John Donald v. Chauncey Dewey No 220 Chauncey Dewey John Donald No 530

• Decision Date: 28 May 1906
• Docket Number: Nos. 220,530,s. 220
• Citation: 202 U.S. 510,26 S.Ct. 731,6 Ann.Cas. 419,50 L.Ed. 1128
• Parties: JOHN W. McDONALD, Receiver, etc., Appt. , v. CHAUNCEY DEWEY et al. , Executors, NO 220. CHAUNCEY DEWEY et al. Executors. Appts. , JOHN W. McDONALD, Receiver, et al. NO 530
• Court: U.S. Supreme Court

202 U.S. 510

26 S.Ct. 731

50 L.Ed. 1128

JOHN W. McDONALD, Receiver, etc., Appt.,

v CHAUNCEY DEWEY et al., Executors, NO 220. CHAUNCEY DEWEY et al. Executors. Appts., JOHN W. McDONALD, Receiver, et al. NO 530.

Nos. 220, 530.

Argued April 11, 12, 1906.

Decided May 28, 1906.

The first of these cases was an appeal from a decree of the circuit court of appeals, rendered in a case wherein John W. McDonald, receiver of the First National Bank of Orleans, Nebraska, was complainant, and Charles P. Dewey and others were defendants, reversing a decree of the circuit court for the northern district of Illinois, and remanding the case to that court with directions to enter a decree against Dewey for his full assessment on twenty-five shares of stock of the First National Bank, and for interest thereon.

The second case is a cross appeal by Chauncey Dewey and his co-executor from the same decree.

Charles P. Dewey having died pending the litigation, the suits were revived in the name of Chauncey Dewey and Charles T. Killen, executors of his will.

The original was a bill in equity to enforce an assessment of $86 a share on 105 shares of stock of the First National Bank of Orleans, Nebraska, which failed on May 20, 1897. These shares, having been originally owned by Charles P. Dewey, were sold by him in December, 1894, and in January, 1895. Eighty shares were duly transferred on the books of the bank within a few weeks after the sale. The remaining twenty-five shares had been previously transferred by Dewey to his agent, Frederick L. Jewett, who was admitted to be irresponsible, and stood on the books of the bank in the name of Jewett when the bank went into the hands of a receiver, on May 20, 1897, although they had been sold by Dewey. The bill alleged that Hedlund, the original receiver (since superseded by McDonald the present receiver), was appointed and took possession on June 5, 1897, a fortnight after the failure of the bank; that on September 14, 1897, the Comptroller levied an assessment of $86 a share upon the capital stock; that on May 8, 1894, Charles P. Dewey was the owner of 105 shares of stock, and was registered as such; that the bank was then, and continuously remained, insolvent; that this insolvency was known to Dewey, who, on that day, May 8, assigned ninety-five of these shares to the defendant Jewett, who was wholly irresponsible; that the transfer was colorable only, and made for the sole purpose of evading Dewey's liability as a stockholder; that Jewett thereafter, at various times, transferred eighty of the ninety-five shares to the several other defendants, and that on January 3, 1895, Dewey transferred his remaining ten shares to Jewett, so that at the time the bank failed said 105 shares were registered on the books of the bank in the names of the several transferees; that the several transfers were made at a time when the bank was insolvent, and known by Dewey to be so, for the purpose of evading his liability for assessments, and to irresponsible persons.

The answer of Dewey contained a general denial of all material allegations, and set up that the transfers were outright and for the par value of the stock; that he had sold all his stock, and, with the exception of the twenty-five shares, all transfers had been made on the books of the bank prior to its suspension.

The circuit court found that the sales of stock were all made through Jewett, who acted merely as the agent of Dewey and had no interest in the stock, but held it for Dewey in his name; that the bank failed about two years and five months after the sale by Dewey; that the bank was insolvent in December, 1894, and January, 1895, at the time Dewey sold the 105 shares, and that Dewey, who was vice president of the bank from 1892 to 1895, knew, or ought to have known, that fact; that three certificates, aggregating twenty-five shares, were not transferred on the books of the bank, and still stood in the name of Jewett when the bank suspended; that the claims of the creditors of the bank, who were such when Dewey sold his stock and remained such at the time of the failure, aggregated $11,839.15, of which, however, only $2,787.97 remained unsatisfied, and that of this the ratable share of Dewey was $585.48, for which sum a decree was rendered.

On appeal by the receiver to the circuit court of appeals the decree of the circuit court was reversed and a new decree directed to be entered for the full amount of the assessment on the twenty-five shares standing in the name of Jewett at the time of the failure; that as to the eighty shares there could be no recovery, although the bank was insolvent at the time of the sale of the stock, and was known to be insolvent, and the transfer was made for the purpose of evading liability; but that there could be no recovery without proof of the additional fact that the several transferees were likewise insolvent; that, as to the twenty-five shares, Dewey remained liable, as he had not surrendered the certificate to the bank or given the officers such data as to enable them to make such transfer on its books. The case was remanded to the circuit court, with directions to render a decree against Dewey for his full assessment on twenty-five shares. From this decree both parties appealed to this court.

Messrs. Frank M. Hall, Roscoe Pound, and E. E. Prussing for the receiver.

[Argument of Counsel from pages 513-516 intentionally omitted] Messrs. William B. McIlvaine, Nathan G. Moore, and John P. Wilson, for Dewey et al.

[Argument of Counsel from pages 516-519 intentionally omitted] Mr. Justice Brown delivered the opinion of the court:

Three sections of the national bank act, which are printed in the margin, are pertinent in connection with the leading questions involved in this case.

Sec. 5139 (U. S. Comp. Stat. 1901, p. 3461). The capital stock of each association shall be divided into shares of one hundred dollars each, and be deemed personal property, and transferable on the books of the association in such manner as may be prescribed in the by-laws or articles of association. Every person becoming a shareholder by such transfer shall, in proportion to his shares, succeed to all the rights and liabilities of the prior holder of such shares; and no change shall be made in the articles of association by which the rights, remedies, or security of the existing creditors of the association shall be impaired.

(The shares of this Nebraska bank were transferable only on the books of the bank, in person or by attorney, on surrender of the certificate that represented the shares proposed to be transferred.)

Sec. 5210 (U. S. Comp. Stat. 1901, p. 3498).

The president and cashier of every national banking association shall cause to be kept at all times a full and correct list of the names and residences of all the shareholders in the association, and the number of shares held by each, in the office where its business is transacted. Such list shall be subject to the inspection of all the shareholders and creditors of the association, and the officers authorized to assess taxes under state authority, during business hours of each day in which business may be legally transacted. A copy of such list, on the first Monday of July of each year, verified by the oath of such president or cashier, shall be transmitted to the Comptroller of the Currency.

Sec. 5151 (U. S. Comp. Stat. 1901, p. 3465). 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 invested in such shares That the transfer of stock in corporations, oven when in failing circumstances, should not be unduly impeded, is essential not only to the prosperity of such corporations and the value of their stock, but to the interest of stockholders who may desire, for legitimate reasons, to change their investments or to raise money for debts incurred outside the business of such corporation. First Nat. Bank v. Lanier, 11 Wall. 369, 377, 20 L. ed. 172, 174. At the same time, the frequency with which such transfers are made for the purpose of evading the double liability imposed by the national banking act has given rise to a large amount of litigation turning upon their legality. In this connection certain propositions have been laid down by so many courts and in so many cases that they may be regarded as fundamental principles of law, applicable to all cases of this character.

(1) That a party who, by way of pledge or collateral security for a loan of money, accepts stock of a national bank and puts his name on the registry as owner, incurs an immediate liability as a stockholder, and cannot relieve himself therefrom by making a colorable transfer of his stock to another person for his own benefit, as was done by the sale to Jewett in this case. Germania Nat. Bank v. Case, 99 U. S. 628, 25 L. ed. 448; Marcy v. Clark, 17 Mass. 330; Nathan v. Whitlock, 9 Paige, 152; Cook, Stock & Stockholders, § 263.

(2) The same result follows if the stockholder, knowing, or having good reason to know, the insolvency of the bank, colludes with an irresponsible person with design to substitute the latter in his place, and thus escape individual liability, and transfers his stock to such person. It is immaterial in such case that he may be able to show a full or partial consideration for the transfer as between himself and the transferee. Bowden v. Johnson (Adams v. Johnson) 107 U. S. 251, 27 L. ed. 386, 2 Sup.Ct.Rep. 246.

Upon the other hand, in Whitney v. Butler, 118 U. S. 655, 30 L. ed. 266, 7 Sup.Ct.Rep. 61, certain stockholders employed an auctioneer to sell their shares at public auction. They were bidden in by a purchaser who paid the auctioneer for them and received from him the certificate of stock...