Ohio History Journal

THE FAILURE OF THE OHIO LIFE INSURANCE

AND TRUST COMPANY, 1857

 

by MORTIMER SPIEGELMAN

Most writers on the economic history of the United States refer

to the Ohio Life Insurance and Trust Company as the institution

whose failure precipitated the panic of 1857. The failure is usually

attributed to depreciated railroad investments and the losses stated

in amounts as high as 7,000,000 dollars.¹ A search into the history

of this institution that played a leading part in the early financial

history of Ohio, however, brings out a somewhat different picture;

it shows that the failure was due much more to the inelastic cur-

rency of that period, adverse tax legislation, and gross mismanage-

ment.

The Ohio Life Insurance and Trust Company was organized in

Cincinnati in 1834 to bring outside capital into the state of Ohio.²

It was incorporated on February 12, 1834, by an act of the General

Assembly of Ohio,³ and the first board of trustees was elected

September 30 of that year. Most of the stock was subscribed by

nonresidents, as was desired, and an office was opened for business

in January 1835. The most prominent among the 35 incorporators

were Jacob Burnet, a former United States Senator; Calvin Pease,

a judge of the supreme court of Ohio; Allen Trimble and Joseph

Vance, former Ohio governors; and Alfred Kelley and Benjamin

Tappan, both connected with state internal improvements.⁴

The act of incorporation gave the company power to perform

the following functions:

 

1 Lester W. Zartman, Investments of Life Insurance Companies (New York,

1906), 129.

2 Report of the Special Master Commissioner in the Matter of the Ohio Life

Insurance and Trust Company, May 19, 1852 (Cincinnati, 1852). Referred to here-

after as Special Master Commissioner's Report, 1852.

3 The Charter and By-Laws of the Ohio Life Insurance and Trust Company

(Cincinnati, 1838).

4 Adelaide R. Hasse, Index of Economic Material in Documents of the States of

the United States: Ohio (2 vols., Washington, D. C., 1912), I, 262.

247

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248    OHIO ARCHAEOLOGICAL AND HISTORICAL QUARTERLY

1. to make insurance on lives

2. to grant and purchase annuities

3. to make any other contract involving interest or use of money

and duration of life

4. to receive moneys in trust, etc.

5. to accept and execute all such trusts ... as ... may be committed

by any persons . . . or order of court of record

6. to receive and hold land under grants, etc.

7. to buy and sell drafts and bills of exchange.

It is interesting to note that the first three privileges pertain to

what was then the new business of life insurance. However, the sub-

sequent history of the company shows that this became the least im-

portant part of the total business. According to the charter, capital

stock of $2,000,000 was required which had to be invested in bonds

and notes bearing interest not greater than seven per cent and

secured by unincumbered real estate within Ohio valued at least

double the sum loaned. It was permitted to establish agencies with-

out banking powers. Of the twenty members of the board of trustees,

five might be from outside of Ohio. Premiums and profits were to be

invested in federal, state, municipal, and industrial securities, but

not over $25,000 in stock was to be held in any one private company.

An annual statement of affairs was required by the supreme court,

which might recommend an investigation. Until 1843 bills and notes

might be issued to an amount equal to twice the funds deposited for

less than one year but not greater than one half the paid-in capital.

Should specie payment be suspended, or interest charged at more

than seven per cent, the charter would be declared forfeited. No

higher taxes were to be levied on the capital stock or dividends than

could be levied on other incorporated banks of the state.

In a report covering the results of an investigation of the com-

pany's affairs for 1836, Phineas B. Wilcox, who was appointed to

that duty by the supreme court, said that "the affairs of the institu-

tion have been and still are conducted with more than ordinary

ability," that the investments were believed to be "safe, prudent, and

productive," and that "those holding the present engagements of

this institution are safer than those holding the engagements of any

other moneyed corporation of the State."⁵ Thus the company was in

 

5 Second Report of the Master Commissioner in the Matter of the Ohio Life

Insurance and Trust Company, 1837 (Cincinnati, 1837).

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OHIO LIFE INSURANCE AND TRUST CO.                  249

 

a position to weather the panic of 1837, which began in May and

had effects lasting through 1843. However, shortly after the out-

break, the scarcity of specie made it necessary for this institution,

acting in conjunction with other banks in Cincinnati, to remain

closed from May 17 to June 14.

In his report Wilcox said, "There is a strong tendency to exer-

cise its banking powers." The implication is that this banking busi-

ness was at the expense of the insurance and trust department of the

business.

The annual statement for 1838 shows that twenty persons were

insured for $53,500 and paid $1,311.30 annually. Since the com-

mencement of business the total premiums were $4,921.75, while

deposits in the banking department were over $600,000.6 By 1850 the

number insured had increased to only 90, their total insurance being

$265,000 and their annual premiums $5,021.01. In that year

deposits in the banking and trust departments were nearly $2,000,-

000.7 The role of the company in the development of the life insur-

ance business in this country was indeed negligible.

Very soon after the company had opened for business in Cin-

cinnati, an agency of the banking department was established in

New York. At the start it was managed by the principal cashier,

and semi-monthly reports were required from it at the head office. A

letter by the president, Charles Stetson, dated June 5, 1848, stated

clearly the purpose of the cashier in New York:

He is placed there to receive and take charge of any bills of exchange,

or notes, payable in that city or vicinity, all deposits of money which may be

sent him by this company, or any other banking company, or individuals in

or out of this state, to pay checks or drafts which may be made upon him,

predicated on such bills of exchange, notes, collections, whenever they may have

matured in his banks.... He is also Transfer Agent of the State of Ohio....

Any funds in his hands, not wanted for immediate use, from whatever source

they may have been derived, he has authority to invest, in the manner set

forth in his instructions.⁸

 

6 The Fourth Annual Report of the Ohio Life Insurance and Trust Company,

1838 (Cincinnati, 1838).

7 "Annual Report of the Ohio Life Insurance and Trust Company Sub-

mitted by the Auditor of State to the House of Representatives in Answer to a Resolu-

tion, January 25, 1851," in 49th Ohio General Assembly, 1 sess., Executive Documents

(House), pt. 1, 610-632.

8 "Letter of the Auditor of State in Relation to the Ohio Life Insurance and

Trust Company, March 19, 1849," in 47th Ohio General Assembly, 1 sess., Executive

Documents, pt. 2, 133-144.

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250    OHIO ARCHAEOLOGICAL AND HISTORICAL QUARTERLY

 

The same letter also says "that this company have no agents, in or

out of the state of Ohio, to loan money, discount notes, etc." The

company had two trustees in New York to advise the cashier on

important matters. For the services of its cashier as transfer agent

of the state of Ohio in New York the company received $2,500 a

year.⁹

Since its inception the company had been paying to the state a

uniform tax of five per cent upon dividends.¹⁰ The first signal of the

future trouble with taxation problems was occasioned by the desire

of the state to decrease the circulation of small bills. With this pur-

pose in view the general assembly passed an act, dated March 14,

1836, increasing the tax on dividends declared by banks to twenty

per cent, with the provision that if they did not circulate bills or

notes less than three dollars after July 4 or less than five dollars

after July 14, 1836, the tax would be reduced to five per cent.11

The lesser rate of course was the preferable, and the circulation

of bills and notes under the stipulations mentioned in the charter

was practically discontinued long before 1843.12 It appears an at-

tempt was made to circumvent the restriction by selling drafts upon

itself, for a court decision in 1839 states that the section of the

charter granting the power "to buy and sell drafts and bills of

exchange confers no power to issue evidences of debt designed to

circulate as money."13

In the decade from   1840 to 1850 the state was often embar-

rassed financially. Many attributed this predicament to its liberal

policy in regard to internal improvements.14 It was natural, then,

that the new constitution of 1851 should contain a clause such as

this: "The property of corporations ... shall be subject to taxation,

the same as the property of private individuals." It was estimated

that this provision would triple the tax the company had been pay-

ing. On April 13, 1852, the general assembly passed a new tax law,

 

9 Report of the Master Commissioner in the Matter of the Ohio Life Insurance

& Trust Co. to the Judges of the State of Ohio, 1855 (Cincinnati, 1855).

10 Special Master Commissioner's Report, 1852.

11 Ibid.

12 Ibid.

13 Ohio Reports, IX (1839), 292.

14 William F. Gephart, Transportation and Industrial Development in the Middle

West (Columbia University Studies in History, Economics and Public Law, XXXIV,

New York, 1909), 149, fn.

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OHIO LIFE INSURANCE AND TRUST CO.                251

 

the tenth section of which stated, in effect, that deductions from the

total property listed might be made for outstanding obligations

"provided, that nothing in this section shall be so construed as to

apply to any bank, company or corporation, exercising banking

powers or privileges."¹⁵ Thus banks were taxed on their liabilities

in addition to their property. The company declined to pay taxes

under both these laws until its legal liability under them had been

established. There were two bases for its contention. First, the

charter had stated that no higher taxes should be levied than might

be levied on other banking institutions. It is difficult to see, however,

how this argument held because the tax laws applied to all banks.

Secondly, it was understood that by withdrawing the circulation of

small bills, pursuant to the act of March 14, 1836, the tax there-

after was to be only five per cent on dividends.¹⁶ However, a decision

was rendered subjecting the company to both these tax laws,17 and

it was the current opinion, therefore, that it would be necessary for

the company to wind up its affairs.¹⁸

An interesting situation arose out of the tax legislation. Samuel

Foote, a trustee resident in Connecticut, enjoined his fellow trustees

from paying taxes to the state, contending that the trustees in Ohio

failed to prevent the unlawful collection of taxes by the state, and

further, that he had no legal recourse against the state. It was de-

cided the claims were mere fictions on the part of the trustees to

evade the law and that the whole affair was a collusion.19

The report of the special master commissioner for 1852 sum-

marizes the profitableness of the company as follows:

Hitherto, the investment has been safe and the profits have been reason-

able: still the stock has not been as productive as is generally supposed, nor

as was probably anticipated. Dividends, when made, are made semi-annually

in January and July. They have not however been uniformly made. Losses

have been sustained which prevented it. The highest semi-annual dividend at

any time was 4 1/2 percent, the lowest 3 percent. The entire amount of

dividends declared, including that of January last, had been 105 1/4 percent,

 

15 Laws of Ohio, L, 141.

16 Special Master Commissioner's Report, 1852.

17 Ohio State Reports, I (1852-53), 563.

18 Bankers Magazine, IX (1854), 87.

19 Biennial Report of the Attorney General to the Governor of Ohio, January 1,

1854 (Columbus, 1854), 17-23.

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252    OHIO ARCAEOLOGICAL AND HISTORICAL QUARTERLY

 

or an average of less than 6 1/4 percent per annum. The earnings of the com-

pany, as its affairs are now conducted, may be fairly estimated at 8%.

Among the losses referred to was one of $400,000, in 1847, occa-

sioned by the failure of a firm in London.²⁰

It appears that the period from 1852 on was one of increasing

difficulty in operation, for the minority report of the committee on

finance to the Ohio Senate early in 1857 recommended:

1. an amendment of charter, authorizing an increase of capital stock,

to be used as banking capital.

2. an amendment restoring to the company the right to issue notes of

circulation.

3. a law directing that the company shall be taxed on its profits by the

uniform rate of 5 percent thereon, instead of the general levy on the grand

duplicate, as now.²¹

A review of certain economic events occurring in these years

may serve as a background for the panic of 1857. Briefly, prosperity

was induced by these conditions: the Mexican War which caused

abnormal expenditures; the discovery of gold in California; the

revolutionary disturbances in Europe which halted production there;

the famine in Ireland which caused an influx of cheap labor and

provided a market for wheat; an increase of exports to England

where free trade had recently been adopted; the extension of rail-

roads to the West; and the additional markets provided by the ter-

ritories acquired by the Mexican War. However, toward the end

of the period European conditions became normal and production

was resumed; the railroads were reaching into undeveloped terri-

tories; and gold discoveries, with the resulting inflation of the circu-

lating medium, stimulated too rapid industrial development. Govern-

mental revenue had been increasing so rapidly that it was necessary

to lower the tariff in 1857, and the increase in imports caused a

heavy drain upon the specie of the country.22 A contemporary,

describing the summer of 1857, stated that up to about August 8,

when the banks began to contract their loans, the reduction in loans

 

20 "Letter of the Auditor of State . . ., March 19, 1849," loc. cit.

21 "Minority Report of the Committee on Finance Relative to a Memorial of

the Ohio Life Insurance and Trust Company Asking Amendments of Its Charter and

a Law Taxing the Company on Its Profits," in 52d Ohio General Assembly, 2 sess.,

Senate Journal, LIII, 559-561.

22 James G. Blaine, Twenty Years of Congress: from Lincoln to Garfield (2 vols.,

Norwich, Conn., 1884-86), I, 197-198.

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OHIO LIFE INSURANCE AND TRUST CO.                   253

 

had been considered seasonal. The failure of a produce house, re-

ports of dishonest jobbing, and the misuse of funds in a railway

did not seriously disturb credit.²³ On August 24, the failure of the

Ohio Life Insurance and Trust Company was announced.

Several days before payment was suspended, the president

of the company was called to New York from Cincinnati and, after

consulting the cashier and trustees in the former city, made this an-

nouncement:

Office of the Ohio Life Ins. & Trust Co.

New York, August 24, 1857

The unpleasant duty has devolved upon me to state that this company has

suspended payment. The event has mainly been brought about in consequence

of making loans here to parties who are unable to respond at this time. I will

add that the capital of the company, $2,000,000, is sound and reliable,

exclusive of such loss as may arise from insufficiency of securities pledged

for loans above referred to.

C. Stetson, President24

Upon receipt of the news in Cincinnati, a further announcement

was made as follows:

Having very unexpectedly received advices from  New York that the

office of this company had suspended this day, the Board of Trustees deem

it expedient to close its doors and suspend payment until they can be fully

advised of the true situation and condition of that office. The Board of

Trustees also deem it proper to say to the public that they regard the means

of the company ample to meet all its requirements and that early attempts

will be taken to resume business.

By order of the Board,

S. P. Bishop, Ass't. Cashier

August 24, 185725

Various speculations and suspicions arose as to the true cause

of the failure, most of which concerned stock activities in New York

and mismanagement. The suspension of activities was not viewed in

the West with any alarm, for business conditions were considered

good.²⁶ In New York there was great excitement in the financial

 

23 James S. Gibbons, The Banks of New York, Their Dealers, and the Panic of

1857 (10th ed., New York, 1873), 344.

24 New York Times, August 25, 1857.

25 Cincinnati Daily Gazette, August 25, 1857.

26 Ibid.

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254    OHIO ARCHAEOLOGICAL AND HISTORICAL QUARTERLY

 

district where the failure was attributed to the company's activities

with railroad securities. Within four days attachments were granted

there as follows:

American Exchange Bank ................................ $ 446,969.26

Ocean  Bank  ..........................................................                                            140,000.00

Phoenix Bank .........................................                     35,875.00

Corn Exchange Bank .................................                                                     15,000.00

M ercantile  Bank  .....................................................                                       2,322.00

Bank of America ...................................... 5,000.00

Robb, Hallett &  Co   ...........................................                                           23,264.94

Ingoldby, Halstead et al. ..............................                                                        316.93

Stebbins  and  Bloodgood  .......................................                                     20,000.00

Edward, Nathaniel & Edw. Jr. Prince .................70,393.00

Brown  Bros. &  Co. .........................................                                                100,000.00

Abernathy, Collins, Sullivan & White ................                                            563.00

Alex. Dennistown et al..............................                                                      73,166.67

Franklin Branch of State Bank of Ohio ..............                                        59,000.00

Bank  of  Georgia  .................................................                                            22,350.83

Western Reserve Bank ............................                                                        63,428.25

M erchants  Bank  .....................................................                                        1,948.89

Total .............................    $1,079,598.7727

To substantiate the claims of strength in the announcements of

the 24th, this statement was published in Cincinnati newspapers:

Official Statement of the Principal Office

of the Ohio Life Insurance & Trust Co.,

Cincinnati, August 26, 1857

 

Being as yet without any explanation of the condition of the agency

in New York from any reliable source in that city, the trustees in Cincinnati

deem it due to the public to make the following statement of the affairs of the

principal office. This statement the trustees regard as entirely reliable and a

fair and just estimate of the means of the company here.

 

Means

Loans, Trust             DepT. ......................................................$2,296,102.47

"   Banking         ..................................................................                                                     1,838,996.23

Real estate ................................................  243,605.20

 

27 New York Tribune, August 26-28, 1857.

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OHIO LIFE INSURANCE AND TRUST CO.                       255

 

Nominal               Cash

Value          Value

County and city bonds ................................      $121,150    $101,936

Cin., Ham. & Dayton R.R. Bonds ...........          200,000      164,000

R. E. Junction Bonds ...................................     125,000      125,000

Other R.R. Bonds .......................................      110,500      58,524

Cin., Ham. & Dayton R.R. Stocks ...........         31,500        20,475

Other reliable stocks ....................................21,900             21,900        491,835.00

Due from other banks     .............................                                            158,196.48

Cash  on  hand  ..................................................                                     249,792.00

 

$5,278,527.38

 

Liabilities

Circulation  ...................................................  $  4,040

Deposits, Banking Dept. ............................ 1,191,098

, Trust Dept.    ....................................    798,488

Due to N. Y. Agency ...................................     652,895

"    other banks .........................................     192,515

Dividends unpaid ........................................      94,806  2,933,842.00

 

Excess of means over liabilities (excl.

capital)  ....................................              $2,344,685.38

By order of the Board of Trustees,

S. P. Bishop, Ass't Cashier28

 

The truth of the statement depends, of course, upon the valua-

tion of the assets, especially at a time when business conditions

were becoming unsettled. It should be remembered that this state-

ment does not contain the liabilities of the New York office. Acknow-

ledgment of inability to continue the business was not long in

coming.

Ohio Life Insurance and Trust Co.

Cincinnati, September 26, 1857

 

The Board of Trustees being satisfied by the pressure of the unexpected

circumstances which surround them, that they cannot discharge at this time

 

28 Cincinnati Daily Gazette, August 27, 1857. Quotation edited and revised by

the author.

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256    OHIO ARCHAEOLOGICAL AND HISTORICAL QUARTERLY

 

all their obligations, and yielding to a sense of duty, have made an assignment

of the assets of this institution to Chas. Stetson, John C. Wright, Samuel

Fosdick, Samuel Broadwell, Abraham Taylor, George Crawford and Clement

Dietrich.                              S. P. Bishop, Ass't Cashier29

All of the men named as assignees were on the board of

trustees. The supreme court was notified of the act of assignment

and the corporation was dissolved.³⁰

Some light on the manipulations of the office in New York may

be gathered out of the case of the Merchant's Bank of Cleveland vs.

the Ohio Life Insurance and Trust Company. The action was to

recover $157,852.64. It was alleged the company had bills and notes

for this amount in New York in August 1857 which were to be held

for collection for the bank, and that without authority the company

pledged and hypothecated them for its own use, thus placing them

out of the power of the bank. The court agreed that "a very wrong-

ful and improper act may have been committed."³¹ In the case of

Dennistown, Wood & Co. vs. Merchant's Bank of Cleveland, the de-

fendant, being sued as endorser, claimed the notes were fraudulently

put in circulation by the Ohio Life Insurance and Trust Company.³²

For almost a year following the failure no record was found of

any activity on the part of the self-appointed assignees toward

liquidating the assets of the company. By the time of the anniversary

of the failure the inactivity of the assignees was openly commented

upon, and by the 31st of August it was admitted to the creditors:

The assignees may never be able to ascertain the exact truth connected

with the property covered by the assignment but as soon as these vexatious

law suits are determined, and the assignees can convert the assets under their

control, they will be able to close up the trust.

The same report contained a detailed account of assets and

liabilities at the New York and Cincinnati offices, it being specifically

stated, however, that these were estimates. Their condensed statement

showed a shortage of $1,200,000.

 

29 Cincinnati Commercial, September 28, 1857.

30 Biennial Report of the Attorney General for the Years 1858-9 (Columbus,

1860), 10.

31 Cincinnati Superior Court Reports, I (1854-58), 469.

32 Ibid., II (1858-60), 52.

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OHIO LIFE INSURANCE AND TRUST CO.                     257

 

Condensed Statement

Liabilities at Cincinnati  .................................      $ 748,753.61

Liabilities at New York

Admitted  ............................................................   $1,628,995.33

Disputed ..........................................                       309,332.19

 

1,938,327.52

Total   liabilities  .........................................................   $2,687,081.13

Offsets        (to  liabilities)                                              at Cin. ..............................                141,983.99

"                            at N.Y. ..........................               79,211.53

Attachments at Cincinnati ....................................         137,897.38

"        at New      York  ....................................      591,281.50

 

Covered                      liabilities                                      ........................................                                 950,374.40

Uncovered  liabilities   .........................................                                   $1,736,706.73

Assets at Cincinnati .................................                                               701,412.63

Assets at New York ..........................................               778,050.40

Total assets ......................................                                                      $1,479,463.03

Less covered liabilities .....................................                                       950,374.40

Assets available for uncovered claims33 .............                                    $ 529,088.63

The negligence of the assignees in liquidating the assets led

to action on the part of those creditors who were deeply involved.

On one day, October 18, 1858, charges against the assignees which

were substantially the same, were made in two different courts by

different creditors. In the United States Circuit Court, Southern

District of Ohio, in the case of James C. C. Bell, Robert Grant, and

James Martin Bell vs. The Ohio Life Insurance and Trust Company,

charges were made:

1. that the plaintiffs secured a judgment of $259,293.50

against the company, but could find no goods on which to levy.

2. that, besides the loss of capital stock amounting to

$2,000,000, there was an additional loss of assets leaving an

indebtedness of $1,250,000.

3. that this great loss was caused by gross negligence and

want of ordinary care on the part of the trustees, in that,

 

33 American Railroad Journal, XXXI (1858), 594.

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258   OHIO ARCHAEOLOGICAL AND HISTORICAL QUARTERLY

 

(a) they failed to make examinations of the company as

required by law;

(b) they made loans to railroads and individuals of large

sums upon insufficient security, contrary to the by-laws of the

company;

(c) they declared and paid dividends without proper

examination of the company;

(d) they failed to hold monthly meetings as required;

(e) they allowed Edwin C. Ludlow, cashier at New York,

"to borrow money for use of said company, unlimited as to

amount, and at such rates of interest, time and other conditions

as he might determine, to pledge notes, bills and stocks and

other choses of company as collateral," without supervision of

the trustees, and that by these transactions, large losses were

sustained, the amount of which the plaintiffs could not ascertain

accurately, but were informed by the assignees to be $3,000,000;

(f) they failed to check Ludlow from his disastrous

course;

(g) after the failure, they proceeded to pay certain cred-

itors in full and thus disposed of about $1,000,000 in assets;

(h) they made a partial distribution of assets with total

ignorance of the true conditions of the company;

(i) it was commonly believed the company would not

meet its liabilities, and the market value of claims against it

went below their true value; the trustees bought and applied

them to their individual debts to the company at par;

(j) the trustees, as assignees, refused to allow exami-

nations of the books and rendered no accounting to creditors;

(k) the trustees gave Ludlow a release from all liability

to the company, fearing he would expose their complicity.³⁴

A week later the assignees filed affidavits in the same court,

denying the charges in general.35 Charles Stetson, who seems to

have been the guiding spirit in the preparation of the affidavit, said

 

34 Cincinnati Daily Gazette, October 25, 1858, and subsequent issues.

35 Ibid., October 25, 1858.

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OHIO LIFE INSURANCE AND TRUST CO.           259

 

that he was in New York three months after the failure investigating

it when named an assignee, and would not have accepted the assign-

ment; that he acted in good faith; and that there was no fraud on

the part of the trustees. However, he admitted buying claims at a

discount and applying them to his debts to the company. He denied

that Ludlow knowingly was permitted to act as it was charged he

did, saying that Ludlow's actions were not disclosed to the trustees

but were concealed from them. Furthermore, Stetson asserted that

Ludlow's duties were defined in written instructions and that he

knew nothing of their violations until a short time previous to the

failure. A short time before suspension two trustees examined the

New York office and found nothing wrong. It was denied that

preference was given to creditors, but admitted that certain banks

were paid in the belief that all its debts could be paid. Examination

of the books was not permitted without the authority of the court.

The assignees could not render a satisfactory accounting until the

affairs in New York were settled. The trustees, under the impres-

sion the company was solvent, proceeded to make settlements on

terms they believed advantageous. S. J. Broadwell, a trustee, ad-

mitted settling with Ludlow, after satisfying himself that all that

could be had from the latter could not be procurable otherwise.

From the charges and answers outlined above it seems that the

trustees were really guilty of mismanagement, especially in their

governing of the New York office.

The second of the two suits against the assignees was that of

Spinning and Brown vs. The Ohio Life Insurance and Trust Co.,

et al., which was brought up in the superior court of Cincinnati on

the same day as the case just discussed.36  Charges not included in

the first case were:

1. that the trustees paid in full a debt to Hamilton County for

which they were responsible as endorsers;

2. that after the trustees disposed of the larger part of the

assets, they made an assignment of what remained to themselves

for the benefit of creditors.

 

36 Cincinnati Superior Court Reports, II (1858-60), 336.

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260    OHIO ARCHAEOLOGICAL AND HISTORICAL QUARTERLY

 

The Cincinnati court appointed Richard Mathers, the local

sheriff, as receiver. J. P. Kilbreth, appointed by the United States

court, demanded the assets of Mathers who was the first to secure

them. Each of the receivers caused the other to be held in contempt

and thus there was begun a conflict of courts. The delay caused

by this controversy was irritating to the creditors, fifty of whom

held a meeting in Cincinnati on Wednesday, November 10, 1858,

from which lawyers were excluded.37 It was agreed to support

Kilbreth as receiver and the United States court was preferred as

the court having jurisdiction because

1. it served the interests of the creditors better;

2. a preponderance of the claims were in this court;

3. the war of courts was obstructing justice;

4. some of the trustees, to cover up their deeds, had taken a

part in complicating the proceedings of liquidation.

Copies of these resolutions were sent to both courts.     The

matter was settled in the probate court of Cincinnati when J. P.

Kilbreth and Charles Reemelin were appointed joint trustees

January 25, 1859. Both of these men were prominent locally.

Kilbreth was a director of the Ohio Live Stock Insurance Company,

and Charles Reemelin was prominent in the Ohio legislature.

Reemelin asked to be relieved of his trusteeship and was released

November 25, 1859.38

While Sheriff Mathers held the assets as receiver, he proposed

a schedule of the assets in his possession. The schedule is interest-

ing, for it offers an opportunity to learn, roughly, the extent to

which the depreciation of railroad investments affected the financial

standing of the company. Rearranged according to railroads, the

schedule is this:

20 Income Bonds, Cleveland & Pittsburgh R. R. ........ $ 20,000

Dividend Bonds, Cleveland & Pittsburgh R. R.........  20,000

38 Bonds (3rd mortgage), Cleveland &

Pittsburgh  R.  R. ..................................... ..... ..  17,500

200 Bonds (4th mortgage) Cleveland &

Pittsburgh R. R .......-.................... ........  200,000

 

37 Cincinnati Daily Gazette, November 11, 1858; Bankers Magazine, XIII (1858),

508.

38 Cincinnati Daily Gazette, February 10, 1860.

• 14
 

OHIO LIFE INSURANCE AND TRUST CO.                    261

 

171 Coupons, Cleveland & Pittsburgh R. R..................                                      5,985 $ 263,485

 

153 Bonds (3rd mortgage) Marietta & Cincinnati....                                          153,000

66 Income Bonds, Marietta & Cincinnati ..................                                         66,000  219,000

 

100 Bonds, Cin. Hamilton & Dayton ...................... 100,000

2  Shares  .........................................................  200  100,200

 

192 Bonds, Hillsborough & Cincinnati ................................ 192,000

10          "                           Great Western .....   ..............  .............                                                           10,000

100          "                           Norwich  &  Worcester  .........................................                                     10,000

2          "                           Indianapolis & Cincinnati ........... ............... .                                   2,000

9          "                           Ohio & Mississippi (construction bonds) ..........                         8,000

12          "                           Hempfield        ........... ..................................................... ....                           6,000

10          "                           Toledo              &    Illinois                                             ................. ................................                           5,000

8          "                           Florida             Freeland                                                  .................. .................                                                                 8,000

15          "                           Fort Wayne & Southern ............. .......... .                                           15,000

31          "                           Tiffin  &  Fort  Wayne  ........................................ ......                          31,000

51          "          Junction R. R. (with guarantee) .....................                                                   51,000

30           "                           Henderson & Nashville ................................ 30,000

200 Shares Cin., Cleveland & Delhi Park ......................................                                             10,000

14 Shares Madison, Peru & Indianapolis ........................... .                                                   700

771 Shares Madison River & Lake Erie ....................... .                                                             38,550

 

Total Railroad Securities .................................                                                                   $ 999,935

Individual notes, good, bad and doubtful ......................................                     318,431.05

Cash ......................................................................14,000.00

3 Bonds, Knox Co., Ohio .........................................                                                                  300.

3          "          Decatur Co., Indiana ......................................                                                               3,000.

1          "          Traveston  Coal  Company  ........ .............................                                          1,000.

67          "          Knox Co., Ohio .............. .........................                                                                      6,700.

13          "          Jeffersonville, Indiana  ........................ ................                                                13,000.

3          "          City        of        Cincinnati  ................ ............... . .....                                          3,000.

4          "          City        of        Covington  ................... .. ...........  .4,000.

9          "          Township of Dayton ....      ............................... .                                                 4,500.

1          "          Lafayette Co., Ky.                 .....................................                                             1,000.

5          "          Boyle     Co.,    Ky          ..................................... ....................                                       5,000.

2          "          Clark      Co.,    Ohio      ...... ....... .........................................                                 2,000.

60 Shares Vincennes Branch, State Bank of Indiana .............                                                3,000.

 

Assets other than Railroad Securities .............................$ 378,931.05

Total assets listed at face value ................................ .........  $1,378,866.0539

 

39 Ibid., November 1, 1858.

• 15
 

262   OHIO ARCHAEOLOGICAL AND HISTORICAL QUARTERLY

Comments on the schedule found in the source from which it

was taken were to the following effect: (1) some notes were dated

to 1848; (2) other notes were renewed several times; (3) some

notes were protested and kept on hand; (4) the city and county

bonds were good; (5) many of the railroad securities were worth-

less. City and county bonds amounted to only $60,000, while

railroad securities totaled $1,000,000. There was over $300,000

in notes ranging from good to bad in value.

A few facts, gathered from meager sources,⁴⁰ concerning the

railroads listed may be of some interest. Cleveland and Pittsburgh

Railroad shares were quoted as follows: par, 50 dollars; July 21,

1857, 391/2; August 25, 1857, 20; September 25, 1857, 15;

November 3, 1858, 9. For first mortgage bonds of the same road, 93

dollars was asked on September 25, 1857, but this fell to 50 by

November 3, 1858. No quotations were found for the third and

fourth mortgages. A meeting of creditors of the Marietta and

Cincinnati Railroad was held January 8, 1858, because the road

could not pay interest due, its notes were being protested, and its

laborers were going unpaid. Cincinnati, Hamilton, and Dayton

Railroad shares held steady at about 65 dollars during the autumn

of 1857, but were only 45 on November 3, 1858. In the same

period its first mortgage bonds fell from 90 to 70. On August 19,

1857, Hillsborough and Cincinnati Railroad shares sold at 17

dollars and the first mortgage bonds at 52. The Great Western

was sold on October 16, 1857, to a Mr. Correau for $1,100 with

liabilities of over $5,000,000. Indianapolis and Cincinnati Rail-

road bonds were quoted at 78 on August 25, 1857, and at 75 on

November 3, 1858. Ohio and Mississippi Railroad construction

bonds were 52 in August 1857, and in the same month its shares

ranged from 10 to 12. The road was undergoing financial diffi-

culties because of a recent expansion. The Hempfield Railroad,

partially completed and isolated, had been in the hands of bond-

holders since April 1857, and its bonds were converted to preferred

stock. Florida Freeland bonds were 77 in November 1858. Some

time in January 1857 the directors of the Henderson and Nashville

 

40 American Railroad Journal, XXX (1857), XXXI (1858); Henry V. Poor,

History of the Railroads and Canals of the United States (2 vols., New York, 1860), I.

• 16
 

OHIO LIFE INSURANCE AND TRUST CO.                 263

 

announced that their London agent had misappropriated $600,000

in bonds.    Subsequently, counties through which the road ran

refused credits for improvements. Late in August 1857 Madison

River and Lake Erie Railroad shares were 15.

When Kilbreth and Reemelin were appointed trustees of the

company by the probate court of Cincinnati, they were ordered to

"file an inventory of all assets of said company, with a schedule

of the creditors, and to convert all said assets into money without

any unnecessary delay, and divide same equally among creditors."41

In accordance with these instructions Kilbreth, who remained as

sole trustee, prepared a report showing the claims by and against

the defunct company.     His report showed that only $361,525.63

was settled by the debtors of the company and that most of this

never reached him because of the great amount of it applied to

attachments and counterclaims. Claims unsecured by attachments

or other means received a ten per cent dividend.          Kilbreth's

accounting of the current affairs of the company, dated February 6,

1860, was as follows:

Accounts against all parties gathered out of N. Y. books................ $2,970,956.17

Accounts and notes against sundry parties on the Cin. books ...  596,727.62

List of stocks, bonds, etc., amounting nominally to ....................... 1,090,126.00

List of bonds & other real estate, taxable value being....................  55,620.00

List of claims in judgment, most of them of long standing

and small value   .................................... ............   69,133.65

 

Assets, the greater portion uncertain & nominal ................   $4,782,563.44

Creditors whose claims had been allowed by Kilbreth and Reemelin

up to November 25, 1859, were:

Depositors in the bank department

Fully  adjusted  ......... ...................... ......... $208,222.66

Not denied, but not fully adjusted ..........  51,048.10

 

$ 259,270.76

Checks of Cincinnati office in New York ..............................  38,273.50

Checks of N. Y. office on Amer. Exchange Bank

Adjusted  ......................................                                                           4,955.85

Not adjusted, but not denied ..........................        78,157.88

 

____    _____  83,113.73

41 Bankers Magazine, XIV (1859), 281.

• 17
 

264    OHIO ARCHAEOLOGICAL AND HISTORICAL QUARTERLY

 

Certificates of deposit in banking dept.

Adjusted ........................... . 20,231.21

Not adjusted, but not denied .........................  4,515.23

 

24,746.44

Certificates issued by former assignees ...............................  133,622.37

Bankers, banks, railroad and other accounts

principally from the N. Y. Office

Adjusted .....-............. ..  399,218.91

Not yet reduced to adjustment, but will

most probably have to be adjusted............... 835,516.55

 

1,234,735.46

Other  claims adjusted  ......................................  13,346.82

20 year certificates, $38,000 of them not

yet  presented  ...............    ..................... 62,598.64

Certificates, trust dept., $51,652.26 not yet presented.........  226,239.58

42

$2,075,947.3042

Judging from this report Ludlow's unauthorized loans amounted

to almost $3,000,000. The total of stocks and bonds agrees sub-

stantially with the amount found by Sheriff Mathers, after deducting

the notes and cash. It should be noted the assignees managed to

issue about $130,000 in certificates during their period of control.

From January 25 to November 25, 1859, the trustees collected

$163,547.73 and disbursed $127,924.97, of which $86,128.72 went

to unsecured creditors.

Beyond this point nothing of importance was found, the sub.

sequent events being mostly petty in nature and having little signifi-

cance in the story of the failure.⁴³

The failure of the company cannot be laid to any one particular

cause. The company's investments were not as profitable as had

been expected and heavy losses were sustained. Without much

doubt the heavy taxation imposed by the state weakened the com-

pany's financial position. Finally, the speculative manipulations

of Ludlow, the New York cashier, were sufficient to cause a collapse

 

42 House of Representatives, 36 cong., 1 sess., Executive Documents, VIII,

206-208.

43 "Report of the Attorney General, January 1, 1862," in 55th Ohio General

Assembly, 1 sess., Executive Documents, pt. 2, 256; "Biennial Report of the Attorney

General for the Years 1862 and 1863," in 56th Ohio General Assembly, 1 sess..

Executive Documents, pt. 1, 410-411.

• 18
 

OHIO LIFE INSURANCE AND TRUST CO.           265

at the slightest depression in business. The fact that Ludlow's activ-

ities proceeded to such extent without the notice of the trustees is

indicative of carelessness or complicity on their part; in either

case it was fundamentally bad management. Although many of

the railroad investments were depreciated before the failure, by far

the greater part of the depreciation occurred after the company

closed its doors to business. It must be concluded that poor rail-

road investments were the least cause of the failure and that, had

not the other causes been operating, the company might have

weathered the panic of 1857.

From the condensed report of the assignees and the charges of

Bell and Grant, it appears that the failure amounted to a sum of

from 3,000,000 to 3,500,000 dollars. This includes a capital loss

of 2,000,000 dollars. A very crude approximation from Kilbreth's

report would set the failure at the same amount.

• 19