Where a national bank has gone into liquidation under § 5220,
Rev.Stat., and one holding its notes seeks to enforce the
additional liability imposed by § 5151, Rev.Stat., against a
stockholder by a suit in the nature of a creditor's bill on behalf
of himself and all other creditors, a case is presented under the
laws of the United States giving the Circuit Court jurisdiction
independently of diverse citizenship, and the decree of the circuit
court of appeals is not final, but an appeal therefrom will lie to
this Court.
It is not necessary in order to maintain such a suit that the
creditor should first obtain judgment on the notes.
A national bank, finding itself embarrassed though possessed of
a large amount of assets apparently in excess of its obligations,
is not prohibited
Page 201 U. S. 231
by the National Banking Act from borrowing, and it has the power
to borrow, money to meet pressing demands which it has not the cash
to meet, and to give its time obligations therefor, secured by all
of its assets, and if it subsequently goes into liquidation, and
the collateral is insufficient to meet the obligations, the
stockholders, both assenting and nonassenting to the liquidation,
are subject to the additional liability to the extent imposed by §
5151, Rev.Stat., and the holder of the notes can enforce the same
by creditor's bill.
Prior to December 21, 1895, the American National Bank and the
Union National Bank, hereinafter called, respectively, the American
Bank and the Union Bank, were each engaged in business in the City
of Omaha, Nebraska. During that month, the American Bank was in
such financial condition that it became necessary for it to provide
for the payment of a large amount of deposits on or about January
1, 1896, for though possessed of abundant nominal assets, it did
not have sufficient cash to make such payment. It knew that a
neglect to pay would precipitate a run and bring on a failure of
the bank. Thereupon, in order to obtain the money necessary
therefor, its officers and leading stockholders entered into
negotiations with the Union Bank for the payment of its immediate
obligations, and thus enabling it to secure an opportunity to
realize upon its assets. As a result of such negotiations, a
contract was entered into by and between the two banks through
their boards of directors. By its terms, the Union Bank was to
assume the payment of all the liabilities of the American Bank,
receiving therefor cash and such bills receivable as it was willing
to accept at par and without recourse. The difference between the
amounts so received and the liabilities assumed was to be
represented by three nonnegotiable promissory notes of the American
Bank, the payment of which was to be secured by a pledge of all its
remaining assets to Thomas L. Kimball as trustee. This contract was
carried out. The Union Bank moved into and took possession of the
offices of the American Bank. Upon adjustment, as above indicated,
the difference was found to be $201,000, for which the American
Bank executed to the Union Bank three nonnegotiable promissory
Page 201 U. S. 232
notes, each being for $67,000 and payable in one, two, and three
years, respectively. In accordance with the contract, the remaining
assets of the American bank were placed in the hands of the
trustee, Thomas L. Kimball, who proceeded to collect them and apply
the proceeds on the notes until his death during the pendency of
this suit. Subsequently, a successor was appointed who continued in
performance of the trust until the entry of the decree. The
execution of the contract of December 21, 1895, by the president
and cashier of the American bank was directed by resolution of its
board of directors. On January 14, 1896, at an annual meeting of
the shareholders of that bank at which were represented 1,665 3/4
shares out of a total of 2,000, a resolution was adopted
instructing the directors to take action looking to the liquidation
of the bank. On February 25, 1896, another meeting of the
shareholders was held at which 1,696 shares were represented, and a
resolution for voluntary liquidation was adopted by an affirmative
vote of 1,639 3/4 shares. The Union bank fulfilled its obligations
under the contract, having taken up all the liabilities assumed by
it. The trustee meeting with little success in collection of the
assets, this suit was, after the first note had matured, instituted
in the Circuit Court of the United States for the District of
Nebraska by Sumner Wallace, a citizen of New Hampshire, to whom the
note had been transferred, against the Union Bank, Thomas L.
Kimball, the trustee, the American Bank, and its stockholders,
including the appellants. By an amended bill, the complainant
sought, on behalf of himself and all other creditors of the
American Bank, the winding up of the affairs of that bank, the
determination of the amount due upon his note, the ascertainment of
all the creditors and the amounts of their claims, the subjection
of the remaining assets to the payment of those claims, and the
enforcement of the liability of the stockholders. He had not
reduced the note to judgment prior to the commencement of this
suit. Upon a final hearing, a decree was entered ascertaining the
amounts due the complainant and the Union Bank
Page 201 U. S. 233
(they being the only creditors) after the application of all
credits, the number of shares of stock held by each shareholder of
the American Bank, and directing a recovery of $97.23 on account of
each share of stock. This decree was affirmed by the United States
Circuit Court of Appeals for the Eighth Circuit, 135 F. 286, from
whose decision an appeal was taken to this Court.
Page 201 U. S. 240
MR. JUSTICE Brewer delivered the opinion of the Court.
A matter of jurisdiction is first presented. The note, which is
the foundation of plaintiff's suit, is one made by the American
Bank to the Union Bank, both located in Nebraska, and, under the
statute, for the purpose of jurisdiction, to be considered citizens
of Nebraska. 25 Stat. 436, c. 866, sec. 4. The plaintiff is a
citizen of New Hampshire. He could not maintain
Page 201 U. S. 241
an action against the maker of the note, although a citizen of a
state other than that of the maker and payee. 25 Stat. 434, sec. 1.
But if diverse citizenship was the sole basis of the jurisdiction
of the circuit court, the decision of the court of appeals would be
final, and there would be no appeal to this Court. 26 Stat. 828, §
6. But the jurisdiction of the circuit court was not invoked on the
ground of diverse citizenship -- at least not on that alone. The
case presented was one arising under the laws of the United States.
It was a suit to enforce a special right given by those laws.
Section 5220, Rev.Stat., reads: "Any [national banking] association
may go into liquidation and be closed by the vote of its
shareholders owning two-thirds of its stock."
By section 5151, Rev.Stat., stockholders in national banks are
made liable 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."
Section 2 of the Act of June 30, 1876, 19 Stat. 63, is as
follows:
"SEC. 2. That when any national banking association shall have
gone into liquidation under the provisions of section five thousand
two hundred and twenty of said statutes, the individual liability
of the shareholders provided for by section fifty-one hundred and
fifty-one of said statutes may be enforced by any creditor of such
association, by bill in equity in the nature of a creditor's bill,
brought by such creditor on behalf of himself and of all other
creditors of the association, against the shareholders thereof, in
any court of the United States having original jurisdiction in
equity for the district in which such association may have been
located or established."
More than two-thirds of the stock voted, on February 25, 1896,
for a voluntary liquidation, and on April 27, 1896, the Comptroller
of the Currency formally approved the liquidation and notified the
cashier of the American Bank to that effect.
In proceeding therefore by this suit to enforce, in behalf
Page 201 U. S. 242
of himself and all other creditors of the American Bank, the
extra liability imposed by Rev.Stat. § 5151, a case was presented
arising under the laws of the United States, and of which,
independently of the matter of diverse citizenship, the circuit
court had jurisdiction.
The bill is not multifarious.
"The two subjects of applying the assets of the bank and
enforcing the liability of the stockholders, however otherwise
distinct, are by the statute made connected parts of the whole
series of transactions which constitute the liquidation of the
affairs of the bank."
Richmond v. Irons, 121 U. S. 27,
121 U. S.
50.
It is suggested that no judgment had been obtained upon the note
prior to this suit in equity, but, as one object of the suit was to
subject to the satisfaction of the debt certain property conveyed
to a trustee as security therefor, no judgment at law was a
prerequisite.
Day v.
Washburn, 24 How. 352;
Case v. Beauregard,
101 U. S. 688,
101 U. S. 691,
in which the Court said:
"Without pursuing this subject further, it may be said that
whenever a creditor has a trust in his favor, or a lien upon
property for the debt due him, he may go into equity without
exhausting legal processes or remedies.
Tappan v. Evans,
11 N.H. 311;
Holt v. Bancroft, 30 Ala.193."
We come, then, to the final question in the case, and that is
whether the notes executed by the American Bank were its valid
obligations. And, in reference to this question, these are the
significant facts: the demands against the American Bank were
pressing. It had not the money with which to meet them. It arranged
with the Union Bank to advance the money for the payment of all its
outstanding obligations. When the Union Bank paid these obligations
of the American Bank, it was the same as though it advanced money
to that bank to pay them. To reimburse and secure the former, the
latter bank turned over certain property, and executed these notes
for the balance, securing them by a pledge of all its other assets,
which were placed in the hands of its president as trustee.
Page 201 U. S. 243
All the stipulations and agreements made by the directors of the
two banks were carried out in good faith, and, with full knowledge
of what had been done, the stockholders voted for a voluntary
liquidation. The borrowing of the money by the American Bank did
not necessarily put it into liquidation. It had a large amount of
assets, and if the real had equaled the nominal value of these
assets, it would have been enabled, after discharging its
obligation to the Union Bank, to continue business. But on an
examination, the stockholders felt that it was wiser to stop at
once. But that decision did not at all impugn the wisdom or
bona fides of the transaction by which the money was
obtained to pay off the pressing demands of the American Bank. The
question, therefore, is whether a national bank, finding itself
embarrassed, with a large amount of assets, much in excess of its
obligations, yet without the cash to make payment of those which
are due and urgent, can borrow to meet those pressing demands. A
very natural answer is, why not? It is not borrowing money to
engage in a new business. It simply exchanges one creditor for
others. There may be wisdom in consolidating all its debts into the
hands of one person. At least such a consolidation cannot be
pronounced beyond its powers. When time is obtained by the new
indebtedness (in this case a year), it gives the borrowing bank and
its officers and stockholders time to consider and determine the
wisdom of attempting a further prosecution of business. In the case
of an individual, it would be a legitimate and often a wise
transaction. It is not in terms prohibited by the National Banking
Act.
Aldrich v. Chemical National Bank, 176 U.
S. 618, is very clearly in point. The opinion in that
case is quite lengthy, and considers many authorities, but the gist
of the decision is expressed in these words (p.
176 U. S.
635):
"Without further citation of cases, we adjudge, both upon
principle and authority, that as the money of the Chemical Bank was
obtained under a loan negotiated by the vice-president of the
Fidelity Bank, who assumed to represent it in the transaction, and
as the Fidelity Bank used the money so obtained in
Page 201 U. S. 244
its banking business and for its own benefit, the latter bank,
having enjoyed the fruits of the transaction, cannot avoid
accountability to the Chemical Bank, even if it were true, as
contended, that the Fidelity Bank could not, consistently with the
law of its creation, have itself borrowed the money."
We are of the opinion that the notes given by the American Bank
for the money advanced by the Union Bank were its valid
obligations, and can therefore be enforced against its
stockholders.
The decree of the circuit court of appeals is
Affirmed.
