Farmers' & Merchants' Bank of Phœnix v. Arizona Mut. Savings & Loan Ass'n, 220 F. 1

Farmers' & Merchants' Bank of Phœnix v. Arizona Mut. Savings & Loan Ass'n

220 F. 1 | 9th Cir. | 1915

GILBERT, Circuit Judge

(after stating the facts as above). The decree of February 27, 1913, denies the rights of a large number of stockholders who are not named therein and unjustly distributes the money of the insolvent Loan Association contrary to the pleadings and the purpose of the suit. The decree of March 12, 1914, rectifies the errors of the former decree and provides for a just distribution of the assets of the corporation. The appellant says that the latter decree should not stand, that it is a nullity, because its effect is to set aside a; decree after the expiration of the term at which it was rendered, and that it operates to the prejudice of the appellant, because the latter had by its judgment acquired a vested property right in the surplus remaining in the possession of the Trust Company after the execution of the decree of February 27, 1913, and that it gave to the stockholders of the insolvent Trust Company, at whose instance the original decree was set aside, rights in the assets of that company prior and superior to those of the appellant as a judgment creditor.

[ 1 ] It is unnecessary to cite authorities to the general rule that after the expiration of the term at which a judgment is rendered the judgment becomes an absolute finality, forever binding upon the parties and their privies, and the court is without power to change, revise, or grant other relief against it in the cause or proceeding in which it was rendered. But there are exceptions to the general rule, and one is the *5case in which such errors of law appear upon the face of the decree as to render it void. In the present case the original suit was brought by a stockholder of the Loan Association, an insolvent corporation, for the benefit of himself and all similarly situated, to secure a proper winding up of the corporation, and a distribution of its assets, on the ground that the officers of that corporation refused to act for the benefit of the stockholders, and had entered into a scheme for the fraudulent disposition of the Loan Association’s assets. In such a suit all the stockholders of the Loan Association were entitled to a pro rata distribution of the assets, and all were required to share pro rata in the losses, and all .were obligated to join in the payment of attorney’s fees allowed by the court in such proceedings. The decree of February 27, 1913, does none of these things. It takes no accounting. It arbitrarily decrees the repayment to certain named stockholders of the amounts which they had paid in to the Loan Association, regardless of the losses, debts, and obligations of the Loan Association, excludes from the benefits of the decree a large number of stockholders who had not appeared therein, and to whom no notice had been given, and leaves the remainder of the Loan Association’s property in the hands of the Trust Company, notwithstanding that the bill alleged, and the court found, that all the assets of the Loan Association had been fraudulently transferred to the Trust Company.

[2] In brief, the decree is the entry of a personal judgment in favor of certain stockholders who were assuming to act for all, and it excludes from its benefits all other stockholders who, if they had khowl-edge of the proceeding, may be taken to have assumed that the suit would be carried to a decree in pursuance of its avowed purpose to protect all stockholders alike. That decree was not within the issues presented by the bill. Money recovered in such a suit belongs to. all the stockholders, and not to the complaining stockholder. In Lewis v. Clark, 129 Fed. 570, 573, 64 C. C. A. 138, 141, this court said:

“The shareholders in associations of this character are not in the ordinary sense creditors, and if deemed creditors in any sense they are necessarily subject to all equities existing between themselves.”

In Towle v. American Bldg., L. & Inv. Soc. (C. C.) 61 Fed. 446, Judge Grosscup, discussing the right of a stockholder in an insolvent building and loan association, said:

“Th first question is whether he is entitled to a credit for the amount of assessments paid upon his stock. I think not. Such a credit practically would be paying par on his stock, a preference over other stockholders, to which clearly ho is not entitled. Neither do I think he should be allowed; credit for fines paid in. They are tlie result of his personal delinquencies, and, eo instante, become the common property of all the members of the association.”

Although the record contains no allegation that loans were made to the stockholders of the Loan Association, we are authorized to assume, in view of the purposes of the association, that such loans had been made and were outstanding at the time of the transfer of the assets to the Trust Company. No account is taken in the decree of February 27, 1913, of the rights and equities of the parties arising out of such *6loans. In Riggs v. Capital Brick Co. (C. C.) 128 Fed. 491, it was held that, in the settlement of accounts between an insolvent building and loan association and a borrowing member, payments made by the latter on accoúnt of premium on his loan are to be credited as payments on the loan, and not on his stock, since such premium afose out of his contract as a borrower, and not out of his contract or relationship as a stockholder. And in Gunby v. Armstrong, 133 Fed. 417, 66 C. C. A. 627, it was held that where a building and loan association becomes insolvent, and proceedings are instituted for winding up its affairs, the court, as a matter of necessity, may require the borrowing stockholders to pay forthwith amounts due from them, although they are not in default and their obligations are not due by their terms.

In Reynolds v. Stockton, 140 U. S. 254, 11 Sup. Ct. 773, 35 R. Ed. 464, the question involved was the jurisdiction of a court, in a stockholders’ suit brought to secure the reconveyance of personal property from another corporation, to enter a judgment adjudging the return of real property as well as the personal property involved in the issues. The court said:

“The rule is universal that where a defendant appears and responds only to the complaint as filed, and no amendment is made thereto, the judgment is conclusive only so far as it determines matters which by the pleadings are put in issue.”

And the court held that, to constitute jurisdiction to adjudicate concerning the subject-matter in a given case, there are three essentials. The cburt said:

“First, the court must have cognizance of the class of cases to which the one to be adjudged belongs; second, the proper parties must be present; third, the point decided' must be, in substance and effect, within the issue. That a court cannot go out of its appointed sphere, and that its action is void' with respect to persons who are strangers to its proceedings, are propositions established by a multitude of authorities. A defect in a judgment arising from the fact that the matter decided was not embraced within the issue has not, it would seem, received much judicial consideration. 'And yet I cannot doubt that, upon general principles, such a defect must avoid a judgment”

In Standard Oil Co. v. Missouri, 224 U. S. 270, 32 Sup. Ct. 406, 56 L. Ed. 760, Ann. Cas. 1913D, 936, the court said:

“The federal question is whether, in that court, with such jurisdiction, the defendants were denied due process of law. Under the fourteenth amendment they were entitled to notice and an opportunity to be heard. That necessarily required that the notice and the hearing should correspond, and that the relief granted should be appropriate to that which had been heard and determined on such notice, for even if a court has original general jurisdiction, criminal and civil, at law and in equity, it cannot enter a judgment which is beyond the claim asserted, or which, in its essential character, is not responsive to the cause of action on which the proceeding was based.”

In view of the foregoing considerations, it would seem that there is ground for holding that the court below was not without jurisdiction, either upon its own motion or upon the suggestion of parties interested, to set aside its former decree, notwithstanding that the term at which it was rendered had expired, and to enter the decree appropriate to the issues, which ought to have been entered in the first instance

*7[3] But, even ii the errors of law are not such that they might thus have been corrected, the case is clearly, one in which those results could have been obtained by a bill of review, and for that purpose we think that the petition filed on July 15, 1913, which was filed within the time allowed for taking an appeal from the prior decree, may properly be regarded as a bill of review.

[4] As the errors complained of and pointed out were all errors of law, there was no necessity for first obtaining permission of the court to file such a bill. Ricker v. Powell, 100 U. S. 104-109, 25 L. Ed. 527; Lewis v. Holmes, 194 Fed. 842, 116 C. C. A. 408. The petitioners, although they were not named as parties to the original suit, were in equity parties thereto, for the reason that the suit was brought for the benefit of all stockholders. They were denied the relief to which they were entitled and consequently were aggrieved by the decree. Their petition was addressed to the court, it was duly verified, and it pointed out specifically the errors of the former decree, and contained a prayer for a decree in accordance with the rights of all parties, a decree such as was thereafter rendered by the court.

In Kaw Drainage Dist. v. Union Pac. R. Co., 163 Fed. 836-838, 90 C. C. A. 320, 322, there was a similar petition to correct a decree. The court said:

“We think the petition presented to the trial court may be regarded as a bill of review. That it was called a petition does not determine its true character, and that it was informal in other respects may be disregarded, in the interest of substantial justice. It was filed within the time allowed for a bill of review, was addressed to the judges of the Circuit Court, and contained a statement in ample detail of the parts of the decree objected to, with the grounds of objection, followed by a prayer for specific and general relief and a verification.”

And the court cited Knox v. Columbia Liberty Iron Co. (C. C) 42 Fed. 378, in which a petition for rehearing was treated as a bill of review, because the relief sought could only be granted upon a bill of that character.

[5] We find no error for which the decree of March 12,1914, should be reversed. In that decree the rights of the appellant are fully protected, and provision is made for the presentation of its claim to the master in-chancery to be paid out of the available funds which may remain in the Trust Company. Provision is also- made therein for the ascertainment and recovery of assets in the hands of persons not parties to the suit. There was no abuse of the discretion of the court below in denying the appellant’s application for leave to intervene.

[6] An order denying the right to intervene is not appealable unless it is the “practical denial of certain relief to which the intervener is fairly entitled, and which he can only obtain by intervention, and where the intervention is not discretionary with the chancellor.” Credits Commutation Co. v. United States, 177 U. S. 311, 20 Sup. Ct. 636, 44 L. Ed. 782; Ex parte Cutting, 94 U. S. 14; Thomasson v. Guaranty Trust Co., 159 Fed. 126, 86 C. C. A. 514; United States Trust Co. v. Chicago Terminal T. R. Co., 188 Fed. 292, 110 C. C. A. 270.

The decree of March 12,. 1914, is affirmed.