Lantry v. Wallace
Headline: Court upholds receiver’s right to enforce shareholder assessment, bars a fraud-based defense in the law action, and requires a separate fairness suit to cancel stock or recover purchase money.
Holding:
- Allows receivers to enforce shareholder assessments despite buyers' fraud claims.
- Requires shareholders to file a separate equity lawsuit to cancel stock or recover purchase money.
- Maintains confidence for creditors relying on the bank's public stock list.
Summary
Background
A receiver acting for a failed national bank sued a man who appeared on the bank’s books as the owner of 200 shares, seeking a statutory assessment on shareholders to pay the bank’s creditors. The man says he bought the stock after the bank’s president falsely described the bank’s condition and that the bank had actually bought its own shares to hide losses. He tendered his stock certificate to the receiver and sought to avoid liability and recover the $20,000 he paid.
Reasoning
The Court addressed whether the buyer’s fraud-based complaints could defeat the receiver’s law action to collect the shareholder assessment. The Justices held that those complaints are equitable in nature (they involve canceling contracts and undoing transactions) and therefore cannot be used as a defense in this type of legal action. The Court also explained that the sale and resale of stock, even if irregular, did not automatically make the buyer free from the statutory shareholder duty. If the buyer wanted cancellation or repayment, he needed to bring a separate equity case (a fairness-based suit) against the bank and the receiver.
Real world impact
Creditors and receivers can rely on statutory shareholder assessments without having those collections blocked by buyers’ equitable fraud claims in an action at law. People who say they were defrauded into buying bank stock must pursue a separate equity proceeding to cancel certificates or recover money, rather than blocking a receiver’s collection action.
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