Stuart v. Hayden

• Decision Date: 30 December 1895
• Docket Number: 666.
• Citation: 72 F. 402
• Parties: STUART v. HAYDEN et al.
• Court: U.S. Court of Appeals — Eighth Circuit

72 F. 402

STUART v. HAYDEN et al.

No. 666.

United States Court of Appeals, Eighth Circuit.

December 30, 1895

On December 23, 1892, the Capital National Bank of Lincoln Neb., was, and for eight years theretofore had been, a national bank association incorporated and doing business as such under the acts of congress relative to national banks. It had a nominal capital of $300,000. On January 23, 1893 this banking association failed, and in March of that year Kent K. Hayden, one of the appellees, was appointed receiver of this bank by the comptroller of the currency of the United States. When the bank failed in January, 1893, its assets were about $900,000 and its liabilities over $1,400,000. From the year 1885 until its failure it had frequently suffered heavy losses. During this time it had accumulated worthless paper to the amount of more than $300,000, and more than $50,000 of its capital had been tied up in real estate. The appellees Augustus T. Gruetter and Charles F. Joers were copartners engaged in the furniture business at Lincoln, in the state of Nebraska, under the firm name of Gruetter & Joers. They owned a building in Lincoln and the ground on which it stood, which they traded to the appellant, Ambrose P. S. Stuart, for $67,500, on December 23 1892. The appellant, Stuart, had been a stockholder and director of this ban king association for many years, and was on December 23, 1892, the chairman of the finance committee of its board of directors. On that day he bought of Gruetter & Joers their building and the land on which it stood for the sum of $67,500, and paid for it by assuming a mortgage of $30,000 thereon, by transferring to them 150 shares of the stock of this bank of the par value of $15,000, for the agreed price of $18,000, and by giving them about $19,500 in cash. On June, 10, 1893, the comptroller of the currency of the United States found that, in order to pay the debts of this banking association, it was necessary to enforce the individual liability of its stockholders under section 5151 of the Revised Statutes, and thereupon he made an assessment upon the shareholders of the bank of an amount equal to the par value of the stock held by them respectively, and directed the receiver, Hayden, to enforce this liability by suit if necessary. The receiver thereupon exhibited his bill in the court below against the appellant, Stuart, in which he alleged that the transfer of his stock on December 23, 1892, was made with a knowledge of the failing condition and insolvency of the bank, for the purpose of defrauding its depositors and creditors, and of escaping from the liability imposed upon him by section 5151 of the Revised Statutes; that the transferees, Gruetter & Joers, were irresponsible, and unable to discharge the liability imposed by the ownership of the stock; and he prayed that the transfer might be held void as to the creditors and depositors of the bank and the receiver, and that the latter might discover of the appellant, Stuart, the $15,000 assessed upon this stock. Stuart interposed a demurrer, on the ground, among others, that Gruetter & Joers were not made parties to the bill. This demurrer was sustained, with leave to amend, and an amended bill was filed in which Gruetter & Joers were made parties to the suit, and substantially the same allegations as in the original bill were reiterated. Stuart answered this bill, admitted the trade of the stock for the real estate, but denied that this trade was made for the purpose of defrauding the creditors or depositors of the bank, or for the purpose of escaping his individual liability. The defendants, Gruetter & Joers, answered. Their answer was, in effect, an admission of the averments of the bill. After this answer had been filed, they prayed and obtained permission to file a cross bill. In their cross bill they alleged, in substance, that they were induced to make this trade by the false representations of the value of the stock and the financial condition of the bank made to them by the appellant, Stuart, and they prayed that the transfer and assignment of the stock might be wholly canceled and set aside by decree of the court, that they might be released from any liability by reason thereof, and that Stuart might be adjudged to make a full restitution to them of the sum of $18,000 paid by them to him for the purchase of said stock by the conveyance of their block; but they did not tender or offer to restore to him the $19,500 in cash which they had received as a part of the purchase price of the block, or to cause him to be released from his obligation to pay the mortgage of $30,000, which was secured thereon. The appellant, Stuart, demurred to this cross bill on the grounds, among others, that the bill did not state such a case as in any manner constituted a defense to the original bill, on a ground for any relief against the complainant in that bill, and that it attempted to litigate an independent matter between the respondents to the original bill without interposing this matter as a defense to the original bill, and without in any way connecting the subject-matter of the cross bill with the matter set forth in the original bill. The court overruled this demurrer, testimony was taken, and, after final hearing, the court entered a decree-- First, that the transfer of the 150 shares of stock from the appellant, Stuart, to the appellees, Gruetter & Joers, was void as against the receiver, Kent K. Hayden, and that Stuart should pay to the receiver the full amount of the assessment upon that stock, together with interest thereon at 7 per cent. per annum from the 10th day of July, A.D. 1893; and, second, that the transfer of said stock was void as against the appellees Gruetter & Joers; that it should be set aside, canceled, and held for naught; that the stock should be reinstated upon the books of the Capital National Bank in the name of Stuart, and that said Stuart should pay to the appellees, Gruetter & Joers, $18,000 with interest at 7 per cent. from the 3d day of January, 1893. Stuart appealed to this court from this decree.

C. C. Flansburg, for appellant.

G. M. Lambertson (F. M. Hall, Amasa Cobb, and A. E. Harvey, with him on the brief), for appellee Hayden, receiver.

John H. Ames, for appellees Gruetter & Joers.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

SANBORN Circuit Judge, after stating the facts as above, .

The capital, the unpaid subscriptions to the capital stock, and the liability of the holders of stock that is paid for to pay an additional amount equal to the par value of their stock under section 5151, Rev. St., are all parts of a trust estate sacredly pledged for the security of the creditors of a national banking association organized under the national banking acts. The willful destruction or diminution of any part of this trust estate, or the diversion of the proceeds of any of it from the creditors of the bank, is a fraud upon these creditors, and subjects its perpetrator to a suit by them or their legal representative for proper relief. Hayden v. Thompson (decided at the present term) 17 C.C.A. 592, 71 F. 60, and cases cited; Peters v. Bain, 133 U.S. 670, 690, 10 Sup.Ct. 354. A shareholder of a national banking association, who, for the purpose of escaping his individual liability under section 5151 of the Revised Statutes, transfers his shares in a failing bank, to one who, for any reason, is unable to respond as promptly and effectually as he was, to the liability their ownership imposes, commits a fraud upon the creditors of the bank, renders his transfer voidable at their election, and leaves himself subject to the individual imposed by the ownership of the stock if the creditors elect to pursue him. Bank v. Case, 99 U.S. 628, 630, 632; Peters v. Bain, supra; Bowden v. Johnson, 107 U.S. 251, 261, 2 Sup.Ct. 246; Cook, Stock, Stockh. & Corp. Law, Sec. 265; Johnson v. Laflin, 5 Dill. 65, 86, Fed. Cas. No. 7,393; Davis v. Stevens, Fed. Cas. No. 3,653; Nathan v. Whitlock, 9 Paige, 152; McClaren v. Franciscus, 43 Mo. 452; Marcy v. Clark, 17 Mass. 329. After this bank had failed, and this receiver had been appointed, he was the proper party to, and the only party who could, maintain a suit on behalf of the creditors of this bank to set aside the fraudulent transfer referred to in the bill, and to enforce the individual liability of Stuart. Hayden v. Thompson, supra; Bailey v. Mosher, 11 C.C.A. 304, 63 F. 488, 491; Bank v. Colby, 21 Wall. 609; Horner v. Henning, 93 U.S. 228; Stephens v. Overstoltz, 43 F. 771; Bank v. Peters, 44 F. 13. These propositions are too well settled to warrant more extended notice than their statement. By them the right of the receiver, Hayden, to enforce the individual liability, under section 5151, against the appellant, Stuart, must be governed.

In order to determine whether or not this receiver was entitled to enforce this liability, the court below was required to answer two questions, and two questions only. They were: (1) Did Stuart make this transfer of his stock to Gruetter & Joers on December 23, 1892, with knowledge, or with such notice as would, if pursued with reasonable diligence, have given him knowledge, that the bank was insolvent, or its failure impending, and for the purpose of escaping from his individual liability on the stock? And (2) did the transfer cause any damage to the creditors of the bank? The trial court, after considering the evidence submitted, answered both these questions in the affirmative, and the only question remaining for us to consider upon this branch of the case is whether there was sufficient testimony to fairly warrant these conclusions.

The record discloses these facts: The appellant, Stuart, was on December 23, 1892, and had been for...