Cont'l Illinois Nat. Bank & Trust Co. of Chicago v. Peoples Trust & Sav. Bank of Chicago

• Decision Date: 16 June 1937
• Docket Number: No. 23458.,23458.
• Citation: 366 Ill. 366,9 N.E.2d 53
• Parties: CONTINENTAL ILLINOIS NAT. BANK & TRUST CO. OF CHICAGO v. PEOPLES TRUST & SAV. BANK OF CHICAGO et al.
• Court: Illinois Supreme Court

366 Ill. 366

9 N.E.2d 53

CONTINENTAL ILLINOIS NAT. BANK & TRUST CO. OF CHICAGO

v.PEOPLES TRUST & SAV. BANK OF CHICAGO et al.

No. 23458.

Supreme Court of Illinois.

April 16, 1937.

As Modified on Denial of Rehearing June 16, 1937.

Suit by the Continental Illinois National Bank & Trust Company of Chicago against the Peoples Trust & Savings Bank of Chicago, Charles O. Davis, and others. From a judgment against Charles O. Davis, he appeals.

Reversed and remanded with directions.Appeal from Circuit Court, Cook County; John Prystalski, judge.

Cooke, Sullivan & Ricks, John L. McInerney, and Fred M. Outhouse, all of Chicago (George A. Cooke, Edward H. Fiedler, and John D. Cooke, Jr., all of Chicago, of counsel), for appellant.

Mayer, Meyer, Austrian & Platt and Thomas G. Deering, all of Chicago (Carl Meyer, Herbert A. Friedlich, Frank D. Mayer, and Louis A. Kohn, all of Chicago, of counsel), for appellee.

JONES, Justice.

This appeal from the circuit court of Cook County concerns the validity of an agreement between the Continental Illinois Bank & Trust Company, of Chicago, and the Peoples Trust & Savings Bank, of the same place, entered into on June 9, 1932. The transaction involved an alleged loan by the Continental Bank to the Peoples Bank. Subsequent to the execution of the agreement, the Continental Bank was converted from a state bank into a national bank. The issue is raised through a suit by the convertednational bank against the Peoples Bank, and its stockholders, to enforce the constitutional liability of the stockholders of the latter bank to its creditors. The suit is brought by the Continental Bank as a creditor in behalf of itself and all other creditors of the Peoples Bank. Approximately 200 stockholders, including appellant, Charles O. Davis, the owner of 1 share of stock, were made defendants. The whole amount sought to be recovered is $2,500,000, the full amount of the issued stock of the Peoples Bank. Numerous defendants, including appellant, owning in the aggregate approximately 1,500 shares and represented by the same counsel, filed motions to dismiss the amended complaint. All of such motions, and appellant's amended motion, were overruled. In order to determine the issues raised by the pleadings without the expense necessarily involved by a trial, appellant elected to stand by his motion. Judgment was thereupon entered against him for the full amount of his stock liability and he appeals.

From the allegations of the amended complaint, which, by the motion, must be taken as true, it appears that the Peoples Bank was organized in 1910 under the Illinois banking laws. It conducted a general banking business. Incident to the general depression, it suffered, in common with other Chicago banks, heavy withdrawals during the month of May and the early days of June, 1932, whereby its liquid assets became so reduced as to be insufficient to meet the anticipated immediate demands of depositors. At a meeting on June 9, the board of directors determined, by resolution, to liquidate the affairs of the bank, and after the close of business that day no further deposits were accepted and no further loans were made. A resolution was also duly adopted which authorized and directed the execution of the agreement and it was executed on the same day. The agreement was ratified and approved at the annual meeting of the stockholders of the Peoples Bank on January 11, 1933, by an affirmative vote of 19,366 shares out of the total of 25,000 shares outstanding.

The pertinent provisions of the agreement are: The Continental Bank agreed to loan the Peoples Bank a sufficient sum to pay certain liabilities of the Peoples Bank, as shown by its books at the close of business on that day, totaling $16,421,642.48. The money loaned was to be retained by the Continental Bank and used to pay such liabilities, which it thereby assumed and agreed to pay when and as due and payable, and was not required to keep the money separate from its own funds. It was provided that the assumption of such liabilities should constitute full payment to the Peoples Bank of the sum agreed to be loaned and it should have no further right, title, interest, claim, or demand in or to the proceeds of the loan, except the right to have such proceeds applied to the payment of the assumed liabilities. The loan was to bear interest from date of the contract at 5 per cent. regardless of the dates when the liabilities should be paid by the Continental Bank. The Peoples Bank agreed to repay, on June 1, 1934, or on demand any time after January 1, 1933, any unpaid balance of the loan, plus interest on such unpaid balance, and any other indebtedness of the Peoples Bank to the Continental Bank, to the extent that the Continental Bank had not been repaid out of the liquidation of the assets of the Peoples Bank.

As collateral security for the payment to the Continental Bank of the indebtedness, the Peoples Bank sold, assigned, conveyed, transferred, set over, and delivered to the Continental Bank all of its assets and property of every kind (except leases to the Peoples Bank) to be held and disposed of by the Continental Bank under the agreement. The Peoples Bank agreed to take all necessary action for the substitution of the Continental Bank as successor trustee, or other fiduciary, to any trusts being administered by the Peoples Bank, which the Continental Bank might specify. The Continental Bank might, at its option, pay any other liability of the Peoples Bank, and when so paid the amount was to be treated as an assumed liability and part of the indebtedness under the agreement.

All cash on hand and due from banks, and the market value on that day of all United States government obligations transferred, were to be at once applied as a payment on account of the indebtedness. Like applications were to be made from time to time from the net cash realized from the other items of collateral. The Continental Bank had full power, in its discretion, to select at any time, whether due or not, any other bonds included in the collateral, and might list any loans, real estate bonds and mortgages, as it would purchase in the ordinary course of business, and credit the face amount thereof, plus interest, on the indebtedness. All such items selected and applied as payments were thereafter to become the sole property of the Continental Bank. The Continental Bank agreed to endeavor to liquidate such collateral from time to time regardless of whether or not the indebtedness to it was due. The proceeds of the liquidation were to be applied, first, to reimburse the Continental Bank for all indebtedness under the agreement and all other liabilities of the Peoples Bank to it. After such payment, any surplus collateral, or the proceeds of any surplus collateral, were to be turned over to the Peoples Bank.

The Continental Bank was given the absolute, exclusive, and untrammeled right and power at any time, and from time to time, without notice to the Peoples Bank or any one else, to sell or dispose of any of the collateral. All rights of redemption therein, and any claim against the Continental Bank by reason of its dealings of any kind with reference thereto, were waived by the Peoples Bank. It was provided that notwithstanding anything to the contrary therein, the Continental Bank should have all the right, title, power, authority, and discretion in connection with such collateral, and every item thereof, as it would have if it were the absolute owner thereof. The Continental Bank had the right to purchase the collateral, or any part thereof, at any broker's board or at public sale.

All expenses incurred by the Continental Bank in carrying out the contract, including taxes and insurance and a commission of not to exceed 2 per cent. on collections made after May 31, 1933, were to be included in the amount of the indebtedness. The Peoples Bank agreed to deliver to the Continental Bank upon demand, all of its books, files, and records for such use in connection with the agreement as the Continental Bank should see fit to make, and execute all further instruments so as to vest in the Continental Bank the full and complete, absolute, legal, and equitable title to all of such collateral. It was provided, however, that the agreement should be sufficient to transfer such title to the Continental Bank, subject to the terms thereof. The Peoples Bank agreed, upon demand, to cause to be held all such meetings of its directors and stockholders as the Continental Bank should require ‘for the purpose of consummating liquidation or dissolution of said Peoples Bank’; that it would not, without the consent of the Continental Bank, voluntarily dissolve or go into liquidation; and that from and after the date of the agreement it would not receive any deposits or voluntarily incur any liabilities without the consent of the Continental Bank.

It was further provided that the obligation of...