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

Docket Nº:No. 389
Citation:300 U.S. 194, 57 S.Ct. 418, 81 L.Ed. 599
Party Name:Knox National Farm Loan Assn. v. Phillips
Case Date:February 01, 1937
Court:United 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

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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...

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