Assets Realization Co. v. Howard

• Decision Date: 02 June 1914
• Citation: 105 N.E. 680,211 N.Y. 430
• Parties: ASSETS REALIZATION CO. v. HOWARD et al.
• Court: New York Court of Appeals Court of Appeals

211 N.Y. 430

105 N.E. 680

ASSETS REALIZATION CO.

v.HOWARD et al.

Court of Appeals of New York.

June 2, 1914.

Appeal from Supreme Court, Appellate Division, Fourth Department.

Action by the Assets Realization Company, suing on behalf of itself and all creditors of the Metropolitan Bank who should come in and contribute to the expenses of the action against Clarence M. Howard and others. Judgment for defendants was affirmed by the Appellate Division (152 App. Div. 900,136 N. Y. Supp. 1130), and plaintiff appeals. Affirmed.

See, also, 152 App. Div. 951,137 N. Y. Supp. 1109.

The action is brought to enforce a liability of stockholders in a state bank for an alleged indebtedness of the bank.

On and prior to August 10, 1901, the Metropolitan Bank was a state bank having its place of business in the city of Buffalo, N. Y. It had been subjected to a run by its depositors, and a representative of the banking department for some time had been overlooking its operations and finally had reached the conclusion to close its doors. In the light of subsequent events it has been found that the bank then was and for some time had been insolvent, but it was not found or indicated by the evidence that this was appreciated or believed by the people carrying on the subsequent transactions herein referred to. At this time there was also another state bank, the German Bank, doing business in Buffalo, and on the date above mentioned, after negotiations between directors and counsel representing respectively the two institutions, an agreement was made providing for a transfer by the Metropolitan Bank of all of its assets to the German Bank, and for the payment by the latter of all of the depositors of the former, and which agreement provided and read as follows:

‘This agreement, made this 10th day of August, A. D. 1901, between the Metropolitan Bank, of the first part, and the German Bank, of the second part, both being banking corporations organized under the laws of the state of New York, and both located and doing business in Buffalo, Erie county, New York, witnesseth:

‘Whereas, the party of the first part has been engaged in the banking business for several years last past in Buffalo, and in the course of such business has acquired divers assets of various nature; and whereas, it has been thought desirable by its officers and the board of its directors, that it should go into voluntary liquidation, and thereby avoid, so far as may be, the expenses incident to a receivership; whereas, the party of the second part is willing to undertake such liquidation upon the terms hereinafter stated: Now, therefore, in consideration of the premises and one dollar to each of the parties in hand paid by the other, the receipt whereof is hereby acknowledged, it is agreed between the parties hereto as follows:

‘First. The party of the first part hereby pledges to the party of the second part all and singular its assets, property and effects of every name, nature and kind as security for the advance hereinafter specified, and it agrees that it will when and as requested, by proper assignment and special instrument in each case, make valid transfers of any particular portion of such assets necessary to comply with the statute regarding the recording of instruments and so as to enable the second party to make proper, adequate and easy proof of its rights in the premises.

‘Second. The party of the second part agrees that it will advance to the party of the first part when and as the same shall be needed, sufficient moneys to pay all depositors of the party of the first part in full. A considerable portion of the assets of the party of the first part consists of real estate located in the city of Buffalo and elsewhere; certain of this property is incumbered. Such sums as shall be needed for the purpose of carrying this property, subject to the limitation hereinafter mentioned, shall also be advanced by the party of the second part when and as the same shall be required. Nothing herein contained shall without the consent of the party of the second part require it to pay any portion of the principal secured by either of such mortgages upon the real estate of the party of the first part.

‘Third. For all advances made by the party of the second part under the preceding paragraph, it shall be entitled to receive interest at the rate of six per centum per annum from the time of the advance until the money advanced be refunded.

‘Fourth. The party of the second part shall also be entitled to receive as compensation for its services in the matter of such liquidation the sum of twenty thousand dollars.

‘Fifth. In the management of the property of the party of the first part hereinbefore referred to, and in the conversion of its assets, due diligence shall be used to make the conversion as rapidly as it can be done without undue sacrifice. The board of directors of the party of the second part shall at all times have the controlling voice as to the method of such conversion.

‘Sixth. Jacob Dilcher, the president of the party of the first part, shall be employed to assist in the conversion of the assets of the party of the first part and his salary shall be paid out of the assets of the party of the first part hereinbefore referred to, at the rate of four thousand dollars per annum.

‘Seventh. The legal services incident to the liquidation of the party of the first part shall be performed by Moses Shire and Robert F. Schelling, or by such other counsel as shall be satisfactory to the party of the second part. The compensation for the services so rendered shall be paid out of such assets and the amount thereof shall be subject to audit and approval by both of the parties hereto.

‘Eighth. Each of the parties shall devote its best energies to the conversion of such assets as speedily as possible, having due regard to the avoidance of sacrifice with respect thereto. The books and papers of the party of the first part shall be placed in the custody and control of the second party, subject to the inspection of the party of the first part, or its officers, at all times. The first party shall take no further deposits after this date, and so far as is possible the influence of it officers shall be directed to secure to the party of the second part such accounts heretofore kept with the party of the first part, as shall be deemed desirable.

‘Ninth. When the conversion has proceeded to such an extent as to render it necessary, a receivership shall be applied for, if thought best, to dissolve the party of the first part. Such receiver shall be nominated by the party of the second part, and in that event the receiver shall serve to a conclusion without personal charge of fees or commissions. No receivership shall be applied for without the consent of the party of the second part, nor shall any of the assets handed over to it or pledged to it be taken from its possession, except through conversion, until it shall have been fully paid for all sums theretofore advanced by it, including interest thereon and its compensation as hereinbefore fixed.

‘Tenth. The party of the first part shall change its place of business to the banking office of the party of the second part, subject to the approval of the superintendent of banks.

‘Eleventh. The party of the first part agrees that it will procure and deliver to the party of the second part a proper guaranty of certain of its directors and stockholders against any and all loss which it may in any wise sustain by reason of any advance by it made, pursuant to this agreement. No such guaranty shall render any one director liable for the engagement of another, nor for more than the par value of his stock.

‘In witness whereof, the parties hereto have caused their respective corporation seals and signatures of their respective executive officers to be hereunto affixed the day and year first above written.

‘Metropolitan Bank,

‘By Jacob Dilcher, Prest. [Seal.]

‘The German Bank,

‘By E. A. Georger, Prest. [Seal.]’

In accordance with the terms of said agreement the German Bank undertook such liquidation and payment of said depositors of the Metropolitan Bank, whose deposits amounted to upwards of $870,000, and which in the manner mentioned were paid in full.

While the nominal value of the assets transferred to the German Bank was largely in excess of the deposits, their value so shrank on liquidation that they were not sufficient to repay the moneys which had been advanced in paying off the depositors and to satisfy the sum to be allowed for liquidating services, and subsequently a judgment was recovered by the German Bank against the Metropolitan Bank for the sum of $237,289.47, which largely represented this deficiency; the principal amount, however, being somewhat reduced by subsequent realization from assets.

After a while the German Bank also became insolvent, and passed into the hands of a receiver, and subsequently any claim which it had against the Metropolitan Bank, or these defendants as stockholders therein on account of said judgment and transaction hereinbefore stated, was assigned to the plaintiff. Various other facts of importance will be stated in the course of the opinion.Carlos C. Alden, of Buffalo, for appellant.

Irving G. Botsford, of Gainesville, for respondent Bartlett.

Irving L. Fisk, of Buffalo, for respondent Desbecker.

Vernon Cole, of Buffalo, for respondent Weill.

Kenefick, Cooke & Mitchell, of Buffalo, for respondents Bissell and others.

Charles L. O'Connor, of Buffalo, for respondent Strauss.

Louis L. Babcock and A. W. Sawyer, both of Buffalo, for respondent Hunsicker.

Frank C. Ferguson, William C. Carroll, and Simon Fleischmann, all of Buffalo, for other respondents.

HISCOCK, J. (after stating the facts as above).

The plaintiff brings this action as assignee of the German Bank of Buffalo to recover against the defendants as stockholders in the former Metropolitan Band of Buffalo their proportionate...