McCann v. First National Bank of Jeffersonville

• Decision Date: 29 November 1887
• Docket Number: 12,998
• Citation: 14 N.E. 251,112 Ind. 354
• Parties: McCann v. The First National Bank of Jeffersonville
• Court: Indiana Supreme Court

14 N.E. 251

112 Ind. 354

McCann v. The First National Bank of Jeffersonville

No. 12,998

Supreme Court of Indiana

November 29, 1887

From the Clark Circuit Court.

Judgment affirmed, with costs.

J. G Howard, J. F. Read, M. Z. Stannard and A. Dowling, for appellant.

J. K Marsh and Brown, Humphrey & Davis, for appellee.

Mitchell C. J. Howk, J.

OPINION

Mitchell, C. J.

The First National Bank of Jeffersonville was organized some time prior to the 17th day of August, 1876, in pursuance of the act of Congress which provides for the organization, and prescribes rules for the regulation and government, of national banking associations. The bank had, at the date mentioned, a paid up capital of $ 300,000, of which Michael V. McCann owned seventy-seven shares of one hundred dollars each.

Owing to the fact that there were among its assets about $ 71,000 of bills and notes of the Ohio Falls Car and Locomotive Company, on which the interest had remained past due and unpaid for more than six months, and which were not well secured, and in process of collection, the capital of the bank had become impaired, and the comptroller of the currency had given notice, and was about to assess the stock to the amount of $ 75,000 in order to make good the deficiency, according to the requirements of U.S. Rev. Stat., section 5205. The stockholders thereupon, on due consideration, resolved to avail themselves of the privilege conferred by U.S. Rev. Stat., sections 5143 and 5204, in pursuance of which, by the required vote, they reduced the capital stock of the bank from $ 300,000 to $ 225,000. There being at that time little or no prospect that the bills and notes of the car and locomotive company would ever become collectible, they were presumably carried to the account of suspended or "bad debts," and were not thereafter included in the reports made to the comptroller as assets of the bank, although they were retained in its custody.

Some time in the year 1882 the bank realized about $ 75,000 from certain collaterals which had been pledged as security for the bills and notes hereinabove mentioned. This sum was carried into the account and treated as assets of the bank.

McCann, after having, with the other stockholders of the bank, surrendered an amount of his stock proportioned to the reduction made in 1876, commenced suit in May, 1885, for the purpose of compelling the bank to distribute to him a share of the $ 75,000 realized as above, proportioned to the amount of stock surrendered.

The question is, whether, upon the facts stated, the bank can be compelled, at the suit of a shareholder, to distribute the money realized from the collection of the suspended bills and notes.

An examination of the act of Congress makes it clear that a national banking association may, within limits, reduce its capital stock. This is provided for in express terms by section 5143, which enacts generally that shareholders owning two-thirds of the stock may reduce the capital stock of the bank to any amount not less than the minimum required by the act, nor than the amount required for the outstanding circulation of the bank, upon the approval of the comptroller. Section 5204, after providing that "No association, or any member thereof, shall, during the time it shall continue its banking operations, withdraw, or permit to be withdrawn, either in the form of dividends or otherwise, any portion of its capital," and after prohibiting the making of dividends, in case losses have been sustained which exceed the undivided net profits then on hand, deducting from such profits its losses and bad debts, as bad debts are therein defined, concludes as follows: "But nothing in this section shall prevent the reduction of the capital stock of the association under section 5143."

Section 5205 makes provision for enforcing payment of the capital stock, in case the capital has not been paid in, and also provides for assessments upon the shareholders to make good any deficiency, in case the capital stock becomes impaired by losses or otherwise, and makes provision for forcing the association into liquidation in the event of failure to pay in the capital stock, or in case the shareholders neglect or refuse to pay up assessments which have been made in order to make good deficiencies which may have resulted from losses or otherwise.

It becomes apparent, upon looking into the act of Congress under which national banking associations are organized, and which regulates the conduct of their business, that shareholders owning the requisite amount of stock in such an association may reduce the amount of the capital, voluntarily, for the purpose, as it were, of producing a surplus for withdrawal and distribution, or they may be constrained to a reduction of the capital, rather than submit to assessments upon their stock so as to make good deficiencies occasioned by losses or otherwise. The intent and purpose of the act plainly is, that in no contingency shall the amount of the capital stock exceed its actual value, taking into account the live assets and condition of the bank. In other words, the amount of the capital must be "in line" with its value, and this uniformity may be secured either by a reduction of the amount to any point not below the minimum required, or by assessing the stock, in case of loss or impairment, so as to make the actual value correspond uniformly with the amount of the capital stock.

The case under consideration proceeds upon the theory that the stockholders became the owners of the bills and notes the suspension of which occasioned the reduction of the capital because they surrendered an amount of their stock sufficient to restore the equilibrium, so to speak, between the amount and value of the capital of the bank. It is assumed that if the shareholders had reduced their capital without constraint, for the purpose merely of withdrawing the excess of capital above the amount to which it was reduced, the excess would necessarily have been distributable among the shareholders. It is from this...