133 U.S. 670 (1890), Peters v. Bain

Citation:133 U.S. 670, 10 S.Ct. 354, 33 L.Ed. 696
Party Name:PETERS v. BAIN et al. GRIFFIN et al. v. PETERS.
Case Date:March 03, 1890
Court:United States Supreme Court
 
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Page 670

133 U.S. 670 (1890)

10 S.Ct. 354, 33 L.Ed. 696

PETERS

v.

BAIN et al.

GRIFFIN et al.

v.

PETERS.

United States Supreme Court.

March 3, 1890

Page 672

[10 S.Ct. 355] These are appeals from a final decree of the circuit court of the United States for the eastern district of Virginia, entered on the 15th day of June, 1886, upon a bill in equity brought by William H. Peters, receiver of the Exchange National Bank of Norfolk, against Robert T. K. Bain, George M. Bain, Jr., and James G. Bain, late partners under the name and style of Bain & Bro., survivors of themselves and Thomas A. Bain, deceased; and John T. Griffin, William W. Old, and John B. Jenkins, trustees under a deed of assignment from Bain & Bro.; and upon a cross-bill filed by said trustees. The cause, after being brought to issue, was referred to a special master, who took evidence and reported thereon, and was heard by Mr. Chief Justice WAITE and the circuit judge. The opinion of the court was delivered by the chief justice, and is as follows:

'This is a suit in equity begun by the receiver of the Exchange National Bank of Norfolk, an insolvent national bank, for a twofold purpose; that is to say: (1) To set aside an assignment made by the partnership firm of Bain & Bro. and the several members thereof for the benefit of their creditors, and to subject the assigned property to the payment of debts due the bank; and (2) to charge property in the hands of the assignees with the trust in favor of the bank because it was bought with moneys of the bank, which certain members of the firm, who were officers of the bank, had wrongfully used for that purpose.

'The material facts are these: The Exchange National Bank

Page 673

was organized May 13, 1865, with a capital of $100,000, which was increased November 13, 1866, to $150,000. Its place of business was Norfolk, Va. The firm of Bain & Bro., composed originally of R. T. K. and James G. Bain, began business in Portsmouth, Va., as brokers and private bankers, in September, 1865, with an assumed capital of $5,000, placed to the credit of the two partners on the books. George M. Bain, Jr., was admitted as a partner soon after the business was started, and Thomas A. Bain in 1868 or 1869, but he died in 1877. The capital was never increased, but, on the contrary, the drafts of the partners soon exhausted the original credits, and much more besides. At the time of the failure, the balances against the partners, respectively, were as follows:

James G. Bain ............ $ 54,796 74
R. T. K. Bain .............. 47,369,22
George M. Bain, Jr........... 7,146 39
Thomas A. Bain's estate .... 20,028 41
-----------
In all ................ $129,340 76
'Portsmouth is separated from Norfolk by the Elizabeth river, one place being on one side of the river, and the other immediately opposite, on the other. On the 7th of July, 1870, the firm became shareholders in the bank, and the next day George M. Bain, Jr., was elected cashier. This office he held until April 2, 1885. R. T. K. Bain was elected a director, January 2, 1872, and he served in that capacity all the time thereafter, during the existence of the bank. James G. Bain was elected assistant cashier, August 11, 1873, and he held that office until January 11, 1881, when he was made vice-president, in which capacity he acted until the end. Thomas A. Bain was elected a director, January 11, 1876, and this office he held until his death. On the 9th of September, 1873, the capital stock of the bank was increased from $150,000 to $200,000. The names of the subscribers are not given, and no money was paid on that day, but the whole amount of $50,000 was carried in the Page 674 receiving teller's cash as a cash item, until October 14, 1873, when the following parties gave their checks on the bank for the following amounts:
Bain & Bro ........... $25,000
John B. Whitehead ..... 15,000
James H. Toomer ........ 5,000
George M. Bain, Jr...... 5,000
-------
In all ............ $50,000
'Certificates of stock were issued to these parties, respectively, for the shares represented by their several checks. On the 10th of May, 1874, the stock was increased to $300,000; R. H. McDonald, of California, taking and paying for the whole of the additional amount. At the time of the failure of the bank the following persons held shares as follows:
Bain & Bro .......................... 582 shares.
George M. Bain, Jr................... 232 do.
James G. Bain ........................ 91 do.
R. T. K. Bain ........................ 91 do.
Thos. A. Bain's estate ............... 91 do.
George M. Bain, Jr., and John B.
Whitehead .......................... 100 do.
-----
In all ........................ 1,187 do.
'Very soon after Bain & Bro. became connected with the bank they began to absorb its funds. As they wanted money they got it with or without security, as was most convenient for them. They had no direct connection in their own private banking business with the Bankers' Clearing-House at Norfolk, but they were represented in that association by the Exchange Bank, which paid all balances against them, and these at some times amounted to very large sums. The commercial and business paper which they took at their banking-house in Portsmouth was largely rediscounted for them at the bank, and on the 31st of March, 1885, their indebtedness to the bank has been stated approximately as follows:
Bain & Bro's notes, &c., unindorsed
and unsecured ........................ $ 800,000 00
Notes of others indorsed by them ......... 593,251 99
Cash tickets ................................. 211 00
Bain & Bro's notes indorsed by bank,
and discounted in New York ............... 50,000 00
-------------
In all ............................ $1,443,462 99
Page 675 [10 S.Ct. 356] 'In addition to this, George M. Bain, Jr., and James G. Bain each owed the bank very considerable sums. Such being the condition of affairs, the comptroller of the currency required the bank to reduce at once the unsecured debt of Bain & Bro., and to make good the deficiency in its reserve fund. In consequence of this, the firm, on the 31st of March, sold to the bank the following stocks and bonds:
Seaboard Compress Company Stocks ............ $300,000
Meherria Valley railroad bonds ............... 200,000
Southern telegraph bonds, of the par value
of $140,000, at ............................. 70,000
--------
In all .................................. $570,000
--And guarantied that the same should yield the amount for which they were taken whenever put on the market and sold. This guaranty was secured by a transfer of the interest of the firm in the Richmond Cedar Works, and also in $80,000 of Southern Telegraph bonds held as collateral security. This being done, and the firm also agreeing not to assign their other property for the benefit of creditors with preferences against the bank, notes of the firm and other indebtedness to the amount agreed on as the value of the stocks and bonds were surrendered, and the unsecured debt thereby nominally reduced. While some of the stocks and bonds thus transferred had been before that time in the possession of the bank, or some of its officers, the evidence does not establish the fact that they had been in any way pledged, or that they could be legally held by the bank as security. They were all, so far as appears, the property of the firm, free of any specific claim of Page 676 the bank. The value of the stocks and bonds thus transferred falls between two and three hundred thousand dollars short of the amount for which they were taken, and the Richmond Cedar Works stock and Southern Telegraph bonds, held as collateral to the guaranty against this deficiency, are of but little value. 'What was thus done did not satisfy the comptroller, and on the 2d of April, 1885, he took possession of the bank for the purpose of winding up its affairs. The banking-house in Portsmouth closed its doors at the same time. This produced great excitement both in Portsmouth and Norfolk, and resulted in the assignment which is now attacked. Mr. Old, one of the assignees, is an attorney at law, and was retained as counsel for the firm. He advised them in all their matters, and drafted the assignment. He was informed of the agreement which had been made not to assign with preferences against the bank, and knew generally of the large indebtedness of the firm and of its members to the bank. He also knew of the transaction between the bank and the firm on the 31st of March, and, hearing that it was the intention of the creditors of the bank to enjoin the assignment, he made haste to have it executed and recorded before anything of that kind was done. The actual value of the property which passed by the assignment does not exceed five hundred thousand dollars. The property consists very largely of real estate in Portsmouth and Norfolk county, the title to most of which was in R. T. K. Bain. The books of the firm are entirely unreliable. In fact, no general ledger was ever kept, and transactions to enormous amounts can only be traced by memoranda on slips of paper with the help of the explanations of R. T. K. Bain, who was the principal manager. No accounts at all were kept with the bank, and everything, so far as Bain & Bro. were concerned, was found in the greatest confusion. After the death of Thomas A. Bain the business of the firm was conducted in all respects as it had been before. The indebtedness of the firm to depositors and otherwise at the time of the...

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