Cronkleton v. Ebmeier

• Court: U.S. Court of Appeals — Eighth Circuit
• Writing for the Court: KENYON and BOOTH, Circuit , and REEVES
• Citation: Cronkleton v. Ebmeier, 38 F.2d 748 (8th Cir. 1930)
• Decision Date: 16 January 1930
• Docket Number: No. 8614.,8614.
• Parties: CRONKLETON v. EBMEIER.

38 F.2d 748 (1930)

CRONKLETON v. EBMEIER.

No. 8614.

Circuit Court of Appeals, Eighth Circuit.

January 16, 1930.

H. D. Addison, of Wayne, Neb. (Fred S. Berry, of Wayne, Neb., on the brief), for appellant.

Herbert A. Welch and H. E. Siman, both of Wayne, Neb. (Davis & Welch, of Wayne, Neb., and Hackney & Welch, of Kansas City, Mo., on the brief), for appellee.

Before KENYON and BOOTH, Circuit Judges, and REEVES, District Judge.

KENYON, Circuit Judge.

Appellee on May 9, 1927, sold certain live stock in Omaha, Neb., the proceeds of which amounted to $7,642.52. He instructed the Commission Company to send the same to the Laurel National Bank of Laurel, Neb. The Commission Company deposited the money about noon of May 9, 1927, in the Stockyards National Bank of South Omaha, with instructions to transmit the same to the Laurel National Bank to the credit of appellee. The Stockyards National Bank sent a deposit ticket to the Laurel National Bank, and called up the Peters National Bank at Omaha, which was the correspondent bank of the Laurel National Bank, and advised them of the deposit, which was accepted by it. The Peters National Bank on May 9th sent a deposit slip to the Laurel National Bank, crediting it with this money. On May 10, 1927, appellee received a deposit slip from the Laurel National Bank covering the proceeds of the stock shipment. The board of directors of the Laurel National Bank, on the afternoon of May 10th, closed the same, and it never opened thereafter. Appellee was overdrawn on May 10th, and on that date checked out various sums. He had a balance in the bank at the time of closing of $5,714.10. This suit is to establish said sum as a preferred claim against appellant, the receiver of the Laurel Bank. We think it unimportant as to whether the deposit from the proceeds of the sale of these cattle was made on the afternoon of May 10th, as found by the court, or on May 9th, for the condition of the bank was the same as to insolvency on both dates. The real questions involved are: (a) Was the Laurel National Bank insolvent on May 9 and 10, 1927? (b) Did the managing officers and directors of the same at the time of the deposit in question know that said bank was insolvent?

On the question of the solvency of the bank at the time of the deposit, the court said:

"That the bank actually was insolvent cannot be disputed in the light of the subsequent liquidation; the indications being that about thirty, and not possibly more than forty, cents on the dollar will be realized for depositors. * * *

"The situation then is that the bank was insolvent and could only pay thirty cents on the dollar; that the bank examiner knew it as soon as he checked it over in May, 1927, and so did the receiver as soon as he came in: that the officers knew there were some losses not reflected on the statement; that as to many large loans the officers knew they could not be realized within any reasonable time, if ever: that the real estate consisted of stale old equities with which they had long and vainly struggled and that no showing should be made to the Federal Reserve Bank to get a loan from that institution."

A national bank examiner made a report to the Comptroller of the Currency of the condition of this bank on February 2, 1927. This report showed over $84,000 of overdue paper, $95,000 of real estate securities taken for debts previously contracted, $49,000 on which real estate security had been taken in violation of law. Under the heading "Criticisms" the examiner's report shows:

"Slow and Doubtful Paper"

"Staggering amount carried. Liquidation practically depends upon ability of directors to move literally and in frequent instances, heavily encumbered farm property. Unless this can be done a heavy loss will result to the bank."

Then under the heading "Other Real Estate Owned":

"Frozen and undesirable. Two parcels carried over statutory limit. A 100% value or more of property tied up here. It is feared a substantial loss will be had herein before elimination can be had."

After the Comptroller of the Currency received said report, he, on or about April 6, 1927, wrote the directors of the Laurel National Bank criticizing the condition of the bank, and notified them to make an assessment of 10 per cent. against the stock to make good the impairment of capital. The bank officers replied that the assessment could not possibly be made, as the holders of a large part of the stock could not pay it. They were then notified by letter from the Deputy Comptroller, under date of April 30, 1927, that, unless the impairment was made good within ninety days, a receiver might be appointed. There had been a shrinkage of deposits of over $77,000 in two months shortly before the closing of the bank. No further credit would be extended by the Federal Reserve Bank. The officers and directors owed the Bank $22,000, and were liable as guarantors for over $15,000. After the receiver took possession, he made a report to the Comptroller of the Currency, which showed, in the recapitulation of assets, bills receivable, $557,536.08, of which $169,751.72 were good, $241,613.95 were doubtful, and $146,170.41 were worthless. The money on deposit in the bank subject to check was $158,854.84; public money on deposit was $37,870.26; the savings accounts were $14,487.32; time deposits $289,541.48, showing a liability to depositors of over $500,000.

By September 26, 1928, the receiver had collected:

  From bills receivable listed as
                    good ................................. $131,399.22
                  From those listed as doubtful...........   59,781.12
                  From those listed as worthless..........   20,828.79
                                                           ___________
                    Making a total collection from
                     the notes of......................... $212,009.13
                  From other assets he had
                     collected............................   43,348.00
                                                           ___________
                  Making a total collected of............. $255,357.13
                  He also collected from the stockholders
                    on their liability ...................  $17,894.72
                

He paid a 20 per cent. dividend, and had $64,000 cash at the time of his testimony. It is possible that some slight amount might be realized out of the remaining assets, but it is safe to assume that every available asset had been drawn on. It is apparent that the assets of the bank on May 9th and 10th were not nearly sufficient to meet the bank's obligations.

The rule as to when a bank is insolvent is well stated in 7 Corpus Juris, 727, as follows: "A bank is solvent when it has enough assets to pay, within a reasonable time, all of its liabilities through its own agencies, and is insolvent when unable to meet its liabilities as they become due in the ordinary course of business, or, in shorter terms, when it cannot pay its deposits on demand in accordance with its promise." In State v. Childers, 202 Iowa, 1377, 212 N. W. 63, 64, the court said: "The question is not whether the assets of the parties, together with the assets of the entity, are of sufficient value to ultimately satisfy the claims of creditors in full. It is the settled rule in this...