Richmond v. Irons

• Decision Date: 28 March 1887
• Citation: 121 U.S. 27,7 S.Ct. 788,30 L.Ed. 864
• Parties: RICHMOND and others v. IRONS and others. 1
• Court: U.S. Supreme Court

121 U.S. 27

7 S.Ct. 788

30 L.Ed. 864

RICHMOND and others v. IRONS and others.¹

March 28, 1887.

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 complaint had recovered a judgment against the bank for the sum of $12,408.51 damages, besides costs, an execution on which had been returned unsatisfied; that on or about October 11, 1873, the bank had suspended payment and business, and, in pursuance of section 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 guarantied 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 24 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 other- wise, 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 twelfth 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 r 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 twenty-sixth 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 first 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 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 indorsed 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 forty-second 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 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 canceled 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 canceled 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 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...