Roth v. Ahrensfeld

• Decision Date: 05 June 1940
• Docket Number: No. 25321.,25321.
• Citation: 373 Ill. 550,27 N.E.2d 445
• Parties: ROTH et al. v. AHRENSFELD et al.
• Court: Illinois Supreme Court

373 Ill. 550

27 N.E.2d 445

ROTH et al.

v.AHRENSFELD et al.

No. 25321.

Supreme Court of Illinois.

April 10, 1940.

Rehearing Denied June 5, 1940.

Appeal from Second Division Appellate Court, First District, on Appeal from the Superior Court, Cook County; Grover C. Niemeyer, Judge.

Suit in equity by Harry Roth and others on behalf of themselves and all other creditors of the Crawford State Savings Bank against Harry Ahrensfeld, the W. A. Jones Foundry & Machine Company and others to enforce the liability of the bank's stockholders. A decree dismissing the complaint as to the W. A. Jones Foundry & Machine Company for want of equity was reversed by the Appellate Court, 300 Ill. App. 312, 21 N.E.2d 21, and the W. A. Jones Foundry & Machine Company appeals.

Judgment of Appellate Court affirmed.George A. Bosomburg, of Chicago (Warren H. Orr, Joseph H. Mueller, and Wallace W. Orr, all of Chicago, of counsel), for appellant.

Ernest W. Clark and Edelson & Paullin, all of Chicago (Sidney W. Mandel and Albert Langeluttig, both of Chicago, of counsel), for appellees.

WILSON, Chief Justice.

Three creditors of the Crawford State Savings Bank, on February 3, 1931, filed their complaint in the superior court of Cook county, on behalf of themselves and all other creditors of the bank, to enforce the liability of the bank's stockholders under section 6 of article 11 of our constitution, Smith-Hurd Stats. The W. A. Jones Foundry and Machine Company, the only defendant whose liability is here in question, was served with summons on January 12, 1932, filed its appearance on January 14, 1932, and later answered. The master in chancery, to whom the cause was referred, after a special hearing, recommended a decree in favor of the plaintiffs in the sum of $10,000. The decree of the circuit court, entered May 19, 1938, sustained the objections of the defendant to this report and dismissed the complaint as to it for the want of equity. Upon appeal, the Appellate Court for the First District reversed the decree and remanded the cause, with directions to enter a decree in accordance with the master's report. The defendant's petition for leave to appeal has been granted and the record is before us for a further review.

The sole question for consideration on this is whether the defendant corporation is liable as a stockholder of the Crawford State Savings Bank upon stock standing in its name when the bank was closed by the Auditor of Public Accounts.

The following facts are disclosed by a stipulation of counsel, made at the close of the hearing, and the evidence adduced before the master. Warren G. Jones, the president, general manager and a director of the defendant corporation, owned 19,489 of its 20,000 shares of common stock and 7 of its 3,000 shares of preferred stock. Except for 200 shares of common and 81 shares of preferred stock, the balance of defendant's 23,000 shares was owned by persons related to Jones. Defendant was substantially a family corporation and Jones was generally referred to as ‘the boss' and operated it very much ‘as he pleased.’ Jones also owned 172 shares of stock, was a director and fairly familiar with the financial condition of the Crawford State Savings Bank. On December 31, 1930, apparently without consulting any other officer or stockholder, he transferred 100 shares of his bank stock to the defendant corporation, receipt for these shares being signed on the bank's records by one of defendant's employees. At Jones' direction the defendant's bookkeeper credited him with $20,000, based on a valuation of $200 per share, and showed the acquisition of the shares on the books of the company, where the entries remained unchanged until August 31, 1932. On January 15, 1931, the bank was closed by the Auditor of Public Accounts. During this period of two weeks, it is agreed, liabilities in the amount of $276,289.49 accrued in favor of the bank's creditors and remained unsatisfied at its closing. No action was taken by the board of directors with reference to the transaction in question from the date of the transfer on December 31, 1930, until July 1, 1932, at which later date the directors passed a resolution attempting to repudiate the sale. During the intervening period, however, the records of the corporation disclosed that the sale had been effected in December, 1930. The journal book of the defendant contains an entry as of December 31, 1930, charging the ‘stocks and bonds' account and crediting ‘Warren G. Jones, accounts receivable’ with $20,000, explained by extension as being for ‘100 shares of Crawford Bank stock taken from W. G. J. at $200 per share and credited to W. G. J. per his order.’ Under the classification of stocks and bonds, the total value of which was only $40,350, defendant's balance sheet as of December 31, 1930, appended to its Federal income tax report for that year, included the disputed 100 shares of bank stock. The 1931 audit report further disclosed a liability in the sum of $15,000 set up against the acquisition of the bank's stock. The corporate journal contains an entry on June 30, 1932, charging the ledger account of ‘earned surplus' and crediting the ‘reserve for Crawford bank items,’ which is explained in an extension as being ‘to set up reserve against Crawford bank items except for the 20% dividend on deposit accounts.’ The dividend referred to was allowed by order of the circuit court of Cook county, entered July 8, 1932, in a separate proceeding for liquidation of the bank, and was based upon defendant's claim, filed on February 26, 1932, for unpaid deposits in the bank. This order directed payment of the dividend ‘without prejudice to the question as to the proper ownership of a certain certificate of 100 shares of common stock of the Crawford State Savings Bank that appears to have been issued to W. A. Jones Foundry and...