Wilkinson v. Dodd

• Decision Date: 23 September 1885
• Citation: 3 A. 360,40 N.J.E. 123
• Parties: WILKINSON, RECEIVER v. DODD and others.
• Court: New Jersey Court of Chancery

3 A. 360

40 N.J.E. 123

WILKINSON, RECEIVER

v. DODD and others.

Court of Chancery of NEW JERSEY.

September 23, 1885.

On demurrers to bill.

Frederic W. Stevens and J. D. Bedle, for complainant.

Henry Young, for Shouley & Young, defendants.

C. Borcherling and J. R. Emery, for Reeve's Ex'rs.

F. Frelinghuysen, for Mercer.

George W. Hubbell, for Hubbell, Miller, and Watson.

Teese & Pitney, for Darcey.

T. N. McCarter, for Dodd and others.

J. W. Taylor, for Baldwin and others.

BIRD, V. C. The bill in this case was filed by the complainant, who had been appointed receiver of the Newark Savings Institution, against the managers of that institution, to recover from them the losses which resulted from the illegal use of the securities and of the moneys of the institution by them. To this bill nine demurrers have been filed; six of them are general, and three for want of parties. Hence, is there a want of necessary parties, or is there an absence of equity? These inquiries cover the case. I must be guided by the statement of the facts in the bill, so far as they are well pleaded.

The bill shows the insolvency of the bank, and the appointment of the complainant as receiver. Shows the origin of the bank, and the laws upon which it rested, and which directed the manner of transacting business, and fixed or prescribed the duties of its officers. Shows that on the twelfth day of December, 1877, the institution was embarrassed, and that on that day the chancellor ordered "that all deposits in said institution made on or after the twelfth day of December, 1877, and until the further order of the court, shall be treated as special deposits, and invested only in the bonds of this state, the city of Newark, and the United States." Shows that on the second day of June, 1880, on application by the managers of the institution, an order was made by the chancellor permitting them to invest 50 per cent. of said special deposits on first bond and mortgage on real estate in this state. Shows that the managers of the institution, during the time of the acts complained of, were Daniel Dodd, A. Bishop Baldwin, Henry G. Darcy, H. Hugo Franzel, Algernon S. Hubbell, Charles S. Haines, Francis Hackin, William T. Mercer, Henry H. Miller, Daniel Price, William Rankin, Abner S. Reeve, Bernard M. Shouley, George Watson, and Charles E. Young. Shows which of these composed the funding and which the auditing committees. Shows that on the seventh day of January, 1884, said Abner S. Reeve died, and names his executors. Shows "that there was realized out of the sale of the 4 per cent. bonds, of the par value of $550,000, the sum of $660,000. This sum was lent to the firm of Fisk & Hatch, to whom had been before loaned, and who then had in hand, the additional sum of $458,599.85. The amount thus lent was increased in the month of October, in the same year, to $1,600,000, and in the month of January, 1883, to $1,750,000." Shows that "in said last-named month an agreement was made between said managers and said firm, that the money thus lent should remain in the hands of said firm right along, say for a year, except as any part of it might be sooner required to meet extraordinary or unexpected demands from the depositors of said institution; the said firm paying interest thereon at the rate of 5 per cent. as a permanent rate, and keeping at all times in the city of New York, in a box belonging to them, the said firm, of which they alone had the key, and to which they alone had access, a sufficient amount of good securities to cover the amount with ample margin; that said moneys so loaned remained in the hands of Fisk & Hatch until about the twenty-ninth day of March, 1883, when the said managers requested the said firm to convert the same temporarily into bonds of the United States to answer a temporary purpose. To this conversion the said firm consented, and reported to said institution that they had purchased with said money, and with other money belonging to said institution, bonds of the United States of the par value of $2,000,000, bearing interest at the rate of 3 per cent., and bonds of the United States of the par value of $700,000, bearing interest at the rate of 4 1/2 per cent. Of these, as soon as the temporary purpose for which the money was directed to be procured was answered, 3 per cent. bonds of the par value of $1,000,000, 4 1/2 percent, bonds of the par value of $200,000, were sold during the month of April, 1883. All the residue of said bonds remained, by permission of said managers, in the hands of Fisk & Hatch, who had the privilege of using them in lieu of the money agreed to be lent as aforesaid, until on or about August 15, 1883, when the $1,000,000 of 3 per cent. bonds, parcel of said residue, were taken to Newark, and thereafter kept in the vaults of the institution, but the 4 1/2 per cent bonds, so reported purchased and still remaining unsold, (the par value of which amounted to $500,000,) were allowed by the said managers to remain in the possession, use, and control of the said Fisk & Hatch until their failure on the fifteenth day of May, 1884, as an equivalent in part for the money agreed to be loaned in January, as aforesaid;" and shows that said transaction was contrary to law, and to the orders of the court. Shows that after the temporary purpose of the conversion of money into bonds had been answered the managers began again to lend money to said firm, subject to the terms of said agreement, April 30, 1883, amounting to about $222,000; on July 31, 1883, to $506,000; increasing until Feburary 20, 1884, when it amounted to $987,000,—all of which was in addition to the $500,000 4 1/2 per cent. bonds above mentioned. Shows that this money was again converted into bonds of the United States for a few days, and the bonds almost immediately reconverted into money, and this money again lent to Fisk & Hatch, April 30, 1884. The amount thus lent was $851,000, and at the time of the failure of said firm, May 17, 1884, $845,532.04. Shows that to secure said loan said firm deposited in said box, at different times, bonds of the United States, of the Chesapeake & Ohio Railroad, of the Elizabeth, Lexington & Big Sandy Railroad, and stock of the Central Pacific Railroad Company, which were used and changed by said firm as suited their convenience. Shows that said firm at all times exercised complete control of said collaterals, and when they failed they had all been used, and the money so lent to it remained without security. Shows other similar transactions between the institution and said firm. Shows that when Fisk & Hatch failed, May 15, 1884, they ought to have had in their possession United States bonds amounting to $2,037,000, the market value of which was $2,329,600, and money to the amount of $846,632.04, constituting more than one-half of the entire assets of said institution. Shows that on May 15, 1884, Fisk & Hatch became insolvent and stopped business. Their liabilities greatly exceeded their assets. Shows that they had pledged, sold, or otherwise disposed of all of the said bonds, and were unable to return the said money so loaned to them. Shows that Fisk & Hatch transferred to the president of said institution, on account of their liability, a large number of miscellaneous securities. Shows that the loss to said institution from said transaction with Fisk & Hatch is over $400,000, which resulted from the gross negligence or breach of trust of the said managers; that these transactions produced the insolvency of said institution. Shows that complainant made diligent efforts to obtain from Fisk & Hatch the money due to the institution from them; that he could not do so by legal process, and that if he commenced legal proceedings, they would make an assignment of such property as they still had, which was insignificant in amount, in which event but little, if anything, would be realized; that they informed complainant that they would be able to borrow said $845,632.04, and would pay it to him, provided he would immediately release them from all further liability to said institution, but that only on such condition could such money be obtained; that being satisfied that said representations were true, and by advice of counsel, and as the only means of obtaining from said firm for said institution and its depositors any further sum of money or other valuable thing, he did, on May 29, 1884, enter into an agreement under his hand and seal, with Fisk & Hatch, in and by which it was recited that Fisk & Hatch had received United States bonds of the par value of $2,036,000, and for account of said institution $845,632, and that said Fisk & Hatch had delivered certain securities to said institution in lieu of said bonds, and that since all such transactions the complainant had been appointed receiver, and that they had agreed to settle their differences, and declared that Fisk & Hatch, in consideration of the sale to them of said government bonds by said complainant, sold and transferred to him all of certain choses in action and property therein referred to, in consideration of which said receiver bargained, sold, transferred, and set over unto said Fisk & Hatch all of said government bonds; and then further recited that Fisk & Hatch had paid to the receiver $847,862.49 for principal, and $2,232.45 for interest to the date of said agreement, and added:

"It is mutually understood and agreed, by and between the parties hereto, that all matters in difference whatsoever between the parties hereto, and between the parties of the first part and the Newark Savings Institution, are at an end, and definitely adjusted hereby."

The bill alleges that at the time of the execution of said agreement the said receiver was ignorant of the aforesaid breaches of trust and illegal acts which rendered said managers liable; that said managers then denied and concealed them, and alleges that he did not intend to release them, and alleges...