Merchants' Nat. Bank of San Francisco v. Continental Bldg. & Loan Ass'n.

• Citation: 232 F. 828
• Decision Date: 15 May 1916
• Docket Number: 2684.
• Parties: MERCHANTS' NATIONAL BANK OF SAN FRANCISCO v. CONTINENTAL BUILDING & LOAN ASS'N et al. In re CONTINENTAL BUILDING & LOAN ASS'N.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

232 F. 828

MERCHANTS' NATIONAL BANK OF SAN FRANCISCO v. CONTINENTAL BUILDING & LOAN ASS'N et al.

In re CONTINENTAL BUILDING & LOAN ASS'N.

No. 2684.

United States Court of Appeals, Ninth Circuit.

May 15, 1916

R. P Henshall, of San Francisco, Cal., for petitioner.

Heller Powers & Ehrman, Hugo D. Newhouse, and Reuben G. Hunt, all of San Francisco, Cal., for respondents.

Nat Schmulowitz, of San Francisco, Cal., for bankrupt.

Before GILBERT, ROSS, and HUNT, Circuit Judges.

HUNT Circuit Judge.

This case arises out of the matters connected with the bankruptcy of the Continental Building & Loan Association referred to in Wilson et al, Petitioners, v. Continental Building & Loan Association et al., Respondents, 232 F. 824 C.C.A. . . ., just heretofore decided. The history of the adjudication need not be repeated.

The petitioner and appellant herein is a national bank, and held an unsecured claim, a note for $2,511.20, against the bankrupt. The claim was presented, filed, approved, and allowed by the referee, and a proxy in due form was executed authorizing the attorney of the claimant to vote the claim at any meeting held for the election of a trustee. At a meeting of the creditors held on September 15, 1915, appellant attempted to vote its claim. One or two other creditors, not shareholders of the bankrupt, and other persons who were stockholders and members of the bankrupt association, were present. The appellant moved the referee that any and all claimants who were stockholders or members of the association bankrupt be denied the right to vote upon the ground that they were not creditors within the meaning of the bankrupt law and held no provable claims as such. When the petitioner, through its attorney, endeavored to vote for trustee, the referee inquired whether the petitioner intended to waive its claim of priority, which had theretofore been made. Counsel representing the bankrupt association replied that no waiver of claim of priority was intended. The referee ruled that stockholders, or members, had the right to vote for a trustee, but that appellant and petitioner had not. Upon petition for review of the order of the referee, the order was affirmed, and review by this court is now sought.

The principal points relied upon by the appellant are: (1) That a shareholder of a building and loan association is a distributee of its assets after claims against the corporation are paid, and that it is therefore impossible for such a shareholder to be a creditor of the corporation within the meaning of the Bankruptcy Act; (2) no person can vote to select a trustee, unless he has a provable claim against the bankrupt, and shareholders of a building and loan company do not possess, by virtue of their holdings, provable claims against the corporation within the meaning of the Bankruptcy Act; and (3) even though the assets to be administered upon in the bankruptcy court are greatly in excess of the provable claims against the bankrupt, yet that fact does not deprive the only creditors who have provable claims from electing a trustee for the bankrupt and administering upon his estate until they are paid; and (4) that petitioner was erroneously denied a right to vote for trustee.

Appellant never objected, and does not now object, to the jurisdiction of the court which made the adjudication in bankruptcy, although such adjudication was based upon the inability of the association to pay debts which it owed, and which were stated to be due to those only who were listed in the schedules of liabilities and assets which accompanied the petition in bankruptcy as shareholders in the association. The referee finds that in these lists of shareholders, called creditors, the names of the petitioner and two other creditors not shareholders were inadvertently admitted. Appellant claims, and properly insists upon, a right to priority of payment under sections 56b and 57e of the Bankruptcy Act, and it is conceded by respondent that as a creditor of the corporation it is entitled to such a priority over debts due to stockholders. Now, with assets worth $751,508.13 due to shareholders, and a total indebtedness of only $12,198.90 due to creditors other than shareholders, of which $2,511.20 is all that is due to appellant, petitioner is scarcely in a position to urge serious harm to its rights because it was not permitted to vote for a trustee.

But assuming that it had a right to vote for selection of a trustee, nevertheless, under the statute, after trustee was chosen, it could not in respect to its claim have voted at creditors' meetings, nor could its claim be counted at such meetings in computing either the number of creditors or the amounts of their claims unless the amounts exceeded the value of such...