Eaton v. Pacific National Bank.

To make the increase of the capital stock valid, it must be authorized in accordance with the articles of the association. The whole amount of it must be paid in. Notice thereof must be transmitted to the Comptroller, and he must certify "that it has been duly paid in as part of the capital of such association, and must approve of it." U. S. R. S., § 5142. The plaintiff therefore was compelled to pay in her money before the final action of the Comptroller, in order to become entitled to any part of the new stock. Within the maxim of the increase of capital stock provided for by the articles of association, the Comptroller could not determine the amount of the increase, except by approving, or refusing to approve, the amount authorized by and paid into the bank. The united action of the bank or its directors, of the subscribers to the new stock, and of the Comptroller, were required to effect an increase of the capital stock; and when the plaintiff paid in her money, she ran the risk that the contemplated increase of $500,000 might fail, either because it might not all be subscribed for and paid, or because the Comptroller might refuse his approval; but she did not run the risk that if it were all paid in, the Comptroller might, without any further action of the bank or its directors, reduce the amount of the increase, because he had not the lawful power to do this. If the Comptroller refused his approval, the plan failed. The directors, by a new vote, might authorize another and a different increase of the capital stock, which if the amount was paid in, and the Comptroller approved of it, would become an actual increase of capital stock. But this would be an abandonment of the first plan by the bank, and the adoption of another.

Upon the ordinary principles of contract, if the plaintiff paid in her money for forty shares on the condition of five thousand shares of stock should be created, she could not be bound to take the forty shares if the condition was not performed. If there was such a condition, the plaintiff could not be required to take forty shares if the condition was not performed. If there was such a condition, the plaintiff could not be required to take forty shares out of four thousand six hundred and thirteen shares, which the bank by a subsequent vote authorized, unless there is something in the facts which shows that the amount of stock to

Eaton v. Pacific National Bank.

be created was immaterial, or unless she assented to the change, or her assent is to be implied, or unless, on grounds of public policy and the rights of creditors, she cannot be permitted to withdraw her money after the Comptroller has certified that a certain amount has been paid in for an increase of the capital stock, which amount included the sum she had paid.

Whether the plaintiff shall become the owner of forty out of four thousand six hundred and thirteen shares cannot be regarded as immaterial, particularly in a corporation where the stockhold ers are liable to an assessment to the amount of the stock held by each to supply a deficiency in the capital stock (U. S. R. S., § 5203), and are also held "individually responsible, equally and ratably, and not one for the other, for all contracts, debts and engagements of such association, to the extent of the amount of their stock therein, at the par value, in addition to the amount invested in such shares." U. S. R. S., § 5151.

Neither can we perceive any sound reason why, in legal contemplation, she must be held to have assented to the change whereby the amount of the contemplated increase was reduced to $461,300. She paid in her money under a vote whereby the capital stock was to be increased by $500,000. If this amount was not paid in, or the Comptroller did not approve of this increase, there was an end of the proposition which had been voted, and which she and the bank had in contemplation when she paid in her money. If the directors of the bank, after she paid in her money, abandoned their original vote, and passed another vote for an increase different in amount, it is difficult to see how she was bound by it. They were not her agents. The new vote was not passed in furtherance of the original proposition to make the increase $500,000. "The vote was not a reduction of the capital stock of the bank, because the increase had not then been made," and the capital stock of a banking association can only be reduced by a vote of the stockholders. U. S. R. S., § 5143. To make the increase of the capital stock $461,300, instead of $500,000, was es sentially a new proposition, authorized for the first time on December 13, 1881, nearly two months and a half after the plaintiff paid in her money.

Eaton v. Pacific National Bank.

On the facts found, the intention of the directors and the Comptroller is apparent. The bank failed November 18, 1881, and before this, $461,300 had been paid into the bank for new stock to be created under the vote passed September 13, 1881. It was not likely that any more money would be paid in for this purpose after the failure of the bank. The bank had received this money and had used and lost it. On its failure a bank examiner took possession of the bank and its assets, and remained in possession until March 18, 1882. While its assets were in the possession of the bank examiner, it was decided to make this $461,300 a part of the capital stock of the bank. It would then cease to be a debt of the bank, and the creditors of this sum, having thus been made stockholders, would then be liable to an assessment to an equal amount to supply the deficiency of capital stock, and would also be liable to pay another equal amount to satisfy the debts of the bank. The directors accordingly passed the vote of December 13, 1881, which in form is a reduction of the capital stock by the sum of $38,700, but in fact is a vote authorizing the increase of the capital stock by $461,300; and they attempted to apply the money paid in under the previous vote to this new increase which they had voted, and then voted that the Comptroller of the Currency be notified that the capital had been increased by this sum, and that the whole amount had been paid in, and they requested the Comptroller to issue his certificate. The cashier on the same day sent to the Comptroller a copy of the foregoing votes, and his certificate that the capital had been increased by the sum of $461,300, all of which had been paid in. The copy of the votes sent to the Comptroller informed him that the attempt to obtain $500,000 for an increase of the capital stock had failed, and because it had failed, that the directors had fixed the amount of the increase at $461,300, and had declared the money paid in under the previous vote as paid in for the new stock voted on December 13. The Comptroller of the Currency on December 16, 1881, issued the usual certificate approving of "said increase of capital stock" to the amount of $461,300, and on the same day sent to the bank a notice that its entire capital stock, including the increase he had just then approved, having been lost, an assessment of one hundred per cent must be laid upon

Eaton v. Pacific National Bank.

the shareholders, otherwise the bank must go into liquidation or a receiver must be appointed, according to the Revised Statutes of the United States, section 5234.

It is argued that the certificate of the Comptroller is conclusive on the plaintiff that the sum of $461,300 was actually paid in as an increase of capital stock, and that this includes the amount she paid. Undoubtedly the public in dealing with the bank do rely to some extent upon the certificate by the Comptroller of the amount of the increase in the capital stock of the bank, and that this amount has been actually paid in; and so long as the certificate remains unrevoked, it may be taken to establish the amount of the capital stock of the bank. If the certificate happens for any reason to be false, it is probable that an assessment could be laid upon the shareholders to make up the deficiency in the capital stock. But that the certificate of the Comptroller makes any one a shareholder who is not one, or enables the bank to appropriate a debt it owes to a payment for stock, or to treat one of its creditors as a shareholder, is a proposition to which we cannot assent. The obligation of the plaintiff to take the new shares depends upon her contract with the bank. If we assume that immediately after the vote of December 13, 1881, the plaintiff could have treated the original vote as abandoned, and could have demanded her money and brought and maintained an action to recover it, the action of the directors and of the Comptroller in erroneously including the amount she had paid in the amount which has been paid in to increase the capital stock by $461,300, cannot affect her legal relations with the bank unless she has assented to or ratified that action, or is estopped by her conduct, or has been guilty of laches. As she demanded payment on January 10, 1882, of the money she had paid, she is not guilty of laches, and it is not contended that there is any estoppel, and it is plain that there is no evidence of actual assent or ratification.

The defendant denies that it was the contract between it and the plaintiff that she should receive forty shares out of five thou sand shares of new stock, and says that the contract was that she should receive forty shares of new stock, and that there was no condition attached to the contract that the capital stock should be increased by $500,000. This objection is fundamental. The

Eaton v. Pacific National Bank.

plaintiff did not subscribe for stock, but paid in her money in pursuance of the vote of September 13, 1881, and she took a receipt. There is no express condition; but construing the receipt in connection with the vote, it is plain that she paid in her money for forty shares of the new stock voted on September 13.

In Warwick R. Co. v. Cady, 11 R. I. 131, 137, it is said that "if the charter had provided for a definite capital, or if by the general law provision had been made that the enterprise should not be commenced until some definite proportion or amount should be subscribed, * * * or if before subscription the capital had been fixed by vote or agreement, then it might well be held that the raising the whole amount was a condition of the subscription. And so also if the amount was named in the paper subscribed." This statement of the law is supported by our own decisions and many others. Katama Land Co. v. Jernegan, 126 Mass. 155; Troy & G. R. Co. v. Newton, 8 Gray, 596; Atlantic Cotton Mills v. Abbott, 9 Cush. 423; People's Ferry Co. v. Balch, 8 Gray, 303; Cabot & West Springfield Bridge Co. v. Chapin, 6 Cush. 50; Central Turnpike Corp. v. Valentine, 10 Pick. 142; Salem Mill-dam Corp. v. Ropes, 6 id. 23, and 9 id. 187; Read v. Memphis G. G. Co., 9 Heisk. 545; Santa Cruz R. Co. v. Schwartz, 53 Cal. 106; Hughes v. Antietam Manuf'g Co., 34. Md. 316; Ridgefield & N. Y. R. Co. v. Brush, 43 Conn. 86; Ticonic Water Power and Manuf'g Co. v. Lang, 63 Me 480; Lewey's Island R. Co. v. Bolton, 48 id. 451; Pitchford v. Davis, 5 M. & W. 2; Allman v. Havana R. & E. R. Co., 88 Ill. 521; Memphis B. R. Co. v. Sullivan, 57 Ga. 240; Peoria & R. I. Co. v. Preston, 35 Iowa, 115; Contoocook Val. R. Co. v. Barker, 32 N. H. 363; Peirce v. Jersey Water-works Co., L. R., 5 Exch. 209; Norwich & L. Nav. Co. v. Theobald, Moody & M. 151.

If however the amount of the capital stock is left indefinite, or the maximum and minimum of the amount only are defined, with the right in the corporators or directors subsequently to determine the amount, a subscription to stock must be deemed absolute, unless there is an express condition inserted in the subscription, or unless a sufficient amount is not subscribed to enable the corporation legally to organize. Boston, B. & G. R. Co. v. VOL. III-62.