Byrne v. Fed. Land Bank of St. Paul

• Decision Date: 29 July 1931
• Docket Number: No. 5946.,5946.
• Citation: 61 N.D. 265,237 N.W. 797
• Parties: BYRNE v. FEDERAL LAND BANK OF ST. PAUL et al.
• Court: North Dakota Supreme Court

61 N.D. 265

237 N.W. 797

BYRNE

v.FEDERAL LAND BANK OF ST. PAUL et al.

No. 5946.

Supreme Court of North Dakota.

July 29, 1931.

Syllabus by the Court.

A Farm Loan Association chartered under the provisions of the act of congress known as the “Federal Farm Loan Act” (12 USCA § 641 et seq.) is a corporation separate and distinct from another corporation provided for in the same act and known as the “Federal Land Bank”; and a shareholder in the loan association does not become a shareholder in the land bank merely because the loan association applies money, received from the shareholder for its shares, in the purchase of shares in the land bank. It is the loan association who is the shareholder in the land bank, not the one who holds shares in the loan association.

Syllabus by the Court.

One desiring to borrow money from a Federal Land Bank under the provisions of the aforesaid act must become a shareholder in the Farm Loan Association; but as such shareholder he is “individually responsible, equally and ratably” not only for the amount represented by his shares, but in addition thereto in the extent of the amount of his stock owned by him at the par value thereof.

Syllabus by the Court.

Loans to borrowers from a Federal Land Bank are, under the provisions of the aforesaid act, made through Farm Loan Associations, so far as continental United States is concerned, and the Farm Loan Association becomes responsible for the repayment of the amounts borrowed by its shareholders.

Syllabus by the Court.

Where a Federal Land Bank makes a loan to a member of the Farm Loan Association, under the provisions of the aforesaid act, and forecloses the mortgage given to secure such loan, and bids in the property for the full amount of the loan and costs, such loan is repaid and it becomes the duty of the Federal Land Bank to pay off at par and retire the amount of stock taken by the loan association in the Federal Land Bank at the time the loan is made; but in so doing the Federal Land Bank, instead of returning to the loan association the amount of money received for the purchase of the shares, may apply such amount upon any indebtedness due it from the loan association.

Syllabus by the Court.

The provisions in said act requiring such loan association to “pay off at par and retire the corresponding shares of its stock which were issued” to the borrower at the time the loan was made, and at the time the shares of stock in the land bank were purchased by the loan association, do not require such loan association to pay to the borrower the amount he paid in for his shares when such loan association is insolvent. The borrower is a member of the association and liable for its debts to the extent of double the amount of the shares he purchased.

Syllabus by the Court.

In the instant case plaintiff applied to defendant Farm Loan Association for membership therein, subscribing and paying for shares of stock in the aggregate value of $500; and thereafter said loan association applied to the Federal Land Bank for a loan to the plaintiff, subscribing and paying for one hundred shares of stock in the latter corporation, aggregating $500. Said loan was made and thereafter paid in full. Upon such payment the federal bank retired the amount of bank stock taken by the loan association because of said loan and applied the par value thereof upon the indebtedness due from the loan association; but the loan association did not repay to the plaintiff the amount received from him in payment of his stock in the loan association owing to the fact that it had no reserve, no assets from which it could be made, and was in fact insolvent. It is held: The Federal Land Bank had the right to apply the value of its shares upon the indebtedness due from the loan association; that it is not indebted to the plaintiff in any amount and had no relations with him other than that of creditor; and that the plaintiff cannot compel the loan association to repay him the value of his stock in the loan association under the circumstances narrated; but he remains liable for his obligations incurred while a stockholder until such debts are discharged.

Appeal from District Court, Stutsman County; Fred Jansonius, Judge.

Action by Ed. Byrne against the Federal Land Bank of St. Paul and another. Judgment for plaintiff, and defendants appeal.

Reversed, and case dismissed.

John Thorpe and Geo. I. Reimestad, both of St. Paul, Minn., and Knauf & Knauf, of Jamestown, for appellants.

Freerks & Freerks, of Jamestown, for respondent.

Irving P. Whitehead, of Baltimore, Md., Peyton R. Evans, of Washington, D. C., and Zuger & Tillotson, of Bismarck, amici curiæ.

BURR, J.

The Federal Land Bank of St. Paul was chartered under the provisions of the Federal Farm Loan Act (12 USCA § 641 et seq.) and is engaged in the business of loaning money to farmers under the provisions of said act. The same act makes provision for the organization of other separate and distinct organizations known as Farm Loan Associations, and in July, 1918, the Nortonville National Farm Loan Association was chartered by the Farm Loan Board, under the provisions of the same act. Such farm loan association is empowered to issue shares of stock at a par value of $5 each, and a borrower in territory allotted to a farm loan association must apply for membership in such association and “subscribe for shares of stock in such farm loan association to an amount equal to 5 per centum of the face of the desired loan, said subscription to be paid in cash upon the granting of the loan. If the application for membership is accepted and the loan is granted, the applicant shall, upon full payment therefor, become the owner of one share of capital stock in said loan association for each $100 of the face of his loan, or any major fractional part thereof. Said capital stock shall be paid off at par and retired upon full payment of said loan. Said capital stock shall be held by said association as collateral security for the payment of said loan, but said borrower shall be paid any dividends accruing and payable on said capital stock while it is outstanding.” Section 8 of the act (12 USCA § 733).

There is no statutory provision limiting the amount of capital stock which may be issued by a farm loan association. The amount of stock depends upon the number of borrowers and the amount of the loans secured.

When the application of such prospective borrower for membership in the loan association is accepted, and upon filing his application with the farm loan association, he may “borrow from the Federal land bank through such association the sum necessary to pay for shares of stock subscribed for by him in the national farm loan association, such sum to be made a part of the face of the loan and paid off in amortization payments. * * *” Section 9 of the act (12 USCA § 742).

The same section provides that shareholders of every National Farm Loan Association shall be “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 stock owned by them at the par value thereof, in addition to the amount paid in and represented by their shares.” (12 USCA § 744.)

When a prospective borrower applies for a loan the application is made through this Farm Loan Association, and when such “national farm loan association shall desire to secure for any member a loan on first mortgage from the Federal land bank of its district it shall subscribe for capital stock of said land bank to the amount of five per centum of such loan, such subscription to be paid in cash upon the granting of the loan by said land bank. Such capital stock shall be held by said land bank as collateral security for the payment of said loan, but said association shall be paid any dividends accruing and payable on said capital stock while it is outstanding. Such stock may, in the discretion of the directors, and with the approval of the Federal Farm Loan Board, be paid off and retired upon full payment of the mortgage loan. In such case the national farm loan association shall pay off at par and retire the corresponding shares of its stock which were issued when said land bank stock was issued. The capital stock of a Federal land bank shall not be reduced to an amount less than five per centum of the principal of the outstanding farm loan bonds issued by it.” See section 7 of the act (12 USCA §§ 721, 722).

In 1919 the plaintiff applied to the Nortonville Farm Loan Association for membership in order to secure an installment loan of $10,000. His application for membership was accepted by the Nortonville National Farm Loan Association, and he subscribed for one hundred shares of stock in the loan association at the aggregate par value of $500 with request to the Federal Land Bank to deduct this amount from his loan. The Nortonville National Farm Loan Association issued him one hundred shares of stock in the association, and the plaintiff pledged such shares to the association as collateral security for his loan.

The Nortonville Farm Loan Association thereupon subscribed for one hundred shares of stock in the Federal Land Bank. The Land Bank approved the loan and paid $9,500 to the plaintiff and $500 to the Nortonville Farm Loan Association, in payment of plaintiff's shares of stock in the Farm Loan Association, as directed by plaintiff, and this latter amount was applied by the Farm Loan Association upon the shares of stock of the Federal Land Bank bought by it because of plaintiff's loan.

The plaintiff defaulted in his payments and the bank notified the loan association of the default, but the “association was unable to and did not make good such default * * * either by payment of the amount unpaid thereon in cash or by the substitution of an equal amount of Federal Farm Loan bonds with all unmatured coupons attached, or at all.” Thereupon the bank foreclosed the mortgage,...