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Mechanics Universal Joint Co. v. Culhane

November 15, 1935


Appeal from the District Court of the United States for the Northern District of Illinois, Western Division; Charles Edgar Woodward, Judge.

Author: Sparks

Before SPARKS and ALSCHULER, Circuit Judges, and BRIGGLE, District Judge.

SPARKS, Circuit Judge.

This suit in equity was originally instituted against appellants by appellee's predecessor as receiver of the Manufacturers National Bank & Trust Company of Rockford, Illinois. By it, appellee sought to recover the sum of $42,716.12 paid by said Manufacturers Bank to the Third National Bank as and for a deposit in the Third National to the appellant company's credit. The money was paid on a check of appellant company drawn upon the Manufacturers Bank. The checkwas drawn the day before the Manufacturers Bank finally closed its doors, and was paid through the clearing house of Rockford on the day that bank was finally closed. Appellant filed its cross complaint by which it sought to recover the balance of its deposit in the sum of $20,034.12, which appellant charges was fraudulently received by the bank and its officers and agents at times when they all knew the bank was insolvent.

The court found the facts specially and rendered its conclusions of law thereon. In addition to the proper jurisdictional facts the court found substantially as follows:

The Manufacturers Bank closed its doors at 1:30 p.m., June 13, 1931, its regular time of closing on Saturdays, and never thereafter opened its doors. On June 16, 1931, the Comptroller of the Currency certified that the bank was insolvent and appointed Achor, its former vice-president, as receiver. The Mechanics Company, appellant, is an Illinois corporation of which, for some time prior to and at all times since June 1, 1931, appellant Ekstrom was the president and active manager, spending all of his business time in connection therewith. For two years prior to June 16, 1931, he had been a director of the Manufacturers Bank. He was not an employee of the bank and spent no time and performed no duties there or in connection with its business, other than as director and as a member of the board's loan committee.

Between May 6, 1931, and June 6, 1931, the Mechanics Company had deposited with the Manufacturers Bank various sums and on various dates in the total amount of $150,872.70, and its checking account balance on June 12, 1931, was $65,224.30. It also had a savings account in the same bank on that date of $10,000. When the bank closed its doors appellant Ekstrom had a personal checking account therein of $1,413.88, and a savings account of$736.89.

On the date the bank closed it was, and for some time prior thereto had been, on a special list of the Comptroller of the Currency for examination every ninety days or oftener, of which fact Ekstrom had knowledge. At about 11 o'clock a.m., June 12, 1931, a meeting of the board of directors of the Manufacturers Bank, called by its president at the request of Mr. Baty, a national bank examiner, was held at the bank at which appellant Ekstrom was present and participated. He there learned from Baty that the Security National Bank of Rockford was unable to continue business and had made a tentative contract with the Swedish American National Bank of Rockford, by which the latter was to take over the former, subject to the appraisal of the former's assets by the latter, and if that appraisal were satisfactory the transfer would be made on Monday morning, June 15, 1931. Ekstrom was also there informed by Baty that it was the latter's opinion that the cash position of the Manufacturers Bank was extremely low and could not stand a run of one business day, and that he thought a run on all the banks would occur on Monday whether or not the Security Bank was taken over by the Swedish Bank. It was there stated by Baty in the presence of Ekstrom that in view of the continued drain of deposits which the Manufacturers Bank had and was still having, it would be for the best interests of the bank to try to arrange to take the bank's deposit liability under cover. Whereupon the board of directors, with Ekstrom's consent, gave Baty written authority to talk over the affairs of the bank with some other Rockford bank with a view to having the latter take it over. At that meeting Ekstrom knew of the contents of the Comptroller's report of an examination of their bank on December 1, 1930, and he was fully acquainted with the Comptroller's letter of January 8, 1931, which accompanied the report. In that report and letter the Comptroller gave it as his opinion that the bank had loans and discounts which were slow assets in the sum of $1,014,167.09; that there were doubtful loans and discounts to the extent of $228,173.34; and that there were losses since the last examination in the sum of$138,789.96. On June 12, 1931, Ekstrom knew that the Comptroller had requested the bank to send him a letter every thirty days indicating its condition.

The bank was examined about April 27, 1931, and a report of it, together with a letter from the Comptroller, was sent to and received by the bank on or about May 28, 1931, and both were examined by Ekstrom. The report disclosed that there were slow assets in the sum of $1,145,201.15, and total doubtful assets of $430,821.34, and losses within the last three months of$19,795.50. It further disclosed that the directors had direct and indirect liabilities in the bank of $559,620.86. The letter referred to the condition of the bank as unsatisfactory and dangerously threatening its insolvency and it demanded the directors' immediate attention.

At the board meeting of June 12, a committee was appointed by the directors to act for the bank in all matters relative to taking over its affairs by any other bank. Ekstrom left that meeting about noon, and shortly thereafter executed, as president of appellant, the check which is now in controversy, and caused it to be sent by mail late in the afternoon of that day to the Third National Bank of Rockford. Accompanying it was a deposit slip directing its deposit in appellant's general account at the Third National Bank. Theretofore, appellant had never transferred money from its checking account in the Manufacturers Bank to its general checking account in the Third National Bank. The check was received by the Third National on Saturday morning, June 13, and was included in the clearings of that day. It was paid by Manufacturers Bank on the same morning, which was the last day that bank was open, and the amount thus paid was deposited as ordered by appellant with the Third National.

About the time Ekstrom signed this check he also signed, as president, another check on behalf of appellant for $35,000, drawn by it against its general checking account in the Securities National Bank of Rockford, and it was mailed to the Rockford National Bank.

On Saturday night, June 13, a committee from the Third National, and a like committee from the Manufacturers Bank spent the entire night examining the assets of the latter bank. That fact was known by Ekstrom and he was present at the time, and he learned at the conclusion of their examination that it would take $750,000 in cash to effect a merger with the Third National. He also knew that that amount substantially corresponded to the capital, surplus, and the undivided profits of the Manufacturers Bank.

On Sunday, June 14, the Manufacturers Bank was insolvent, and by resolution of the board its affairs were placed in the hands of the Comptroller. There had been no appreciable change in its condition from June 12, 1931. From June 6 to June 13, 1931, inclusive of both days, the bank remained open and transacted its usual and ordinary banking business, accepting deposits and paying all checks drawn upon and presented to it, and during that time it was able to and did meet all its obligations as they matured. The court found that prior to the payment of the controverted check, the bank had committed no act of bankruptcy.

The court therefore concluded that the equities of the cause were with appellee, and that the cross complaint was without equity.*fn1 It accordingly dismissed the crosscomplaint, and awarded a decree for appellee against both appellants in the sum of$25,216.45, with interest and costs. That amount represented the full ...

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