U.S. Supreme Court
Delano v. Butler, 118 U.S. 634 (1886)
Delano v. Butler
Argued October 12-13, 1886
Decided November 1, 1886
118 U.S. 634
In September, 1881, A held thirty shares of stock in a national bank whose capital was $500,000, with a right to increase it to $1,000,000. In that month, the directors voted to increase the capital to $1,000,000, the persons then holding stock to have the right to take new stock at par in equal chanroblesvirtualawlibrary
amounts to that then held by them. A then subscribed for thirty additional shares, paid for it three days later, and subsequently took out a certificate of stock for it. The amount of increased capital subscribed and paid for was $401,300, instead of $500,000, but A had no knowledge of this deficiency until after the payment of said subscription, and of the assessment hereinafter referred to. On the 18th November, 1881, the bank became insolvent, and an examiner was placed in charge of it by the Comptroller of the Currency. In December, 1881, the directors cancelled the increase of stock above said sum of $461,300, and requested the Comptroller to issue a certificate for the increase as so reduced, which he did. No vote of the stockholders was taken either on the increase or decrease. The Comptroller then, under § 5205 Rev.Stat., called upon the bank for an assessment of 100 percent on the holders of stock, to pay the deficiency in the capital stock. In January, 1882, the annual meeting of the stockholders was held at which it was voted to levy the assessment so called for, whereupon the Comptroller permitted the directors to resume control of the bank. A, being notified of this assessment, paid the amount assessed upon his sixty shares, upon being assured by one of the directors of the bank that there would be no other assessment. On the twentieth day of the following May, the bank ceased to do business, and the directors thereupon voted to go into liquidation. The Comptroller then appointed a receiver of the bank. In November, 1882, the Comptroller, under Rev.Stat. § 5151, made an assessment on the shareholders of 100 percent of the stock held by them respectively, A declining to pay, the receiver brought an action at law against him to recover that amount on the sixty shares standing in his name. A thereupon filed a bill in equity to restrain the prosecution of the action.
(1) That the increase of the capital stock of the company to $961,300 was valid.
(2) That this increase was binding on A to the extent to which he paid for and received certificates of increased stock.
(3) That the payments made in January, 1882, could not be applied, either at law or in equity, to the discharge of the assessments made by the Comptroller in the final liquidation of the bank.
(4) That the payment was not made by A under a mistake against which equity can relieve him.
The following is the case, as stated by the court.
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 Rev.Stat. chanroblesvirtualawlibrary
§ 5151, upon an assessment of 100 percent of the par value of sixty 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 million dollars, 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, Sept. 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 percent 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 chanroblesvirtualawlibrary
$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 cancelled 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:
"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 capitum 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 capitum 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 § 5205 of the Revised Statutes of the United States, to pay the deficiency in its capital stock by an assessment of one hundred (100) percent upon its shareholders pro rata for the amount 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: chanroblesvirtualawlibrary
"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 percent 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 percent 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 percent 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 Rev.Stat. § 5234, 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 thirty 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 thirty 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 thirty 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 thirty 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 chanroblesvirtualawlibrary
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 percent 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 endorsed on the certificates under the dates of payment, being 100 percent on sixty 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 percent 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. chanroblesvirtualawlibrary