Brown v. Schleier/Opinion of the Court

by Joseph McKenna

United States Supreme Court

194 U.S. 18

Brown  v.  Schleier

 Argued: March 17, 18, 1904. --- Decided: April 4, 1904

The bill prayed for a decree declaring the lease between the bank and Schleire and the instruments surrendering and canceling the same to be declared void and 'ultra vires of the acts of Congress of the United States in respect to the powers of national banks to acquire, own, and hold real estate or to be or become indebted in the exercise of corporate powers, and that no title or right, legal or equitable, could be acquired under the same or either thereof by the said defendant Schleier to the said bank building and the appurtenances thereunto belonging.' An accounting was also prayed, and that the amount found due be declared a lien upon the building and lots, and they be sold to satisfy the lien. The circuit court of appeals regarded the bill as charging, not only the initial, but the dominant and determining, wrong to be the lease; that being Schleier's participation in the alleged diversion of the bank's funds, constituting him a trustee for creditors. It was, therefore, natural for the court to observe the theory of the bill was that the lease was void, and that Schleier was liable for the damages which the creditors of the bank sustained in consequence of its execution without lawful authority. The court discussed that theory, and decided (1) that the power conferred by § 5137 of the Revised Statutes (U.S.C.omp. Stat. 1901, p. 3460) upon national banks to purchase real estate needed for their accommodation in the transaction of their business included the power of leasing property whereon to erect buildings suitable for their wants; (2) assuming the transaction to have been ultra vires, the complainant (appellant) was not, by virtue of his office as receiver, 'authorized to challenge or impeach it.'

Appellant now says that the conception of the bill by the circuit court of appeals was incorrect, and 'not only limits, but completely reverses the theory of the bill, in a manner totally inconsistent with the admitted allegations.' And appellant concedes 'that only the government may complain of an executed ultra vires conveyance of real estate to a corporation,' and rests his case upon 'loss of the moneys and assets of the bank,-in the form of the bank building,-to which Schleier claims title through the conveyance and surrender on October 30, 1897, under the terms of his lease to the bank.' We may take appellant at his word and omit extended discussion of the first proposition, although he has indulged in much argument which confuses his concessions. For instance, his counsel say: 'While denying the sufficiency of the lease to lawfully bind either the bank or its title to its $305,000 capital assets, we say, very well, then! Since in the completed building in the actual possession of the bank, it still had an asset, the then depositors, now judgment creditors of this bank, represented by this appellant receiver, want to know why Schleier, who is not an innocent purchaser for value, without notice, should not be held liable to account for this asset, the building?'

But pronouncing Schleier not an innocent purchaser, denominating the building an asset of the bank, does not change the issues in the case. It is only another way of presenting them. Why should Schleier account for the building? Necessarily, either because of the execution of the lease or its surrender. Of its execution we need not make much comment. The lease certainly was not different from any other interest in real estate acquired ultra vires,-no more vulnerable to attach, no more a diversion of funds. Whether it would be a gain or loss-an antithesis made much of in argument to distinguish between the lease and an absolute conveyance-was a matter of judgment. It seems now to have been a folly for the bank to have put its whole capital in a building. But maybe that is the confident conclusion which can be formed after experience. The judgment of the bank in making the lease and erecting the building seems not to have been thought by creditors to have been improvident, and the Comptroller of the Currency did not disapprove. The bill alleges that the Comptroller of the Currency, in the year 1893, deemed an assessment of 20 per cent sufficient to redeem the bank from embarrassment and establish it as a solvent concern; and its chief creditor, the People's Savings Bank, whose affairs, the bill avers, had become 'commingled and mixed' with those of the bank and thereby associated with its fortunes, must have had absolute confidence in the value of the building, even though it represented diverted funds. If depreciation came afterwards, it was a misfortune. Under the concession of appellant, therefore, the validity of the lease must be assumed as against him, and the inquiry confined to the validity of the surrender; and that depends upon the condition of the bank at the time it was done. In other words, the lease, with its benefits or burdens, and the condition of the bank at the time of its surrender, must be the test of the action of the bank officers and the rights of creditors.

The bank was insolvent, taxes on the property were unpaid, and three months' rent was due. Under the terms of the lease, Schleier could pay the taxes, and for reimbursement and the satisfaction of the rent could sell the lease and all the right, title, and interest of the bank therein, or maintain personal actions for such taxes and rent. Schleier, therefore, for what was then due and for his monthly accruing rent, had not only a lien upon the property, but had, as well, the personal obligation of the bank. Against this liability what had the bank? The bill alleges nothing but the lease, and to that no value is assigned. Its revenue did not exceed its obligations. It is true it is alleged that the building had been allowed to get out of order, and that, notwithstanding its condition, the rents from it would have paid the charges against it. But the fact establishes nothing definite. What can be inferred from it? Such disproportion between the value received by Schleier and that received by the bank as to shock the conscience, establish fraud, and that the surrender of the lease was an illegal preference? The situation must be kept in mind. The bank was and had been insolvent. It was compelled to go into liquidation; it was in arrears for rent and taxes, and was confronted with everrecurring liabilities which it might not be able to discharge. Certainly could not discharge unless it remained a going concern, which was not possible. Under such circumstances the settlement with Schleier does not seem to have been even bad judgment. And it was openly done,-advertised in advance to all who were interested to prevent,-and the reason for it declared to be that the income of the property was less than the fixed charges; in other words, had no value,-represented only liabilities. No one intervened. Creditors did not, and this suit was not brought until December, 1900,-three years after the surrender of the lease. The conclusion is irresistible that the judgment of the stockholders in surrendering the lease was honestly and prudently exercised. This is fortified by the prayer of the bill. Appellant does not ask to have the surrender of the lease set aside and the bank restored to its relations and obligations to Schleier. He asks that the bank be relieved from all obligations, and the cost of the building imposed as a charge upon the real estate.

It is unnecessary to discuss the ruling of the circuit court on the motion to file an amended bill. The bill tendered was fuller and more explicit than either the original bill or the amendments thereto, but it alleged nothing which would affect the legal conclusions from the facts to which we have adverted. And we may observe that it is exceedingly disputable whether it is an abuse of discretion to deny a motion to file an amended bill after final judgment has been entered.

Decree affirmed.

Notes