U.S. Supreme Court
California Bank v. Kennedy, 167 U.S. 362 (1897)
California Bank v. Kennedy
Argued and submitted March 10, 1897
Decided May 24, 1897
167 U.S. 362
This Court has jurisdiction to review a judgment of the highest court of a state holding a national bank liable, under a statute of the state, as a shareholder in a state savings bank when the answer sets up that the stock of the savings bank was issued to it without authority of law and the. motion for a new trial and the specifications of error which were the basis of appeal from the trial court to the supreme court of the state assert such want of power under the laws of the United States.
The statutes of the United States relating to the organization and powers of national banks prohibit such banks from purchasing or subscribing to the stock of another corporation, although they may, as incidental chanroblesvirtualawlibrary
to the power to loan money on personal security, accept stock of another corporation as collateral, and thus become subject to liability as other stockholders. The want of such authority may be set up by a bank to defeat an attempt to enforce against it the liability of a stockholder.
This action was commenced in the Superior Court of the County of San Diego, State of California, against the California Savings Bank and other defendants, including the plaintiff in error. In each of five counts of an amended petition, a separate cause of action was stated seeking a judgment against the savings bank for the amount of a particular deposit of money alleged to have been made with it on a specified date, and a recovery was asked against the other defendants upon the ground that they were stockholders in the savings bank on the dates of the various deposits, and in consequence liable, under the laws of California, to pay the debts of the savings bank in proportion to the amount of stock held and owned by each stockholder. A demurrer to the amended complaint was overruled, and the California National Bank answered, denying that it was ever the owner of any stock in the savings bank and alleging that if any such stock was ever issued to it, it was issued without due authority from the bank in its corporate capacity and without authority of law. The answer also averred that the bank never acquired "in the usual course of business, or now has, as owner, any stock with the said defendant the California Savings Bank."
No issue was taken upon the truth of the averments in the amended complaint as to the amount and date of the respective deposits which plaintiff alleged he had made in the savings bank.
From the evidence, it appeared that the savings bank began business in January, 1890. Its stock consisted of 2,500 shares, and was originally distributed in five certificates, each for 500 shares, one certificate being made in the name of each of the following persons: J. W. Collins, S. G. Havermale, D. D. Dare, William Collier, and H. F. Norcross. Norcross had no official connection with the national bank, chanroblesvirtualawlibrary
but Collier, Dare, and Collins were, respectively, President, vice-President, and cashier of the national bank, and were also, with Havermale, directors of the bank during the period when the alleged transfers of stock were made to the bank.
The certificates in the names of Collier and Norcross were never delivered, and, when subsequently cancelled, contained no endorsement. In the stead of those certificates, however, on September 10, 1890, three certificates, aggregating 990 shares, were issued in the name of J. W. Collins, cashier, and two certificates, each for five shares, were issued to Collier and Norcross, respectively. On January 2, 1891, the three certificates for 990 shares in the name of Collins, cashier, were surrendered, and a single certificate for that number of shares was issued in the name of the California National Bank.
In December, 1890, and January, 1891, five percent dividends were declared and paid on the stock of the savings bank. The amount of each dividend received by the California National Bank was $750. No direct evidence was introduced accounting for these payments having been made on the basis of an ownership of 1,500 shares, when the bank was sought to be held liable for, and appeared to be the holder of, but 990 shares, put in its name as above stated. Both the savings bank and the national bank became insolvent, the former suspending November 12, 1891, while the receiver of the national bank qualified December 29, 1891.
The cause was tried by the court without a jury, and by findings of fact and conclusions of law rested thereon, the court sustained the averments of the complaint, adjudged the national bank to be the holder of 990 shares of the stock of the savings bank, and responsible to the creditors of the savings bank in that proportion. Judgment was entered against the savings bank for $47,497.75, and against the national bank for $18,507.52, a payment to the savings bank, however, to be a satisfaction of the judgment against the national bank. Both at the hearing, by objection to the introduction in evidence of the certificate of stock, and in a statement filed with the motion for a new trial, the point was made that the issue chanroblesvirtualawlibrary
of the stock to the bank was void because not shown to have been acquired pursuant to authority of its board of directors, and because the stock was not taken in the ordinary course of the business of the bank as security for the payment of a debt or otherwise. In addition, by the first, second, and third specifications of errors of law occurring at the trial, it was specially stated that error had been committed in admitting the certificate in evidence and holding the national bank liable -- substantially the same language being employed in each specification -- because the national bank, a corporation under the banking laws of the United States, could "not in law become a stockholder or incorporator in any other corporation." The motion for a new trial was overruled and an appeal was taken to the supreme court of the state, by which court the judgment was affirmed. 101 Cal. 495. A writ of error was allowed, and the cause has been brought here for review.