The legal existence of a corporation is not cut short by its
insolvency and the consequent appointment of a receiver, and there
is nothing in the statutes relating to national banks which takes
them out of the operation of this general rule.
After passing into the hands of a receiver, appointed by the
Comptroller of the Currency under the provisions of the Revised
Statutes, a national bank remains liable, during the remainder of
the term, for accrued and accruing rent under a lease of the
premises occupied by it, although the receiver may have abandoned
and surrendered them; but if the lessor, in the exercise of a power
conferred by the lease, reenters and relets the premises, the
liability of the bank after the reletting is limited to the rent
then accrued and unpaid, and the diminution, if any, in the rent
for the remainder of the term, after the reletting.
This was an action of assumpsit brought by the Hartford Deposit
Company against the Chemical National Bank of Chicago and the
receiver of the bank in the Superior Court of Cook County to
recover damages for a failure to pay rent
Page 161 U. S. 2
alleged to be due under a written lease from August 1, 1893, to
April 30, 1894. The cause was submitted to the court for trial on a
stipulation as to the facts, of which the lease formed a part. The
issues were found in favor of defendants, and judgment was rendered
accordingly. Plaintiff took the case to the appellate court for the
First district of Illinois, which affirmed the judgment as to the
receiver, but reversed it as to the Chemical National Bank, and
entered judgment for the sum of $9,000. 58 Ill.App. 256. An appeal
was prosecuted to the Supreme Court of Illinois, and the judgment
of the appellate court affirmed. 156 Ill. 522. This writ of error
was thereupon brought.
The facts were thus stated by the supreme court:
"The Chemical National Bank of Chicago entered into a lease,
dated November 18, 1892, with the Hartford Deposit Company, of a
banking office of a certain building owned by the said Hartford
Deposit Company. In accordance with its terms, the bank paid $2,500
on the delivery of said lease. The term was for a period of five
years, from May 1, 1893 at an annual rental of $12,000, payable in
equal monthly installments of $1,000, in advance, exclusive of and
in addition to said first payment of $2,500. The bank entered into
and took possession of said premises on May 1, 1893, the first day
of said term, and the first installment of rent fell due and was
payable on that day. This installment was not paid when due, nor
had it, or any part of it, been paid when, on May 9, 1893, the bank
became insolvent and a national bank examiner took possession of
its assets and of said premises. On July 21, a receiver was duly
appointed, and on July 27, he notified the Hartford Deposit Company
of his election to terminate said lease after July 31, 1893, so far
as he, as receiver, was concerned. On the same day, namely, July
27, said receiver paid to the Hartford Deposit Company the sum of
$2,709.68, which was, as agreed, the ratable amount of rent due for
the period to July 31, inclusive. No other or further rent was paid
under said lease, by any other person or at any other time. The
premises remained vacant until May 1, 1894, when they were relet at
a reduced rental. "
Page 161 U. S. 3
MR. CHIEF JUSTICE FULLER, after stating the facts in the
foregoing language, delivered the opinion of the court.
It is not claimed that the express covenant to pay rent was
released by the insolvency of the lessee merely, nor that the
election of the receiver not to accept the lease had any effect on
the contract between the lessor and the lessee, nor that the lessor
had done anything itself to terminate its rights under the lease.
But it is argued that no judgment could be
Page 161 U. S. 4
rendered against the bank, because the appointment of a receiver
amounted to its dissolution, and because the rent in question was
not a demand existing at the date of the bank's suspension, and
therefore not a claim entitled to be proven up and paid out of the
assets of the bank or carried into judgment. The state courts ruled
both branches of this contention adversely to plaintiff in
error.
Granting that, in the absence of statutory provision to the
contrary, suits cannot be maintained and judgments rendered against
corporations whose chartered existence has terminated, it is not
pretended in this case that that event had taken place by lapse of
time, by judicial proceedings, or otherwise, unless, as is
insisted, the appointment of a receiver in itself put an end to the
bank as a corporate entity.
The general rule is that the legal existence of a corporation
cannot be cut short in this way, and we can find nothing in the
statutes in relation to insolvent national banks which gives that
effect to such an appointment or justifies any distinction in that
regard as between them and other insolvent corporations.
By section 5136 of the Revised Statutes, it is provided that
every national bank, duly incorporated, shall have succession for
the period of twenty years from its organization
"unless it is sooner dissolved according to the provisions of
its articles of association, or by the act of its shareholders
owning two-thirds of its stock, or unless its franchise becomes
forfeited by some violation of law."
A receiver may be appointed upon the occurrence of the
particular defaults enumerated in sections 5141, 5151, 5191, 5195,
5201, and 5205, not in question here.
Section 5151 provides,
"The shareholders of every national banking association shall be
held individually responsible, equally and ratably, and not one for
another, for all contracts, debts, and engagements of such
association, to the extent of the amount of their stock therein at
the par value thereof, in addition to the amount invested in such
shares."
Sections 5220 and 5221 provide for the voluntary dissolution of
these associations, and sections 5226 and 5227 for the protest
Page 161 U. S. 5
of their circulating notes, on failure to redeem, and the
appointment of a special agent to ascertain the fact.
Sections 5228, 5234, 5236, and 5239 are as follows:
"SEC. 5228. After a default on the part of an association to pay
any of its circulating notes has been ascertained by the
Comptroller and notice thereof has been given by him to the
association, it shall not be lawful for the association suffering
the same to pay out any of its notes, discount any notes or bills,
or otherwise prosecute the business of banking except to receive
and safely keep money belonging to it and to deliver special
deposits."
"SEC. 5234. On becoming satisfied, as specified in sections
fifty-two hundred and twenty-six and fifty-two hundred and
twenty-seven, that any association has refused to pay its
circulating notes as therein mentioned and is in default, the
Comptroller of the Currency may forthwith appoint a receiver, and
require of him such bond and security as he deems proper. 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. Such receiver shall pay
over all money so made to the Treasurer of the United States,
subject to the order of the Comptroller, and also make report to
the Comptroller of all his acts and proceedings."
"SEC. 5236. From time to time, after full provision has been
first made for refunding to the United States any deficiency in
redeeming the notes of such association, the Comptroller shall make
a ratable dividend of the money so paid over to him by such
receiver on all such claims as may have been proved to his
satisfaction or adjudicated in a court of competent jurisdiction,
and, as the proceeds of the assets of such association are paid
over to him, shall make further dividends
Page 161 U. S. 6
on all claims previously proved or adjudicated, and the
remainder of the proceeds, if any, shall be paid over to the
shareholders of such association or their legal representatives in
proportion to the stock by them respectively held."
"SEC. 5239. If the directors of any national banking association
shall knowingly violate, or knowingly permit any of the officers,
agents, or servants of the association to violate any of the
provisions of this title, all the rights, privileges, and
franchises of the association shall be thereby forfeited. Such
violation shall, however, be determined and adjudged by a proper
circuit, district, or territorial court of the United States in a
suit brought for that purpose by the Comptroller of the Currency,
in his own name, before the association shall be declared
dissolved. And in cases of such violation, every director who
participated in or assented to the same shall be held liable in his
personal and individual capacity for all damages which the
association, its shareholders, or any other person, shall have
sustained in consequence of such violation."
On June 30, 1876, 19 Stat. 63, c. 156, Congress passed an act
the first section of which provides:
"That whenever any national banking association shall be
dissolved, and its rights, privileges, and franchises declared
forfeited, as prescribed in section fifty-two hundred and
thirty-nine of the Revised Statutes of the United States, or
whenever any creditor of any national banking association shall
have obtained a judgment against it in any court of record, and
made application, accompanied by a certificate from the clerk of
the court stating that such judgment has been rendered and has
remained unpaid for the space of thirty days, or whenever the
Comptroller shall become satisfied of the insolvency of the
national banking association, he may, after due examination of its
affairs, in either case, appoint a receiver, who shall proceed to
close up such association and enforce the personal liability of the
shareholders, as provided in section fifty-two hundred and
thirty-four of said statutes."
By the third section, whenever any association is placed in the
hands of a receiver, and the creditors and expenses have been paid,
and the redemption of the circulating notes of such
Page 161 U. S. 7
association provided for, the shareholders may elect an agent,
to whom, on filing bond, the remaining assets of the association
shall be transferred, and
"such agent shall hold, control, and dispose of the assets and
property of any association which he may receive as hereinbefore
provided for the benefit of the shareholders of such association as
they, or a majority of them in value or number of shares, may
direct, distributing such assets and property among such
shareholders in proportion to the shares held by each, and he may,
in his own name or in the name of such association, sue and be
sued, and do all other lawful acts and things necessary to finally
settle and distribute the assets and property in his hands."
It thus appears that, by the terms of the statutes, the
corporation continues notwithstanding the appointment of a receiver
if its corporate life has not been extinguished by lapse of time,
by any provision of its articles, by any action of its
stockholders, or by any judgment of forfeiture. The receiver is
indeed appointed to close up the association -- that is to say, to
wind up its business, get in its assets, and pay its debts, and, if
need be, to enforce the personal liability of its shareholders for
all its "contracts, debts, and engagements" -- but the corporation
lingers while this is being done, and, on occasion, when the
receiver has discharged his duty with the satisfactory results
enumerated and assets remain, an agent may be chosen, who may sue
and be sued in the name of the association in the conduct of the
final liquidation. Of course when insolvency is declared, the
corporation is incapacitated from doing any new business. It has
ceased to be a going concern, but it still survives for the purpose
of the discharge of its liabilities and the final distribution of
its remaining assets when that has been accomplished. No refinement
of construction leads to any other result, and numerous decisions
preclude further discussion.
In
Pahquioque Bank v. Bethel Bank, 36 Conn. 325, a
national bank having failed and a receiver been appointed, the
Supreme Court of Errors of Connecticut, in a well considered
opinion, held that the winding up of the corporation, as provided,
did not put an end to its existence so as to affect
Page 161 U. S. 8
the rights of creditors to enforce their claims or determine
their validity by suit or otherwise; that there was nothing in the
National Banking Act which justified the claim that the franchise
was transferred to the receiver, in the authority conferred on him
to take possession of the assets, and that the court was unable to
discover
"by what mode of operation known in the law the proceedings in
question can produce that absolute and technical dissolution of a
corporation which is produced by a judgment for forfeiture, or by a
legislative repeal, and bars a suit by a creditor."
Judgment was given against the insolvent bank, and that judgment
affirmed by this Court in
Bank of Bethel v. Pahquioque
Bank, 14 Wall. 383, where it was said,
"None of these proceedings, however, support the theory that the
association ceased to exist when the receiver was appointed, nor at
any time before the assets of the association are fully
administered, and the balance, if any, is paid to the owners of the
stock, or their legal representatives."
In
National Bank v. Insurance Company, 104 U. S.
54, it was held that a national bank in voluntary
liquidation is not thereby dissolved as a corporation, but may sue
and be sued by name for the purpose of winding up its business, and
Mr. Justice Matthews, delivering the opinion of the Court,
said:
"It is to be observed that the sections under which the
proceedings took place, which, it is claimed, put an end to the
corporate existence of the bank, do not refer, in terms, to a
dissolution of the corporation, and there is nothing in the
language which suggests it in the technical sense in which it is
used here as a defense. The association goes into liquidation, and
is closed. It is required to give notice that it is closing up its
affairs, and in order to do so completely and effectually, to
notify its creditors to present their claims for payment. And the
redemption of its bonds given to secure the payment of its
circulating notes, by the required deposit of money in the
Treasury, is limited in its effect to a discharge of the
association and its shareholders from all liability upon its
circulating notes. The very purpose of the liquidation provided for
is to pay the debts of the corporation, that the
Page 161 U. S. 9
remainder of the assets, being reduced to money, may be
distributed among the stockholders. That distribution cannot take
place, with any show of justice and according to the intent of the
law, until all liabilities to creditors have been honestly met and
paid. If there are claims made which the directors of the
association are not willing to acknowledge as just debts, there is
nothing in the statute which is inconsistent with the right of the
claimant to obtain a judicial determination of the controversy by
process against the association, nor with that of the association
to collect by suit debts due to it. It is clearly, we think, the
intention of the law that it should continue to exist as a person
in law, capable of suing and being sued, until its affairs and
business are completely settled. The proceeding prescribed by the
law seems to resemble not the technical dissolution of a
corporation, without any saving as to the common law consequences,
but rather that of the dissolution of a copartnership, which
nevertheless continues to subsist for the purpose of liquidation
and winding up its business."
And in
Rosenblatt v. Johnston, 104 U.
S. 462,
104 U. S. 463,
Mr. Chief Justice Waite, speaking for the Court, referring to the
assets and property of an insolvent national bank, remarked:
"Such property and assets, in legal contemplation, still belong
to the bank, though in the hands of a receiver, to be administered
under the law. The bank did not cease to exist on the appointment
of the receiver. Its corporate capacity continues until its affairs
are finally wound up and its assets distributed."
It is further urged that the claim was not an existing demand at
the time of the suspension of the bank, and could not be proven up
for participation in the distribution of the assets. What effect,
if any, this might have on the mere recovery of judgment, and the
questions often arising in respect of discharges in bankruptcy or
insolvency, or of proceedings against insolvent decedents' estates
as to the postponement of belated claims to subsequently discovered
assets, the state courts did not find it necessary to consider, as
they were of opinion that the liability was an existing demand.
Page 161 U. S. 10
The appellate court said:
"The lease in question was a lawful contract and engagement for
the bank to make. The first monthly installment of rent was due
under it nine days before the bank suspended. By its terms, the
default that was made by the bank in the nonpayment of rent on May
1 gave the right to the appellant to reenter and terminate the
lease. The damages were then matured, and could have been at once
sued for, or appellant could defer its suit, as it did, until, by a
reletting of the premises, the extent of damages had been made
certain. That they were unliquidated did not render them
contingent. The contingency -- default in payment of rent -- had
happened. After that, the damages were a mere matter of
calculation."
And a similar view was thus expressed by the supreme court:
"The money was not paid, and there was then a breach of the
contract, for which an action might have been maintained, and this
occurred nine days before insolvency. There is therefore no
foundation for the position of counsel that the claim of appellee
was not an existing demand at the time the bank suspended. The
amount of damages may not have been as large on the first day of
May, 1893, as at a later period, but on that date there was a
breach of the contract, and a right of action for such breach."
Clearly the conclusion thus reached involved no denial of a
title, right, privilege, or immunity specially set up or claimed
under the laws of the United States, and, as already seen, the only
federal question arising was rightly decided.
Judgment affirmed.