S. 18 (1901)

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U.S. Supreme Court

Brown v. Schleier, 194 U.S. 18 (1904)

Brown v. Schleier

No. 188

Argued March 18, 1904

Decided April 4, 1901

194 U.S. 18

Syllabus

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.

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