which it is unnecessary to detail, the bank was charged with such notice as to the diversion of the note by Robinson as prevented the bank from being protected as an innocent third holder for value.

worth, 25 Neb. 246; Eastman v. Shaw, 65, as well as from many other circumstances
N. Y. 522; Arden v. Watkins, 3 East, 317;
Willis v. Freeman, 12 East, 656; Second
Nat. Bank v. Howe, 40 Minn. 390; Spear v.
Myers, 6 Barb. 445; White v. Springfield
Bank, 1 Barb. 225; Stewart v. Small, 2
Barb. 559; Youngs v. Lee, 18 Barb. 187;
Phoenix Ins. Co. v. Church, 81 N. Y. 225, 37
Am. Rep. 494; Atlantic Nat. Bank v. Frank-contemplated by the drawer, the bank was
lin, 55 N. Y. 235.

The question of the bona fides of the bank was for the jury.

Canajoharie Nat. Bank v. Diefendorf, 123 N. Y. 191, 10 L. R. A. 676; Vosburgh v. Diefendorf, 119 N. Y. 357; Kavanagh v. Wilson, 70 N. Y. 177; Joy v. Diefendorf, 130 N. Y. 6; Farmers' & C. Nat. Bank v. Noxon, 45 N. Y. 762.

The note having been obtained through fraud and without consideration, the onus was upon the holder of showing that the bank acquired the same in good faith.

American Exch. Nat. Bank v. New York Belting & Pkg. Co. 148 N. Y. 698; Grant v. Walsh, 145 N. Y. 502; Nickerson v. Ruger, 76 N. Y. 282; Ocean Nat. Bank v. Carll, 55 N. Y. 441; First Nat. Bank v. Green, 43 N. Y. 298.

Whether the notice of fraud to the bank, through its cashier, was actual or constructive, it is equally antagonistic to the claim of good faith.

Angle v. North Western Mut. L. Ins. Co. 92 U. S. 342, 23 L. ed. 560; Witter v. Sowles, 32 Fed. Rep. 762; Loring v. Brodie, 134 Mass. 453; People's Nat. Bank v. Clayton, 66 Vt. 541; Palmer v. Field, 76 Hun, 230; Garfield Nat. Bank v. Colwell, 57 Hun, 169; Produce Bank v. Bache, 30 Hun, 351; Re Carew, 31 Beav. 39.

The bank is chargeable with knowledge of its cashier.

First Nat. Bank v. Blake, 60 Fed. Rep. 78; Third Nat. Bank v. Harrison, 10 Fed. Rep. 243; Merchants' Nat. Bank v. Tracy, 77 Hun, 443.

Messrs. Martin Carey and Wilson 8. Bissell for defendant in error.

[391] *Mr. Justice White delivered the opinion of the court:

The receiver of the Elmira National Bank, duly appointed by the Comptroller of the Currency, sued George M. Israel, the plaintiff in error, on a promissory note for $17,000, dated New York, May 14, 1893, due on demand, and drawn by Israel to the order of the Elmira National Bank, and payable at that bank. The defenses to the action were in substance these:

Second. Even if the discount of the note was not a diversion thereof from the purpose

nevertheless subject to the equity arising from the want of consideration between Israel the drawer and Robinson, because, although the note may have been in form discounted by the bank, it had in reality only been taken by the bank for an antecedent debt due it by Robinson. And from this it is asserted that as the bank had not parted, on the faith of the note, with any actual consideration, it was not a holder for value, and was subject to the equitable defenses existing between the original persons.

At the trial the plaintiff offered in evidence the note, the signature and the discount thereof being in effect admitted, and then rested its case. The defendant thereupon offered testimony which it was deemed tended to sustain his defenses. At the close of the testimony the court, over the defendant's exception, instructed a verdict in favor of the plaintiff. On error to the court of appeals this action of the trial court was affirmed.

Both the assignments of error and the argument at bar but reiterate and expand in divers forms the defenses above stated and which it is asserted were supported by evidence competent to go to the jury, if the trial court had not prevented its consideration by the peremptory instruction which it gave.

The bill of exceptions contains the testimony offered at the trial, and the sole question which arises is, Did the court rightly[393] instruct a verdict for the plaintiff? From the evidence it undoubtedly resulted that the note was delivered by the maker to D. C. Robinson, by whom it was discounted at the Elmira National Bank. It also established that Robinson at the time of the discount was a director of the bank, had large and frequent dealings with it, that he bore close business and personal relations with the cashier, and occupied a position of confidence with the other officers and directors of the bank. The occasion for the giving of the note and the circumstances attending the same are thus shown by the testimony of the defendant:

"I reside in Brooklyn. I am forty-two years of age. I am at present engaged in the insurance business. In the months of April and May, 1893, I was employed in the banking house of I. B. Newcomb & Co., in Wall street, New York, as a stenographer and typewriter. I was not then and am not now a man of property. I know D. C. Robinson. At the time I made this note I did not receive any valuable thing or other con

First. That the note had been placed by [892]Israel, the maker, *in the hands of David C. Robinson, without any consideration, for a particular purpose, and that if it had been discounted by Robinson at the Elmira National Bank such action on his part constituted a diversion from the purposes for which the note had been drawn and deliv-sideration for the making of it; I have never ered; that from the form of the note (its being made payable to the bank), from the official connection of Robinson with the bank, he being one of its directors, and his personal relations with the cashier of the bank,

received any consideration for the making of the note. I had a conversation with D. C. Robinson at the time of the making of the note. He stated to me the object or purpose for which he desired the note. He said to

me that he desired some accommodation | we would give him these notes it would[395]
notes, and he wanted us clerks to make them, enable him to accomplish that." This, it is
and stated the amount. He said that the said, tended to show that the agreement on
reason he wanted the accommodation note which the note was given was not that it
was that he had exceeded his line of discount should be discounted at the Elmira National
and could not get any more accommodation; Bank, but that it should be used by Robin-
that he was building a power house up there son for obtaining money to build the power
(in Elmira) and needed some money to ac- house. In other words, the assertion is that
complish that purpose, and that it we would the mere statement, by Robinson, of the
give him these notes it would enable him causes which rendered it necessary for him
to accomplish that. He also added that we to obtain a note to be discounted at the El-
would not be put in any position of paying mira National Bank had the effect of de-
them at any time; that he would take care stroying the very purpose for which the note
of them, and gave us positive assurance on was confessedly given. When the real re-
that point, and naturally, knowing the man, sult of the contention is apprehended its un-
and thinking that he was a millionaire, as soundness is at once demonstrated. Other
he probably was at that time, we had no portions of the record have been referred to,
hesitation about going on the notes." in argument, as tending to show that it could
not have been the intention of the defend-
ant, in giving the note, that Robinson should
discount it, but on examining the matters
thus relied upon we find they have no tend-
ency whatever to contradict or change the
plain result of the transaction as shown by
the defendant's own testimony.

As the discount of the note at the Elmira National Bank was not a diversion, but on the contrary was a mere fulfilment of the avowed object for which the note was asked and to consummate which it was delivered, it becomes irrelevant to consider the various circumstances which it is asserted tended to impute knowledge to the bank of the purpose for which the note was made and delivered. If the agreement authorized the discount of the note, it is impossible to conceive that knowledge of the agreement could have caused the discount to be a diversion, and that the mere knowledge that paper has been drawn for accommodation does not prevent one who has taken it for value from recovering thereon is too elementary to require citation of authority.

There was no testimony tending to refute these statements or in any way calculated to enlarge or to restrict them. [394] *The defense, then, amounts to this: That the form of the paper and Robinson's relation with the bank and its officers were such as to bring home to the bank the knowledge of the transaction from which the note arose, and that such knowledge prevents a recovery because Robinson, taking the transaction to be exactly as testified to by the defendant, was without authority to discount the note. Granting, arguendo, that the testimony tended to show such a condition of fact as to bring home to the bank a knowledge of the transaction, the contention rests upon a fallacy, since it assumes that the note was not given to Robinson to be discounted, and that his so using it amounted to a diversion from the purpose for which it was delivered to him. But this is in plain conflict with the avowed object for which the defendant testified the note was drawn and delivered, since he swore that he furnished the note because he was told by Robinson that he needed accommodation, that his line of discount on his own paper had been exceeded, and that if he could get the paper of the defendant he would overcome this obstacle; in other words, that he would be able successfully to discount the paper of another person when he could not further discount his own. This obvious import of the testimony is fortified, if not conclusively proved, by the form of the note itself, which, instead of being made to the order of Robinson, was to the order of the Elmira National Bank. The premise, then, upon which it is argued that there was proof tending to show that the discount of the note by Robinson at the Elmira National Bank was a diversion, is without foundation in fact. The only matters relied on to sus-out contradiction, that the note had been distain the proposition that there was testimony tending to establish that the note was diverted, because it was discounted at the bank to whose order it was payable, are unwarranted inferences drawn from a portion of the conversation, above quoted, which the defendant states he had with Robinson when the note was drawn and delivered. The part of the conversation thus relied upon is the statement that Robinson said, when the note was given, "that he was building a power house up there (in Elmira) and needed some money to accomplish that purpose, and if

The contention that although it be conceded the note was not diverted by its discount, nevertheless the bank could not recover thereon because it took the note for an antecedent debt, hence without actual consideration, depends, first, upon a proposition of fact, that is, that there was testimony tending to so show, and, second, upon the legal assumption that even if there was such testimony it was adequate as a legal defense. *The latter proposition it is wholly unneces-[396] sary to consider, because the first is unsupported by the record. All the testimony on the subject of the discount of the note was introduced by the defendant in his effort to make out his defense. It was shown, with

counted by Robinson at the bank, and that
the proceeds were placed to his credit in ac-
count. It was also shown that for some
time prior to the day of the discount his
account with the bank, to the credit of which
the proceeds of the discount were placed, was
overdrawn. The exact state of the account
on the day the discount was made was stated
by the cashier and a bookkeeper of the bank,
and was moreover referred to by Robinson.
On the morning of the discount the debit to
the account of Robinson, by way of over-
draft, is fixed by the cashier at $35,400, and

by the bookkeeper at $35,000. Robinson | National Bank, plaintiff, against George G. made the following statement: "The amount Williams and John B. Dodd, stockholders of of other notes wiped out the overdraft and the bank, to recover the amount of certain Imade a balance." The bookkeeper's state- dividends received by them before the apment is as follows: pointment of a receiver. First question answered in the negative.

"There was an overdraft of $35,000 against Mr. Robinson upon the books of the bank on the morning of May the 4th. There were Statement by Mr. Justice Peckham: items coming through the exchanges that This suit was commenced in the circuit amounted to about $73,000, and there was a court of the United States for the southern deposit made of $33,000 to make the over-district of New York. It was brought by draft good. These were to take up the items that came through the exchanges. I think that was the way of it. His account would have been overdrawn that night for about $50,000 if it had not been for the entry on the books of the proceeds of these notes."

No other testimony tending to contradict these statements, made by the defendant's own witnesses, is contained in the record. They manifestly show that, although at the date of the discount there was a debit to the account resulting from an overdraft, nearly the sum of the overdraft was covered by items of credit, irrespective of the note in controversy, and that subsequent to the credit arising from the note more than the entire sum of the discount was paid out for the account of Robinson, to whose credit the proceeds had been placed. With these uncontradicted facts in mind, proved by the testimony offered by the defendant, and with [397]no testimony tending the other way, it is obviously unnecessary to go further and point out the unsoundness of the legal contention relied upon. Affirmed.

the plaintiff, as receiver of the Capital Na-
tional Bank of Lincoln, Nebraska, for the pur-
pose of recovering from the defendants, who
were stockholders in the bank, the amount
of certain dividends received by them before
the appointment of a receiver.
Upon the trial of the case the circuit court
decreed in favor of the plaintiff for the re-
covery of a certain amount. The defendants
appealed from the decree, because it was not
in their favor, and the plaintiff appealed
from it, because the recovery provided for in
the decree was not as much as he claimed to
be entitled to. Upon the argument of the
appeal in the circuit court of appeals cer-
tain questions of law were presented as to
which that court desired the instruction of
this court for their proper decision.

It appears from the statement of facts made
by the court that the bank suspended pay-
ment in January, 1893, in a condition of
hopeless insolvency, the stockholders, includ-
ing the defendants, having been assessed to[398]
the full amount of their respective holdings,
but the money thus obtained, added to the
amount realized from the assets, will not be
sufficient even if all dividends paid during
the bank's existence were repaid to the re-

JOHN W. McDONALD, as Receiver, Appt., ceiver, to pay seventy-five per cent of the


GEORGE G. WILLIAMS and John B. Dodd.

(See S. C. Reporter's ed. 397-408.)

When receiver of national bank cannot recover back from a stockholder a dividend paid him out of the capital-U. 8. Rev. Stat. § 5204.

1. A receiver of a national bank cannot re


claims of the bank's creditors.

This suit was brought to compel the repayment of certain dividends paid by the bank to the defendants on that part of the capital of the bank represented by their stock of the par value of $5,000, on the ground alleged in the bill that each of said dividends was fraudulently declared and paid out of the capital of the bank, and not out of net profits.

A list of the dividends and the amount thereof paid by the bank from January, 1885, to July, 1892, both inclusive, is contained in the statement, and it is added that all dividends, except the last (July 12, 1892), were paid to the defendant Williams, a stockholder to the amount of $5,000, from the organization of the bank. The last dividend was paid to the defendant Dodd, who bought Williams's stock, and had the same transferred to his own name De§cember 16, 1891.

cover back from a stockholder a dividend paid
him, not out of the profits, but entirely out of
the capital, prior to the appointment of the
receiver, when such stockholder receiving such
dividends acted in good faith, believing the
same to be paid out of the profits made by
the bank, and when the bank, at the time such
dividend was declared and paid, was solvent.
The stockholder by the mere reception of
his proportionate part of such dividend, does
nct withdraw any of the capital of the bank
within the meaning of U. S. Rev. Stat.


[No. 257.]

When the dividend of January 6, 1889, was declared and paid, and when each subsequent dividend, down to and including July,

Argued April 21, 1899. Decided May 15, 1891, was declared and paid, there were no

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The defendants, neither of whom was an | is based upon the facts that the bank, at officer or director, were ignorant of the finan- the time the dividends were declared and cial condition of the bank, and received the paid, was solvent, and that the stockholders dividends in good faith, relying on the offi- receiving the dividends acted in good faith cers of the bank, and believing the dividends and believed that the same were paid out of were coming out of the profits. the profits made by the bank.

Upon these facts the court desired the instruction of this court for the proper decision of the following questions:

First question. Can the receiver of a national bank recover a dividend paid not at all out of profits, but entirely out of the capital, when the stockholder receiving such dividend acted in good faith, believing the same to be paid out of profits, and when the bank, at the time such dividend was declared and paid, was not insolvent?

Second question. Has a United States circuit court jurisdiction to entertain a bill in equity, brought by a receiver of a national bank against stockholders to recover dividends which, as claimed, were improperly paid when such suit is brought against two or more stockholders and embraces two or more dividends, and when the objection that there is an adequate remedy at law is raised by the answer?

Mr. Edward Winslow Paige, for appellant:

The capital of a national bank is a trust fund for the security of the creditors, and can be followed into the hands of any volunteer.

Story, Eq. Jur. § 1252; Mumma v. Potomac Co. 8 Pet. 286 (8: 947); Wood v. Dummer, 3 Mason, 308; Vose v. Grant, 15 Mass. 522; Spear v. Grant, 16 Mass. 14; Curran v. Arkansas, 15 How. 307 (14: 707); Scammon v. Kimball, 92 U. S. 362 (23: 483); Sawyer v. Hoag, 17 Wall. 610 (21: 731); Barings v. Dabney, 19 Wall.1 (22: 90) Finn v. Brown, 142 U. S. 56 (35: 936); Bartlett v. Drew, 57 N. Y. 587; Tinkham v. Borst, 31 Barb. 407; 2 Kent, Com. 307; Hollins v. Brierfield Coal and Iron Co. 150 U. S. 371 (37: 1113); Wabash, St. L. & P. R. Co. v. Ham, 114 U. S. 587 (29: 235); Fogg v. Blair, 133 U. S. 534 (33: 721); Hawkins v. Glenn, 131 U. S. 319 (33: 184).

The statutes of the United States make the payment of a dividend out of the capital of a national bank illegal and ultra


U. S. Rev. Stat. § 5204; California Bank v. Kennedy, 167 U. S. 362 (42: 198); Trevor v. Whitworth, L. R. 12 App. Cas. 409; Stringer's Case, L. R. 4 Ch. 475; Holmes v. Newcastle-upon-Tyne Freehold Abattoir Co. L. R. 1 Ch. Div. 682; Guinness v. Land Corp. of Ireland, L. R. 22 Ch. Div. 349; Macdougall v. Jersey Imperial Hotel Co. 2 Hem. & M. 528; Re Alexandra Palace Co. L. R. 21 Ch. Div. 149; Gooch v. London Bkg. Asso. L. R. 32 Ch. Div. 41; Ooregum Gold Min. Co. v. Roper [1892] A. C. 125; Trevor v. Whitworth, 12 App. Cas. 409.

Messrs. Theodore De Witt and George G. De Witt for appellees.

99] Mr. Justice Peckham, after stating the facts, delivered the opinion of the court:

It will be noticed that the first question

The sections of the Revised Statutes which are applicable to the questions involved herein are set forth in the margin.t

*The complainant bases his right to recover[400] in this suit upon the theory that the capital of the corporation was a trust fund for the payment of creditors entitled to a portion thereof, and having been paid in the way[401] of dividends to the shareholders that portion can be recovered back in an action of this kind for the purpose of paying the debts of the corporation. He also bases his rights to recover upon the terms of section 5204 of the Revised Statutes.


We think the theory of a trust fund has no application to a case of this kind. a corporation is solvent, the theory that its capital is a trust fund upon which there is any lien for the payment of its debts has in fact very little foundation. No general creditor has any lien upon the fund under such circumstances, and the right of the corporation to deal with its property is absolute so long as it does not violate its charter or the law applicable to such corporation.

In Graham v. La Crosse & M. Railroad Company, 102 U. S. 148, 161 [26: 106, 111],

Sec. 5199. The directors of any association may, semiannually, declare a dividend of so much of the net profits of the association as they shall judge expedient; but each association shall, before the declaration of a dividend, carry one-tenth part of its net profits of the preceding half year to its surplus fund until the same shall amount to twenty per centum of its capi

tal stock.


thereof, shall, during the time it shall continue Sec. 5204. No association, or any member its banking operations, withdraw, or permit to be withdrawn, either in the form of dividends or otherwise, any portion of its capital. If losses have at any time been sustained by any such association, equal to or exceeding its undivided profits then on hand, no dividend shall be made; and no dividend shall ever be made by any association, while it congreater than its net profits then on hand, detinues its banking operations, to an amount ducting therefrom its losses and bad debts. debts due to any associations, on which interest is past due and unpaid for a period of six months, unless the same are well secured, and in process of collection, shall be considered bad debts within the meaning of this section. nothing in this section shall prevent the reduction of the capital stock of the association under section fifty-one hundred and forty-three. Sec. 5205. (As amended by section 4 of the act approved June 30, 1876, 19 Stat. at L. 63 [chap. 156]). 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 months


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; and the Treasurer of the

United States shall withhold the interest upon all bonds held by him in trust for any such as

It was said by Mr. Justice Bradley, in the course of his opinion, that "when a corporation becomes insolvent it is so far civilly dead that its property may be administered as a trust fund for the benefit of its stockholders and creditors. And a court of equity, at the instance of the proper parties, will [402]*then make those funds trust funds, which, in other circumstances, are as much the absolute property of the corporation as any man's property is his."

And in Hollins v. Brierfield Coal & Iron Company, 150 U. S. 371, 383 [37: 1113, 1116], it was stated by Mr. Justice Brewer, in delivering the opinion of the court, and speaking of the theory of the capital of a corporation being a trust fund, as follows:

"In other words, and that is the idea which underlies all these expressions in reference to 'trust' in connection with the property of a corporation, the corporation is an entity, distinct from its stockholders as from its creditors. Solvent, it holds its property as any individual holds his, free from the touch of a creditor who has acquired no lien; free also from the touch of a stockholder who, though equitably interested in, has no legal right to, the property. Becoming insolvent, the equitable interest of the stockholders in the property, together with their conditional liability to the creditors, places the property in a condition of a trust, first for the creditors and then for the stockholders. Whatever of trust there is arises from the peculiar and diverse equitable rights of the stockholders as sociation, upon notification from the Comptroller of the Currency, until otherwise notified by him. 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 fifty-two hundred and thirty-four: And provided, That if any share holder or shareholders of such bank shall neglect or refuse, after three months' notice, to pay the assessment, as provided in this section, it shall be the duty of the board of directors to cause a sufficient amount of the capital stock of such shareholder or shareholders to be sold at public auction (after thirty days' notice shall be given by posting such notice of sale in the office of the bank, and by publishing such notice in a newspaper of the city or town in which the bank is located, or in a newspaper published nearest thereto), to make good the deficiency, and the balance, if any, shall be returned to such delinquent shareholder or shareholders.

Sec. 5140. At least fifty per centum of the capital stock of every association shall be paid In before it shall be authorized to commence business; and the remainder of the capital stock of such association shall be paid in instalments of at least ten per centum each, on the whole amount of the capital, as frequently as one instalment at the end of each succeeding month from the time it shall be authorized by the Comptroller of the Currency to commence business; and the payment of each instalment shall be certified to the Comptroller, under oath, by the president or cashier of the association.

Sec. 5141. Whenever any shareholder, or his assignee. fails to pay any instalment on the stock when the same is required by the preced

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"The officers of a corporation act in a fiduciary capacity in respect to its property in their hands, and may be called to an account for fraud, or, sometimes, even mere mismanagement in respect thereto; but, as between itself and its creditors, the corporation is simply a debtor, and does not hold its property in trust, or subject to a lien in their favor, in any other sense than does an individual debtor. That is certainly the general rule, and if there be any exceptions thereto they are not presented by any of the facts in this case. Neither the insolvency of the corporation, nor the execution of an illegal trust deed, nor the failure to collect in full all stock subscriptions, nor all[403] together, gave to these simple contract creditors any lien upon the property of the corporation, nor charged any direct trust there


Other cases are cited in the opinion as holding the same doctrine.

In Wabash, St. L. & P. Railway Company v. Ham, 114 U. S. 587, 594 [29: 235, 238], Mr. Justice Gray, in delivering the opinion of the court, said:

"The property of a corporation is doubting section to be paid, the directors of such association may sell the stock of such delinquent shareholder at public auction, having given three weeks' previous notice thereof in a newspaper published and of general circulation in the city or county where the association is located, or if no newspaper is published in said city or county, then in a newspaper published nearest thereto, to any person who will pay the highest price therefor, to be not less than the amount due thereon, with the expenses of advertisement and sale; and the excess. if any, shall be paid to the delinquent shareholder. If no bidder can be found who will pay for such stock the amount due thereon to the association, and the cost of advertisement and sale, the amount previously paid shall be forfeited to the association, and such stock shall be sold as the directors may order, within six months from the time of such forfeiture, and if not sold it shall be canceled and deducted from the capital stock of the association. If any such cancelation and reduction shall reduce the capital of the association below the minimum of capital required by law, the capital stock shall, within thirty days from the date of such cancelation, be increased to the required amount; in default of which a receiver may be appointed, according to the provisions of section fifty-two hundred and thirty-four, to close up the business of the


Sec. 5151. 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 vested in such shares. (The balance of this section is immaterial.)

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