v.

SAME. Appeal from the Circuit Court of the United States for the District of Massachusetts.

November 1, 1886.

The first of these cases was an action at law brought in the circuit court of the United States for the district of Massachusetts, by Linus M. Price, as receiver of the Pacific National Bank of Boston, for whom Peter Butler has been substituted, against John P. Delano, a citizen of Bath, Maine, to enforce the personal liability of the defendant, under section 5151 of the Revised Statutes, upon an assessment of 100 per centum of the par value of 60 shares of the capital stock of the Pacific National Bank alleged to be held and owned by said Delano at the time of the insolvency and suspension of said bank.

The Pacific National Bank was duly organized and authorized to do business as a national bank under the provisions embraced in title 62 of the Revised Statutes of the United States, and located in Boston, in October, 1877. Its capital stock was fixed at $500,000, paid in cash, with a right to increase it to $1,000,000. It continued business on this basis until September 13, 1881, when, as appears by the records of a meeting of the directors held in Boston, it was 'voted that the capital of this bank be increased to one milliondollars, and that stockholders of this date have the right to take the new stock at par in equal amounts to that now hold by them.'

On the same date a copy of the following notice was sent by the cashier to each stockholder of the bank:

'A. I. Benyon, President.

J. M. Pettingill, Cashier.

'PACIFIC NATIONAL BANK, 105 DEVONSHIRE STREET,

'BOSTON, September 13, 1881.

'At a meeting of the directors of this bank, held this day, it was '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 equal amounts to that now held by them.'

'Subscription to the new stock will be payable October 1st. Parties desiring to anticipate payment will be allowed interest to that date at four per cent. per annum.

J. M. PETTINGILL, Cashier.'

The whole amount of the increase of capital voted was not taken and paid in, nor was notice ever transmitted to the comptroller of the currency that all of such increase had been paid in; nor was that official's certificate of the increase to $1,000,000, with his approval thereof, ever issued. But $461,300 of the proposed increase to $500,000 was actually subscribed for and paid in as capital stock prior to November 18, 1881, and was used in the general business of the bank. On November 18, 1881, the bank became insolvent, suspended payment, and closed its doors. On the same day Daniel Needham, an examiner of national banks, was placed by the comptroller of the currency in charge of the assets of the bank, for the purpose of ascertaining its condition, where he remained until March 18, 1882.

The directors of the bank met on December 13, 1881, during the period of suspension, and passed a vote that, as $38,700 of the increase of capital voted on September 13, 1881, had not been taken and paid in, that amount be canceled and deducted from the capital stock of $1,000,000, and the paid-up capital stock fixed at $961,300; and that the comptroller of the currency be notified of the increase of $461,300, which had been paid in, and requested to issue a certificate of such increase according to law. Thereupon the comptroller of the currency, under date of December 16, 1881, made and issued 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 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.'

No vote of the stockholders was taken relating to the increase or decrease of the capital stock of the bank.

Under date of December 16, 1881, the comptroller of the currency addressed the following letter to the bank:

'WASHINGTON, December 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) per cent. upon its shareholders pro rata for the emount 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.'

On January 10, 1882, during the suspension of the bank, the stockholders held their annual meeting, (it being the first held since January 11, 1881,) pursuant to the following notice duly published in the Boston Daily Advertiser: 'PACIFIC NATIONAL BANK.

'The annual meeting of the stockholders of this bank for choice of directors, and for any other business that may legally come before them, will be held at their banking-rooms, 105 Devonshire street, on Tuesday, January 10, 1882, at 11 o'clock A. M.

J. M. PETTINGILL, Cashier.'

At this meeting, after discussing the general condition of the affairs of the bank, the foregoing call of the comptroller of the currency for an assessment of 100 per centum on the capital stock of the bank was read. Thereupon the following was offered:

'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 per cent. 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 forth with.'

On the question of the adoption of the above a stock vote was ordered; the total number of votes cast was 5,549, representing 5,549 shares, of which 5,494 were in the affirmative, and 55 in the negative. The amount paid in by the stockholders on this assessment was $742,800 prior to May 20, 1882.

The following notice to depositors was issued by the bank on March 16, 1882:

'THE PACIFIC NATIONAL BANK,

'BOSTON, March 16, 1882.

'To our Depositors: By vote of the directors, and the approval of the comptroller of the currency, the bank will reopen for business on Saturday, the 18th. Every effort has been made to put the bank again into a sound and solvent condition, and the stockholders have been called upon to pay an assessment of 100 per cent. on their stock, thus making the depositors' balances secure and available. The bank will be run on strict business principles and in the interest of its customers and stockholders, and, while thanking you for past favors, we solicit your confidence and support for the future.

'LEWIS COLEMAN, President.

'E. C. WHITNEY, Cashier.'

Pursuant thereto the directors resumed active control of the bank and its assets on March 18, 1882, and again conducted a general banking business until May 20, 1882, when the bank ceased business, and the directors voted to go into liquidation. Thereupon Linus M. Price was appointed receiver by the comptroller of the currency under section 5234 of the Revised Statutes, and took charge of the assets and records of the bank.

During the period between March 18, 1882, and May 20, 1882, while the bank was carrying on business in its own name, the amount due depositors was reduced from $4,101,365.91 on the former date, to $2,052,957.82 on the latter, $62,693.40 being due to new depositors. The amount of deposits made between the dates named was $2,338,617.21. New liabilities were contracted subsequent to March 18, 1882, amounting to $200,000, including the $62,693.40 due to new depositors.

The plaintiff in error owned 30 shares of stock in said bank prior to the vote of September 13, 1881, to increase the stock to $1,000,000. After that vote he received from the cashier of the bank a printed copy of the notice dated September 13, 1881, at the bottom of which he wrote a subscription for 30 shares of the increase of stock, and returned it to the bank. Three days after the passage of the vote he paid $3,000 for the 30 shares so subscribed, and received a receipt for $3,000 'on account of subscription to new stock,' signed by the cashier of the bank. In October he returned the receipt to the bank, and received for it certificate No. 780 for 30 shares of the new stock, dated October 1, 1881. Plaintiff in error supposed at that time that the whole $500,000 increase of capital had been taken and paid in, and believed that the increase to $1,000,000 had been regularly and legally made. He did not attend the stockholders' meeting of January 10, 1882, and received no other notice thereof than seeing the call published in the Boston Advertiser. On January 12th or 13th he received notice of the assessment of 100 per centum upon the stock of the bank, and, after consultation, was assured by another shareholder and a director of the bank that if this was paid there could be no further assessment made on his stock; in consequence of which assurances he paid the assessment of $3,000 on January 20th, and $3,000 on January 23d, which were indorsed on the certificates under the dates of payment, being 100 per centum on 60 shares of the stock.

Upon the trial the intervention of a jury was waived by consent of parties, and the cause submitted to the court, which found the foregoing facts, and rendered judgment September 8, 1885, in favor of the receiver for the amount claimed. On June 8, 1885, the appellant, Delano, filed a bill in equity in the circuit court of the United States for the district of Massachusetts, against Linus M. Price, receiver of the Pacific National Bank, the object and prayer of which were to enjoin the further prosecution of the pending action at law, brought by the said receiver against him for the purpose of enforcing the alleged liability of the appellant on account of the assessment upon his said stock, on the ground that upon the facts as heretofore stated the voluntary payment made by the appellant of the 100 per centum assessed to restore the lost capital of $961,300, and which had been applied to the payment of the creditors of the bank, constituted in equity, if not at law, a complete defense to the claim of the receiver as an extinguishment of his liability upon the assessment sued on.

This cause was heard upon the facts as heretofore stated, and a decree rendered, dismissing the bill for want of equity, from which the present appeal was taken and is prosecuted.

Geo. F. Hoar and Benj. N. Johnson, for plaintiffs in error and appellants.

[Argument of Counsel from pages 641-646 intentionally omitted]

A. A. Ranney, for defendants in error and appellees.

MATTHEWS, J.

Section 5151 of the Revised Statutes provides that 'the shareholders of every national banking association shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares.'

The object of the action at law brought by the receiver of the Pacific National Bank of Boston, in which judgment was rendered against the defendant, the plaintiff in error, was to enforce his liability under that section of the statute. The object of the suit in equity, in which Delano was the complainant, was to restrain the prosecution of the action at law on the ground that, if his legal defenses failed, he had in equity performed and extinguished his obligation.

The questions arising upon the records of these cases in various forms, upon the facts already stated, may be reduced to three, which will be considered and disposed of in their order. The plaintiff in error in the action at law contends, as grounds for reversing the judgment against him, (1) that he was not, at the time of the appointment of the receiver, or at any time, the holder of 60 shares of the stock of the Pacific National Bank, but was, in fact and in law, a holder of only 30 shares thereof. He contends that the attempt on the part of the directors and the comptroller of the currency in December, 1881, to fix the capital stock of the bank at $961,300 was contrary to law and void; that the alleged 30 shares of new stock, on account of which he is sued, never had any legal existence, and that he, by virtue of his subscription in September, 1881, for 30 shares in the then proposed increase of capital from $500,000 to $1,000,000, and by his other acts, never became liable, on account of the debts of the Pacific National Bank, beyond his liability as the holder of 30 shares of valid stock. (2) That by his contribution in January, 1882, of an amount equal to the par value of all the stock ever held by him towards the fund, which was all used in the payment of the debts of the bank, the bank then being insolvent, he in law discharged his liability as a stockholder in said bank, and should therefore have judgment in his favor. (3) As appellant in the suit in equity, Delano alleges, as ground for reversing the decree dismissing his bill, that the contribution made by him on January 23, 1882, of an amount equal to the par value of the stock held by him to wards a fund which was actually used in the payment of the debts of the bank, the bank then being insolvent, constituted in equity a satisfaction and extinguishment of his liability as a stockholder for the debts of the bank, if not at law. It is further contended by him, as an additional ground for equitable relief, that by the payment of the $3,000 upon the 30 shares of alleged new stock, which he claimed never had any legal existence, and on which, therefore, he never incurred any liability, he really contributed towards a fund actually used for the payment of the debts of the bank an amount equal to 200 per centum of the stock held by him, which payment, if not available in his favor as a satisfaction of his statutory liability technically at law, nevertheless must be regarded in equity as a substantial equivalent, exonerating him from further liability.

The first question to be considered is whether there was a valid increase of the capital stock of the Pacific National Bank, of which the plaintiff in error became the owner of 30 shares, so as to be charged with liability thereon as a stockholder. The articles of association of the bank provide that 'the capital may be increased, according to the provisions of section 5142 of the Revised Statutes, to any sum not exceeding ten hundred thousand dollars.'

The eleventh section of the by-laws of the bank provides as follows: '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 subscribo 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.'

Section 5142 of the Revised Statutes is as follows: 'Any association formed under this title may, by its articles of association, provide for an increase of its capital, from time to time, as may be deemed expedient, subject to the limitations of this title. But the maximum of such increase, to be provided in the articles of association, shall be determined by the comptroller of the currency, and 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 of such increase of capital stock, with his approval thereof, and that it has been duly paid in as part of the capital of such association.'

It is urged on behalf of the plaintiff in error that no increase of the capital stock of the bank was ever proposed by the directors, or assented to by the subscribers, except an increase of the full sum of $500,000; that no such increase as that was ever fully paid in, as required by the statute, and that no such increase was approved by the certificate of the comptroller of the currency; that his agreement of subscription was to take 30 shares of a new stock out of the whole sum of $500,000; that that agreement has never been carried into effect, and that he has never consented to any modification of it; and that, consequently, whatever effect would be attributable to the acts of the directors or stockholders of the bank in conjunction with the comptroller of the currency, they are res inter alios acta, and not binding on him.

On looking at the terms of section 5142 of the Revised Statutes, it appears that three things must concur to constitute a valid increase of the capital stock of a national banking association: (1) That the association, in the mode pointed out in its articles, and not in excess of the maximum provided for by them, shall assent to an increased amount; (2) that the whole amount of the proposed increase shall be paid in as part of the capital of such association; and (3) that the comptroller of the currency, by his certificate specifying the amount of such increase of capital stock, shall approve thereof, and certify to the fact of its payment.

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. The question, therefore, seems to be converted into this: Whether the subscription of the plaintiff in error to a proposed increase of $500,000, and his payment thereof, can be held to be a binding agreement to accept 30 shares out of the reduced amount.

It will be observed that, without waiting to see what the future action of the association and the comptroller of the currency might be on the question of the ultimate amount of the increased stock, the plaintiff in error paid for his shares and accepted his certificate. This he did, in legal contemplation, with knowledge of the law, which authorized the association and the comptroller of the currency to reduce the amount of the proposed increase to a less sum than that fixed in the original proposal of the directors; and such payment, and acceptance of certificates in accordance therewith, might amount, under such circumstances, on his part to a waiver of the right to insist that he should not be bound unless the whole amount of the proposed increase should be subscribed for and paid in. But without insisting upon that point, or deciding it, we think that the subsequent conduct of the plaintiff in error amounts to a ratification, on his part, of the action of the association, and of the comptroller of the currency, in fixing the amount of the increased stock at the less sum.

After he paid his subscription and received his certificates of stock, he was called upon, as a stockholder, alleged to be the owner of 60 shares of the capital stock, to pay an assessment voluntarily imposed upon themselves by the stockholders at a regular meeting, at which the transaction of such business was not only legitimate, but necessary as a condition on compliance with which alone the association was to be permitted to resume and continue its business as a bank. The bank was in a condition of open and notorious insolvency. It was in the actual control of an examiner appointed by the comptroller of the currency, so far as lawful, for the express purpose of ascertaining its true condition in order to determine the question whether it might be permitted, on any conditions, to resume business, or whether it should be required to go into liquidation by the appointment of a receiver to wind up its affairs. These facts were certainly known to the plaintiff in error, or, at any rate, were so notorious that he cannot be permitted to allege ignorance of them. A regular meeting of the stockholders was called by public notice, given in the usual form, for the election of directors, and the transaction of any other business that might be brought before them. At this meeting official communication was made that, according to the determination of the association and of the comptroller of the currency, the increased and paid-up capital stock of the bank had been fixed at $961,300, and that the whole amount of it had been lost; that it was necessary to replace it by an assessment of 100 per centum on the par value of all the shares in order to enable it to resume and carry on its business; and that otherwise it would be placed in the hands of a receiver, and required to go into liquidation.

Section 5205 of the Revised Statutes provides that 'every association which shall have failed to pay up its capital stock, as required by law, and every association whose capital stock shall have become impaired by losses or otherwise, shall, within three mouths after receiving notice thereof from the comptroller of the currency, pay the deficiency in the capital stock by assessment upon the shareholders pro rata for the amount of capital stock held by each. * * * If any such association shall fail to pay up its capital stock, and shall refuse to go into liquidation, as provided by law, for three months after receiving notice from the comptroller, a receiver may be appointed to close up the business of the association according to the provisions of section 5234.'

It was in pursuance of these provisions of the law that notice was given by the comptroller of the currency to the stockholders of the bank, at this, their regular annual meeting, that they must either assess themselves and pay in the whole amount of 100 per centum upon their capital stock, fixed at the sum of $961,300, or, in the alternative, go into liquidation. In pursuance of this notice, in full view of the facts, and with a presumed knowledge of the law, the stockholders, by a vote that was almost unanimous, assented to the first branch of the alternative, and, as a condition for being permitted to resume business, voluntarily voted the required assessment. The plaintiff in error, it is true, was not present at this meeting, but he had notice of its proceedings, and, in pursuance of its vote, paid the full amount of the assessment imposed upon him as the holder of 60 shares of the capital stock of the company.

In our opinion, it is not open to him now to say that he made this payment in ignorance of the facts, or in ignoiance of the legal right which he now seeks to assert to avoid the obligation. His payment was voluntary; it was made either with actual knowledge of the facts, or with such opportunity and means of knowledge as, by the exercise of common diligence, would have made him acquainted with the facts, and the payment made by him, in conjunction with his co-stockholders, was made upon a distinct consideration whereby the bank in which he was interested was enabled to undertake anew its regular and active business. Such a course of action on his part must be construed to constitute a complete acquiescence in and ratification of the previous action of the association and the comptroller of the currency in reference to the increase of the capital stock; and he cannot be permitted now to deny that he thereby became, and has continued to be, an owner of 60 shares of the capital stock of the bank fixed at the increased sum.

This conclusion is not weakened by the suggestion made in argument that these proceedings of the bank toook place during the period when its affairs were under the supervision of the comptroller of the currency, acting through the examiner. Notwithstanding the suspension of its business while under his control, the association continued its corporate existence, and was competent to exercise corporate functions. The increase of its capital, the vote of the assessment for the purpose of restoring what had been lost, and the acceptance of the alternative proposed by the comptroller of the currency to avoid going into liquidation, were all exertions of corporate powers which, under the circumstances, the statute expressly contemplated and authorized. It is therefore not at all to the point that its assets and affairs were subject to the supervision of the bank examiner. Nor is the conclusion affected by the other consideration, also urged in argument, that the attempt to revive the business of the bank by means of the assessment proved unsuccessful and abortive. The association, through its directctors and stockholders, undertook the task, and entered upon its accomplishment, and in doing so materially changed its relations to its creditors. The failure to prosecute its business successfully certainly cannot have the operation now claimed for it, of makin illegal all that was done in the prosecution of the experiment. The hazard of failure must be presumed to have been in the contemplation of the stockholders when they consented to the risk, and the consequences of failure cannot now be shifted from themselves to their creditors.

The second ground of defense to the action at law is, in our opinion, equally untenable. The assessment imposed upon the stockholders by their own vote, for the purpose of restoring their lost capital, as a consideration for the privilege of continuing business, and to avoid liquidation under section 5205 of the Revised Statutes, is not the assessment contemplated by section 5151, by which the shareholders of every national banking association may be compelled to discharge their individual responsibility for the contracts, debts, and engagements of the association. The assessment as made under section 5205 is voluntary, made by the stockholders themselves, paid into the general funds of the bank as a further investment in the capital stock, and disposed of by its officers in the ordinary course of its business. It may or may not be applied by them to the payment of creditors, and in the ordinary course of business certainly would not be applied, as in cases of liquidation, to the payment of creditors ratably; whereas under section 5151 the individual liability does not arise except in case of liquidation, and for the purpose of winding up the affairs of the bank. The assessment under that section is made by authority of the comptroller of the currency, is not voluntary, and can be applied only to the satisfaction of the creditors equally and ratably. If the claim in the present case were allowed, it would follow that in every case payments made by stockholders for the purpose of restoring the impaired capital would be considered as credits on the ultimate individual responsibility of shareholders, and the whole efficiency of the provisions of section 5151 for the protection of the creditors of the company at the time of liquidation would be destroyed. The obligations of the shareholders under the two sections are entirely diverse, and payments made under section 5205 cannot be applied to the satisfaction of the individual responsibility secured by section 5151. Scovill v. Thayer, 105 U. S. 143.

But it is said, in the third place, as the ground of relief under the bill in equity, that, while this may be the result of a strict application of technical law, there remains to the complainant an equity which entitles him, by some process of substitution, to apply the payment which he has made under section 5205 to extinguish his liability under section 5151. So far as can be gathered from the allegations of the bill, the facts found, and the argument of counsel, this equity is supposed to rest upon the facts that the money paid by the stockholders under the assessment was in fact applied to the satisfaction of the debts of the bank; that such application was intended by the appellant when the assessment was paid; and that he paid it in the belief that it would exonerate him from further liability as a stockholder, induced by representations made to him to that effect by others interested in the affairs of the bank. Whatever hardship there may be in the circumstances of the case, we are unable to discover any ground of equitable relief. If the assessment was applied by the officers of the bank to the satisfaction of its debts, there is nothing to show that it was done ratably, as required by section 5151. The assessment was not paid by the stockholders for the purpose of effecting a liquidation of the affairs of the bank, but was understood to be the price paid for the privilege of continuing its business in the hope of saving their investment. If it was paid under a mistaken supposition that, in the event of future failure, nothing more could be required of them, there is nothing to show that the shareholders were led into the mistake by any misrepresentations, either of fact or of law, on the part of the creditors for whose benefit the receiver is now acting. The mistake, if any, is one for which each shareholder is alone responsible.

On the whole, we are constrained to conclude that the defenses at law and the alleged ground of relief in equity are alike insufficient, and that the judgment and the decree of the circuit court must be affirmed; and it is accordingly so ordered.