Andrews v. St. Louis Joint Stock Land Bank

• Citation: 107 F.2d 462
• Decision Date: 16 December 1939
• Docket Number: No. 11426.,11426.
• Parties: ANDREWS et al. v. ST. LOUIS JOINT STOCK LAND BANK OF ST. LOUIS, MO., et al.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

107 F.2d 462 (1939)

ANDREWS et al. v. ST. LOUIS JOINT STOCK LAND BANK OF ST. LOUIS, MO., et al.

No. 11426.

Circuit Court of Appeals, Eighth Circuit.

November 10, 1939.

Petition for Rehearing and Motion for Modification Denied December 16, 1939.

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June C. Smith, of Centralia, Ill., and Peter P. Schaefer, of Champaign, Ill. (Brandom Hope, of St. Louis, Mo., and Frank B. Leonard, of Champaign, Ill., on the brief), for appellants.

Peyton R. Evans, of Washington, D. C., and George C. Willson, of St. Louis, Mo. (Jacob Chasnoff and Hugo Monnig, both of St. Louis, Mo., on the brief), for appellees.

Before GARDNER, SANBORN and WOODROUGH, Circuit Judges.

GARDNER, Circuit Judge.

Appellants, who were plaintiffs below, by this appeal challenge the correctness of a decree of the lower court which after trial dismissed their amended bill of complaint. Plaintiffs, who are owners of certain bonds issued by the Central Illinois Joint Stock Land Bank of Greenville, Illinois, brought this suit for themselves and on behalf of all others similarly situated. In their amended bill of complaint they in effect sought a segregation of the assets transferred by the Central Illinois Joint Stock Land Bank of Greenville, Illinois, hereafter referred to as Greenville Bank, to the St. Louis Joint Stock Land Bank of St. Louis, Missouri, hereafter referred to as the St. Louis Bank, for the benefit of the owners of bonds issued by the Greenville Bank.

The Greenville Bank, with the approval of the Farm Board, for the purpose of liquidation transferred all its assets to the St. Louis Bank, which by contract assumed and agreed to pay all the liabilities of the transferring bank. The lower court expressed the view that it was the purpose of the Farm Loan Act that all assets deposited with the registrar by a joint stock land bank should become collective security for all bonds issued or assumed by the bank, and that such banks were without authority by contract or otherwise to avoid the effect of the act. This case, on previous submission, was affirmed in an opinion by Judge Thomas. On petition, all the judges constituting the court hearing the cause, voted to grant a rehearing and the case has been reargued and resubmitted.

On this appeal plaintiffs contend, among other things, that: (1) the contract was within the power of the contracting parties; (2) the contract by which the rights of the parties are to be determined is unambiguous.

The act requires that a bank acquiring the assets of a transferring bank in process of voluntary liquidation shall "acquire the assets and assume the liabilities." 12 U.S.C.A. § 823. The contract must not only be executed by the two interested banks but must be approved by the Farm Board. A reading of the act reveals nothing which directly or by inference prohibits the making of the contract here involved. Neither the words nor the purpose of the act prevents the liquidating bank and the acquiring bank, with the approval of the Farm Board, from entering into a contract providing for the creation of a trust out of the acquired assets for the security of the holders of bonds issued by the liquidating bank. We are therefore of the view that the contract is valid and that the determining question depends upon the construction of that contract.

Plaintiffs here contend, and so contended in the court below, that under the unambiguous provisions of the contract, the Greenville Bank's mortgages and securities were preserved as a specific security for the bonds issued by that bank and that if these transferred assets are not adequate to pay the bonds then the St. Louis Bank is liable for any deficiency in payment because of the assumption clause in the contract.

The provisions of the contract here material are as follows:

"Agreed, that the said The Central Illinois Joint Stock Land Bank of Greenville, Illinois, in consideration of the sum of Nine Hundred Thousand Dollars ($900,000.00) to it in hand paid, receipt of which is hereby acknowledged, and covenants and agreements hereinafter made by the parties hereto, hereby sells and assigns to the said St. Louis Joint Stock Land Bank of St. Louis, all of its furniture, fixtures, records, supplies, promissory notes, real estate mortgages, in the sum of Eight Million, Five Hundred Sixty-nine Thousand Three Hundred Fifty Dollars ($8,569,350.00) and real estate, including all abstracts of title, insurance policies and other papers and documents held in connection with and pertaining to said mortgages and business, all of which furniture and fixtures are described in detail in `Schedule A' and notes in mortgages in `Schedule B' and real estate in `Schedule C', all of which are hereto attached and made a part hereof.

"The St. Louis Joint Stock Land Bank of St. Louis on its part agrees to and does hereby assume the payment of farm loan bonds of the said The Central Illinois Joint Stock Land Bank of Greenville, Illinois, now outstanding, in the sum of Eight Million Three Hundred Thousand Dollars ($8,300,000.00) and interest thereon accruing since the last interest paying period. Such bonds are listed by number in `Schedule D' hereto attached and made a part hereof.

"The Central Illinois Joint Stock Land Bank of Greenville, Illinois has with the registrar of the Federal Land Bank District Number Six, farm mortgages of which mortgages in the amount of Eight Million Four Hundred Forty-nine Thousand Five Hundred Fifty Dollars ($8,449,550.00) are to be left on deposit as security for the bonds of the said The Central Illinois Joint Stock Land Bank of Greenville, Illinois, hereby assumed in like amount."

The rights and liabilities of the St. Louis Bank with reference to the Greenville assets must be determined by the provisions of the Farm Loan Act, this contract, and the general rules of law governing liquidations under such a contract.

Prior to the execution of this contract, each of these banks was an independent institution organized, existing and operating under the Farm Loan Act (12 U.S.C.A. § 641 et seq.). The Greenville Bank desired to go into voluntary liquidation which it was authorized to do by Section 822 of the act (12 U.S.C.A.), but before it could go into voluntary liquidation it was necessary that provision be made for payment of its liabilities, and such provision required the approval of the Farm Loan Board. Under this act, we are of the view that such a bank had the right to go into liquidation at any time, provided it made provision for the payment of its liabilities with the approval of the Farm Loan Board. That board was not restricted by the act from approving any plan or method which in its judgment insured the application of its assets to the payment of its liabilities. In fact, the provision in Section 823 which authorized one joint stock land bank to acquire the assets and assume the liabilities of another was not in the act as originally passed, but came in by amendment on March 4, 1925, although prior to that time the act authorized liquidation conditioned on provision being made with the approval of the Farm Board for the payment of its liabilities.

In the instant case, the first plan proposed was that the St. Louis Bank would take over the outstanding capital stock of the Greenville Bank, but this plan was rejected by the Board. Such a plan made no provision for the payment of the liabilities of the Greenville Bank. The Board advised the banks that it would not approve any plan of liquidation which did not make provision for the payment of the liabilities of the Greenville Bank. Then, with the approval of the stockholders of both banks, evidenced by the adoption of proper resolutions, the contract here in question was entered into with the approval of the Farm Loan Board. It appears that the form of contract was furnished or at least suggested by that Board. It made specific provision that the farm mortgages of the Greenville Bank then on deposit and pledged with the registrar for the payment of its outstanding bonds must be left on deposit and preserved for the specific purpose of the payment of those bonds in an amount equal to the amount of the outstanding bonds.

We must assume that all parties concerned in this transaction intended to comply with the provisions of the Farm Loan Act requiring that provision be made for the payment of the liabilities of the Greenville Bank. This purpose is manifest by the acts of the parties including the resolutions passed by the stockholders of each of the banks and by the contract made pursuant to these resolutions, all being in effect a part of one transaction. The contract clearly and specifically provides that the mortgages of the Greenville Bank "are to be left on deposit" with the registrar "as security for the bonds of the said Central Illinois Joint Stock Land Bank of Greenville, Illinois." These mortgages had already been deposited pursuant to the requirements of the act and were being held by the registrar in trust for the bondholders owning bonds issued by the Greenville Bank. Section 853 of the act (12 U.S.C. A.) provides that, "The land bank which is to issue said farm loan bonds shall transfer to said registrar, by assignment, in trust, all first mortgages and bonds which are to be held by said registrar as collateral security, said assignment providing for the right of redemption at any time by payment as provided in this chapter and reserving the right of substitution of other mortgages qualified under sections 771 and 811-824 of this title chapter. Said mortgages and bonds shall be deposited in such deposit vault or bank as the Farm Credit Administration shall approve, subject to the control of said registrar and in his name as trustee for the bank issuing the farm loan bonds and for the prospective holders of said farm bonds."

Manifestly, when the two banks entered into their contract, the mortgages were already, by force of the...