Under the National Banking Act, the Comptroller has
discretionary power to withdraw an assessment on shareholders
before it is paid, or when partly paid.
Upon the evidence,
held that certain sums paid by
savings banks to the receiver of a national bank in which they held
shares were intended to be applied against their liabilities under
the National Banking Act, to enforce which an assessment, made by
the Comptroller, was then outstanding. A second assessment,
exceeding the differences between their statutory liabilities and
the amounts so paid, was void.
In determining the effect of certain payments made by the
trustees of savings banks, the court here assumes, in the absence
of contrary evidence, that it was the purpose of the trustees to
act within their powers, and heeds the settled rule that, when
neither debtor nor creditor has applied payments before the
controversy has arisen, the courts will apply them in a manner to
accomplish the ends of justice.
218 F. 814 affirmed.
The cases are stated in the opinion.
Page 245 U. S. 331
MR. JUSTICE CLARKE delivered the opinion of the Court.
These two cases are appeals from the Circuit Court of Appeals
for the First Circuit, which were heard and will be decided
together.
The Pynchon National Bank of Springfield, Massachusetts, with a
capital stock of $200,000, divided into 2,000 shares of $100 each,
became insolvent, and in June, 1901, the Comptroller of the
Currency appointed a receiver to liquidate its affairs.
Upon examination, there were found among its assets bonds of the
American Writing Paper Company, of the par value of $577,000, which
the bank had purchased at a discount, but which, at the time of the
transaction we are about to consider, had so depreciated that they
were worth on the market only 65 cents on the dollar.
A consideration of the condition of the bank resulted, on March
18, 1902, in an assessment by the Comptroller on the shareholders
of their full statutory liability of 100%, payable on the 15th day
of the following May.
Thereupon a plan was devised under which it was proposed that
all of the shareholders, except the three defendant savings banks,
should purchase from the receiver the paper company bonds at 95
cents on the dollar, each shareholder to purchase one bond of
$1,000 for every three shares of stock owned by him. This purchase
price was an advance over the market price of 30 cents on the
dollar, and the excess payment by each shareholder would equal 82%
of the assessment which had been made by the Comptroller. Because
they lacked corporate power to invest in such bonds, the savings
banks, with the approval of the Comptroller and shareholders, were
to pay to the receiver the required advance over the market price
without purchasing their quota of the bonds.
The Comptroller cordially approved of this proposed purchase,
and, in a letter to the board of directors of the
Page 245 U. S. 332
insolvent bank, the contents of which were intended to be and
were communicated to its shareholders while the plan was under
consideration, he stated that it would result in a settlement of
the affairs of the bank highly satisfactory for all interests
concerned, and that he was satisfied that, if such sale of the
bonds were made, the receiver would be able to promptly pay all of
the creditors in full, but that, if the plan failed and it became
necessary to sell the bonds on the market, there would be no escape
from an assessment of 100% against the shareholders.
This proposed settlement was approved by all of the
shareholders, and the defendant banks made payment to the receiver
as follows: the Springfield Institution for Savings, $30,360.17;
the Springfield Five Cents Savings Bank, $9,820, and the Hampden
Savings Bank, $5,319.16. For these payments the banks did not
receive any consideration other than the joining of the other
shareholders in the plan, together with the anticipated saving of
18% of the assessment which the Comptroller had made against them.
The bonds allotted the banks were sold at the market price.
After the completion of this bond transaction, the receiver,
under instructions from the Comptroller, on July 22, 1902, wrote to
the shareholders as follows:
"Large amounts of securities sold make it probable that the
payment of the assessment will not be required. The Comptroller has
accordingly decided to withdraw this assessment, and I have been
instructed to suspend any action to enforce its payment. This
withdrawal is made, however, without prejudice to the right of the
Comptroller to levy and collect any assessment or assessments that
may hereafter be necessary."
The results anticipated from this action on the part of the
shareholders were not realized, and, in order to satisfy the still
unpaid debts of the bank and interest and costs of administration,
the Comptroller, on December 28, 1906,
Page 245 U. S. 333
made a second assessment of $49 on each share of stock. The
banks refusing to pay this second assessment, this suit was
instituted against them in the district court, and resulted in a
holding in favor of the defendants, which was affirmed by the
circuit court of appeals in the decision which is now under
review.
It will be necessary to consider but two questions,
viz.: (1) was the second assessment invalid because the
Comptroller did not withdraw and had no legal authority to withdraw
the first assessment? and (2) was it the understanding that the
payments made by the savings banks should be applied on the
assessment for their statutory liability, so that they remained
liable for only 18% additional?
From the earliest days of the administration of the National
Banking Act to this case, attempts have been made in many forms to
give to it a technical construction which would so restrict the
powers of the Comptroller as to greatly delay and impede the
settlement of the affairs of insolvent banks. But this Court has
uniformly declined to narrow the act by construction, and has
placed a liberal interpretation upon its provisions to promote its
plain purpose of expeditiously and justly winding up the affairs
and paying the debts of such unfortunate institutions.
Studebaker v. Perry, 184 U. S. 258;
Kennedy v.
Gibson, 8 Wall. 498;
United States v.
Knox, 102 U. S. 422;
Bushnell v. Leland, 164 U. S. 684, and
Bowden v. Johnson, 107 U. S. 251.
There is nothing in the act to prevent the Comptroller from
withdrawing an assessment before it is paid, or when it is partly
paid, if it should be concluded that further payment is not
necessary, and no form is prescribed in which such action shall be
taken by him. A large executive discretion is given to the
Comptroller in this respect to adjust the assessments made to the
exigencies of each case, so that the shareholders may not be
burdened by paying more than is necessary or at a time when the
Page 245 U. S. 334
money for any reason cannot be advantageously used. The wisdom
of giving such large discretion to the Comptroller finds excellent
illustration in the case before us. All persons interested in this
bond transaction were convinced in July, 1902, that further payment
than that which had been made would not be needed, and a
construction should not be given to the act, its specific terms not
requiring it, which would prevent such action as was taken by the
Comptroller in withdrawing for the time being the unpaid portion of
the first assessment. We conclude that the claim that the
Comptroller did not have power to recall the first assessment in
whole or in part is unsound in principle and wholly unsupported by
the terms of the act or by court decisions.
The remaining question is: was it the understanding that the
payments to the receiver should be applied upon the statutory
liability of the savings banks for which assessment, then in full
force, had been made by the Comptroller?
The case was tried in large part upon a stipulation as to the
facts, which contains the following:
"Inasmuch as it was
ultra vires of savings banks under
the statutes of the commonwealth, as the receiver and comptroller
at the time well knew, to purchase such bonds as an investment, it
was arranged with the knowledge and approval of the comptroller and
the receiver that the savings banks in question, instead of
purchasing their proportion of the bonds, should pay the difference
between their market value and what the national bank paid for
them."
And also this:
The checks of the banks were received
"without any agreement on the part of the Comptroller or
receiver that the payments thereby made should in whole or in part
discharge the liability of the savings banks for or on account of
the indebtedness of the national bank and
Page 245 U. S. 335
any stock assessments, excepting so far, if at all, as such
agreement or obligation may be lawfully implied from the facts
stated in this stipulation and such evidence as may be
introduced."
It is argued for the receiver that, if it had been understood or
intended that the payments by the banks should be credited on the
outstanding assessment, this would very certainly have found
written expression, if not elsewhere, in the receipts given and
received for the payments.
It is notable that, although this bond purchase involved more
than half a million dollars, the terms and purposes of it were not
expressed in any writing, either between the shareholders
themselves or between the receiver and the shareholders, which
indicates that the transaction, while large, seemed simple to the
men of affairs engaged in it, and that, to their minds, at least,
the implication from the payments to be made could not be doubtful.
The shareholders who purchased the bonds had the prospect -- how
valuable it was the record does not indicate, but still a prospect
-- of recouping their losses through a later increase in the market
value of the bonds, but the savings banks had no such prospect,
because, not having legal authority to make such purchase, their
payment of what equaled 82% of the assessment against them was a
naked payment, without chance of reimbursement, in whole or in
part, from any source.
The evidence introduced in addition to the stipulation of facts
is slight, consisting of contemporaneous entries in the corporation
record and account books of the banks and the indorsement on the
checks by which payment was made. This evidence is not conclusive,
but the implications from it, such as they are, are favorable to
the contention of the banks.
Since no clearly definite expression is found in the record
either that these payments were or were not to be applied on the
shareholding liability of the savings banks, we are
Page 245 U. S. 336
required to decide which contention of the parties is the more
reasonable and probable, having regard to all the facts and
circumstances, stipulated and proved in the case.
There being no evidence to the contrary, we must adopt the
assumption of ordinary life and of law that the trustees for the
savings banks acted lawfully, within the limits of their powers,
and we must also have regard to the long settled rule of law that,
where neither the debtor nor the creditor has applied payments
before controversy has arisen, the courts will make application of
them in a manner to accomplish the ends of justice.
United States v.
Kirkpatrick, 9 Wheat. 720;
National Bank v.
Mechanics' Bank, 94 U. S. 437,
94 U. S. 439.
When to this we add that natural justice, as distinguished from a
technical conclusion, requires that the savings banks be allowed
credit for the payments that they have made, since thereby the
creditors of the insolvent bank may get the benefit of the full
statutory liability of the shareholders without a new and
unanticipated obligation being imposed on the stockholding banks,
we are compelled to resolve any doubt in which the record might
otherwise leave us in favor of the defendants. It is impossible for
us to conclude that the officials of these savings banks, trustees
as they were for their depositors and stockholders, and having in
mind the limitations on their powers, as the stipulation declares
that they and the receiver did have, should have made these
considerable payments in such a manner as not to at all diminish
the statutory liability of their banks, especially since payments
not made to be applied on the assessment would be substantially
unauthorized gifts, for, as we have said, the banks had no
prospect, as the other stockholders had, of being reimbursed for
such payments by the possible rise in the market value of the
bonds.
It results that the decree of the circuit court of appeals must
be affirmed, but not on the ground stated in the opinion
Page 245 U. S. 337
of that court, and that the second assessment must be held void
because excessive. This, however, without prejudice to the making
of another assessment by the Comptroller upon the shareholding
banks for the difference, if needed, between the amount paid and
the amount of an assessment for the full statutory liability.
Affirmed.
MR. JUSTICE VAN DEVANTER and MR. JUSTICE PITNEY dissent.