People ex rel. Barrett v. Logan Cnty. Bldg. & Loan Ass'n, 24744.

CourtSupreme Court of Illinois
Writing for the CourtWILSON
Citation369 Ill. 518,17 N.E.2d 4
Docket NumberNo. 24744.,24744.
Decision Date17 October 1938

369 Ill. 518
17 N.E.2d 4

PEOPLE ex rel. BARRETT, Auditor,

No. 24744.

Supreme Court of Illinois.

Oct. 17, 1938.

Proceeding by the People, on the relation of Edward J. Barrett, Auditor, against the Logan County Building & Loan Association for dissolution of the defendant. Decree for relator, and respondent appeals directly to the Supreme Court, questions involving the construction of the Constitution being presented for decision.


[17 N.E.2d 6]

Appeal from Circuit Court, Logan County; Horace H. Baker, judge.
Trapp & Trapp, of Lincoln, and Frank Lindley, of Paxton, for appellant.

Otto Kerner, Atty. Gen. (P. C. Otwell, of Belleville, of counsel), for appellees.

WILSON, Justice.

On September 11, 1935, the Auditor of Public Accounts assumed control of the Logan County Building and Loan Association, hereafter called the respondent. An examination of the association's affairs made on behalf of the Auditor disclosed that its capital had been seriously impaired and, on September 27, he appointed David H. Harts, as receiver, for the purpose of liquidating the association through a receivership. Harts acted as receiver until June 19, 1936, when he resigned. Thomas F. Walsh was appointed to succeed him. On August 1, 1936, at the direction of the Auditor, the Attorney General filed a complaint in the name of the People of the State of Illinois in the circuit court of Logan county against the association, charging an impairment of its assets to the extent that they were insufficient to pay creditors in full and return to the shareholders the dues paid on their shares, with interest at two per cent per annum for the average time invested, and, further, that the business of the association had been conducted in a fraudulent, illegal, discriminatory and unsafe manner, and praying for its dissolution. Subsequently, an amended complaint was filed. By a motion to dismiss respondent challenged the validity of the act in relation to

[17 N.E.2d 7]

mutual building, loan and homestead associations, effective July 1, 1919, as amended, Ill.Rev.Stat.1937, c. 32, § 213 et seq., and section 250, section 38 of the act, in particular. It also charged that the receiver was a necessary party to this action. The motion was denied. Thereafter, respondent answered but, on the day set for the hearing, withdrew its pleading and elected to abide by its motion to dismiss. Evidence to sustain the allegations of the complaint with respect to the financial condition of respondent was introduced over its objection. An audit report of certified public accountants and explanatory testimony showed a serious impairment of capital, as charged by the Auditor, liabilities exceeding assets by $102,036.92. The testimony also disclosed that the association had made forty-four real estate mortgage loans to a former secretary on fourteen pieces of property in the city of Lincoln. He owed $128,700 in principal on September 27, 1935. Competent appraisers placed a valuation of $51,462 on the property securing the indebtedness. After hearing testimony, the chancellor rendered a decree confirming the findings of the Auditor with respect to the impairment of the capital stock of the association, finding that it was insolvent, that a large deficit existed and that its capital had been impaired to such an extent that it would have been unsafe for the Auditor to have permitted the association to continue operation. The decree adjudged, in part, that upon the payment of creditors' claims previously approved or adjudicated and the expenses of the receivership, that the receiver report the amount of the remainder to the court for its further order and direction, and, that upon the settlement of the affairs of the association and the final report of the receiver, the Auditor and the receiver give notice by publication as required by law in order to terminate the corporate existence of the association. Respondent appeals directly to this court, questions involving the construction of the constitution being presented for decision.

To obtain a reversal respondent makes the contention, among others, that section 38 of the Building and Loan Association Act, Ill.Rev.Stat.1937, c. 32, § 250, constitutes an arbitrary and illegal delegation of legislative and judicial power to the Auditor in contravention of article 3 of our constitution, Smith-Hurd Stats.Const. art. 3. To sustain the decree the relator maintains that the statute constitutes a valid exercise of the police power of the State. A review of the liquidation provisions of the statute becomes necessary to determine the constitutional issues.

Section 38 of the act, Ill.Rev.Stat.1937, c. 32, § 250, so far as pertinent, empowers the Auditor to take possession and control of the books, records and assets of an association for the purpose of further examination, and the conservation of its assets if it appears from reports made to him, or from examination made by or on his behalf (1) that the capital of any association doing business in this State is impaired to the extent that the realizable value of its assets is insufficient to pay its creditors in full and return to the shareholders the dues paid on their shares, with interest thereon at the rate of two per cent per annum for the average time invested; (2) that the business of any association is being conducted in a fraudulent, illegal, discriminatory or unsafe manner; (3) that any director or directors, officer or officers, have neglected, failed or refused to take any action which the Auditor may deem necessary for the protection of the interests of shareholders; (4) that any officer or officers, employee or employees, have continued to assume duties or perform acts without giving bond as required by the provisions of the statute, or (5) that the directors or officers neglect, fail or refuse to institute and prosecute any action or to do any act which he, the Auditor, may deem necessary for the protection and safeguarding of the interests of shareholders, or for the conserving or proper management of assets. If the Auditor, in his discretion, the section provides further, believes that it would not be for the best interests of the shareholders to redeliver possession of the books, records and assets, he may forthwith appoint a receiver for the purpose of liquidation, requiring of the appointee such bond and security, as he, the Auditor, deems proper. The Auditor, immediately upon the appointment of a receiver, is directed to file with the recorder of deeds of the county in which the association is located a notice of his action, and any authority of the directors and officers of the association, shall be suspended unless and until the assets of the association are later redelivered to, and their management restored in, the directors and officers. Notice of the appointment of the receiver was filed with the recorder of deeds of Logan county on September 28, 1935.

Section 39 of the act, Ill.Rev.Stat.1937, c. 32, § 251, prescribes that where a receiver

[17 N.E.2d 8]

has been appointed by the Auditor, conformably to section 38, the receiver, under the direction of the auditor, shall take possession of and, for the purpose of the receivership, the title to the books, records and assets of the association. The Auditor shall direct the Attorney General to file a bill in the circuit court of the county in which the association is located, section 39 adds, in the name of the People of the State of Illinois against the association for its dissolution, and for an injunction restraining the officers and directors from continuing its operation. Section 40, Ill.Rev.Stat.1937, c. 32, § 252, authorizes the receiver to proceed among other things, to collect all debts and claims belonging to the association, and, upon the order of the court having jurisdiction of the receivership, to sell or compound all bad or doubtful debts, and, on a like order, to sell the real and personal property on such terms as the court shall direct. Section 41, Ill.Rev.Stat.1937, c. 32, § 253, provides that from time to time the receiver shall make a ratable dividend of the moneys collected by him on all such claims as may have been proved to his satisfaction and adjudicated in a court of competent jurisdiction, and that, as the proceeds of the assets are collected, he shall make further dividends on all claims previously proved or adjudicated. Section 42, Ill.Rev.Stat.1937, c. 32, § 254, provides for the...

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