Abingdon Bank & Trust Co. v. Bulkeley

• Decision Date: 13 September 1945
• Docket Number: No. 28194.,28194.
• Parties: ABINGDON BANK & TRUST CO. v. BULKELEY et al.
• Court: Illinois Supreme Court

390 Ill. 582

62 N.E.2d 447

ABINGDON BANK & TRUST CO.

v.BULKELEY et al.

No. 28194.

Supreme Court of Illinois.

May 23, 1945.

Rehearing Denied Sept. 13, 1945.

Appeal from Appellate Court, Second District, on Appeal from Circuit Court, Knox County; William M. Bardens, Judge.

Action by the Abingdon Bank & Trust Company against H. C. Bulkeley and others to recover on notes given by defendants in renewal of their notes given to a state bank when it took over the assets and liabilities of a national bank of which defendants were directors, the payment of which was secured by the corporate note of the national bank representing the total stock liability of its stockholders and by certain shares of stock in another bank. From a judgment of the Appellate Court, 323 Ill.App. 70, 54 N.E.2d 889, affirming a judgment for defendants, plaintiff appeals on leave granted by Supreme Court.

Affirmed.

Burrel Barash, of Galesburg, for appellant.

Kenworthy, Harper, Sollo & Graham, of Moline (R. G. Graham, of Moline, of counsel), for appellees.

SMITH, Justice.

This is an appeal from a judgment of the Appellate Court of the Second District on leave granted by this court. The suit was brought by Abingdon Bank & Trust Company (hereinafter referred to as appellant,) as plaintiff in the circuit court of Knox county. The defendants named in the suit were appellees, H. C. Bulkeley and C. D. Byram (hereinafter referred to as appellees), together with four other former directors of the First National Bank of Abingdon. All of the defendants who were served with process, except appellees, defaulted. It was alleged in the complaint that the other three former directors of the First National Bank of Abingdon, who were parties to the notes involved, died prior to the time the suit was instituted.

The suit is based on nine promissory notes, which are the second renewals of a like number of notes executed severally by the nine directors of the First National Bank of Abingdon, on August 29, 1927. Each note was signed by one director as maker, and endorsed by the other eight directors. The notes aggregated $56,156. They were payable to the First State and Savings Bank of Abingdon. Appellant holds the notes as assignee of the payee therein named. They were assigned to it subsequent to the maturity dates thereof and are subject to all defenses available against the original payee.

Appellees filed their answer in which they set up several separate defenses to the cause of action alleged in the complaint. They rely first on the second defense, which was that the contract in connection with which the notes sued on were given was ultra vires the State Bank and, therefore, the notes were void. This defense cannot be sustained under our holding in Groves v. Farmers State Bank, 368 Ill. 35, 12 N.E.2d 618. The other defense relied upon is that the notes which constitute the basis for the cause of action sued on have been paid.

The record shows that on August 27, 1927, the First National Bank of Abingdon (hereinafter referred to as the National Bank,) was in failing circumstances. On that date negotiations were begun between the National Bank and the First State & Savings Bank of Abingdon (hereinafter referred to as the State Bank), for the voluntary liquidation of the National Bank. These negotiations continued with some interruptions until after midnight on Sunday night, August 28, 1927. At that time a contract was entered into between the two banks, which was executed by the officers of the banks. This contract was dated August 29, 1927. The record further shows that during the negotiations leading to the execution of the contract, the directors of the National Bank, including appellees, were in and out of the room at intervals where the negotiations were being carried on. There is no proof, however, that appellees participated in the actual negotiations or in the preparation of the contract. They testified that they did not. At the time the contract was executed by the officers of the two banks, appellees and the other directors of the National Bank were called in. The contract was there read to them. While the contract referred to certain exhibits as being attached to and made a part of the contract, the undisputed evidence is that such exhibits were not attached to the contract, nor were the exhibits read to or examined by appellees or the other directors of the National Bank. The original contract was offered in evidence on the trial of this case. It did not, at that time, have the exhibits referred to attached to it.

The controversy in this case involves two provisions of the contract. The first provision in the contract, which is here material to be considered, is that relating to the cash and cash balances due from banks which, at the time the contract was executed, belonged to the National Bank. That provision of the contract is as follows:

‘Party of the Second Part hereby sells, assigns, conveys and sets over to the Party of the First Part the following assets of the Party of the Second Part to wit:

‘Cash and Cash Balances Due from Banks in the total amount of Sixty-seven thousand Nins Hundred Ninety Two and 61/100 Dollars as evidenced by Exhibit ‘A’ which is hereto attached and made a part of this contract.'

The other provision of the contract here involved is the paragraph relating to the directors' guarantee fund, which is as follows:

‘Directors Guarantee Fund in the total amount of Fifty-six Thousand One Hundred Fifty Six and no/100 Dollars as evidenced by Exhibit ‘H’ which is hereto attached and made a part of this contract; and it is hereby agreed by the Parties hereto that the Party of the Second Part will place with the Party of the First Part as collateral security to the notes listed in ‘Exhibit H’ the corporate note of the Party of the Second Part in the Principal sum of Seventy Five Thousand and No/100 Dollars said note to be executed and delivered with this Agreement; and as further collateral security to the notes listed in Exhibit ‘H’ Party of the Second Part hereby pledges the equities represented by the shares of stock of the Bank of St. Augustine as listed in Exhibit ‘I’ which is hereto attached and made a part of this contract; and it is further agreed by the Parties hereto that after the notes plus accrued interest listed in Exhibit ‘H’ have been liquidated from the proceeds of the corporate note of Seventy Five Thousand Dollars hereinabove mentioned together with the proceeds from the bank stock listed in Exhibit ‘I’ that any remaining surplus shall be transferred into the ‘General Guarantee Fund’ hereinafter mentioned and applied as hereinafter provided.'

The notes listed in Exhibit ‘H’ are the original notes, the renewals of which are the subject matter of this suit.

Upon a trial before the court, judgment was entered in favor of appellant and against appellees for the balance due on the renewal notes, which are the subject of the suit. This judgment was reversed by the Appellate Court, 312 Ill.App. 177, 37 N.E.2d 873, without remanding. Later, upon motion of appellant, supported by affidavits, the judgment of the Appellate Court was modified and the cause remanded for a new trial. A second trial was had in the circuit court without a jury. Judgment was entered in favor of appellees and against appellant for costs. This judgment was affirmed by the Appellate Court. 323 Ill.App. 70, 54 N.E.2d 889. The issues are such that a somewhat detailed statement of the facts is necessary to an understanding of the questions involved.

The record shows that at the time the contract between the two banks was executed, the nine directors of the National Bank were the owners of stock in that bank of the aggregate par value of $36,850. At the time the contract was signed, or shortly thereafter, these directors delivered to the State Bank their personal checks and cash, aggregating $36,850. Each director contributed to the aggregate amount paid an amount equal to $100 for each share of stock owned by him. It is these payments by the directors to the State Bank which is the subject of the controversy in this suit. This item of $36,850 was, in fact, included in the item of $67,992.61, of cash and cash balances due from banks, mentioned in the provision of the contract first above quoted. The record further shows that at the time the contract was executed, the National Bank executed and delivered its corporate note to the State Bank in the sum of $75,000, the amount of that note being the full superadded potential liability of all of the stockholders of the National Bank, including the nine directors.

The decisive question here is whether the $36,850, paid by the directors of the National Bank to the State Bank, is to be treated as payment by them of their anticipated superadded stockholders' liability, or whether such payments are to be treated as a part of the assets transferred by the National Bank to the State Bank. If such payments are treated as payment by the directors of the National Bank of their superadded stockholders' liability, then, under the directors' guarantee provision of the contract, such payments should have been credited on the judgment entered on the $75,000 note executed by the National Bank and payable to the State Bank. If so credited, then, under the terms of the directors' guarantee provision of the contract, such payments should, in turn, have been credited on the notes aggregating $56,156, executed by the directors of the National Bank and which constitute the subject matter of this suit. It is conceded that if the $36,850 paid by the directors is credited on their notes, such notes have been paid in full.

It is the contention of appellant that in the negotiations between the two banks, preceding the execution of the contract, it was first determined that the total agreed value of the assets of the National Bank, which were to be transferred to the State Bank, was $542,981.71; that the total...