Court Opinion

ID: 8756279
Source: CourtListenerOpinion
Date Created: 2022-11-26 11:47:32.320817+00
Date Added: 2024-06-11T17:01:16.440389
License: Public Domain

GROSSCUP, Circuit Judge
(dissenting). In the conclusion of the court, respecting the twenty-five shares of stock, I concur. From the conclusion of the court, respecting the remaining eighty shares, I feel obliged to dissent.
Preliminary to a statement of the reason for my dissent, I note two facts not brought out pointedly in the majority opinion, but clearly established by the record. The first of these is, that the final suspension of the bank, though it occurred two years and five months after Dewey’s transfer of stock, is traceable, in the line of cause and effect, to the insolvency of the bank at the time of the transfer; that is, the suspension when it did occur, was not wholly the outcome of intervening causes, but was the direct outcome, in part at least, of causes existing at the time of the transfer.
The second fact is this: That though so far as the record discloses, Dewey transferred his shares to people not shown to have been insolvent, the motive that actuated the transfer, so far as Dewey was concerned, was to escape his liability as a stockholder in a bank that he knew to be insolvent.
These facts the majority opinion seems to accept. The opinion proceeds, as I understand it, upon the proposition of law, that though the final suspension was in line of cause and effect of insolvency existing at the time of the transfer, and though the transfer was made with the insolvency of the bank in mind, and to escape liability as a stockholder, nevertheless no liability attaches, because, before liability can attach, it must be shown, in addition to the facts stated, that transfer was made to persons themselves insolvent, or to persons who, for some good reason, could not be made to respond to the stockholders’ liability. In the *535opinion of the majority, before liability attaches three facts must be concomitant, viz.: Insolvency, the stockholders’ knowledge thereof, and a transfer to persons themselves insolvent, or unable for any reason to respond; and the absence of any one of these facts defeats a right of action.
Stuart v. Hayden, 169 U. S. 1, 18 Sup. Ct. 274, 42 L. Ed. 639, as I read that case, is a direct authority against that proposition. Though in that case the bill averred the insolvency of the transferees, the averment was controverted by the answer, and there was no finding of the court that such insolvency existed; and the language employed by Mr. Justice Harlan, upon which the judgment proceeded, seems to me to expressly exclude the element of insolvency of the transferees as a condition to be established before there could be recovery by the receiver :
“One who holds such shares,” said Mr. Justice Harlan, “the bank being at the time insolvent — cannot escape the individual liability imposed by the statute by transferring his stock with intent simpy to avoid that liability, knowing or having reason to believe at the time of the transfer on the books of the bank (Richmond v. Irons, 121 U. S. 27, 58, 7 Sup. Ct. 788, 30 L. Ed. 864), that it is insolvent or about to fail. A transfer with such intent, and under such circumstances, is a fraud upon the creditors of the bank, and may be treated by the receiver as inoperative between the transferer and himself, and the former held liable as a shareholder without reference to the financial condition of the transferee. The right of creditors of a national bank to look to the individual liability of shareholders, to the extent indicated by the statute, for its contracts, debts, and engagements, attaches when the bank becomes insolvent, and the shareholder cannot, by transferring his stock, require creditors to surrender this security as to him, and compel the receiver and creditors to look to the person to whom his stock has been transferred. * * I*************15 If the bank be solvent at the time of the transfer, that is, able to meet its existing contracts, debts and engagements, the motive with which the transfer is made is, of course, immaterial; but if the bank be insolvent, the receiver may, at least, without suing the transferee and litigating the question of his liability, look to those shareholders who, knowing or having reason to know, at the time, that the bank was insolvent, got rid of their stock in order to escape the individual liability to which the statute subjected them.”
I do not acquiesce in the suggestion that this language is inadvertent, or that Earle v. Carson, 188 U. S. 42, 23 Sup. Ct. 254, 47 L. Ed. 373, was intended .to overrule it. The principle formulated in Stuart v. Hayden applied precisely to the case there decided — a case in which insolvency of the transferees, apparently, was not considered as an element or condition of recovery — while Earle v. Carson, also, had no concern with the insolvency of the transferees as a condition essential to recovery. The question in Earle v. Carson was, whether the bank being insolvent, the transferror could be held to stockholder’s liability notwithstanding his want of knowledge of such insolvency.
What seems to me to be a reasonable interpretation of the National Banking Act leads to the same conclusion. That act was framed as a practical measure to meet practical conditions. Its chief purpose, unquestionably, was to make these" banking associations safe as institutions authorized to issue currency, and to accept deposits. Accompanying this was the further purpose that the share of the bank, lik'e other forms of property, should be freely saleable. But the latter purpose, plainly, was subsidiary to the former.
*536To carry out the chief purpose — security to the depositors — the act gives the depositor a succession of safeguards. The government is required periodically to inspect the bank; the government is given the summary right to close up the bank; and the stockholder, in the act of becoming such, collaterally contracts, to the extent of his stock, equally and ratably with others, that he will be liable for the contracts, debts and engagements of the bank.
Now to what extent is this third safeguard, the collateral contract, a fixed liability? Under what circumstances was it intended that the liability might be shifted to another? Section 5139 [U. S. Comp. St. 1901, p. 3461] of the National Banking Act provides that the shares shall be transferable on the books of the association, and that every person becoming a shareholder by such transfer, shall, in proportion to his shares, succeed to all rights and liabilities of the prior holder. „But under what circumstances was this intended to release the prior holder from his liability? The answer to this question determines the law applicable to the transfer of the eighty shares under consideration.
Practically, there is a great difference, so far as the security of the depositors is concerned, between transfers of stock by stockholders, in the usual course of purchase and sale of bank stock, and transfers made solely to avoid liability. In the transfers of shares in the usual course of purchase and sale, the shares ordinarily pass from substantial and solid interests to substantial and solid interests; while in transfers to escape liability, the shares are apt to go to adventurers, or to others who themselves have something doubtful to trade off. True, the transferees in either case may, technically, be solvent; but the National Banking Act looked, not to solvency only, but to security— to the kind of security one desires when he is parting with his money on the credit of an endorser. Solvency, alone, does not make an endorser desirable. The personality of the endorser — his condition as a sold and safe, as well as a solvent man — is a prime consideration; for, though solvent, an endorser’s credit may be so bad, or his business so speculative or otherwise precarious, that no one would be willing to extend credit upon his collateral obligation.
In the framing of the National Banking Act, congress must be assumed to have had in mind these practical considerations. To say that congress, wishing so far as could be done with safety, to make shares saleable, could have entertained no fear that depositors would be hurt in their security by transfers of stock in the usual course of bank stock purchase and sale, is to say, what in^the long run is true; for in such transfers the stockholder is usually replaced by a stockholder equally desirable. But to say that congress could not see that depositors would be hurt in their security by transfers made by stockholders fleeing from an insolvent bank, and solely to escape their liability on account of the insolvency of the bank, is to assume that congress disregarded human nature, and all the teachings of experience. To my mind it is clear that it was not intended in the National Banking Act; that the stockholder should be able to drop his liability to depositors, whose deposits were made on the credit of his liability, by the simple device of a transfer; unless the transfer was made, not simply out and out, but in that good faith, also, that goes with the usual course *537of bank stock purchases and sales; and this would exclude, clearly, a transfer made simply to escape the obligations growing out of known insolvency.
The statute thus interpreted, Dewey would be liable to the creditors of the bank, not only on the twenty-five shares, but on the eighty shares also. What now, is the measure of that liability? Does it run to the creditors severally, so that only those who were creditors at the time of the transfer may enforce it, or does it run to the creditors en banc, irrespective of when they become creditors, to be enforced by the receiver as an asset of the bank? Is it a liability for the deficit as it existed at the time of suspension, or for the deficit as it would have existed at the time of the transfer, had the suspension then taken place?
Answering these questions in the order named, I am of the opinion that the contracts, debts and engagements of the bank for which’ Dewey was liable, are not to be held to be the contracts, debts and engagements due to the creditors individually. The liability is for the contracts, debts and engagements of the bank as a unity — a continuous unity, like a continuous stream, changing from time to time in volume, but still the same stream. The depositor who, when Dewey was a stockholder, deposited his money in the bank, and thus became a creditor, is not the only person interested in Dewey’s contract to make good, under certain circumstances, the debts, contracts, and engagements of the bank. He who, the next day after Dewey sold his stock, deposited his money, is equally interested; for such latter depositor, unless all safeguards such as this fail, had the right to rely upon the fact, that in the hour of Dewey’s withdrawal as a stockholder, the assets of the bank were more than equal to its liabilities, or in case a deficit existed, that the then stockholders would be subject to call to make up such deficit.
Answering 'the second question, I think, that the measure of liability is the deficit that would have existed had the bank liquidated at the time the transfer was made. Dewey, though knowing of the bank’s insolvency, was under no entire disability respecting the sale of such stock. Could a purchaser be found, solvent or insolvent, Dewey could transfer to him his stock. But in case it was not made in the good faith referred to, the transfer would not release his existing liability for the then contracts, debts and engagements of the bank. Now the measure of that liability, had it then been ascertained, would have been the difference between the bank’s liabilities and its assets. That the bank was not then suspended, that the deficit was not then ascertained, and made good, cannot be charged to Dewey; for it was no part of his duty, and probably was beyond his power, to bring about a suspension of the bank.
The construction given to the national banking law thus outlined, seems to me to be the one that most nearly meets the just purpose that must have been in the mind of congress. Thus construed, the act is not an embargo upon free disposal of this kind of property by the holder of the property; nor does it on the other hand afford a premium to him who- manages to get out stealthily, before the suspicions of the gov■ernment are awakened, or the depositors of the bank advised.
The decree, according to my view, should have required that an ac*538counting of the liabilities and assets of the bank be taken, as of the day that Dewey transferred his shares, and that ratably with other shareholders, as of that day, Dewey be held liable to the receiver of the bank for the deficiency found to exist. Such a decree would do Dewey no injustice, would do the creditors no injustice, and would carry out, according to my judgment, the plain purposes and spirit of the National Banking Act, as shown in all its provisions — those calculated to promote the interests of the stockholders, as well as those calculated to protect the interests of the depositors.
On the cross-appeal, the decree is affirmed; on the appeal, the decree is reversed, with a direction to enter a decree against Dewey for his full assessment on the 25 shares and for interest thereon. .