Statement of the case.

contract to his subscription, is allowed by the directory to surrender his stock, and take back the assessments paid by him, in fraud of the other stockholders, any such stockholder so injured may, by bill in equity, have the money so withdrawn refunded, and the stockholder so withdrawing declared liable on his subscription, in any and all assessments, the same as other subscribers.

WRIT OF ERROR to the Superior Court of Cook county; the Hon. T. D. MURPHY, Judge, presiding.

The bill of complaint, in this case, was exhibited on the 31st of July, 1873, by the complainants, as stockholders in the Lamar Insurance Company, of Chicago, on behalf of themselves and all others similarly situated, against the company, William H. W. Cushman, Isaac N. Hardin, and others.

It charges, in substance, that the officers of the company, and Cushman & Hardin, who were bankers in Chicago, were guilty of collusion and fraudulent conduct, prejudicial to the rights and interests of the other stockholders, more especially in this, that Cushman & Hardin having, in September, 1869, subscribed for and taken a large amount of the shares of said company, to-wit: 5500 shares, and paid for the same in the usual way, were afterwards permitted to and did surrender all of said shares, and withdraw from the company all the money and assets, which had been paid by them therefor; that they were at the time officers of the company, Cushman being the treasurer, and Hardin vice-president; and that their acts were in bad faith towards the other stockholders; that in addition to the money and assets ($110,000,) so withdrawn by Cushman & Hardin, upon the surrender of their stock, they also withdrew the further sum of $70,000 from the assets of the company, and appropriated the same to their own use; that judgments were recovered against the insurance company, and executions being returned unsatisfied, a receiver of the company was appointed under a creditor's bill filed against the company and others; that the terms of payment for stock, as provided by the by-laws of the company, were 5 per cent cash, and 15 per cent in three equal installments, in three, six and nine months from date of subscription; the remaining 80

Statement of the case.

per cent being included in what is called a stock note, subject to payment upon calls made by the board of directors; that the receiver, under order of the court, had made a call of 20 per cent upon the stockholders, but that he ignored Cushman & Hardin as stockholders for the 5500 shares, which had been issued to them, and their liability to refund the moneys withdrawn by them from the company; that there is a large amount of the first installment of 20 per cent unpaid upon stock subscriptions; that others of the defendants have moneys belonging to the company, and that all these sums, including the moneys withdrawn by Cushman & Hardin, ought to be collected and applied to the payment of the debts, before resort is had to an assessment upon the stock.

The prayer of the bill is that Cushman & Hardin be required to refund the money withdrawn by them, and that they be compelled to take the position of stockholders in respect to the 5500 shares of stock which they surrendered, etc.

Cushman & Hardin's answer claims that the money by them withdrawn from the company was in payment of a loan; that they only held the 5500 shares as security, upon which they advanced the $110,000; that the $70,000, withdrawn by them, was also a loan; and they make an exhibit to their answer a copy of the contract, under which they received the 5500 shares, and paid the $110,000 in money and securities to the company. They also claim that the stockholders, at a meeting in May, 1871, ratified and confirmed the action of the officers and directors of the company, including the surrender of stock and withdrawal of moneys, and that a committee of the stockholders, at that meeting, fully released and discharged them from all liability in respect to the transactions complained of in the bill.

Exhibit A, before mentioned, of the answer of Cushman & Hardin, commences by reciting that the Lamar Insurance Co. began business, relying upon sale of its stock for a supply of capital to insure payment of its losses, and has, up to date, sold about $550,000; that its liabilities are about $6,000, and its assets from stock subscriptions, now being paid and falling

29-80TH ILL.

Statement of the case.

due within nine months, are about $80,000; that the Auditor requires of the company the ownership of $100,000 in acceptable securities, and that, although his demand is unlawful and could be successfully resisted, yet litigation would ruin the credit of the company, and they have concluded to sell stock to enable them to comply with the Auditor's requirements; that Cushman & Hardin, bankers of Chicago, have been induced to advance means to enable the company to comply with the law. The contract then proceeds: "Now, therefore, this contract, made this 16th day of September, A. D. 1869, between the Lamar Insurance Company, by Leonard Swett, its president, party of the first part, and Messrs. Cushman & Hardin, party of the second part, witnesseth, that the party of the second part does hereby agree to subscribe for and purchase 5500 shares of the capital stock of said company, and to pay therefor, to said party of the first part, the sum of $550,000, as follows, to-wit: $35,000 in cash, and $75,000 in such first mortgages or other securities indorsed by the said Cushman & Hardin, as shall be acceptable to the Auditor of the State of Illinois, and such as shall be accepted by said Auditor as a proper security to be held by said company to insure the payment of its policies, and in compliance with the General Insurance Law of the State of Illinois, and the remaining 80 per cent of said stock, not paid as aforesaid, shall be subject to a call of the stockholders of said company, under its charter and by-laws.

"And whereas, in the ordinary course of the sales of its capital, said company exacts a payment of 5 per cent, and receives the bond of the stockholders without security for the remaining 15 per cent, in three, six and nine months, it is hereby agreed between the parties hereto, that in consideration of the aforesaid subscription, and the prompt payment of the 20 per cent as aforesaid, said company will pay said Cushman & Hardin the sum of $11,000, which payment shall be in 20 per cent paid stock. at 14 per cent discount, being considered the cost of selling the same, and 80 per cent upon the same being subject to the call of the stockholders aforesaid. That is, in

Statement of the case.

payment of said $11,000 said company agrees to issue to said Cushman & Hardin 591 shares of said stock, with 20 per cent paid, and $25 in cash.

"And whereas, the said subscription may be larger than said Cushman & Hardin may desire to hold permanently, and, whereas, the said company have the authority, under their charter, to issue and sell five millions of its capital stock, and are now selling the same at the rate of 2000 shares a month, it is hereby agreed by and between the parties hereto, that at the expiration of one year from this date, at the election and request of said Cushman & Hardin, the said company shall resell, and place in the hands of other purchasers, such portion of the stock hereby subscribed for and purchased, as the parties of the second part shall desire, and without any expense to said Cushman & Hardin, and the said company hereby guarantees that the said re-sale shall equal in its net proceeds the amount of money and securities paid by said Cushman & Hardin, under this contract, and in the event of such re-sale said company shall re-pay to said party of the second part the full amount of money paid by them under this contract, and shall return to them the securities also paid under this contract, which shall be accepted by said Cushman & Hardin in full payment of all liabilities of said company to them. Or, if said party of the second part shall prefer, said company, upon demand at the expiration of one year from the date hereof, shall re-purchase any portion of said stock which Cushman & Hardin shall demand, and shall pay them for the same the amount paid by said Cushman & Hardin, without interest, and shall refund to them the securities received by said company, in payment for the subscription aforesaid, which sum of money repaid and which securities returned, as aforesaid, shall be in full discharge of all liabilities under this contract.

"If the said parties of the second part shall desire to have re-sold, or to have the company re-purchase any portion of said stock, less than the full amount subscribed for and purchased as aforesaid, the said company hereby agrees to re-sell or re-purchase the amount named by said parties of the sec

Statement of the case.

ond part, in which event the company shall repay a pro rata amount of the money or securities paid under this contract. "It is also agreed that all moneys of said company, as soon as received, shall be deposited with said Cushman & Hardin, as bankers, from which deposits the company shall check out whatever amounts are necessary to the successful prosecution of its business, and the surplus, whenever the amount shall reach $30,000, the company shall, if desirous of doing so, check out, and invest all but $10,000 in such securities as the party of the first part shall deem for the best interests of the company. Such securities, when purchased, shall be deposited with the treasurer of the company.

"If, at the expiration of one year from the date hereof, said Cushman & Hardin shall not request the re-sale and re-purchase of said stock, or some portion thereof, then said company shall be discharged from all liability under the contract.

“And, whereas, said company hopes to be able, if Cushman & Hardin desire it, to re-purchase any or all of said stock before the expiration of the year from this date, it is therefore agreed that if Cushman & Hardin shall desire to close the transaction before one year, the company will, at any time hereafter, take up any of said stock, when they can, in small quantities, provided they can do so consistently with their obligation to their policyholders, and with due regard to the proper management of said company.

"In the event of a re-sale or a re-purchase by the company of all or any portion of the stock subscribed for, under this contract, the company agree, in repaying the securities, to account for any interest which they may have collected upon the The subscription and purchase named in this contract shall be made within ten days from this date. "Dated at Chicago, September 17, 1869.

same.

Signed,

LEONARD SWETT, Pres't.

CUSHMAN & HARDIN."

The memoranda indorsed upon said contract are to the following effect: