Adams v. Nagle Same v. Tobias

• Decision Date: 28 March 1938
• Docket Number: Nos. 123 and 124,s. 123 and 124
• Citation: 58 S.Ct. 687,303 U.S. 532,82 L.Ed. 999
• Parties: ADAMS v. NAGLE et al. SAME v. TOBIAS et al. Re
• Court: U.S. Supreme Court

303 U.S. 532

58 S.Ct. 687

82 L.Ed. 999

ADAMS

v NAGLE et al.

SAME

v. TOBIAS et al.

Nos. 123 and 124.

Reargued March 8, 9, 1938.

Decided March 28, 1938.

Messrs. Charles E. Wainwright, George P. Barse, and Brice Clagett, all of Washington, D.C., for petitioner.

Mr. Lemuel B. Schofield, of Philadelphia, Pa., for respondents.

[Argument of Counsel from page 533 intentionally omitted] Mr. Justice ROBERTS delivered the opinion of the Court.

These are stockholders' suits to enjoin the receiver of two national banks from enforcing assessments ordered by the Comptroller of the Currency pursuant to the statute governing the additional liability of shareholders.¹

The respondents in No. 123 are stockholders of the Penn National Bank & Trust Company of Reading, Pa.; those in No. 124 are stockholders of the Reading National Bank & Trust Company of the same city; and the petitioner is receiver of both banks. The controversy has its origin in a transaction between the two banks and the Farmers National Bank & Trust Company of Reading. The causes of action are identical, and it will suffice to outline the allegations of the bill in No. 123. These are:

On February 17, 1933, Penn and Reading were subjected to unusual withdrawals which depleted their reserves and placed both on the verge of insolvency. Due to this condition the two banks on that date entered into an agreement with the Farmers contemplating a consolidation of the three in accordance with title 12 U.S.C. §§ 33 and 34, 12 U.S.C.A. §§ 33, 34. The agreement called for a valuation of the assets of the three banks with ensuing recapitalization and for the Comptroller's approval of the terms of consolidation as required by law. It further provided for transfer by Penn and Reading of all their assets to Farmers, with the right to hypothecate and rehypothecate them, and for assumption by Farmers of the liabilities of the transferring banks, except that to stockholders; they reserving the right to enforce against their stockholders any statutory excess liability. Farmers was to operate their banking houses as its branches. On the same day Penn and Reading turned over their assets to Farmers which mingled them with its own and thereafter dealt with them as its own. There is no assertion that on February 17 the Comptroller knew, or approved, of the agreement and transfer. It is alleged, however, that, by his direction, a supplemental agreement was made February 20, 1933, by which Penn and Reading guaranteed to Farmers that the assets of each would exceed in value its liabilities assumed by Farmers under the agreement of February 17; and that he acquiesced in the continued administration of the affairs of Penn and Reading by Farmers. On February 17 the assets of Penn which were transferred to Farmers had a reasonable market net value of $5,400,000 as against total liabilities of $5,100,000, and the assets of Farmers were of the fair value of $8,000,000 (to which is to be added the stockholders' liability for assessment in the amount of $1,000,000), as against liability to creditors of $9,000,000. ² The claims of the two banks against Farmers were, at the date of transfer, and still are, more than sufficient, in the ordinary course of liquidation, to pay all of their liabilities without the necessity of an assessment of the stockholders.

Farmers continued to do business with the combined and commingled assets from February 17 to March 18, 1933. Then the Comptroller appointed a conservator who took possession of all of the assets. October 10, 1933, the Comptroller, without notice to Penn or Reading, their depositors, creditors, or stockholders, and without a hearing, ruled that the agreements of February 17 and February 20 were without legal effect, and directed that the transfer and delivery of the assets, and the assumption of liabilities thereunder, should be disregarded; and he attempted to allocate among the three banks the assets theretofore transferred and delivered to Farmers. He appointed the same person he had previously named conservator for Farmers to be conservator of the other two banks. October 20, 1933, the Comptroller proposed a so-called plan of reorganization of the three banks which provided for the organization of a new national bank, the issue by it of stock and securities, the pledge of some of its assets to secure a loan from Reconstruction Finance Corporation, a sale of the assets in the possession of the conservator of Farmers to the new national bank, and a division of the proceeds on the basis of 35 per cent. to Farmers, 25 per cent. to Penn, and 25 per cent. to Reading. It is charged that this division was arbitrary and was based on a classification adopted from the report of national bank examiners dated April 24, 1933, and not on the financial condition of the banks as of February 17, 1933, the date of the execution of the agreement, transfer of assets, and assumption of liabilities. The conservator of all three banks, in furtherance of the plan, reconstructed the assets and liabilities of each as of April 24, 1933, made a division thereof amongst the banks, consummated the sale to the new bank, and apportioned the proceeds according to the plan. In so doing, in conformity with the Comptroller's ruling, he disregarded all rights and obligations arising from the agreement of February 17, 1933, and disregarded the claim of Penn, in the amount of $5,100,000, and the claim of Reading, in the amount of $9,000,000, against Farmers. The bills charge that this conduct was arbitrary, and that the Comptroller's ruling respecting the two agreements was beyond the powers conferred upon him by the National Bank Act or other statutory law, was an unlawful assumption of judicial powers not delegated to him by statute, or capable of being so delegated, was in violation of the rights of Penn and Reading, their depositors, other creditors, and stockholders, and deprived them of their property without due process of law.

After consummation of the plan of reorganization the Comptroller certified that each of the three banks was insolvent and, in October and November, 1934, appointed a receiver for each of them. January 15, 1935, he certified that, upon a proper accounting by the receivers of Penn and Reading, and a valuation of the uncollected assets remaining in their hands, it appeared that a 100 per cent. assessment was necessary to pay their debts, and he accordingly ordered such an assessment. The bills characterize his conduct as a failure, neglect, and refusal to collect the claims of Penn and Reading against Farmers and a consequent failure to comply with the conditions and provisions of the statute authorizing assessments of stockholders, and as 'in fraud of the rights' of Penn and Reading, their creditors and stockholders. His ignoring the claims is charged to have been 'a grave error of law based upon his unwarranted assumption of judicial power in abrogating, cancelling, and waiving' the claims of Penn and Reading against Farmers, and 'adjudicating the private rights and obligations of parties not subject to his power and control,' which invalidated the assessments.

The receiver interposed motions to dismiss which were sustained by the District Court. The Circuit Court of Appeals reversed,³ holding the bills set forth a cause of action since, if thier allegations were true, the Comptroller had exceeded his statutory power and acted arbitrarily in ordering the assessments. The importance of the question involved and asserted conflict of decision moved us to grant certiorari. 302 U.S. 665, 58 S.Ct. 18, 82 L.Ed. —-; 302 U.S. 665, 58 S.Ct. 19, 82 L.Ed. —-.

The petitioner's position is that the agreement and transfer of assets to the Farmers did not effect a statutory consolidation; that the Comptroller was, there- fore, at liberty to treat all three banks as separate entities for the purpose of assessing stockholders' liability; and that stockholders may not, by a proceeding in equity, challenge his official findings as to insolvency and necessity for an assessment. The respondents say the Comptroller's power of assessment is conditioned on a basic or quasi jurisdiction fact, that the ordinary resources of a bank have been exhausted, and, if they have not been, or are deficient only because of the Comptroller's unlawful abrogation of and refusal to require collection of a valid claim sufficient to pay the bank's debts, the assessment is subject to direct attack as in excess of that officer's statutory power, as arbitrary, capricious, and a denial of due process of law. We are of opinion that the assessments were not subject to attack or frustration in these proceedings upon the grounds set forth in the bills.

1. The agreements of February 17 and February 20 did not effect a consolidation in conformity with the National Banking Act so as to constitute the existing stockholders of Penn and Reading, together with the stockholders of Farmers, stockholders of a consolidated bank. The steps requisite to such consolidation were never taken.⁴

2. When the Comptroller took charge of the banks in question he was bound to deal with them, so far as their assets and liabilities were concerned and in respect of stockholders' liability, upon the basis that they were three separate associations. This conclusion is unaffected by the legality and effectiveness of the agreement of February 17, 1933, upon which respondents insist.⁵ At most the agreement substituted a new asset the promise of Farmers—for the old assets. Respondents do not claim that the contract and the transfer pursuant to it worked a novation whereby the creditors of the transferring banks became creditors of the transferee. So far as the Comptroller was concerned, these creditors were still those of the former and entitled to look to their assets for payment.

3. Whether the Comptroller took the view that the contracts and what was done under them were effective to commute the physical assets...