Boyd v. Schneider

• Decision Date: 12 April 1904
• Docket Number: 1,034.
• Citation: 131 F. 223
• Parties: BOYD et al. v. SCHNEIDER et al.
• Court: U.S. Court of Appeals — Seventh Circuit

131 F. 223

BOYD et al. v. SCHNEIDER et al.

No. 1,034.

United States Court of Appeals, Seventh Circuit.

April 12, 1904

The bill was by appellant, a depositor of the National Bank of Illinois, on behalf of himself and all others who might join him, against appellees, directors of the bank, to recover losses to the assets of the bank, otherwise directors of the bank, to recover losses to the assets of the bank, otherwise distributable to the depositors and creditors, alleged to have been brought about by the negligence and misconduct of such directors.

The bill shows that the National Bank of Illinois, organized in 1871, and granted an extension of corporate existence in 1891, was until closed by the comptroller of the currency December 19th, 1896, engaged in a general banking business in Chicago, its capital stock after 1891 being one million dollars; that on the failure of the bank, it had more than eleven million dollars on deposit from more than four thousand depositors; that the deposits of the appellants twenty-six in all, amounted to more than four thousand depositors; that the deposits of the appellants, twenty six in all, amounted to more than four hundred and forty seven thousand dollars; that the depositors have received from the receiver but seventy per cent of their deposits; that the remaining assets do not exceed in value two millions of dollars, leaving a deficit of over a million and a half dollars; and that the insolvency of the bank began about 1893, its assets steadily decreasing from that time until it was closed in 1896.

The bill sets out with particularity various acts of alleged neglect of duty, and misconduct, among which may be stated as the most important the following: (1) That Hammond vice-president, and Moll, cashier, owners of interests in the Calumet Electric Railway Company, and left by the directors to their own discretion, began in 1891 to loan to such company, and left by the directors to their own discretion began in 1891 to loan to such company, both in its own name and the names of its officers employees and agents, sums that amounted at the time of the failure to three million five hundred thousand dollars, upon the collateral solely of the assets of said company; that to evade the provisions of the national banking act respecting the amounts loanable to any one person, five hundred thousand dollars of the amount thus loaned was carried on the books of the bank in an account known as 'foreign exchange'; that the loans were made ostensibly to employees of the company, some of whom lived on small salaries, had no financial standing, and except one or two of the officers, had no interest in the property; that all the loans, together with the real purpose for which, and the real borrowers to whom, the loans were made were discernible on the books of the bank; and that the present value of the assets of the Calumet Company are not to exceed two millions of dollars;

(2) That Schneider, the president of the bank, left to his own discretion by the directors, loaned, without security, to a son-in-law, and to two corporations of which such son-in-law was president, sums exceeding half a million of dollars, all of which was lost; also, without security, to the firm of E. S. Dryer & Company, one member of which was another son-in-law, sums exceeding a half million of dollars, all of which was lost;

(3) That during all this time, and up to the failure, the bank continued to pay dividends to its stockholders out of its capital stock.

The bill shows that the bank kept a discount ledger on which were entered all the loans from day to day, showing the names of the borrowers, and the security, if any, including the loans above set forth, which discount ledger was security, if any, including the loans above set forth, which discount ledger was always open to the inspection of the directors; that the bank also kept an offering book, but such book contained, not the loans asked for, but the loans made from day to day, which book was on various days, submitted to such directors as called at the bank, and the loans entered to most cases, marked as approved by certain of the directors.

The bill shows that in December, 1895, the comptroller of the currency wrote each one of the directors, calling attention to the fact that the loans to the Calumet Company amounted at that time to one million one hundred and seventy thousand dollars, and notifying them that such loans were in violation of law and good banking; that such letters were received by each of the directors, and their receipt acknowledged; that in June, 1896, another warning of like character from the comptroller of the currency was sent to the directors; but, notwithstanding these notices, the Calumet Company, in the way already pointed out, was allowed to increase its then existing loans by a million dollars, and dividends continued to be paid.

The bill further avers that the directors, knowingly and wilfully, permitted the officers of the bank to violate the provisions of law relative to the bank; that none of them made diligent or reasonable effort to see to it that the total liabilities to the bank of any one person, did not exceed the amount designated by law, but that they knowingly and negligently sanctioned the practices by which such provisions of law were evaded; that they knowingly and negligently sanctioned or permitted in the form of dividends, the withdrawal of portions of the capital stock; that they failed to see that correct books of account were kept, or proper business methods followed in regard to such books; negligently suffering the accounts to be falsified; that they did not exercise due care in the selection and retention of the officers of the bank, permitting Hammond, vice-president, and Moll, cashier, interested as stockholders in the Calumet Company, to largely control the affairs of the bank, and use and lend its money and assets as they saw fit; that no finance or auditing company was given supervision over the making of loans; and that through this and other means, the losses suffered by the bank are directly traceable to the negligence of the directors.

The bill shows that the receiver of the bank has been asked to bring suit against the directors, to recover the amounts thus lost; that to the comptroller of the currency the same request has been made; but that the request has by both of them been denied. The bill prays that an account may be taken of the assets of the bank lost through the negligence, carelessness and misconduct of the directors, and each of them, that the amount each of the directors should be held responsible for may be ascertained and each decreed to pay the amount so found due from him, to the receiver of the bank, to be by such receiver distributed in accordance with law.

The bill was demurred to, first for multifariousness; second for want of particularity; third that there was no proper allegation of interest of the complainants therein prior to the date on which the bank failed; fourth, that the remedy is at law; and fifth, that certain paragraphs therein state an action of deceit. The demurrer having been sustained, complainants asked leave to amend to show that they had been depositors continuously for more than five years prior to the failure of the bank; but such amendment was denied.

The further facts are stated in the opinion of the court...