Erickson v. Richardson, 7885.

• Decision Date: 09 December 1936
• Docket Number: No. 7885.,7885.
• Citation: Erickson v. Richardson, 86 F.2d 963 (9th Cir. 1936)
• Parties: ERICKSON v. RICHARDSON.
• Court: U.S. Court of Appeals — Ninth Circuit

86 F.2d 963 (1936)

ERICKSON v. RICHARDSON.

No. 7885.

Circuit Court of Appeals, Ninth Circuit.

December 9, 1936.

Grainger & Hunt, of Los Angeles, Cal., for appellant.

Clock, McWhinney & Clock, of Long Beach, Cal., for appellee.

Before WILBUR, DENMAN, and HANEY, Circuit Judges.

DENMAN, Circuit Judge.

This appeal has been taken from an order of the bankruptcy court confirming an order of a referee allowing as a general claim against the bankrupt estate the claim for $260,200 presented by appellee.

It appears from the agreed statement that prior to January 21, 1935, appellee, as superintendent of banks of the state of California, took possession and charge of the assets of the Bank of San Pedro, an insolvent banking corporation, under authority of the statutes of California. At that time bankrupt owned 2,602 shares of the common capital stock of said bank which had a par value of $100 per share.

On January 21, 1935, the bankrupt filed his voluntary petition in bankruptcy, and was thereupon adjudicated bankrupt. Thereafter appellant was appointed trustee of the bankrupt estate. There is no evidence of any attempt of the appellant to decline to accept the statutory transfer of the bank stock, if that were possible. Cf. Gross v. Irving Trust Co., 289 U.S. 342, 344, 53 S.Ct. 605, 77 L.Ed. 1243, 90 A.L.R. 1215.

Act 652a, 1 General Laws, California, 1931, p. 314, provides:

"The stockholders of every banking corporation organized under the laws of the state of California shall be held individually liable, equally and ratably, and not one for another, for all contracts, debts and engagements of such corporation, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares." (Section 1.)

Section 2 of that act makes provision for the enforcement of such liability by the appellee, by ordering a ratable assessment upon stockholders. This is not an assessment adding to the capital of the bank. The superintendent of banks collects it for the creditors, paying them therefrom. If the amount so collected exceeds the creditors' claims, the superintendent returns the balance to the stockholder.

About two months after the adjudication, appellee levied such an assessment, and filed a general claim against the bankrupt estate for the debtor's share, $260,200.

It will be noted that when the stockholder pays the assessment levied under the provisions of the act, he is improving the financial condition of the corporation of which he is a stockholder. If this assessment and the other assets of the bank repay the depositors, the bank is reopened and the stockholder continues his interest in the living corporation.

If the assessment moneys to pay the creditors of the corporation do not constitute a debt which may be filed in the bankruptcy proceeding, we have a situation where the bankrupt's interest in the stock of the bank has automatically been transferred to the trustee in bankruptcy (Gross v. Irving Trust Co., supra), while his discharge in bankruptcy does not free him from the obligation to pay the assessment.

The appellant objected to the filing of the claim of the superintendent of banks for the amount assessed against the bankrupt stock, claiming it was not a debt which could be filed in the bankruptcy proceeding because:

(1) The assessment made after the filing of the petition was too indefinite and remote a contingency to constitute a debt at the time of the filing of the petition; and

(2) If it were such a debt, it is "founded" entirely in the California statute and has none of the elements which would constitute it a debt "founded * * * upon a contract express or implied," as required by subdivision (4) of section 63a of the Bankruptcy Act, 11 U.S.C.A. § 103 (a) (4), defining debts which may be proved in bankruptcy proceedings. It is conceded that the liability here sought to be enforced is not within any other provision of section 63.

With regard to the first contention, it seems foreclosed by the decision of the Supreme Court in Maynard v. Elliott, 283 U.S. 273, 51 S.Ct. 390, 392, 75 L.Ed. 1028, in which the Supreme Court held, after a full review of the authorities, that the future and contingent liability of an indorser of commercial paper, executed before but maturing after the filing of the petition in bankruptcy, is a debt on an express contract, provable in a bankruptcy proceeding. It is none the less such a debt although its amount is indeterminate by reason of a possible future part payment by the maker of the paper of interest or interest and principal. The liability may be entirely extinguished by failure to take the necessary steps of presentation and dishonor. Maynard v. Elliott holds, citing many decisions, the indorser of paper not matured at the time of the bankruptcy to be standing on the "same plane as makers of contracts of suretyship or guarantee of payment of a debt not due until after the bankruptcy." In re Lyons Beet Sugar Refining Co. (D.C.) 192 F. 445, is cited with approval.

The contingencies of liability upon the assessment of the stock by the superintendent of banks are no more remote, uncertain, or unlikely than the nonpayment of commercial paper or the nonperformance of a guaranteed obligation.

Concerning the second objection by the appellant, that the assessment obligation arising from the provisions of the statute is not a "debt * * * upon a contract express or implied," the interpretation of the last phrase is subject to two canons of construction established by the Supreme Court. The one is stated in the case of Maynard v. Elliott, supra, 283 U.S. 273, 277, 51 S.Ct. 390, 392, 75 L.Ed. 1028, as follows:

"Possible doubts as to the meaning of the section should be resolved in the light of the purpose of the Act `to convert the assets of the bankrupt into cash for distribution among creditors, and then to relieve the honest debtor from the weight of oppressive indebtedness, and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes.' Williams v. U. S. Fidelity Co., supra, 236 U.S. 549, 554, 35 S.Ct. 289, 290 59 L.Ed. 713."

The other canon is that the character of the debt is determined by the law of the state in which it is created. This court so holds in construing the National Bankruptcy Act itself, with reference to a claim against the stockholders of a California state bank.

"The court held the provision of the Constitution in question to be self-executing, and placed upon it the construction already indicated i. e., the stockholder's liability was contractual. That construction of the Constitution of the state by the highest court in existence under it is binding upon the federal courts. Flash v. Conn, 109 U.S. 371 377, 3 S.Ct. 263, 27 L.Ed. 966." In re Brown (C.C.A.) 164 F. 673, 679; Bryant v. Swofford Bros. Dry Goods Co., 214 U.S. 279, 290, 29 S.Ct. 614, 53 L.Ed. 997; Freuler v. Helvering, 291 U.S. 35, 45, 54 S.Ct. 308, 312, 78 L.Ed. 634.

The first criterion, that the statute is to be interpreted "to relieve the honest debtor from the weight of oppressive indebtedness and permit him to start afresh free from the obligations and responsibilities consequent upon business misfortunes," would be violated by appellant's contention. Though yielding the stock to his creditors in bankruptcy, his discharge in bankruptcy would not enable him to start "afresh free" from his "business misfortunes." He would still carry the "weight of oppressive indebtedness," for an assessment which would enrich the bank in which he no longer had a stockholder's interest.

Applying the second criterion, namely, that the obligation of a stockholder for an assessment is or is not contractual in nature as determined by the law of the state of California, the appellant's position cannot be sustained.

This court, in 1908, in the case of Walker v. Woodside, 164 F. 680, 683, has determined the character of the stockholder's liability under California law, with reference to its character as a "debt" permitted to be filed under section 63 of the Federal Bankruptcy Act, 11 U.S.C.A. § 103, "founded * * * upon a contract express or implied."

The language of section 63 is unchanged. The Walker Case was decided on the same day as In re Brown, supra, holding the character of the stockholder's liability must be determined by the California law.

We held that under the Federal Bankruptcy Act, the liability of the stockholders of a state bank to its depositors constituted a provable claim under section 63 of the Bankruptcy Act (11 U.S.C.A. § 103) because it is founded in contract.

"The Constitution, as well as a statute of California, makes a stockholder in a corporation organized under its laws liable for his proportion of all of the debts of the corporation during the time he was such stockholder (section 3, art. 12, Const.; section 322, Civ.Code), which liability, in the case of banking corporations, arises at the time of the respective deposits. Wells v. Black, 117 Cal. 157, 163, 48 P. 1090, 37 L. R.A. 619, 59 Am.St.Rep. 162. By section 359 of the Code of Civil Procedure of the state, it is provided that an action against a stockholder to recover his proportion of the debts of the corporation must be commenced within three years after the liability arises. The amended petition under consideration alleges that within two years then last past the six petitioning creditors had, respectively, deposited with the banking corporation of which the alleged bankrupt was a stockholder certain specific sums of money, for which the corporation was on November 26, 1907, and still is, indebted, and for his proportion of which, aggregating, according to the petition, $1,052.35, Walker then was, and still is, indebted. That such a claim arises out of contract was decided by the Supreme Court of the state in Kennedy v. California Savings Bank, 97 Cal. 93, 31 P. 846, 33 Am.St.Rep. 163, and Dennis v....