Anderson v. Abbott

evidence until slumber to allowed have been claims that have witnesses faded, have lost, memories been has just if one has a even is that theory disappeared. to notice adversary on the put not to unjust claim it is right the limitation of period within the defend over the to prevail comes in time claims free of stale to be litigation shows the while Here, them. right prosecute it party, either of part haste on reckless no evidence timely pursued. not were claims be said cannot been caused been has long delay has Regrettable as neglect pro- contest, exigencies of a state statute applying find no basis We ceed. Board Adjustment right of off the to cut limitations from the courts or to absolve the claims to consider award. an duty to enforce Appeals is the Circuit Court judgment of

Reversed. judgment opinion Roberts Justice Mr. opinion in the given reasons for the affirmed should 2d 46. 137 F. Appeals, Circuit Court RECEIVER, ABBOTT, v. ANDERSON, ADMINISTRATRIX, et al. January 12, 13, 1944. Reargued February 8, 1943. Argued

3.No. 6, 1944. March Decided Marx, Mr. Robert S. with whom Messrs. Frank E. Wood, Brown, Edward M. Harry Kasfir, John and F. Anderson were on the briefs, for petitioner.

Mr. William W. original made the argument Crawford and Mr. Allen P. Dodd the reargument—Messrs. Henry McElwain, E. Jr., Dietzman, Richard P. Stiles, James W. Edward P. Humphrey, and Allen were with them Lafon on the briefs—for respondents. Henry

Mr. M. Johnson filed a brief on behalf of Susie E. Tellman and purchasers other of holding-company shares, as amici curiae. Douglas delivered opinion

Mr. Justice Court.

The primary question in this case is whether on these facts shareholders of a bank-stock company are liable § under 23 of the Federal Reserve Act, U. S. C. 63, 12 U. S. Act, § Bank C. of the National §

§ in the port- national bank on shares of a for an assessment holding company. folio of the briefly stated. The facts1 essential organized under BancoKentueky Company It had charter 1929. broad July, of Delaware laws organized finance. It was in the field of powers Kentucky Bank of and of management of the National doing houses Company—banking Trust the Louisville perfected Banco the desired al at Louisville. business most of their by acquiring them shares2 liance between exchange Bank, Company, Trust for its shares. had the same directors and certain com and Banco each of the shareholders who made the mon Some officers. exchange additional shares of Banco purchased also stock Banco stock was also sold at that per price $25 at share. did not any market to those who own shares on the All told Company. $9,900,000 or the Trust some the Bank by Banco from the sale of was realized its shares— cash financed $6,000,000 of which was on loans from about Company. from the Trust the Bank and Banco’s stock “full-paid that the shares were certificates stated non- Its certificate of incorporation provided that assessable.” property subject should “not be the stockholders’ to the any corporate debts to extent whatever.” payment closing exchange Sep- for the date shares was Beginning September about 25, 1929, tember majority a stock interest in each five acquired Banco 1 concerning indirectly financial transactions Further details Anderson, litigation may in Atherton v. 86 be found in this involved BancoKentueky’s 883; Receiver v. Louisville 518, 99 F. 2d F. 2d Ky. Receiver, 155, 263 92 S. W. 2d 19. Trust Co.’s Company the Trust been earlier the Bank and had The shares of Participation issued Trustees’ Certificates. to trustees who transferred which Banco received from the shareholders certificates It was these exchange for its shares. The command which in of the two banks underlying shares is described in Laurent v. had over Banco Anderson, 2d 819. 70 F. in in Kentucky Ohio, minority banks

banks and two in in Kentucky. stock interest another bank Of these eight were banks, state, two national. shares in group as well as the banks carried national, a double in liability.3 The for the price paid shares these banks $11,500,000—of $6,500,000 was about which some paid was in $5,000,000 cash and Banco’s shares. Not all of Banco’s funds were invested in bank acquired shares. It $2,000,000 for a $2,000,000 president.4 note of its It pur chased 625 shares of a life $25,000 insurance for cash. It purchased and retired 106,000 of its own shares at a cost of over $2,300,000—some $275,000 less than Banco received for them. It received dividends of about $1,180,000 on the bank stocks owned it and paid them out at once as dividends on its own shares. It borrowed $2,600,000 from a New York bank and paid back $1,000,- 000. With $600,000 of that loan it purchased from the Bank certain dubious assets5 —a transaction which the

3 Ky. 287.360; Ohio Code Ann. See Rev. Stat. 710- § § the time of Banco’s failure the shares in 75. At or about the other disposed prices. appears of at rather nominal banks were sold closing by heavy the Bank followed that the runs on these banks; and the local interests most of the cities where the other willing support keep banks were located were banks to them open Banco, seems, if Banco would surrender control. was also anxious to avoid double on those shares. president president of Banco was also of the Bank. This acquired November, 1929, note was from Wakefield & Co. It was by 60,000 22,500 secured shares of Banco stock and shares of stock Kentucky. Nothing paid of Standard Oil of was ever on the note. Nothing $440,000 was realized on the Banco stock. Some was real- ized president on the Standard Oil stock. In December 1930 the voluntary petition Banco maker of the note filed in bank- ruptcy. discharged. assignment He was Wakefield & made an Co. apparently for the benefit of creditors 1931 and no dividends have yet paid been its creditors. Murray These $580,000 were Rubber note in the amount of Humphrey $20,000—of and a note of Lewis C. for which the bank quite examiner had been critical some time.

354 BancoKentucky’s Re Kentucky set aside. court later Receiver, Kentucky’s Ky. ceiver National Bank v. negotiating purchase for the 784, 137 W. 2d 357. It was S. when that banking house the shares of an investment That failed. Company the Bank and the Trust house, after year little more than a was 1930—a November, In began November, career. 1930 a Banco its financial for the Bank and one for Banco. appointed receiver was In Comptroller Currency 1931 the made February, an of the Bank on shareholders assessment $4,000,000 payable April 1, amount of on or before in March, And 1931 the receiver of the Bank notified the he had demanded payment stockholders of Banco that of the assessment from the receiver of Banco and that he proceed against intended to them for collection of the assessment to the extent that he was unable to collect from brought Banco. In 1931 the October, receiver Bank against substantially an action Banco holder of all of judgment He (Keyes Bank’s shares. obtained a v. Co., Supp. 512) American Ins. 1 F. which was affirmed Life appeal. on Laurent v. Anderson, F. 2d 819: Some $90,000 judgment. on that paid The receiver of the brought Bank thereupon against this suit those stock holders Banco who resided the Western District of Kentucky in which he seeks to recover from each his pro portionate part of balance of the assessment. Simi against lar suits other were brought in federal district in other states. courts Court, District after trial, dismissed the bill. Supp. 328. The F. Circuit judgment. Court of Appeals affirmed that 127 F. 2d 696. The case here on certiorari.

I. We are met at the outset with the contention that decision Anderson, supra, holding Laurent v. Banco lia- assessment, jv/dicata ble on is res present claim; an election made that bringing suit petitioner and that Either agree. We do action. present the bars which national of a of shares actual owner record owner or Rich statutory assessment.6 on the may liable bank Hitz, U. S. Key v. 133 58; ser Irons, 27, 121 S.U. mond v. Co., 606; 165 U. S. Trust Loan & Pauly State 149; v. 138, Valley National 536; Ohio 182 U. S. Wallace, Lantry v. Richardson, 280 Hulitt, 162; Early v. U. S. Bank v. 204 A receiver U. S. 158. 294 496; Jack, Forrest U. S. v. against judgment one both—partial

sue satisfaction Slomer, other. Ericson discharge v. being a tanto pro Bank & Trust National And Continental 94 F. 2d 437. see liability of each is O’Neil, The basis 82 F. 2d 650. Co. v. case, in one ownership actual different—apparent or titular in in the other. Hence issues ownership beneficial See Reconstruction are not the same.7 volved each suit Fi Pelts, 503; 2d Reconstruction Corp. 123 F. Finance v. If the receiver Barrett, 745, 131 F. 2d 748. Corp. nance v. against one because he had proceeding were barred from against other, creditors banks already proceeded of these of the full benefits statutes. deprived would be rather than the fixed The of the receiver’s first suit wisdom protec be the of their statutory liability would measure justification impairment an tion. There is no such applicable election statutory scheme. rules of agents principals suits on made of undisclosed contracts 6 termination of double on shares of Provisions for the 189, 16,1933, in the Act June 48 Stat. banks are contained national August 23,1935,49 12 U. S. C. 64a. the Act of Stat. § 7 Anderson, supra, Laurent v. stated that is that court It true every beneficial owner” of the shares was “in the true Banco sense apparent opinion from the p. But F. 2d of the Bank. answering contention that the trustees of that the court was responsible for the assessment. Banco’s participation certificates were argued the National Bank Act. based was on defense § liable only funds hands trustees were under section rejected by the court. argument That Bennett,

(Pittsburgh Corp. Terminal Coal 2d v. F. 389) pressed have been But upon appli us. have no statutory cation to enforce a has suits to which this Christopher Norvell, origin. 216, 225. Cf. v. 201 U. S.

II. Ap Court found, District and the Circuit Court of peals good agreed, organized that Banco was faith and was not a sham; organized it was not for a fraudulent purpose or for enterprises to conceal conducted the bene fit of Bank; that it was not mere company; that avoiding it was not formed as a means double lia bility on the stock of the and that Bank; soundness ability obligations the Bank and its to meet not could questioned be until after the formation of Banco. Some findings challenged. of these have been But we do stop to examine We accept findings, evidence. those were concurred two courts and no clear error States, Brewer-Elliott Oil Co. United is shown. v. 260 ckes, I Alabama Power Co. v. U. 77, 86; S. 302 U. S. 477. We that conclude, courts below however, erred in dismissing bill. reason of Early Richardson, supra,

It is clear v. that if a stockholder of the Bank had transferred his to shares children, his minor he would not have been relieved from Green, Seabury v. liability for this assessment. see And 294 U. 165. That follows S. because the policy under- lying legally these statutes. One who irresponsible is can- not be allowed serve as an insulator from liability, purpose whether was the or merely the effect of the A arrangement. father who transfers his shares to his minor children has not found a substitute for his liability. Case, Weston’s App. See 5 Ch. It does not matter good the transfer was without faith, purpose of a time when evasion and at the bank was solvent. Early Richardson, supra. v. vice of the arrangement is relationship his in the nature of the transferee found Eng. & Irish Merry, the transferor. Cf. Nickalls v. where the obtain at times result will App. 530. The same mean does not This irresponsible. financially transferee is sells his bank who national every of a stockholder turns out to transferee his shares remains liable because he clear that does irresponsible impecunious. But where Carson, 42, 54-55. not. 188 U. S. Earle v. transferee an invest- through his after the sale he retains including control, he cannot es- position bank, ment have if transferee does not cape statutory liability his holdings. risks of those with the commensurate resources “stockholder” or liable as a In a case he remains such to the meaning of these statutes within the “shareholder” underlying shares the bank. interest extent of his ownership benefits of and the other For he retains control any in his one who is substituting responsi- stead without banking business. law has ble for the risks of Agnew, See Hansen v. edging that result. been towards Holding Metropolitan 2d 845; Co. Wash. P. v. Thomas, 86 F. 510; Barbour v. 2d Snyder, 263; 79 F. 2d Rhett, think the result 94 F. 2d 42. We is neces- Nettles v. liability these double protection afforded sary, lest the through impecunious or be lost transfers not provisions companies or fully holding operating whose responsible Whether the transferor. the transfer is is owned stock in liability in as avoidance of the double Corker v. made for business reasons which may F. 2d Soper, 53 the result is the wholly legitimate, same. De- considered of the benefit of double in deprived liability are positors either event. present suit that is no bar to Banco was it

Thus there no faith, in was in- good fraudulent organized sham, not a that it was not a mere Banco was tent, that or that the shareholders Bank holding company, avoiding liability. double no We are purpose had good intention. The any question ques- concerned tion parties is whether the did what do they intended to they and whether what did contravened By law. it test is clear us that the old stockholders the Bank are liable. For through retained Banco their positions including former investment Bank, control, and did not constitute Banco finan- adequate as an cial in their substitute stead. Banco’s asset im- position mediately after its sales of stock cannot be taken as the measure of its financial responsibility. liquid con- Its dition fleeting; raising of the cash in- was but an step terim the planned evolution of Banco as a bank- stock holding company. It is the condition of at Banco significant. the end of the promotion which is Banco emerged holding bank-stock company. Technically merely was not such a company as it had other interests and investments. main But its assets were stocks in banks, stocks which carried liability. double other Its assets—apart from the $25,000 of life insurance stock— always highly were suspect and In dubious. substance going Banco as a concern had no free assets which could possibly be said to an adequate constitute against reserve liability double on the bank stocks which it held. It was ,in comparable no true sense to an investment trust or hold- ing company which holds bank stock port- diversified If folio. the small amount of life insurance stock be left account, out of situation is point of fact not ma- terially different from the case where the only assets held bank carrying were stocks double Such an ar- if rangement, successful, would allow banks to retain all of the benefits of ownership without the dou- Congress ble which prescribed. had only depositors which substitute of one bank would have for that double would be the stock in another bank carrying a like The in sensitiveness of one bank the group to the disaster of another likely would mean only liability at the time when double was needed financial responsibility holding company lacking. stockholder would be However that may be, device here can be readily used so utilized in circumven tion statutory policy of the of double liability that holding company rather than the de positors subsidiary banks must take the risk of the financial undertaking.8 success of the

That liability sufficiently is basis of broad to include also the stockholders of Banco who had not been stock- holders of the Bank. As we have noted, many them acquired their shares either for cash or for shares other banks. It must be in making assumed that pur- those effecting exchanges chases or those they knew what kind of an enterprise Rhett, Banco was. See Nettles v. supra, pp. 48-49; Atkinson, Anderson v. Supp. F. 853, 863. Chicago Circulars Stock Exchange, on which Ban- co’s listed, gave shares were a plain indication of the nature history holding companies of bank-stock shows or- that their ganizers acutely were problem steps aware of this and at times took protect depositors subsidiary possible banks on assess- holding company ments on the bank stocks. One kept is said to have “at all times an equivalent equal amount cash or its aggre- to our gate stockholders’ liability Branch, on the bank by stocks owned us.” Chain, Group Banking, Hearings Cong., under H. Res. 71st (1930) p. 2d A Sess. similar method was holding for the com- pany carry large “to treasury its readily reserve of marketable may liquidated securities which good any be order to make share- liability imposed holders’ upon company.” holding Bonbright Means, Holding Company & (1932), p. 331. Cf. Nine- Report, Superintendent teenth Annual (1928), of Banks of California p. safeguarding depositors 21. Another method of make was to express provision in the charter that its stock- ratably statutory holders were any imposed liable for it on ownership reason of its of bank Branch, Chain, Group stocks. op. Banking, cit., pp. 1042-1043; Thomas, Barbour v. 86 F. 2d provided 513-514. Wisconsin for such statute. Wis. Stat. 1941, 221.56,....................... § And there of dealers.10 did circulars So enterprise.9 that the old stockholders any doubt to be

would seem fair exchange the the time of given at of the Bank were organized the of BaneoKentucky Company under laws was “The capital 1929, authorized of July 16, with an Delaware on of State organized for Company was par 2,000,000 $10 value. shares of controlling in state and national banks owning interest purpose of gives Indiana. Its charter Kentucky, and primarily in Ohio located range of engage investment and entitling in a wide powers it it to broad activities. other acquired, through exchange BaneoKentucky Company an has “The Kentucky- nearly the National Bank of stock, of the shares of of 100% its stockholders have sub- Company, and in addition Louisville Trust cash. This cash will be used for 480,000shares of its stock scribed to corporate for other acquiring majority interests in other banks and purposes.” Exchange gave the Chicago listing shares Stock

In its on Exchange following description of its business: Primary acquire operate

“(b) purpose: control and Banks and To Companies. Trust engaged in

“(c) has not Business: This Nature of list investing reinvesting in a diversified of securities business of and profit, its corporations has limited activi- for revenue and but other acquiring Companies opera- control of Banks and Trust and the ties to tion of same.” Blyth Co. stated: Thus a circular & recently BaneoKentucky Company acquire

“The was formed throughout controlling interests in commercial banks the Middle hold upon By charter, powers Company, are conferred West. broad types operations permitted in field so that all the financial are but contemplated controlling than no investments are other interests financial institutions.

“Upon completion present Company transactions the will control Kentucky, organized Bank of the National Louisville organized Co., and Trust in 1884 Bank as Louisville Trust National Louisville, Ky., Company, both of the Pearl Market Bank & Trust Brighton organized Co., organized 1907, Co., Bank and the & Trust Savings Ohio, Cincinnati, and the Central Bank both of Ky. addition, organized 1906, Covington, In Company, Trust Company approximately $6,000,000, which are ex- has funds of acquiring banking pected to be used for the of additional institutions.” enterprise which Banco picture of the nature shareholders of Banco claim about to launch. Some ground shares right purchases to rescind their of its on or not the sale. But whether misrepresentations might granted instances, such relief some it seems clear that by Banco’s stockholders are bound the decisions determined, the directors which within the scope kind corporate charter, quality corpo and of the Christopher v. Brus undertaking. rate As was stated selback, “A in 500, 503, 302 U. S. stockholder so far is an tegral part corporation of the of which member, he is a may he rights that be bound and his foreclosed au corporate knowledge thorized action taken without his Sanger Upton, or 91 participation. 56, v. U. S. 58.” And Pink A. Highway Express, v. A. A. see 207, U. 201, S. legality cases cited. Ban- investments of challenged. for the most is not part co’s funds It must were not ultra vires. they be assumed that in They fall category deed into the of acts of directors which normally challenged by cannot stockholders. Cook, Corpora (8th ed.) § tions 684. These principles, general basic in corporation law, indicating are relevant here as that escape stockholders of Banco cannot responsibility for the inadequacy merely of Banco’s resources because the choice of its investments was made officers and directors— acts which the stockholders did not participate and of which had actual perhaps they knowledge. no The fact against have claims an officer or director for mismanagement does not relieve them from liability depositors subsidiary to the banks. Cf. Scottv. De Weese, 202, 213; Lantry Wallace, v. 181 U. S. 182 U. S. 548-554. 536,

Normally corporation is an insulator from liability on claims creditors. The fact incorporation was desired order limited liability to obtain does not defeat Siebrecht, Elenkrieg purpose. v. 238 N. Y. 254, liability 496. Limited Bus. Rev. 7 Harv. 519. See

N. E. assumption on that the exception; rule, are enterprises vast undertakings rested, are large there attracted. But capital huge launched, and sums sought to be ob when the limited occasions are qualified denied. will be through corporation tained of that prin surrender that a Cardozo stated Mr. Justice the sac made “when would be of limited ciple accepted public end that some is essential rifice Ave. Berkey v. Third upheld.” defended or may be 58, States Co., 61; 155 N. E. United 84, 95, 244 N. Y. Ry. Co., 142 F. 247. See Refrigerator Transit Milwaukee v. 77- Subsidiary (1931) Corporations pp. & Powell, Parent make up part exception. of that cases of fraud 81. The States, 574; United 236 U. Timber Co. v. S. & Lane Linn Brothers, 397; 27 Ariz. P. Donovan Sanger Rice v. Rollins, George Purtell, 640, 75 N. E. v. 334; 216 Ill. v. Higgins v. Petro 337; 144, 142 Mich. N. W. 176 California they do ex P. But not Co., 363, 147 Cal. 81 1070. leum of capital, it. An measured inadequacy obvious haust magnitude corporate undertak by the nature in important an factor cases de ing, frequently been has liability. limited their defense of nying stockholders Co., 676, 267 Orien S. Co. v. Grace & F. 681; Luckenbach S. Barclay, Tex. App. 543, 559, Co. 25 Civ. Investment tal v. Corp., Weisser v. Mursam Shoe 80, 88. And see 64 S. W. Litton, 295, 310; S. Pepper F. 2d Cf. v. 308 U. 127 344. Inc., 288, Mayfair, Richards Co. v. 287 Mass. Albert N. v. Minnesota & Ontario Power 430; E. Erickson Co., N. 979. That rule been 134 Minn. has W. legislative in a even absence of which un invoked dercapitalization defeat. more impor would becomes in a one where the tant situation such as statu present impe of double will be defeated if tory policy holding companies are to be cunious bank-stock allowed of- It has often as non-conductors interposed will not interposition corporation been held that the of a that was legislative allowed to defeat whether policy, a arrangement. the aim or United only the result of the Co., Chicago, M. Lehigh Valley 257; States v. R. 220 U. S. Assn., Ry. & St. P. Civic & Commerce Minneapolis Co. v. Co., Reading U. 247 U. S. United States v. S. 490; Ry. P. Chicago, The Court in M. & St. v. Minne stated Co. Assn., apolis supra, 501, that “the p. Civic & Commerce will to be blinded or de permit courts not themselves ceived law” will deal “with the sub mere forms or but if the corporate stance of the transaction involved as agency justice did and as the of the case not exist require.” here dealing principle We are forms. we which is concerned with realities not As have man said, organization the net effect of the practical agement though of Banco the same as the shares of in Bank in trust were held for beneficiaries who were point acquired of substance its owners. Those who only upon shares of Banco did enter an distinct enterprise banking from the business. Their investment Banco inwas substance little more than an investment banking They shares of the Bank. were as much any business as stockholder the Bank had ever been. And continued through that business Banco which concern going adequate as lacked assets reserve against contingent statutory liability. Its stock inwere point only holders of substance the source of funds available to satisfy assessments. For these reasons group the old of stockholders must be held to have retained and the new group stockholders must be held to have acquired liability as stockholders of Bank.

To allow this holding company device to succeed would put be to the policy of double mercy at the of corporation finance. The Congress fact that did not out- holding companies law from the national bank field nor regulate to undertake them during period of Banco’s their sanctioned Congress that hardly imply can existence is true of double policy defeat use to and problem this to itself Congress addressed that later 61)§ U. S. C. 186,12 (48 Stat. Banking Act of 1933 general, the In them. over certain controls established was System Federal Reserve of Governors of Board holding entitling voting a permit to authorized issue on certain by it controlled stock company to vote the for examination Apart requirements from conditions. 19 (a) § companies, non-affiliation with securities and responsibility for financial certain standards (e), and seeking such holding companies were established and within time granted specified period were permits the stockholders meet which to those standards. Where statutory lia holding were liable for company marketable assets was readily bility, specified reserve of holding company Otherwise, (c). required. § “readily marketable any free lien required to maintain equal to a than bank stock” an amount assets other bank par value of the stocks larger percentage of apparent Congress (b). It is § owned. liability by double prescribing its protected Act responsibility of financial com one standard by their terms whose shares were assessable and panies for those non-assessable.11 another whose shares were We stop need not to consider what would measure of arising liability in cases under that Act where there had it. But compliance been no with if Act had been Rep. Sess., p. 73d Cong., As stated S. 1st 11: “The No. (holding companies) type prohibited voting affiliates of this are from they willing unless the stocks of national banks are to undertake to accept Board, examination the Federal Reserve divest themselves financing ownership concerns, comply stock bond designed regulations ownership insure their of sufficient free assets satisfy make sure that can their double share- any in case banks owned holders such a should go the hands of receivers or be closed.” into it, complied applicable had to Banco and Banco financial Banco then met of would have the standards responsibility Congress adequate prescribed which had for later depositors. Congress Yet fact that specific wrote than standards into the law means no more a recognition fashioning by on its of an evil part Congress of a specific remedy. can mean hardly It that by its earlier silence had the use of the sanctioned protection to defeat the provided which it had for depositors legislative of national banks. The policy which Congress long had policy announced was the of double liability. policy It is that with which we are here concerned. It is policy, by Congress, declared which judicial power may appropriately protect way in the we have indicated, absence of a choice Congress of another method. corpora true that Delaware created course this is of question liability for

tion. these assessments But is question. policy underlying federal federal may statute not be such an assertion state defeated States, Securities Co. United power. Northern v. Green, supra. 197, 349; Seabury U. spectre S. v. unlimited for stockholders has been raised. But Barring conflicting there no cause alarm. fed eral incorporation statutes, may Delaware such choose rules of limitation the liability on of her corporations as she desires. And those laws are enforce able in federal courts under the rule of Erie Co. v. R. Tompkins, may 304 U. S. 64. But no State its endow cor porate creatures with the power place themselves Congress above the United States and defeat the federal concerning national Congress banks which has announced. We are concerned here with prob lem and with problem alone.

The result which we reach be harsh to some of the stockholders of Banco. But rules are usually on fault. not bottomed they are where especially

harsh contrary found frequently have investors private Thus understanding they purchased expectation or to their debts liability for the an unlimited their investment 53, 274 Schmitt, 115 Tex. Thompson v. enterprise. E.N. Mass. Thompson, 219 Frost v. 554; S. W. 557, 245 143; P. Alter, Kan. Engine Co. v. 1009; Weber supposed, has never been Morse, F. Rand v. investors good faith innocence and however, Mass. Morgan, 233 Horgan v. barriers to such suits. were suggestion to the we accede N. E. 32. Nor can 381, 385, 124 policy here. The available defenses should be that those defeat exacting one. Its liability is an underlying double financial encouraged through the utilization cannot premium ignorance. put which on devices liability without suggestion that there should be no The his- establishes it denies the whole fault unless a statute in the rules of vicari- tory judicial process shaping of the master for the torts liability. ous of a foundation. certainly servant from no such his started in shares purchased And the rules which made those who for debts responsible Massachusetts business trusts exceptions, on enterprise evolved, were with few law, statutory, a common not a basis. Magruder, L. Trusts, Position of Shareholders Business 23 Col. concerned, In Rev. 423. the field in presently which we are judicial hardly power oversteps the when it refuses bounds promotional project to lend its aid to a which would cir- legislative policy. deny cumvent undermine a To impotent it that function would be to make it in situa- historically tions where made no- has some of its most judicial helpless table contributions. If the power is legislative protect program easy from schemes for avoid- ance, indeed then it has handy implement become a high finance. Judicial cripple interference to or defeat a legislative policy judicial is one thing; interference with the plans of those corporate whose or other devices would circumvent that quite another. Once the pur- pose or effect of the clear, legislative scheme is once the policy is plain, we great would indeed forsake a tradition say we were helpless to fashion the instruments for appropriate relief.

In no difference between the summary, we see various support classes of Banco which would of stockholders purchased difference their Those who stock participants of Banco for cash were as much the bank- ing acquired exchange business those who their stock Together they Bank. shared the bene- shares ownership subsidiary fits of banks, including con- trol. Certainly a sale of shares of Banco old stock- give holders Bank did not shares an immunity those bath. To draw distinctions between the classes of stock- holders of Banco would be to the protection make afforded by these statutes turn on accidents of acquisition quite irrelevant to the concept of “stockholders” or “share- holders” on whom Congress placed this liability. One simple illustration will plain. make that A purchases underlying shares of an bank in $10,000 cash and ex- changes those shares for shares of Banco. B hands over to Banco $10,000, Banco purchases the shares of the under- lying bank, and then issues shares its to B. From the practical point of A view and B are investors of the same say

class. To that A is liable and B not liable when both start with cash and end with identical investments is to make difference between liability and no liability turn on distinctions which have apparent no relevancy to the legislative policy which the rule of double liability was designed to protect. And to say that courts may hold A but liable not B is to make the occasions for the assertion judicial power turn on whimsical circumstances. suggestion The final is that the old stockholders of the Bank remain liable for the full assessment on the shares exchanged for shares of Banco. they Bank which in their those interest

But overlooks fact by the issuance of Banco’s underlying was diluted shares incidence liability is an shares to others.12 Double long held that a who ownership. been stockholder has good all his interest the shares rids parts faith though even his himself of that double trans liability, Carson, supra. We Earle v. feree is not could responsible. hardly principle adhere to that and still hold the old stock full of the Bank liable for the assessment on holders they exchanged shares which for shares Banco. acquired through other their invest stockholders of Banco ment it an interest in the of the Bank. shares To extent of that beneficial ownership interest the of the old definitely stockholders of the Bank its shares if they reduced as had made a transfer of part of their holdings.

Certain of Banco claim that are en- titled to purchases rescind their of Banco’s shares because of misrepresentations made to them when they acquired questions. shares. We do not reach those Nor do we stop to determine whether such a defense would avoid Oppenheimer Harriman on the assessment (cf. v. Co., National Bank & Trust 206) 301 U. S. unlike and, the case where some (United are shareholders insolvent Knox, States 102 U. pro rata 425), v. S. increase liability of the other shareholders of It Banco. is suffi- cient at this time to state that the liability of the share- holders of Banco would be by measured the number of

12The old stockholders of the Bank have a lesser interest in the prior shares of the Bank exchange. than had to the Their inter in est proportionately shares of the Bank decreased with the outstanding pro increase in the stock of Banco. That resulted rata reduction in group their The other of stockholders of acquired portion liability Banco of which the old stock holders the Bank of were relieved. only frac- Bank, of whether several

shares of stock Banco; of and tional, represented each share of stock of of liability the assessment each share stock of Banco be like of the assessment liabil- proportion would ity represented by of shares of the Bank former. judgment Appeals

The of the Circuit Court of is re- and the is remanded the District Court versed cause for proceedings in conformity opinion. this

Reversed. dissenting: Mr. Jackson, Justice Me. Me. Justice1 Roberts, Justice Reed, Justice Mr. I Frankfurter, join in the and find ourselves unable judgment of the Court. accepts findings Court concurrent of fact judgment.

two lower but courts, reverses their concurrent findings holds that the establish as matter of very stockholdings: law on two different of (1) kinds hold- ing company stock in exchange taken for double stock of the Bank Kentucky; National and (2) holding bought fully stock and paid for cash. We think holders of the latter ai’e not on any liable principle heretofore known to the law and that if owners of the former are to be held on quite it must be prin- different ciple than that stated by the Court.

I. Former National Bank Kentucky had stock Bank itself which carried double liability.1 pertinent sections the Bank Act follow: every “The shareholders of banking national association shall be held individually responsible all ... for contracts, debts, engagements association, such to the therein, extent of the amount their stock par at thereof, value in addition to the amount invested such shares; . . .” 12 C. Ü. S. § every

“The stockholders of national banking association shall be held responsible individual contracts, debts, all engagements if had then they 30,1930, Bank failed November The liable assess- each would have been stock, held that was assessment aggregate upon ment his shares. failure, Sep- on the year before $4,000,000. Only about a was ex- double-liability bank this stock tember holding company purporting of changed for shares time At the same fully and nonassessable. paid to be additional bought Kentucky also Bank of stockholders $4,471,- amount cash stock for to as a thus Kentucky group paid Bank stockholders than sufficient to meet holding company cash more into the that, In to assessment now levied. addition investors bought Bank shares for who were not connected with the nevertheless amounting to Court $5,397,000. cash Kentucky that Bank of stockholders contra- holds subject law and are to the double vened not as an they “did constitute Banco ade- because in their quate financial substitute stead.” We do see fact, not a mat- certainly how such statement law, acceptance with find- ter of can be conformable ings below. Nor are of fact of courts we able to rec- oncile the old group view “the of stockholders must be held to . . have retained . as stockholders Bank” with expressed the one later their in- give pro terest “diluted” to them rata so as reduc- therein, par at amount of his stock association, each such the amount stock. The invested such in addition value thereof banking association trans- any national shall have who registered sixty the transfer or thereof within their shares ferred the failure such the date of association to meet its days next before knowledge impending failure, such obligations, shall be liable transfer, if made no such extent had to the same to the extent liability; fails to subsequent pro- transferee meet such this but any way any construed to affect in not be recourse which vision shall might against otherwise have names those in whose such shareholders registered U. C. S. the time at of such failure.” shares are such §64. Court.) of the (See opinion liability. note

tion of transfer to us that the (Emphasis supplied.) seems either company holding to the of their bank stock in- it was liability; or valid, in which case it relieved of all liability. The doc- case it relieved of no valid, which good enough to dilute lia- trine a transfer it bility enough carry along part bad of is new us but grasping implications. difficulty we have its and agreed proper that it would be use are, however, We the evidence the of this Court for to examine power findings and determine whether lies back of these whether the conditions clear error has been committed and that a bona transfer of the stock took disclosed are such fide double-liability obligations. off place sufficient to shake Kentucky exchange In of National Bank of spite of the through holding company kept stock, its stockholders bene- of control of the Bank and the large both a measure acting in their They, it. those fits of investment holding company, had determined the behalf, and its of- representatives, its had selected sponsored had manager who including the proved and personnel, ficers Na- to his trust. There is evidence that to be false been under Kentucky had for time tional Bank of some many loans Comptroller its criticism although found not to its it is have been policies, some of exchange did not consist of individual acts insolvent. Bank man- movement, planned was a concerted but holding company which the absorbed all of agement, by double stockholdings and all of the if evi- might properly, examination of the The Court legal warrant reach a conclusion that the it, dence should liability double of the National Bank stockholders Kentucky exchange who survives the and that those through have continued their interest Bank holding are liable assessment in company upon the same they manner and to the extent that would had have been But never occurred. holding transactions out formal transfer of the stock be because the this would recognized defense. would not be as a of their own names theory. quite different conclusion rests on a Court’s these It concludes that the transfer was valid to relieve Bank, their stockholders of subject but that became to a new smaller we can- company. as stockholders With this agree. holding company, financing, The its its man- and all agement, that relates to it constitute relevant ma- terial as to whether under principles that been long have recognized the transfer good. not think We do create a new liability.

II. After former owners of National Bank of Kentucky shares are liable because they did not find an adequate for their personal substitute own liability, proceeds Court purchasers to hold of holding-company stock cash to be under a substituted liability pro tanto. grounds upon which Bank of Kentucky stockholders and non-Bank of Kentucky stockholders are both held If seem to conflict. the new stockholders for cash are liable it is hard to why see the old ones have not found a substitute, and if Bank of Kentucky stockholders have not found substitute, a it is difficult to see a basis on which the new stockholders are liable. purchasers

Stock for cash have at no time owned a stock purported carry to double liability. On the contrary, by the terms of the stock certificates and by the law the their corporation’s being, shares were fully paid and non- assessable. These stockholders cannot be in any said way any express to assumed implied have or contractual assess- ment No statute of the United States and no applicable state statute then or since has purported im- liability upon a double these pose holding-company shares. controlling No these precedent this Court at the time purchased (until since today) purported or attach a double to such shares.2 support disregard The authorities cited to the Court’s corpo entity persuasion. quotation rate fall far short of of the state Berkey Ry. ment Mr. Justice Co., Cardozo from v. Third Ave. 84, 155 58, 61, principle N. Y. N. E. “that a surrender of that of limited be 'when would made is essential to the end sacrifice ” accepted public policy may upheld’ some very defended or has significance different facts, including interchange its context. The parent complete names subsidiary, operating able financial and domination, company’s and use of one other, assets indicated a stronger disregard corporate case for fiction findings than do the Nevertheless, Judge here. Chief Cardozo corpo considered that the disregarded entity rate could not be in favor of a tort claimant and circumstances, public said: “In such we thwart the policy of the State defending upholding it, ignore instead separation when we subsidiary parent, between and treat the two as one.” support cases cited afford Other no more for the decision. United Refrigerator Co., States v. Milwaukee Transit 142 F. held that payments by corporation carrier wholly to a by shipper controlled might constitute rebates under the Elkins Act. The statements in Powell, Subsidiary Corporations, Parent 77-81, & completely gen are light specificcategories eral and to be read in the of the precede which page citation, wrong by the all of which parent involve active a corpo States, ration. Linn & Timber v. Lane Co. United 574, 236 U. S. in question “instrumentality” corporation volved the whether an could rights acquire which enable it to would better than stand its trans Sanger Brothers, Rice v. 15, feror-creator. 27 Ariz. 229 397, P. found organized corporation purposes for a to fraudulent the and former partners its who became stockholders were held liable. Donovan v. 629, Purtell, 334, nothing 216 111. E.N. holds more than that an corporation personally guilty officer of a who of fraud will be held George Rollins, liable therefor. 144, v. 176 Mich. 337, N. W. proposition equity stands for the will enforce a restrictive covenant against corporation purpose a successor formed for the evading of it. Higgins Co., 363, 1070, v. Petroleum 147 Cal. 81 P. held that California corporations in the circumstances certain successor assumed a lease and pay royalties; therefore had to disregarding there was no corpo of the entity involved. Luckenbach rate S. Co. Grace Co., 676, S. v. & 267 F. “the interposi- for is that given reason this decision legis- allowed to defeat a corporation

tion of a will not be lative corporate that “no endow its State policy” the power place creatures with the themselves above to Congress defeat the of the States and United federal mark, steamship corpora comesnearer but still is far wide it. A $10,000 corporation, tion leased fleet vessels to a formed and 90 its inadequate per by it, utterly for an rental. It was held that cent owned turning corporation’s ships subsidiary this over of to a which was corporation parent rendered the “itself another form” liable for the subsidiary’s of contract. Barclay, breach Oriental v.Co. Investment App. 543, 80, employee 25 Tex. 64 S. W. allowed hotel Civ. a to recover against personal injuries parent company, though even employee technically subsidiary operating he of the company, was capitalized whose existence he was unaware which had been $2,000 operate property monthly a whose rental $1,500. alone was Corp., 344, Mursam 127 F. 2d Weisserv. Shoe arose on dismissal of the complaint might held that on a and it was full trial it be found that subsidiary “only a defendants, deliberately was tool of the other kept judgment-proof, obtain benefits plaintiffs lease with the obligations. any assuming plaintiffs allege without that this was fraudulently. Pepper . Litton, done . .” v. 308 U. S. 295 and Albert Mayfair, Inc., Richards v. 280, 191 Co. 287 Mass. 430, N. E. both dealt parent corporations priority with cases where claimed over other cred subsidiary; each, subsidiary itors of a was held to be an instru mentality parent and, of the creditors, to avoid a fraud on the latter’s priority claim denied. In was Erickson v. Minnesota & Ontario Co., 209, 979, parent Power corporation 134 Minn. 158 N. W. damage held liable for caused subsidiary; a dam owned parent paid operating expenses dam, earnings took all the subsidiary, mortgage assets, had a on all its ad in addition had right operation a direct of control over the dam. United States Lehigh Valley Co., v. Reading R. 220 U. S. and United States v. Co., power U. S. held that a railroad’s exercise of its as a stock might holder commingling amount to such a of affairs as to make liable Chicago, for a violation of the commodities clause. M. & St. P. Ry. Minneapolis Assn., Co. v. Civic 247 U. held S. that additional charges by wholly subsidiary terminal made a owned compared by parent charges might with terminal be held to constitute a discrimination.

concerning Congress national has announced .” banks which (Italics supplied.) Congress

We have been to find that ever has an- unable legislative Court nounced a such as the announces. And the it out. The National Bank- points Court nowhere ing provided Act the time the stock- applicable at banking every holders “of national association” shall be Congress under But assessment nowhere has said that corporation of a is not banking national association shall liable to assessment corporation because the latter held some or all of the Indeed, stock of a bank. history national banking legislation Congress shows that has considered the prob- lems holding created company only and not has failed adopt to such a policy as the Court declaring, is but has other provisions made inconsistent with such a policy. legislation

No subject appears on the until 1933, when Congress regulation enacted detailed of the relations be holding tween companies and national required banks. holding company permit to obtain a to vote national bank shares and empowered the Board of Governors System grant the Federal Reserve or withhold the pe .3 rmit No permit granted except upon can be certain Banking 1933, amending Act of 5144 of the § Revised § Statutes, part provides in as follows: by any holding

“. . . shares controlled affiliate of a holding company national bank shall not be voted such unless affiliate voting have permit shall first obtained a provided, as hereinafter permit which force at the such time shares are voted. purposes

“For the of this section shares shall be deemed to be holding company controlled if affiliate are owned or con- directly indirectly by company affiliate, trolled such or held by any for the trustee benefit of the shareholders or members thereof.

“Any holding company application such affiliate make to the permit voting entitling Federal Reserve Board cast one stock- holding-company by conditions, assumption and among In them. liability of assessment holders an holding must company the general, (a) are manner as the national in the to examination same submit condition; of periodic publish and must statements bank enactment, from the statute’s years five (b) that after marketable readily possess must holding company each in pre- other than bank and free assets stock assets questions deciding at all of directors and vote at all elections con- bank each share of stock meetings such on of shareholders of holding authorizing trustee or trustees the stock by it the trolled or to the of shareholders so vote for the benefit its its benefit or discretion, grant may, its Reserve Board same. The Federal may acting public require. In permit interest or such as the withhold consider the financial con- upon application, the Board shall such general management, applicant, character of its and dition permit upon granting of the affairs probable such effect granted except upon bank, permit be of but no such shall such following conditions: Every holding company shall, making

“(a) affiliate such (1) agree receive, application permit, to on dates identical for such the examination of banks with which is affili- with those fixed for banks, duly to such ated, authorized examine who shall examiners holding company affiliate as be such examinations of such shall make necessary fully the relations between such banks and such disclose holding company upon affiliate and the effect of such relations expense banks, such examinations to be at the of such affairs examined; (2) reports holding company that the affiliate so of such necessary contain information as examiners shall such shall fully such affiliate relations between and such banks and disclose upon banks; (3) relations affairs such the effect such may each bank or examine owned controlled such examiners individually conjunction holding company affiliate, and both holding company affiliate; or controlled such other banks owned (4) publication of individual consolidated statements required; may be of such banks condition years Banking “(b) After five after the enactment Act of every holding company (1) possess, affiliate such shall and shall years five amount; and that after (c) scribed individually are whose stockholders or members establishing part severally liable be relieved Congress of this certain circumstances. reserve under holding corporations informed stock that some bank were, by incorpo- of in which were law the states subject just liability to double as were stockholders rated, of holding banks. It informed other bank was also possess during permit, continue to life such and of free clear of any lien, pledge, hypothecation any nature, readily or of marketable per other assets than bank stock in an amount not than 12 centum less aggregate par by of the value of all bank stocks controlled such hold- ing company affiliate, by which amount shall increased not less per 2 per aggregate than centum par annum of such value until such per aggregate par shall assets amount to centum of the value of stocks; (2) such bank readily and shall reinvest in marketable assets earnings per other than bank net stock all over and above 6 centum per annum on the outstanding book value of its own shares until such assets shall per aggregate amoimt to such 25 centum par it; of by value all bank stocks controlled

“(c) foregoing Notwithstanding provisions section, of this after years Banking five after of the enactment 1933, (1) Act of any holding company such affiliate the shareholders or members of which individually severally shall be proportion and liable in to the number holding company of shares of such by affiliate held them respectively, in addition to therein, statutory amounts invested all imposed holding company by on such affiliate reason of its control banks, required only shares of stock of shall be to establish and earnings maintain out of net per over and per above centum annum on the book outstanding value its own shares a reserve of readily marketable assets an amount of per not less than 12 centum aggregate par value of bank by it, (2) stocks controlled required by the assets possessed this section to be by holding such affiliate replacement be used it for capital banks affiliated with it and for banks, losses incurred in any such but deficiency resulting in such assets from such use shall be up made period within such as the Federal may by regulation Board Reserve prescribe 16, . 1933, . .” June c. 48 Stat. 186-7. incorporation were not by the law of their

corporations recognize implication expressly It so liable.4 did act by federal on a uniform double or create holding companies. made of state-created for each class of cor contrary, on specific provision, get authority this Court Where does dis poration. Congress has distinction thus created regard the making rule its own single instead? When impose up Congress has set a standard of expressly diversification hearings preceded Banking which Act of At the Senate largest vice-president Wakefield, one bank Mr. L. E. respect liability: companies, as follows with to double testified The stockholders of First Bank Stock Cor- Wakefield. “Mr. corporation, being do not poration, Delaware have double organize this institution did all the work on started to we When we theory corporation, have it a Minnesota which we would would liability. minute, every At last when we that have found double Dakota, would, Dakota, in North and Montana stockholder South they death, tax, complained inheritance so have a double case of strongly put situation we shifted and it into a Delaware that about corporation. have discussed and that I think factor that we heard “The other thought doing banking we are is this such as

of in connection with instance, being a mind, minds, for our Dela- public that, or some liability intended to the double of stock- corporation was avoid ware importance easily might say it be I would that if that holders. holding company surplus should account in provided create that up surplus proportion of holdings account of some or build its liquid securities, some- kept be capital banks that should Hearings Bank- thing . before Senate Committee on sort. . .” Cong., Sess., Pt. Currency Res. 71st 3d ing Pursuant to S. pp. 616, 620. Comptroller Currency, Pole, had testified:

Earlier, Mr. J. W. system group-banking in the Northwest. that a Pole. We call “Mr. Corporation, Bank and the First Stock of the Northwest In the case subject although liability, double their is not to the I stock think subject holding corporations is to double of some the stock corporations, particular in those cases— case those two But in the given companies has holding company assets and for authority to we derive years to meet from what do it, five ignored? say five-year adjustment period shall there is a say can we How retroactively something which, after Congress failure before acted to do do? And how can act, expressly gave years it did it five to congressional enforcement of such a result be said to be an which we be the basis of the Court's policy, understand to opinion?

III. If legislate we province Court, were the of this would be at exercise liberty candidly to discretion toward the generally—they not that other it obtains too have invested securities judgment against stocks, than bank so that a either one of those cor- porations good would be for the assessment. particular

Mr. In those cases? Willis. particular cases; yes,

Mr. Pole. In those sir. subject they Mr. Willis. But there are where are cases assessment? they subject

Mr. Pole. There are cases where are not to the assess- ment; yes, nothing and where hold but bank stocks. you

Mr. Willis. In those cases an where have affiliated bank that buys itself, all stock of the bank what becomes of the double liability of the shareholder? buys

Mr. Pole. The securities where the stock itself, subject bank would be the holder of the stock and to assessment. very Mr. largely Willis. Is not the double then neutralized? Mr. Pole. Yes. you

Mr. Willis. What have done to correct that? nothing Pole. Mr. We done to correct it. have Mr. Willis. What can be done law to it? correct big problem. Mr. Pole. That is a you

Mr. Willis. Can covering along make a recommendation your problems? with other

Mr. Pole. Yes.” supra, Hearings, 1,

Senate pp. Part 27-28. provision extending For a double holding-company stock- holders, (1943) (3). see Wisconsin Stat. §221.56

undoing company. Some holding of us feel that as in country utilized this it is, exceptions, with a few a responsible menace to management finance, and to sound shifting control manage of local institutions to absentee ments and in centralizing few control of hands assets enterprises bigger manage— than are able well to views which are matters record.5

But we are of opinion one that no such latitude is con judges fided to as here is exercised. dealing We are with a variety of liability fault. profess without The Court is ing to impose it, judge-made not as a matter law, but legislative as a matter of policy, and it cannot cite so much statutory as a hint of policy. such The Court is not enforcing policy competing it is with Congress; Con gress in creating regulations new in banking, pecu a field liarly legislative within judicial rather than competence. Nor was such a policy of assessment liability one whose importance was transcending so as to set aside of permitting corporate enterprise under liability. limited Congress has repealed since the double liability, even of holders of stock national banks;6 and when force, it had little practical depositors.7 value to States also have Reports See 56 (1931) American Bar p. 763; Association Briefs for Government in Electric Bond & Share Co. v. C., S. E. 303 U. S. 419; testimony support proposal of a from withdraw companies exemption tax intercorporate dividends, Hearings before Senate Finance, 8974, Committee on on Cong., H. R. 74th 1st Sess., p. 221, seq. et 6The removal of liability upon giving is conditioned pre- the notice scribed. 16,1933, 89, June c. 189, Aug. 23, 1935, Stat. c. § 304,49 708; Stat. 12 U. S. § C. 64a. § 7 Comptroller Pole hearings: stated at good the Senate hear “We deal about double important might is not so at first one regard so it. As an illustration, deposits, we say, will of a bank $100,000 capital would ordinarily $1,000,000. you If col- lected the per entire 10 assessment, cent you only would collect 10 per your deposits cent of after all. . . practice . you But would not n.8 should, of Courts pla abandoned assessment is defeated congressional policy not course, see by any creating or fraud, by corporations, sham any liability is a however, other artifice. assessment When, is corporate failure owner of the stock because the only solvent, not which will warrant not circumstance disregard stock corporate entity as to render of so findings Court, here, accepted by holders liable. every faith, or charge fraud, eliminate bad intentional liability.9 evasion of fully agreed Kentucky depositors,

We are that Bank of to the prejudiced by should a transfer however, not be spirit or company of its violation of letter stock per collect, fact, collect as matter of over 50 cent of that. We do just per Hearings, supra 1, p. about 50 cent.” note Pt. 28. Depositors in already per the bank de- have cent their received posits. pre-depression yielded Few much. About investments have so 6,000 per investment, have cent Banco lost 100 of their liability and are faced now undetermined amounts. As to many them, say responsibility is idle to had actual for management any knowledge the Bank’s better or affairs than its depositors. thirty-one Within the last decade least formerly at states which had double upon compliance have absolutely abolished it either or Only with certain appear conditions. five states retained to have liability provisions pro- their double intact, one these a posal being currently abolish it is considered. See “Stockholders’ Liability,” Double Clearing Banking Commerce House State Law Service, II. Vol. 9Findings of the following: trial included court organized good

“61. Banco was faith. 62. 'certainly Banco was not a sham.’ 63. organized was Banco ‘not purpose for a fraudulent conceal secret enterprises or sinister conducted for the benefit of the Bank.’

64. Banco not a holding company. mere 65. Banco ‘was purpose formed July for out in set the letter of 19, 1929, purpose.’ no other ‘was agency Banco through formed as a medium or which to ”

avoid double on the stock of the Bank.’ dis- warrants If the case Act. Banking National

of the have then would depositors transfer, regard no enjoyed had have would they protection just makes Court, however, The intervened. holding company by ex- creditors to bank a windfall holding company reachable. never otherwise liability persons to tending the sanctuary for company as a may disallow We without mak- pre-existing liability escaping investors. unwary and unwarned ing trap of it a hold for and to stock, this transfer of disregard the To if had extent as liable to the same mer stockholders indi proceeding manner of transfer, is the made no such by the National Bank circumstances proper cated under disre ing considering Act whether to itself. Instead of entity gard disregards corporate transfer the Court holding company says obliga because it these from if find legislative policy. tions arise Even we could are numerous. is policy, legislative such a liabilities legislative corporation pay that a shall probably Court, reasoning employed by all of its debts. The think, we should would leave it uncertain whether stock other indebt many types holders not be liable for if matter were Congress, banking reform edness. left could define the limits of at it, liability to vicarious leaving it is limits imposed. the time was Court vague and extent of that so that a whole cluster clarify being of decisions will have to be written to what is today. way done And meanwhile we know of no can learn the extent and circumstances stockholder liability except give leading stockholder to his name to a case.10 judgment Why that the Court admits is “harsh.” according if it any so is law that was known or disregard corporate

10 This Court has considered the fiction Herring-Hall-Marvin Co., Donnell v. S. U. Safe Supervisors, Board Klein v. U. S. To enforce at the the transactions?

knowable time of than be no harsher double so incurred would assumed obligation had been any enforce contract in liability. it would result This de expecting without Its surprise.11 cision is made harsh the element of doing only that which comes of the Court’s harshness is Congress what not seen fit to do with backwards effect has with forward effect.

JOHNSON v. YELLOW CAB TRANSIT CO. et al. Argued January 6, 7, 1944. No. Decided March1944. 11In prior origin authoritative studies made to the of this contro versy which many included studies of cases cited the Court’s opinion suggestion we are unable find a trace theory present corporate stockholder obligations legisla created Douglas Shanks, tion. See Liability through Insulation from Sub sidiary Corporations (1929), 193; Powell, Yale L. J. Parent and Corporations Subsidiary (1931), esp. III; Wormser, Disregard Ch. Corporate (1927). Fiction

Case Details

Case Name: Anderson v. Abbott

Court Name: Supreme Court of the United States

Date Published: Apr 3, 1944

Citation: 321 U.S. 349

Docket Number: 3

Court Abbreviation: SCOTUS