This case differs in no material fact from
Delano v.
Butler, 118 U. S. 634, and
is governed by it.
When the previous proceedings looking to an increase in the
capital stock of a national bank have been regular and all that are
requisite, and a stockholder subscribes to his proportionate part
of the increase and pays his subscription, the law does not attach
to the subscription a condition that it is to be void if the whole
increase authorized be not subscribed, although there may be cases
in which equity would interfere to protect him in case of a
material deficiency.
The provision in Rev.Stat. § 5742 that no increase of capital in
a national bank shall be valid until the whole amount of the
increase shall be paid in, and the Comptroller of the Currency
notified and his consent obtained, was intended to secure the
actual cash payment of the subscriptions made and to prevent
watering of stock, but not to invalidate
bona fide
subscriptions actually made and paid.
The Comptroller of the Currency has power by law to assent to an
increase in the capital stock of a national bank less than that
originally voted by the directors, but equal to the amount actually
subscribed and paid for by the shareholders under that vote.
The case is stated in the opinion.
Page 133 U. S. 596
MR. JUSTICE BRADLEY delivered the opinion of the Court.
This case is governed by that of
Delano v. Butler,
118 U. S. 634. The
cases are not identical, it is true, but the principles established
in that case require a similar decision in this. The substantial
facts, up to a certain point, are the same; what took place
afterwards cannot vary the result.
Page 133 U. S. 597
The Pacific National Bank of Boston failed and passed into the
hands of a receiver on the 22d day of May, 1882, and the
Comptroller of the Currency, on the 27th of November, 1882, ordered
an assessment of 100 percent on the capital stock for the purpose
of enforcing the individual liability of the stockholders to pay
the liabilities of the institution, under § 5151 of the Revised
Statutes. Fifty shares of the stock, amounting to $5,000, stood in
the name of Aspinwall individually, and 50 other shares in his name
as trustee and guardian. This suit was brought against him by the
receiver of the bank to recover $5,000 as the holder of the
individual stock. He denied that he was the holder of any such
stock, and for another plea averred that it had been fraudulently
and illegally issued, and was not binding against him as a holder
thereof. A trial by jury was waived, and the cause was tried by the
circuit court, which made a special finding of facts and decided in
favor of the plaintiff. The writ of error is to that decision.
After the finding of facts had been made, the defendant prayed
the court to rule, "upon the facts found in this case, the
plaintiff is not entitled to judgment," but the court refused this
prayer and found that the defendant was the owner of 50 shares of
stock on May 20 and May 22, 1882, and entered judgment for the
plaintiff for the sum of $6,550, to which refusal to rule, ruling,
and entry of judgment the defendant then excepted, and this is the
only exception in the case. The question is whether this general
finding is supported by the special facts found and is in
accordance with the law.
Among other things, the findings set forth the fifth and sixth
of the original articles of association of the bank. By the fifth
article, the capital stock is fixed at $250,000, but with the
privilege of being increased, according to § 5142 of the Revised
Statutes, to any sum not exceeding $1,000,000; and, in case of
increase, each stockholder was to have the privilege of subscribing
his
pro rata share. The sixth article specifies the powers
and duties of the board of directors, among which was the power "to
provide for an increase of the capital of the association, and to
regulate the manner in which
Page 133 U. S. 598
such increase shall be made," and the power
"to make all bylaws that it may be proper and convenient for
them to make under said Revised Statutes for the general regulation
of the business of the association and the management and
administration of its affairs."
The findings also set forth the first and eleventh bylaws of the
bank, the former of which fixed the regular annual meeting of the
stockholders for the election of directors on the second Tuesday of
January of each year, 14 days' notice of which was to be given. The
eleventh bylaw was as follows, to-wit:
"SEC. 11. Whenever an increase of stock shall be determined
upon, it shall be the duty of the board to notify all the
stockholders of the same and cause a subscription to be opened for
such increase, and each stockholder shall have the privilege of
subscribing for such number of shares of new stock as he may be
entitled to subscribe for in proportion to his existing stock in
the bank. If any stockholder should fail to subscribe for the
amount of stock to which he may be entitled within a reasonable
time, which shall be stated in the notice, the directors may
determine what disposition shall be made of the privilege of
subscribing for the new stock."
The findings further state:
"On the 13th day of September, 1881, the capital stock of the
bank was $500,000, divided into 5,000 shares of the par value of
$100 each, of which shares the defendant, Aspinwall, as trustee
under the will of Augustus Aspinwall, and guardian under the will
of wall, and guardian under the will of William H. Aspinwall, a
minor, held fifty, which stood in his name as guardian and trustee
on the books of the bank, a certificate of said shares having been
taken in the same way. . . . September 13, 1881, the directors of
the bank passed the following vote:"
"
Voted that the capital of this bank be increased to
one million dollars, and that stockholders of this date have the
right to take the new stock at par in an amount equal to that now
held by them. "
Page 133 U. S. 599
A printed notice of this resolution was thereupon sent to all
the stockholders of the bank, and at the bottom of this printed
notice there was left a space and lines indicated for stockholders
to write therein their subscriptions to the new stock to which they
were entitled. Other than this, there was no subscription paper
opened. Some stockholders signified their assent on the notice in
the place indicated at the bottom, and sent it to the bank. Others
did not, but went or sent to the bank and paid the money for the
new stock to which they would be entitled in the proposed increase,
taking receipts in the printed form prepared for that purpose. The
defendant received said notice, and thereupon went to the bank, and
informed A. I. Benyon, its president, that he had not sufficient
funds in his hands as guardian and trustee with which to take as
such the 50 shares in the proposed increase, and that he should
therefore subscribe for and take the same himself individually. The
president of the bank said that he could do so. The defendant
afterwards returned to the bank the said notice received by him,
with the following subscription, written at the bottom thereof,
signed by him:
"I will take the fifty new shares to which I am entitled, and
will pay for them as above."
"WILLIAM ASPINWALL"
Subsequently, on October 1, 1881, the defendant went to the bank
and paid the sum of $5,000, receiving therefor a receipt, a copy of
which is as follows:
"
Pacific National Bank"
"$5,000 Boston, October 1st, 1881"
"Received of William Aspinwall five thousand dollars, on account
of subscription to new stock."
"J. M. PETTENGILL,
Cashier"
The defendant was well acquainted with Mr. Benyon, seeing him
almost daily, and he did some business with the bank.
At the time the defendant paid this money and took this receipt,
he asked Mr. Benyon, the president of the bank, if
Page 133 U. S. 600
there was any of the new stock that had not been taken, stating
that if that were the case he, the defendant, would like to take
some more of the new stock. The president of the bank replied that
all the new stock had been taken, and that the defendant could not
have any more than 50 shares already subscribed for and taken.
Defendant desired his certificate, but was told that he could only
have a receipt, as they were not in a position to issue
certificates. The defendant believed this statement of the
president of the bank, that all the new stock had been taken, to be
true, but he was not told that all the money had been paid for the
new stock.
Payments for new stock in the proposed increase of $500,000 were
made to the amount of $330,100 on and prior to October 1, 1881,
subsequent to which time additional payments were made until
November 15, 1881. The total amount thus paid in for new stock was
$461,300.
Certificates for the new stock were issued on and after October
1, 1881, as called for, nearly all being delivered. The following
is a copy of the certificate delivered to, and received by, the
defendant, November 5, 1881, to-wit:
"
Fifty Shares"
"
Pacific National Bank of Boston, Mass."
"This certifies that William Aspinwall, of Brookline, is
proprietor of fifty shares in the capital stock of the Pacific
National Bank of Boston, Mass., transferable only on the books of
said bank in person or by attorney on surrender of this
certificate."
"Boston, October 1, 1881. A. I. BENYON,
President"
"J. M. PETTENGILL,
Cashier"
The bank kept a book, called a "stock Ledger," in which it
entered the names of the stockholders, their places of residence,
and the number of shares held by each in a debit and credit
account.
An entry of fifty shares to the credit of William Aspinwall
appears to have been made in this stock ledger, of which the
following is a copy:
Page 133 U. S. 601
"William Aspinwall, of Brookline."
"October 1st, 1881. By fifty shares. . . . . . . . . .
$5,000"
At what time this certificate and entry were made does not
appear except by the books. The stock ledger shows that the amount
of capital stock, as credited to the respective parties named
therein in a credit and debit form as aforesaid, was, on November
18, 1881, $961,300, and so remained to May 22, 1882, the entry as
to said defendant being the same at the latter date as made
originally as aforesaid.
On the 18th of November, 1881, said bank became insolvent,
suspended payment, and closed its doors, and Daniel Needham, an
examiner of national banks, was placed by the Comptroller of the
Currency in charge of said bank, and all its funds, assets,
records, and books. The bank remained under the exclusive charge
and in the possession of said Needham, with its doors closed to
business, until on or about March 18, 1882.
A committee of the directors went to Washington in December,
1881, and had an interview with the Comptroller of the Currency in
relation to the affairs of the bank. The fact that a vote had been
passed in September previous to increase the capital to $1,000,000,
and that the full amount of that increase had not been subscribed
for or paid in when the bank failed in November, was talked over in
that conversation. It was discussed with the Comptroller as to what
should be done in view of the facts, and as to what should be
regarded as the capital of the bank, and in pursuance of that
interview the directors of the bank, on December 13, 1881, passed
the following vote,
viz.:
"
Voted that whereas it was voted by this board on the
thirteenth day of September last that the capital of this bank be
increased to one million dollars, and that stockholders of this
date have the right to take the new stock at par in equal amount to
that held by them, and whereas the stockholders were duly notified
of said vote, and also that subscriptions to the new stock would be
payable October 1, and whereas $461,300 of said new stock has been
taken and paid in, and whereas $38,700 thereof has not been taken
and paid in: "
Page 133 U. S. 602
"
Voted that said $38,700 of said stock be, and is
hereby, cancelled and deducted from said capital stock of
$1,000,000, and that the paid-up capital stock of this association
amounts to $961,300."
"
Voted that the Comptroller of the Currency be notified
that the capital of this association has been increased in the sum
of $461,300, and that the whole amount of said increase has been
paid in as part of the capital of this association, and that he be
requested to issue his certificate of said increase to this
association according to law."
The following certificate was thereupon sent to the Comptroller
of the Currency by the cashier, and sworn to by him, to-wit:
"
Pacific National Bank of Boston"
"December 13, 1881"
"To the Comptroller of the Currency, Washington, D.C.:"
"It is hereby certified that the capital stock of the Pacific
National Bank of Boston has been increased, pursuant to the
articles of association of said bank, in the sum of four hundred
and sixty-one thousand three hundred dollars, all of which has been
paid in, and that the paid-up capital so that the paid-up capital
stock of said bank now amounts to nine hundred sixty-one thousand
three hundred dollars."
"[Seal] J. M. PETTENGILL,
Cashier"
Upon the receipt by the Comptroller of a copy of the vote of
December 13th, and the certificate of the cashier of December 13th,
the Comptroller sent, December 16, 1881, to the directors of the
bank the following certificate:
"
TREASURY DEPARTMENT"
"
OFFICE OF COMPTROLLER OF THE CURRENCY"
"WASHINGTON, December 16, 1881"
"Whereas, satisfactory notice has been transmitted to the
Comptroller of the Currency that the capital stock of 'The Pacific
National Bank of Boston, Mass.' has been increased
Page 133 U. S. 603
in the sum of four hundred and sixty-one thousand three hundred
dollars, in accordance with the provisions of its articles of
association, and that the whole amount of such increase has been
paid in, now it is hereby certified that the capital stock of the
Pacific National Bank of Boston, Mass., aforesaid, has been
increased as aforesaid in the sum of four hundred and sixty-one
thousand three hundred dollars; that said increase of capital has
been paid into said bank as a part of the capital stock thereof,
and that the said increase of capital is approved by the
Comptroller of the Currency."
"In witness whereof I hereunto affix my official signature"
"[Seal] JOHN J. KNOX,
Comptroller"
At a meeting of the directors of the bank held on the 14th of
December, 1881, resolutions were adopted and a copy sent to the
Comptroller whereby, after setting forth, by way of recital,
several particulars with regard to the condition of the bank going
to show that it might resume business under certain conditions, it
was, among other things, resolved as follows, to-wit:
"
Resolved that in the opinion of the directors of said
bank, the interests of both creditors and stockholders require its
early reorganization."
"
Resolved that the Comptroller of the Currency be
requested to authorize the stockholders of the association to levy
an assessment of 100 percent upon the par value of the capital
stock now paid in,
viz., $961,300, upon condition that
said Weeks shall return to this bank $350,000 additional checks, as
agreed, before said assessment shall be made."
Other resolutions adopted at the same time set forth a certain
scheme of reorganization, and it was finally resolved as follows,
to-wit:
"
Resolved that a copy of these resolutions be forwarded
to the Comptroller of the Currency, and his approval asked of the
scheme of reorganization herein set forth, and that he grant the
directors until January 15, 1882, to perfect said scheme of
organization. "
Page 133 U. S. 604
There was no vote of the stockholders of said association passed
relating to increase or reduction of its capital stock, unless the
vote of January 10, 1882, hereafter mentioned, was such. On the
16th day of December, 1881, the Comptroller of the Currency sent to
the bank the following communication, namely:
"WASHINGTON, Dec. 16, 1881"
"The Pacific National Bank of Boston, Massachusetts:"
"The entire capital stock of the Pacific National Bank of
Boston, Massachusetts, amounting to nine hundred and sixty-one
thousand three hundred (961,300) dollars, having been lost, notice
is hereby given to said bank, under the provisions of section 5205
of the Revised Statutes of the United States, to pay the deficiency
in its capital stock by an assessment of one hundred (100) percent
upon its shareholders
pro rata for the amount of capital
stock held by each, and that if such deficiency shall not be paid,
and said bank shall refuse to go into liquidation, as provided by
law, for three months after this notice shall have been received by
it, a receiver may be appointed to close up the business of the
association according to the provisions of section 5234 of the
Revised Statutes of the United States."
"In testimony whereof I have hereto subscribed my name and
caused my seal of office to be affixed to these presents at the
Treasury Department, in the City of Washington and District of
Columbia, this sixteenth day of December, A.D. 1881."
"[Seal] JOHN JAY KNOX"
"
Comptroller of the Currency"
It does not appear that any communication was made to the
defendant by the bank with reference to said votes of the directors
of December 13th and 14th, or the certificates of the Comptroller
of December 16th, or with reference to any change in the proposed
increase in the capital of the bank to $1,000,000. The defendant
never saw nor had communicated to him the books of the bank or
their contents. He was in the bank almost daily, and knew of the
suspension on November 18, 1881. He does not remember or
believe
Page 133 U. S. 605
that he had knowledge of the proposed change, or the change made
in the proposed increase of the stock of $500,000, and of the
certificate of the Comptroller of December 16, 1881, until informed
of the facts during the stockholders' meeting of January 10, 1882,
or possibly on that day just before the meeting was organized, and
after the stockholders were assembled for the same, when he learned
them.
On the 10th of January, 1882, the annual meeting of the
stockholders of the bank was held pursuant to call. At this
meeting, the examiner made a report of the condition of the bank, a
board of directors was chosen, and, after a statement by the
counsel of the bank of the facts relating to the increase of its
capital stock and as to how much had in fact been paid in under the
vote to increase to $1,000,000, and of the legal result thereof,
and of the vote of December 13th, and the certificates of the
Comptroller of the Currency dated December 16th, and after a full
discussion of the matter, the following vote was adopted by stock
vote, 5,494 shares in favor and 55 shares against:
"
Voted, in accordance with the notice of the
Comptroller of the Currency dated December 16, 1881, there be, and
hereby is, laid an assessment of one hundred percent upon the
shareholders of the Pacific National Bank of Boston, Mass.,
pro
rata for the amount of capital stock of said bank held by each
shareholder."
"
Voted that the board of directors notify each
shareholder of said assessment, and collect the same
forthwith."
Notice of this vote was sent to the stockholders.
The defendant attended said meeting of the shareholders, acting
as the holder of and representing only the 50 shares of original
stock held by him as trustee and guardian, and as such voted in the
negative on the question of the assessment, expressly stating on
his ballot that he voted as the holder of 50 shares of old stock
held by him as trustee and guardian. He did not vote or in any way
act at said meeting as the holder of any new stock, and notified
the directors of the bank that he did not consider himself a holder
of any shares in the alleged increase of $461,300.
Page 133 U. S. 606
April 28, 1882, the defendant paid the assessment voted January
10, 1882, on the 50 shares of original stock held by him as
guardian and trustee, using his own personal funds to make such
payment, but did not pay any assessment on any new stock. On March
18, 1882, by permission of the Comptroller of the Currency, on
representations to the effect that the bank was then solvent, the
directors took possession of the assets of the bank, opened its
doors to business, and continued to do a general banking business,
loaning money, receiving and paying deposits, and paying debts and
expenses, until the 20th day of May, 1882, but made no losses on
new loans during that period.
On or about April 21, 1882, notice was sent to all those who had
not paid the assessment voted January 10th, and among others to the
defendant, that unless such assessment should be paid by the 28th
of April, 1882, their stock would be advertised for sale, and would
be sold at auction, according to law, on the 31st of May, 1882. On
the 22d of May, 1882, the defendant delivered to the cashier of the
bank the certificate for new stock which he had received, and a
written demand for the repayment of the $5,000 which he had paid
thereon, and on the 30th of May he brought suit against the bank
therefor, which is still pending.
On the 20th of May, 1882, the directors vote to go into
liquidation, and the business of the bank was closed, and a
receiver was appointed by the Comptroller of the Currency. It was
found that the liabilities of the bank, exclusive of capital stock,
were $2,500,000, and its assets worth about $500,000.
The court further found that the board of directors and the
Comptroller of the Currency acted in good faith, and without fraud
in the premises.
It will be seen from the foregoing statement that all the
material facts which existed in the case of
Delano v. Butler,
qua supra, existed in the present case except that Delano
actually paid the assessment made on his new stock, as well as that
made on his original stock, whereas in the present case, Aspinwall
refused to pay said assessment, repudiated the new
Page 133 U. S. 607
stock, and has brought suit to recover the amount of his
subscription paid therefor.
We do not think that this difference makes any difference in the
liability. The new stock was created in a regular manner, by the
board of directors, who had authority for that purpose; it was
subscribed and actually paid in by the stockholders; it was
certified to the Comptroller of the Currency and approved by him,
and it was reported to the meeting of stockholders and approved by
them, as their almost unanimous vote for an assessment shows.
The most forcible objection to the validity of the increased
capital of $461,300 is that it did not equal the amount first voted
for by the directors, which was $500,000. But, as reduced, it had
the sanction of the directors, the approval of the Comptroller of
the Currency, and the assent of the stockholders at their meeting
on the 10th of January, 1882. The deficiency under $500,000 arose
from the fact that some of the stockholders did not avail
themselves of their right to subscribe. The eleventh section of the
bylaws of the bank has this express provision, that
"if any stockholder should fail to subscribe for the amount of
stock to which he may be entitled within a reasonable time, which
shall be stated in the notice, the directors may determine what
disposition shall be made of the privilege of subscribing for the
new stock."
This gave the directors full power over the deficiency of the
subscriptions, and was in itself authority, if no other existed, to
validate the action of the directors and the Comptroller in
disregarding such deficiency and equating the new stock to the
subscriptions actually made and paid in. There was no express
condition that the individual subscriptions should be void if the
whole $500,000 was not subscribed, and in our judgment there was no
implied condition in law to that effect. Each subscriber, by paying
the amount of his subscription, thereby indicated that it was not
made on any such condition. It is not like the case of creditors
signing a composition deed to take a certain proportion of their
claims in discharge of their debtor. The fixed amount of capital
stock in business corporations often remains unfilled, both as to
the number of shares
Page 133 U. S. 608
subscribed and as to payment of installments, and the
unsubscribed stock is issued from time to time, as the exigencies
of the company may require. The fact that some of the stock remains
unsubscribed is not sufficient ground for a particular stockholder
to withdraw his capital. There may be cases in which equity would
interfere to protect subscribers to stock where a large and
material deficiency in the amount of capital contemplated has
occurred. But such cases would stand on their own circumstances. It
could hardly be contended that the present case, in which more than
ninety-two percent of the contemplated increase of capital was
actually subscribed and paid in, would belong to that category. In
Minor v. Mechanics' Bank of
Alexandria, 1 Pet. 46, only $320,000 out of
$500,000 of capital authorized by the charter was subscribed in
good faith, but the Court did not regard this deficiency in the
subscriptions as at all affecting the status of the corporation or
the validity of its operations.
Some reliance is placed on the words of the act of Congress
which authorizes an increase of capital within the maximum
prescribed in the articles of association. They are found in
section 5142 of the Revised Statutes, which declares that any
banking association may by its articles provide for an increase of
its capital from time to time, but adds,
"No increase of capital shall be valid until the whole amount of
such increase is paid in and notice thereof has been transmitted to
the Comptroller of the Currency, and his certificate obtained
specifying the amount,"
etc. This clause would have been violated by an issued of
$500,000 of new stock when only $461,300 was paid in, but not by an
issue of the exact amount that was paid in. The clause in question
was intended to secure the actual payment of the stock subscribed,
and so to prevent what is called watering of stock. In the present
case, the statute was strictly and honestly complied with. The
argument of the defendant asks too much. It would apply to the
original capital of a company as well as to an increase of capital.
And will it do to say, after a company has been organized and gone
into business and dealt with the public, that its stockholders may
withdraw their capital and
Page 133 U. S. 609
be exempt from statutory liability to creditors if they can show
that the capital stock of the company was not all subscribed?
In the
Delano Case, the objection under consideration
was discussed by MR. JUSTICE MATTHEWS, speaking for the Court, in
the manner following. He there said:
"In the present case, the association did in fact finally assent
to an increase of the capital stock, limited to $461,300. That
amount was paid in as capital, and the Comptroller of the Currency,
by his certificate, approved of the increase and certified to its
payment, so that there seems little room to question the validity
of the proceedings resulting in such increase. All the requisitions
of the statute were complied with. The circumstance that the
original proposal was for an increase of $500,000, subsequently
reduced to the amount actually paid in, does not seem to affect the
question, for the amount of the increase within the maximum was
always subject to the discretionary power of the association
itself, exerted in accordance with its articles of association, and
to the approval and confirmation of the Comptroller of the
Currency."
118 U.S.
118 U. S. 649.
In these remarks we entirely concur, and do not see why they do not
furnish a complete answer to the objection arising from the change
of amount. There was no agreement or condition that the amount
should not be changed. The making of the change therefore could not
have the effect of enabling the defendant to repudiate his
subscription and his acceptance of the stock unless he could show
that the change was fraudulently made or was made to such an
inequitable extent as to defeat the purpose and object of the
increase.
If these views are correct, it makes no manner of difference
what the defendant afterwards did in the way of objection or
protest, either at the stockholders' meeting or elsewhere. The
stock was lawfully created, the defendant subscribed for the shares
in question and paid for them and received his certificate, and
nothing was afterwards done by the directors, the Comptroller of
the Currency, or the stockholders in meeting assembled which they
had not a perfect right to do. The defendant became a stockholder;
he held the shares in question
Page 133 U. S. 610
when the bank finally went into liquidation, and of course
became liable under section 5151 of the Revised Statutes to pay an
amount equal to the stock by him so held.
The judgment is
Affirmed.