Scott v. Norton Hardware Co.
| Decision Date | 12 January 1932 |
| Docket Number | No. 3189.,3189. |
| Citation | 54 F.2d 1047 |
| Parties | SCOTT et al. v. NORTON HARDWARE CO. et al. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Robert L. Pennington, of Bristol, Va., and George P. Cridlin, of Jonesville, Va., for appellants.
S. Bruce Jones and H. E. Widener, both of Bristol, Va., for appellees.
Before PARKER and NORTHCOTT, Circuit Judges, and McCLINTIC, District Judge.
This is an appeal by H. H. Scott and G. A. Maiden from an order of the court below dismissing their intervening petition in a suit filed by the Norton Hardware Company and the Norton Grocery Company against the People's National Bank of Abingdon, Va., and its shareholders. The suit of the Norton Hardware Company and the Norton Grocery Company was a bill in equity in the nature of a creditor's bill, brought under the Act of June 30, 1876, c. 156, § 2, 19 Stat. 63, 12 USCA § 65, to enforce the personal liability of the shareholders of the People's National Bank, which was in liquidation. Scott and Maiden filed their petition asking that they be allowed to intervene and assert against the bank and its shareholders a claim of $65,335.92 arising from the payment by them of that amount under a bond which they had executed to the First National Bank of Abingdon to indemnify that bank against loss under a contract by which it had agreed to pay the obligations of the People's National, including the amounts due its depositors. They asked that a receiver be appointed to take charge of and administer certain assets belonging to the People's National and that the statutory liability of its shareholders be enforced in an amount necessary to discharge its obligations. A motion to dismiss the intervening petition was allowed, and an amended petition was filed. From an order dismissing it, this appeal was taken.
From the petition as amended and the attached exhibits, the following facts appear: Scott and Maiden were two of the directors of the People's National Bank of Abingdon. That bank experienced financial difficulties in the spring of 1926, and its directors were struggling to keep it out of a receivership. A meeting of the directors was held on April 2d, and, upon the advice of the National Bank Examiner, a contract was made with the First National Bank of Abingdon, which obviated the necessity of a receivership and an immediate stock assessment, and which, in addition to protecting depositors and other creditors, was expected to result in saving something from its assets for the benefit of stockholders. Under this contract, the People's National transferred all of its assets to the First National; and the latter, on its part, agreed to pay in full the claims of depositors and certain other indebtedness, and, after reimbursing itself for the payments so made and the expenses incident thereto, to return the remainder of the assets, if any, to the People's National, or its liquidating agent. The contract provided that the People's National should deliver to the First National a bond in the sum of $100,000, executed by nine of its directors, and conditioned to indemnify the First National against any loss under the contract. The bond thus provided for was executed and delivered; Scott and Maiden signing it along with seven other directors.
After the First National had taken over the assets and assumed the liabilities of the People's National, pursuant to the contract and under the guaranty of the bond above mentioned, notice was given of a meeting of the stockholders of the People's National, and same was held on May 20, 1926. At that meeting, it was decided by a vote of more than two-thirds of the stock to place the bank in liquidation; and liquidating agents were appointed for that purpose. The contract of April 2, however, was not questioned, nor was any attempt made to repudiate the action of the directors with regard thereto.
On November 4, 1929, Scott and Maiden were called upon by the First National to pay under the bond the loss which that bank had sustained under the contract; and they were required to pay and did pay to the First National the sum of $65,335.92. The First National had already collected $30,000 from another of the bondsmen; and the $65,335.92 paid by Scott and Maiden reimbursed it for the loss which it had sustained under the contract. There then remained in its hands uncollected notes and other assets of the People's National of a face value of approximately $105,000, which, under the contract, belonged to the People's National or its liquidating agent. With respect to these assets, Scott and Maiden claimed the right of subrogation, and asked that same be placed in the hands of a receiver to be administered for their benefit. They further asked that the statutory liability of the shareholders of the People's National be enforced so far as might be necessary for their reimbursement.
The appeal presents three questions for our determination: (1) Whether Scott and Maiden, by reason of their payments under the bond, occupy the position of creditors of the People's National; (2) whether they are entitled to subrogation to the rights of the First National as against the remaining assets of the People's National; and (3) whether they have a right, either as creditors of the People's National or by virtue of subrogation to the rights of the First National, to enforce the statutory liability against the shareholders of the People's National. We think that all of these questions must be answered in the affirmative.
It is contended by appellees that the payment made by Scott and Maiden to the First National did not discharge any debt due by the People's National, but merely the obligation under the bond given by the directors. From this it is argued that no promise on the part of the People's National to reimburse Scott & Maiden is to be implied; that, if they have any rights on account of the payment, same arose after liquidation was commenced and consequently cannot be enforced against the assets of the bank in liquidation; and that there is no basis whatever for subrogation. We must determine in the beginning, therefore, the nature of the contract which was entered into between the two banks, and of the rights and obligations arising therefrom. A careful consideration of this contract leads irresistibly to the conclusion that what it effected was not a sale of assets but a transfer of same as security and for collection, and that the promise of the First National to pay the obligations assumed by it was not given in payment for the assets, but was a promise to advance money for the payment of the obligations of the People's National. The assets transferred were to be held as security for the advancements so made and collections therefrom were to be applied in reimbursement of the advancements. Equity regards substance and not form; and, when we look to the substance of the contract, the case is clearly one where the People's National was substituting one creditor for many, and was transferring its assets and giving bond for the security of that creditor. Hightower v. American National Bank, 263 U. S. 351, 44 S. Ct. 123, 68 L. Ed. 334; Wyman v. Wallace, 201 U. S. 230, 26 S. Ct. 495, 50 L. Ed. 738.
Articles five and seven of the contract completely answer the position of appellees that there was a sale of assets. The first of these paragraphs provides that whatever remains of the assets transferred after paying the liabilities of the People's National, expenses, fees, costs, etc., shall be returned to the People's National or its liquidating agent. The second stipulates that the First National "shall have wide discretion in the manner of handling the business and collecting and disposing of the assets transferred to it"; that it shall use due diligence and the best judgment of its officers with regard thereto; and that it may make renewals, receive partial payments, accept substitute collateral and "do whatever it believes to be the best interest of the parties to the agreement in order to effect the collection of the assets." In the face of these provisions, the contention that there was an absolute sale of the assets cannot be maintained.
While there was no express provision in the contract that the...
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