Fors v. Farrell

• Decision Date: 17 May 1935
• Docket Number: No. 13.,13.
• Citation: 271 Mich. 358,260 N.W. 886
• Parties: FORS v. FARRELL et al.
• Court: Michigan Supreme Court

271 Mich. 358

260 N.W. 886

FORS

v.FARRELL et al.

No. 13.

Supreme Court of Michigan.

May 17, 1935.

Action by Carl A. Fors, receiver of the American State Savings Bank of Lansing, against Felix M. Farrell, the Assets Realization Corporation, and another. From a decree for plaintiff, defendants, except defendant first named, appeal.

Affirmed.

BUTZEL and WIEST, JJ., dissenting.

Appeal from Circuit Court, Ingham County, in Chancery; Leland W. carr, judge.

Argued before the Entire Bench except FEAD and BUSHNELL, JJ.

Wm. Henry Gallagher and Abram W. Sempliner, both of Detroit, for appellants.

Kelley, Sessions, Warner & Eger, of Lansing, for appellee.

NORTH, Justice.

Plaintiff herein is the receiver of the American State Savings Bank of Lansing, a Michigan corporation. The bank suspended doing business in December, 1932, and in a suit brought for that purpose its stockholders were decreed to pay an assessment equal to the par value of their respective holdings. At that time 5,695 shares of its stock of the par value of $20 each stood in the name of Felix M. Farrell. This stock was issue to him in September and October, 1929, and he held it as agent of or trustee for the First National Company of Detroit, now, by change of corporate name, the Assets Realization Corporation. Unless otherwise indicated, we will hereinafter refer to this corporate entity as the First National Company, notwithstanding changes in its corporate name. As set forth in its articles of association, this company was organized for the following purposes: ‘To buy, sell, pledge, hold and generally deal in bonds, notes, mortgages, debentures and other evidences of indebtedness, and stocks, investments and securities of every name or nature as agent or broker and to transact all other business incidental to the foregoing.’

It is alleged by plaintiff that the First National Company held the American State Savings Bank stock for and in behalf of the Detroit Bankers' Company. The latter company denies this allegation, and affirmatively alleges that it was not incorporated until approximately three months after the stock was acquired by the First National Company and that the Detroit Bankers' Company was not organized in cntemplation of taking over the American State Savings Bank's stock; but instead its organization was effected by an exchange of its stock for at least two-thirds of the stock in each of five separate financial institutions. The articles of incorporation of the Detroit Bankers' Company state its purpose as being: ‘To acquire, own, hold, vote and exercise all rights of ownership of and to sell and dispose of shares of the capital stock of banks and trust companies and of other corporations or associations engaged in purchasing, selling on their own account or as agents of others, underwriting or dealing in corporate and other securities or of any other corporation engaged in any business or actively incidental to or related to or of assistance in the conduct of any such business aforesaid.’

In its articles of association it is further provided that each shareholder of its common stock becomes ratably liable for any statutory liability imposed upon the corporation by reason of its ownership of the capital stock of any bank or trust company, and that such liability may be enforced in the same manner and to the same extent as the statutory liability of the stockholders of such bank or trust company. This provision is also incorporated in each stock certificate issued by the Detroit Bankers' Company. From defendants' answers and from plaintiff's amended bill of complaint, as well as from the proofs, it appears that the stock of the First National Company (except a small amount for qualifying purposes) has been held in trust since October 20, 1919, by certain individuals for the benefit of the holders of stock of the First & Old Detroit National Bank, now First National Bank-Detroit; and that, of the 250,000 shares of outstanding stock of the latter bank, 249,897 are held by the Detroit Bankers' Company.

The receiver of the American State Savings Bank, being advised that the Assets Realization Corporation and its immediate predecessor, the First National Company of Detroit, were insolvent, so alleges, and by this suit seeks to have the Detroit Bankers' Company (also certain other defendants) decreed liable for a proportionate share of the assessment made against the stockholders of the insolvent American State Savings Bank. Such liability is asserted on the theory that the Detroit Bankers' Company is the beneficial owner of the American State Savings Bank stock issued to Farrell. Liability is also asserted on the theory that the First National Company of Detroit, now the Assets Realization Corporation, is dominated and controlled by the Detroit Bankers' Company, and is in fact a subsidiary or auxiliary of the Detroit Bankers' Company. Plaintiff had decree in the circuit court, and defendants have appealed.

Decision in the circuit court was in accord with plaintiff's theory and based upon a finding that the Detroit Bankers' Company was in fact and in law the beneficial owner of the stock of the American State Savings Bank outstanding in the name of Farrell as the agent of, or trustee for, the Assets Realization Corporation; and also on the ground that the Assets Realization Corporation, whose stock was trusteed for the benefit of the stockholders of the First National Bank-Detroit, its stock being now held by the Detroit Bankers' Company, was under the domination and control of the Detroit Bankers' Company to such an extent as to render the two corporations one in legal contemplation, resulting in liability on the part of the Detroit Bankers' Company for the stock assessment. In this appeal the defendants assert that the trial court was wrong in each of these holdings; and that in fact and in law the Assets Realization Corporation, successor to the First National Company of Detroit, is the legal owner of the American State Savings Bank stock issued to Farrell.

Is the Detroit Bankers' Company the beneficial owner of the stock issued to Farrell by the American State Savings Bank, and as such liable for the stock assessment? Or, as appellants assert, is the Assets Realization Corporation the holder of this stock and chargeable with the stock assessment?

The creditors of an insolvent bank are vested by law with the right to look to the actual stockholders of the bank for payment of their statutory liability when properly assessed. This right of the creditors cannot be impaired by failure of the bank's records to disclose the true holders of its stock nor by a mere colorable holding of the stock by a third person who in fact holds the stock for the benefit of the real or actual stockholder. A sufficient reason for so holding is that the stockholder's double liability is imposed by law for the benefit of the bank's creditors. While such liability is contractual in nature (Foster v. Row, 120 Mich. 1, 79 N. W. 696,77 Am. St. Rep. 565), after all it is one fixed by statutory provision (McDonald v. Thompson, 184 U. S. 71, 22 S. Ct. 297, 46 L. Ed. 437;Simons v. Groesbeck, 268 Mich. 495, 256 N. W. 496), and cannot be nullified by contract (Petty v. Bay City Bank, 243 Mich. 362, 220 N. W. 704). Nor can this liability imposed by law be evaded by strust devices or other methods of indirect holding. The provision of Michigan's Banking Law as to stockholder's liability (Comp. Laws 1929, § 11945 and notes) does not differ materially from the corresponding portion of the National Banking Law (38 U. S. Stat. 273, § 23; USCA, title 12, § 64 and notes).

‘The object of the statute is not to be defeated by the mere forms of transactions between shareholders and their creditors. The courts will look at the relations of parties as they actually are, or as, by reason of their conduct, they must be assumed to be, for the protection of creditors.’ Pauly v. State Loan & Trust Company, 165 U. S. 606, 623, 17 S. Ct. 465, 471,61 L. Ed. 844.

‘It is well settled, as much as it is possible, that the actual and real owner of stock of a national bank is liable to assessment, whether his name appears on the books as owner or not. Where such stock is held by one in trust for another, such other is the actual and real owner. There is no room to question this. The beneficial owner is the actual and real owner. * * * It is unthinkable that a legal owner of such stock can relieve himself of liability by the device of transferring it to another for his benefit. In such case he is as much the actual and real owner as he was before the transfer.’ Keyes v. American Life & Accident Ins. Co. (D. C.) 1 F. Supp. 512, 513.

This phase of the law seems to be well settled. Of many authorities to that effect, the following may be noted: Rankin v. Fidelity Ins., etc., Co., 189 U. S. 242, 23 S. Ct. 553, 47 L. Ed. 792;Ohio Valley National Bank v. Hulitt, 204 U. S. 162, 27 S. Ct. 179, 51 L. Ed. 423;Witters v. Sowles (C. C.) 32 F. 130;Foster v. Chase (C. C.) 75 F. 797;Lucas v. Coe (C. C.) 86 F. 972;Houghton v. Hubbell, 91 F. 453, 33 C. C. A. 574; Corker v. Soper (C. C. A.) 53 F.(2d) 190;Laurent v. Anderson (C. C. A.) 70 F.(2d) 819;Wright v. Keene, 82 Mont. 603, 60 A. L. R. 109.

In determining the actual character of the holding of the American State Savings Bank stock in the instant case, it is important to note that almost from their inception the Assets Realization Corporation and its predecessors in name did not function as independent corporations. Organization of the original company was effected August 28, 1919; and on October 20, 1919, a so-called ‘General Deposit Agreement’ was consummated. By this agreement its corporate stock (except qualifying shares) was trusteed to five men who were directors of the First & Old Detroit National Bank, now First National Bank-Detroit. This stock has continued to be so held by these trustees or their successors. This general deposit...