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Pickett v. Trixler

December 2, 1937


Appeal from the District Court of the United States for the Southern District of Indiana, Indianapolis Division; Robert C. Baltzell, Judge.

Author: Lindley

Before SPARKS and MAJOR, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

Plaintiff appeals from a decree dismissing her bill seeking to enjoin the receiver of the Howard National Bank of Kokomo, Indiana, from paying to himself as receiver of the Citizens National Bank, dividends upon claims of the latter; to cancel a note for $200,000; to have an accounting for certain trust assets and, upon such accounting, to recover her pro rata share of the resulting amount as a rebate upon the assessment paid by her as a stockholder of the Howard Bank.

Plaintiff was a shareholder in the Howard National Bank. On May 31, 1930, the bank entered into a contract with the Citizens National Bank in the same city, wherein it was recited that the condition of the Howard Bank was unsatisfactory, and its capital and surplus impaired; that an assessment by the Comptroller was pending and if made would be dangerous for the bank; that the Citizens Bank had offered to assume and pay the depositors' liabilities of the Howard, in consideration of the transfer by the latter to the Citizens of certain assets and the delivery of the Howard Bank's note to the Citizens Bank, the latter to be secured by the pledge of all assets of the Howard not directly taken over by the Citizens Bank, which were to be transferred to trustees.

The Citizens assumed liabilities to depositors amounting to $1,893,067.81. The assets transferred directly to it had a face value of $1,693,067.81, and the Howard executed and delivered to the Citizens its promissory note in the principal sum of$200,000, representing the difference between the face value of the assets transferred and the amount of liabilities assumed. At the same time the Howard transferred to trustees so-called nonaccepted securities of a total face value of$379,153.63 and certain real estate. The contract provided that all securities transferred to the Citizens should be indorsed and fully guaranteed by the Howard, and that all assets delivered to the trustees should be used to their full extent and value to indemnify the Citizens against loss upon its assumption of the liabilities of the Howard and against loss upon the$200,000 note. The Citizens was given the right to substitute any of the assets it had accepted for assets held by the trustees. The "unaccepted" assets were transferred to the trustees "for the use and benefit" of the Citizens, and the trustees were to liquidate them as directed by the Citizens and pay from the proceeds (1) the cost of administration of the trust and interest on the note; (2) sums for redemption, refunding, and repurchase of the assets held by the Citizens as and when it should demand; (3) the principal of the $200,000 note; and (4) the balance, if any, to the shareholders of the Howard Bank in proportion of their respective holdings.

On January 22, 1931, the Comptroller found the Howard Bank to be insolvent and appointed a receiver. Following this, on March 16, 1931, the Citizens Bank and the receiver, acting under the direction of the Comptroller, executed a contract, supplemental of that of May 31, 1930, whereby it was agreed that the assets held by the trustees should be surrendered by them to the receiver, who should administer them in accord with the National Banking Act, subject to the rights of the Citizens therein by virtue of the original agreement and that the trustees should be discharged. Thereupon the trustees delivered to the receiver all assets in their possession, exclusive of real estate, of the total face value of $367,505.75.

The Comptroller on May 27, 1931, levied and directed the receiver to collect a 100 per cent. assessment against the shareholders of the Howard on account of their statutory liability. Plaintiff paid the full amount of the assessment against her.

When the Comptroller appointed the receiver for the Howard Bank, nothing had been paid upon the $200,000 note. At that time, the assets received by it, remaining uncollected, indorsed and guaranteed by the Howard, were on the face value of $516,994.10.

On October 23, 1931, the Comptroller appointed a receiver for the Citizens Bank. The personnel of the receivers of the two institutions has changed from time to time, but on October 21, 1936, the Comptroller appointed as receiver of both banks the present defendant as successor to another previously holding both offices. On February 17, 1933, the predecessor of the present defendant, as receiver of the Citizens, filed a claim upon the note against himself as receiver of the Howard for $200,000 and another for $516,994.10, representing the amount of uncollected guaranteed securities delivered by the Howard to the Citizens under the original agreement. These two claims were allowed and dividends on each of the same in the amount of 9 per cent. have been paid. The only other claim against the Howard Bank was for $989.36, which has been allowed.

The present bill was filed in the District Court on January 26, 1935. Therein plaintiff alleged that by the execution of the supplemental contract on March 16, 1931, the Citizens and the receiver of the Howard committed a conversion of the assets in the possession of the trustees and that thereby it is estopped from asserting any claim against the Howard receivership for any sum. The assets, at the time of the alleged conversion, under the undisputed evidence, were worth $169,643.82.

The District Court found the facts to be substantially as hereinbefore set forth, concluded that there was no conversion and dismissed the bill for want of equity. Plaintiff contends that the original contract was one of sale of the assets; that the Citizens' and the receiver of the Howard had no right to execute the contract of March 16, 1931; that such action was a conversion of the assets, the measure of damages for which is $169,643.82; that there can be no legal liability of the Howard on account of the indorsement and guarantee of the uncollected assets delivered under the original agreement; that the $200,000 should not have been allowed in full, but that there should have been credited upon it, the value of the converted property $169,643.82; and that as a result of an accounting made under these contentions there is a balance to be redelivered to the several shareholders upon their assessments.

The contract of May 31, 1930, possesses some of the attributes of a sales agreement, but it is to be remembered that it was executed because the Howard Bank was in an unsatisfactory condition and feared an assessment upon its shareholders. The liabilities were assumed by the Citizens but only because, in addition to the assets received by it, it received also the note for$200,000, secured by the assets placed in trust, and the latter were in turn pledged as security not only for the deficiency of$200,000, but also for any deficiency in the accepted assets. This, obviously, was an attempted voluntary liquidation by the bank and its shareholders in order to avoid if possible actual insolvency with the resulting statutory liability.

The bank and its shareholders were charged with notice of those provisions of the National Banking Act, which place in the hands of the federal authorities complete supervision over all national banks and full control of all liquidation proceedings in case of insolvency. They knew that if insolvency should intervene, their efforts to perfect a voluntary liquidation would fail; that an assessment would be levied to meet any deficiency in assets to satisfy the obligations, and that liabilities of the stockholders, dirctors, and officers under the National Banking Act could not thereby be avoided or evaded. Considering the relationship of the ...

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