194 U.S.

18
24 S.Ct. 558
48 L.Ed. 857

EDWIN F. BROWN, as Receiver of the People's National Bank

of Denver, Colorado, Appt.,
v.
GEORGE C. SCHLEIER and the People's National Bank of
Denver, Colorado.
No. 188.
Argued March 17, 18, 1904.
Decided April 4, 1904.

This suit was brought by the predecessor of appellant in the circuit court
of the United States for the district of Colorado to set aside a lease of
certain lots in the city of Denver, Colorado, and the subsequent surrender
and cancelation of said lease, as ultra vires of the power of the National
Bank of Denver, and for an accounting, and that the amount found due on
the accounting be decreed a prior lien upon the lots and the building
erected thereon by the bank. The case was presented upon bill and
demurrers. The demurrers were sustained and the bill dismissed. 112 Fed.
577. The ruling was affirmed by the circuit court of appeals. 55 C. C. A.
475, 118 Fed. 981.
The People's National Bank of Denver was incorporated on the 1st of
August, 1889, as a national bank under the national banking act. Its
capital stock was $300,000, and its corporate existence to be twenty years.
In September, 1889, the appellee Schleier was the owner of lots 1, 2, 3,
and 4 in block 75 in the city of Denver, and on that day made a lease
thereof to the bank for the period of ninety-nine years from the 1st day of
November, 1890, with an option to extend the term for a further period of
fifty years, at an annual rental of $13,975, payable monthly. The bank
covenanted to remove, at its expense, buildings located on the lots within
a designated period, and to erect thereon a building four stories in height,
at a cost of not less than $100,000, which should at once become part of
the realty. The bank also covenanted to keep the building and premises in
repair and pay all taxes thereon. And it was covenanted that in case of
default in the payment of rent, taxes, or performance of other conditions,

for the period of fifteen days, Schleier should have the right after thirty
days' notice, to sell and dispose of the lease and all the right and title of
the bank thereunder, or to maintain personal actions for the rent or texes
he might have to pay. The heirs, representatives, and assigns or successors
of the parties were entitled to the benefits of the lease and were to be
bound by its covenants.
The bank erected a building on the lots at an expense of $305,735.30,
completing the same January, 1891. The building contained necessary
offices for the use of the bank, which were occupied by it until it ceased to
do business. The building also contained other offices and rooms which
the bank rented to parties not connected with it, and to the People's
Savings Bank, a corporation organized under the laws of Colorado.
On the 19th of July, 1893, the bank being unable to pay its depositors, it
was placed in the hands of the Comptroller of the Currency, and one J. B.
Lazier was appointed receiver thereof, who remained in charge of its
affairs until August 21, 1893. On that day the bank agreed to make a
voluntary assessment to restore the impairment of its capital, and the
receiver was discharged. The directors and officers of the bank then took
charge of its business and conducted it until the appointment of the
receiver herein.
The bill alleges that the affairs of the bank were very 'much involved,
mixed, and commingled' with those of the People's Savings Bank, and by
reason thereof the latter was unable to proceed with its business, and made
a general assignment of its assets to Fermor J. Spencer, who has ever since
remained in charge and control thereof. As such assignee he sued the
People's National Bank and recovered a judgment for the sum of
$475,825.71, which has not been paid.
In January, 1897, the bank commenced to take steps looking to a
voluntary liquidation and surrender of its charter, and on or about the 27th
of April, 1897, the stockholders published a notice of the bank's intention
to go into liquidation, and fixed the 27th of June as the last day on which
claims could be presented. Prior to that day Spencer, having commenced
suit against the bank for an accounting and adjustment of the matters
between the banks, served a summons therein, and also having given
notice to the Comptroller of the Currency of the United States of the
claims and demands of the savings bank, an agreement was entered into
between Spencer and the People's National Bank, whereby he agreed to
refrain from taking any further steps in said suit until January 1, 1898,
without prejudice by reason of the delay. The bank on its part agreed, in

consideration of the delay, that it would 'take no further action of any kind
or nature whatsoever to the prejudice of the savings bank,' or any action
for the surrender of its charter or the disposal of its property, 'to the
prejudice of the savings bank.'
On the 20th of September, 1897, the People's National Bank called and
gave notice of a special meeting of its stockholders, for the purpose of
considering the proposition to turn over its building to Schleier, the owner
of the land, and at the meeting held October 27, 1897, in pursuance of the
notice, it was resolved so to do in consideration of a release by Schleier to
the bank and its stockholders from all liability which might thereafter
accrue under the terms of the lease. The lease was thereupon canceled and
the premises surrendered to Schleier. This is alleged by appellant to have
been in violation of the statutes of the United States, and contrary to the
principles of equity governing the distribution and disposition of assets in
the payment of dividends on dissolution of insolvent corporations.
It is also alleged, on information and belief, that the notice of the
stockholders' meeting stated that the income of the property was less than
the fixed charges, and that it was so stated at the stockholders' meeting by
the officers of the bank and by Schleier's attorneys and agents, but such
was not the case. On the contrary, it is alleged, on information and belief,
that the income of the property, even in the condition which the neglect of
the bank had brought it, was sufficient to pay the rents and all charges due
under the lease and keep the building in good order and repair.
The grounds of the demurrers were want of equity and laches. The
demurrers were sustained and the bill ordered to be dismissed.
The judgment of dismissal was entered December 30, 1901. On the 1st of
February, 1902, appellant tendered an amended bill of complaint and
moved for leave to file the same. The motion was denied. This action is
assigned as error as well as the ruling on the demurrers.
Messrs. James H. Brown and Harper M. Orahood for appellant.
Messrs. John M. Waldron, R. D Thompson, G. C. Bartels, J. H. Blood,
and John F. Shaproth for appellees.
Statement by Mr. Justice McKenna:
Mr. Justice McKenna, after stating the case, delivered the opinion of the
court:

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.
Comp. 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 lossan antithesis made much of in argument to distinguish between the
lease and an absolute conveyancewas 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.
5

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.