A national bank went into voluntary liquidation in September,
1873. Before that, it had become liable to a state bank as
guarantor on sundry notes made by a third person and which were
discounted for it by the state bank. In August, 1874, transactions
took place between the maker of the notes and the state bank, and
the person who acted as the president of the national bank, whereby
the maker was released from further liability on the notes, but
such acting president attempted to continue, by agreement, the
liability of the national bank as guarantor. In a suit begun in
October, 1876, a judgment on the guaranty was obtained in May,
1880, by the state bank against the national bank. In a suit
brought by a creditor against the national back and its
stockholders to enforce their statutory liability for its debts,
the court, on an application made in June, 1887, enquired into the
liability of the stockholders to have the claim of the state bank
enforced as against them in view of the transactions of August,
1874, and disallowed that claim.
Held:
(1) It was proper to reexamine the claim.
(2) The judgment against the bank was not binding on the
stockholders in the sense that it could not be reexamined.
(3) The guaranty of the bank was released as to the stockholders
by the release of the maker of the notes.
(4) The rights of the stockholders could not be affected by the
acts of the president done after the bank had gone into
liquidation.
Page 133 U. S. 68
In equity. The case is stated in the opinion.
MR. JUSTICE BLATCHFORD delivered the opinion of the Court.
This is a case growing out of that of
Richmond v.
Irons, 121 U. S. 27, and
involves a claim against the assets of the Manufacturers' National
Bank of Chicago. In the suit of Irons against that bank, by an
order of the Circuit Court of the United States for the Northern
District of Illinois, one Harvey was appointed receiver of the
bank. That court, on July 23, 1883, referred it to a master, to
report the amount of the debts of the bank, the value of its
assets, and the amount of assessment necessary to be made on each
share of its capital stock in order to pay its debts. Among the
claims presented before the master was that of the assignee of the
People's Bank of Bellville, Illinois, who claimed to be a creditor
in the sum of $84,103.48, and the master reported in favor of the
claim. It was based on a judgment for $67,277 obtained in the same
circuit court May 31, 1880, by the People's Bank against the
Manufacturers' Bank. The judgment was founded on eight promissory
notes for $5,000 each, dated August 5, 1873, made by Henry E.
Picket, payable one year after date, to the order of Picket at the
Manufacturers' Bank, with interest at ten percent per annum,
payable semiannually, and with ten percent per annum interest after
maturity, endorsed by Picket, the payment of each note, principal
and interest at maturity, being guaranteed by the Manufacturers'
Bank. The notes were secured by a trust deed on real estate made by
Picket to one Joseph A. Holmes.
On the 1st of June, 1886, the circuit court made a decree
directing various shareholders to pay to the receiver, for the
benefit of the creditors of the bank, certain sums of money. An
appeal was taken to this Court by several of the stockholders, and
was heard, and is the case reported as
Richmond v. Irons,
121 U. S. 27. The
decision was announced March 28,
Page 133 U. S. 69
1887. The decree of the circuit court was reversed and the cause
remanded with directions to proceed in conformity with the opinion
of this Court. After that decision, and before the mandate was
presented to the circuit court, and on the 20th of June, 1887, on
the application of several of the stockholders, the case was
referred back to the master, to report again upon the amount of the
debts due by the bank, and upon the amount of the assessment
necessary to be made on each share of its capital stock to pay its
debts, and upon the amount payable by each shareholder on such
assessment, and also to take further proofs in regard to the
validity of the claim of the People's Bank, as against the
stockholders of the Manufacturers' Bank, and as to whether that
claim had been in whole or in part released, discharged, or
defeated by reason of any new matters stated in such
application.
On the 16th of June, 1888, the master reported that the claim of
the People's Bank ought to be disallowed upon the new proofs taken.
Those proofs accompanied his report. The assignee of the People's
Bank excepted to the report, and the matter was heard before Judge
Blodgett. His opinion is reported in 36 F. 843. He confirmed the
report and overruled the exceptions, and on the 27th of March,
1889, a decree was entered, upon the mandate of this Court,
vacating the decree of June 1, 1886, giving a list of the valid
outstanding claims against the bank, which did not include the
claim of the assignee of the People's Bank, adjudging what sums
were to be paid by the various stockholders, and taxing costs to
the amount of $158.60 against the People's Bank and its assignee.
The assignee appealed to this Court from the decree, because it
disallowed his claim, and because of the award of costs against the
People's Bank and its assignee.
The Manufacturers' Bank became insolvent and suspended payment
on September 23, 1873, and, in pursuance of the National Banking
Act, went into voluntary liquidation on September 26, 1873.
In regard to the claim of the assignee of the People's Bank, the
master reported as follows:
"I find and report that the claim of the assignee of the
People's Bank of Belleville is
Page 133 U. S. 70
based upon the guaranty of the Manufacturers' National Bank of
promissory notes made by Henry E. Picket, and secured by real
estate, amounting in the outset to $50,000; that this guaranty was
made by Ira Holmes, who was an officer of said Manufacturers'
National Bank, and before the failure of the bank; that these notes
were secured by a trust deed to Joseph A. Holmes upon the undivided
half of the northwest quarter of section ten, township thirty-seven
north, range fourteen east, being (80) eighty acres, one undivided
half of which eighty acres was owned by said Picket, and a
five-acre tract and twenty-six lots, and the other undivided half
of said eighty acres by said Ira Holmes individually; that after
the maturity of these notes, and in the month of August, A.D. 1874,
Ira Holmes made a written contract with the People's Bank, by which
he was to give and did give the bank his promissory notes,
aggregating the sum of $87,465, to secure the Picket notes, and
other indebtedness for which the bank was not liable, payable in
one, two, three, and four years, securing the payment thereof by a
trust deed upon said property and the southwest quarter of said
northwest quarter, containing forty acres additional, and that
subsequently foreclosure proceedings were had upon the trust deed
made by Picket, resulting in the placing of the title to the entire
tract in the name of said Ira Holmes, and the amount for which the
property was sold, to-wit, the sum of ten thousand dollars, was
credited upon the notes of said Picket, leaving due at that time
upon the Picket notes the sum of forty thousand dollars, for the
payment of which, and the notes of said Ira Holmes, the entire
tract remained charged, said Picket having for the purpose of
enabling the parties to carry our the arrangement referred to,
executed a quitclaim deed of his interest in said property to said
Ira Holmes. I find as a matter of fact that the consideration for
the conveyance of said Picket was his release from the payment of
his notes, which were thereafter held under the terms of the
contract between Ira Holmes and the People's Bank, for the purpose
of preserving the guaranty of the bank; that said arrangement
changed the original contract of guaranty made by the
Manufacturers' National Bank, by the taking of the
Page 133 U. S. 71
new security and the extension of time resulting therefrom upon
the original indebtedness. I find further that the deed executed by
said Picket as the result of the agreement referred to was made
under an arrangement between said Holmes and Picket, and assented
to by said People's Bank of Belleville, that said Picket was to be
released and discharged from any further liability or payment upon
the original indebtedness. By reason of which I find that the
Manufacturers' National Bank, the original guarantor, became
discharged from all further liability on account of such
undertaking of guaranty, and recommend that the claim against it be
disallowed."
Judge Blodgett, in his opinion in 36 F. 843, said:
"This claim of the People's Bank of Belleville is based upon a
guaranty of payment made by the Manufacturers' National Bank of
eight notes of $5,000 each, given by Henry E. Picket, dated August
5, 1873, and due in one year from date, which were discounted for
the Manufacturers' National Bank, soon after their date, by the
People's Bank of Belleville. These notes were secured by a trust
deed upon land in the vicinity of the City of Chicago. The
Manufacturers' National Bank suspended payment and went into
voluntary liquidation on or about the 23d of September, 1873, and,
when these notes matured about a year afterwards, dealings were had
between the People's Bank of Belleville and Ira Holmes, then acting
as president of the Manufacturers' National Bank, in liquidation,
and assuming to act also for his bank, by which the title to the
real estate held as security for the payment of these notes was
transferred to Holmes, and Holmes thereupon gave his notes for the
amount due on the Picket notes, and also for a large amount of
other indebtedness held by the People's Bank, on which the
Manufacturers' National Bank or Holmes, or both, were liable, and,
as is found by the master, Picket, in consideration of a quitclaim
from himself and wife to Holmes of the land covered by the trust
deed securing his notes, was released from further liability on
these notes. The master found that this release of Picket from the
notes which the Manufacturers' National Bank had guaranteed
operated to release the guarantor, and hence the master rejected
the claim.
Page 133 U. S. 72
I do not intend to go into an analysis or statement of the proof
upon which the master made his finding, as it will be sufficient to
say that I have examined these proofs and am of opinion that they
fully sustain the master's conclusion. It is urged, however, that
as the proof shows that the People's Bank of Belleville brought
suit on this guaranty now in question and obtained judgment
thereon, such judgment is conclusive against the defendants in this
case, who are stockholders in the Manufacturers' National Bank,
against whom as assessment is asked. Aside from the authorities
cited, which satisfy me that the stockholders of the Manufacturers'
National Bank are not concluded by this judgment, which was
rendered after the bank went into liquidation, I think the fact
shown in this record, that the dealings between the People's Bank
of Belleville and Homes and Picket, by which Picket was released,
were unknown to the defendant stockholders at the time this
judgment was rendered, should allow these stockholders to go behind
the record of that judgment and raise the question before the court
in this suit whether the guaranty was released by the release of
Picket, the principal debtor, whose notes were guaranteed. The
exceptions to the master's report are therefore overruled, and the
report confirmed."
The contention of the appellant is that by the transaction in
question, Picket was not released. Reliance for this view is had
upon an instrument in writing made on the 27th of August, 1874,
between Ira Holmes as one party and the Peoples' Bank of Belleville
as the other. By that paper, Holmes agreed with the bank that he
would, on the 1st of September, 1874, execute to it his eighteen
promissory notes of that date, each bearing interest at the rate of
ten percent per annum from its date, payable semiannually -- the
total amount of the eighteen notes to be $87,465.10 -- and Holmes,
simultaneously, to execute to one Thomas, as trustee, eighteen
deeds of trust to secure the eighteen notes, each deed to secure
one note, the bank agreeing to foreclose at once the Picket deed of
trust, and to procure the trustee therein to sell the land covered
thereby, under its provisions at the expense of Ira Holmes, and to
cause said land to be bought in at such
Page 133 U. S. 73
sale and conveyed to Ira Holmes. The instrument contained a
provision
"that the notes mentioned in the encumbrances now existing upon
said land shall stand as additional security for said People's
Bank, as far as they go, for the indebtedness to be created by the
said Holmes, as hereinbefore mentioned."
Under this agreement, the proceedings took place which are set
forth in the report of the master.
On the second of September, 1874, a paper was executed by the
Manufacturers' National Bank, by Ira Holmes as its president, and
accepted in writing by the People's Bank of Belleville, by C. W.
Thomas as its attorney, which recited the fact of the making of the
ten promissory notes by Picket on the 5th of August, 1873, and the
securing of the same by a trust deed, and then proceeded as
follows:
"And whereas the said Manufacturers' National Bank afterwards,
and before said notes matured, delivered them to the People's Bank
of Belleville, and, for a valuable consideration, guaranteed the
prompt payment of said notes and interest to said People's Bank,
and whereas the said Picket, before said notes fell due, became
insolvent, and the land mentioned in said trust deed was subject to
heavy prior encumbrances, which said People's Bank has removed, it
is agreed between the said People's Bank of Belleville and the said
Manufacturers' National Bank that the guaranty of the said
Manufacturers' National Bank upon eight of said notes shall be and
remain binding upon said National Bank, and that any agreement
which has been or may be made between the People's Bank and said
Picket in regard to said Picket's liability as maker or endorser of
said notes shall never be construed to release or in any wise
affect said guaranty upon eight of said notes."
On the same 2d of September, 1874, the Manufacturers' National
Bank, by Ira Holmes as its president, executed an instrument
whereby it agreed that no release of the Picket deed of trust
"shall operate to release said bank from its guaranty of eight
of the notes in said deed named, to be selected and retained by the
People's Bank of Belleville, the present legal holder of all of
said notes in said deed named, and the said Manufacturers' National
Bank further agrees
Page 133 U. S. 74
that no release of the maker or endorser of said notes shall
operate to relieve said National Bank of its liability upon said
guaranty of eight of the same, the said Manufacturers' National
Bank hereby continuing its guaranty of eight of said notes,
notwithstanding any agreement which may be or may have been made
between the holder of the same and the maker or endorser thereof,
and notwithstanding any sale which may be made under said deed of
trust."
In its opinion in the case of
Richmond v. Irons at
121 U. S. 59,
this Court considered that part of the decree appealed from which
directed payment of the claims reported by the master under the
denomination of "Class D," amounting in the aggregate to
$185,119.34, and which were designated by the master as claims
"arising before the failure of the bank, upon which worthless
collaterals were subsequently received." These were claims which,
after the bank went into liquidation, were settled between the
parties by the acceptance out of the assets of the bank by the
creditors of bills receivable in payment of their claims, and which
bills receivable contained guarantees of payment then made in the
name of the bank. Upon that point, this Court said:
"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,
Page 133 U. S. 75
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 and guaranty of the paper thus received, made by
Holmes, as president, in the name of the bank. They 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.
Page 133 U. S. 76
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 its
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 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.'"
It was proper for the circuit court, after the decision of this
Court, to permit the claim of the People's Bank to be reexamined,
to ascertain whether it was a valid claim against the stockholders
of the Manufacturers' Bank. It is true that on the 31st of May,
1880, the People's Bank recovered in the circuit court a judgment
against the Manufacturers' Bank for $67,277 in an action brought
against the latter as guarantor
Page 133 U. S. 77
of the eight notes; but, as the suit in which that judgment was
recovered was not commenced until the 20th of October, 1876, more
than three years after the Manufacturers' Bank went into
liquidation, the judgment against the corporation was not binding
on the stockholders in the sense that it could not be reexamined,
and the transactions of August and September, 1874, also took place
about a year after the bank went into voluntary liquidation.
Moss v. McCullough, 5 Hill 131;
Miller v. White,
50 N.Y. 137;
McMahon v. Macy, 51 N.Y. 155;
Trippe v.
Huncheon, 82 Ind. 307.
When this judgment was rendered on the 31st of May, 1880, the
transactions of August and September, 1874, between the People's
Bank and Holmes and Picket were not known to the stockholders of
the Manufacturers' Bank, and it is quite clear that they are
entitled to go behind the record of that judgment and raise the
question whether the guaranty of the Manufacturers' Bank was
released, as to them, by the release of Picket, the principal
debtor, whose notes were guaranteed by that bank.
We are satisfied on the evidence that the consideration for the
deed from Picket to Ira Holmes was that Picket should be released
as maker of the notes held by the People's Bank, which the
Manufacturers' National Bank had guaranteed. As to what is
contained in the two papers dated September 2, 1874, the meaning of
them is that the liability of the Manufacturers' National Bank as
guarantor upon the eight notes of Picket should continue
notwithstanding the release of the land from the Picket deed of
trust by a sale under the power contained in that deed in pursuance
of the agreement made with Ira Holmes and notwithstanding the
release of Picket, as maker of the notes, from further liability
upon them. The sale under the Picket trust deed was made simply to
release the security by placing the title in Holmes, and was not
made for the purpose of paying the notes, and the agreement of
Holmes, made after the bank went into liquidation, to continue its
guaranty upon the notes, a liability under which the People's Bank
is now attempting to enforce against the stockholders, is not
binding upon them in view of what was said
Page 133 U. S. 78
by this Court in the case of
Richmond v. Irons, before
quoted.
The decree of the circuit court is
Affirmed.
MR. CHIEF JUSTICE FULLER, having been of counsel in
Richmond
v. Irons, took no part in the consideration or decision of
this case.