Giesy v. Amer. Nat. Bank of Portland

On June 20, 1933, the American National Bank of Portland, Oregon, was an insolvent banking association and its directors decided that it should go into voluntary liquidation and close out its business. To that end they authorized and directed its president and secretary to execute a written contract that had already been prepared, agreeing to transfer all its assets to the First National Bank of Portland, Oregon, in consideration of the promise by the latter to pay all its liabilities with the exception of plaintiffs' claim under a lease which had 19 years and 10 months yet to run and upon which there was then due and owing to plaintiffs the sum of $8,040.33.

The contract was entered into by the two banks and a transfer of all the assets of the insolvent bank was made in accordance with its terms, but it was expressly stated in the contract that the vendee bank would not assume and should not be obligated to pay either the moneys then due to the plaintiffs or any sums thereafter becoming due under the lease.

This action upon the part of the directors and officers of the insolvent bank was thereafter duly ratified by the shareholders owning two-thirds of the stock of the insolvent bank.

Subsequently plaintiffs brought an action against the American National Bank to recover said sum of $8,040.33 and for two months' additional rental that had accrued subsequently to the transfer, and recovered judgment for both of said sums. Thereupon they brought this proceeding in the nature of a creditor's bill against both of said banks to impress a lien for the amount of their said judgment upon the assets of the insolvent bank or their proceeds which were then in the hands of the First National Bank, and obtained a decree for the amount of their said judgment with interest and costs, and, from this decree, both of said banks have appealed.

The defendants contended in the court below that, because of said stipulation in the contract, there was no liability to plaintiffs for any sum upon the part of the vendee bank and this contention was made in defendants' opening brief upon this appeal, but, in their reply brief and upon the final argument here, defendants' counsel admitted that the vendee bank is liable for the amount which was due and owing to plaintiffs at the time the transfer was made but they deny that the vendee bank is liable to plaintiffs for any rental which has subsequently accrued under the lease. They base this contention upon the argument that, although the bank was insolvent and went into voluntary liquidation by vote of the shareholders owning two-thirds of its stock, the consequences resulting from such liquidation are no different from what they would have been had the liquidation been forced and a receiver appointed by the comptroller of the currency, in which case, they say, the lease might have been terminated by the receiver and all liability for future rents thereunder avoided.

In support of this contention, they assert that they were entitled to go into voluntary liquidation under the provisions of section 181, Title 12, U.S.C.A. (Revised Stat., section 5220), which provides:

"Any association may go into liquidation and be closed by the vote of its shareholders owning two-thirds of its stock."

That section of the national banking act and the one next following provide for the voluntary dissolution of a national banking association but it was held in Planten v. NationalNassau Bank of New York, 174 A.D. 254 (160 N.Y.S. 297), that these provisions relate to a solvent bank and have no application to an insolvent bank, and this ruling was affirmed inPlanten v. Earl, 220 N.Y. 677 (116 N.E. 1070). In the case first cited and referring to these particular provisions, the court said:

"* * * It is to be borne in mind that these statutory provisions relate to the dissolution of a solvent bank."

The same ruling was followed and applied in City National Bankof Huron, S.D., v. Fuller, 52 F.2d 870 (79 A.L.R. 71), where the circuit court of appeals for the eighth circuit, speaking through Circuit Judge Kenyon, said:

"We do not think section 181, title 12, U.S.C.A., has any application here, as there was no voluntary dissolution of the corporation we are dealing with, and said section is applicable only to a solvent bank."

Hence, the argument, so far as based upon the provisions of the statute above referred to, must fail since all parties admit and the record shows that the American National Bank was insolvent at the time it transferred all its assets to the other bank in consideration of the latter's promise to pay all the insolvent bank's liabilities except the amount then owing to the plaintiffs, which, in itself alone, would, under the national banking act, create an unlawful preference of all other creditors over the plaintiffs.

Defendants also contend that when an insolvent bank goes into liquidation, whether voluntary or involuntary, the amount of its indebtedness must be determined as of the date of its insolvency and that this is a fixed and definite date on which all claims against the bank must be computed, and that this necessarily excludes future rents which may or may not become due under a lease, the term of which has not yet expired.

In Merrill v. National Bank of Jacksonville, 173 U.S. 131,143 (19 S. Ct. 360, 43 L. Ed. 640), the court said:

"In Cook County National Bank v. United States, 107 U.S. 445, it was ruled that the statute furnishes a complete code for the distribution of the effects of an insolvent national bank; that its provisions are not to be departed from; and that the bankrupt law does not govern distribution thereunder. The question now before us was not treated as involved and was not decided, but the case is in harmony with Bank v. Colby, 21 Wall. 609, and Scott v. Armstrong, 146 U.S. 499, which proceed on the view that all rights, legal or equitable, existing at the time of the commission of the act of insolvency which led to the appointment of the receiver, other than those created by preference forbidden by section 5242, are preserved; and that no additional right can thereafter be created, either by voluntary or involuntary proceedings. The distribution is to be ``ratable' on the claims as proved or adjudicated, that is, on one rule of proportion applicable to all alike. In order to be ``ratable' the claims must manifestly be estimated as of the same point of time, and that date has been adjudged to be the date of the declaration of insolvency."

In Schrader v. Manufacturers' Nat. Bank, 133 U.S. 67 (10 S. Ct. 238, 33 L. Ed. 564), it was held that after a bank has gone into voluntary liquidation there is

"no authority on the part of officers of the bank to transact any business in the name of the bank so as to bind its shareholders, except that which is implied in the duty of liquidation, unless such authority had been expressly conferred by the shareholders. * * * the power of the president or other officer of the bank to bind it by transactions after it was put into liquidation is that which results by implication from the duty to wind up and close its affairs. That duty consists in the collection and reduction to money of the assets of the bank, and the payment of creditors equally and ratably so far as the assets prove sufficient. Payments, of course, may be made in the bills receivable and other assets of the bank in specie, and the title to such paper may be transferred by the president or cashier by an indorsement suitable to the purpose in the name of the bank; but such indorsement and use of the name of the bank is in liquidation and merely for the purpose of transferring title. It can have no other effect as against the shareholders by creating a new obligation. It does not constitute a liberty, contract or engagement of the bank for which they can be held to be individually responsible."

Where a national bank goes into voluntary liquidation, its corporate existence is preserved for that purpose. This is well settled by all the authorities both federal and state. As said inPlanten v. National Nassau Bank, supra,

"It is conceded and has been authoritatively decided that the adoption of a resolution for voluntary liquidation does not effect a dissolution of the corporation but merely suspends its ordinary functions and that it continues in existence for the purpose of liquidating its affairs and that its directors are not ousted from office and that, at least in the absence of other action by the stockholders, the duty to liquidate the business devolves upon them."

Under these authorities, the American National Bank continues to exist during the process of winding up its business and will continue to exist until its affairs are completely settled. One matter not yet settled is the claim now being sued on. It is not a new claim, as the obligations under the lease were created by the American National Bank before it became insolvent. Plaintiffs, therefore, were entitled to sue the American National Bank and to recover judgment for the rental which had accrued during the time that had elapsed after the making of the transfer and before the commencement of the action in the court below. The action was not an assertion of a new right or one which had been created by contract subsequent to the insolvency. In fact, the right depended upon no promise or agreement entered into by the insolvent bank after it had become insolvent. It was a continuing obligation and one which was in existence at the time of the transfer and will continue to exist until terminated in some lawful manner. There was nothing alleged or proved by which the right has been terminated or destroyed. The case, therefore, in respect to this claim for rental accruing subsequently to the making of the transfer is not to be determined by what might have resulted had there been an involuntary liquidation and a compliance with the national banking act. Hence, it is wholly immaterial whether, had there been a forced liquidation, the receiver would have had the option to determine whether to continue or terminate the lease. No such option existed upon the part of either of the defendant banks. As to them, the lease is still in force and nothing has been done which has had the effect of terminating the lease or of discharging the insolvent bank from its obligation to pay the rent in accordance with the terms of the lease.

In so deciding, we assume the rule to be that if a national bank has paid rent for the premises occupied by it up to the time a receiver is appointed, the latter is not bound to take possession of them and pay rent; neither is the claim for rent during the unexpired term enforceable against the assets in his hands: Fidelity Safe Deposit Trust Co. v. Armstrong, 35 Fed. 567. See also 3 Sutherland on Damages, section 850, but since no receiver has ever been appointed, we think the rule has no application in this case.

The defendants contend that, when the American National Bank had transferred all its assets to another bank and put it beyond its power to perform the lease, plaintiffs could then have declared a forfeiture of the lease and sued for the damages resulting to plaintiffs from an anticipatory breach for the remainder of the term. The rule invoked is that where a party bound by an executory contract repudiates his obligations or disables himself from performing before the time for performance has arrived, the promisee has the option to treat the contract as ended so far as further performance is concerned and maintain an action at once for the damages occasioned by such anticipatory breach.

The defendants cite numerous authorities in support of such rule but only one of the authorities cited has any reference to the rights of a lessor as against a lessee bank. That case is Minneapolis Baseball Co. v. City Bank,74 Minn. 908, where a state bank was involved and the decision was controlled not by the national banking act but by state statutes. A careful reading of the opinion will show that none of the holdings in that case have any application to the facts in this case. We have found no decision and, as stated, no case has been cited holding that the rule above referred to has any application to the breach of a lease by an insolvent lessee national bank. On the contrary, it was held in Fidelity Safe Deposit Trust Co.v. Armstrong, supra, that, where a national bank had taken a lease for a long term and had soon afterward become insolvent and a receiver had been appointed, who refused to take possession of the leased premises, and the rent had been paid for the time the bank was in possession, the lessor was not entitled to damages out of the assets. In passing upon that question, the court said:

"Now, the second claim, ``by reason of the dissolution of the corporation,' that is not anything for which the receiver can be held liable; nor can he be held liable for the forfeiture of the charter of the Fidelity Bank, because both of these results are provided for by law, and must have been, in the eye of the law, in contemplation of the parties when the lease was made. These were contingencies which it was the duty of the lessor to take into account when he made his contract, and, if not satisfied to rely upon the bank itself, the only other course would have been to insist upon security for the performance of the conditions of the lease.

"As to the claim for damages by reason of the receiver — of the defendant — refusing to take under the contract and pay the rent, it is settled by all the authorities that the receiver was not bound to take possession. He had his election to take or not to take. If satisfied that the lease was valuable as an asset of the bank, he might take possession, and, having taken possession, would be liable for the payment of the rent; but if satisfied that the lease was of no value, and that it would be of no interest to the trust — to the creditors, — he might refuse to take possession."

It was clearly established by the record in the instant case that the American National Bank at the time of the transfer was insolvent and that the transfer was made in contemplation of insolvency, and, as made, it resulted in creating an unlawful preference. Under those circumstances, it seems clear that these transactions were in direct violation of the provisions of section 91, title 12, U.S.C.A., which provides:

"All transfers of the notes, bonds, bills of exchange, or other evidences of debt owing to any national banking association, or of deposits to its credit; all assignments of mortgages, sureties on real estate, or of judgments or decrees in its favor; all deposits of money, bullion, or other valuable thing for its use, or for the use of any of its shareholders or creditors; and all payments of money to either, made after the commission of an act of insolvency, or in contemplation thereof, made with a view to prevent the application of its assets in the manner prescribed by this chapter, or with a view to the preference of one creditor to another, except in payment of its circulating notes, shall be utterly null and void; and no attachment, injunction or execution, shall be issued against such association or its property before final judgment in any suit, action, or proceedings, in any state, county or municipal court."

That section not only contains a prohibition against the doing of the acts complained of here but also expressly declares that any transfer made in contemplation of insolvency or for the purpose of preferring one creditor over another shall be null and void. From this, it necessarily follows, the transfer being void, that these plaintiffs have the right to be placed in the same position they would have been if the unlawful transfer had not been made: 6 Pomeroy's Equity, section 887. And since the First National Bank holds the transferred assets or the proceeds in trust for the creditors of the insolvent bank, it follows that plaintiffs, who are creditors of that bank, are entitled to have their claim paid from such assets or from the proceeds thereof.

The decree, therefore, should be affirmed.

CAMPBELL, C.J., and BEAN, J., concur.