APPEAL from the Appellate Court for the First District;
heard in that court on appeal from the Superior Court of Cook
County; the Hon. RUDOLPH F. DESORT, Judge, presiding.
MR. JUSTICE BRISTOW DELIVERED THE OPINION OF THE COURT:
Rehearing denied September 24, 1956.
In a class action, instituted by present and former owners of certificates of beneficial interest, issued by defendant Kaspar American State Bank pursuant to a plan of reorganization, to enjoin defendant from paying any dividends on its capital stock until the certificates have been paid, and for other equitable relief, the superior court of Cook County dismissed the major portion of plaintiffs' complaint for want of equity, and entered a decree for defendant on the pleadings. That decree was reversed by the Appellate Court, which held that the complaint presented grounds for relief; that the plaintiffs who surrendered their certificates were not barred by an accord and satisfaction; and that a class suit could be maintained. (6 Ill. App.2d 64.) We have allowed defendant's petition for leave to appeal therefrom.
The cause presents for our determination essentially three issues: the validity of certificates of beneficial interest which are payable, in part, out of future earnings; whether the surrender of the certificates by some of the plaintiffs, pursuant to the demand and representations of the defendant bank, constituted an accord and satisfaction; and the propriety of a class action herein.
On June 24, 1932, the Auditor of Public Accounts took over the affairs of the defendant bank after it was compelled to close as a result of a "run" by its depositors. Pursuant to the statute (Ill. Rev. Stat. 1955, chap. 16 1/2, par. 11,) he appointed a receiver and filed dissolution proceedings. An order was entered therein on December 27, 1934, finding that under the plan of reorganization approved by the Auditor the bank was solvent, and directing the receiver to restore the bank to its directors for reopening.
Under the reorganization plan evolved by the Auditor and officers and directors of the bank, the $1,600,000 capital stock was surrendered and cancelled, and 12,500 shares of new stock were sold at $24 each. Of these new shares, 8,406 were subscribed by the surrendering stockholders, and the remaining 4,094 shares were purchased by 450 new stockholders. The proceeds from this transaction, $300,000, were delivered to the bank. In addition, some 7,000 depositors executed an agreement waiving 60 per cent of the amount standing to their credit (actually 54 per cent as of June 24, 1932,) for a total of $1,805,000 and received in return certificates of beneficial interest. Inasmuch as the legal effect of the waiver agreement and certificates is controverted herein, the relevant portions thereof are set forth.
The agreement recited that the depositor, "in consideration of the execution of like agreements on the part of other depositors of said bank, does hereby covenant and agree to keep on deposit with said bank, and/or does hereby waive, surrender and release said bank from payment of Sixty (60) per cent of the amount of money standing to (his, her, its) credit on the books of said bank as of April 15th, 1933, whether represented by checking account, savings account, * * * or any other evidence of indebtedness, hereby waiving all right to ask or demand said sum of money, and agreeing to accept in lieu of payment in cash and as evidence of said sum waived, a deferred certificate and/or a certificate of beneficial interest issued by said bank for like amount, payable out of the future recoveries and the net profits of the bank, and before any dividends or returns of any kind or character are payable to the stockholders. The depositor further agrees to present all certificates of deposit, savings books and pass books, or other evidence of indebtedness held by the depositor or creditor, to the bank for endorsement in accordance with this agreement on being notified of the acceptance hereof."
The certificate of beneficial interest recited that it was subject to the waiver agreement and that it was payable "solely out of the future recoveries and net profits" of the bank, and that payment shall be made pro rata with the sums due on similar certificates on such dates and in such manner as the bank shall determine with the written approval of the Auditor, before any dividends or returns of any kind are paid on the capital stock of the bank.
The certificate specified further: "It is understood and agreed that no lien or preference of any kind exists against any of the assets of the bank in favor of the holder of this certificate and that payments hereon shall be made from time to time in such amount as shall be directed by the Auditor of Public Accounts in his sole discretion."
In connection with these provisions of the certificate it should be noted that the certificate was construed (by this court in August, 1938,) to preclude any recourse against the stockholders under their constitutional liability for the amount of waived deposits. Chaitlen v. Kaspar American State Bank, 372 Ill. 83.
Under the reorganization plan it was further provided that the slow or frozen assets of a book value of $3,168,493 were written down to $383,780. These assets, carried in a separate account for bookkeeping purposes, were under the charge of a liquidator appointed by the Auditor, and they could be applied to payment of the certificate to the extent they and their proceeds were not necessary to insure the solvency and liquidity of the reorganized bank.
The bank was reopened on January 15, 1935, and between April 14, 1936, and May 13, 1946, some nine distributions were made by the bank from the net proceeds of the slow or frozen assets, upon the authority and approval of the Auditor, for a total of 55 per cent of the face value of the certificates.
On September 21, 1948, the Auditor notified the bank by letter that it had sufficient accumulations of recoveries and profits in its capital structure to make at least a 15 per cent disbursement to its deferred certificate holders. The letter stated: "It is hereby requested that such a disbursement be made, and we would appreciate your advice as to the date of distribution and total amount to be distributed."
Pursuant thereto, defendant on December 15, 1948, sent a letter to each certificate holder, setting forth in substance the background of the reorganization, the fact that "similar arrangements" had been made by many other banks, including the Fulton State Bank, which declared its last distribution when the set-aside assets were liquidated. The letter then explained that the ensuing litigation against the Fulton Bank resulted in the decision in Logemeyer v. Fulton State Bank, 384 Ill. 11, which defendant considered binding upon it, and which decided that the certificates were payable solely out of money realized from the liquidation of assets. Consequently, the letter stated, since defendant's own set-aside assets were now liquidated, defendant was required to make a final distribution which amounted to 15 per cent of the original sum waived. However, no check would be delivered without surrender of the certificate, which would be cancelled and kept by the bank.
In response to that letter the holders of 5,874 of the 7,061 certificates originally issued requested and received the final 15 per cent distribution and delivered their certificates, which were stamped "paid" and cancelled. The defendant bank distributed $250,980.75 of this "final payment," and $19,687.58 remained for the payment of the outstanding 1,187 certificates, on which the bank refuses to pay except upon surrender of the certificates.
The plaintiffs in Group I represent the class which did not surrender their certificates, and the plaintiffs in Group II represent those who did surrender their certificates. They allege that, unless enjoined, defendant will declare and pay dividends to the stockholders, and they seek a decree that all members of both groups have a preferential right to be paid pro rata the full face amount of their respective certificates before any dividends or returns are paid to the stockholders; that defendant be required to pay into court, for the members of Group I, the 15 per cent distribution tendered in the letter of December 15, 1948; that the cancellations of certificates surrendered on or after December 15, 1948, be declared void; that defendant be enjoined from paying any dividends on its capital stock until the face amount of the certificates has been paid, and that until final payment defendant be required to pay into court any dividend declared by it, which shall be distributed pro rata among the members of Groups I and II.
Defendant's answer pleads that insofar as the deposit waiver agreement and the certificate of beneficial interest purport to be a pledge of future earnings of the bank, or to afford any certificate holder any claim on any assets of any kind of the bank, they are ultra vires and against public policy, and therefore void. Defendant also raises the defense of accord and satisfaction as against the plaintiffs in Group II, alleging that the surrender of certificates for cancellation by the holders on receiving the final 15 per cent payment was for good and valuable consideration, and was a discharge of all obligations due on the certificates from defendant. Defendant further challenges the propriety of a class suit in a proceeding where the interests of the parties are conflicting.
The superior court of Cook County dismissed the major portion of plaintiffs' complaint for want of equity, and granted defendant's motion for a decree in its favor on the pleadings. The Appellate Court reversed that decree and held that the certificates were valid obligations, but that plaintiffs in Group II were not entitled to relief since there was a valid accord and satisfaction, and that they could not maintain a class suit. On rehearing, however, the Appellate Court, in an additional opinion, held that the accord and ...