Opinion
No. 2420.
April 3, 1935.
In Equity. Creditors' bill by George C. Holmberg and others against the Southern Minnesota Joint Stock Land Bank of Minneapolis and others.
Decree for plaintiffs in accordance with opinion.
It appearing to the satisfaction of the court that the defendant Land Bank and its receiver were served with process herein in accordance with the provisions of the laws of the United States regarding the personal service of process, and that due notice of the pendency of this suit was given to all the defendant stockholders of defendant Land Bank as required by the order of the court made and filed herein, now, upon the evidence, both oral and documentary, offered and received on behalf of the several parties appearing herein, the court, having duly considered said evidence and the arguments of counsel, and being fully advised in the premises, makes the following findings of fact:
I. That prior to the 30th day of June, 1923, defendant Southern Minnesota Joint Stock Land Bank of Minneapolis, then having the corporate name, The Southern Minnesota Joint Stock Land Bank of Redwood Falls, and The First Joint Stock Land Bank of Minneapolis were joint stock land bank corporations incorporated, organized, and existing as such under and by virtue of an Act of Congress of July 17, 1916, as amended by Act of Congress of March 4, 1923, known as the Federal Farm Loan Act (U.S.C. title 12, chapter 7 [ 12 USCA § 641 et seq.]); that the said The Southern Minnesota Joint Stock Land Bank of Redwood Falls had an authorized capital stock of $1,300,000 and the said The First Joint Stock Land Bank of Minneapolis had an authorized capital stock of $500,000; and that said banks were both engaged in the business of joint stock land banks in the state of Minnesota, as provided by said Act of Congress.
II. That on or about the 30th day of June, 1923, by virtue of an agreement made at that time between the said The First Joint Stock Land Bank of Minneapolis and said The Southern Minnesota Joint Stock Land Bank of Redwood Falls, and pursuant to the provisions of said Federal Farm Loan Act and by the consent and authority of the Federal Farm Loan Board, the said The First Joint Stock Land Bank of Minneapolis was merged or consolidated with the said The Southern Minnesota Joint Stock Land Bank of Redwood Falls, and became a part of it, and the said The First Joint Stock Land Bank of Minneapolis ceased doing business as such bank and delivered all of its assets to the said The Southern Minnesota Joint Stock Land Bank of Redwood Falls, and the said The Southern Minnesota Joint Stock Land Bank of Redwood Falls assumed and agreed to pay and became obligated to pay and perform all of the corporate liabilities and obligations of the said The First Joint Stock Land Bank of Minneapolis. That thereafter, on the 28th day of April, 1925, an application by said The Southern Minnesota Joint Stock Land Bank of Redwood Falls to increase its authorized capital stock to $3,000,000 was approved by resolution of the Federal Farm Loan Board, and that on or about April 28, 1923, the capital stock of said The Southern Minnesota Joint Stock Land Bank of Redwood Falls was increased to $3,000,000.
III. That thereafter, on the 25th day of October, 1926, the defendant Land Bank, then the said The Southern Minnesota Joint Stock Land Bank of Redwood Falls, changed its corporate name to that of The Southern Minnesota Joint Stock Land Bank of Minneapolis, and on November 30, 1926, to that of Southern Minnesota Joint Stock Land Bank of Minneapolis.
IV. That prior to said consolidation of said banks as above alleged, both said The First Joint Stock Land Bank of Minneapolis and said The Southern Minnesota Joint Stock Land Bank of Redwood Falls had assumed and incurred obligations to creditors and had issued bonds as permitted by, and in accordance with, the provisions of said Federal Farm Loan Act, and that there were on May 2, 1932, and are now, outstanding at this time, bonds issued by said The First Joint Stock Land Bank of Minneapolis, the obligation of which was assumed by defendant Southern Minnesota Joint Stock Land Bank of Minneapolis, and bonds issued by said defendant under its former name of The Southern Minnesota Joint Stock Land Bank of Redwood Falls. That all of said bonds are obligations and liabilities of the defendant Southern Minnesota Joint Stock Land Bank of Minneapolis, either by virtue of its having issued, sold, and delivered said bonds or incurred said obligations or by virtue of having assumed payment of the same in the consolidation hereinabove referred to.
V. That on the 2d day of May, 1932, the Federal Farm Loan Board, acting under and pursuant to the authority therefor contained in said Federal Farm Loan Act, declared said defendant Southern Minnesota Joint Stock Land Bank of Minneapolis to be in default and to be insolvent, and appointed defendant Roy A. Nelson receiver of said insolvent bank, and that said defendant Roy A. Nelson continued to be the duly appointed, qualified, and acting receiver of defendant Southern Minnesota Joint Stock Land Bank of Minneapolis until his resignation on the 1st day of February, 1934, when defendant Ervin J. Friede was duly substituted in his place by the Farm Credit Administration and said Friede still is the duly qualified and acting receiver of said defendant Southern Minnesota Joint Stock Land Bank of Minneapolis.
VI. That complainants are the duly authorized and acting trustees for the holders and owners of upwards of $13,000,000 face or par value of farm loan bonds issued or assumed by defendant Southern Minnesota Joint Stock Land Bank of Minneapolis, and as such trustees have the duty and right to exercise for the benefit of such beneficiaries every power and authority vested in such beneficiaries by the terms of said bonds and said Federal Farm Loan Act, and to represent said beneficiaries in respect of said bonds as fully as though the respective beneficiaries were acting in person, and complainants as such trustees as aforesaid are vested with all the rights, powers, and privileges of owners of said bonds. That complainants have brought this suit on behalf of themselves and also on behalf of all other creditors of said defendant Southern Minnesota Joint Stock Land Bank of Minneapolis, whether bondholders or other creditors.
VII. That the par value of the capital stock of said defendant Land Bank outstanding on May 2, 1932, and still outstanding, was and is $3,000,000 issued in shares of the par value of $100 per share.
VIII. That each of the defendants who were personally served with process or answered or generally appeared herein other than defendants Southern Minnesota Joint Stock Land Bank of Minneapolis, Roy A. Nelson, former receiver, and Ervin J. Friede, the present receiver of said Land Bank, was on May 2, 1932, and is at the present time, either the owner or the legal representative of the owner of stock in said defendant Southern Minnesota Joint Stock Land Bank of Minneapolis; that the names, addresses, and the amount of the several respective stockholdings of said defendant stockholders are:
No. of Name Address Shares
Fred Aufderheide New Ulm, Minn. 7 R.J. Crain Minneapolis, Minn. 100 W.W. Smith and Ada C. Smith, as joint tenants with right of survivorship not as tenants in common Sleepy Eye, Minn. 10 Dr. Ernest L. Baker Minneapolis, Minn. 50 Frank L. Morrison Minneapolis, Minn. 20 William O. McNelly Hutchinson, Minn. 5 First State Bank of Gary Gary, Minn. 1 Fred W. Orth Minneapolis, Minn. 1 A.L. Olson Winthrop, Minn. 1 John W. Kreitzer Dayton, Ohio 20 Henry V. Butler Columbus, Ohio 5 Bessie E. Roseberry Grand Rapids, Mich. 10 Harry J. Heider Minouk, Ill. 1 Clement Hey Sterling, Ill. 25 Arthur W. Hopkins Boston, Mass. 25
IX. That at the time of the incorporation of defendant Southern Minnesota Joint Stock Land Bank of Minneapolis, and at all times since such incorporation, said Federal Farm Loan Act has provided and still provides that the shareholders of every joint stock land bank shall be held individually responsible equally and ratably, and not one for another, for all contracts, debts and engagements of such bank to the extent of the amount of stock owned by them at the par value thereof in addition to the amount paid in and represented by their shares.
X. That on May 2, 1932, defendant Southern Minnesota Joint Stock Land Bank of Minneapolis was, and at all times since has been, and now is, insolvent and unable to meet its obligations; that the amount of its outstanding contracts, debts and engagements on May 2, 1932, exceeded the fair value and market value of its assets by more than $3,000,000; and that said deficit has constantly and steadily increased since May 2, 1932, and is still constantly increasing.
XI. That on October 31, 1934, the book value of all the assets of the defendant Southern Minnesota Joint Stock Land Bank of Minneapolis totaled $20,704,074.45; and that the fair value and market value of said assets was substantially less than said book value; that said assets of the Southern Minnesota Joint Stock Land Bank of Minneapolis included mortgage loans of the book value of $3,640,274.72; that of this amount only $618,131.56 of the mortgage loans were not in default, while $2,808,205.23 of the total amount of the mortgage loans were in default three months or over. That the assets of defendant Southern Minnesota Joint Stock Land Bank of Minneapolis further included real estate owned outright by defendant bank in the book amount of $11,772,661.44; that such real estate was being sold at that time at a rate uniformly lower than the rate of valuation of the real estate used in computing the book amount. That the contract liabilities and debts of the defendant Southern Minnesota Joint Stock Land Bank of Minneapolis were $24,311,968.90. Of said total liabilities, $21,038,700 was indebtedness on farm loan bonds due and payable to bondholders, including complainants, which were obligations of the defendant Southern Minnesota Joint Stock Land Bank of Minneapolis. $3,209,837.50 was indebtedness on due and unpaid interest on said bonds, of which $555,540 had accrued prior to the receivership of the Land Bank and $2,654,297.50 had accrued since said receivership was initiated. That in addition thereto there were other liabilities in the amount of $63,431.40; that the debts of defendant were $3,607,894.45 more than the book value of the assets of defendant Southern Minnesota Joint Stock Land Bank of Minneapolis and exceeded the par value of $3,000,000 of the capital stock of defendant Land Bank which was then outstanding.
That on January 31, 1935, the total liabilities of the Southern Minnesota Joint Stock Land Bank of Minneapolis were $4,264,687.59 more than the book value of the assets of defendant Southern Minnesota Joint Stock Land Bank of Minneapolis and exceeded the par value of $3,000,000 of the capital stock of defendant Land Bank outstanding.
That by reason of the facts aforesaid, and because of the insolvency of the said bank and the existence of the deficit heretofore set forth, the necessity has arisen and now exists for the enforcement of the said statutory liability of all stockholders of said defendant Southern Minnesota Joint Stock Land Bank of Minneapolis, and that by reason of the facts set forth aforesaid the necessity exists that said liability be enforced to the maximum limits thereof, and that the stockholders of said defendant Southern Minnesota Joint Stock Land Bank of Minneapolis be held individually responsible to the full extent of the par value of such stock respectively held by them and amounting in the aggregate as aforesaid to the sum of $3,000,000.
XII. That ever since May 2, 1932, the Southern Minnesota Joint Stock Land Bank of Minneapolis has entirely ceased to function or to do any business as a land bank, and the receiver during all of said times has proceeded to liquidate and is now liquidating as rapidly as possible the assets of said bank. That as of January 14, 1935, there has been declared to all registered bondholders a dividend of 20 per cent. of an amount equal to the principal of the bonds, plus unpaid interest thereon which matured on or prior to May 1, 1932.
XIII. That in order to properly enforce said liability, it is necessary that this court appoint a receiver with power to collect from each of the said stockholders of said defendant Southern Minnesota Joint Stock Land Bank of Minneapolis the par value of the shares held by each such stockholder, and that said receiver be clothed with adequate powers to recover said amounts by suit or otherwise.
The court makes the following conclusions of law:
1. That each stockholder of the defendant Southern Minnesota Joint Stock Land Bank of Minneapolis was on May 2, 1932, and at all times since, and is at the present time, liable to the creditors of the defendant Southern Minnesota Joint Stock Land Bank of Minneapolis in the amount of the par value of the shares of stock so held by him in said defendant Southern Minnesota Joint Stock Land Bank of Minneapolis; that an assessment should be made, declared, and levied upon and against each and every such person in the amount of 100 per cent. of the par value of the stock so held by each stockholder.
2. That a receiver should be appointed in this proceeding with power and authority to enforce the assessment so made, declared, and levied upon and against each of said stockholders, and that the title to and the right to recover upon said assessment against each of said stockholders be lodged in such receiver and that said receiver be clothed with full power and be fully authorized to make demand for and to sue for and upon said assessment in any appropriate court and in any state wherein said stockholders of the defendant Southern Minnesota Joint Stock Land Bank of Minneapolis may be resident or are found, and to settle and compromise causes of action arising by reason of said assessment, where such settlement and compromise is warranted, to receive and accept from the estates of decedent stockholders payments which may be voluntarily made or may be enforced on account of said assessment, give releases to stockholders, employ attorneys, and incur such expenses as may be necessary and expedient to the enforcement of said assessment, and to receive and hold all moneys from said assessment subject to the orders of this court for the benefit of the complainants and other creditors of the defendant Southern Minnesota Joint Stock Land Bank of Minneapolis.
3. That the receiver when appointed and qualified should give reasonable notice by mail to each of said stockholders of the fact of this assessment and the amount thereof, and demand payment thereof from each of said stockholders.
4. That the complainants and all other owners and holders of duly established contracts, debts, and engagements of said defendant Southern Minnesota Joint Stock Land Bank of Minneapolis, whose claims are proved and allowed in this proceeding, are respectively entitled to payment on account thereof, equally and ratably, from the proceeds of collections to be made on account of said assessment of stockholders of said defendant bank.
5. That any and all creditors other than complainants, who may have or claim to have any claim or right of action as creditors of said defendant bank should be required to intervene in this action and assert and establish the nature and amounts of their said claims.
6. That the receiver when appointed and qualified should give notice by publication and by mail to all persons shown on the books of said bank to be creditors of said bank, requiring the filing of intervening complaints in this proceeding within a period of six months from the date of the first publication of said notice. That said publication should be made in a newspaper of general circulation in the state of Minnesota once a week for six weeks. That the said defendant Ervin J. Friede, as receiver of the defendant Southern Minnesota Joint Stock Land Bank of Minneapolis, should file in this proceeding a statement of the bonds which have been delivered to him and a proof of claim thereof, which statement should contain a list of outstanding certificates of proof of claim issued to the holders of said bonds, including the names of the persons to whom the same were issued and the addresses therein set forth, the serial number and par value of the bonds covered thereby, and the interest coupons annexed thereto, and should also file a like statement setting forth the names and addresses of the claimants and the amounts of their respective claims filed with him as such receiver, and the said statements so filed by the said Ervin J. Friede, receiver, as aforesaid, should stand, for all the purposes of this proceeding, as a claim by each such bondholder and other creditor for the amount set forth in such statement, subject in each case to the right of any party hereto, including said receiver, to file objections to the same, and to the condition that this court upon proper application may direct the production of additional proof in respect of any such claim.
7. That as to each of the defendant stockholders who have been served personally with process herein or have made a general appearance herein and who have filed no answer, the complainants are entitled to a decree pro confesso in the amount of the liability established against said defendants, and each thereof, the names of said defendants and the amounts of recovery against each thereof being as follows:
Name Address Amount
Fred Aufderheide New Ulm, Minnesota $700.00 R.J. Crain Minneapolis, Minnesota 10,000.00 W.W. Smith and Ada C. Smith, as joint tenants with right of survivorship not as tenants in common Sleepy Eye, Minnesota 1,000.00 John W. Kreitzer Dayton, Ohio 2,000.00
That the complainants are entitled to a decree against each of the stockholders who have answered herein and on whose answers due trial was held for the amount of the par value of the capital stock held by each thereof; the names of such defendants and the amounts of recovery being as follows:
Name Address Amount
Dr. Ernest L. Baker Minneapolis, Minnesota $5,000.00 Frank L. Morrison Minneapolis, Minnesota 2,000.00 William O. McNelly Hutchinson, Minnesota 500.00 First State Bank of Gary Gary, Minnesota 100.00 Fred W. Orth Minneapolis, Minnesota 100.00 A.L. Olson Winthrop, Minnesota 100.00 Henry V. Butler Columbus, Ohio 500.00 Bessie, E. Roseberry Grand Rapids, Michigan 1,000.00 Harry J. Heider Minouk, Illinois 100.00 Clement Hey Sterling, Illinois 2,500.00 Arthur W. Hopkins Boston, Massachusetts 2,500.00
8. That all creditors of the defendant Southern Minnesota Joint Stock Land Bank of Minneapolis should be enjoined and restrained from instituting any other or separate proceeding seeking to enforce the liability of the defendant stockholders of the defendant Land Bank.
Let an interlocutory decree be drawn in accordance herewith providing, among other things, for the appointment of Ervin J.