r.
:ii:-:t,;'
GATCH t1. FITCH SurmAN
et
v.
GATCH
et al.
(Oircuit OOU1·t, D. Indiana.
February 2, 1888.)
BANKS AND BANKING-NATlvNAL BANKS-!NSOLVENCy-PREFERENCES BY STOCKHOLDER. .
Section 2, act Congo June 80, 1876. (19 St. at Large, p. 68,) provides that the individual liability of shareholders of an insolvent national bank, fixed by Rev. St. U. S.. \:j 5151. "may be enforced by any creditor of such association by bill in equity in the nature of a creditors' bill brought by such creditor on be· half of himself and all other creditors." Held, that a mortgage of all his in: executed by a cashier stockholder of such bank. after qividual it had closed 1tsdoors. to secure "a depOSItor, amounted to a preference, and was void as against a judgment recovered against the cashier by the receiver U. S. § 5151, either in the hands of the receiver or in those of under .. a purchaser fro,1n him for value. ",I -,
In Equity. On demurrer to cross-bill. Duncan, Smith« WiLson, for cross-complainants. The cross-bill Sunman alleged that the City National Bank of Lawrenceburgh closed its doors on August 10, 1883, in insolvency, and never opened up for bUlliness therellfter; Walter Fitch, a defendant to the cross-biU, was its cashier, and ownAd $5,000 of the stOck of the bank; thatdefendant Gatch was a depositor in the bank at the time of its suspension in the sum of $14,that there were a large llumber of creditors, and the ass.ets of the bank were insufficient to pay its creditors in full; that on August 11th, and after the bank had suspended, Gatch, who resided in Lawrenceburgh, demanded and procured of Fitch a mortgage on all the lands owned by Fitch, to secure and protect him as such depositor; that such lands were of the value of $4,000, and constitutell all the property owned by Fitch; that Gatch knew that }fitch, was such cashier and stockholder, and that this mortgage covered all thepl'Operty owned by him; U\at there was no other property out ,of whi('h an assessment by thA' comptroller upon Fitch as stockholder, f01" the benefit of the creditol'S ofthe bank, could be paid; that this mortgage was made and received for the purpose amI with the intent of securing Gatch apl'tlference over the other eredilors in thl' payment of his debt; that there was no consideration for this mortgage other than the debt of the bank; thatin 1884 the comptroller appoirited a receiver for the bank; that the receiver exhausted all the available assets of the bank, which failed to pay the creditors, and thereupon an assessment Of 50 pel' cent. was made by the proper authorities upon all the stockhaving failed to meet this assessment, the holders" including Fitch; that, receiver. under instructions, instituted an action in this coul't'against him to r.ecover the amount, and did recover a judgment for $2,500,-the,llmount of assessment; that ex,eout.ion issued on this jUdgment, and was returned nulla bona,' thereupon the receiver)iled.his petition in this and, under the instructions and ol"der of this coui·t. sold the judgment to the crosscomplainant, at public auction. at the court-house door of Dearbol'n county, in the city of Lawrenceburgh, after proper notice, the said cross-complainant being the highest and best bidder; that this sale was reported to thecomt, confirmed, and t,he judgment Ilssigned to Sunman. Subsequently Gateh brought his suit in the state court to foreclose his mortgage. making Sunman a defendant. The latter proclU"ed the removal of the cause to this court. and tiled
GATCH ".FITCH.
1>67
the'foregoing cross-bill.' The mortgage consisted in a deed absolute in form, ,and ad,efeasance executed by the to the grantor. ,Two questions 'are 'presented ,by this demurrer to the cross.bill: (1) Can one -ofillargenumberof the creditors of an insolvent national bank take a mort'gage on all the property Of an' individual stockholder, to secure to himself the of the debli due from the bank, so as to defeat the right of the raiCeiver to enforce an assessment against such stockholder? In other words, can one of a number of the creditors of an'insolvent national bank, after the happening of such insolvency, secure to himself over all other creditors of the bank a preference in the enforcement of the individual liability of a stockholder in: such bank? For practically this is what it amounts to. (2) Is thel"e any consideration to uphold the mortgage? The first question presented depends upon the construction to be placed upon the provisions of the nati\)nal bank act and its amendments. We call attention to the following provisions of the natiOnal bank act:, Rev. St. U. S. § 5151, provides: "The stockholders of every national banking association shall be held individually responsible, equaUy and 'ratably, and not one for, another, for all contracts, debts, and engagetllents of such association, to the extent, of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares," See Ball, Banks, 164. Section: 5210 declares "that, the president a.nd cashier of any national banking association shall cause to be kept at all times a full and correct list of the names and residence of all the shareholders 'in the association, and the number of shares held, by each, in the office where its business is transacted. Such list shall be subject to the ipspection'of aU the shareholders and creditors during, business hours of each day." Ball; Bll.nks, 210. Section 1 of the act. of ,J une 30, 1876, provides "that wheneverany,national banking association shall be dissolved, and its rights, privileges, 'and franchises declared forfeited, as prOVided in section fifty-two hlindredand of the' Revised Statntes of the United States, or whenever the: 'MmptroHer shaH become satisfied of the insolvency of a national banliingMsooill.tioll, he may, after due examination of its affairs. in either case, a..ppoi:nt'& receiver, who shall proceed to close ,up sqch association, and enforce 'the personal liabilit)" of the shareholders, as provided in section fiftytwo hundred and' thirty-four of said, statutes." Ball, Banks, 224. Section 2 of the above act reads: "That when any national banking association shall have gone into liquidation nnder· the prOVisions of section fi ve thousand two htl ndred and twenty of said statutes, the individual liability of the shareholders provided, for by section lifty-one hundred and fifty-one of said statutes may be enforced by anycrooitor of such association by hill in equity in the nature of a creditorS' bill, bl"oughtby such credilior on behalf of himself and of all other creditors of the association against the shareholders thereof, in any court of the United States haVing original jurisdiction in equity for the district in which said association may have been located or established." Ball, Banks, 244.. Section 5234 provides that "on becoming satisfied, 8S specified 'in section fi.fty-twohundred and twenty-six and fifty-two hundred and twentyseven, that ariy association has refused to pay its circulating notes as mentioned; and,· is in default, the corn ptroller of the currency may forth with and require of him such bond and security as he deems appoint iii proper. Such rl'ceiver, under the direction of the comptroller, shall take possession'of the bookS, records, and assets of every description of such association, collect all debts', dues, and claims belonging to it, and, upon the order of 'a court of reool'd of competent jurisdiction, may sell or compound all bad or -doubtful debts, and,' on a like order, may sell the real llnd personal propel'ty of such 'association, on snch terms as t.he court shall direct; and may. i,f pecessary to pay the debts of such .tssociation, enforce the individual liability of the stockholders. Such receiyer shall pay all money so made to the treas-
568
REPORrER.
rtrerof· the UrtltedStates, subject to the order of the comptroller, and alst) make repol't to the comptroller of all his acts and proceedings. " Section 5236 provides that: "from time to time, after full provision has been first made for refunding to the' United Btates any deficiency in redeeming the notes of such association, the comptroller shall make a ratable dividend of the money 80 paid over to him' by such receiver on all such claims as may have been proved to IHssll,tisfaetion, or ndjudieated in a court of competent jurisdiction, and as the proceeds of the assets of sneb association are paid over to him, shall make furtber dividends on all claims previously proved or adjudicated, and the re;mainder of the proceeds, if any"shall be paid over to the shareholders of such association, or t'heir legal representatives, in proportion to the stock by them respectively held." Section 5242 provides that" all transfers of the notes, bonds, bills of exchange, or other evidence of debt owing to allY 'banking association, or of deposits to its credit; all assignments of mortgages, sureties on feal estate, or of jUdgments or decrees in its favor; all deposits of . money, bumon, or, other valuable thing for its Use, or for the use of any of its shareholdtirs ororeditors;: and all payments of money to either, made after the commiss.ionof an act of insolvency, or in contemplation thereof, made with a view to prevent the' application of its assets in the manner prescribed by this chapter. or with a view to the preference of ol\e creditor to another. except in pa)'ment of its circulating notes, shall be ntterlynull and v,oidj and 'no attachment, injunction,or execution shall be issued against such associa'ti6n or its pi'opafty before final Judgment in any suit, action, or proceeding, in any state, county or municipal court.·.. " What is the purpose, what the policy and intent, of these provisions of the national banking laws? It' is manifest that the actcOIltemplates that UpOll insolvency the assets which go to the creditors shall· be equally and ratably 'distributed among them.'£heassets of which the bank is possessed, under section 5242, at the time of suspension, and the assets raised,' under section 5151, by assessment of the individllalsbockholders,al'e placed, when distribution is had, upon exactly the same footing. Section 52a4 and section 1 of the 'acts of June 30, 1876, 'deciare that when a receiver enforces this individual liability, he shall pay over the moneys.so raised to the treasurer of the United States, subject to the order of the comptroller, and section 5230 provides fOrll "ratable" division of the fund among the creditors. And section 2 oftha act of June 30, 1876,1 (Ball, Banks. 244,) prOVides that when the creditors proceed to enforce such individual liability by creditors' bill, it must be on behalf of all the creditors of the association, thus securing a ratable distribution when the 'creditors proceed without a receivel'. It is true, the act does not say in negative terms that "no preference shall be had" out of this claim against the individual stockholdersj but it says the liability shall be for all the credito\'s, and that'tho fund shall be ratably,divided. Such provisions, construed along with sedioYl 5242, whieh declares that no preference shall be had or obtained by the general.creditors of an insolvent national bank out·of the assets of the bank, plainly indicates the intent and poJicyof the laws. Tecllllically speakinl{, this individual liability is not calledaill asset of the bank under section 5242, yet, so far as the crel1itorsare concerned, it is as much an R$set of thebank as the property in the possession of the bank at the time of itssuspension, and is, therefore, in the policy and purpose of section 5242. In other words, reading '1111 these prOVisions together, as in pari materia, it is the· manifest intention of the act that all creditors shall be paid ratably and equally, und thatnopl'eference shall be allowed. We call attention to a few authOrities supporting an elementary rule bearing upon the point. See. Oates v. 100 U. S. 239, 244j Atkimv. Disintegrating OQ., 18 Wall._ 119 St, at Large, 63.
GATCH V. FITCH.
569
272, 301: Jackson v. Collins, 3 Cow. 89, 96; People v. Co., 15 .Tohns. 358, 381; B1'Own v. Somerville, 8Md. 444,456; Ryegate v. Wardsboro, 30 Vt. 746;· Co. Inst. 24 V. . J. K. Thompson a l1 d D. Turpie, for defendants. We take the position herein that a debtor in embarrassed circumstances bas, under the common law, an absolnteright to prefer a creditor,-to pay or to seCUl'e the payment of one of the claims against him,-and this claim may be either a debt due, or one which may become due upon any lawful contingency. It may be either direct or collateral. * * It may be a debt grOWing out of or a liability created, or about to mature, by virtue of a note,liond, or statute. As to how it is created makes no difference, so that it be a lawful claim or liability. Fitch was a stockholder in a national bank; the grantee and creditor Gatch was an unpaid depositor therein; the liability of Fitch to Gatch was created and then existed, under section 5151, Rev. St. U. S., quoted ... ... ... As long as unpaid deposit of Gatch existed, there was a consideration for the conveyance, because there was a liability of Fitch (under the statute) "individually" to pay it to the extent of the par value of his stock, greatly exceeding Gatch's claim and the value of the property conveyed. The terms of that law are that the stockholder "shall be held indi vidually responsible "", ' ... for all ... ... ... debts ... ... ... of the association. "It is not said, "in case the bank fails to pay," or "in case others fail to pay," but his responsibility is direct, individual, several. The subsequent provisions of the act of congress for ascertaining and collecting the amouut oftbe debt do not at all affect its directness and individuality. It baing well determined that at common law a debtor may prefer a creditor, whether the liability so provided for be due, to become'due, contingent, direct, or collatei"al,the deed in controversy can only be defeated by some legislation clearly shown to be in derogation of this common-law right, We now no general bankrupt law. Is there anything in the national bank law in derogation of this right of preference. In making a stockholder liable for the debts of the bank is to be presumed that congress gave him the power to choose which, if any, of these debts he might prefer in payment out of his own property unless that right is forbidden. ... ... ... Under the well known rule of construction, of one thing is the exclusion of the other," we say that when congress forbids (as it does in section 5242) one class of transfers -that of the bank assets-as an unlawful preference, and says nothing about the other class of transfers,-that of their private assets by stockholders,the indisputablf1, undeniable inference is that as to this latter class of transfers, the law is unchanged, and a transfer in preference of his private property by a stockholder iii not affected by the act of congress in any way. WOODS, J. After some hesitation, I have come to the conclusion that the demurrer to the cross-bill should be overruled, there being, as there has been in argument, no dispute that the cross-complainant, as assignee of thejudgment against Fitch, has the same right to attack the mortgage in. question which the receiver had before the assignment was made. Fitch was not liable directly as surety or otherwise for the indebtedness of the hank to Gatch. In the execution of the mortgage, therefore, he was not exercising the common-law right of preference among creditors who had demands directly against him; and the mortgage was made without consideration, unless the fact that he was a holder' of stock of the bank involved such a liability as to afford a binding consideration foi"theexecutionof the instrument, and at the same time to warrant the
570 prl3ference given to Gatch oyer other creditors of the bank. Was this s07, The individual and ratable of 'stockholders in national banking associations for all contracts, debts, and engagements of such association. to the extent of the amount of their stock therein, is definitely declared in section 5151 of the law; but in section 2 of the act of June 30, 1876. it is provided that this liability "may be enforced by any creditor of such association by bill in equity, in the nature of a creditors' bill, brought by such creditor on behalf of himself and of all other creditors," etc. The liability being enforceable only in behalf of all creditors, it seems necessarily to fonow that any voluntary discharge or security given for the paYment thereof should likewisEl be for the equal benefit of all creditors, and that any effort to give a preference should be deemed illegal. This conclusion is in harmony with the general and well-established doctrine that the liability of corporate stockholders is a fund, or source of a fund, for the ratable payment of all creditors. If the mortgage in question is valid beca1:1se of Fitch's liabilit?' as stockholder,-and, unless valid for .this reason, it was clearly without consideration,-and if such. a preference aBwas here given is valid, then, in the suit by the receiver against Fitchnpon his liabiHty asstockholdar, he might, it would seem, have pleaded in bar payment of the atnount due or payable upon this had been made; arid, upon the facts as they are mortgage. if spown to be, might have that he should be required to pay nothing to the receiver .until the amount of his liabWty upon this mortgage should be determined and deducted from the amount demanded. The demurrer is therefore overruled.
et at v.
SHAW CARRIAGE
Oourt,]). Indiana. March 10.1888.) 1. I
CREDITORS' lbLL-DISTRlBUTION OF lfuNDS-DEFENDANTS' RIGHT TO SHAU. ,
s; ,
covering the company's entire prpp'erty by an inBolvent corporation to two banks, which were among its creditors, were held' to be invalid, not for fraud or want of consideration, but because the corpora· tion; being governed by four directors, two of ·whom wer!'lliable as indorsers uponthepote!l.to secure which the mortgages were executed, could not pre· fer the holders of the notes over unsecured creditors. These mortgages had been forenlosed in the state courts prior to the filing of t1:le bill, which was brought by-a judgment creditor of the ,corporation, who was not a party to the foreclosure, and who sought for hilpself, and other creditors who should come' in. to 'have the mortgagees declared trustees of the funds realized. Held, the mortgages being valid as between the banks and the;corporation, that the banks. were not in the case as intervenors, and that theycotlld not be req uired. as a coildition of being allowed to' share in the fund; to put, on record a formal request to be admitted" under the Invitation of the bill." .,;,
.. Wher!" " chattel mortgage execu.ted llyaninsolvent cqrporation ,to some of its credltorll has been foreclosed In the state courts, th'efact that It is aubaequentlysetailide in the federal courts 'at ·the Buit of a judgment creditor nOl , a,psl'tyto theforecloBure.on the gro,and, not of fraud or want of conaidera·
SAl&E.,...CHATTEL