Garber v. Crews
Headline: Court upholds law holding shareholders liable when a national bank closes, ruling a sale within sixty days does not shield sellers from creditors after liquidation.
Holding: The Court held that under a 1913 federal law, a shareholder who transferred shares within sixty days before a bank’s closing remains liable to creditors, even if the sale was in good faith or for valuable consideration.
- Allows creditors to recover from shareholders who sold within sixty days before bank closure.
- Makes good-faith sales within sixty days ineffective to avoid creditor claims.
- Permits recovery of liquidating dividends distributed to former shareholders.
Summary
Background
A former shareholder sold his stock in the American National Bank of Enid shortly before the bank sold its business and went into voluntary liquidation. The purchasing bank paid $350,000, the seller kept $110,000 for certain items, and the selling bank distributed $240,000 to its stockholders. Depositors who had earlier left large sums to await dispute resolution later discovered embezzlement and obtained a judgment against the bank for about $249,000, leaving them unpaid after the bank closed.
Reasoning
The Court asked whether a shareholder who transferred shares within sixty days before a bank’s closing can avoid liability to creditors. Reading a 1913 federal law (often called §23), the Court held that transfers within sixty days are ineffective to escape stockholder liability. The decision says the statute applies plainly, even when the sale was in good faith, for value, made while the bank seemed solvent, or when the specific creditor claim was unknown. The Court explained Congress meant to deny effect to transfers made within sixty days of the bank’s cessation of business.
Real world impact
Because of this ruling, creditors and receivers can pursue recovery from people who sold bank stock within sixty days of a bank’s closing. Good-faith sellers who received liquidating dividends may have to return those payouts to satisfy creditor claims. The judgment enforcing liability against the former shareholder was affirmed.
Ask about this case
Ask questions about the entire case, including all opinions (majority, concurrences, dissents).
What was the Court's main decision and reasoning?
How did the dissenting opinions differ from the majority?
What are the practical implications of this ruling?