Denison v. Gibson

• Decision Date: 04 January 1872
• Court: Michigan Supreme Court
• Parties: Elizabeth F. Denison v. Chauncey W. Gibson and others

24 Mich. 187

Elizabeth F. Denison v. Chauncey W. Gibson and others

Supreme Court of Michigan

January 4, 1872

Heard October 5, 1871; October 6, 1871; October 7, 1871; October 10, 1871.

Appeal in chancery from Bay circuit.

This bill was filed by Elizabeth F. Denison, against Chauncey W Gibson, Sanford M. Green, William C. Green and Elias B Denison, complainant's husband, to set aside and cancel a mortgage given by her, on her separate property, to secure the payment of several notes which she had signed as surety with the defendants, Green and Denison, and which were given by the latter to defendant Gibson for part of the purchase price of stock of the First National Bank of Bay City, and also to cancel her contract relation on said notes. No defense was made except by defendant Gibson. The case was heard on pleadings and proofs, and the court below granted the relief prayed. The defendant Gibson appealed to this court.

Decree of the circuit court, affirmed with costs against the defendant Gibson, and case remanded for the execution of the decree.

Marston & Hatch, John Moore, William L. Webber, and Ashley Pond for complainant.

McDonell & Cobb, C. I. Walker, and George V. N. Lothrop, for defendant Gibson.

Graves J. Cooley, J., Christiancy, Ch. J., and Campbell, J., concurred.

OPINION

Graves J.:

The matters in this large record are so numerous, some are so blind, and many are so intricate and extensive, that any attempt to trace them through all their changes and windings, and explain their connections and bearings, would require a volume.

It so happens, however, that there is no need for anything so elaborate because the case is ripe for decision on a ground which will be sufficiently elucidated by attending to a few of the leading features of the case. In the early part of 1863, the defendant Gibson and his father, Charles D. W. Gibson, with a capital of four thousand dollars, commenced the business of private banking at Bay City, which was continued with seeming success until the following winter, when the same parties, with some others, organized under the national currency act of February, 1863, "The First National Bank of Bay City," with a capital stock of fifty thousand dollars, and which, according to the claim of defendant Gibson, was afterwards, and in the summer of 1865, increased to one hundred thousand dollars.

On the first organization, the defendant Gibson held twelve thousand seven hundred dollars, and his father twelve thousand eight hundred dollars, of the stock, and the residue was held by four others.

When the alleged increase was made in 1865, the defendant Gibson took thereof thirty-nine thousand dollars, his father nine thousand dollars, his brother, T. W. Gibson, one thousand dollars, and H. J. Clark, the cashier, one thousand dollars. From the first organization to the transfer in July, 1867, the defendant Gibson continued to be a heavy stockholder, and likewise the president and chief financial manager of the bank, and during the same period, and until long after the transfer, if not until the suspension at the end of 1867, he held the office of director.

At the time of the sale to his co-defendants, in July, 1867, he states that the stock which was embraced in the sale, and which he was authorized to sell, was owned as follows: He held forty nine thousand dollars; his wife, ten thousand dollars; his father, thirty thousand dollars; his brother, T. W. Gibson, three thousand dollars; his brother, Charles F. Gibson, one thousand dollars; and Harvey J. Clark, the cashier, two thousand dollars.

According to the evidence, the bank appeared to the general public to have done a profitable business; and to be in a sound and satisfactory condition. The complainant was the daughter of James Frazer, a man of wealth at Bay City. She inter married with defendant Denison in 1864, and he was neither at that time or afterwards possessed of much property. In the fall of 1866, William C. Green, one of the defendants, and one John Johnston commenced the business of private banking at Bay City, under the style of W. C. Green & Co. In the winter following, the father of William C. Green also became a member of this firm, and about the 18th day of June, 1879, the defendant Denison, succeeded Johnston.

The defendant William C. Green was a young man without much, if any, means. His father was wholly unacquainted with banking, and had been influenced to enter the firm chiefly by his desire to advance the interests of his son. He intermeddled very little with the business, and was extremely uninformed about it.

The responsibility of the firm was at all times inconsiderable. As it now appears, both Denison and William C. Green were quite inexpert in banking, and plunged into outside speculations very unprofitable to themselves, and detrimental to their bank. At the time of the trade in July, 1867, their firm was in a precarious condition, and nearly, if not quite, insolvent.

While, as already intimated, the institution over which Gibson presided, and in the management of which he exercised nearly absolute control, seemed to be conducted wisely, and with success, the real circumstances were very different.

We cannot read the record without seeing that Gibson, notwithstanding his position of authority, trust and responsibility, made the true interest of the bank, from first to last, subservient to his private gain and advantage; that he assiduously employed himself in private and personal operations for his own emolument, and usually cast the risks upon the bank, and decoyed whatever there was of profit into his private coffers. The varied, circuitous and blind expedients, devised for the execution of this policy, reveal themselves with more or less fullness and distinctness in the proofs, and need not be pointed out or described here.

The books and accounts of the bank, instead of being so kept as to present a plain and truthful record of its business and condition, were disfigured and darkened by errors, mysteries and ambiguities. Even the learning and ingenuity of the bar were inadequate to thread the labyrinth. Enough, however, is developed to show that the bank, when the negotiations for the sale commenced and ended, was loaded by defendant Gibson with more than fifty thousand of unbankable assets, consisting of uncollectable demands, irregular and longtime paper, and corporation stocks of fluctuating and uncertain value.

These vices and irregularities in the management necessarily produced much disorder in the affairs of the bank, and certainly deserved to bring upon it the correcting hand of the government. And there is much reason for believing that even the fertility of defendant Gibson, in the subtleties of irregular banking, would have failed in averting much longer the intervention of the comptroller of the currency by legal measures under the law of congress.

Bearing in mind the circumstances which have been mentioned, and their order of time, it is next to be observed that complainant's father having died in 1866, his large estate was finally settled and distributed about the first of June, 1867, of which defendant Gibson was aware, and the portion which fell to complainant was of great value, and consisted principally of real estate, of which the parcels mentioned in the bill, and mortgaged to defendant Gibson, are part. For some two years before Mr. Frazer's death his real and a portion of his personal estate had been managed by one Bernard Witthauer, and after the division of the estate this gentlemen had been employed somewhat in looking after the interests of complainant. About the 20th of June, 1867, and within two or three weeks after complainant had received her portion of the estate, and two or three days after her husband had entered the firm of W. C. Green & Co., Mr. Witthauer, understanding that defendant Gibson wished to sell his real estate, asked to be employed to negotiate a sale. But Gibson informed him that he desired to sell all his property including the bank, and in reply to Witthauer's remark that it would be difficult to find a purchaser for so large a property, instructed him to apply to W. C. Green & Co., and furnished him with a document said to contain a description of the property and its value. This paper appears in the record as exhibit "A."

With this information and direction, and under these circumstances, Mr. Witthauer initiated negotiations with W C. Green & Co., which were soon participated in, and at length consummated, by Gibson in person. The negotiations were in progress for several days, and ended in a bargain about the 6th or 7th of July, 1867, and some material parts of the final arrangement appear to have been adopted step by step, as they were carried out. The subject matter of the sale by Gibson consisted of certain real estate and other property, and ninety-five thousand dollars of the stock of the bank set down at one hundred and twenty-three thousand five hundred dollars, and the whole purchase-price, of which part was to be paid in hand and part secured on time, was fixed at one hundred and sixty-two thousand six hundred and six dollars and twenty-one cents. At this time W. C. Green & Co. had a little over nine hundred dollars in cash, and something more than sixty thousand dollars of all grades of discounted paper, and on much of which members of the firm were in some form directly liable. Besides the liability on this paper, and in other forms, and besides the liabilities of individual members, the firm were also liable to depositors in nearly forty thousand dollars. They had no credits at Gibson's bank. And in this state of affairs, and as part and parcel of the bargain, the following plan was contrived and...