300 U.S. 194 (1937), 389, Knox National Farm Loan Assn. v. Phillips

Docket NºNo. 389
Citation300 U.S. 194, 57 S.Ct. 418, 81 L.Ed. 599
Party NameKnox National Farm Loan Assn. v. Phillips
Case DateFebruary 01, 1937
CourtUnited States Supreme Court

Page 194

300 U.S. 194 (1937)

57 S.Ct. 418, 81 L.Ed. 599

Knox National Farm Loan Assn.



No. 389

United States Supreme Court

Feb. 1, 1937

Argued January 14, 15, 1937



1. A judgment of a state court against an insolvent association for a sum of money is final, although accompanied by provisions requiring the debtor to turn over all of its property to a receiver for liquidation of its business and payment of the debt. P. 197.

2. Under the Federal Farm Loan Act, a national farm loan association cannot be required to retire, and repay the par value of, shares subscribed for and pledged with it by a member in connection with the procurement of a loan from a federal land bank, while the bank refuses to retire, and make repayment for, the corresponding shares of bank stock subscribed for by the association in that connection and pledged with the bank. P. 198.

3. A shareholder of a farm loan association, subject by statute to an extra personal liability for its debts, is not entitled to have his shares retired and his subscription payment repaid when the association is insolvent and corresponding subscriptions to the stock of the federal land bank that made the loan have not been cancelled and refunded. P. 201.

4. A receivership for the purpose of satisfying a judgment falls with the judgment. P. 202.

5. A national farm loan association is an instrumentality of the Federal Government; the time and manner of its liquidation are governed by the federal statute, and jurisdiction does not reside in the tribunals of a State to wind up the business of this governmental agency either by a receivership or otherwise. P. 202.

54 Oh.App. 334 reversed.

Certiorari, 299 U.S. 533, to review the affirmance of a decree against the National Farm Loan Association for the par value of certain of its shares, accompanied by provisions for placing the Association in the hands of a receiver for the liquidation of its business.

Page 195

CARDOZO, J., lead opinion

MR. JUSTICE CARDOZO delivered the opinion of the Court.

The controversy in this case makes it necessary to determine the remedies available to a shareholder in an insolvent farm loan association upon the refusal of a demand for the retirement of his shares.

Respondent is the owner of a farm in Knox county, Ohio. His vendors were members of the Knox National Farm Loan Association, a cooperative membership corporation chartered under federal law. Federal Farm Loan Act, [57 S.Ct. 419] July 17, 1916, c. 245, § 7, 39 Stat. 365, 12 U.S.C. § 711. Through that association, they procured a loan from the Federal Land Bank of Louisville, giving a mortgage as security. Part of the proceeds of the loan (i.e., 5 percent thereof) they used for the purchase of stock in the cooperative association, there being a requirement of the statute that

any person desiring to borrow on farm land mortgage through a national farm loan association shall make application for membership and shall subscribe for shares of stock in such farm loan association to an amount equal to 5 percentum of the face of the desired loan, said subscription to be paid in cash upon the granting of the loan.

Federal Farm Loan Act, § 8, 12 U.S.C. § 733; cf. § 9, 12 U.S.C. 745. The statutory plan has already been expounded in opinions of this Court. Smith v. Kansas City Title & Trust Co., 255 U.S. 180, 2037; Federal Land Bank v. Gaines, 290 U.S. 247; Federal Land Bank v. Priddy, 295 U.S. 229.

Upon the purchase of the farm by respondent in October, 1927, he assumed the payment of the mortgage debt, succeeding at the same time to the interests of his vendors in the stock of the association and to the attendant liabilities. The shares were of the par value of $265. They had been pledged with the association, in accordance with the requirements of the statute (§ 8, 12 U.S.C. § 733) as security for the loan. The association, on its part, had subscribed for an equal amount of the shares of the federal land bank, the lender of the

Page 196

money, leaving the shares so subscribed for as a pledge for the security of the lender. This too was a procedure called for by the statute. Section 7, 12 U.S.C. § 721. From time to time thereafter, there were payments on account, with the result that the loan had been reduced by March, 1933, to $2,122.46, at which time respondent made an effort to clear the farm of the mortgage and to put an end also to his liability as shareholder. To that end, he paid the association $1,857.46 to be transmitted to the bank, insisting that the deficiency ($265) be satisfied through the retirement of the shares. The bank accepted the payment as one upon account, but refused to discharge the mortgage without payment of the balance. At that time, by concession, the association was insolvent. Its capital was impaired; it was indebted to the bank upon other mortgage loans, being liable as indorser or otherwise when it borrows for a member (Federal Land Bank v. Gaines, supra); it had no moneys in its treasury wherewith the shares could be retired.

The courts took up the controversy. Respondent joined the bank and the association as defendants in a suit in the court of common pleas of Knox county, Ohio. He prayed for judgment against the bank that the mortgage be held to have been cancelled and extinguished and for judgment against the association that the shares of stock be paid off and retired, and that the business of the association be wound up and liquidated. For answer, the bank and the association took the ground that the partial payment made was insufficient to discharge the mortgage; that there could be no retirement of the shares while the association was insolvent; that the state court was without jurisdiction to liquidate the business of the association, an instrumentality of the federal government, and that jurisdiction in that behalf resided in the federal government exclusively.

Two decrees were rendered by the court of common pleas. The first, filed October 7, 1935, provides that the

Page 197

mortgage lien shall be cancelled by the bank upon tender by the plaintiff of $265 in addition to the payment previously made, the tender to be kept good by payment into court. The second, filed November 18, 1935, directs the farm loan association to retire the respondent's shares, and gives him judgment against the association for the par value thereof. It appearing that the association was unable to pay the judgment by reason of insolvency, a receiver was appointed to take possession of the assets and liquidate the business, the association of its officers being required forthwith, upon the demand of the receiver, to surrender any property in their possession or under their control. From the decree of November 18, the defendants prosecuted an appeal to the Ohio Court of [57 S.Ct. 420] Appeals, which affirmed with an opinion. A petition for review by the Supreme Court of the state was submitted and denied. We granted certiorari to set at rest far-reaching questions as to the meaning and administration of an important act of Congress.

At the outset, a doubt as to our jurisdiction calls for scrutiny and judgment. The case being here after a decision of a state court, jurisdiction is not given us unless the decree to be reviewed is final. Judicial Code § 237, 28 U.S.C. § 344. Respondent has been adjudged entitled to the payment of a specific sum of money, but he is also to have a receiver who is to liquidate a business, the court reserving the right to control the conduct of its officer and to rescind or modify its order. Does the appointment of a receiver postpone the stage of finality until his work is at an end?

The primary purpose of the suit was the recovery of a judgment for the par value of the shares. Any other relief prayed for or awarded...

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