Horst v. Pake

• Decision Date: 13 January 1916
• Docket Number: 1 Div. 869
• Citation: 71 So. 430,195 Ala. 620
• Parties: HORST et al. v. PAKE.
• Court: Alabama Supreme Court

71 So. 430

195 Ala. 620

HORST et al. v. PAKE.

1 Div. 869

Supreme Court of Alabama

January 13, 1916

Rehearing Denied March 23, 1916

Appeal from Law and Equity Court, Mobile County; Saffold Berney Judge.

Proceedings by Harry B. Pake, as assignee for the benefit of creditors of an insolvent bank, for the administration of the trust, in which Henry A. Horst was substituted as trustee. From a decree of the chancellor sustaining exceptions to the report of the register denying the original assignee any compensation, the substituted trustee and others appeal. Affirmed in part, reversed in part, and rendered.

Gregory L. & H.T. Smith and Charles W. Tompkins, all of Mobile, for appellants.

Hanaw &amp Pillans and R.T. Ervin, all of Mobile, for appellee.

SAYRE J.

On March 20, 1911, the Leinkauf Banking Company, a corporation under the laws of this state, executed to appellee, Pake, a deed of general assignment for the benefit of its creditors. Three days later the assignee filed in the law and equity court of Mobile his bill for the administration of the trust and on the same day the court made an order assuming jurisdiction. On January 27, 1913, after distribution had been made to preferred creditors, that is, to depositors who had not stipulated for interest, and after a reference had been held to hear and pass upon an account filed by the assignee, but before any action on the register's report had been taken by the court, certain nonpreferred creditors filed their petition alleging various derelictions on the part of the assignee, and praying that the matters covered by the account be referred again to the register, and that the assignee be removed. Upon this petition the court, on January 31, 1913, decreed a reference in accordance with its prayer, directing the register, among other things, "to take such further testimony as may be offered before him, relative to the question as to whether or not Harry B. Pake has faithfully performed his trust, and whether or not he should be removed from the further administration thereof and a successor appointed for further administration of said trust." It is to be observed of that part of this decree which we have quoted that, very properly, it merely directed the register to take evidence, not to report his conclusions as to its effect. The register, however, reported, among other things, his conclusion that appellee had willfully and fraudulently mismanaged his trust and should be removed. Among other things in this connection, his report included the following finding which we will quote at this point:

"The register finds and reports to the court that at the time of the assignment there stood to the credit of Herman W. Leinkauf, who was president of the Leinkauf Banking Company, upon the books of that company, as a current deposit, the sum of $5,552.40; there also stood to the credit of the cashier of the bank, Alfred Proskauer, $1,609.01, as a current deposit; there stood to the credit of Rebecca Proskauer the sum of $10,156, as a current deposit; and there stood to the credit of Mrs. Caroline Leinkauf, as a current deposit, the sum of $10,000. All of these accounts were paid by said assignee as preferred claims against the trust without question. The moneys paid to Herman W. Leinkauf, Alfred Proskauer, and Rebecca Proskauer as current depositors were erroneously paid to them, for the reason that said balances were made up largely of dividends declared by the Leinkauf Banking Company on the stock held by them while said company was insolvent, and each of said parties was indebted to said trust in sums much larger than their respective claims for dividends upon stock that had been fraudulently declared and paid to them as stockholders while the corporation was insolvent, and it was the duty of said trustee to have applied the balances shown to be due to them upon said current deposit accounts to the repayment of said fraudulent dividends as far as such balances would go. *** In addition to this a large part of the said current deposit account of said Rebecca Proskauer consisted of moneys for which she held certificates of deposit drawing interest, but which had been carried into the current deposit account for the purpose of conferring upon her an apparent right of preference, although the Leinkauf Banking Company continued to pay her interest thereon. The $10,000 so paid to Caroline Leinkauf as a current deposit account was in fact and in truth not a current deposit, but merely represented an indebtedness of said bank to the said Caroline Leinkauf for a certain note of the Vinegar Bend Lumber Company, which was purchased from her at its face value at a time when the Vinegar Bend Lumber Company was financially embarrassed, and the indebtedness thus created to the said Caroline Leinkauf placed to her credit as a current deposit because the bank did not have the funds with which to pay said amount and for the purpose of making her a preferred creditor."

There has been no admission as to the correctness of the foregoing finding so far as it undertakes to state purposes and motives, but its statements concerning the origin of the sums standing to the credit of the several accounts mentioned, the condition of these accounts at the time of the deed of assignment, the legal effect of the transactions thus shown, and the payment by appellee of these accounts as preferred, are admitted, and these things furnish the basis for the most serious charge brought against appellee, Pake. The register further reported his conclusion, the right and justice of which the appellee denies, that:

"These payments, aggregating $27,317.41, were all made by the said Harry B. Pake as upon preferred claims in bad faith toward said trust and for the purpose of favoring and protecting the stockholders of an insolvent bank that had made an assignment, and the said Caroline Leinkauf, who is the mother of the said Herman W. Leinkauf, who, in turn, was the president of the Leinkauf Banking Company."

The register also reported his conclusion that the trustee had in bad faith or with gross carelessness violated his trust in other respects; that he should be removed; and that no compensation should be allowed to him for his services in administering the trust.

Complaining creditors then filed a separate motion for the removal of appellee from his trusteeship on the ground that he had violated his trust and was an unsuitable person to execute said trust, and upon the further ground that he had been

guilty of gross negligence in the administration of his trust, and that thereby said trust had been put to great loss. Some account of what followed upon this motion may be found in Ex parte Jones, 186 Ala. 567, 64 So. 960, and Pake v. Leinkauf Banking Co., 186 Ala. 307, Wood v. Wood,

134 Ala. 557, 33 So. 347; National Foundry v. Oconto Water Supply Co., 183 U.S. 216, 22 Sup.Ct. 111, 46 L.Ed. 157), noting the fact that it had not been referred to the register to find or report whether the assignee should be removed because he had been guilty of bad faith or should be denied all compensation, but only to take and report the evidence touching those questions, referring to the fact that the books of the banking company on their face showed that these persons were current depositors to the amount of their respective current deposit accounts, stating his opinion that the reported evidence did not show that when the assignee made these payments he had any knowledge of the fact, found by the register, that these deposit accounts were made up in whole or in part of dividends which had been declared and paid to these persons on their shares of the capital stock of the banking company at times when the company was insolvent, and finding that such knowledge was obtainable by the assignee only by a close scrutiny into the affairs of the company prior to its assignment and into the solvency of its debtors, held that the evidence did not show that Pake had been guilty of bad faith, willful default, or gross negligence in the administration of his trust, and placed his decree of removal expressly upon the ground that, since it might become necessary to institute suit or take other steps to recover moneys belonging to the trust "which certain persons may have received wrongfully, and because of the assignee's intimate personal relations with these persons and the fact that his selection as assignee was due to them, it would be to the interest of the estate to intrust these matters to some other trustee." It was then referred to the register to state an account under sections 6070 and 6071 of the Code for the final settlement of appellee's administration. The register reported, charging the appellee with sundry items to be noticed hereafter, again finding that appellee had been guilty of fraud in his management of the assignment, and denying him any compensation on account of services rendered as trustee. The court, however, sustained exceptions to this report, and from that decree this appeal is taken.

We are of opinion that all the questions presented by this record come before us for original review on the evidence without presumption for or against the rulings of the judge of the law and equity court sitting as chancellor. Subsection 1 of section 5955 of the Code provides that:

"In deciding appeals from the chancery court no weight shall be given the decision of the chancellor upon the facts, but the Supreme Court shall weigh the evidence, and give judgment as they deem just."

It has been deemed to follow from this statute that in the ordinary case the report of a register, although it has been disallowed or modified by the chancellor, comes before us on appeal attended by the same presumption of correctness that waited on it before the...