141 Ky. 172 | Ky. Ct. App. | 1910
Opinion op the Court by
Reversing.
The Corbin Banking Company was created under the laws of this State with a capital stock of $25,000. The Secretary of State having information that the capital stock of the bank was impaired, addressed a letter to the president of the company asking him to have the impairment made good by an assessment of the stockholders to the amount of the par value of the shares of the capital stock. Upon receiving this direction from the Secretary of State, and in compliance therewith, the board of directors at once met and adopted a resolution, setting out that the hoard of directors “do hereby levy and assess upon each share of stock of said hank now outstanding and in the hands of the holders of said shares as the names and addresses of said holders appear on record on the books of
At the same meeting the board of directors adopted this by-law:
“Whenever an assessment against the stockholders in this bank shall be ordered by the Secretary of State of Kentucky pursuant to the authority conferred upon him by section 586 of the Kentucky Statutes and the board of directors shall have levied such an assessment and made a call therefor against the shareholders according to their several and respective holdings of stock in this bank, that ' such shareholders shall be at once notified in person or by letter, addressed to them at their last known address as shown upon the records of the bank, and demand payment of such assessment, immediately within ten days after such assessment is made; and in the event that such assessment be not paid within thirty days after call is made, the bank shall have a lien upon the sha,res of stock owned or held by the stockholders*175 against whom such assessment is made, and said stock shall be in lien for the payment and satisfaction of such assessment 1o the extent that each share is severally liable therefor; and at the time that the 'stockholders of the bank are notified of the making of .such assessment, and are called upon to pay the same, they shall also be notified of this by-law of the bank and to enforce the said lien on their stock the board of directors may proceed as is provided in section 580 of the Kentucky Statutes with respect to the collection and enforcement of payment of delinquent subscriptions to stock or the collection or payment of any installments due thereon, and stockholders shall when called upon to pay the assessments above mentioned be further notified of the power hereby conferred upon the board of directors with reference to felling or forfeiting the stock by shareholders which may be liable for the payment of such assessments: and the board of directors are authorized and required to proceed to collect or to enforce the payment and satisfaction of any assessments so levied upon stock against shareholders in the bank as hereinbefore provided. ’ ’
Section 586 of the Kentucky Statutes, under authority of which the Secretary of State directed the bank to make good the impairment of its capital stock, reads as follows:
“Should the capital stock of any bank organized under. this article become impaired, the Secretary of State shall give notice to the president to have the impairment made good by assessment of the stockholders, or by a reduction of the capital stock to an amount not less than that required to organize; and if such, bank shall fail for thirty days after such notice to make good the impairment, the Secretary of State may, with the advice and consent of the Attorney General, institute such proceedings as may be necessary to wind up the affairs of the bank.”
Section 580 of the Kentucky Statutes, which the directors followed in the resolution and by-laws, directing how the lien on stock of shareholders who failed to pay the assessment should be enforced, reads in part:
‘ ‘ * * ® And when any stockholder fails to pay any installment on the stock when requested by the directors, they may sell a sufficiency of the stock of such delinquent at public sale to pay the amount due, with cost*176 and interest, having first given him twenty days’ notice in writing, if lie reside in the county, or, if not, by letter mailed to his last known address, of the time and place where the stock will be sold; or they may collect the amount due by action. If no bidder can be found to pay the amount due on the stock, and it cannot be collected, the amount previously paid in by the delinquent on the stock shall be forfeited to the bank, by order of the board of directors, and such stock sold by it within twelve months thereafter; and if not so sold, it shall be cancelled and deducted from. the capital stock of the bank; if sold before cancellation, any surplus, after the payment of the amount due, and interest and costs, shall be paid to the original stockholder or his assigns. * * *”
This section was designed to afford the bank a remedy by which it could enforce the payment of unpaid subscriptions of the capital stock, and in this instance the directors adopted the method pointed out for the enforcement of unpaid subscriptions as the most satisfactory means to enforce the payment of the assessment made in the event the stockholder failed or refused to pay it.
The appellee J. II. Mitchell, long prior to the notification by the Secretary of State had become the owner of five shares of capital stock of the bank, and a certificate for this stock had been issued to him, and on the books of the bank he appeared the owner of it. After obtaining the certificate, and before the Secretary of State directed the bank to make good the impairment of its capital stock, Mitchell executed his note to appellee Mauney for money borrowed and to secure the payment of the note pledged to and with Mauney as collateral security the shares of stock owned by him. At the time the directors adopted the resolution and by-law before mentioned, this certificate of stock was so held by Mauney, and we may here note that Mauney took the stock in good faith to secure the payment of a bona fide debt. The bank delivered to Mitchell and Mauney a copy of the resolution and by-law, but neither of them paid or offered to pay any part of the assessment, and they also refused to surrender the stock to the bank. Thereupon the bank brought this suit against Mitchell and Mauney, setting up the facts heretofore stated, and further averring that the stock on account of the condition of the bank had little or no value, and a sale of it could not be made without the surrender of the stock
In the consideration of this question it is well to keep in mind that the capital stock of a bank is a trust fund for the benefit and protection of depositors and cred-tors of the bank and so it is of the highest importance that this fund should be kept unimpaired. It was to preserve unimpaired this trust that the Secretary of State was invested with the authority to compel bank directors under pain of the institution being put in the hands of a receiver to make good any impairment of its capital. Every stockholder in a bank takes and holds his stock with the understanding that the capital stock must not be' permitted to become impaired, or, if it is, that the Secretary of. State may require the directors to make an assessment upon the stockholders in such a sum as in his judgment is necessary to restore it. Indeed we might say that this statute is a part of the contract between the shareholder and the bank and is one of the burdens assumed by the shareholder when he takes his stock. As the shareholder takes his stock impressed with these conditions., it follows that any person to whom the stock is sold .and transferred by him also takes it subject to these statutory burdens and conditions. In other words, the' transferee of the stock cannot hold it under different or better conditions than the-person to whom it was issued. But, conceding all this, it is said that the remedy of the bank is against the owner of the stock and .not ag’ainst the shares of stock, and that although' the directors have authority when so ordered by the Secretary of State to make the assessment, that the assessment is a personal obligation against the shareholder and hot a lien upon or a claim against the shares of 'stock held by him. And so while admitting that the bank could make the assessment ag’ainst Mitchell, and proceed by action to collect from him by the ordinary processes of law the amount of the assessment, it is denied that the bank had authority to
But, it is said that although this line of reasoning might be sound, if the stock was in the hands of the shareholder, that it loses its force when it is attempted to extend the remedy and take the stock from a pledgee like Mauney "who in good faith advanced money upon the credit of it. But, should the pledgee hold a better position than the shareholder? It is true that at the time Mauney received the stock Mitchell had the right to transfer it to him, and that it was apparently free from any lien. It is also doubtless true that Mauney had no notice of the condition of the bank, and was induced to advance his m.oney under the belief that he was fully protected by the certificate of shares. But here" again the public interest must prevail, and Mauney must be treated as holding the stock subject to the paramount right of the Secretary of State and the directors acting in obedience to this demand to require that it be subjected to protect those who upon the faith of the capital
A great deal is said in the record about the right of the bank to establish the by-law which it did, and our attention is called to a number of authorities holding that directors have no authority to adopt by-laws that will prejudice in any way the rights of pledgees of stock or persons who take it without notice of the by-laws. We do not, however, think it necessary to go into an extended discussion of the power of banks or corporations to establish by-laws. It may, however, be freely admitted that a bank would have no right to establish or enforce a by-law giving it á lien upon the stock to secure a debt due to it by the shareholder, if doing this would prejudice the rights of a pledgee in good faith. But, that question is not-here. The by-law adopted by the board of directors of the appellant bank was not adopted for the benefit of the stockholders, or to save the bank from loss on a-contract obligation, it was made to carry out the direction of the Secretary of State. It was made for the
It is further suggested that the Secretary of State bad no authority to order an assessment of one hundred per cent. But the statute does not limit the amount of the assessment that the Secretary may order, except that it shall not be in excess of the par value of the stock. The section giving the Secretary tbis authority invests him with a large discretion, and we would be reluctant to interfere with Ms action-unless it was clearly shown that the discretion vested in him was abused. There is nothing in the record that would authorize us to reach such a conclusion.
Wherefore, the judgment is reversed, with directions to overrule the demurrer to the petition, and for further proceedings not inconsistent with this opinion.