Olson v. State Bank
| Decision Date | 19 January 1897 |
| Docket Number | 10,320--(99) |
| Citation | 69 N.W. 904,67 Minn. 267 |
| Parties | HANS H. OLSON v. STATE BANK and Others |
| Court | Minnesota Supreme Court |
Appeal by defendants Manley and others from an order of the district court for Hennepin county, Belden, J., denying a motion for a new trial. Affirmed.
Order affirmed.
J. D Emery, J. O. Pierce, C. H. Slack, and C. E. Vanderburgh, for appellants.
None of the appellants were in fact or law holders of stock in the bank, because the proposed increase of stock was never legally made. The statute provides that no increase of capital shall be valid until the whole amount of the increase is paid in cash. Such payment must be certified by the proper officer. G. S. 1894, § 2498. There is a similar provision in the national bank act. Rev. St. § 5142. The statutory requirement not having been complied with, the proposed increase in this case was invalid. There is no question here of waiver or of ratification. The sole question is the failure of the bank to observe a statutory requirement, a failure which rendered the increase of stock void. Scovill v. Thayer, 105 U.S. 143; Handley v. Stutz, 139 U.S. 417, 11 S.Ct. 530; Page v Austin, 10 Canada S. C. 132; Schierenberg v Stephens, 32 Mo.App. 314; American T. Works v Boston M. Co., 139 Mass. 5, 29 N.E. 63; Winters v. Armstrong, 37 F. 508; Delano v. Butler, 118 U.S. 634, 7 S.Ct. 39; Lincoln v. Express Co., 45 La. An. 729, 12 So. 937; Kampman v. Tarver, 87 Texas, 491, 29 S.W. 768; Bank v. Alison, L. R. 6 C. P. 54, 222; Stace and Worth's Case, L. R. 4 Ch. Ap. 682; New York & N. H. R. Co. v. Schuyler, 34 N.Y. 30; Charleston v. Bank, 5 Rich. (S. C.) 103; Aspinwall v. Butler, 133 U.S. 595, 10 S.Ct. 417; Clark v. Turner, 73 Ga. 1; Grangers' L. & H. Ins. Co. v. Kamper, 73 Ala. 325; Cartwright v. Dickinson, 88 Tenn. 477, 12 S.W. 1030; Steamboat Co. v. Sewall, 78 Me. 167, 3 A. 181; Brand v. Lawrenceville B. R. R. Co., 77 Ga. 506, 1 S.E. 255.
The bank received only $ 3,000 for this issue of 250 new shares. Kortgaard's fraudulent use of city funds did not constitute a valid payment, but was a sham payment. Crawford v. Rohrer, 59 Md. 604. See Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268, 17 N.E. 496; Eaton v. Bank, 144 Mass. 260, 10 N.E. 844; American T. Works v. Boston M. Co., supra. The bank had express notice that the funds were trust funds, checks being signed by Kortgaard as city treasurer. Marbury v. Ehlen, 72 Md. 206, 19 A. 648; Shaw v. Spencer, 100 Mass. 382. The bank therefore became a trustee for and liable to the city. There was no increase of stock, because the essential condition of payment was lacking.
There can be no estoppel in a case like this. It is public policy that statutory requirements of the bank law be complied with literally. If these requirements are disregarded, they cannot be made valid upon the principle of estoppel. 1 Lindley, Partn. 134; Veeder v. Mudgett, 95 N.Y. 295; Banigan v. Bard, 134 U.S. 291, 10 S.Ct. 565.
The bank could not hold these appellants as holders of the new stock. The acts of Kortgaard were the acts of the bank. The bank, having left the sole management to him, is bound by his acts. The bank is liable for any wrong done by its issue of stock certificates. New York & N. H. R. Co. v. Schuyler, 34 N.Y. 30, 49, 50, 64; Bruff v. Mali, 36 N.Y. 200; Titus v. Turnpike Road, 61 N.Y. 237; Fishkill Savings Inst. v. National Bank of Fishkill, 80 N.Y. 162; Allen v. South Boston R. Co., 150 Mass. 200, 22 N.E. 917.
John B. Arctander, for respondent.
Scovill v. Thayer, 105 U.S. 143, 149, clearly distinguishes the case where a bank has no right to increase its capital, and one where it has the power, though not in the manner which was followed. Under the Minnesota statute, the proviso of G. S. 1894, § 2498, is in the nature of a condition subsequent. The increase is first to be voted and then the stock is to be paid for as issued. The language is that "No such increase shall be valid unless paid in full." These words may mean "absolutely void," but they may mean "voidable." A voidable contract is not valid, as well as one which is absolutely void.
On the facts this case is stronger against the stockholders than that of Dunn v. State Bank, 59 Minn. 221, 61 N.W. 27.
After bankruptcy a stockholder cannot bring an action to rescind. The American doctrine that the capital stock of the corporation is a trust fund for creditors would prevent any diminution of such fund after the act of insolvency. Farnsworth v. Robbins, 36 Minn. 369, 31 N.W. 349; Sanger v. Upton, 91 U.S. 56; Sawyer v. Hoag, 17 Wall. 610; Clapp v. Peterson, 104 Ill. 26; Crandall v. Lincoln, 52 Conn. 73; Adler v. Milwaukee P. B. Mfg. Co., 13 Wis. 57; Vick v. La Rochelle, 57 Miss. 602; Chouteau Ins. Co. v. Floyd, 74 Mo. 286; Gill v. Balis, 72 Mo. 424; Upton v. Tribilcock, 91 U.S. 45; Brant v. Ehlen, 59 Md. 1; Beach, Priv. Corp. 213, 223; Scovill v. Thayer, supra; Kehlor v. Lademann, 11 Mo.App. 550; Hatch v. Dana, 101 U.S. 205; Pullman v. Upton, 96 U.S. 328; Hawley v. Upton, 102 U.S. 314; Flinn v. Bagley, 7 F. 785; Sturges v. Stetson, 1 Biss. 246, Fed. Cas. No. 13,568; Great Western Tel. Co. v. Gray, 122 Ill. 630, 14 N.E. 214; Crawford v. Rohrer, 59 Md. 599; Pittsburg & C. Ry. Co. v. Stewart, 41 Pa. 54; Peoria & S. Ry. Co. v. Thompson, 103 Ill. 187; Stein v. Howard, 65 Cal. 616, 4 P. 662; New Castle H. Ry. Co. v. Simpson, 21 F. 533; Spurlock v. Missouri P. Ry. Co., 90 Mo. 199, 2 S.W. 219; Harrison v. Arkansas V. Ry. Co., 4 McCrary, 264, 13 F. 522; Fosdick v. Sturges, 1 Biss. 255, Fed. Cas. No. 4,956; Fisk v. Chicago, R. I. & P. Ry. Co., 53 Barb. 513; O'Brien v. Chicago, R. I. & P. Ry. Co., 53 Barb. 568; Mann v. Cooke, 20 Conn. 178; Neuse River Nav. Co. v. Commrs. of Newbern, 7 Jones L. 275; Osgood v. King, 42 Iowa 478; Beach, Priv. Corp. 232; Bissell v. Health, 98 Mich. 472, 57 N.W. 585.
The English rule denies a shareholder, after the company has become insolvent, the right to repudiate his liability on the ground of fraud. Henderson v. Royal B. Bank, 7 El. & Bl. 356; Dossett v. Harding, 1 C. B. (N. S.) 524; Powis v. Harding, 1 C. B. (N. S.) 533; Daniell v. Royal Brit. Bank, 1 H. & N. 681; Oakes v. Turquand, L. R. 2 Eng. & Ir. Ap. 325; Stone v. City Bank, 3 C. P. Div. 282; Kingsford v. Merry, 11 Exch. 577; Wright's Case, L. R. 7 Ch. App. 55, 60; Pugh & Sharman's Case, L. R. 13 Eq. 566. These English decisions have been generally followed in this country. Ogilvie v. Knox Ins. Co., 22 How. 380; Upton v. Tribilcock, supra; Chubb v. Upton, 95 U.S. 667; Payson v. Withers, 5 Biss. 269, Fed. Cas. No. 10,864.
This action was brought by the plaintiff, in behalf of himself and all other creditors of the defendant bank, to enforce the liability of stockholders for corporate debts. The defenses interposed by the appellant defendants were, substantially, that (1) they were induced to purchase the stock by false and fraudulent representations which entitled them to rescind; (2) the stock, being illegally issued, was absolutely void and never had any legal existence as stock. The court held defendants liable as stockholders, and ordered judgment accordingly; and the only question presented by this appeal is whether the findings of fact justified this conclusion of law.
So far as here material, the findings are substantially as follows: The defendant bank was organized as a banking corporation under chapter 33 of the General Statutes, [2] with a paid-up capital of $ 75,000, but with authority under its articles of association to increase it, by a majority vote of its shareholders, to $ 500,000. In July, 1892, the stockholders duly voted to increase the capital stock to $ 100,000 by the issue of 250 additional shares of $ 100 each. Ten shares of this increased stock were subscribed for by defendant Nelson Williams, 5 shares by defendant Mrs. Williams, 15 shares by other persons not parties to this appeal, and the remaining 220 shares by Kristian Kortgaard. On August 10, 1892, the cashier of the bank certified under oath to the public examiner of banks to the payment in cash of the $ 25,000 increase, and on August 12 the public examiner issued his certificate certifying that the bank had complied with all the provisions of law in regard to such increase of stock, and that the $ 25,000 had been paid in as part of the capital of the bank, and approving of such increase.
Certificates for this increased stock were issued to the persons assumed to be entitled to the same. Neither the bank nor the subscribers seem to have awaited the official action of the bank examiner, for the stock certificates were issued to Mr. Williams August 3, to Mrs. Williams August 6, and to Kortgaard August 10. Of this increased stock issued to Kortgaard, he sold and transferred certain shares, August 15, to defendant Woodward; August 19, to defendant Brown; December 5, to one Snyder, who on December 8 assigned to defendants C. H. Chadbourn & Sons; December 8, to defendant Nowell; December 15, to defendant Sanborn; December 15, to defendant Manley; January 6, 1893, to defendant Jenks; February 4, to defendant Mrs. Williams. All of these transfers were made on the books of the bank, and new certificates issued to the transferees in place of those issued to Kortgaard.
During all this time Kortgaard was the president of the bank, and its virtual manager, without any direct or active supervision of its affairs on part of the board of directors, who left everything solely to him. He was also treasurer of the city of Minneapolis, and had deposited to his credit as such treasurer in other banks large sums of city funds. He represented to the Williamses, when they subscribed and paid for their stock, that the bank was sound and prosperous, and that its stock was a good and desirable...
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