The opinion
Mr. Justice Carter, dissenting:
I concur in the reasoning and conclusion of the dissenting opinion of Mr. Chief Justice Craig in so far as it tends to hold that the Central Trust Company is not primarily liable. The questions involved in this case, however, are so important that I desire to state certain other facts which in my belief strengthen this conclusion. I wish especially to emphasize the fact that all the acts of the Central Trust Company officers in connection with the organization of the LaSalle Street Trust and Savings Bank were entered into and carried on by them in the utmost good faith. The record shows this clearly, and that seems to be conceded by the majority opinion, and, practically, also conceded by counsel for the complainants, and yet, under the conclusion of the majority opinion, the Central Trust Company is held liable to the same extent as it-would have been had it, through its officials, entered into the organization of the LaSalle Street Trust and Savings Bank with fraudulent purposes. In so holding, in my judgment, the majority must necessarily entirely overlook the fact that all the Central Trust Company did in connection with the organization of the new bank was performed by it in good faith, not for the purpose of evading, but in order to carry out, the requirements of the law, under the rules laid down by the State Auditor.
No question appears to have been raised by anyone before the organization of the LaSalle Street Trust and Savings Bank as to the absolute solvency of the LaSalle Street National Bank. It is true, as stated in the dissenting opinion of Mr. Chief Justice Craig, that it appears there had been some criticism by the United States comptroller’s office as to the management of said national bank, but the fact that there had been such criticism, as I understand the record, had never been made public and was known only to the directors of said national bank and the officials of the comptroller’s office. I do not find the slightest evidence in the record that the solvency of the LaSalle Street National Bank had ever been questioned. Everybody, apparently, before it transferred its assets to the trust and savings bank, assumed that the national bank was solvent. Very wide publicity had been given in the press of Chicago to the fact that the LaSalle Street National Bank was to go out of business and transfer all of its assets and business to the new LaSalle Street Trust and Savings Bank. Very wide publicity had also been given to the fact that no new money was going into the new State bank when it was organized and took over the assets of the national bank. These facts had been stated in a letter to the stockholders of both banks, and in a letter, also, to the depositors of the national bank. Substantially the same facts had been published at length in articles in the Chicago Tribune, Chicago Daily News and Chicago Evening Post. It is clear, therefore, that not only the officers of the LaSalle Street National Bank and of the new trust and savings bank, but all of the stockholders, had the fullest information as to the character and nature of the transaction between the two banks and the methods proposed to be used in transferring the assets from the older bank to the new one. The State Auditor’s office fully understood the proposed plan of making the transfer. According to the evidence the whole plan had been talked over with that office and approved before it was attempted to be carried out, and the Auditor’s office knew, beyond question, that the change from a national to a State bank was to be made by an exchange of stock and that no new money was to be put into the new State bank. The matter of the transfer had also been taken up with the United States comptroller’s office, and that office understood and sanctioned the method of transfer. The record discloses that these facts had been stated to Charles G. Dawes, the president of the Central Trust Company, when he was asked to furnish the cash to be counted by the Auditor’s representative at the time of the transfer. Beyond all doubt the Auditor’s representative was present when the transfer was made and the money was paid over to the officials of the LaSalle Street Trust and Savings Bank and when it was re-paid by the officials of that bank to the Central Trust Company, and he actually saw this money re-paid to the Central Trust Company and the cashier’s check of the LaSalle Street Trust and Savings Bank taken in exchange for the currency. Even if it had not been shown by direct evidence, clearly and positively, that this was done with the Auditor’s sanction and approval, the fact that this transaction took place in the office of the Central Trust Company and not in the office of the new trust and savings bank would, in itself, be ordinarily sufficient to indicate to the Auditor’s office that the currency offered as the paid up cash capital of the LaSalle Street Trust and Savings Bank was to be paid back at once to the Central Trust Company. It seems, also, from the evidence, that the State Auditor himself had suggested that this requirement of counting the currency was merely a technical one, but must be complied with, in accordance with the rule of his office, in order to obtain his approval of the proposed exchange. There is not a scintilla of evidence that indicates that the State Auditor was deceived in any way as to the character of the transaction, or that any scheme had been entered irfto by anyone to deceive him as to the nature of the transfer or the use to which the currency furnished by the Central Trust Company was to be put.
From these facts, which are uncontradicted in this record, it is clear that whatever was done by the Central Trust Company to assist in transferring the assets of the LaSalle Street National Bank was not calculated, on the face of the transáction or in reality, to deceive or defraud anyone ór in any way to try to evade the law. On the contrary, all these steps were taken with the full knowledge of both the State and Federal officials, and were manifestly carried on for the purpose of complying with the law and all the. requirements of the officials in connection with such transfer.
The majority opinion says: “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.” I cannot agree that the statute malees any such requirement. It is true that the rule of the Auditor’s office required that the full amount of the capital stock should be in the possession of the bank, in the shape of currency, so that it could be counted by the State Auditor, apparently to relieve the State Auditor of any responsibility as to the real value of the paid up capital stock. Section 5 of chapter 16a of our statute on banks provides: “When the directors have organized, as in section 4 of this act, and the capital stock of such association shall have been all fully paid in and record of the same laid before the Auditor, he shall by himself or some competent person of his appointment, make a thorough examination into the affairs of such association, and if satisfied the authorized capital has been paid in, and that the association has the full amount dedicated to the business, including proposed surplus, if any, * * * he shall give them a written or printed certificate under seal authorizing them to commence the business designated in section 1 of this act.” (Hurd’s Stat. 1916, p. 124.) It will be noted that this statute merely says that the capital stock' shall be paid in and does not provide how the payments shall be made. But even though the statute does require the construction that the capital stock must be paid in money, it surely does not contemplate that it must always remain money. I understand from the evidence in this record, under the law, that when a corporation, whether bank or otherwise, is to be organized, certain persons, as stockholders, usually subscribe for the capital stock and become legally liable to pay their subscriptions in full in cash. But the corporation does not wish to merely collect these subscriptions and hold them in its treasury. To do so would defeat the very purpose of the organization, for the business could not, in that way, bring in any profit. As fast as subscriptions are paid in; ordinarily they are used for the purpose of carrying on the business for which the organization was created. It frequently happens that a body of individuals owning property or business determine . to incorporate and to arrange that the corporation shall take over such property or business and issue to the former owners stock of the new corporation in place of such property or business, and thus follow out, in effect, the theory of the full payment of the stock subscription. In accordance with the practice of the State Auditor’s office, each one'of these stockholders would be required to pay his subscription in money. The" new corporation would then purchase the property or business from these subscribers and re-pay to them the amount of their subscriptions therefor. Both of these acts would be done practically at the same time, and if this be done, the money would actually be passed back and forth across the table to complete the transaction; and because of this, the courts have been more and more regarding the substance, and not the form, of the transaction in organizing a corporation. In Brant v. Ehlen, 59 Md. 29 , it was said: “The right of the company to purchase coal land for mining purposes and to pay for it out of the subscriptions to its capital stock is conceded. If so, what reason can there be to require that the money for the stock shall, in fact, be paid to the company and at the same moment to hand it back to the vendor in payment of the land ? The passing of the money backwards and forwards would be an idle form, and so the courts regard it.” This court said in Farwell v. Great Western Telegraph Co. 161 Ill. 522 , on page 532: “There have arisen much controversy and litigation as to whether payment for the issue of stock may be made by labor, property, work under contract, or valuable consideration other than money. It is not now questioned that it may be done in the absence of statutory provisions requiring payment to be made in cash.” In Searight v. Payne, 74 Tenn. 283 , the court said: “To go through the mere form of paying in the money and immediately paying it out for the property would not in any way facilitate the business or aid the after-creditors of the firm nor furnish them any additional security for their debts.” (See to the same effect the Spar go case, L. R. 8 Ch. 407; Harvey Watts Co. v. Worcester Umbrella Co. 78 N. E. Rep. (Mass.) 886; 10 Cyc. 472.) Under the authorities in this and other jurisdictions it is customary and legal for a new corporation to organize and take the payments of the subscription to the capital stock, partly or all, in the property or business of individuals or of another concern. There was, therefore, nothing extraordinary or uncommon in attempting to organize the LaSalle Street Trust and Savings Bank bj^ having its subscriptions to the capital stock paid by the assets and business- of the LaSalle Street National Bank, and the mere fact that this was being done without paying in any new cash would in no way put the officials of the Central Trust Company on inquiry that anything was being done irregularly, or that the LaSalle Street National Bank was not solvent, or that the entire transaction was not of a bona fide character and entered into in good faith by all connected therewith.
But conceding, for the purpose of this case, that the law requires, as intimated in the majority opinion, that the stock must all be paid in cash and that the officers of the Central Trust Company knew that to be the law, that fact would in no way weaken the conclusion, on this record,. that the entire transaction, so far as the Central Trust Company was concerned, was performed in good faith. Experienced bankers of Chicago testified on this trial that when a new bank was organized for the purpose of beginning new business, with no intention of taking over the assets of another institution, methods practically similar to those adopted here have often been followed; that ordinarily the capital stock was subscribed for by a large number of persons, who send to the officers of the bank, or those in charge of its organization, their checks 'drawn on various other banks for the amount of their subscriptions to the capital stock. These checks are not currency. They are credits, since the relation between a bank and its depositor is merely that of debtor and creditor. These checks, however, are regarded and usually called cash in the ordinary commercial world. After all the subscribers have thus paid for their capital stock the Auditor appears for his preliminary examination and informs the organizers of the bank that these checks, although they may be perfectly good in the commercial world, will not be counted by him as the capital of the bank; that those who want to organize the bank must procure currency for these checks. Thereupon the organizers of the bank go to some large and well established banking institution and deposit these various subscribers’ "checks to the credit of the new bank. After this is done the new bank still has no currency, but merely one credit in a large bank instead of a number of credits' in various banks. The new bank then draws its check upon this large depositary bank and the money is produced for the representative of the State Auditor to count, and when the counting of the currency is completed it is immediately re-deposited to the credit of the new bank in this same depositary bank, so that when the new bank begins business, instead of having its capital and surplus in currency, it has it, according to the testimony of these witnesses, in the form of a credit in another bank, which credit is just as good as, and no better than, the responsibility of the bank in which the moneys are deposited. Now, if it is true that the Central Trust Company in this case must be held liable to the creditors for fraud, then by the same line of reasoning, where a new bank is organized as above outlined, any depositary bank in such a transaction as just outlined is violating the law in allowing the cash to be taken and counted by the State Auditor and having it then returned at once and giving a credit therefor to the new bank. It is apparent that all connected with this transaction knew of this practice as to the organization of a new bank, and that all connected with this transfer, including United States and State officials, understood that they were following the usual practice in counting this cash and allowing it to be returned to the Central Trust Company. It is manifest, therefore, that no one was attempting to evade the law or deceive the Auditor, or anyone else, by the use to which the currency furnished by the Central Trust Company was being put in connection with the transfer, in the organization of the LaSalle Street Trust and Savings Bank.
The majority opinion cites some seven or eight opinions in support of its reasoning that the Central Trust Company is liable on the facts stated in the record. The case of Hurd v. Kelly, 78 N. Y. 588 , fairly illustrates these several cases. In that case a bank was in financial difficulties or in a condition unsatisfactory to the public authorities. Bor the purpose of enabling the bank to continue its business certain persons delivered their obligations to the bank in order that such obligations might appear as a part of its assets. By reason of this the bank was enabled to go on in business and the public continued to extend it credit. The bank thereafter failed and a receiver was appointed. The makers of these obligations sought to repudiate them by claiming that they were executed without consideration, and the court held that while perhaps the bank itself might not recover under the obligations, the receiver, as the representative of the creditors, could. The difference between that class of cases and this is manifest, for in such cases the makers of such obligations were knowingly participating in an actual deception and apparently entered into the transaction for the purpose of deceiving the public officials, knowing that these obligations would be treated as a part of the assets of the bank. In this case how different are the facts! As already stated, there was no attempt to deceive and no thought of deceiving, and apparently by this record no one was deceived. To hold, as does the majority opinion in this case, that the Central Trust Company is liable under the circumstances, it seems to me, is to relieve the State officials of all duty and responsibility in such questions in deciding whether the actual assets of the older bank are worth the paid up capital stock of the new bank.
In view of the evidence in this record I cannot agree with the majority opinion that “all persons giving credit to 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.” It seems to me that here is an intimation, contrary to the facts in this case, that the Central Trust Company fraudulently assisted, for the purpose of deception, in procuring this certificate from the Auditor. The theory upon which the majority opinion is based, if that theory is sound in principle, is, it seems to me, that a subsequent creditor, having been misled by those connected with the organization of a bank, lent credit to the bank because he was so misled. But here is a statement in the majority opinion that even though such creditor has not been misled and knew the history of the entire transaction, still, in equity, the Central Trust Company, because it took part in the organization of the LaSalle Street Trust and Savings Bank, would be held Hable to such creditor. To so hold, it seems to me, is contrary to all principles' of equity and justice, especially the holding in the majority opinion that it is immaterial whether the Central Trust Company or its officers had any fraudulent intention or knew anything about the condition of the LaSalle Street National Bank or made any profit out of the transaction. This doctrine makes the Central Trust Company an insurer as to the actual assets of the LaSalle Street National Bank and all subsequent creditors, regardless of whether the subsequent creditors were misled or deceived by the part the trust company took in the organization of the LaSalle Street Trust and Savings Bank.
I can understand how it may be reasonable to conclude that because a bank is doing business that affects public interests public policy should require everyone connected with its organization to see' to it, for the protection of innocent creditors, that the actual stock is paid in full value, but I can conceive of no reason why a creditor should be protected by any such strict rules, on the grounds of public policy, if he understood fully as to the nature of the transaction and the part that all had taken in connection therewith. I can also understand why there might be reason, on grounds of public policy, for holding the Central Trust Company ultimately liable to innocent creditors who had been misled, but there does not seem to me to be any ground for holding the Central Trust Company primarily liable to all creditors, whether they had been misled or not. To so hold, as does the majority opinion, places the same responsibility upon the Central Trust Company as should be placed by law, and is placed under this decision, upon the stockholders of the LaSalle Street Trust and Savings Bank. Neither the Central Trust Company nor its officials occupied any fiduciary relation with reference to the creditors in the organization of the trust and savings bank. The stockholders did occupy such fiduciary relation. It was the duty of the stockholders to know all about the transaction, and it is apparent from this record that they did know all about it, and knew the part that the Central Trust Company took in transferring the assets of the old national bank and its business to the new State bank. It seems to me that there should be a clear distinction drawn between the actual participants—the parties in interest—and an outsider—a stranger—who does an act within the strict line of banking business to assist the real parties in interest. I see no reason, either on the grounds of public policy or on any other basis, why the stockholders should not be held to a greater responsibility than the Central Trust Company. Surely, the majority opinion is going too far in holding the Central Trust Company primarily liable, thereby, in effect, holding that said company was acting in a fiduciary capacity in advancing this cash. The' stockholders should first be primarily liable, to the extent of their constitutional liability, to all the creditors. If the Central Trust Company is held at all, it should only be held liable secondarily to innocent creditors for any such amount as it may not be possible to collect from the stockholders, but should, under no circumstances, be charged with greater liability than this. To hold, as does the majority opinion, the Central Trust Company and its officials primarily liable in this case is, it seems to me, going much farther than any well considered opinion has gone -heretofore and is disregarding entirely the difference between the responsibility of a person who occupies a fiduciary relation and one who is practically an innocent third party to a given transaction. This holding is far-reaching in its consequences, and will, in my judgment, if followed hereafter, involve many innocent persons in loss and do violence to all principles of equity.