Case Name: The Knox National Farm Loan Association et al. v. Phillips
Court: Ohio Court of Appeals
Jurisdiction: Ohio
Decision Date: 1936-03-07
Citations: 54 Ohio Ct. App. 334
Docket Number: 
Parties: The Knox National Farm Loan Association et al. v. Phillips.
Judges: Montgomery and Sherick, JJ., concur.
Reporter: Ohio Appellate Reports
Volume: 54
Pages: 334–343

Head Matter:
The Knox National Farm Loan Association et al. v. Phillips.
(Decided March 7, 1936.)
Mr. Roger D. Branigan, Messrs. Vorys, Safer, Seymour & Pease and Mr. Charles L. Bermont, for plaintiffs in error.
Mr. Henry C. Devin, for defendant in error.

Opinion:
Lemert, P. J.
This cause comes into this court upon a petition in error from the Court of Common Pleas of Knox county, Ohio. In the court below the following facts were either admitted or proven:
1. At the trial of the case it was stipulated and agreed by counsel that the allegations of the petition of the plaintiff below are true, and the facts therein stated are thereby accepted as fully proven.
2. Upon presentation of the case it was stipulated that- the defendants below agreed and admitted that the plaintiff in error, The Knox National Farm Loan Association, was, on March 25, 1933, and also at the time' of the commencement of this action, and now is, insolvent.
3. It was also stipulated and agreed that The Knox National Farm Loan Association has been, since March 25, 1933, being the date Phillips paid the full amount of his loan except the face value of his stock in the association, $265, and demanded its application at face value as final payment upon his loan, continuously engaged in the business of making new and further loans to new borrowers, for and on behalf of The Federal Land Bank of Louisville, for which new loans the association has made itself contingently liable and responsible to the payee, and that the new loans made since March 25, 1933, and up to the time of the commencement of this action, aggregate in amount more than $100,000.
4. In addition to the admissions by the defendants below of allegations of the petition concerning matters hereinafter mentioned, the plaintiff below has also introduced in evidence the original receipt and agreement he received from The Knox National Farm Loan Association, October 24, 1927, relative to the deposit of his 53 shares of capital stock in the association, "in connection with the loan of $5300 made through this association."
The receipt and agreement are undisputed, and contain provisions as follows:
(a) "This stock is being held by this association pursuant to the provisions of the Federal Farm Loan Act, as collateral security for the payment of the loan. ' '
(b) "Notice to/ borrowers. — This receipt represents your investment in stock on which dividends will be paid. It will be accepted at face value on final payment of loan."
5. At the beginning of the trial of the case, Phillips again made tender to the plaintiffs in error of the sum of $265, as in full payment of his mortgage debt, on condition that the note and mortgage which he had assumed would be cancelled and released. This tender was' refused by the defendants below.
6. In support of its cross petition, the plaintiff in error, The Federal Land Bank of Louisville, introduced :
(a) The original note and mortgage assumed by Phillips (by agreement photostatic copy to be used in lieu of original), and the testimony of a witness as to the amount claimed due thereon if Phillips' debt is not to be considered as' paid March 25, 1933, when he paid' $1837.50 and tendered the surrender of his stock at its face value of $265.
(b) An agreement between The Knox National Farm Loan Association and The Federal Land Bank of Louisville, which, we understand, restates the agreement of the association to indemnify the bank in respect to all loans made through the association, and to its' stockholders.
It is admitted and undisputed that the plaintiffs in error in the instant case operate under and are subject to the provisions of federal laws known as the federal "Farm Loan Act," being a part of Title 12, of the United States Statutes. Section 721 of Title 12 reads as follows:
"Whenever any national farm loan association shall desire to secure for any member a loan on first mortgage from the Federal land bank of its district it shall subscribe for capital stock of said land bank to the amount of 5 per centum of such loan, such subscription to be paid in cash upon the granting of the loan by said land bank. Such capital stock shall be held by said land bank as collateral security for the payment of said loan, but said association shall be paid any dividends accruing and payable on said capital stock while it is outstanding. Such stock may, in the discretion of the directors, and with the approval of the Farm Credit Administration, be paid off at par and retired, and it shall be so paid off and retired upon full payment of the mortgage loan. In such case the national farm loan association shall pay off at par and retire the corresponding shares of its stock which were issued when said land bank stock was issued."
Section 733 of the Farm Loan Act in part reads' as follows: "Said capital stock shall be paid off at par and retired upon full payment of said loan. ' '
The language of the statutes just quoted is clear, plain and definite. It will be noted that there is no provision under this law whereby the plaintiffs in error can escape the definite requirement that when and if Phillips pays off his mortgage loan The Knox National Farm Loan Association must pay off his stock at par and retire same. At the same time the Federal Land Bank is required to pay off at par and retire the corresponding shares of its stock issued in connection with this loan to The Knox National Farm Loan As-, sociation, and, of course, the proceeds should be applied on the borrower's' mortgage debt. The. law makes no other provision for any other course to be followed no matter whether The Knox National Farm Loan Association is solvent or insolvent.
It is to be noted that in addition to the plain provi sion of the law, as above quoted, we have the fact in the instant case that the plaintiff in error, The Knox National Farm Loan Association, executed and delivered to the defendant in error, Phillips, its written agreement, dated October 24, 1927, setting forth its definite promise in reference to the redemption of the stock in question at face value on final payment of the loan. The language of this agreement, where it refers to the receipt given to Phillips for his 53 shares of capital stock, is as follows: "It will be accepted at face value on final payment of loam."
Therefore we have in this' case not only the absolute and definite requirements of the federal law, but also the definite agreement and promise of The Knox National Farm Loan Association, both to the effect that upon final payment of the loan the stock held by Phillips would be paid off at par, and would be, in fact, accepted at face value in connection with the final payment aforesaid.
, Counsel for plaintiffs in error stress the decision of the Supreme Court of North Dakota, in the case of Byrne v. Federal Land Bank of St. Paul, 61 N. D., 265, 237 N. W., 797, claiming that this decision supports the claim that the plaintiffs in error are relieved from complying with the federal statute in respect to the redemption of Phillips' stock, on account of the insolvency of The Knox National Farm Loan Association.
Upon a careful reading of this opinion, and especially its application to the language of Section 721 of the federal law, above quoted, it appears that the Dakota court seems to concede that, taking the language of the section by itself, plaintiffs in the instant case would be required to pay off at par and retire" the shares of stock in question, but the court in that case says:
"But this is only a portion of the act. When we consider the act as a whole it is apparent Congress did not intend the farm loan association to pay off the stock at par when it had nothing with which to pay the stock."
We are of the opinion that the Byrne case, supra, should not apply to the instant case and should be definitely distinguished from it, for the reason that in the instant case the association gave to Phillips, under date of October 24, 1927, its written agreement and promise that the receipt given by it to Phillips for capital stock of the par value of $265 would be accepted at face value on final payment of Phillips' loan. For this reason alone we are of the opinion that the Byrne case should not apply. It does not appear in the Byrne case that the plaintiff held any such specific promise on the part of the association. Byrne had relied entirely upon the provisions of Section 721 of the federal Farm Loan Act, hereinabove mentioned; and the insolvency of the defendant association was conceded and it was in actual liquidation.
It should be noted in the instant case that primarily this cause is one brought by a citizen,and resident of the state of Ohio to quiet title in respect to real estate located entirely within the state. Under such circumstances federal courts will follow the laws' of the state in which the real property is located in determining questions involving the title to that property. In re Barnett, 12 F. (2d), 73-76.
The record discloses in the instant case that Phillips is both a creditor and a stockholder. That being true, he should not be obliged to permit this confessed insolvent corporation to continue in a business that is apparently fraught with many hazards and has already resulted in considerable losses.. If Phillips has no remedy under the law of the state of Ohio, it would be a monstrous and absurd proposition that this plaintiff; being both a creditor and stockholder, must sit back and take it, while this association repudiates its definite contract and continues to engage in a hazardous business that will likely result in further losses; and may reach a place where Phillips as a stockholder would be subjected to an assessment upon his stock to pay further losses.
It is admitted that the association made a definite promise and agreement to pay Phillips this sum of money if and when he paid his loan. There is no contending the fact that Phillips has paid the loan in full and has complied with the order of the trial court in this respect. It therefore follows that he is entitled to recover judgment against the association for the amount promised and agreed to be paid.
It is admitted that the association, on final payment of the loan, refused to accept at face value the receipt from which the above is quoted. This presents an entirely different situation than appears in any of the cases cited by counsel for plaintiffs in error. When this association fails to keep this agreement, Phillips is entitled to a judgment for the amount promised him.
Counsel for plaintiffs in error cite a number of Ohio cases pertaining to the rights and claims of stockholders and members of Ohio building and loan associations. Such rights and claims in Ohio are all subject to specific statutes and are subject to exclusive remedies applicable under the Ohio law' to building and loan associations and the members and stockholders thereof-. These authorities have no application to the case at bar.-
We now come to the last proposition submitted by counsel for plaintiffs in error — that the trial court erred in appointing a receiver for The Knox National Farm Loan Association, because it was without authority of law, and, especially, because the provisions of Section 11894, paragraphs 5 and.6, General Code, do not grant such, authority. We note in paragraph 5 of the above section the following:
"In the cases provided in this title, and by special statutes when a corporation has been dissolved; or is insolvent, or in imminent danger of insolvency, or has forfeited its corporate rights."
This whole section of the General Code is included in Title 4, and this title is devoted to procedure in Common Pleas Court. Included therein is Section 11901, which provides for actions in such court to quiet title, and one of the features of this action brought in the court below by the plaintiff below is' an action to quiet title. The insolvency of The Knox National Farm Loan Association being an admitted fact, even though courts have held that mere insolvency may not be a sufficient ground in itself, standing alone, for the appointment of a receiver, it is apparent from the record in this case that this insolvency, coupled with the other admitted facts relative to this association appearing of record, gave the trial court ample authority within its discretion for the appointment of a receiver.
Receivership is not the only and ultimate relief sought by plaintiff below, because he asks for the winding up of the business and affairs of the association, and in view of the fact that he is both a creditor and stockholder, we are of the opinion that he has a right to demand that this corporation, which has already made a record for definite losses, and is now insolvent, should be obliged to wind up its business, distribute its assets among its creditors as far as they may go in paying its debts, and save its' stockholders from further losses and possibly double liability assessment if such corporation is permitted to continue operations as in the past.
Just one closing word with reference to the jurisdiction of the court below in this case. We note in the case of United States v. Bank of New York & Trust Co., 296 U. S., 463, 80 L. Ed., 331, 56 S. Ct., 343, the fourth paragraph of the syllabus provides:
"The jurisdiction granted.to the District Court over suits by the United States, Jud. Code, Section 24 (1); 28 U. S. C. 41, is not exclusive; and the propriety of its exercise in a given case is determined by the particular circumstances."
Chief Justice Hughes, on page 479, speaking for the court, says:
"The fact that the complainant in these suits is the United States does not justify a departure from the rule which would otherwise be applicable. The Government invokes Section 24 (1) of the Judicial Code (28 U. S. C. 41) which confers' jurisdiction upon the District Court to entertain all suits of a civil nature brought by the United States. The Government insists' that the United States is entitled to have its claim determined in its own courts. But the grant of jurisdiction to the District Court in suits brought by the United States' does not purport to confer exclusive jurisdiction. It is a general rule that the grant of jurisdiction to one court does not, of itself, imply that the jurisdiction is to be exclusive. Upon the state courts, equally with the courts of the Union, rests the obligation to guard and enforce every right secured by the Constitution and laws of the United States whenever those rights are involved in any suit or proceedings before them. * # * In this instance it cannot be doubted that the United States is free to invoke the jurisdiction of the state court for the determination of its claim, and the decision of the state court of any federal question which may be presented upon such an invocation, may be reviewed by this Court, and thus all the questions which the Government seeks to raise in these suits may be appropriately and finally decided."
So that, from a careful examination of the record 'before us in this case, we are of tbe opinion that the finding and judgment of tbe Court of Common Pleas should be and the same is hereby affirmed.
Judgment affirmed.
Montgomery and Sherick, JJ., concur.