Sarles v. Scandinavian American Bank & Northwestern Trust Company
| Citation | 156 N.W. 556,33 N.D. 40 |
| Decision Date | 29 December 1915 |
| Court | United States State Supreme Court of North Dakota |
Appeal from the District Court of Grand Forks County, Cooley, J.
Affirmed.
George A. Bangs and George R. Robbins, for appellant.
The plaintiff, a minority stockholder in the corporations defendants, has the right to maintain this action and to the injunctional relief asked. 10 Cyc. 968, 985, 986; 2 High Inj. §§ 1203-1205, 1207; 3 Pom. Eq. Jur. 3d ed 1093; 2 Clark & M. Corp. 539, pp. 1667-1673; 4 Thomp. Corp § 4502; 5 Thomp. Corp. § 5693; Stewart v. Erie & W. Transp. Co. 17 Minn. 372, Gil. 375; Dodge v. Woolsey, 18 How. 331, 341, 15 L.Ed. 401, 404; Manderson v. Commercial Bank, 28 Pa. 379; Dunbar v. American Teleph. & Teleg. Co. 224 Ill. 9, 115 Am. St. Rep. 132, 79 N.E. 423, 8 Ann. Cas. 57; Pratt v. Pratt, R. & Co. 33 Conn. 446; Northern Trust Co. v. Snyder, 113 Wis. 516, 90 Am. St. Rep. 867, 89 N.W. 460; Byrne v. Schuyler Electric Mfg. Co. 65 Conn. 336, 28 L.R.A. 304, 31 A. 833; Knapp v. Supreme Commandery, U. O. G. C. 121 Tenn. 212, 118 S.W. 390.
The state banking law was taken from the national banking law, largely. Comp. Laws 1913, §§ 5146 et seq.; U. S. Rev. Stat. § 5133, Comp. Stat. 1913, § 9658; State v. Scougal, 3 S.D. 55, 15 L.R.A. 477, 44 Am. St. Rep. 756, 51 N.W. 858; State v. Richcreek, 167 Ind. 217, 5 L.R.A.(N.S.) 874, 119 Am. St. Rep. 491, 77 N.E. 1085, 10 Ann. Cas. 899; Weed v. Bergh, 141 Wis. 569, 25 L.R.A.(N.S.) 1217, 124 N.W. 664.
Congress has no inherent power to create corporations, but the banking law is sustained as a means to accomplish a result or end within the power of Congress. M'Culloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579; Osborn v. Bank of United States, 9 Wheat. 738, 6 L.Ed. 204; Farmers' & M. Nat. Bank v. Dearing, 91 U.S. 29, 23 L.Ed. 196.
The state has power to create and provide for the creation of corporations, and under police power may forbid individuals to engage in banking, and require such business to be done by corporations. State ex rel. Goodsill v. Woodmansee, 1 N.D. 246, 11 L.R.A. 420, 46 N.W. 970; Weed v. Bergh, 141 Wis. 569, 25 L.R.A.(N.S.) 1217, 124 N.W. 664; Brady v. Mattern, 125 Iowa 158, 106 Am. St. Rep. 291, 100 N.W. 358.
Banking associations formed under our statute have power to purchase, hold, and convey real estate for limited purposes and time. Comp. Laws 1913, § 5151; U. S. Rev. Stat. § 5137, Comp. Stat. 1913, § 9674; First Presby. Church v. National State Bank, 57 N.J.L. 27, 29 A. 320, affirmed in 58 N.J.L. 406, 36 A. 1129; Brown v. Schleier (8th C.) 55 C. C. A. 475, 118 F. 981, affirmed in 194 U.S. 18, 48 L.Ed. 857, 24 S.Ct. 558; Weeks v. International Trust Co. 60 C. C. A. 236, 125 F. 373; Wingert v. First Nat. Bank, 99 C. C. A. 315, 175 F. 739; Farmers' Deposit Nat. Bank v. Western Pennsylvania Fuel Co. 215 Pa. 115, 114 Am. St. Rep. 949, 64 A. 374; First Nat. Bank v. Com. 143 Ky. 816, 34 L.R.A.(N.S.) 54, 137 S.W. 518, Ann. Cas. 1912D, 378; Union Nat. Bank v. Matthews, 98 U.S. 621, 25 L.Ed. 188.
Banking corporations cannot loan to any one person any amount in excess of that allowed by statute. Neither can they invest in buildings more, or any greater sum, than that allowed by statute. The statute law is their fixed and definite guide. Comp. Laws 1913, §§ 5151, 5172; Briggs v. Spaulding, 141 U.S. 132, 35 L.Ed. 662, 11 S.Ct. 924; Thompson v. Sioux Falls Nat. Bank, 150 U.S. 231, 37 L.Ed. 1063, 14 S.Ct. 94; Union Gold-Min. Co. v. Rocky Mountain Nat. Bank, 96 U.S. 640, 24 L.Ed. 648, 1 Mor. Min. Rep. 432; O'Hare v. Second Nat. Bank, 77 Pa. 96.
There is a distinction between capital and capital stock of a corporation. The capital of the corporation is the property or means which the corporation owns, and it may vary in amount while the capital stock is fixed and represents the interest of the stockholder and is their property. Wells v. Green Bay & M. Canal Co. 90 Wis. 452, 64 N.W. 72.
Bangs, Netcher, & Hamilton, for respondents.
"Capital stock, the sum fixed by the corporate charter as the amount paid in, or to be paid in, by the stockholders, for the benefit of corporate creditors." 6 Cyc. 348.
A bank has general inherent power and right to erect and maintain suitable quarters, and to contract for and lease suitable sites, for the accommodation of its business. Brown v. Schleier, 55 C. C. A. 475, 118 F. 981, affirmed in 194 U.S. 18, 48 L.Ed. 857, 24 S.Ct. 558; Farmers' Deposit Nat. Bank v. Western Pennsylvania Fuel Co. 215 Pa. 115, 114 Am. St. Rep. 949, 64 A. 374; Wingert v. First Nat. Bank, 99 C. C. A. 315, 175 F. 739; Weeks v. International Trust Co. 60 C. C. A. 236, 125 F. 373; Banks v. Poitiaux, 3 Rand. (Va.) 136, 15 Am. Dec. 709; Noble State Bank v. Haskell, 22 Okla. 48, 97 P. 605.
A stockholder has no right or claim to a dividend or to undivided profits, until same is regularly declared; until that time the earnings belong to the corporation, and, in the absence of fraud, may be handled or disposed of according to the honest judgment of the managing officers and directors. Minot v. Paine, 99 Mass. 106, 96 Am. Dec. 705; Gibbons v. Mahon, 136 U.S. 549, 558, 34 L.Ed. 525, 527, 10 S.Ct. 1057; Williams v. Western U. Teleg. Co. 93 N.Y. 187; Garland v. Rives, 15 Am. Dec. 762, note; Barry v. Merchants' Exchange Co. 1 Sandf. Ch. 304.
"The word 'capital' applied to corporations is often used interchangeably with the words 'capital stock,' and both are frequently used to express the same thing,--the property and assets of the corporation." 10 Cyc. 364, 365; Christensen v. Eno, 106 N.Y. 97, 60 Am. Rep. 429, 12 N.E. 648; 6 Cyc. 348.
The Scandinavian American Bank and the Northwestern Trust Company are financial institutions organized under the state laws, and located at Grand Forks. Upon their organization they were affiliated in the following manner: The shareholders are identical, each owning stock in the proportion of one share in the trust company and two shares in the bank. The plaintiff owns 8 2/3 per cent of the stock of each corporation. In the spring of 1912 the directors had decided upon the erection of a five-story fire-proof building, 90' x 100', and had purchased a suitable lot. In 1914 the directors adopted plans for such building and ascertained that the completed and furnished building would cost approximately $ 160,000, exclusive of the site. Plaintiff vigorously protested against the expenditure of so large a sum for building purposes and made several ineffectual efforts to call a meeting of the stockholders to discuss the matter. As a large majority of the stockholders favored the erection of the building, no meeting was held, but plaintiff gave timely notice through a written protest. At said time the bank had a capital of $ 200,000; the trust company, a capital of $ 100,000; the bank had $ 80,000 surplus, and the trust company had $ 20,000 surplus, making a total of $ 400,000 capital and surplus, of which under § 5151, Comp. Laws 1913, said corporation was allowed to spend 30 per cent for banking house, furniture, fixtures, and land upon which the building is located. In addition to the capital and surplus the bank had $ 26,360.56 and the trust company, $ 16,895.34 undivided profits, a total of $ 43,255.90, and at the same time the bank had $ 11,000, and the trust company, $ 6,000, nonledger assets. If 30 per cent of the capital and surplus be added to the undivided profits of both institutions, we have $ 163,255.90,--more than the cost of the building alone. About this time the directors of the affiliated institutions sold the lot to one Hugh Reid, a stockholder and director of both companies, for the consideration of $ 60,000, and he in turn leased said lot to the affiliated corporations for ninety-nine years, giving the said institutions an option to purchase said lot at any time within twenty years, upon payment of the amount of money which he had invested with interest. Provisions were further made for the payment of rental in the interim. The first dispute arises over this transaction. Plaintiff insists that this was a mere subterfuge and an evasion of the law. That there was, in fact, no sale, but that the bank continued to be the real owner of the lot. The defendant, on the other hand, insists that the sale was bona fide although made to reduce the investment to comply with § 5151, Comp. Laws 1913, aforesaid. This dispute will be considered and decided in paragraph 1 of this opinion. The other questions involve an interpretation of § 5151, Comp. Laws 1913, and principally whether the institutions can spend their undivided profits upon the building in addition to the 30 per cent of the capital stock and surplus. This will be treated in paragraph 2.
(1) While this is a trial de novo, we do not feel called upon to reproduce any large portion of the evidence, but will content ourselves with announcing our findings of fact upon a very abbreviated resume of the evidence. As we have already stated, this lot was bought in 1912 for $ 60,000, of which $ 30,000 had been paid and upon which $ 30,000 was still owing. Plaintiff declares: "We believe the entire transaction is a bald, naked sham; that it was not entered into in good faith, and that it is a mere paper transaction,--a subterfuge; that the bank yet remains the owner of the real estate and that Reid has not now, and never has had, any interest therein."
When it comes to the proof, however, we find nothing tangible supporting this declaration. The officers of the bank and trust company and Mr. Reid were the only witnesses called. Their testimony is to the...
To continue reading
Request your trial