American Trust Co. v. Grut

• Citation: 80 F.2d 155
• Decision Date: 12 November 1935
• Docket Number: No. 7913.,7913.
• Parties: AMERICAN TRUST CO. et al. v. GRUT.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

80 F.2d 155 (1935)

AMERICAN TRUST CO. et al. v. GRUT.

No. 7913.

Circuit Court of Appeals, Ninth Circuit.

November 12, 1935.

James M. Wallace, of San Francisco, Cal., and Wade W. Moore, of Pittsburg, Cal., for appellants Pacini and others.

C. W. White, of Hayward, Cal., for appellant Lucas.

Tinning & DeLap, of Richmond, Cal., for appellants American Trust and others.

Albert C. Agnew, William A. Boekel, John D. Gallaher, and Carroll Single, all of San Francisco, Cal., for appellee.

Before WILBUR, MATHEWS, and HANEY, Circuit Judges.

HANEY, Circuit Judge.

Review is here sought of a decree rendered in favor of plaintiff, as receiver of the First National Bank of Bay Point, a national banking association, against certain stockholders in that bank, and their transferors who, it is alleged in the bill, made the transfers in question "with knowledge of such (failure of bank to meet its obligations) impending failure." In the decree rendered in the court below, judgments were granted against all the defendants who were stockholders at the time of the failure of the bank for a 100 per cent. assessment, and against the transferors for the same amount, subject to the proviso that the judgments against the transferors be credited with any amount paid by their transferees. From this decree, the transferors (defendants who were not stockholders at the time the bank became insolvent but who had transferred stock, as found by the court with knowledge of the impending insolvency of the bank) appeal, asserting several claims of error, only one of which need be considered here. Such contention is that a court of equity has no jurisdiction of the subject of the suit.

Liability of shareholders of a national banking association, commonly referred to as "double liability," arises by virtue of statute (United States ex rel. Citizens' Nat. Bank v. Knox, 102 U.S. 422, 26 L.Ed. 216), and it is for such liability that recovery was granted below.

The first national bank under our Constitution was chartered as "Bank of the United States" by Congress on February 25, 1791, one-fifth of the stock of which was subscribed for by the government of the United States. On March 7, 1819, it was held that Congress did have power to charter a national bank. McCulloch v. Maryland, 4 Wheat. (17 U.S.) 316, 4 L.Ed. 579. However, the troublesome experience of banks so chartered limited the successful operation of any substantial number of such banks.

Until about 1860, state banks flourished with varying degrees of success, practically all of which issued their own bank notes. At various times, these notes were subject to a discount in exchange, which was more variable than the weather, for several reasons, such as the weakness of the banks themselves, and because of counterfeit notes.

A large amount of credit was necessary during the Civil War, and one of the proposals then made by financiers was that, under a general law of Congress, banks be permitted to organize, and issue notes to be secured by government bonds, deposited with an officer of the government. It was also proposed to safeguard the depositors by making the stockholder in such banks liable to the amount of the par value of his stock in addition to the amount invested in the stock.

Accordingly the Act of February 25, 1863, was passed by Congress authorizing the organization of national banking associations, and the issuance of national bank notes for the purpose above stated. It was also provided chapter 58, § 12 (12 Stat. 668): "For all debts, contracted by such association for circulation, deposits, or otherwise, each shareholder shall be liable to the amount, at their par value, of the shares held by him in addition to the amount invested in such shares." Up to the time of this act, the only way a national bank could be organized was by special charter of Congress. The foregoing act was repealed by the Act of June 3, 1864, but this latter act provided chapter 106, § 12 (13 Stat. 102): "The shareholders of each association formed under the provisions of this act, and of each existing bank or banking association that may accept the provisions of this act, shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements 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 12 U.S.C.A. p. 111, § 63.

It should be here noted that the statute itself gave no right to recover the double liability from anyone except a "shareholder." Under this statute it was held that the remedy to recover a 100 per cent. assessment from a "shareholder" must be at law. See Kennedy v. Gibson, 8 Wall. (75 U.S.) 498, 19 L.Ed. 476 (decided Dec. 13, 1869); Casey v. Galli, 94 U.S. 673, 24 L.Ed. 168 (decided March 27, 1877); United States ex rel. Citizens' Nat. Bank v. Knox, supra (decided Dec. 20, 1880); Parker v. Robinson, 18 C.C.A. 36, 71 F. 256 (decided Nov. 15, 1895); Hale v. Allinson, 188 U.S. 56, 23 S.Ct. 244, 47 L.Ed. 380 (decided Jan. 19, 1903); Bailey v. Tillinghast, 40 C.C.A. 93, 99 F. 801 (decided Feb. 12, 1900). In connection with a similar state statute, see Broderick v. American General Corporation (C.C.A.) 71 F.(2d) 864, 94 A.L.R. 1359.

As above stated, the statute, as it existed prior to the act hereinafter mentioned, permitted recovery only against a "share holder"; but nevertheless equity entertained suits to set aside fraudulent transfers, so that one transferring stock in order to avoid the double liability was held to be a shareholder and liable even though the amount for which judgment was asked was a 100% assessment. See Bowden v. Santos (C.C.Va.) 3 Fed.Cas. 1034, No. 1,716 (decided May, 1877); Bowden v. Johnson, 107 U.S. 251, 2 S.Ct. 246, 27 L.Ed. 386 (decided Mar. 5, 1883); Zimmerman v. Carpenter (C.C.S.D.) 84 F. 747 (decided Jan. 31, 1898); Bailey v. Tillinghast, supra (decided Feb. 12, 1900). Such procedure was both reasonable and necessary, for if one, who had transferred his stock prior to insolvency in order to avoid the double liability, were sued at law to recover a 100 per cent. assessment, a showing that he was not a "shareholder" at the time of insolvency would be a complete defense to such action. Relief against the fraudulent transfer could be obtained only in equity.

Therefore, prior to the act hereinafter mentioned, where a 100 per cent. assessment was sought, the law with respect to the remedy to be...