Putnam v. Hutchison

4 Kan. App. 273 | Kan. Ct. App. | 1896

The opinion of the court was delivered by '

Dennison, J. :

To decide intelligently the questions raised in this case it becomes necessary to consider chapter 43 of the Session Laws of 1891, entitled “An act to provide for the organization and regulation of banks, and prescribing penalties for the violations of the provisions of this act.” This act provides for the ' organization and regulation of all banks créated after the taking effect thereof, and for the regulation of all banks which continue to do business for a longer time than six months after the passage and approval of the act. Sections 5 and 6 of said act provide that a bank thereafter created shall have 50 per cent, of its capital stock paid in before it applies to the bank commissioner for a certificate of authority to transact a banking business. It also provides that not less than 10 per cent, of the residue of the capital stock of such bank shall be paid in each' month thereafter. Any individual, firm or corporation which was transacting a banking business at the time of the taking effect of said chapter 43 and which continues so to transact a banking business for a longer time than six months thereafter must transmit to the bank commissioner a verified statement of the resources and liabilities, of such individual, firm, or corporation, in accordance with the form prescribed in section 18 of said chapter 43, and shall also include in said statement the names and residences of the stockholders, the amount of stock subscribed, and the amount paid in by each. The bank commissioner shall thereupon examine into the condition and affairs of such bank, and if such bank has in all respects complied with the provisions of law applicable thereto he shall issue a certificate showing the amount of capital stock paid in, and that the same is authorized to transact a general banking-business as provided by said act. The stockholders of the Bank of Richmond evidently proceeded upon the theory that they were compelled, under the provision of chapter 43.aforesaid, to have at least 50 per cent, of-their capital stock paid in within six months after its passage and to pay at least 10 per cent, of the residue each month thereafter.

We are not called upon in this case to decide the legal effect of the attempted reduction of the capital stock as betweón the different stockholders. We are only to determine its legal effect as between the stockholders and the creditors of the Bank of Richmond. On July 11, 1890, about eight months prior to the taking effect of the banking law of 1891, the Bank of Richmond was incorporated under the laws then in force. The capital stock was fixed at $50,000. This is shown by the charter, by the verified certificate recorded in the office of the register of deeds of Franklin county, Kansas, and by the records and advertisements of the Bank of Richmond. The verified statements of the condition of the bank, required by law to be published, and the certificate of the bank commissioner, each state the amount of capital stock paid in at $10,000. These are notice to a depositor or creditor, either present or prospective, that the Bank of Richmond has of unpaid subscriptions to its capital stock $40,000, which must be paid in upon such calls and terms as the directors may from time to time prescribe. C. E. Putnam subscribed $1,000 of the capital stock of said bank and paid in $200. He therefore owed $800. It will be conceded that this was a trust fund upon which the depositors and creditors of the Bank of Richmond could rely for their protection.

Two questions now present themselves : First, Did the- statute of 1891 require the withdrawal of. this trust fund? Second, Was the proceeding had on or about September 15, 1891, sufficient to reduce the capital stock of tlie bank to $10,000, so as to debar creditors from the right to rely upon the $40,000 unpaid subscriptions? We must answer the first question in the negative. Nothing contained in the banking law of 1891 prohibited a banking corporation then in existence from continuing in business with only 20 per cent, of its capital stock paid in, provided it was solvent and complied with the legal requirements of the bank commissioner. It was not required to have 50 per cent, of its stock paid in before applying for a certificate or to pay at least 10 per cent, of the residue each month thereafter. This was required only of banks organized after the taking effect of said banking law.

We must also answer the second question in the negative. Whatever the effect of the attempted reduction of stock may be as between the stockholders, it cannot be held to release them from the payment of their unpaid subscriptions to the capital stock of the bank, if needed for the payment of the creditors. The bank was chartered with a capital stock of $50,000. This plaintiff in error testifies that the agreement between the stockholders was that the paid-up stock should be only $10,000, but they fixed the amount of the capital stock at $50,000 at the suggestion of Mr. Sowerby, who was afterwards cashier, because he thought it would give the bank a better name. In this he was probably correct. A corporation with $40,000 unpaid subscriptions to the capital 'stock thereof standing as a trust fund for the protection of creditors would undoubtedly have a better name, and more persons would become creditors of it (provided the subscribers were known to be responsible) than one with no unpaid subscriptions. The certificate required by paragraph 1420 of the General Statutes of 1889 to be recorded in the office of the register of deeds states that' the amount of its capital stock is $50,000 and that this plaintiff in error has subscribed $1,000 of it. All the advertisements of the bank and its stationery contained the statement, “ Capital stock, $50,000,” and all of its statements gave $10,000 as the amount of capital stock paid in. This is notice to the public of the responsibility of the Bank of Richmond.

What notice was given to the public as to the change by which the $40,000 trust fund was attempted to be abrogated and the subscribers released from the payment thereof? In what manner was the public notified that the capital stock was reduced to $10,000? No new or amended charter was obtained. No new or amended certificate was recorded in the office of the register of deeds of Franklin county, Kansas. No change was made in the statement of the amount of its capital stock printed upon the stationery used by the bank or in its advertisements. . The only thing done, as shown by the record, was the correspondence, as set but in the findings of fact of the court, between the cashier and the bank commissioner, and the unofficial and unrecorded understanding between the stockholders under which they surrendered their old certificates’ and accepted the new ones, and the subsequent ratification of this change by the stockholders in voting the reduced number of shares of stock, and the directors’ ratification of the sale of the two paid-up shares by this plaintiff in error. None of these acts was sufficient to impart notice to the public.

An incorporated company cannot be permitted to advertise to the public that it has a capital stock, of $50,000, to state in its charter that its capital stock is $50,000, to certiiy under the oath of its officers that its capital stock is $50,000, and record such verified certificate in the office of the register of deeds in the county in which the company does business, to certify in the verified statement of the condition of the bank that only $10,000 of its capital stock is paid in, and then, without changing its advertisement, or its charter, or its verified certificate, be permitted to. say to its creditors : “The $40,000 trust.fund which you supposed we had behind this bank is not here. We have agreed among ourselves that we would relieve each other of this liability by quietly bringing in our stock and changing it for paid-up stock in the amount of 20 per cent, of the original subscription.” This applies to creditors who became so after the attempted reduction as well as to those who were creditors prior thereto, for reasons fully apparent in this opinion.

Counsel for plaintiff in error contends that his client is relieved from his liability to the creditors of the Bank of Richmond by reason of having transferred his stock to Sowerby. If he had legally transferred his original 10 shares of stock this contention would be good. This he did not do. He first attempted to .reduce his original 10 shares with 20 per cent, paid thereon to two shares fully paid up, and then to transfer the two shares. The attempted reduction was void, and the issuance of the two fully-paid-up shares was a nullity as between the stockholders and creditors. Life cannot be given to the two shares by transferring them to another. After the attempted reduction of capital, stock he must answer to the.demands of creditors upon his original 10 shares, and not upon the two fully-paid-up'shares. He cannot relieve himself from his liability to creditors upon the 10 shares by transferring the two shares which are a nullity as to said creditors.

Finding no material error prejudicial to the righ of the plaintiff in error, the judgment of the district court is affirmed.

Cole, J., concurring. Johnson, P. J., not sitting, having been of counsel.