WAGNER, for Use of MOLNER, v. SOUTH CHICAGO SAV. BANK, 146 F.2d 686

EVANS, Circuit Judge. A national bank receiver sold and assigned to appellee a $10,860 judgment which he obtained against appellant, based on the statutory bank stockholder’s liability. Appellant challenges the validity of such sale and assignment, contending that the statutory power of the receiver to “enforce the personal liability of the shareholders” does not include the power to sell and assign, this claim. Appellee, the assignee, purchased the bank’s assets (including stockholders’ liability judgments) in the receiver’s hands for $1,230.

He instituted the instant garnishment proceedings against sixteen shares of bank stock of the par value of $1,000, the property of appellant, which stock was in the hands of the garnishee, South Chicago Bank, as statutory security of Wagner’s fidelity as director of that bank. The bank and appellant were both named defendants. Heretofore we held this claim was not exempt from garnishment simply because of the character of its deposit, and also held it was error to discharge the garnishee on that ground.

Upon that appeal counsel for the stockholder did not question the authority of the receiver to sell the judgment, or the validity of such sale. The case was returned to the trial court “for further proceedings in accord with the views here expressed.” Upon the return of the case to the trial court, Wagner filed a petition, the gist of which denied liability because of the invalidity of said assignment. The court “ordered leave be given to * * * file the petition” of Wagner. Later, after due consideration it struck said petition from the record. Later the court entered judgment in favor of appellee, the assignee.

Wagner appeals from that judgment. The pertinent statutes provide (Title 12 U.S.C.A.) : Secs. 63 and 64. “The stockholders of every national banking association shall be held individually responsible for all contracts, debts, and engagements of such association, each to the amount of his stock therein, at the par value thereof * * (1913). Sec. 65. “When any national banking association shall have gone into liquidation * * * the individual liability of the shareholders * * * may be enforced by any creditor of such association, by bill in equity * * (1876).

Sec. 67 (enacted Feb. 25, 1930). “Any receiver of a national banking association is authorized, with the approval of the Comptroller of the Currency and upon the order of a court of record of competent jurisdiction, to compromise, either before or after judgment, the individual liability of any shareholder of such association.” (1930).

Sec. 191. “Whenever any national banking association shall be dissolved * * * or whenever the comptroller shall become satisfied of the insolvency of a national banking association, he may, after due examination of its affairs, * * * appoint a receiver who shall proceed to close up such association, and enforce the personal liability of the shareholders, as provided in

section 192.” (1876). Sec. 192. “On becoming satisfied * * * that any association * * * is in default, the Comptroller of the Currency may forthwith appoint a receiver, and require of him such bond * * *.

Such receiver, under the direction of the comptroller, shall take possession of the books, records, and assets of every description of such association, collect all debts, dues, and claims belonging to it, and, upon the order of a court of record of competent jurisdiction, may sell or compound all bad or doubtful debts, and, on a like order, may sell all the real and personal property of such association, on such terms as the court shall direct; and may, if necessary to pay the debts of such association, enforce the individual liability of the stockholders." (1916, amended 1935).

In the instant case the receiver’s judgment for $10,860 against appellant was obtained, December 22, 1936. Execution was issued on the judgment and returned “no property found.” On January 14, 1942, the District Court, in an equity proceeding, entered an order authorizing the receiver to “sell, transfer and assign to * * * (Molner, the assignee, appellee here) for the sum of $1,230 in cash, all of the assets of the receivership estate and salable stock assessment liabilities particularly described and set forth in an exhibit attached to said order” one of which items in the exhibit was the judgment here involved.

It is appellant’s contention that a national bank stockholder’s liability is unique — not an asset of the bank, but a right accruable to a creditor to enforce, or the receiver to enforce upon authorization of the Comptroller, and, once enforced, the proceeds constitute a trust fund for the benefit of the creditors, and the surplus belongs to the stockholder or stockholders. He denies authority of the receiver to assign sueh liability or a judgment based thereon.

He points out that although a receiver had previously had the power to compound “all bad or doubtful debts” such power did not include the power to compromise stockholder liability debts, and it was necessary in 1930 to secure a specific statutory authorization permitting the receiver to “compromise” stockholder’s statutory liability. The power of the receiver “to enforce the individual liability of the stockholders” must be narrowly construed, so he argues, and so construed, excludes the power to assign.

No Federal case directly in point has been cited, construing the right of a national bank receiver to assign a stockholder’s liability, either before or after judgment. There have been several state court cases on the subject, some of them involving national banks. Appellee also challenges the appellant’s right to assail the validity of the assignment in this allegedly collateral proceeding. Answering this puzzler, appellant contends that the order directing the assignment was in reality an administrative proceeding and so this is an original attack, and not collateral, upon the validity of the assignment.

The law of the case is also advanced, based on our opinion in the prior appeal, where we held that the garnisheed stock in the hands of the defendant bank was property subject to garnishment in an action brought by the assignee of the judgment in favor of the receiver. Assignability of Stockholder’s Liability by Receiver. Coming at once to the meat of this controversy, the assignability by a receiver of national bank stockholder’s liability, we find much contrariety of opinion.

As stated in American Jurisprudence, “Banks,” § 137: “On the one hand, there is authority to the effect that the right of the receiver of an insolvent banking corporation to enforce an assessment under a statute providing that stockholders shall be liable to creditors to an amount equal to their respective shares is not an asset of the bank, and therefore can be enforced by the receiver’s transferee of such right only to the extent to which the consideration paid by him can be shown to have been distributed to creditors.

There is, however, authority to the contrary effect — that is, that the claim of the receiver against stockholders of the insolvent bank is one that he can assign or transfer.” In 82 A.L.R. 1285, 1286, it is said: “Upon the question whether the statutory superadded liability of a shareholder in an insolvent corporation may be assigned or sold by its receiver, the cases are about evenly divided.” Vol. 9, C.J.S., Banks and Banking, § 604, p. 1143, aligns itself on the side of the sala-bility of such a claim basing its conclusion on the New York case of Waldron v. Alling, 73 App.Div. 86, 76 N.Y.S. 250.

Iowa seems to have furnished the leading decisions supporting the appellant’s position. Roe v. King, 217 Iowa 213, 251 N.W. 81; Andrew v. Bank of Swea City, 214 Iowa 1339, 242 N.W. 62, 82 A.L.R. 1280. This lead has been followed by other respectable authorities. The Illinois Supreme Court, in the recent case of Decker v. Domoney, 1944, 387 Ill. 524, 56 N.E.2d 750, squarely held that in the case of a state bank (Illinois), judgments based on stockholder’s statutory liability, could be validly assigned.

It is worthy of note that here the court stresses the fact that the liability has been reduced to judgment, and a judgment is less vulnerable to the attack which appellant makes, than was the naked liability before judgment. In our search we have found but one Federal case, Fisher v. Lefferts, 3 Cir., 105 F. 711, decided in 1901. We quote from that opinion: “This case arises upon the following facts: In May, 1891, B. F. Fisher, the legal plaintiff in this suit, was appointed receiver of the Spring Garden National Bank, and entered upon the duties of his appointment.

Not long afterwards an assessment was made by the comptroller of the currency to enforce the additional liability of the shareholders under the act of congress, and this suit was brought to recover the assessment due from the defendant. A judgment was recovered in June, 1892, for the full amount of the claim, but * * * it was never paid. In April, 1899 * * * the court thereupon entered a decree giving the power to sell.

Sale was accordingly made, this judgment being included, and the receiver’s return was duly confirmed by the court. * * * not long afterwards * * * plaintiff issued execution and levied upon the defendant’s property. * * * “There are two reasons why this rule must be discharged.

In the first place, in its present form, the petition is a collateral attack upon the decree ordering the sale, and therefore cannot be entertained. * * * “But, even if the petition were before the court in the proper proceeding, I should dismiss it because, in my opinion, the petitioner has no standing to raise the question whether or not the sale was good. * * *” We are convinced that the question will remain a debatable one until the Supreme Court settles it. Our conclusion favors the salability of such a judgment.

Were it not for the number of respectable and respected state courts which have reached a contrary conclusion, we would be tolerably free from doubt. The language of the statute must be read in the light of its purposes. Here, the receiver of an insolvent national bank held a claim against the appellant and other stockholders, the validity of which was and is not questioned. To meet the obligations to depositors, it became the receiver’s duty to liquidate the assets of the insolvent national bank. Among the assets were the assessments against the stockholders.

Treating all the stockholders alike was the plain duty of the said receiver. Some stockholders paid their assessments in full and promptly. Appellant was not one of them. Receiver sued him and obtained a money judgment against him for the amount of his assessment. Still he refused to pay his obligation. An execution was issued and returned wholly unsatisfied. What next could or should the receiver do ? Appellant answers, nothing. But, what of the depositors, for whose benefit the statute was enacted ?

Ordinarily in an equity receivership proceeding a sale of assets, under authority and with the approval of the court, would follow. Why not here ? In all such suits the proceedings are for the benefit of the creditors who are here the depositors. The protection of their rights is the court’s concern. If appellant’s argument were to prevail, the liquidation of the bank’s assets would be prolonged,—perhaps beyond the life of the youngest depositor. It would await the wishes of the judgment debtor. The more patient the receiver, the more reconciled would the debtor stockholder become to the status quo.

Let us take a supposititious case. Let us assume the receiver obtained as part of its execution, the stockholder’s interest in some oil and other minerals underlying lands in southern Illinois. There may or may not be minerals of value involved. No efforts are being made to develop the property at the time. Must the receiver sit by indefinitely, or at least beyond his lifetime, or may he not sell the interest he thus acquired on an execution sale?

And the legal rights would not be different if the stockholder gave the receiver a lien on the mineral deposits, as security for stockholder’s liability above mentioned instead of the receiver’s acquiring it on execution. Appellant argues that because Congress by amendment (Sec. 67) gave the receiver authority to compromise claims, it is clear that the powers of the receiver should be strictly construed. This conclusion is far from evident. Whether it was necessary to amend a statute so that a receiver possess authority to compound and compromise claims, presents a doubtful legal question.

At any rate, counsel could argue its doubtfulness and thus thwart or delay liquidation of the bank. But, as amended, there would no longer be doubt. The amendment may well have been passed to make clear and certain the authority of bank receivers to compromise. Congress enacted the amendment in 1930, at a time when bank failures were many, and when stockholders knew not where they stood. Their financial embarrassment was similar to that of the banks of which they were, unfortunately, unhappily connected as a stockholder.

In the light of the history of our times, it may be argued with greater plausibility, we think, that a desire to help insolvent national banks liquidate and also make it easier for embarrassed stockholders, who desired, to the extent of their liability, to meet bank stockholders’ liability, is the proper explanation of this amendment. It was to clarify and to avoid delays incident to prolonged and expensive litigation that the statute was amended.

The verb, which in the absence of the amendment defined the authority of the receiver was “enforce.” The receiver was authorized to “enforce” the liability of the stockholder (Sec. 192). How is a claim usually “enforced” against a creditor? By demand, suit, and execution. If not successful, what next? The answer is, Sell the claim. And why should the receiver, possessing all other enforcement powers, not have the right to sell the claim, under an order of the court and upon an order of approval of the sale by the court ?

It is argued that we should not assume Congress intended to give to receivers authority to sell claims of this kind when the only purchasers are “scalpers” and “speculators” who would never pay substantial sums for such claims. This presupposes that the receiver and also the court would sacrifice the estate and betray the obligations of their trusts. Moreover, the stockholder could have offered more than the price bid and thus have defeated the sale. He would have the benefit of the legislation which authorized composition.

Of course, it need hardly be observed that we do not favor sales of claims to .those who, like vultures, hang about courts of bankruptcy and feed themselves fat on forced sales of assets of bankrupt estates. Nor do the District Courts, whose duty it is to watch over all sales and authorize and approve only sales that merit approval. But appellant, refusing to meet his obligation as a stockholder of an insolvent bank, or any part of it, is not in the best position to attack the sale because it allegedly failed to bring as much as it should. The decree is affirmed. 12 U.S.C.A. § 191. Molner v. South Chicago Sav.

Bank, 7 Cir., 138 F.2d 201, 148 A.L.R. 1159. Opposed to assignment: Andrew v. State Bank, 214 Iowa 1339, 242 N.W. 62, 82 A.L.R. 1280 (citing otter Iowa cases); American Exchange Bank v. Rowsey, 144 Okl. 172, 289 P. 726; Griffin v. Brower, 167 Okl. 654, 31 P.2d 619; Hood v. Richardson Realty, 211 N.C. 582, 191 S.E. 410, 414; Lally v. Anderson, 194 Wash. 536, 78 P.2d 603; Shaw v. Strong, Tex.Civ.App., 35 S.W.2d 769; State v. Kelly, 141 Okl. 36, 284 P. 65. Permitting assignment: Comstock v. Morgan Park Trust Co., 319 Ill.App. 253, 48 N.E.2d 980; Waldron v. Ailing, 73 App.Div. 86, 76 N.Y.S. 250; Schaberg’s Estate v.

McDonald, 60 Neb. 493, 83 N. W. 737; White v. Taylor, 187 Ark. 1, 58 S.W.2d 210; Cobe v. Hackney, 83 Kan. 306, 111 P. 458; Decker v. Domoney, 387 Ill. 524, 56 N.E.2d 750.