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Flynn v. Crume

January 20, 1939


Appeal from the District Court of the United States for the Northern District of Indiana, South Bend Division; Thomas W. Slick, Judge.

Author: Evans

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

This appeal is from a judgment entered in favor of defendant, Clara E. Crume, dismissing plaintiff's complaint. Defendant was originally the holder of 186 shares of the capital stock of the First National Bank of Peru, Indiana, which she transferred to her husband on September 19, 1931, taking his note in payment thereof. The stock was transferred on the bank's books the same month. In March, 1933, the bank was closed by Presidential order, and reopened only on a restricted basis. A conservator was named, April 21; a receiver was appointed, September 6; a 100% stock assessment was levied, November 2--all in 1933. The husband was notified of his liability, November 7, 1933, and Mrs. Crume on August 7, 1935. This action was begun September 4, 1935.

EVANS, Circuit Judge.

Plaintiff's cause of action was based on the double liability provision of the National Banking Act (12 U.S.C.A. secs. 63, 64).*fn*

We will refer to Clara E. Crume as defendant and Marshall E. Crume as her husband.

Defendant was charged with knowledge of the impending bank failure when she transferred her stock to her husband and with intent to escape the statutory liability. Plaintiff also alleged that defendant was and is the actual owner of the stock because the purported transfer to her husband was null and void, without consideration, and made for the purpose of defrauding creditors of the bank by unlawfully evading a national bank stockholder's liability.

The sole question is over the existence of substantial evidence to sustain a jury finding that defendant had knowledge of the impending failure of the bank to meet its obligations when she transferred he stock to her husband.

The test in the case of a peremptory instruction is too well known to require the citation of authorities. It is this: If the record discloses substantial evidence from which reasonable men might find the material, controverted issues in favor of the plaintiff, it is improper to direct a verdict for the defendant. Ordinarily only the evidence most favorable to the party against whom the motion is granted, need be examined. Otherwise the court might assume a fact which the jury would find, upon disputed evidence, to be otherwise.

What, then, are the facts upon which the plaintiff's case rested?

The total capital stock of the bank was $100,000. The Edwards (defendant's) family had long directed its affairs. Two sisters, one of whom was the defendant, and a brother owned a majority of the stock. The brother had been a director since 1922 and president since 1927. Defendant's husband had been a director since 1927, and at one time was its vice-president. He received from his wife the stock which qualified him to act as a director. Defendant was, and her husband was probably not, financially responsible in September, 1931.

The husband and defendant's brother were fully cognizant of the bank's condition, of a conditioin growing daily worse, of its borrowing large sums to meet withdrawals of depositors, of the steady decline in the value of its securities. A few days before defendant transferred her stock to her husband, a national bank examiner had examined the bank called the directors together (including defendant's husband), and made a dismal, discouraging report. He demanded vigorous and immediate restorative steps which the stockholders could not take.

There had been a depreciation of $191,000 in the bank's securities within the year. A thorough analysis of the bank's portfolio was made and the weaknesses of each security pointed out. The investment portfolio was pitifully weak. The total of all bond holdings was approximately, $750,000. Of this amount $260,000 was invested in second grade railroad bonds, only a few of which had better than a B-2 rating. There were $37,000 of Chicago Street Railway bonds which were in default and another $20,000 in Chicago Rapid Transit Company. Approximately $75,000 foreign bonds were in the portfolio, not one of which had as high as a B-2 rating. Most of them were German and South American issues. Both they and the railroad and the Chicago Street Railway bonds could never have been called proper bank investments - all weak and sinking.

Among the industrials which aggregated $200,000, there appeared $23,000 International Match, $10,000 Van Sweringen, and $10,000 Krueger & Toll. $10,000 of the State of Coahuila, ...

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