Case Name: WASHINGTON-ALASKA BANK et al. v. DEXTER HORTON NAT. BANK OF SEATTLE, WASH.
Court: United States Court of Appeals for the Ninth Circuit
Jurisdiction: United States
Decision Date: 1920-02-24
Citations: 263 F. 304
Docket Number: No. 3218
Parties: WASHINGTON-ALASKA BANK et al. v. DEXTER HORTON NAT. BANK OF SEATTLE, WASH.
Judges: 
Reporter: Federal Reporter
Volume: 263
Pages: 304–315

Head Matter:
WASHINGTON-ALASKA BANK et al. v. DEXTER HORTON NAT. BANK OF SEATTLE, WASH.
(Circuit Court of Appeals, Ninth Circuit.
February 24, 1920.)
No. 3218.
1. Banks and banking <@=80(1) — Secured creditor of insolvent bank HELD ENTITLED TO DIVIDENDS ON FULL CLAIM, REGARDLESS OF COLLECTIONS ON COLLATERAL.
One having a claim against an insolvent bank in the bands of a receiver, secured by collateral, could prove for, and receive dividends on, the full amount of tbe claim, regardless of sums received from the collateral after transfer of the assets to the receiver, provided he did not receive more than the full amount due, especially where the receiver agreed to pay the claimant the same dividends paid other creditors in consideration of a delay in selling the collateral. „
2. Pledges <@=19 — Interest as well as principal is secured.
S, pledge of stock to secure an interest-bearing debt secured the interest as well as the principal of the debt.
3. Banks and banking @=80(4) — State law as to priorities does not APPLY TO BANK DOING BUSINESS IN ANOTHER STATE.
■ Act Nev. March 24, 1909 (St 1909, c. 191), giving priority to the claims of depositors and holders of exchange against insolvent banks over all other claims, except taxes, does not apply to a bank incorporated under the laws of Nevada, hut doing business in Alaska.
4. Corporations <@=640 — Rule as to extraterritorial force of laws of STATE OF INCORPORATION STATED.
The laws of the state in which a corporation is organized, which become a part of its charter, follow the corporation when it engages in business in another .state; but those laws which regulate corporations in their manner of doing business in the state do not follow it into another state.
5. Banks and banking <@=63 — Statute giving preference to claims of depositors HELD REPEALED.
Act Nev. March 24, 1909 (St. 1909, c. 191), giving claims of depositors and holders of exchange priority over other claims against insolvent banks, except taxes, was repealed by St. Nev. 1911, c. 150, regulating' banking' and other matters relating thereto, which gives no such preference.
6. Banks and bankino <S=>77(6) — Failure to obtain leave to sde receiver IS CURED BY HIS APPEARANCE AT COURT’S DIRECTION WITHOUT OBJECTION.
The failure to obtain leave of the court appointing a receiver for an insolvent bank to sue him to foreclose a lien on collateral, security for a debt was cured, and the judgment was not void, where the court directed the receiver to appear and answer, and he did so without raising the defense that prior permission to bring the suit had not been given.
Ross, Circuit Judge, dissenting.
Appeal from the District Court of the United'States for the Fourth Division of the Territory of Alaska; Charles E. Bunnell, Judge.
Claim by the Dexter Horton National Bank of Seattle, Wash., against the Washington-Alaska Bank and F. B. Noyes, receiver thereof. From an order directing payment of tlie claim, defendants appeal.
Affirmed.
The Washington-Alaska Bank, of Nevada, a corporation incorporated under the laws of Nevada, was doing a banking business in the territory of Alaska, at. Fairbanks, On January 5, 3011. it went into the hands of receivers. At that time it was indebted to appellee in the sum of S329,4(55.62, for the payment of which the appellee held as collateral security 96 shares of the capital stock of the Gold Bar Dumber Company. On December 20, 3910, the Washing!, on-Alaska Bank sent by express to the appellee, at Seattle, gold coin, bullion. and currency to the value of $301,000 to be applied on said indebtedness, but after the appointment of the receivers the Washington-Alaska Bank seized the said $103,000 while it was in the hands of the express company in transit. Their right to da so was upheld by this court in Dexter Horton National Bank v. Hawkins, 190 Fed. 924, 111 C. C. A. 514. On March 26, 3912, the appellee presented its claim to the receivers of the Washington-Alaska Bank, and the same was allowed in the sum of $129,465.62.
Prior thereto, and during the year 3913, the receivers paid to unsecured creditors dividends amounting in the aggregate to 50 per cent, of their claims. Thereafter the then receiver and the appellee entered into a written agreement, which was signed by the receiver on July 13, 3912, and by the appellee on November 22, 1912, wherein it was recited that the appellee was entitled to receive payment of a 50 per cent, dividend on its claim, as had been paid to other creditors: that the appellee held shares of the Gold Bar Dumber Company stock as collateral security; that it was the desire of the receiver that the collateral lie not sold or converted without his consent prior te' June 1, 1913, and that he would pay to the appellee, on account of the dividends which it was entitled to receive, the sum of $25,000, and pay the balance of the 50 per cent, as fast as funds were available, and before December 1, 1912, if possible; that in consideration thereof the appellee agreed not to soil or convert its collateral prior to December 1, 1912, without the receiver’s consent; and that, if the balance of the dividend due it were paid it by that, date, it would not convert the collateral prior to June 1, 1913. The receiver further agreed that, should any further dividends, be declared and paid to other creditors, the appellee should receive the same rate of dividends as other creditors until its claims wen» paid in full.
Pursuant to the'agreement the receiver paid the appellee $25,000, but made no further payments. On April 9, 1933, the appellee commenced its suit in equity in the superior court for King county, state of Washington, against the Washington-Alaska Bank and its. receiver, to foreclose its lien on the collateral and for judgment. Judgment was duly rendered in accordance with the prayer of the complaint for $126,907.80, which was the amount of tire claim, after deducting the $25,000 payment and adding interest. The collateral was sold for $100,000, leaving a balance due on the appellee’s judgment, on January 30, 1911, of $27,248.76. Upon the foregoing facts the court below entered its order directing the receiver to pay to the appellee $27,225.47, with interest at 6 per cent, per annum from January 30, 1914, out of any funds in his hands belonging to the insolvent estate and applicable to the payment of debts, before making any further payment to other creditors. It is from this order that the appeal is taken.
De Journel & De Journel, of San Francisco, Cal., and Roy V. Nye, of Monrovia, Cal., for appellants.
A. R. Heilig, of Fairbanks, Alaska, and Peters & Powell, of Seattle, Wash., for appellee.
Before GILBERT, ROSS, and HUNT, Circuit Judges.

Opinion:
GILBERT, Circuit Judge (after stating the facts as above).
The appellant contends that there remained due only $4,510.67 of the appellee's original claim after applying the $25,000 payment of August 6, 1912, and the net amount which was realized on the foreclosure sale, and that the remainder of the appellee's claim, as allowed by the court below, represents- interest, which the appellee was not entitled to receive out of the estate in the hands of the receiver. The court below applied the rule established in Merrill v. National Bank of Jacksonville, 173 U. S. 131, 19 Sup. Ct. 360, 43 L. Ed. 640, that the creditor can prove for and receive dividends upon the full amount of his claim, regardless of any sums received from his collateral after the transfer of the assets from the debtor in insolvency, provided that he shall not receive more than the full amount due him, and held that any doubt as to the applicability of the rule was dissolved when consideration was had of the terms of the contract between the receiver and the appellee, a contract which was made with the approval of the court below, and the fact that at the time when the contract was made the value of the Gold Bar stock was considered both by the appellee and the receiver to be far in excess of the appellee's claim against the Washington-Alaska Bank, and the fact that the validity of the Contract was established in the suit in the Washington state court, judgment in which was affirmed on appeal to the Supreme Court. Dexter Horton Nat. Bank v. Wash.-Alaska Bank, 86 Wash. 452, 150 Pac. 1176.
We are not convinced that the court below was in error in so ruling. A pledge which secures an interest-bearing debt secures the interest as much as the principal of the debt. In Richmond & I. Const. Co. v. Richmond, N. I. & B. R. Co., 68 Fed. 105, 116, 15 C. C. A. 289, 300 (34 L. R. A. 625), Judge Lurton said:
"If interest is properly due, as between creditor and debtor, the interest is just as much a part of the principal claim as the principal thereof."
In Chemical Nat. Bank v. Armstrong, 59 Fed. 372, 378, 8 C. C. A. 155, 161 (28 L. R. A. 231), Judge Taft, after reviewing the authorities, said:
"The exact point which is common to all the foregoing authorities, and which they all sustain, is that a creditor who has proved his claim against an insolvent estate under administration can collect his dividends without any deduction from Ms claim as proven for collections made from collateral after his proof of claim is filed."
Cases of similar import are Hitner v. Diamond State Steel Co. (C. C.) 176 Fed. 390; New York Security & Trust Co. v. Lombard Invest. Co. (C. C.) 73 Fed. 537; Savings Bank v. Robert H. Jenks Lumber Co. (C. C.) 194 Fed. 732.
'Flic appellant's principal contention is that the payment to the appellee was prohibited by a law of the state of Nevada, which gave priority to the claims of "depositors for deposit" and the claims of "holders of exchange." over all other claims, except taxes, and declared such claims to be a first lieu on all of the assets of banking corporations at the "time of closing the bank. Act March 24, 1909 (Laws Nev. 1908-1909, p. 251). Wc are unable to agree that the said banking law of Nevada has any bearing upon the question of distribution of assets here involved, -notwithstanding that the bank was incorporated under the general incorporation law of Nevada. A marked distinction is observed between the laws of the state which became a part of the charter of the corporation and those laws of the state which regulate corporations in their manner of doing business in the state. The former will follow the corporation when it engages in business in another state.. The latter will not. In Jesson v. Noyes, 245 Fed. 46, 157 C. C. A. 342, this court held that the Washington-Alaska Bank was bound by the provisions of the general incorporation laws of Nevada prescribing the powers of directors of corporations. We so held on the ground that that law entered into the charter of the bank and controlled the action of its directors in whatever state they might go to do business. But the act of the Legislature of Nevada of March 24, 1909, was enacted after the incorporation of the Washington-Alaska Bank, and its purpose was to regulate corporations engaged in the banking business in the state of Nevada, and to protect depositors in such banks. In 12 R. C. L. p. 25, it is said:
"A corporation created by the laws of another state, therefore, does not bring into every state where it transacts business the general legislation or judicial decisions of the state in which it is organized, but such general laws and regulations or the decisions of the courts of a sister state are controlling only within its own limits, and such state has no power to give them force or ei'Cect in other jurisdictions."
In 2 Mor. Priv. Corp. § 967, it is said:
"The charter contract alone is recognized. It is tho charter alone which is recognized by the laws of comity, and not the general legislation of the state in which the corporation was formed. The general laws and regulations of a state are intended to govern only within the limits of the state enacting them, and a state would have no power to give them extraterritorial force."
In Guilford v. Western Union Tel. Co., 59 Minn. 332, 61 N. W. 324, 50 Am. St. Rep. 407, the court held:
"It is only the charter of the corporation, constituting the agreement between it and its stockholders, which will be recognized as binding in other states, and not the general laws of the foreign state, affecting merely the remedy, which govern only within the state enacting them."
In Warren v. First Nat. Bank of Columbus, 149 Ill. 9, 38 N. E. 122, 25 L. R. A. 746, it was held that the charter alone of a foreign corporation, and not the general legislation of the state in which it was created, will have effect to limit its powers outside of the state, and that a New York statute prohibiting assignment or transfers by insolvent corporations has no extraterritorial force and does not affect the validity of an assignment by an insolvent corporation executed in Ohio of a transfer of funds in Illinois. In Ohio Life Ins. Co. v. Merchants Ins. Co., 11 Humph. (Tenn.) 1, 53 Am. Dec. 742, it was held that the general law of a state prohibiting corporations from engaging in the banking business, unless expressly formed for that purpose, has no force beyond the limits of the state, but that it is otherwise if such a restriction is contained- in the charter. In Borton v. Brines-Chase Co., 175 Pa. 209 (34 Atl. 597) it was held that—
"A general assignment or confession of judgment may be made by a foreign insolvent corporation in Pennsylvania, tliougli tbe laws of its own state prohibit insolvent, corporations from doing so."
Of similar import is Pairpoint Mfg. Co. v. Phila. Optical Co., 161 Pa. 17, 28 Atl. 1003.
In East Side Bank v. Columbus Tanning Co., 170 Pa. 1, 32 Atl. 539, it was held that the statute of New York forbidding preferences by insolvent corporations did not render void a preference judgment taken in Pennsylvania against an insolvent corporation organized under the laws of New .York, but holding its entire property in Pennsylvania. In Franklin Trust Co. v. State of New Jersey, 181 Fed. 769, 104 C. C. A. 629, where a corporation organized under the laws of New Jersey, but whose business interests and all of its property were in another state, had become insolvent and was being wound up in that state, it was held that a franchise tax imposed upon it under the law of New Jersey, after the commencement of the insolvency proceedings, could not be enforced in the court of the foreign jurisdiction, and given priority of payment over the claims of bona fide local creditors. In United States Mortgage Co. v. Sperry (C. C.) 24 Fed. 838, Judge Gresham held that a New York corporation doing business in Illinois was not bound by the New York statute which provided that no loan should be made at a rate of interest exceeding the legal rate, which in New York was 7 per cent. In Boehme v. Rall, 51 N. J. Eq. 541, 26 Atl. 832, the court held that, where a foreign corporation execute's in New Jersey a mortgage on property within that state to resident creditors to secure payment of debts contracted and payable there, the mortgage will not be held invalid because the execution thereof was contrary to the general statute of the state in which the corporation was incorporated. There are numerous other decisions sustaining the doctriiie above declared by the text-writers and announced by the courts, notably White v. Howard, 38 Conn. 342; Hannis Dis. Co. v. Baltimore, 114 Md. 678, 80 Atl. 319; Castle's Adm'r v. Acrogen Coal Co., 145 Ky. 591, 140 S. W. 1034; Fowler v. Bell, 90 Tex. 150, 37 S. W. 1058, 39 L. R. A. 254, 59 Am. St. Rep. 788; Com. Nat. Bank v. Motherwell Iron & S. Co., 95 Tenn. 172, 31 S. W. 1002, 29 L. R. A. 164.
In brief, the Washington-Alaska Bank, as its name indicates, was incorporated in Nevada for the purpose of engaging in business elsewhere than in that state. As to its corporate powers it was governed by its charter, but when it engaged in the banking business in Alaska it became subject to the local laws. Depositors and others who dealt with it as a bank were not required to search the statute of Nevada to ascertain what their rights were. They were entitled to rely upon the laws of the territory where the bank was engaged in business. The act of March 24, 1909, was, as its title indicates, a general act to define and regulate the business of banking, and to create a state banking board and a bank examiner. In the body of the act are found numerous expressions of the purpose to regulate banking "in this state." It. contains no indication of the intention of the Legislature to inject any of its provisions into the charters of banking corporations theretofore or thereafter to be incorporated. Two years later the Legislature passed a new act "to regulate banking and other matters relating thereto" (St. 1911, p. 291), which expressly repeals all prior acts and parts of acts in conflict, with its provisions. It gives no preference to claims of depositors or others. That it was the intention to repeal the act of 1909 in toto is further shown in the Revised Laws of Nevada of 1912, where the law of 1911 is restated, and a note in volume 1, p. 209, declares that the latter act supersedes the act approved March 24, 1909.
The appellant contends that the judgment in the foreclosure proceeding is void, for the reason that no permission was obtained from the court below to bring the suit against its receiver, and Barton v. Barbour, 104 U. S. 126, 26 L. Ed. 672, is cited as holding that consent to sue a receiver is jurisdictional. This contention was not made in the court below, and it is not embraced in any of the assignments of error. It is based upon the proposition that the judgment of foreclosure is absolutely void for want of jurisdiction. In Barton v. Barbour a plea to the jurisdiction was interposed, and the question before the Supreme Court was the sufficiency of that plea. In the foreclosure suit in question here, not only was there no plea to the jurisdiction, but the court below directed its receiver to appear and answer the suit, which he did without raising the defense that prior permission had not been given to bring the suit. In 3 Street's Fed. Eq. Prac. 2676, it is said:
"It is a general principle of equity practice that a suit camiot be brought against a receiver, in his capacity as such, to recover any properly in his hands, or to recover on any debt, demand, or claim whatever against him, unless upon previous leave first duly obtained. This rule applies to suits brought either in that court or in any other court; and if an unauthorized suit he brought against the receiver, he may successfully plead the disability of the plaintiff."
We think the instruction which the Alaska court gave to its receiver is in effect an order permitting the institution of the foreclosure suit, and the. fact that the receiver in compliance therewith appeared in the suit and defended the same, and acquiesced in the course of the plaintiff in prosecuting the same, should be held to have cured the informality which attended the commencement of the proceeding, and that the judgment in the foreclosure suit cannot be regarded as abso lutely void. Elkhart Car-Works Co. v. Ellis, 113 Ind. 215, 15 N. E. 249; Mulcahey v. Strauss, 151 Ill. 70, 37 N. E. 702; Flentham v. Steward, 45 Neb. 640, 63 N. W. 924; In re Young (D. C.) 7 Fed. 855; Naumberg v. Hyatt (C. C.) 24 Fed. 898, 901.
The decree is affirmed.