Bank of Fort Madison v. Alden

• Decision Date: 04 February 1889
• Citation: 9 S.Ct. 332,129 U.S. 372,32 L.Ed. 725
• Parties: BANK OF FORT MADISON v. ALDEN et al
• Court: U.S. Supreme Court

9 S.Ct. 332

129 U.S. 372

32 L.Ed. 725

BANK OF FORT MADISON v. ALDEN et al.

February 4, 1889.

Henry Strong and Theodore Sheldon, for appellant.

John P. Wilson, for appellees.

FIELD, J.

The Bank of Fort Madison (the complainant below, the appellant here) is a corporation organized under the laws of Iowa. The defendants are executors of the will of James S. Waterman, deceased, who, at the time of his death, was a citizen of Illinois. The bank is a creditor of a corporation created under the laws of Wisconsin, known as the 'Black River Lumber Company,' in the sum of $58,505.53, with interest from January, 1884. Waterman was a stockholder in the company, and the present suit is brought upon the allegation that, at the time of his decease, he was indebted to it in a large amount for stock subscribed, which had been issued to him, but for which he had never paid, except in lands, not exceeding in cash value 40 per cent. of the amount subscribed, and which lands have been reconveyed to him. The object of the suit is compel the executors to pay out of his estate the amount of his alleged unpaid subscription, so far as may be necessary, for the satisfaction of the claim of the bank. In addition to this, the complainant alleges an indebtedness of the estate of Waterman upon a promissory note of the lumber company to the amount of $10,000, which was indorsed by the firm of Ketchum & Waterman, of which the deceased was a partner. The court below decided against the claims of the bank, and dismissed the bill. From its decree the case is here on appeal.

It appears that on the 17th of October, 1879, five persons residing at Fort Madison, Iowa, namely, Charles Brewster, Joseph A. Smith, William H. Kretzinger, Samuel, Atlee, and J. C. Atlee, were the owners of a tract of 'pine land' in Wisconsin, amounting to about 13,000 acres. At the same time the firm of Ketchum & Waterman, consisting of Henry Ketchum and M. M. Ketchum and James S. Waterman, were owners of a tract of similar land in that state, amounting to about 30,000 acres, which was subject to a mortgage for $75,000. On that day these eight persons entered into an agreement in writing to form a corporation under the laws of Wisconsin, to be designated the 'Black River Lumber Company, for the manufacture and sale of lumber, logs, and timber,' and such other business as might be included in its charter, and to contribute and convey to a trustee or trustees, for the benefit of the company, under certain restrictions, the first tract mentioned, and 25,000 acres of the second tract. The company was to assume and pay all the deferred installments of the purchase money on this last tract as they matured, and the Ketchums and Waterman were to advance the necessary funds to take up the notes given, which amounted to $25,000, besides interest, and to receive the note of the company for the amount, payable, with 8 per cent. interest, on or before July 1, 1880, which they were to hold as a line on the premises. It was also agreed by the same instrument that the parties residing at Fort Madison, owners of the 13,000-acre tract, should have three-sevenths of the stock of the company, and that the Ketchums and Waterman should have four-sevenths such stock to be received by them in full payment for their conveyances to the trustee. Each party was to receive stock in proportion to his individual interest in the lands. Pursuant to this agreement, the Black River Lumber Company was, in November, 1879, incorporated under the laws of Wisconsin; the capital stock being fixed at $437,500, divided into 4,375 shares of $100 each. The parcels of land mentioned above were conveyed by the respective owners to Joseph M. Beck, of Fort Madison, in trust for the company, upon certain conditions, and to the parties shares were issued, as follows: To James S. Waterman, 1,250 shares; to H. Ketchum, 625 shares; to M. M. Ketchum, 625 shares; to J. C. Atlee, 468 shares; to S. Atlee, 469 shares; to Charles Brewster, 235 shares; to W. H. Kretzinger, 468 shares; to Joseph A. Smith, 235 shares. No money was paid by any of the parties for the stock, the land conveyed by them to the trustee being taken in full payment of their respective shares.

As stated above, the tract held by the Ketchums and Waterman was subject to a mortgage of $75,000 of the purchase money, and the trust upon which they conveyed the 25,000 acres to the trustee was that, upon the payment of the said purchase money and interest and the taxes thereon, he should convey the lands to the Black River Lumber Company, according to the conditions of the contract of October 17, 1879. As no money was paid by the stockholders for their stock, the company had no funds with which to commence business. To meet this condition the contract of October 17, 1879, provided that the parties residing at Fort Madison should advance from time to time, as the company might require funds, three-fourths of $27,260.42, that is, the sum of $20,445.30, and take the note of the Black River Lumber Company for the amount. Upon this note, indorsed by those parties, the amount was borrowed from the Bank of Fort Madison. When this was exhausted, the lumber company, on various occasions, borrowed money from the bank, upon its notes, indorsed by different stockholders, until some time in March, 1880, when the loans thus made amounted to $65,000. Of this sum $10,000 had been loaned upon a note of the company indorsed by the firm* name of Ketchum & Waterman. The indorsement was made by Ketchum, without any authority except that supposed to exist from his partnership in the firm. The bank then refused to make any further advances without additional security to cover existing as well as future loans. A chattel mortgage was thereupon executed to the bank by the lumber company upon all its logs and lumber, to secure such advances, as well as other debts of the company. The bank immediately took possession of the property, and made further advances to the amount of $20,000. On the 8th of April following, the two Ketchums filed a bill in a state court of Wisconsin to set aside this chattel mortgage, making the bank, the company, and all its stockholders, except Waterman, parties, and alleging that the mortgage was a fraud upon the company; that the amount claimed by the bank was not due to it; and that the company owed a large amount, but had sufficient assets to pay all its debts. The bill prayed that the mortgage be declared invalid; that the property of the company be restored to it; and that, pending the suit, a receiver of the property be appointed. Soon afterwards a stipulation was entered into by all the parties that one William R. Sill be appointed by the judge of the...