Moran v. Cobb

• Decision Date: 03 February 1941
• Docket Number: No. 7462.,7462.
• Citation: 120 F.2d 16
• Parties: MORAN v. COBB.
• Court: U.S. Court of Appeals — District of Columbia Circuit

120 F.2d 16 (1941)

MORAN v. COBB.

No. 7462.

United States Court of Appeals for the District of Columbia.

Decided February 3, 1941.

Rehearing Denied March 19, 1941.

COPYRIGHT MATERIAL OMITTED

J. Bruce Kremer, Herbert M. Bingham, Bruce A. Low, and H. Donald Kistler, all of Washington, D. C., for appellant.

George D. Horning, Jr., and James A. Cobb, both of Washington, D. C., for appellee.

Before STEPHENS, MILLER and RUTLEDGE, Associate Justices.

MILLER, Associate Justice.

Appellant, Moran, was appointed by the Comptroller of the Currency, on March 17, 1936, as receiver of the Prudential Bank, hereinafter called Prudential. On April 30, 1936, the Comptroller made an assessment upon the stockholders, including appellee Cobb, for $100,000. Following demand upon appellee for $1,200 on account thereof, and his refusal to pay, appellant, on August 1, 1936, sued to enforce against him the statutory liability of stockholders. The District Court held that the action was barred by the statute of limitations, and this appeal is from the judgment which was entered in favor of appellee.

Appellee's liability, if any, is to be determined by provisions of the Arizona Constitution¹ and statutes, and the receiver's cause of action is subject to the Arizona statute of limitations.² Under the provisions of the Arizona statute an action to enforce the stockholders' statutory double liability must be brought within three years after the closing of the bank.³ The only question of the case is: When did Prudential close, within the meaning of the Arizona statute? The District Court correctly held that it closed, within every fair intendment of the statute, more than three years before the commencement of suit on August 1, 1936.

On March 6, 1933, the date of the President's proclamation declaring a bank holiday,⁴ Prudential (1) had been for several months, and has been ever since, without a banking house for the conduct of its business; (2) for several months prior to, and ever since that date, has engaged in none of the usual functions of a bank; (3) specifically, has received no deposits, paid no depositors, honored no withdrawals, made no loans, held no meetings of its board of directors or stockholders, paid no taxes to the State of Arizona, where it was incorporated; (4) several months prior to that date experienced such severe financial difficulties that it assigned all its assets to another bank, the Industrial Savings Bank of Washington, D. C., hereinafter referred to as Industrial, to secure a note in the amount of $270,731.23; in return for which Industrial assumed all liabilities of Prudential to its depositors and other creditors, except liabilities to stockholders. It is apparent from the situation then existing that for all practical purposes Prudential was closed. That it was closed beyond all hope of reopening is also apparent from the following facts: The book value of all assets was $376,161.15. Of these over $115,000 consisted of loans, discounts and overdrafts; and approximately $172,000 consisted of bonds and securities. Its banking house, and furniture and fixtures accounted for approximately $72,000 more. It had due from other banks less than $1,200, and cash on hand less than $9,000. The note which it gave to Industrial was for the exact amount of its liabilities to creditors and depositors. The country was then in the depths of depression and book values grossly exceeded any possible market price for such frozen assets. In fact, the probability that the assigned assets would be insufficient was so great that directors of Prudential gave their bond in the amount of $50,000 to Industrial; in which the frank statement appears that it was given "in order to induce the Industrial Savings Bank to assume the liabilities of the Prudential Bank * * *." The assignment contract gave power to Industrial (1) to collect and liquidate the assets; (2) to compromise for less than face value; (3) to foreclose any part thereof at public or private sale without notice to Prudential; (4) to reimburse itself for all liabilities assumed, for interest thereon and for expenses. In addition the agreement provided not only for the bond above mentioned, but also stipulated that the personal liability of the stockholders for all debts and obligations, including the note for $270,731.23, should continue. Upon the transfer of assets, all books and records of Prudential were transferred to the banking house of Industrial. After the bank holiday in March, 1933, Prudential made no application for a license to reopen, received no license, and did not reopen. It never received back any of the assets, never again occupied a banking house, or functioned in any manner as a banking business of any character. It is apparent, also, from other facts, that no continuation of Prudential as a going concern was ever contemplated and no reopening ever hoped for. After September 26, 1932, Industrial, and subsequently its receiver, exercised dominion and control over all the assets of Prudential which had been delivered to Industrial; brought suit in his own name thereupon, made sales thereof and otherwise treated said assets as his own, commingling the same with the assets of Industrial, maintaining only a bookkeeping account entitled "Prudential Liquidation Account." Thereafter another institution, known as Industrial Bank of Washington, was formed and in connection therewith depositors in Industrial, including former Prudential depositors, were indiscriminately paid from said assets a dividend of thirty-five per cent. In June, 1933, the premises formerly occupied by Prudential as a banking house were sold.

A well-recognized principle of statutory interpretation is that, in the absence of some dominant reason to the contrary, a word used in a statute should be given its ordinary and commonly accepted meaning.⁵ An examination of the authorities leads to the conclusion that the word closing, as applied to banks, is not one which has been given a limited or special meaning either by statute or by decision. Certainly, when we look to common parlance and understanding the word has a well known meaning. Apart from such difficulties as arise in the application of the pertinent statute, it would not be doubted that a bank which had gone through the experiences of Prudential was closed. Any other conclusion would seem absurd. An equally recognized principle of interpretation is that a statute should be so read as to avoid an absurd result.⁶

These principles of statutory construction are particularly pertinent in the present case because laws imposing double liability on stockholders of a bank are in derogation of the common law and cannot be extended beyond the words used.⁷ For this reason we refused to read into the federal statute, which establishes double liability on stockholders of national banks, double liability on stockholders of state banks doing business in the District of Columbia, even though we held that the District statute⁸ incorporates all the national bank acts which have to do with the machinery of administration in the case of insolvent banks; gives to the Comptroller the same control and management of an insolvent bank operating in the District as in the case of national banks; and likewise includes all provisions for the collection of debts, the distribution of assets and the enforcement of liability of stockholders.⁹

A minority view is expressed that there can be no closing of a bank within the meaning of the Arizona statute until an involuntary closing takes place, and that no involuntary closing took place in the present case until the Comptroller determined, on March 17, 1936, that Prudential was insolvent. For a number of reasons we think a contrary conclusion is required.

In the first place the minority view seems clearly contrary to the last sentence of the applicable statute, i. e., Section 227, which section reads as follows: "§ 227. Stockholders' liability. The stockholders of every bank shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements, of such corporation or association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares or stock. In case of the dissolution or liquidation of any bank, the constitutional and statutory liability of the stockholders must be enforced for the benefit of the creditors of such bank by the superintendent of banks or by any receiver. The action to enforce such liability shall be commenced within three years after the closing of such bank, and may be commenced immediately upon the closing of the bank if in the judgment of the superintendent or receiver the assets of such bank are insufficient to meet its liabilities." Italics supplied

In providing that the action to enforce the liability "may be commenced immediately upon the closing of the bank if in the judgment of the superintendent or receiver the assets of such bank are insufficient to meet its liabilities," the section clearly contemplates two things: (1) that a finding of insolvency by the superintendent or receiver is essential to existence of a cause of action against the stockholders;¹⁰ (2) that the closing from which the three-year limitation period begins to run may occur before that finding is made. The statute clearly contemplates that the superintendent or a receiver may be in charge of the affairs of a bank which has closed before he makes or, possibly, before he can make any finding of insolvency. Closing therefore may be antecedent to such finding and may occur while the bank is entirely solvent.

Second, there is nothing in the Arizona statute to suggest that it was intended to give such special significance to the word closing; that, under the facts of the present case, it must be limited in its meaning to an involuntary taking over by a receiver appointed by the...