Golden v. Cervenka

116 N.E. 273, 278 Ill. 409

Opinions

Mr. Justice Dunn

delivered the opinion of the court:

The LaSalle Street Trust and Savings Bank, a corporation organized under the Banking act of the State of Illinois, being insolvent, ceased to do business on June 12, 1914, and on June 18 a bill was filed in the circuit court of Cook county in the name of the People of the State of Illinois, on the relation of the Auditor of Public Accounts, against it and its stockholders for its dissolution and for the appointment of a receiver. A receiver was appointed, and a decree has since been rendered dissolving the corporation and decreeing the conversion of its assets into money and the distribution of them among its creditors. After the appointment of the receiver, actions at law were begun in the superior court of Cook county and in the municipal court of Chicago by John A. Cerven'lca, a creditor of the bank, against different stockholders to enforce their liability as stockholders for the satisfaction of the indebtedness of the bank to Cervenka. The appellants John F. Golden and the Importers’ and Manufacturers’ Company, who were creditors of the bank, filed their bill in the circuit court of Cook county, and later a second amended and supplemental bill in behalf of all other creditors of the bank who might choose to come in and prove their claims, as well as of themselves, against the bank, its present and former stockholders, Cervenka and others, to enjoin the prosecution of the suits against the stockholders brought by Cervenka, and the institution or prosecution of any other suits of like character, to ascertain the creditors of the bank and its liabilities, as well as its stockholders, and the extent of their liability to the creditors, for a decree for the amount of the stockholders’ liability and the distribution of such amount among the creditors of the bank, and for the appointment of a receiver to collect such amounts from the stockholders. The receiver appointed in the Auditor’s suit and the Central Trust Company of Illinois were also made parties defendant to the bill, and a decree was prayed against the Central Trust Company because of certain acts in connection with the organization of the LaSalle Street Trust and Savings Bank, to be mentioned hereafter. Various defendants answered the bill. The receiver filed a cross-bill, containing the same allegations and asking the same relief as the original bill. The cross-bill was answered, replications were filed, the cause was heard and .a decree was rendered against the Central Trust Company for $1,487,854.16, and against the stockholders, respectively, for an amount equal to the par value of the respective shares of stock held by them, the payments to be made to the receiver appointed in the Auditor’s suit. The complainants, the cross-complainants and some of the defendants appealed to this court, the question of the construction of the constitutional provision as to the liability of stockholders in a banking corporation being involved. The Central Trust Company appealed to the Appellate Court and made a motion to dismiss the appeals to this court. That motion was denied at the October term, and the Central Trust Company, as well as various other defendants, assigned cross-errors on the record.

The deficiency in the assets of the bank for the payment of its creditors was greater than all its capital, surplus and undivided profits, and the court by its decree held each holder of stock in the bank at the time of its suspension individually liable to the creditors of the bank for an amount equal to the par value of his stock, and each former stockholder who had ceased to be a stockholder before the suspension also liable to an amount equal to the par value of the stock which he had previously held. The assignments of error by complainants and cross-complainants question the action of the court only in fixing the liability of the stockholders at the amount of the par value of their stock and not at twice that amount, and in not decreeing costs in favor of the complainants and cross-complainants.

Section 6 of article n of the constitution provides that “every stockholder in a banking corporation or institution shall be individually responsible and liable to its creditors, over and above the amount of stock by him or her held, to an amount equal to his or her respective shares so held, for all its liabilities accruing while he or she remains such stockholder.” Counsel for the appellants argue that this section imposes upon the stockholders a liability for twice the amount of the stock held, relying not upon the language of the section itself, which seems at first blush clearly not to impose such liability, so much as upon the expression of the court in the case of Dupee v. Swigert, 127 Ill. 494, on page 505, that “under the section of the constitution thus quoted, every stockholder is liable for the debts of the bank to an amount equal to twice the amount of stock held by him, and may be sued for such amount by any creditor whose claim is large enough to cover it.” This was not an interpretation by the court of the meaning of this section of the constitution but the language was used in argument, only. There was no question before the court as to the amount of the liability of stockholders of a banking corporation. The action was mandamus against the Auditor to compel him to issue a permit to organize a bank, which' he refused to do, one ground of his refusal being that the second section of the Banking act as it then stood was unconstitutional because it provided that each stockholder should be liable only for his ratable share of the debts of the bank and not for the full amount fixed by the constitution. What the court held was that such provision of the Banking act was in conflict with the section of the constitution which has been quoted, but that the constitutional provision, being self-executing, the part of the act which attempted to make each stockholder liable only for his ratable share of the indebtedness of the bank was void and the constitutional provision should be regarded as a part of the Banking act. The statement that the stockholder is liable for the debts of the bank to an amount equal to twice the amount of stock held by him is correct in the sense that his liability to have his property taken for the debts of the bank includes both the amount which he has invested in his stock and a like amount for which he is declared personally and individually liable by the constitution, but it is only for the latter amount that he may be sued by any creditor, and the statement that he may be sued for twice the amount is inaccurate. The same inaccuracy, arising in the same way, occurs in the opinion of the Supreme Court of West Virginia in the case of Dunn v. Bank of Union, 74 W. Va. 594, which is also cited and relied upon by the counsel for the appellants. The provision of the constitution, of West Virginia is in substantially the same language as that of this State, and the court stated that it imposed “a personal liability on stockholders for debts accruing while they are such shareholders in a banking corporation,—a liability thereby made personal, not as sureties but as principals, for double the amount of shares so held by each of them at the date the liability accrued.” The incorrectness of this statement is made manifest by a reference to the case of Clark v. Bank of Union, 72 W. Va. 491, a case involving the same bank failure and the same effort as the case of Dunn v. Bank of Union to fix the stockholders’ liability, in which the court reversed the decree and remanded the cause, saying that if the assets belonging to the bank were found to be insufficient to satisfy the debts, “the stockholders could then be assessed a sufficient amount to pay off the debts, not to exceed the par value of their stock.” A similar rule as to the extent of the stockholders’ liability is intimated in Benedum v. Citizens’ Bank, 72 W. Va. 124, on page 141, though it is not decided, the question as to the amount of liability not being involved. In neither of the cases cited is it held that a stockholder is liable to the creditors of the bank to an amount equal to twice the amount of stock held by him.

It is clear that the language of the constitution was intended to impose upon shareholders in banks, in addition to their investment in the stock, which is, of course, liable to the creditors of the bank, a further personal responsibility to the creditors to a like amount, thus imposing upon the stockholders the double liability which was in the minds of the judges who wrote the opinions in the cases which have been cited. In the States of Colorado, Maryland, Pennsylvania and Minnesota the stockholders of banks have been held personally and individually liable to the creditors in double the amount of the par value of their stock, but in each case the statute involved expressly imposed upon the stockholders an individual liability to the creditors equal to double the amount of the stock owned. The National Banking act provides that “the shareholders of every national bank shall be held individually responsible * * * to the extent of the amount of their stock therein at the par value thereof, in addition to the amount invested in such shares,” and it is held that the par value of the stock is the limit of liability. (United States v. Knox, 102 U. S. 422.) The circuit court properly applied the same rule in this case.

In this immediate connection there is a further question in regard to the extent of the stockholders’ constitutional liability, which may be considered here because it may affect all the previous stockholders who had ceased to be stockholders before the bank suspended.

The constitutional liability of the stockholders to the bank’s creditors is “for all its liabilities accruing while he or she remains such stockholder.” The court held each assignee of stock to be liable not only for the liabilities of the bank which accrued while he was a stockholder, but "also for the existing liabilities which accrued prior to the time of his ownership of the stock. The stockholders who assigned cross-errors insist that it was erroneous to hold them liable for liabilities of the bank accruing before they became the owners of their stock, or to hold them for any liability which did not mature during the time of their ownership. The stockholder of a corporation at common law was not responsible personally for any of the liabilities of the corporation. He is only responsible because of some constitutional or statutory provision. Section 4 of article 10 of the constitution of 1848 provided that “the stockholders in every corporation or joint stock association for banking purposes, issuing bank notes, or any kind of paper credits to circulate as money, shall be individually responsible, to the amount of their respective share or shares of stock in any such corporation or association, for all its debts or liabilities of every kind.” The provisions of special charters granted to banks before the constitution of 1870 usually contained like provisions declaring the stockholder liable for all the debts of the bank. The limiting clause added to section 6 of article 11 of the constitution of 1870 confines his responsibility to liabilities accruing while he remains a stockholder. The stockholders insist that the word “accruing,” in this connection, means maturing, and they argue at some length in support of their contention. The word “accrue” may convey various meanings, dependent upon the connection in which it is used. Among the definitions of it are: “to arise; to happen; to come to pass; to become vested; to come into existence.” When used in connection with a cause of action it necessarily refers to the time when a party asserting the claim can maintain an action to enforce it. By force of the term itself a cause of action does not exist until that time. But interest accrues from day to day though it may only become due annually. Though due only at stated periods, income and rent accrue constantly. So do debts, liabilities, trouble and sometimes assets. This is according to the general understanding of the term. A running account accrues with each purchase, whether credit is given or not. By whatever transaction a bank becomes liable for the payment of money, whether at a fixed time or on demand, a liability has accrued. Whether a cause of action has accrued depends upon whether the creditor could then maintain a suit. Whether a liability has accrued depends upon whether an obligation to pay has arisen. The meaning of the constitutional provision was that the persons who were stockholders of the bank at the time credit was extended to it or a liability was incurred by it should be individually and personally liable, as partners, to the creditor to an amount equal to their stock. The court erroneously held the stockholders for liabilities accruing prior to the time of their becoming stockholders.

The appellants cite in support of the decree in this particular the cases of Thebus v. Smiley, 110 Ill. 316, and Root v. Sinnock, 120 id. 350. In those cases the court was construing charters of banks which made the stockholders individually liable to the amount of their stock for all the debts of the corporation, such liability to continue for three months after the transfer of their stock on the books of the corporation. It was held that it was not necessary to the liability of the stockholder that he should have been a stockholder at the time the cause of action accrued but it was sufficient that he was a stockholder when suit was brought. The liability because of the ownership of stock followed the stock into whosesoever hands it might go. This, however, was the liability under a charter granted prior to the adoption of the present constitution. The constitution of 1870 has changed all that by providing that the stockholder shall be responsible only for debts accruing during his ownership of the stock, and the legislature has further provided in section 6 of the Banking act that no transfer of the stock shall operate as a release of the liability. Under the constitution and the statute the stockholder is responsible to the amount of his stock for all the liabilities of the bank which are incurred during his ownership of stock and no more, and such responsibility continues until the liability is paid or otherwise discharged.

The Central Trust Company of Illinois insists that no decree should have been rendered against it for any amount. The claim against it is founded upon its connection with the organization of the LaSalle Street Trust and Savings Bank, which was organized for the purpose of taking over the business of the LaSalle Street National Bank. The latter bank was organized under the National Banking act, commenced business on May 9, 1910, and continued in business until October 21, 1912, when all its assets were transferred to the LaSalle Street Trust and Savings Bank and it ceased to do business. Its capital stock of $1,000,000 was subscribed for at the rate of $125 a share, so that it began business with a surplus of $250,000. In the summer of 1912 the officers and directors of the bank determined to convert it into a State bank. While the National Banking act provides for the conversion of a State bank into a national bank, the State Banking act does not provide for the conversion of a national bank into a State bank. It was therefore necessary to organize a State bank which could take over the business of the national bank by purchase and assignment. The plan adopted was to organize a State bank having the same capital and surplus as the national bank, divided among the same shareholders in the same proportion, and having the same directors, officers and organization, in every particular, as the national bank. Letters were sent by the president of the bank to all its stockholders referring to the desirability of organizing the bank under the laws of the State of Illinois, so that it could deal in real estate securities and engage in other profitable lines of banking business which were not open to a national bank. It was proposed that the holders of the stock of the bank exchange their stock for an equal number of shares of the State bank stock when issued. Agreements to do this were obtained from more than nine-tenths of all the stockholders, and eventually all the stock was so exchanged. One shareholder having 133 shares declined to come into the agreement and he received the book value of his shares,—a fraction over $126 a share,—and they were transferred. The agreement for the exchange of stock in each case contained an appointment of Charles E. Ward as attorney of the stockholder to perform “all necessary acts in effecting such transfer.” Meantime a permit was obtained from the Auditor of Public Accounts on October 15, 1912, to organize the LaSalle Street Trust and Savings Bank with a capital stock of $1,000,000. Stockholders owning more than 9300 shares had constituted Ward their attorney to do all necessary acts in effecting the transfer and he proposed to subscribe in their behalf for that number of shares in the new bank. Since it was proposed to borrow from the national bank all the money to constitute the capital of the State bank, and since the former bank was not authorized to lend to one person the amount represented by 9300 shares, the subscription of stock in the State bank was divided, and on October 17 it was all subscribed in the name of twenty-one individuals, nine of whom subscribed for 1000 shares each, the other 1000 shares being divided among the other subscribers. It was not intended that these subscriptions, or any part of them, should be paid, but section 5 of the Banking act required that the capital stock should all have been paid in and the Auditor satisfied, after a thorough examination, that the authorized capital had been paid in and that the bank had the full amount dedicated to the business, including the proposed surplus, before the Auditor’s certificate authorizing the bank to commence business could be issued. That section requires the payment of the capital and surplus of the bank in cash before commencing business and before the issue of the Auditor’s certificate. (People v. Smith, 239 Ill. 91.) In order to evade this requirement of the statute and obtain the certificate authorizing the bank to commence business without complying with it, ten persons, among whom were some of those whose names appeared as subscribers of stock, executed their- several promissory notes on October 21, 1912, each for $125,000, payable to the LaSalle Street National Bank. These notes were not expected to be paid, the makers did not expect to pay and did not pay any part of them, and most of the makers were unable to pay any considerable part of them. The amounts were, however, placed to the credit of the makers, each of whom then gave his check for the same amount to the bank, which placed the aggregate amount of these checks to the credit of the “LaSalle Street Trust and Savings Bank stock account!” William Lorimer, the president of the national bank, on this same day called upon Charles G. Dawes, the president of the Central Trust Company, and told him that he would want an amount of money equal to the capital and surplus of the new bank to be counted by the agent of the Auditor in compliance with the requirement of the law and that the bank did not have that much currency. He asked if Dawes could furnish it to him on a cashier’s check of the LaSalle Street National Bank. Dawes agreed to do so. A check for $1,250,000 was drawn in favor of the LaSalle Street National Bank, signed “The LaSalle Street Trust and Savings Bank of Chicago, per Thos. McDonald, Asst. Cashier,” and was accepted by the national bank, which issued in payment of it a cashier’s check of the national bank for the same amount payable to the Central Trust Company, which credited the amount on its books to the LaSalle Street Trust and Savings Bank. A meeting of the stockholders of the latter bank was then held and fifteen directors were elected. Those directors who were present took the oath of fealty required by the statute, and immediately after the adjournment of the stockholders’ meeting held a directors’ meeting, elected officers, adopted by-laws and took a recess until 4:15 in the afternoon. Nine of the directors, in accordance with the Auditor’s requirement, made an affidavit that $1,250,000, all the capital and surplus of the bank, “is actually paid in in cash and no part thereof is in notes or pledges of any description, and that said capital and surplus is now in the hands of the proper officers of said association, as above set forth, and is to be used by them solely in the legitimate business of the association when the same shall be opened for banking.” This was delivered to John H. Rife, an examiner from the Auditor’s office, who then, accompanied by Lorimer, who had been elected president of the bank, and Charles E. Ward, one of the directors, went to the bank of the Central Trust Company for the purpose of verifying the statements of the affidavit and satisfying himself that the cash was actually in the possession of the officers of the bank and dedicated to the business of the bank. There $1,250,000 in currency was delivered to Lorimer by the cashier of the Central Trust Company. Rife counted the money and returned it to Lorimer, together with the Auditor’s certificate authorizing the trust and savings bank to commence .business as a bank. Lorimer handed the money back to the cashier, who returned the cashier’s check, indorsed by the Central Trust Company without recourse. Afterward, about four o’clock on the same day, at a meeting of the stockholders of the LaSalle Street National Bank a resolution was adopted authorizing a liquidation of the bank and appointing the LaSalle Street Trust and Savings Bank liquidating agent, with full power and authority to conduct such liquidation in accordance with law, under the supervision of the board of directors of the LaSalle Street Trust and Savings Bank. The board of directors of the national bank also adopted a resolution transferring to the trust and savings bank all the cash, notes, bonds, stocks, accounts and other assets of every kind of the national bank in consideration of the trust and savings bank assuming all the debts, obligations and liabilities of the national bank. Immediately after the adoption of this resolution the directors of the trust and savings bank adopted a resolution that in consideration of the transfer and assignment by the national bank of its cash, accounts receivable, bills receivable, bonds, stocks, accounts and all other assets to the trust and savings bank, the latter bank agreed to, and did, assume all the indebtedness of the national bank of every kind, and agreed to pay such indebtedness in the manner and form in which the national bank agreed to pay the same.

Under date of October 21, 1912, certificates for shares of stock of the LaSalle Street Trust and Savings Bank were issued to the original subscribers to its capital stock but were never delivered or detached from the certificate book. They were signed by the president but not by the secretary and did not have the seal of the bank attached. When shares of stock in the national bank were presented -for conversion into shares of the trust and savings bank, entries were made charging the LaSalle Street Trust and Savings Bank stock account with the amount of the shares transferred at $125 a share and crediting the same amount on account of the ten notes, of $125,000 each, which have been heretofore mentioned. The result was that upon the transfer of the last of the shares of the national bank the LaSalle Street Trust and Savings Bank stock account was closed and the ten notes referred to were canceled, the trust and savings bank having, as a result of these proceedings, acquired all the assets and assumed all the liabilities of the national bank and issued its own stock in exchange for the stock of the national bank. Thus the LaSalle Street Trust and Savings Bank, instead of beginning business with a capital stock and surplus of $1,250,000 in cash, as the statute required, and without liabilities, began business on October 22, 1912, with the assets of the LaSalle Street National Bank and with all its liabilities.

Since the statute contained no provision for the conversion of the national bank into a State bank there was no provision of law for the examination of the national bank by the State authorities before the transfer. The statute contemplated only one method of organizing the State bank and only one character of assets. The Auditor had no authority to issue a certificate authorizing the bank to commence business unless he was satisfied that it possessed in cash the amount of capital and surplus named. The grant of authority to commence business was based upon the possession of the money. The affidavit of the directors stated that the money -was in the hands of the proper officers, and the money was paid over to Lorimer by the Central Trust Company upon the check of the LaSalle Street Trust and Savings Bank. The object of the Banking act is the protection of depositors and creditors of the bank, and the requirement of the possession of the whole amount of capital and surplus in cash at the organization of the bank is for their benefit. Whoever becomes a creditor of the bank has a right to rely upon its capital as a fund whereby its indebtedness is secured and any loss ■ incurred in its business may be made good, so that the depositors or other creditors may not suffer. The elaborate system of notes, checks and book-keepers’ entries, debit and credit, do not affect the substance of the transaction. They did not create any cash, and if none of those documents had been executed and none of the entries made the substance of the transaction would still have been the same, and that was, that the Central Trust Company, at Lorimer’s request, permitted him to hand to the Auditor’s representative $1,250,000 of the trust company’s money as the money which the directors of the LaSalle Street Trust and Savings Bank had in their affidavit stated was in the hands of the officers of the bank, to be used solely in its legitimate business. Of course, the Auditor’s agent was not brought there to satisfy himself that there was that much money in some bank in Chicago,- and, of course, nobody thought so. The counting of the-money is spoken of as a technical requirement of the Auditor, but if it is properly regarded as a technical requirement nobody could reasonably imagine that the counting of $1,250,000 of anybody’s money would satisfy the requirement. It was the bank’s capital and surplus about which the Auditor was required to satisfy himself, and the exhibition and delivery of the money to him was as the bank’s capital, which was stated in the affidavit to be in the possession of the bank’s officers and was produced from their depositary for his inspection. This amounted to a solemn ¡ declaration that the particular currency which was there j present was the property of the LaSalle Street Trust and Savings Bank, dedicated solely to its business and subjectfl absolutely to its control. The Auditor’s certificate was I based on this representation. All persons giving credit toj the bank were entitled to rely upon the Auditor’s certificate, and it is in accordance with the plainest principles of equity - that no person who procured that certificate to be made could afterward be permitted to deny its truth, or the truth of his representation on which it was based, as against a subsequent creditor of the bank who was injured by reason of its falsity. It is immaterial whether such subsequent creditor knew of the previous representation or not. If he \ was injured by reason of the false certificate he has a right ' to seek redress against those who caused it to be made. ! It is also immaterial whether the Central Trust Company or Dawes had any fraudulent intention, knew anything about the condition of the national bank or made any profit ; out of the transaction. The trust company is estopped, as i against creditors who had a right to rely upon the Auditor’s certificate, to deny that the cash exhibited was the property of the trust and savings bank, for which the trust company must account as a part of the bank’s capital. The receiver, who represents the creditors as well as the stockholders of the bank, may in equity require the restoration of the fund for the benefit of the creditors.

Where notes or other securities have been executed to. a bank for the purpose of making an appearance of assets, j so as to deceive the examiner and enable the bank to con- i tinue business, although the circumstances may have been i such that the bank itself could not have collected the se-/ curities, it has been held that' the receiver, representing the creditors, could maintain the action, and the makers were' estopped, upon the insolvency of the bank, to allege want', of consideration. (Hurd v. Kelly, 78 N. Y. 588; Best v. Thiel, 79 id. 15; Sickles v. Herold, 149 id. 332, affirming 36 N. Y. Supp. 488; State Bank of Pittsburg v. Kirk, 216 Pa. 452; People’s Bank v. Stroud, 223 id. 33; Dominion Trust Co. v. Ridall, 249 id. 122; Lyons v. Benney, 230 id. 117.) In one such case (Lyons v. Benney, supra,) the defense was set up by an affidavit which the court held insufficient, saying: “The substance of this affidavit of defense is that the appellant made and delivered his note to the bank in furtherance of a scheme to deceive the bank examiner, under a promise made to him by the bank that he would not be held liable upon the obligation. He agreed that it should appear as one of the assets of the institution for the purpose of deceiving those whose duty it was to examine them, and he now sets up the defense that as it was to serve no other purpose it was to be regarded as a worthless piece of paper under this agreement with' the bank. * . * * So this appellant was a party to a scheme of the officers of the bank to enable them to make a deceptive and fraudulent showing of assets, and as the fraud was perpetrated upon the creditors, now represented by the bank’s receiver, he can maintain an action on the note for their benefit. * * * Neither the law nor good conscience can sanction the contention of the defendant that he ought to be permitted to take advantage of the fraudulent agreement between him and the bank, to which its creditors were not parties and for whom the receiver sues.”

In McBryan v. Universal Elevator Co. 130 Mich. 111, it was held that a stockholder who had made false statements that all the capital stock had been actually paid in, was liable for unpaid subscriptions to creditors of the corporation who became such creditors after he transferred his stock. In the course of the opinion the court said: “The question is, can original incorporators make a false statement as to the amount of capital stock actually paid in and escape liability for such false representations, immediately after executing the articles of association, by transferring their stock to other parties ? The wrong was done by the original incorporators in making a false statement as to the amount of stock actually paid in. The public, and creditors dealing with the corporation, had the right to rely upon this statement as true. Subsequent purchasers of stock were also entitled to rely upon it as true. It would be unjust to visit the sins of the original incorporators upon subsequent stockholders who purchased in good faith. It would be a disgrace to the law if creditors dealing with the corporation in reliance upon these statements, which they examine in the public offices where they are on file, had no remedy. Justice and good morals require that they who make such false statements, whether they made them intentionally, or, as in this case, recklessly, should respond in damages therefor. The law does not permit them to evade this liability by a transfer of their stock.”

Under the plan of conversion adopted no additional money was to be paid by the stockholders in the State bank but they were to exchange their stock in the national bank for stock in the State bank, share for share. This was understood by the Auditor and Rife, his agent, but such an agreement did not authorize the granting of a certificate to the bank authorizing it to commence business as a bank without a compliance with the statutory requirement of a capital paid in cash, dedicated to the business of the bank and in the possession of its officers. The statute cannot be repealed by agreement, and the inconvenience of complying with its terms does not authorize a disregard of them or the adoption of some other course of proceeding which may seem to the incorporators equally effectual to accomplish its purpose. A part of the argument in behalf of the trust company is based upon the hypothesis that the Auditor approved the conversion without the payment of any money, but this is manifestly incorrect. That it was understood that the production of the capital and surplus was required is shown by the fact that the affidavit of the directors was delivered to the Auditor’s agent showing that the amount of the capital and surplus was in the possession of the officers of the bank, to be used solely in its business, and the production of the cash for his inspection. Why was this required? What was the object in producing the money to the Auditor ? So far as the evidence of custom in the conversion of private or national banks is concerned, if such evidence is material, it appears that in such cases where the cash has been furnished by the banks about to be converted, actual cash was provided and placed to the credit of the new bank, and so remained, subject to the control and disposition of its officers, after the bank was authorized to commence business and until it was subsequently checked out by the authorized officers of the bank in the regular course of business. The only safeguard the State provided for the capital and surplus of this new bank was the requirement that it should be paid in cash. The Auditor could not waive this requirement and he did not attempt to do so, though if he had done so and had issued his certificate knowing that the capital of the bank had not been paid in cash it would not have lessened the liability of the trust company.

The Central Trust Company having represented that the $1,250,000 exhibited to the Auditor’s agent was the property of the LaSalle Street Trust and Savings Bank, and having immediately taken and retained possession of it to the exclusion of the bank, in an action for an accounting for the benefit of the creditors of the trust and savings bank it must malee good its representation and must account for the money so wrongfully taken by it. It was-only obliged, however, to account to the creditors. There ■ was no liability to the stockholders. The bank having by an evasion obtained the certificate authorizing it to commence business, did so by purchasing the assets of the national bank in consideration of the assumption of all its liabilities. It was thus provided with a capital stock, and if the value thereof was equal to the $1,250,000, which was the amount of its capital stock and surplus represented to be paid in, its creditors cannot complain. If it fell short of that amount its creditors have the right to that extent to complain of the persons who we're responsible for the making of the false certificate and to require them to make good the deficiency.

Appellants contend the capital stock and surplus of the national bank were entirely worthless, and the court found in its decree that on October 22, 1912, the capital stock and surplus of the national bank had been entirely lost and its assets were not then sufficient in value to satisfy its liabilities to its creditors. It is unnecessary to go into the history of the national bank. During its existence it was examined at various times by a national bank examiner and its method of doing business had been severely criticised by him. Changes had been required by the comptroller of the currency and had been promised, but the promise had not been complied with. Examinations were also made by an examiner for the Chicago Clearing House Association for the purpose of determining whether the bank should be admitted to that association. As a result of his report the bank had been advised not to make application for admission to the clearing house association as such application would be refused. Eor a time the bank cleared its checks through the Corn Exchange National Bank, which later refused’to continue as clearing agent, and thereafter the bank cleared its own checks. The examiners who examined the bank testified as to their examinations and knowledge of the condition of the bank and expressed the opinion that its capital and surplus were not impaired. The bank was criticised because of mismanagement, because of excessive loans to officers, because of check “kiting” by the managing vice-president and because of the undesirable quality of some of the paper, but while the evidence may indicate an impairment of capital it does not show a condition -of insolvency at the time of the transfer to the State bank. The appellants’ contention is based largely upon the testimony of Hiram B. Radish, an accountant, who examined the books and papers of the national bank and prepared a large number of statements summarizing the indebtedness to it and its condition at the close of business October 21, 1912, and the condition of the LaSalle Street Trust and Savings Bank. The statement of the national bank on October 21, 1912, shows its capital stock, surplus and undivided profits to be $1,267,815.72. Whether or not this amount had been impaired depends upon the' collectibility of the loans which constituted a large part of the resources of the bank. In regard to this, Kadish presented a statement showing the bills receivable held by the national bank on October 21, 1912, which remain unpaid in the trust and savings bank or were transferred by it to other banks and remain unpaid, or for which other paper which still remains unpaid was substituted, and showing the amounts paid to the receiver, allowed as set-offs and obtained by compromises. This statement showed the total debts to the national bank unpaid or transferred to other banks or accounts to be $909,-307.04, of which the receiver collected in cash, by set-offs and compromises, the sum of $161,064.61, leaving a net amount, according to this statement, of $748,242.43. Counsel for the appellants, adding to this amount'items which they call “kited” checks, find an apparent total loss on assets of the national bank on October 21, 1912, transferred to the trust and savings bank, of $871,262.43. They say that if these figures could be regarded as accurately representing the impairment of the stock and surplus of the national bank they would indicate that the impairment of the capital stock was only to the extent of about $600,000, still leaving $400,000 of value. These figures certainly do not sustain a finding that the capital stock and surplus of the bank had been entirely lost and that the value of its' assets was not sufficient to satisfy its liabilities to its creditors. On the other hand, an accountant who testified on behalf of the Central Trust Company in regard to the statement of Kadish, testified to certain deductions which should be made appearing on the books of the bank, which reduced the amount of indebtedness shown on Radish’s statement which was owing to the national bank on October 21, 1912, and is still unpaid, to $387,606.84. The solvency of the bank on October 21, 1912, is not, however, to be determined by the condition of the assets of the trust and savings bank on June 11, 1914. The question is not what was the value of the assets of the bank as ascertained by their final collection, but what was the value on the date of the transfer. If upon an examination of the bank at that time, in the judgment of prudent bankers familiar with the credit of the debtors, the value of the loans of the bank was equal to the amount at which they were carried on the books of the bank, the capital of the bank cannot be regarded as impaired at that time because it eventually turned out that a portion of the loans could not be collected. If the capital stock of the national bank was impaired at the time of the transfer to the trust and savings bank, the Central Trust Company is liable to the creditors of the trust and savings bank to make good the deficiency. Upon the remandment of the cause the question of the existence and amount of such deficiency will be for decision upon the evidence to be-adduced at the hearing, and upon this question the burden of proving the value of the capital stock will rest upon the Central Trust Company, which must account for the difference between such value and $1,250,000, if there is any deficiency.

Neither the bill nor the cross-bill makes any claim for interest, and the case is not one of those in which the statute provides that interest shall be allowed. In equity, however, interest is allowed because of equitable considerations, and is given or withheld as under all the circumstances of the case seems equitable and just. (Keady v. White, 168 Ill. 76.) The Central Trust Company having received funds which belonged to the trust and savings bank, if it retained them without authority of law, should account for interest from the time a demand was made for payment, which was when the cross-bill was filed. Whittemore v. People, 227 Ill. 453.

It is insisted on behalf of the Central Trust Company that if there was an impairment of the capital of the national bank the original subscriptions to the stock o'f the State bank were not fully paid, and that the creditors should be required first to exhaust the liability of the stockholders to make good this deficiency before calling upon the Central Trust Company. The liability of the Central Trust Company for the deficit in the capital and surplus of the national hank may be resorted to by the creditors of the trust and savings bank regardless of the liability of the stockholders. It is a primary liability to make good the deficiency in value of the capital stock. The one is not a substitute for the other, but the creditors may rely upon both, without regard to any question of contribution or of primary and secondary liability as between the Central Trust Company and the stockholders.

By an amendment made after the evidence was all heard the Central Trust Company alleged that the entire transaction in question was done and carried out by William R. Dawes, the cashier of the trust company, under the authority of Charles G. Dawes, its president, without the knowledge or authority of the board of directors or executive committee, and that they did not, nor did either of them, possess the authority to give away or bind the defendant to donate, hold in trust or otherwise become liable for the sum of $1,250,000, or any part thereof, with respect to the capital and surplus of the trust and savings bank or to make any representations in any way binding the trust company with respect to the trust and savings bank or its capital and surplus, and that any acts done by them of that character were beyond their authority and not binding on the trust company. The cashier of a bank has authority to receive deposits, honor checks and receive payments, and this is what is charged to have been done by the cashier of the trust company. The cashier’s check of the LaSalle Street National Bank was presented to the Central Trust Company and credit given to the LaSalle Street Trust and Savings Bank, whose check was then presented and paid. These acts were all within the scope of the authority of the cashier, and in reliance on these acts the Auditor’s certificate was issued showing the payment of the capital of the trust and savings bank.

On behalf of some of the stockholders various questions of procedure are presented. It is argued that all the creditors cannot join in one suit; that all the stockholders can cannot be joined in one suit; that the stockholders are entitled to trial by jury; that the receiver cannot enforce the stockholders’ liability, and that the bill and cross-bill are multifarious. The objections that the creditors cannot join in one suit, that the stockholders cannot be joined in one suit and that they are entitled to trial by jury are answered by the cases of Eames v. Doris, 102 Ill. 350, Tunesma v. Schuttler, 114 id. 156, Queenan v. Palmer, 117 id. 619, and Palmer v. Woods, 149 id. 146. These cases hold that a bill may be maintained by creditors of an insolvent banking corporation, in behalf of themselves and of other creditors, against all the stockholders to enforce the personal liability of the stockholders, to enjoin the prosecution of suits by individual creditors against individual stockholders, to have an account taken of all the liabilities' of the bank, to establish the amount for which the various stockholders are liable, and to have the amount of debts proved apportioned among the stockholders.

' Section 11 of the Banking act provides that when it shall be ascertained, in the course of the administration of the estate of a bank in the hands of a receiver, that the assets of the bank are insufficient to discharge the entire liabilities of such bank to its creditors and the amount of the deficiency is determined, the court may, in its discretion, direct the receiver to proceed to enforce the liability of the stockholders to creditors, and that when so directed the receiver shall have the power, and it shall be his duty, to take such action, by a suit or otherwise, as the court may direct, to enforce such liability for the benefit of the creditors. The stockholders’ liability created by the constitution is to the creditors of the corporation, and is a several and individual liability on the part of each stockholder to each creditor. It is not a liability to the corporation or to the creditors of the corporation as a class, but to each individual creditor on the part of each individual stockholder. Therefore it is the creditors, alone, individually or collectively, who can enforce the liability by such remedies as the law affords. Wincock v. Turpin, 96 Ill. 135; Runner v. Dwiggins, 147 Ind. 238; Colton v. Mayer, 90 Md. 711.

The appellant stockholders contend that section 11 of the Banking act is invalid so far as it authorizes proceedings by the receiver to enforce the liability of the stockholders to creditors. On the other hand, the complainants and cross-complainant insist that the proceedings authorized by section 11 are merely an additional remedy, of which the creditors, alone, can complain, and that they can complain only on the ground that it impairs their remedy already existing. If the liability of stockholders to creditors were imposed by the statute the legislature might provide for the manner in which such statutory liability should be enforced, and might authorize the Auditor, or the receiver appointed in the Auditor’s suit, to enforce such liability and to control the proceedings for that purpose. The rights of the creditors in such case being statutory, would be subject to such terms as the legislature might impose, but the creditors’ rights in this case being constitutional, cannot be restricted by terms imposed by the legislature. If the receiver can enforce this liability against the stockholders then the decree must be binding on the creditors and payment to the receiver will discharge the stockholders. The stockholders cannot be compelled to pay unless their payment discharges the liability. Therefore the statute provides for the collection by a stranger of the individual debt due the creditor and the discharge of the debtor without the creditor’s consent. In the case of corporations other than banks the stockholders or a stockholder may file a bill for the winding up of a corporation in case of insolvency, but such a suit by a stockholder is expressly forbidden in the case of banks by section 11 of the Banking act, and only the Auditor of Public Accounts, represented by the Attorney General, can file a bill to wind up the affairs of the bank. The creditors have no control over such suit and are not parties to it, except as they may become parties by making proof of their claims. The Auditor represents the creditors only so far as the assets of the bank are concerned. The receiver acquires title, through the corporation, to corporate assets, only, and as to such assets he represents the creditors but not in relation to their individual property. The creditors have a right to pursue and control their own remedies in regard to their own individual property, and did begin a suit for the enforcement of the stockholders’ liability. It is an unauthorized interference with the rights of the creditors to authorize the collection of the indebtedness due to them individually by a stranger, and with the rights of the stockholders to compel them to pay to a stranger when the legislature has no authority to make the receipt of the stranger a discharge of the debt. Section 11 is invalid in so far as it authorizes the enforcement of the liability of stockholders to creditors by the receiver.

' The bill and cross-bill are multifarious. This objection was made and overruled in the circuit court. We would not, after a full hearing on the merits, reverse the decree for that cause, alone. Since the decree is to be reversed for other reasons we pass upon this question. Much latitude is allowed to the sound discretion which may be exercised in determining whether causes of action or parties, or both, are properly joined in a single bill. We have already said that the joinder of all the creditors and all the stockholders is permissible. The case against the stockholders is, however, distinct from that against the Central Trust Company. The creditors are interested in both but on different grounds. In the one they seek the recovery of the capital stock of the cprporation; in the other the enforcement of an individual liability in their own favor, and the evidence and grounds of recovery are different. The Central Trust Company and the stockholders are interested in their own respective cases, only, while the receiver is concerned only with the case against the Central Trust Company. The creditors and the receiver may join in the suit against the Central Trust Company if they desire to do so. The question of multifariousness is, however, to a great extent one of convenience in the conduct of the case. Since the separation of the two cases after they have been pending so long and after a hearing would be attended with much inconvenience and expense such separation will not be required, but an order should be made on the remandment of the cause for a separate hearing of the case as to the liability of the Central Trust Company and as to the liability of the stockholders. The cause in each of its branches is of such a character as involves the examination of complicated accounts and matters of detail, and there should be an order referring the case as to the liability of the stockholders who were such during the existence of the bank but not at the time of its suspension, and as to the liability of the Central Trust Company, to different masters.

Paul F. Beich, who was the owner of 40 shares of stock in the trust and savings bank, sold them on December 23, 1913, for a full and valuable consideration, to the Midland Casualty Company, an Illinois corporation, and delivered the certificate indorsed in blank, with power of attorney authorizing the holder to cause the stock to be transferred on the books of the bank. The Midland Casualty Company has since retained the certificate and the stock was never transferred. The decree found Beich liable as a stockholder on June 12, 1914, as the last holder of the 40 shares of stock. Beich has appealed from this decree. Section 6 of the Banking act declares the liability of stockholders as fixed by the constitution, provides for a public record of all the stockholders, with the number of shares held by each, and requires a certificate of all transfers to be recorded not later than ten days after such transfer. The object of this record is to give information as to the names of the stockholders, and persons dealing with the bank have a right to rely upon the list of stockholders shown by the record. The stock can be transferred only on the books of the association, and only those persons have the rights and liabilities of stockholders who appear to be such on the books of the association. The stockholder registered as such on the books of the bank can be relieved from liability only by a transfer of his stock on the books. (Richmond v. Irons, 121 U. S. 27.) At least he must comply with the requirements for such transfer and make a demand upon the officials of the bank that it be made.

Shares of stock were issued to some of the appellants either as brokers, to be held for the benefit of their customers, or as pledgees, to secure advances of money, and on their appeals it is insisted that the persons to whom the shares were so transferred, though appearing on the books of the bank as stockholders, are not subject to liability as stockholders on that account. These questions have been decided adversely to the appellants in the cases of Sherwood v. Illinois Trust and Savings Bank, 195 Ill. 112, and Wheelock v. Kost, 77 id. 296. A creditor is entitled to hold him liable as a stockholder who appears on the books of the corporation to be the legal owner of the stock. This proposition disposes of the assignments of error of the appellants A. E. Butler, Harris, Winthrop & Co., F. M. Zeiler & Co., Zeiler, Fairman & Co., Paul W. Cleveland, Alfred C. Gary, Henry D. Sturtevant, Elmer Wilson and Frank Celia, except so far as they were held liable for debts accruing prior to the transfer of the stock to them, respectively.

John Burnham & Co. was held liable upon shares of stock in its name on the books of the bank at various times. It is a corporation organized under the laws of the State of Maine, with authority to purchase, own, hold and sell real estate, bonds, stocks, securities, notes and obligations of any corporation, association, society or company; to own, trade and deal with personal property of every description; to carry on a general brokerage and commission business; to act as agent and trustee, and to exercise many other powers. It is licensed to do business in Illinois, the license expressly authorizing it, among other things, to do a general brokerage and commission business, buy, sell and deal in bonds and other corporate securities, and to buy, sell or otherwise deal in corporate stocks upon a commission basis. A domestic corporation is not authorized to hold stock in another corporation, and a foreign corporation can exercise no powers in this State which cannot be lawfully exercised by a domestic corporation. (Dunbar v. American Telegraph and Telephone Co. 238 Ill. 456.) Therefore the license to John Burnham & Co. did not authorize that corporation to buy, sell or hold in the State of Illinois stock in another corporation. The purchase of such stock and its transfer to John Burnham & Co. were ultra vires and void. In Converse v. Emerson, Talcott & Co. 242 Ill. 619, we held that if the act of a corporation in subscribing for the stock of another corporation is beyond its powers the transaction is void and the corporation may make the defense of ultra vires to a suit brought to enforce against it the statutory liability of a shareholder in the other corporation. In that case the corporation which was sued was an original subscriber of shares in the Minnesota Thresher Manufacturing Company, and had held such shares, which it had fully paid for, twenty-one years, during which time it appeared on the records of the thresher company as a stockholder, but the defense of ultra vires was allowed and it was relieved of the stockholder’s liability. In a suit against a national bank on substantially identical facts, to enforce its statutory liability as a stockholder in the same corporation, the Supreme Court of the United States sustained the same defense. (First Nat. Bank v. Converse, 200 U. S. 425.) The latter court in previous cases had laid down the same rule. (California Bank v. Kennedy, 167 U. S. 362; Concord First Nat. Bank v. Hawkins, 174 id. 364.) The liability of the stockholders to the creditors, though created by the constitution, is based upon contract. A person who becomes a stockholder assumes a primary liability to the creditors of the corporation to an amount equal to his stock. He offers to become liable individually to the amount provided by the constitution, and is bound by contract to all persons contracting with the corporation. (Bell v. Farwell, 176 Ill. 489; Morawetz on Corporations, sec. 870; Thompson on Corporations, sec. 4790; Cook on Corporations, sec. 223.) The ownership of stock in the bank being beyond the power of John Burnham & Co., the contract was ultra vires and void, and the corporation was entitled to defend on that ground against an alleged liability on account of such supposed ownership, and the defense should have been sustained.

N. Crandall was a member of the firm of George H. Burr & Co., dealers in commercial paper. All the other partners were non-residents and were not served. Occasionally, upon request, they buy stock for a responsible customer. On March 12, 1913, Conrad, a salesman in the employ of the firm, at the request of P. M. Hanney purchased 100 shares of stock without the knowledge of the firm. Hanney was unable to take the stock and pay for it but did take 50 shares of it within three or four days, and the other 50 shares were sold on his account a few days later. Conrad’s express instructions forbade him to put stock in the name of the firm, but this stock was transferred on the books of the bank to Burr & Co. Crandall learned of the purchase the next day, and a commission was received by the firm from Hanney of $25 for the purchase of the stock and $12.50 for its sale. This was a ratification of Conrad’s purchase, and the firm was properly treated as a stockholder during the time the stock stood in its name.

What has been already said applies to the appeals of the other appellant stockholders and disposes of the questions made on their assignments of error.

Some of the appellant stockholders rely upon the provisions of section 23 of the general Corporation act, which provides that no person holding stock in any corporation as executor, administrator, conservator, guardian or trustee, and no person holding such stock as collateral security, shall be personally subject to any liability as stockholder of such corporation, but the person pledging such stock shall be considered as holding the same and shall be liable as a stockholder accordingly. The bank was not, however, organized under that act. The liability of its stockholders is declared by section 6 of the Banking act, in accordance with the constitution. Section '23 of the general Corporation act cannot apply to banking corporations, for the .further reason that section 5 of article 11 of the constitution provides that no act of the General Assembly authorizing or creating corporations or associations with banking powers, whether of issue, deposit or discount, nor amendments thereto, shall go into effect unless the same shall be submitted to a vote of the people at the general election next succeeding the passage of the same and be approved by a majority of all the votes cast at such election for or against such law, and that section has never been so submitted.

Other stockholders insist that the transfer to them of their stock was not recorded in the recorder’s office during the time they held the stock, and that therefore they were not stockholders of record and cannot be held liable as such stockholders. The record by which it is determined who are the stockholders of the bank is the record of the bank itself. The record in the recorder’s office is a convenient method of giving notice to the public, and the law allows a period of ten days within which the transfer on the records of the bank may be filed for record in the recorder’s office. The stockholders are held liable, not because of actual notice to any particular creditor that any particular person is a stockholder, but because the law imposes the liability, -and the record in the recorder’s office is for the convenience of persons dealing with the bank in ascertaining who are the stockholders.

It is also contended that the Central Trust Company paid for the capital stock of the trust and savings bank, and never having transferred any of it on the books of the bank, was, in fact, the owner of all the stock, and that the persons sued as stockholders in this case cannot be regarded as stockholders. The act of the Central Trust Company was not a subscription to the capital stock of the bank or a payment for it. The character of that transaction has been already considered.

Some of the stockholders also prayed an appeal to the Appellate Court, which was denied, and they insist that this was error. The complainants and cross-complainants having prayed and perfected their appeal to this court, the stockholders, if they desired to appeal, were bound to take their appeal to the same court.

A decree was rendered against the executors of the will of Isaac L. Ellwood for $5000 as the last holders of 50 shares of stock. Ellwood, at the time of his death, owned 50 shares in the national bank. He died in 1910, leaving a will containing the following provisions:

“Second—I give, devise and bequeath all of my property, of whatsoever kind or nature, either real, personal or mixed, or wheresoever situated, whether owned by me now or acquired by me hereafter, to my executors hereinafter named, in trust, however, for the following uses and purposes and with the power and authority hereinafter given them: (a) My said executors shall have full power and authority to sell and dispose of any and all of my property, except such as is hereinafter specifically disposed of, either at public or private sale, at their discretion, meaning hereby to give to my said executors full power and authority to manage and control said property as they may in their judgment deem for the best interest of my estate until the same is finally disposed of and distributed as hereinafter directed. And I direct that my said éxecutors shall within ten years from the time of my decease dispose of said property and make a distribution hereunder fully carrying out the provisions of the trust herein created, and that the same be done in less time if in the judgment of my said executors the same is practicable and may be done without injury or prejudice to my estate.”

William L. Ellwood, Erwin Perry Ellwood and Albert Wallace Fisk were the executors. Upon the organization of the trust and savings barde a written agreement was made agreeing to exchange the 50 shares of stock in the national bank for 50 shares in the trust and savings bank, and appointing Charles E. Ward attorney to perform all necessary acts in relation to the transfer. Though this agreement purported to bear the signatures of all the executors, the names were, in fact, all signed by one of them. Upon the organization of the trust and savings bank a certificate for 50 shares was issued to the estate of Isaac L. Ellwood. It is argued that executors have no authority, unless empowered by the will, to invest the funds of the estate in the stock of a private corporation. (White v. Sherman, 168 Ill. 589; Penn v. Fogler, 182 id. 76.) In the last case cited it was held that in the absence of specific directions in the will a trustee should invest trust funds in real estate or government securities, or if acting under the direction of the court, in such securities as it may approve, and that a trustee of a trust fund invested in national bank stock was not justified in continuing the investment in a private banking partnership which succeeded the national bank on the surrender of its charter. The executors are given power and authority by the will to sell and dispose of the testator’s property, “meaning hereby to give to my said executors full power and authority to manage and control said property as they may in their judgment deem for the best interest of my estate until the same is finally disposed of and distributed as hereinafter directed,” and distribution is directed to be made within ten years from the testator’s death. The will contains no power to invest in bank stock and no direction as to the kind of investment. The management and control which the executors are authorized to exercise are such as a trustee, without special authority in the instrument of his appointment, may exercise, and their power of investment is limited to investments in real estate or government securities. Since the executors were without power to invest in the stock they were without power to impose upon the estate the liability of a stockholder, and the estate therefore cannot be held liable.

Elbridge Hanecy was decreed to pay $5000 as the owner of 50 shares of stock. He owned 50 shares in the national bank, which he subscribed and paid for. He was informed by the promoters of the trust and savings bank that it was necessary to pay his subscription for stock in that bank in cash, and he did pay therefor the full amount of $6250. The liability of the stockholders is to the creditors of the corporation, and it cannot be satisfied by payment to the bank. The double payment for his share of stock created a liability for the re-payment to him of $6250, which is a valid claim against the bank but does not affect the right of the creditors to enforce the individual liability in their favor created bj^ the constitution.

The appellants assign as error the failure to adjudge costs against the appellees, but this assignment need not now be considered.

The decree requires the stockholders to pay to the receiver appointed in the Auditor’s suit the various amounts for which they were held liable. Since we have held such receiver is not authorized, by section 11 of the Banking act, to enforce the liability of stockholders, the decree is erroneous in this respect. The order should be for the payment to a receiver to be appointed under the creditors’ bill.

The decree will be reversed as to all the parties and the cause will be remanded to the circuit court, with directions to order the payments for which the parties who were stockholders at the date of the suspension of the LaSalle Street Trust and Savings Bank, on June 12, 1914, are found liable, to be made to a receiver to be appointed under the bill filed by the creditors, and for further proceedings in accordance with this opinion.

Reversed and remanded.