Heiden v. Cremin

• Decision Date: 20 July 1933
• Docket Number: No. 9504.,9504.
• Citation: 66 F.2d 943
• Parties: HEIDEN v. CREMIN.
• Court: U.S. Court of Appeals — Eighth Circuit

66 F.2d 943 (1933)

HEIDEN v. CREMIN.

No. 9504.

Circuit Court of Appeals, Eighth Circuit.

July 20, 1933.

Robert B. Pike, of Sioux City, Iowa (Larned F. Brown, of Sioux City, Iowa, on the brief), for appellant.

Harry S. Snyder and John S. Sears, both of Sioux City, Iowa, for appellee.

Before STONE, VAN VALKENBURGH, and BOOTH, Circuit Judges.

STONE, Circuit Judge.

This is an action by the receiver of a closed national bank for the double stock liability. The defendant appears on the bank stock books as "Wm. J. S. Cremin, trustee." The theory of the action is that he is personally liable. His defense is that he is not the owner of the stock but holds purely as a trustee for his four minor children and, therefore, is not personally liable. Section 66, title 12 USCA. The trial court found that he held only as trustee and was not personally liable. The receiver appeals.

Before reaching the merits, we are met by a motion of appellee to dismiss the appeal. The ground of the motion is, in substance, that this is a law case tried to the court on waiver of jury; that there are no special findings of fact and none were requested by appellant nor was any motion for judgment made by him; that, in this situation of the record, there is nothing here for review. Without examining or determining this matter, we prefer to pass it by and affirm the judgment on the merits.

On the merits, appellant argues five points.

I. The first of these is that the statutory stock liability cannot be avoided by a conveyance of the stock to one not legally capable of assuming it and that this applies to a conveyance to a trustee for minors.

It is a well-established rule of law, applicable to corporations generally, that a transfer of stock must be made to one not only legally capable of holding stock but who may lawfully assume the obligations attaching to ownership of such stock — by assumption of obligations, financial responsibility is not meant but legal liability to respond. There is no reason why this rule should not apply to national bank stock and it has been so applied: As to minors, Early v. Richardson, 280 U. S. 496, 50 S. Ct. 176, 74 L. Ed. 575; Aldrich v. Bingham (D. C.) 131 F. 363; Foster v. Chase (C. C.) 75 F. 797; and Foster v. Wilson (C. C.) 75 F. 797. As to national banks, Concord First National Bank v. Hawkins, 174 U. S. 364, 19 S. Ct. 739, 43 L. Ed. 1007; California Bank v. Kennedy, 167 U. S. 362, 17 S. Ct. 831, 42 L. Ed. 198; and Johnston v. Laflin, 103 U. S. 800, 26 L. Ed. 532. But this rule is not held to prevent transfer of stock to a trustee of a valid trust. Ordinarily, the trustee may be required to respond to the obligation of the stock and either is allowed to recoup from the trust estate in his hands (Taylor v. Davis, 110 U. S. 330, 335, 4 S. Ct. 147, 28 L. Ed. 163) or the execution on the judgment against him runs only against the trust estate (Hampton v. Foster C. C. Mass. 127 F. 468). There is no doubt that such trustees may hold national bank stock, for section 66, title 12 USCA, unmistakably, implies such by its provisions as to liability on stock so held. Also, that section leaves no doubt as to where the liability rests, for it expressly declares that "persons holding stock as * * * trustees, shall not be personally subject to any liabilities as stockholders" and such liability is expressly placed upon "the estates and funds in their hands" as such.

What reason can there be for judicial construction which will declare that a transfer of national bank stock to a trustee does not afford him the protection of section 66 solely because his cestui que are minors or otherwise incompetent? The parties primarily protected by the double stock liability and for whose benefit it exists are the creditors of the bank. Section 66 declares, as clearly as language can, that, as to trustees, administrators, executors, and guardians, the creditors are relegated to the "estate and funds in their hands" and are denied the personal liability of the trustee, administrator, executor, or guardian. If the creditor is relegated to such "estate and funds," it is quite clear that the beneficiaries thereof are in no wise liable any more than the trustees, etc., would be. What difference, then, can it make to the creditors who or what the beneficiary may be? It does not in the least affect or concern them.

Also, such a construction is opposed to one of the broad policies of the National Banking Act. This policy is to permit great freedom in the transfer of national bank stock. In a very early case, First Nat. Bank v. Lanier, 11 Wall. 369, the court at page 377, 20 L. Ed. 172, said: "The power to transfer their stock is one of the most valuable franchises conferred by Congress on banking associations. Without this power, it can readily be seen the value of the stock would be greatly lessened, and, obviously, whatever contributes to make the shares of the stock a safe mode of investment, and easily convertible, tends to enhance their value." In a much later case, Earle v. Carson, 188 U. S. 42, the court at page 47, 23 S. Ct. 254, 47 L. Ed. 373, said this policy was one of the "essential features" of the act. In Third National Bank v. Buffalo German Ins. Co., 193 U. S. 581, 592, 24 S. Ct. 524, 48 L. Ed. 801, the court states this policy as being to encourage investment in such stock by facilitating transfers thereof. Also see McDonald v. Dewey, 202 U. S. 510, 533, 534, 26 S. Ct. 731, 50 L. Ed. 1128, 6 Ann. Cas. 419; and Bullard v. Bank, 18 Wall. 589, 595, 596, 21 L. Ed. 923. Clearly, a construction which would make it unsafe to trustees and guardians to invest in such stock would remove a class of buyers and holders from the market and run directly counter to this important policy which the Supreme Court has repeatedly announced was one of the features of the act.

Obviously, this should not be done unless there is some compelling announcement in or necessarily drawn from the act itself. But to reach such a result would do violence to the purpose declared in section 66. The section reads that "trustees" and "guardians" shall not be personally liable; that only the "estate and funds in their hands" shall be liable and, therefore, that the beneficiaries shall not be personally liable. Yet this construction would make trustees and guardians personally liable for the sole reason that the beneficiaries could not assume a liability from which the section itself frees them. When this is sought on the ground that the beneficiary is a minor (a legal incompetent), the vice is emphasized because "guardians" are appointed only for legal incompetents (more often minors than otherwise) and trusts are an established method by which to protect and provide for minors and other incompetents. Not only does no provision of the act justify this limitation of the above general policy of freedom of transfer, but such limitation is directly opposed to the wording and spirit of this very section of the act.

However, appellant contends that his position is sustained by five cited cases. The first is Early v. Richardson, 280 U. S. 496, 50 S. Ct. 176, 177, 74 L. Ed. 575. The Early Case involved an attempted out and out gift to minors and the decision clearly applies to a gift alone. In holding such a transfer ineffectual to relieve the transferor from the double stock liability, the court but applied the long-established rule as to transfer of corporate stocks generally — a rule which had long theretofore been applied by the lower federal courts to national bank stock transfers (Aldrich v. Bingham D. C. 131 F. 363; Foster v. Chase C. C. 75 F. 797; and Foster v. Wilson C. C. 75 F. 797) and, inferentially, announced by the Supreme Court itself (Concord First Nat. Bank v. Hawkins, 174 U. S. 364, 19 S. Ct. 739, 43 L. Ed. 1007; California Bank v. Kennedy, 167 U. S. 362, 17 S. Ct. 831, 42 L. Ed. 198; and Johnston v. Laflin, 103 U. S. 800, 26 L. Ed. 532). That opinion has but one brief reference to any trust relation. It appears that, during the argument, the thought was presented that the donor might be regarded as a trustee for the minors. The court disposes of this shortly by saying that this was a gift and not a trust relation. In stating there is no merit in the suggestion, the court said "even if that would enable him to avoid personal liability, Johnson v. Laflin, 5 Dill. 65, 82, Fed. Cas. No. 7,393." Obviously, this statement was associated with the expression in the citation. In the Johnson Case (appearing later in 103 U. S. 800, 26 L. Ed. 532), Britton (president of a national bank) purchased, with bank funds, stock in the bank from a broker of Laflin, the seller. After receiving from the broker blank indorsed certificates and blank power of attorney to transfer, Britton had transfer made on the books of the bank but no new certificates issued. The stock transfer book showed "James H. Britton, trustee," and the stock ledger, "James H. Britton, trustee for bank" (meaning this bank). Laflin did not know who the purchaser was and the broker did not know either that the purchase was for the bank or with bank funds but supposed it a personal purchase by Britton. After insolvency of the bank, its receiver sued Laflin for return of the purchase price and for retransfer of the shares to his name. After "assuming, without deciding" (page 81 of 5 Dill., Fed. Cas. No. 7,393) that the English rule (under the Companies Act), to the effect that a transferor remains liable until a transfer has been registered to one capable of holding and assuming the stock liability, applies to national bank stock, and after stating that the registration here was to Britton as "trustee" without Laflin's knowledge, Judge Dillon (page 82 of 5 Dill., Fed. Cas. No. 7,393) said:

"But the act (Rev. St. § 5152 12 USCA § 66), authorizes the holding of stock by a trustee. If Laflin, in order to relieve himself of liability, is bound to see the transfer of the stock registered, the...