SILK v. AKE

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Docket Number

Nos. 7248-7251.

Attorney(S)

Arthur A. Miller, of Cleveland, Ohio (Merle D. Evans, of Massillon, Ohio, on the brief), for appellants. H.C. Pontius and Kenneth B. Cope, both of Canton, Ohio (Lynch, Day, Pontius Lynch, of Canton, Ohio, on the brief), for appellee.

Judges

Charles Harwood Moorman

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Smart Summary

Factual and Procedural Background

The Comptroller of the Currency declared the Union National Bank of Massillon, Ohio, insolvent and appointed H. Ross Ake as receiver of its assets. The appellee, as receiver, sued the appellants, who were stockholders of the bank, to recover liability on their stock pursuant to section 23 of the National Banking Act (12 U.S.C.A. § 64). The appellants answered, alleging the bank was solvent except for a deficiency note executed by the bank's directors to the First National Bank of Massillon, of which the appellee was also receiver. They claimed the First National Bank had taken over the Union National Bank's assets and agreed to pay its liabilities, and that the deficiency note was collusively executed to evidence the statutory liability of shareholders. The appellants counterclaimed that the assets conveyed were sufficient to cover the debts, the deficiency note was void due to collusion, and that there were no valid debts for which they were responsible. They sought a stay of the proceeding pending determination of these issues. The appellee moved for judgment on the pleadings, and the district court entered judgment against the appellants for their assessments. The appellants appealed.

Legal Issues Presented

Whether a stockholder of a national bank can defend an action to recover an assessment on his stock by arguing that there is no outstanding debt or obligation against the bank, and that the only claim is a judgment on a deficiency note alleged to have been collusively executed.

Arguments of the Parties

Appellants' Arguments

The Union National Bank was solvent except for a deficiency note executed collusively by its directors to the First National Bank.
The First National Bank took over the assets and agreed to pay liabilities, so no valid debt remained.
The deficiency note was void due to collusion and therefore the appellants had no liability under the statute.
They requested a stay until the court determined whether valid obligations existed and whether they had valid defenses to the assessments.

Appellee's Arguments

The Comptroller of the Currency's determination of insolvency and necessity for assessments is conclusive and binding on the stockholders.
The appellants cannot challenge the validity of the deficiency note or the transaction between the two banks in this action to recover assessments.
The appellants failed to directly attack the Comptroller's order or the deficiency note in appropriate proceedings.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Kennedy v. Gibson, 8 Wall. (75 U.S.) 498	Conclusive nature of Comptroller's determination of insolvency and assessments	Established that stockholders cannot attack Comptroller's order in suit to recover assessments.
Casey v. Galli, 94 U.S. 673	Binding effect of Comptroller's order on stockholders	Confirmed that stockholders’ defenses cannot challenge the amount or necessity of assessments once ordered by Comptroller.
Crawford v. Gamble, 57 F.2d 15 (C.C.A.6)	Stockholders cannot question contracts or deficiency notes between banks in assessment recovery suits	Applied to hold appellants cannot challenge validity of deficiency note or Comptroller’s assessment.
United States v. Knox, 102 U.S. 422	Support for conclusiveness of Comptroller's insolvency determination	Reinforced that stockholders must pay assessments without questioning Comptroller’s decisions.
Bushnell v. Leland, 164 U.S. 684	Same as Knox: finality of Comptroller’s insolvency and assessment orders	Used to support the court’s refusal to allow stockholders to challenge assessments.
McClaine v. Rankin, 197 U.S. 154	Binding effect of Comptroller’s orders on stockholders	Confirmed that stockholders cannot dispute assessments in suits to enforce payment.
Christopher v. Norvell, 201 U.S. 216	Same principle of conclusiveness of Comptroller's orders	Applied to bar stockholders from disputing assessments on the basis of bank debts.
Collins v. Caldwell, 29 F.2d 329 (C.C.A.)	Support for conclusiveness of Comptroller's insolvency findings	Used to uphold judgment against stockholders for assessments.
Miller v. Stock, 65 F.2d 773	Same as above; binding nature of Comptroller’s assessment orders	Applied to affirm that stockholders cannot challenge assessments.
B.V. Every Co. v. Wilkinson, 72 F.2d 10	Reinforcement of principle that stockholders must pay assessments once made	Supported the court’s conclusion to affirm judgment against appellants.
Broderick v. Rosner, 294 U.S. 629	Stockholders may attack Comptroller’s order for fraud or legal error by direct equity proceedings	Not applicable here as no fraud or direct attack on Comptroller’s order was made by appellants.

Court's Reasoning and Analysis

The court recognized the Comptroller of the Currency's determination of insolvency and necessity for assessments as conclusive and binding on the stockholders, citing established Supreme Court and appellate precedents. The appellants' defense rested on the claim that the bank was solvent except for a deficiency note allegedly collusively executed, and that no valid debt existed beyond that note. However, the court held that stockholders cannot challenge the Comptroller's order or the validity of the deficiency note in a suit to recover assessments. The appellants failed to directly attack the Comptroller's order or participate in the proceeding that adjudicated the deficiency note’s validity, thereby waiving any defense based on those claims. The court distinguished cases allowing inquiry into bank debts in actions by judgment creditors as inapplicable because no insolvency determination or assessment order was involved in those cases. The court noted that while a stockholder may have recourse against fraudulent assessments via direct equity proceedings, no such fraud or direct attack was alleged here. Accordingly, the court affirmed the judgment against the appellants for their assessments.

Holding and Implications

The court affirmed the judgment against the appellants, holding that stockholders of a national bank cannot defend against an assessment on their stock by disputing the existence or validity of the bank's debts once the Comptroller of the Currency has determined insolvency and ordered assessments.

This decision directly enforces the binding effect of the Comptroller's insolvency determinations and assessments on stockholders, precluding them from collaterally attacking such orders or related deficiency notes in suits to recover assessments. No new precedent was established beyond reaffirming existing principles, and the ruling's immediate effect is to sustain the appellee's recovery of assessments from the appellants.

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SILK et al. v. AKE.

MOORMAN, Circuit Judge.

The Comptroller of the Currency determined that the Union National Bank of Massillon, Ohio, was insolvent, took charge of its affairs, and appointed the appellee receiver of its assets. The appellants are stockholders of the bank. The appellee sued them to recover the liability on their stock under section 23 of the National Banking Act (12 U.S.C.A. § 64). By answer the appellants alleged that the bank was solvent except for a deficiency note executed by its board of directors to the First National Bank of Massillon, Ohio, of which the appellee was also receiver. They asserted that the First National Bank took over the assets and resources of the Union National Bank and agreed to pay its liabilities from the proceeds thereof, and that subsequently the directors of the Union National collusively executed to the First National Bank the deficiency note as evidencing the statutory liability of the shareholders of the Union National for the debts of the bank in excess of the value of its assets and resources. In counterclaims they alleged that the value of the assets conveyed to the First National were sufficient to pay the debts of the Union National and exceeded the face value of the deficiency note, and that the note was obtained from the Union National by collusion and for that reason was void. They further alleged that the Union National had no debts or engagements for which they were responsible under the statute, and they prayed for a stay of the proceeding until such time as the court should determine whether there were any valid outstanding obligations, claims, or credits of the Union National, and whether they, as a matter of fact or law, had valid defenses against the enforcement of the assessments against their stock, and, finally, that the stay be made permanent on a finding that they had such defenses. The appellee made motion for a judgment on the pleadings, and the court, on consideration thereof, entered judgment against appellants for the amounts of their respective assessments.

The question for decision is whether a stockholder of a national bank can defend an action to recover an assessment of liability on his stock on the ground that there is no outstanding debt or obligation against the bank, and that the only claim against it is a judgment obtained in a state court on a deficiency note alleged to have been collusively executed.

There can be no question of the conclusiveness of the determination of the Comptroller of the Currency as to the necessity for the assessments. Kennedy v. Gibson, 8 Wall. (75 U.S.) 498, 19 L.Ed. 476; Casey v. Galli, 94 U.S. 673, 24 L.Ed. 168. The latter case was an action by the receiver of a national bank to recover an assessment against stockholders who in their answers alleged that the declaration demanded a larger sum than they were required to pay to meet the obligations of the bank. They also alleged that the receiver had decided to pay claims against the bank for which the bank was not responsible, and aside from those claims there were means already in the hands of the receiver to meet the liabilities of the bank. The court held that the order of the Comptroller in making the assessments could not be attacked in a suit against the stockholders but was conclusive upon them and made it their duty to pay. In Crawford v. Gamble, 57 F.2d 15 (C.C.A.6), the insolvent bank entered into a contract with another bank to take over its assets and pay its liabilities. A deficiency note was given as in this case. The validity of the contract between the two banks was challenged. It was alleged that there was no deficiency and no necessity for the deficiency note, as the assets of the insolvent bank were sufficient to pay its obligations. The court held that the stockholders of the insolvent bank could not question the transaction between the two banks, or the action of the Comptroller in making the assessment, in a proceeding to recover the assessment from them. Other cases reaching the same conclusion on somewhat similar facts are United States v. Knox, 102 U.S. 422, 26 L.Ed. 216; Bushnell v. Leland, 164 U.S. 684, 17 S.Ct. 209, 41 L.Ed. 598; McClaine v. Rankin, 197 U.S. 154, 25 S.Ct. 410, 49 L.Ed. 702, 3 Ann.Cas. 500; Christopher v. Norvell, 201 U.S. 216, 26 S.Ct. 502, 50 L.Ed. 732, 5 Ann.Cas. 740; Collins v. Caldwell (C.C.A.) 29 F.2d 329; Miller v. Stock (C.C.A.) 65 F.2d 773, 90 A.L.R. 1061; B.V. Every Co. v. Wilkinson (C.C.A.) 72 F.2d 10.

Decisions holding that there may be inquiry into the validity of a debt of a bank in an action by the judgment creditor to recover the debt from a shareholder are inapplicable, for in those cases there had been no determination of insolvency or order of assessment, and there was consequently no attack on the Comptroller's determinations, which are, as held in the cases cited, conclusive upon the shareholder. There is an intimation, it is true, in some of the cases that the stockholder is not without remedy if he is about to be injured by a fraudulent assessment or proceeding instituted by the Comptroller. In such case it would seem that the action of the Comptroller, as said in Broderick v. Rosner, 294 U.S. 629, 55 S.Ct. 589, 594, 79 L.Ed. 1100, 100 A.L.R. 1133, would be "subject * * * to a direct attack for fraud or error of law by appropriate proceedings in equity." In the case at bar no fraud is alleged against the Comptroller, nor is there any direct attack upon his good faith in making the assessments or causing suits for the collection of them to be brought. He was not made a party to the proceeding in the counterclaims. The bank's liability on the deficiency note has been adjudged. It was open to the appellants to appear in the proceeding where that adjudication was had and contest the validity of the note. Having failed to do so, and not having attacked the acts of the Comptroller in a proceeding against him, they cannot say that they have been deprived of an opportunity to have a hearing on the matters which they are attempting to assert as a defense to this action.

The decree is affirmed.