Schrader v. Heinzelman Bros.

Mr. Justice Sample delivered the opinion of the Court. The sole question is, were the defendants in error, under the facts stated, entitled to share with the other creditors in the assets of the bank. The exception preserved to the order of the court, overruling the motion for a new trial and entering judgment on the finding, with the assignment of error thereon, raises that question. There is no real dispute as to the facts, which summarized are, first, the defendants in error were stockholders of the bank at the time of its failure; second, the bank was indebted at that time, as evidenced by its certificates of deposit; third, the defendants in error, after such failure, purchased at a large discount, over $5,0"00 of such certificates; fourth, such certificates so purchased were filed with the assignee of the bank in due time; fifth, that a part of said certificates were thereafter on the part of a stockholder and by the consent of one of these defendants in error, presented to the assignee for cancellation in favor of the creditors of the said bank; sixth, that the other certificates of deposit so purchased by these defendants in error were put in judgment and these judgments satisfied of record, for the purpose of relieving such stockholders from their individual liability; seventh, which judgments and entries of satisfaction were, after the lapse of some thirteen years, set aside on the order of the court by the consent of these defendants in error—the parties thereto. The solution of this question depends upon, first, the rights acquired by these stockholders by their purchase of these certificates of the bank’s indebtedness, after the failure of the bank; second, the effect of these judgments on such certificates as were put in judgment, and the effect of the surrender of the other certificates to the assignee for cancellation, for the benefit of the creditors of the bank. That stockholders may become the creditors of their own corporation has been decided. Merrick v. Peru Coal Co., 61 Ill. 472; Harts v. Brown, 77 Ill. 226. The director stockholders may, as to other stockholders, who have had an opportunity to contribute to relieve an insolvent corporation from its debts, purchase the property of the corporation at a foreclosure sale, and the other stockholders will have no right to complain. Hart’s case, supra. It will be observed, however, that the decisions holding that a stockholder may become a creditor of his own corporation, relate to an existing and not a defunct corporation, and that the decision as to the right of one or more stockholders to purchase the property of the corporation at a foreclosure sale, relates to the rights of the stockholders as between themselves. If such stockholders become creditors in good faith during the existence of the corporation, and while operating as such, then doubtless such creditor stockholders "would share pro rata in the distribution of the assets of the corporation, the same as a non-stockholder creditor. These stockholders, however, purchased these bank certificates of deposit at a large discount, after the corporation, of which they were stockholders, had made an assigmnent for the express purpose of relieving themselves from their individual liability, as such stockholders, to the creditors of their corporation. While it is true such certificates were filed with the assignee, yet these stockholders withdrew them as claims against the assets, by surrendering some of them to the assignee for cancellation and by putting the others in judgment in the Circuit Court. The effect of such use of the certificates was equivalent to their withdrawal. Suppose the original owners of these certificates had, after filing them with the assignee, withdrawn and brought suit on them in the Circuit Court against these stockholders and obtained judgments on them, and then without fraud or mistake entered satisfaction of such judgments; certainly they could not have come in after a period of thirteen years, refile them and ask to share in the assets of the bank. How are these .parties placed in any better position by being assignees of such certificates and stockholders in the bank % The fact that they did not succeed, in law, by such proceedings, in relieving themselves from the individual liability to the full amount of the face value of such certificates, does not, it seems to us, determine the effect of such proceedings upon the certificates themselves, either as to withdrawal from before the assignee or merger in the judgments. We see no escape from the conclusion, as to these certificates of indebtedness that were in fact surrendered to the assignee for cancellation, and those certificates, that were in fact put in judgments and those judgments receipted, that they were withdrawn as claims against the estate of the insolvent bank, and ceased to be of any validity whatever except for the purpose of use in enforcing contribution among the stockholders. Such certificates could not be in fact surrendered for cancellation or put in judgments and those judgments satisfied, and at the same time, be pending as claims against the estate. We do not wish, however, to rest our decision upon this view alone, of the withdrawal of the claims from before the assignee. We understand that under the law of liability of these stockholders, the amount for which they were liable to the creditors of the bank was as much a fund for the security of the creditors, as the assets of the bank (Eames v. Doris, 102 Ill. 350; Tunesma v. Schuttler, 114 Ill. 156; Queenan v. Palmer, 117 Ill. 619-628); and that a voluntary payment by a stockholder to a creditor, after such stockholder’s personal" liability attaches, does not enable such stockholder to take an assignment of such corporation debt and put it in as a claim against the funds of the corporation, to shareyw rata, either to the amount he paid or to the amount of the face of the debt he so took up, with other corporation creditors. By such payment, such stockholder extinguishes the debt of the corporation to the amount of the debt so taken up, and extinguishes the amount of his own liability to the extent of the sum so paid by him. Ganch v. Harrison, 12 Brad. 457; Thompson v. Meisser, 108 Ill. 359. A debtor may pay his debt, but he can not purchase it, so as to present it as a living chose in action against himself, to share in the assets with other creditors. Edison Electric & I. Co. v. DeMott, N. J. case, Chicago Legal News, June 3, 1893, p. 341. If the stockholder is permitted to take a part of such fund, viz., his liability, and with it purchase at a discount from the creditors of the Insolvent bank, the bank’s liabilities, and turn the same in at their face value for such stockholder’s benefit, then it seems to us that the object of the statute would be defeated. As is said in the case of Thompson v. Meisser, 108 Ill., at p. 368, “ What advantage would the statute be to the outside creditors ? ” We do not understand that these stockholders, after the failure of the bank to pay its debts, stood iii the relation of sureties or guarantors of the bank, in the sense that they could utilize the debt of the bank so paid by them, as claims against the bank, the same as other and outside creditors. "We understand the payment of such a debt by a stockholder is the payment by him of an original liability, and therefore as completely an extinguishment of it, as if paid by the bank itself. While it is true, the stockholder does not become liable until the bank has failed to pay its debt, yet when that condition arises, then the protection of the corporation, to the extent of the face value of his stock, is withdrawn by the law, and his liability as to such debt, by operation of law, becomes that of a partner. Therefore, such debt, as between the stockholders and such creditor, is in law, as if directly contracted, originally, between such creditor on the one hand and such stockholders, as partners, on the other, regardless of the fact that there ever was a corporation. We understand the case of Fuller v. Ledden, 87 Ill. 310, which has since been several times approved, expressly so holds. See Buchanan v. Meisser, 105 Ill. 638, 643. If this view of ours of the law, is correct, then it certainly follows that partners can not purchase their own debts; they can only pay them. It also follows, that the legal effect of the acts of these defendants in error, in taking up these certificates of the bank’s indebtedness, was to pay and extinguish them, so far as the other creditors were concerned. These views are expressed as to these certificates on the hypothesis of the facts in this case, that the money actually paid by these stockholders did not in any case exceed the amount of their individual liability, as evidenced by the shares of stock held by them respectively. We are constrained to reverse this case, with directions to dismiss the proceedings of the defendants in error in the court below. Reversed with directions.