CHAPTER IV. STOCKHOLDERS. § 46. In general.— The subject of stockholders in corporations is so large that no attempt will be made to examine the general subject except as the subject has been peculiarly illustrated by decisions as to banks. It will be assumed that the general principles applicable do not need citations to establish their existence. It will be necessary, however, to state those general principles in order to show the connections of this subject. It is settled that a person may become a stockholder in a banking corporation just as he becomes a stockholder in any other corporation: (1) by a valid subscription to the capital stock; (2) by a transfer of shares to himself; (3) by estoppel. For the purpose of liability on stock it will appear that two different persons may be considered as the owners of the same shares. Any person competent to become a stockholder will be so held. Even if the stockholder be a married woman laboring under the disability of coverture,1 and in case of national banks, any person permitted by the laws of the place where the bank is situated may be considered a stockholder.2 $47. Increase or decrease of stock.- The original capital stock cannot be increased or decreased without legislative authority. Such authority in case of national banks is given by sections 5142 and 5143 of the Revised Statutes with the act of May 6, 1886. Where the constitution requires every banking act to be submitted to a vote of the people, a bank 1 In re Reciprocity Bank, 22 N. Y. 9; Simmons v. Dent, 16 Mo. App. 288. 2 Keyser v. Hitz, 133 U. S. 138; Anderson v. Line, 14 Fed. R. 405; Hobart v. Johnson, 8 Fed. R. 493; cannot increase or decrease its capital stock without the permission of an act ratified by popular vote. When an increase in the capital stock has been permitted by the proper authority, the holder of the increased stock cannot set up irregularities in the making of the increase to defeat his liability as a stockholder. In the case of national banks when the increase has been allowed by competent authority, to wit, the comptroller of the currency, who has issued his certificate, a subscriber to the increase cannot claim to be not a stockholder because the original increase has been reduced before the issuance of the certificate. But no one becomes a stockholder in the increased stock until the comptroller issues his certificate, even though the amount has been paid into the bank for the new stock. In such a case the bank holds the amount paid in as a trustee, and, if the increase of stock be not allowed by the comptroller, the amount paid in must be restored. When the capital stock is reduced on 2 People v. Nat. Sav. Bank, 129 Ill. 618; McNulta v. Corn Belt Bank, 164 Ill. 427. 3 Veeder v. Mudgett, 95 N. Y. 295. But Palmer v. Bank of Zumbrota, 75 N. W. R. 380, says the stockholder is not estopped as against past creditors. Co 4 Delano v. Butler, 118 U. S. 634; Aspinwall v. Butler, 133 U. S. 595. The certificate is conclusive. lumbia Nat. Bank v. Matthews, 85 Fed. R. 934, 56 U. S. App. 636. The subscription is binding although the whole amount is not subscribed. Scott v. Latimer, 89 Fed. R. 843, but it is a strained construction of the statute. The dissenting opinion is much better law. 5 Charleston v. People's Nat. Bank, 5 S. C. 103; Winters v. Armstrong, 37 Fed. R. 508; McFarlin v. First Nat. Bank, 68 Fed. R. 868; s. C., 16 C. C. A. 46; Schierenberg v. Stephens, 6 32 Mo. App. 314; Stephens v. Follett, 43 Fed. R. 842. In the last case the bank officers had transferred old stock on the books to the subscriber. 6 Armstrong v. Law, 27 Wkly. Law Bul. 100. 7 Schierenberg v. Stephens, 32 Mo. App. 314; Winters v. Armstrong. 37 Fed. R. 508. These last two cases need careful reading; the syllabus is misleading; they will show that the bank was in fact held trustee. But in a case where the comptroller seems to have been guilty of questionable conduct, it was held that the comptroller could not first refuse to authorize the increase, and then, after insolvency of the bank, issue his certificate of the increase and thus hold the subscribers to the increased capital. Mathews v. Columbia Nat. Bank, 77 Fed. R. 372; but see note 4, supra, on this case. account of bad debts, but the debts are afterwards realized, a stockholder cannot claim his proportion of the amount realized; yet after the capital is actually reduced, the bank cannot retain as surplus the portion of the capital which remains over and above the reduced capital. The stockholder who has subscribed to the increase and paid in his subscription and has been entered on the books as a stockholder of a national bank is a stockholder in spite of the fact that his certificates of stock have never been issued to him.10 The increased capital is not void although through fraud it has not all been paid in," as required by law. § 48. Original subscription.-As a general rule any paper which shows a purpose to subscribe to the stock of a corporation will be binding.1 Whether an oral subscription be valid or not must depend on the provisions of the governing statute, or in the absence of such provisions on the general principles governing the law of corporations. The whole subject of the binding force of a subscription,3 as well as the remedy of the subscriber to avoid the same for fraud or for an alteration in the charter," are not properly a part of this particular treatise. The rights of parties under statutes in over-subscriptions have received some consideration from courts in the cases cited in the note. The state was 8 McCann v. First Nat. Bank, 112 Ind. 354. 9 Seeley v. Nat. Ex. Bank, 78 N. Y. 608; s. c., 8 Daly, 400. 10 Pac. Nat. Bank v. Eaton, 141 U. S. 227. The laches of a subscriber may defeat his right to object. Olson v. State Bank, 67 Minn. 267. 11 Latimer v. Bard, 76 Fed. R. 536. See note 4, supra. 1See next note. This binding effect the board of directors cannot release. McNulta v. Corn Belt Bank, 164 Ill. 427. 3 See 1 Thomp. on Corp., sec. 1216 et seq. 4 See 1 Thomp. on Corp., sec. 1360 et seq. A subscription or a purchase of stock may be rescinded for fraud even after insolvency where there is no negligence or estoppel. Wallace v. Bacon, 86 Fed. R. 553; Stufflebeam v. De Lashmutt, 83 Fed. R. 449. But Wallace v. Hood, 89 Fed. R. 11, holds that the receiver cannot agree to a rescission. 5 See 1 Thomp. on Corp., secs. 1267– 2 See 1 Thomp. on Corp., secs. 1136- 1299. 1194 6 Meads v. Walker, Hopk. Ch. 587; held not liable as a stockholder for personal liability," but was held liable as a trustee for diverting capital.R 49. Stockholders by transfer.- Shares of stock are from their nature alienable, and, subject to the limitations lawfully imposed upon their alienability by law, or by the corporation or by the holder, are transferred by indorsement and delivery of the certificate. Ordinarily such a transfer makes the transferee a stockholder and the transferror ceases to be such, where the transfer is in good faith and recorded on the books of the company. The books of the corporation are the controlling evidence as to the ownership of shares; but if the transferror in good faith has done all that he is required to do to make the transfer complete on the books of the company, the failure of the proper officers to record the transfer will not continue him as a stockholder. It seems to be sufficient even if the officers knew of the transfer. If, however, the transfer is collusive or for the purpose of escaping liability, the transferror as well as the transferee will be held as a stockholder; certainly in the case of national banks, and on principle under state statutes. An apparent exception seems to be that of a pledgee, Clarke v. Brooklyn Bank, 1 Edw. Ch. 361; State v. Lehre, 7 Rich. Law, 234. A subscription in another's name was not permitted to escape a scaling-down statute. Union Bank v. McDonough, 5 La. 63. 7 Consolidated Bank v. State, 5 La. Ann. 44. This opinion is a singular exhibition of folly. 8 Dabney v. State Bank, 3 S. C. 124. 1 Johnson v. Laflin, 103 U. S. 800; s. C., 5 Dill. 65. But statutes sometimes prescribe a different rule. Chatam Bank v. Brobston, 99 Ga. 801; Harper v. Carroll, 69 N. W. R. 610. 2 Man v. Cheeseman, Fed. Cas. No. 9002a; Irons v. Manuf. Nat. Bank, 121 U. S. 27; s. c., 27 Fed. R. 591; In re Emp. City Bank, 18 N. Y. 199. They make the transferee liable as stockholder even in case of collusive transfers. Foster v. Lincoln, 74 Fed. R. 382, 79 Fed. R. 170; Robinson v. Beall, 26 Ga. 17. 3 Snyder v. Foster, 73 Fed. R. 136, 19 C. C. A. 406; Hayes v. Shoemaker, 39 Fed. R. 319. Compare Price v. Whitney, 28 Fed. R. 297. 4 Whitney v. Butler, 118 U. S. 655. 5 National Bank v. Case, 99 U. S. 628; Barden v. Johnson. 107 U. S. 251; Stuart v. Hayden, 169 U. S. 1; S. C., 72 Fed. R. 402; Witters v. Sowles, 32 Fed. R. 130; Foster v. Lincoln, 74 Fed. R. 382; s. c., 79 Fed. R. 170. 6 So held in case of a transfer to who takes stock merely as collateral security, and does not receive title himself but has the stock stand in the name of some irresponsible third party. In such a case the pledgee is not liable as a stockholder. The same result is obtained by the entry of the pledgee's name on the books "as pledgee," and, on principle, with any other words which showed the holding as a trustee, if the fact was as represented. If the transfer be collusive, both the transferror and the transferee are liable as stockholders, and the same result follows if the transfer be made after insolvency of the bank with notice of the fact.1 10 In some of the states statutes render bank stockholders liable for all debts created while they were stockholders and require all transfers of stock to be recorded in some proper office." This liability is unaffected by a transfer. One may become a stockholder if he is the real owner of the the bank itself, which would assume no liability to answer to the statute. In re Reciprocity Bank, 22 N. Y. 9. 7 Anderson v. Phila. Warehouse Co., 111 U. S. 479. This case is absolutely irreconcilable with National Bank v. Case, 99 U. S. 628. In the latter case the transfer was made to the corporation and then to the dummy. In the other case the transfer was to the president of the corporation for the corporation and then to the dummy. In the Anderson case the two ablest judges in the court dissented. Nat. Park Bank v. Harmon, 79 Fed. R. 891, follows the case. See Chatam Bank v. Brobston, 99 Ga. 801, under a state law, contra. 8 Pauly v. State Loan & Trust Co., 165 U. S. 606. The law therefore ought to be that unless the pledgee causes the proper entry to be made on the books, he will be liable as stockholder. Chatam Bank v. Brobston, 99 Ga. 801; State v. Bank of New England, 73 N. W. R. 153; Harper v. Carroll, 69 N. W. R. 610; Moore v. Jones, 3 Woods, 53; Bowden v. Farmers' Bank, 1 Hughes, 307; Hale v. Walker, 31 Iowa, 344; Magruder v. Colston, 44 Md. 349. But the rule is said to be that the pledgee may show he is not the holder (Williams v. Am. Nat. Bank, 85 Fed. R. 376), and that he is liable only by estoppel. Baker v. Nat. Bank, 86 Fed. R. 1006. But if the pledgee proved that he ordered the entry correctly made, would he escape? See cases in notes 3 and 4 of this section. 9 Foster v. Lincoln, supra, note 2.. See Laing v. Burley, 101 Ill. 591, which holds the transferee liable when the transfer was not recorded. 10 Robinson v. Beall, 26 Ga. 17; Cox v. Montague, 78 Fed. R. 845; but see Sykes v. Halloway, 81 Fed. R, 432. 11 See Illinois statutes, 1 Starr & Curtis, ch. 16a, sec. 9, and see note 1 to this section. |