Aldrich v. Bingham

• Decision Date: 20 April 1904
• Citation: 131 F. 363
• Parties: ALDRICH v. BINGHAM.
• Court: U.S. District Court — Western District of New York

131 F. 363

ALDRICH v. BINGHAM.

United States District Court, W.D. New York.

April 20, 1904

Hotchkiss & Bush, for plaintiff.

Daniel V. Murphy, for defendant.

HAZEL District Judge.

This is an action at law, brought by the complainant as receiver of the City National Bank of Buffalo, to enforce the individual liability of a stockholder imposed by section 5151 of the Revised Statutes of the United States (U.S.Comp.St. 1901, p 3465). The case has been heard on the pleadings and a written stipulation of facts. The City Bank of Buffalo was incorporated March 17, 1893, under the laws of the state of New York, and was subsequently, on January 26, 1898 reorganized under the national banking act. On April 15 1893, prior to the reorganization, 27 shares of its stock were issued to the defendant, who thereafter, on September 15, 1896, surrendered the same to the bank, which thereupon at the defendant's request, issued a certificate for 20 shares to the defendant and one for 7 shares to Charlotte May Bingham, an infant daughter of the defendant, under fives years of age. On May 11, 1898, defendant's certificate was again surrendered to the bank, which thereupon, by the defendant's direction, reissued a certificate for 13 shares to the defendant and one for 7 shares to his daughter Helen Bingham, also an infant under the age of 5 years. A dividend was paid to all the stockholders, including the above-mentioned infants, by the bank, on January 2, 1901. Subsequently, on June 29, 1901, the bank, being insolvent, suspended, and passed into the possession of a receiver appointed by the Comptroller of the Currency. An assessment of 50 per cent. of the par value of each share was subsequently ordered, and the receiver made demand upon the defendant to pay his ratable share on the 14 shares of stock previously transferred by him to his infant children. Two questions are submitted for determination: First. Is the defendant liable upon the stock originally assessed to him and subsequently transferred by him to his infant children without fraud or collusion, the bank, through its executive officers, having admittedly had knowledge of the fact that the transferees were infants under the age of five years, and made dividend checks payable to the individual order of the infant stockholders? Second. Assuming the defendant's liability upon the stock so transferred by him, was he relieved from such liability and responsibility because the stock was originally issued by a state bank, he not having expressly assented to its reorganization as a national institution?

1. It is a well-established rule of law that a transfer of stock in a corporation must be made to a person or corporation not only legally capable of holding the stock transferred, but also to one who is legally bound to respond when assessments are made upon the stock, and who may lawfully assume the liabilities of the transferror in relation thereto. It need not necessarily have been transferred to a person who is responsible in the sense that he will be able to financially meet the liabilities imposed upon a stockholder, but it is essential that he shall be legally liable to assume such obligations, and not be at liberty to repudiate them. Upon this point the cases collated at the end of the opinion in Johnson v. Laflin, Fed.Cas.No. 7,393, which involve the liability of a transferror of stock in a national bank, are instructive. A resume follows:

'An infant cannot become purchaser and transferee of shares so as to relieve transferror of liability as a shareholder (Nickalls v. Merry, L.R. 7 H.L. 530), even although the transfer to the infant be registered (Symons' Case, 5 Ch.App. 298; Weston's Case, Id. 614); but if the infant does not repudiate the transfer on coming of age, he may become liable, though holding as trustee for another (Mitchell's Case, L.R. 9 Eq. 363). The original shareholder remains a shareholder, even in cases where he is entirely innocent of the transaction, and not aware that the shares were being transferred to an infant. Lord Chancellor Hatherley, Weston's Case, 5 Ch.App. 614, 620. But a subsequent registered transfer by an infant to an adult may relieve the original seller. Gooch's Case, 8 Ch.App. 266. A director who took stock in the name of his infant children held liable as a contributory. Ex parte Wilson, Id. 45.'

The principle of law announced in Johnson v. Laflin to the effect that an infant cannot become purchaser and transferee of shares so as to relieve the transferror of liability as a shareholder has been many times approved, and is applicable to this case. Cook on Stock & Stockholders & Corporation Law Sec. 250. The right of a shareholder in a solvent national bank to make a valid and absolute transfer and sale of his shares to a person capable in law of holding the same, providing the act or sale is free from fraud, is beyond dispute. Cook on Stock & Stockholders & Corporation Law, Sec. 255. The precise point raised in the present case has been adjudicated adverse to the defendant's contention in Foster v. Chase (C.C.) 75 F. 797, and Foster v. Wilson (C.C.) 75 F. 797. The decisions of Judge Wheeler clearly and unmistakably hold that a father buying stock of a national bank in the name of his infant children becomes liable for the assessment because of the incapacity of his children to take the stock and assume consequent...