X-4612

C O M 344

IN THE UNITED STATES CIRCUIT COURT OF APPEALS

FOR THE FIFTH CIRCUIT.

no. 4770

MISS RUTH M. JACKSON AND MRS. ANNA M. SCOTT,

i Appellants,

Versus

J . W. McINTOSH, COMPTROLLER OF CURRENCY, AND E. F. ANDERSON, RECEIVER OF GEORGIA NATIONAL BANK OF ATHENS, GEORGIA, et a l . ,

Appellees.

A Appeal from the D i s t r i c t Court of the United States for the

Northern Dis t r i c t of Georgia,

C. N. Davie and Chas. S. Reid for Appellants.

Howell C. Erwin, Thos. F. Green, Thos. J . Shackelford

and M. C. E l l i o t t , (Green <$$ Michael, Shackelford & Shackelford,

Erwin, Erwin & Nix, M, C. E l l i o t t , W. S. Foage and Thos. F.

Green on the b r i e f ) , fo r Appellees.

Before WALKER, BRYAN and FOSTER, Circuit Judges.

WALKER, Circuit Judge: -

This i s an appeal from a decree deny-

ing a temporary injunction prayed fo r in a b i l l f i l e d by the

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appel lants , one of them being a stockholder of the Georgia National

Bank of Athens, Georgia, and both of them being credi tors of that

bank, against the appellees, the Comptroller of the Currency, and

the receiver of that bank appointed by such Comptroller, who took

charge of the asse ts of said bank fo r the purpose of l iqu ida t ion

as provided by law* The injunct ion prayed for was one r e s t r a in ing

and enjoining the appellees from consummating or fu r the r attempting

to consummate an alleged proposed disposit ion of assets of said

bank. The a l legat ions of the b i l l showed the following: Prior to

the f i l i n g of the b i l l said Receiver f i l e d in the court below an

appl icat ion for the approval of that court of a pretended sale to the

Georgia Secur i t ies Company, a corporation organized under the laws

of Georgia, with a capi ta l stock of Ten Thousand Dollars, (herein

cal led the corporation), of the asse ts of said bank except cash on

hand, stockholders' l i a b i l i t y , l i a b i l i t y of o f f i c e r s and d i rec tors for

misfeasance or malfeasance in o f f i c e , and described rea l es ta te ; and

the court made an order that any and a l l pa r t i e s in i n t y o s t show

cause, i f any there be, a t a time and place s ta ted, why uaid appl i -

cat ion should not be granted, and that not ice of that order be given

publicat ion in a named newspaper. That application showed as

follows: The applicat ion has been approved by the Comptroller of the

Currency.. The Corporation wi l l del iver to the Receiver, f o r the

bank's c red i to r s , i t s debentures, dated November 3, 1925, fo r the

amount due each credi tor a t the date of the bank's suspension, payable

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-3 -346

on or "before f i v e years from date, with i n t e r e s t thereon a t the r a t e

of 4$ per annum, i n t e r e s t payable annually. Said debentures to be

secured by deed of t ru s t of the t ransferred assets made by the

Receiver to named t rus tees as securi ty for the payment- of said

debentures. Any avai lable cash in the hands of the Receiver at the

time of the proposed sale , a f t e r reserving such sums as may be deemed

necessary to pay expenses of the receivership, shal l be d i s t r ibu ted

S by the Receiver to the bank's credi tors , the sums so paid to be

credi ted upon the debentures upon presentat ion fo r that purpose, "and

where debentures are not presented to be so credited, or where any

credi tor of said bank should f a i l or refuse to accept said debenture

then the amounts that would be payable to such credi tor under said

d i s t r ibu t ion shal l be held by said Receiver to the c red i t of such

c red i tors and paid to them upon applicat ion, and the debentures issued

to such credi tors shal l thereupon be credi ted accordingly." Said

t rus tees in the i r d iscre t ion may require any action with respect to

the property conveyed to them, "including tho sale , t r ans fe r , assign-1 ment or conveyance of any or a l l of said property or a s se t s . "

"If any question should a r i s e with respect to the r igh t s or l i a b i l i t i e s of e i ther the debenture holders, or any of them, or the company under t h i s indenture, then the decision made by the t rus tees , or a majori ty of them, concurred in by said company, act ing through i t s d i rec tors , or a majori ty of them, shal l be f i n a l and conclusive. Should any such question a r i s e and the decision of the t rus tees , or a majori ty of them, not be concurred in by said company, then the question sha l l be r e fe r red by them to the Judge of the Judic ia l Circui t , in which i s located the City of Athens, Georgia, and h i s decision thereon shal l be f i n a l and conclusive.

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347 ,The t rus tees shal l tie deemed the representat ives of

a l l debenture holders in said proceedings insofar as necessary pa r t i e s are concerned*

If a t any time during the administration of the asse ts of said Georgia Securi t ies Company the Trustees or a major i ty of them, should be of the opinion that the o f f i c i a l s in charge of said company are not pressing with due and proper dil igence the col lect ion of any or a l l of i t s asse t s , then said Trustees may c a l l upon said o f f i c i a l s to proceed with greater dispatch in the col lec t ion of same, and should said o f f i c i a l s the reaf te r omit to press said col lect ions or convert said asse ts into cash for the bene f i t of debenture holders with due and proper di l igence, in the judgment of said Trustees, or a majori ty of them, then said Trustees may demand and receive of

. said o f f i c i a l s a l l of the asse ts of said company, and by themselves, or through such agents as they may employ, administer said asse ts f o r the benef i t of said debenture holders in the same manner of said o f f i c i a l s are required to do. In such an event said Trustees have the r igh t to incur and pay from said asse ts in t he i r hands a l l law-f u l and proper expenses of administration, according to t he i r best judgment and d iscre t ion ."

The corporation sha l l receive no compensation fo r performance of i t s

dut ies in the administration of tho assets acquired from the Receiver.

All s a l a r i e s of i t s o f f i ce r# and c l e r i ca l force to be approved by said

t rus tees . The Federal Reserve Bank of Atlanta shal l have a p r io r l i en

on the t r ans fe r red asse ts to secure a described debt owing to i t by the

bank, in consideration whereof i t i s to cancel a s ta ted amount of the

debt to i t . Each debenture contained the following:

"If th i s debenture i s not presented fo r f i n a l payment within twelve months from the maturity of the same, then said company shal l have the r ight to l iqu ida te i t s a f f a i r s and d i s t r i bu t e among the remaining debenture holders or the stockholders of said company, a f t e r a l l other debentures are paid in f u l l , the amount that would be otherwise held fo r the redemption of the same, without fu r the r l i a b i l i t y thereon. Certain persons have subscribed the sum of Ten Thousand Dollars fo r the capi ta l stock of th i s company in order to pe r fec t a legal organization of the same.

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~5~ 34:8

The holder of th i s debenture agrees that when the asse ts acquired from the Receiver of the Georgia National Bank

• are exhausted that the capi ta l stock of said Secur i t ies Company sha l l he d is t r ibuted ratably among those who contributed the same, and a l l claims upon said cap i t a l stock are hereby waived. This debenture i s accepted and held subject to a l l of the terms hereof as well as the terms, provisions and s t ipula t ions contained in said trus.t agreement to the same extent as i f the same had been incorporated herein.1 '

Under Section 5234 of the United States Bevised Sta tute a

nat ional bank receiver , "upon the order of a court of record of competent

j u r i sd i c t i on may s e l l or compound a l l bad or doubtful debts, and, on a

l ike order, may s e l l a l l the rea l or personal property of such associat ion,

on such terms as the court shal l d i rec t . " This provisions does not

authorize a d isposi t ion of asse ts which i s not a sa le . The above men-

tioned applicat ion made no mention of bad or doubtful debts, but invoked

the exercise of the cour t ' s power to order a sale of r ea l and personal

property of the bank. The proposed disposi t ion of property of the bank

was challenged on the ground that i t was not a sale within the meaning

of the above quoted s t a tu te , and was not consistent with other s ta tu tory

provisions with reference to the administration of a nat ional bank's

asse t s placed in the hands of a receiver . U. S. Comp. S ta t . 9827,

In behalf of the appellees i t was contended that the appl icat ion f o r

or the making of such an administrat ive order as was sought could not

be in t e r fe red with by in junct ion. I t has been held that such a proceed-

ing by a receiver i s an ex par te one, and that an order made therein i s

not subject to be appealed from by a credi tor of the bank.

F i f e r v. Williams, 5 F. (2d) 286. The following was said in the opinion

in that case; "For an attempt to make an i l l e g a l or f raudulent sale ,

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doubtless a remedy by su i t would l i e , and from a decision in such

su i t an appeal could be taken to th i s court." The appel lants have

such an i n t e r e s t in the bank's assets as to be en t i t l ed to r e s i s t

an i l l e g a l disposi t ion of them. In the circumstances disclosed no

adequate legal remedy was avai lable , and a court of equity properly

could be applied, to for r e l i e f . And if a temporary injunct ion was

improperly denied, the decree to that e f f e c t i s subject to be

appealed from.

The e f f e c t of the proposed disposi t ion of asse ts of the

bank would be to t ransfer them to the Corporation for administrat ion,

or f o r the sale or other disposi t ion of them when approved by the

t rus tees under the deed of t r u s t . The Corporation was to incur no

obligation or l i a b i l i t y to pay anything to the bank's c redi tors or

stockholders except that i t was to pay to debenture holders pro r a t a

shares of the amount rea l ized from the t ransfer red asse t s , a f t e r

deducting the costs and expenses of administration. That the bank's

c red i tors and stockholders were not to get anything except from the

t rans fe r red asse ts i s c lear ly shown by the following provision: "The

holder of th i s debenture agrees that when the asse ts acquired from

the Receiver of the Georgia National Bank are exhausted, that the

cap i ta l stock of said Secur i t ies Company sha l l be d i s t r ibu ted ra tably

among those who contributed the same, and a l l claims upon said cap i ta l

stock are hereby waived." The creation of an agency fo r the handling

and administrat ion of asse ts and the payment of the proceeds, l e s s

costs and expenses, to those who are en t i t l ed to such asse t s i s not a

sale of them. A change in the benef ic ia l ownership of the thing dealt

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with, and. a pr ice , paid or promised, and cer ta in or capable of "being

ascertained, are essent ia l ingredients of a sa le . Butler v, Thompson,

93 U. S. 412; Gockstetter v. Williams, 9 F. (2d), 354, Under the

proposed t ransact ion the bank's credi tors and stockholders were to

get nothing from the t ransfer red asse ts , unless what the corporation

rea l ized from them exceeded the expenses of handling them, and the

Corporation was to get nothing but reimbursement fo r such expenses,

though more than the amount of such expenses should be rea l ized from

those a s se t s . The Corporation was not to acquire the benef i c i a l

ownership of the t ransfer red asse ts , and exis t ing r igh t s of such

ownership were to be retained except so f a r as those r igh t s were to be

destroyed or impaired by the exercise of the powers or p r iv i leges

conferred on the Corporation, the t rus tees under the deed of t r u s t ,

and the debenture holders. Without a rea l sale of them, asse t s of the

bank were to be surrendered by the receiver and made subject to be

sold by the Corporation with the approval of the t rus tees under the

deed of t r u s t , instead of by the receiver with the approval of a court .

An above c i ted s t a tu t e , (Comp. S ta t . 9827), provides fo r the con-

tingency of the bank's debts being paid without exhausting i t s a s se t s .

In that event the bank's stockholders are en t i t l ed to have the remain-

ing asse ts administered by an agent of the i r own se lec t ion . The plan

in question i s not consistent with due e f f e c t being given to that

provision. The s ta tu tes provide a complete scheme for the winding up

of the a f f a i r s of a f a i l e d nat ional bank. A court cannot properly

approve a v io la t ion by a receiver of s ta tu tory requirements. By B. S. 5234

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O F t >*-the "receiver*11 uhdst1 the direct ion of the Coifrpti'olier shal l take

possession of the books,' records, and asse ts of every descript ion of

such associat ion, co l lec t a l l debts, and claims belonging to i t ,

and," e tc . The e f f e c t of the proposed transaction would be a

delegation to the Corporation of the r ece ive r ' s duty and author i ty

to co l lec t what was owing to the bank, and a surrender of asse t s of

the bank by the receiver to the Corporation, which was not the

buyer of such a s se t s . The receiver was not authorized, with or without

a cour t ' s approval, so to delegate h i s duties or powers, or to make

such a surrender of a s se t s . We are of the opinion that the injunct ion

sought was an appropriate means of preventing an i l l e g a l d isposi t ion

of asse ts of the bank, and that the court erred in re fus ing to grant

that r e l i e f . As the challenged transact ion was i l l e g a l fo r the reasons

above indicated, i t i s not necessary to pass on the question as to the

va l i d i t y of the f ea tu re of i t r e l a t i ng to the bank's debt to the

Federal Reserve Bank of Atlanta.

The decree i s reversed, and the cause i s remanded fo r fu r the r

proceedings not inconsistent with th i s opinion.

REVERSED,

(ORIGINAL FILED APRIL 7, 1926.)

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