Section 5205, Rev.Stat., is intended to, and does, confer upon a
national banking association the privilege of declining to make the
assessment to make good a deficiency in the capital after notice by
the Comptroller of the Currency so to do, and to elect instead to
wind up the bank under § 5220. The shareholders, and not the
directors, have the right to decide which course shall be pursued,
and an assessment made upon the shares by the directors without
action by stockholders is void.
These actions were brought in the Circuit Court of the State of
Oregon for Multnomah County upon separate demands to recover the
value of stock severally held by Weinhard and Williams in the
Commercial National Bank of Portland, Oregon, Williams owning sixty
shares of the par value of $6,000 and Weinhard one hundred shares
of the par value of $10,000. By stipulation, the cases were heard
together in the circuit court; a jury being waived and a trial had
to the court. The cases were considered together as one appeal in
the Supreme Court of Oregon, which affirmed the judgment of the
lower court, 41 Ore. 359, assessing the value of the stock and
giving
Page 192 U. S. 244
judgment in favor of the plaintiffs, now defendants in error.
The same facts and questions are involved in the cases, and they
will be considered together. The one question arises from a motion
on the part of the bank for nonsuit on the ground that the
plaintiffs below had introduced no testimony as a part of the case
in chief tending to show the value of the stock for which a
recovery was sought. As appears in the record, much testimony was
taken, and the Oregon Supreme Court regarding the stock as of some
value; at least, it was held that, if there was any error in
overruling the motion for nonsuit, it was cured by the subsequent
action in submitting testimony as to the value of the stock. In any
event, this feature of the case does not present a federal
question, and upon writ of error from the judgment of a state
court, we are to consider in the first instance only the federal
questions involved. If those were correctly decided. the judgment
must be affirmed.
Murdock v.
Memphis, 20 Wall. 590. The plaintiffs below
recovered judgment for the value of the stock upon the theory that
there had been a conversion thereof because the board of directors
and the stockholders directed the assessment resulting in the sale
of the stock of the plaintiffs below in satisfaction thereof.
The Commercial National Bank of Portland was duly organized
under the National Banking Act, and carried on business in the City
of Portland, Oregon. It appeared that the capital of the bank had
become impaired, and thereupon such proceedings were had that, on
December 5, 1896, the Comptroller issued the following notice to
the bank:
"Treasury Department"
"Office of Comptroller of the Currency"
"Washington, D.C., Dec. 5, 1896"
"Whereas it appears to the satisfaction of the Comptroller of
the Currency that the capital stock of the Commercial National
Bank, Portland, Oregon, has become impaired to an extent which
makes necessary an assessment of two hundred
Page 192 U. S. 245
and fifty thousand dollars ($250,000) upon the shareholders of
said association to make good such deficiency,"
"Now therefore notice is hereby given to said association, under
the provisions of section 5205 of the Revised Statutes of the
United States, to pay the said deficiency in its capital stock by
assessment upon its shareholders,
pro rata, for the amount
of the capital stock held by each, and 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 will 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 hereunto 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 5th day of December, A.D. 1896."
"James H. Eckels"
"
Comptroller of the Currency"
"To the Commercial National Bank, Portland, Oregon."
After receipt of this notice, upon December 12, 1896, the board
of directors passed this resolution:
"
Resolved, That in accordance with the notice served
upon this association by the Comptroller of the Currency, under
date of December 5, 1896, and received by this bank on the 11th day
of December, 1896, an assessment is hereby levied upon the
shareholders of this bank of 50 percent or $50 per share, payable
at this bank on or before March 11, 1897."
"
And resolved, That the cashier of this bank be, and he
hereby is, authorized and instructed to serve upon each shareholder
of the bank a legal notice of the above assessment by sending such
notice to each shareholder's address by registered mail."
Upon December 17, 1896, notice of this assessment was served
upon each of the stockholders of the bank. The defendants in error
having failed to pay this assessment, on
Page 192 U. S. 246
March 18, 1897, the board of directors passed a resolution
directing the sale of the delinquent's stock to be made at public
auction on May 5, 1897. In pursuance of this order, and on the day
named, the stock was sold for the amount of the assessment. The
federal question is whether the board of directors, in thus
assessing and selling the stock of the defendants in error,
exceeded their powers under the National Banking Act, it being
claimed that a valid assessment could only be made by the action of
the stockholders, and that the sale by the directors upon this
assessment was unlawful, and amounted to a conversion of the
stock.
MR. JUSTICE DAY delivered the opinion of the Court.
This case requires the construction of section 5205 of the
Revised Statutes of the United States as amended. 3 Comp.Stat.
3495. The section is as follows:
"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 association, 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
Page 192 U. S. 247
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
shareholder of 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."
The assessment in this case was made by the board of directors
without any action of the stockholders of the association, and, the
defendants in error having failed to pay the same upon notice,
their stock was sold as directed in the statute. It is claimed that
an assessment by the directors without action of the stockholders
was without authority of law, and amounted to a conversion of the
stock. This view was sustained in the Supreme Court of Oregon. The
assessment ordered by the Comptroller was for the purpose of
restoring the capital of the bank, and thus enabling it to continue
its business. Ample power is conferred upon the Comptroller for
this purpose. His action is in aid of other sections of the law
preventing a withdrawal of the capital, or the making of dividends
when losses have been sustained equal to the undivided profits.
Sections 5202-5204, Rev.Stat. When the notice is received from the
Comptroller by the bank under section 5205, the association has no
authority to review or gainsay the necessity thereof. That question
is concluded by the action of the Comptroller. The money to be
raised for the continuance of the business may or may not be used
in the liquidation of debts. The assessment is entirely different
from that provided
Page 192 U. S. 248
for in section 5151, calling upon the individual responsibility
of shareholders for the payment of debts. Under the last-named
section, the stockholder is required to pay such assessments as may
be made, to meet the outstanding obligations of the bank, within
the limit of an amount equal to the par value of the stock in
addition to the amount invested therein. He has no election of
payment, but is required to meet this liability, created by law for
the benefit of creditors. Under section 5205, the amount paid is
subject to the control of the board of directors in the continued
operations of the bank. If the stockholders are to have a voice in
making or declining to make the assessment, they may well hesitate
to entrust more capital to the control of a board under whose
management it has already been impaired. Certain powers are
conferred by law upon the directors.
Section 5136 provides that the association shall have power
--
"
Sixth. To prescribe by its board of directors bylaws,
not inconsistent with law, regulating the manner in which its stock
shall be transferred, its directors elected or appointed, its
officers appointed, its property transferred, its general business
conducted, and the privileges granted to it by law exercised and
enjoyed."
"Seventh. To exercise, by its board of directors or duly
authorized officers or agents, subject to law, all such incidental
powers as shall be necessary to carry on the business of banking;
by discounting and negotiating promissory notes, drafts, bills of
exchange, and other evidences of debt; by receiving deposits; by
buying and selling exchange, coin, and bullion; by loaning money on
personal security, and by obtaining, issuing, and circulating notes
according to the provisions of this title."
And again, by section 5145, it is declared that the "affairs" of
the corporation "shall be managed by not less than five
directors."
Thus, the directors are given authority to transact the usual
and ordinary business of national banks. Obviously the
Page 192 U. S. 249
power conferred may be exercised in all usual transactions
through the executive officers of the bank, without consultation
with the stockholders. In the present case, the question to be
dealt with is vital to the continuance of the life of the
association, as only by complying with the requirement of the
Comptroller in assessing a sum sufficient to make up the impaired
capital of the bank can its business be continued. The
shareholders, by their contracts of subscription, have agreed to
pay in the amount of capital stock subscribed, and to discharge the
additional liability imposed by the statute. They have not
contracted to meet assessments at the will of the directors to
perpetuate the business of a possibly losing concern. It would be
going far beyond the usual powers conferred upon directors to
permit them to thus control the corporation. Corporate powers
conferred upon a board of directors usually refer to the ordinary
business transactions of the corporation.
Railway
Company v. Allerton, 18 Wall. 233. The assessment
is required by the Comptroller, not by the directors. The
association is to receive notice thereof, and action must be taken
by the association to meet the requirements of the Comptroller
under the statute. It is provided that if the association fail to
pay up its capital stock and 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 5234.
This important provision is entitled to much weight in determining
the proper construction of the statute. The assessment may be
avoided, and the amount required is not payable, if the association
decides to go into liquidation. Provision for voluntary liquidation
is made in section 5220 wherein authority is given to liquidate
upon a vote of shareholders owning two-thirds of the stock. Such
liquidation does not prevent the assessment of stockholders under
section 5151 for the benefit of creditors, and the enforcement of
the liability of the shareholders in an action by a receiver or
directly by the creditors. Comp.Stat.
Page 192 U. S. 250
sec. 5234; sec. 2, Act of June 30, 1876, as amended, 3
Comp.Stat. 3509. The section referred to, 5234. directs the
appointment of a receiver to take possession of the books, records,
and assets of the association, to collect the debts and claims
belonging to it, and, among other things, if necessary, to pay the
debts of the association, to enforce the individual liability of
the shareholders.
We are of opinion that section 5205 is intended to and does
confer upon the association the privilege of declining to make the
assessment to make good the deficiency to the capital, and to elect
instead to wind up the business of the bank under section 5220,
which provides for voluntary liquidation by a vote of two thirds of
the shareholders. The question is who shall exercise this privilege
and determine the future of the association -- is it the directors
or the shareholders who have this right of decision? The origin and
continuation of the association would seem to be matters in which
the owners, and not the managers, of the bank are primarily
interested. If these are privileges of the shareholders, and only
exercisable by them, this case presents a total lack of the
exertion of the power by those upon whom it is legally conferred,
as no action of the shareholders was had in the present case in
making the assessment. Action upon the Comptroller's order involves
extraordinary action of the association, and determines its future
operations or liquidation, and is not found within the powers
conferred upon the directors for the management of the business of
the bank. If this were not so, then the decision of a question of
such vital importance is left to the directors, who may or may not
be large holders of stock. As it is a matter foreign to the powers
of such boards, and not conferred by statute or required for the
transaction of the business of the bank, we think it was intended
to be vested in the shareholders. Whether a given power is to be
exercised by the directors or the shareholders depends upon its
nature and the terms of the Enabling Act. In certain instances, the
law specifically requires the action of the association to be taken
by its
Page 192 U. S. 251
incorporators or shareholders. Sections 5133, 5134, 5136, 5143,
Rev.Stat. These sections regulate matters not pertaining to the
ordinary business of the bank entrusted to the directors. They deal
with the exercise of those powers which concern the organization of
the corporation, the amount of its capital stock, and kindred
matters.
In section 5205, the requirement of the Comptroller is that the
association make the assessment. It is the "association" which is
required to pay up the stock or go into liquidation. The payment of
the assessments must come from the shareholders, and we are of the
opinion that the statute contemplates action upon the alternatives
presented in the statute by the association composed of its
shareholders. It is true, as suggested by the learned counsel for
the plaintiff in error, that it requires a two-thirds vote of the
stockholders to put the bank into liquidation under section 5220;
but if the assessment is not carried, and the shareholders have not
a two-thirds vote favoring liquidation, the bank is put in
liquidation, and the shareholders' liability is the statutory one
for the benefit of creditors, and not a venture of more capital in
the enterprise, with a possible stockholders' liability upon the
liquidation of the bank if it shall ultimately fail. Again, if the
determination of this matter is entirely left to the directors,
they may, by declining to make the assessment, force a liquidation
of the bank, although the shareholders -- the real owners of the
property -- be willing to make good the impaired capital, and
continue the business. On the other hand, if the directors may
assess to make good impaired capital, the shareholder must pay the
assessment or submit to the sale of his stock. Such extraordinary
powers are far beyond those required in the management of the
bank's affairs or conferred in the sections of the law defining
those conferred upon the directors. In
Delano v. Butler,
118 U. S. 634,
118 U. S. 653,
while the question was not directly involved, in speaking of
assessments under the act, Mr. Justice Matthews, delivering the
opinion of the Court, said:
Page 192 U. S. 252
"The assessment imposed upon the stockholders by their own vote,
for the purpose of restoring their lost capital, as a consideration
for the privilege of continuing business, and to avoid liquidation
under § 5205 of the Revised Statutes, is not the assessment
contemplated by § 5151, by which the shareholders of every
national banking association may be compelled to discharge their
individual responsibility for the contracts, debts, and engagements
of the association. The assessment as made under § 5205 is
voluntary, made by the stockholders themselves, paid into the
general funds of the bank as a further investment in the capital
stock, and disposed of by its officers in the ordinary course of
its business. It may or may not be applied by them to the payment
of creditors, and, in the ordinary course of business, certainly
would not be applied, as in cases of liquidation, to the payment of
creditors ratably; whereas, under § 5151, the individual
liability does not arise, except in case of liquidation, and for
the purpose of winding up the affairs of the bank. The assessment
under that section is made by authority of the Comptroller of the
Currency, is not voluntary, and can be applied only to the
satisfaction of the creditors equally and ratably."
We concur in this reasoning. The assessment under section 5205
provides for a sum to continue the operations of the bank, and, if
unpaid, subjects the stock of the shareholders to sale to make good
the deficiency in its collection. Shareholders are given the right
to go into liquidation, subjecting themselves, it is true, to the
liability of the assessment for the benefit of creditors under
section 5151 to an amount equal to the par value of their stock, if
needed to make good the indebtedness of the bank, but risking no
further investment of new capital in the continued business of the
bank. The choice of methods is with the shareholders, and to them
is addressed the decision of the question and the making of the
assessment if that course is determined upon.
Hulitt v.
Bell, 85 F. 98. In the present case, the assessment was made
by the directors without action by the shareholders, and, not
being
Page 192 U. S. 253
within the statute, was void. It follows that the Supreme Court
of Oregon properly affirmed the judgment of the lower court in
which the value of the stock sold was recovered.
Judgment affirmed.
