Latimer v. Bard

• Decision Date: 19 October 1896
• Docket Number: 2127-2160.
• Citation: 76 F. 536
• Parties: LATIMER v. BARD et al.
• Court: U.S. District Court — Western District of Missouri

76 F. 536

LATIMER v. BARD et al.

Nos. 2127-2160.

United States Circuit Court, W.D. Missouri, Central Division.

October 19, 1896

Wm. E Shirk, for plaintiff.

Pratt Ferry & Hagerman, for defendants.

ADAMS District Judge.

The several cases consolidated into this action are brought by the plaintiff as receiver of the First National Bank of Sedalia, against divers persons, stockholders of said bank to recover the amount of an assessment made by the comptroller of the currency of 75 per cent. of the stock held by them respectively. The defendants file a joint answer setting forth in effect that the stock held by them upon which such assessment was made is part of a pretended increase of stock; that such increase was invalid and unlawful, for the reason, as alleged, that the whole amount of such increase was not paid in. It appears, by the answer, that the original capital of the bank was $100,000; that on September 6, 1890, the shareholders, by a vote of the owners of two-thirds thereof, resolved to increase the capital in the sum of $150,000, so as to make it $250,000, instead of $100,000, as theretofore; that subsequently certificates for the increase were issued to the subscribers therefor; that thereafter, on January 17, 1891, the comptroller of the currency of the United States duly certified that said bank had increased its capital in the sum of $150,000, with his approval thereof, and further certified that the whole amount of such increase has been paid in. It further appears that the defendants received the certificates representing the stock subscribed and paid for by them prior to October 25, 1890; that during the years 1891 and 1892 the defendants, as such stockholders, received dividends on their stock amounting in the aggregate to 18 per cent. thereof; that, notwithstanding the apparent conformity with all the provisions of the acts of congress relating to the increase of stock, in point of fact at least one-third of the amount of such increased stock was subscribed for by the officers of the bank, who subsequently issued certificates to themselves therefor, without paying anything for the same; that this was accomplished in the following way and manner, as stated in the answer as amended, that is to say:

'By fictitious and false entries entered in the bank books and records they made a showing of an apparent surplus in the bank's assets for division among themselves as holders of the original capital stock, and went through the form of declaring a dividend therefrom to themselves, and returning the same to the bank as an alleged payment for their shares of the increased stock, whereas no money passed, the whole transaction was a mere sham, there was no surplus (the bank being then insolvent), -- and all of which was done with the fraudulent purpose on the part of said officers of appropriating to themselves a part of the increased stock without any payment thereof. All of which was done without the knowledge or consent of any of the defendants, none of them having any knowledge thereof until after the making of the assessment sued on.'

It is further alleged in the answer that no profits were made by the bank after the defendants subscribed for the increased stock, and that the dividends which they received, as stated, were paid to them out of the capital which they had paid in; that the officers of the bank falsely and fraudulently represented to the defendants, at the time of taking their subscriptions and receiving their money, that the bank was solvent, that the increase had been lawfully made, and that the same had been fully paid in; that these statements were false, and known to be false by the officers of the bank when making them; that the defendants made their subscriptions and paid in the amount thereof and took their certificates in implicit reliance upon such statements; that the defendants had no knowledge of the falsity thereof, or of the false entries made as aforesaid, or of the alleged illegality of the increase of stock, until after the comptroller of the currency made the assessment against the stockholders on April 13, 1895, and by the exercise of ordinary care could not have discovered or known the truth; that immediately on discovering the facts, after the assessment was made against them, they tendered to the plaintiff the amount received by them as dividends as aforesaid, and offered to deliver up their stock to him, also. To this answer a demurrer is interposed. The defendants' counsel do not rely upon the false representations as such of the officers of the bank, as a defense, but, in argument, contend solely that the increase of capital was void because the whole amount of such increase was not in good faith paid in, and that defendants are entitled to invoke such fact as a defense to this action against them.

The only question for consideration, therefore, is whether or not the alleged fraudulent action of the officers of the bank in figuring out an apparent surplus entitling them as holders of the original stock to a dividend, and appropriating the same to themselves and using it in paying up their quota of the increased stock, rendered invalid and void the entire increase. The national banking law (section 5142, Rev. St. 1878), and the amendment of May 1, 1886 (24 Stat. 18), provide, in effect, that three facts must concur to constitute a valid increase of the capital stock of a national banking association: First, a vote of shareholders owning at least two-thirds of the original capital; second, the whole amount of the increase must be paid in; third, the comptroller of the currency, by his certificate specifying the amount of increase of such capital, must approve thereof, and certify to the fact of its payment. The pleadings in this case show the requisite vote of shareholders and the requisite certificate of the comptroller. The case shows, by fair inference from the facts pleaded and law necessarily applicable thereto, that the bank, by and through its proper officers, advised the comptroller, among other things, that the increased capital had been duly paid in. Acting upon this advice, and such other information as to him seemed requisite, the comptroller approved the increase, and made the necessary certificate that the amount of the increase had been duly paid in as part of the capital of the banking association.

1. If there was nothing else in this case, I would hold that the action of the comptroller, as last stated, is conclusive of the question of fact certified by him, and that the defendants are not at liberty, in this collateral proceeding, to open the same. The comptroller occupied a position quasi judicial in its character. His finding and certification of the fact now in question was an exercise of the judicial function, and ought not to be disturbed except upon some appropriate direct proceeding to that end. In the case of Casey v. Galli, 94 U.S. 673, the receiver of a national banking association sought to recover from a stockholder the amount of an assessment duly made by the comptroller. The stockholder, among other defenses, set up the fact that the banking association was created under the provisions of the national banking law permitting a state bank to be converted into a national bank, and that two-thirds of the capital stock never authorized the conversion and never accepted the organization certificate, as required by the act of congress as conditions precedent to such conversion. Section 18 of the act provides that when the comptroller shall give to such association a certificate under his hand and official seal that the provisions of the act have been complied with, and that it is authorized to commence the business of banking under it, the association shall be deemed to be a national banking association, the same as if originally organized under the act. The supreme court, in passing on the case, says:

'The plea denies the regularity of the proceedings in the single particular that the owners of two-thirds of the capital stock of the bank did not authorize the directors of said bank to convert it into a national banking association nor to accept an organization certificate as such banking association.'

After alluding then to the admission contained in the pleadings that the comptroller's certificate was duly made, the court says:

'The plea proposes to go behind the certificate and contradict it. This cannot be done. The comptroller was clothed with the jurisdiction to decide as to the completeness of the organization, and his certificate is conclusive upon the subject for all purposes of this litigation. It has the same effect, and for the same reason, as his determination and order with respect to the amount to be collected from such stockholders in the event of the failure of the association. No question can be raised in this collateral way as to either. In Thatcher v. Bank, 19 Mich. 196, it is held 'that whether there was any defect in the process of organization was a question for the comptroller to decide, and that his certificate of compliance with the requirements of the act of congress removes any objection which might otherwise have been made to the evidence upon which he acted.' In this we concur.' The case of Smelting Co. v. Kemp, 104 U.S. 636, is a leading case on the conclusiveness of the findings of executive officers of the government upon matters referable by the law to them. In the opinion in the last-mentioned case it is said:

'In that respect they (officers of one of the executive departments) exercise a judicial function, and therefore it has been held in various instances by this court that their judgment as to matters of fact properly determinable by them is conclusive when brought to notice in a

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