Security State Bank of Adams v. O'Connor

• Decision Date: 26 November 1937
• Docket Number: 6492
• Citation: Security State Bank of Adams v. O'Connor, 276 N.W. 249, 68 N.D. 44 (N.D. 1937)
• Court: North Dakota Supreme Court

276 N.W. 249

68 N.D. 44

SECURITY STATE BANK OF ADAMS, NORTH DAKOTA, a State Banking Corporation, Appellant, v. W. V. O'CONNOR, as Receiver of the First National Bank of Grand Forks, North Dakota, an Insolvent National Banking Corporation, Respondent

No. 6492

Supreme Court of North Dakota

November 26, 1937

Syllabus by the Court.

A pledgee of stock of a state banking association pledged as collateral, who later, in an attempt to realize on such collateral, became the owner thereof, but never had the stock transferred on the books of the bank, never held himself out as a stockholder, and never exercised any of the rights or enjoyed any of the privileges of a stockholder, is not liable for an assessment on the stock to make good impairments thereof, made pursuant to section 18, of chapter 96, Sess.Laws 1931.

Appeal from District Court, Grand Forks County; P. G. Swenson Judge.

Action by the Security State Bank of Adams, N. D., against W. V O'Connor, as receiver of the First National Bank of Grand Forks, N. D., to establish a claim on account of an assessment on the stock of a state banking association. From a judgment for the defendant, plaintiff appeals.

Affirmed.

McIntyre Burtness & Shaft, for appellant.

A national bank does not have the right to accept corporate stocks as security for or in payment of debts arising in the usual course of its business, with a view of a subsequent sale or conversion into money. Tourtelot v. Whithed, 9 N.D. 467, 84 N.W. 8; First Nat. Bank v. National Exch. Bank, 92 U.S. 122, 23 L. ed. 679; Germania Nat. Bank v. Chase, 99 U.S. 828, 25 L. ed. 448.

The real owner of the shares of the capital stock of a national banking association may, in every case, be treated as a shareholder within the meaning of U.S. Rev. Stat. § 5151. Pauley v. State Loan & T. Co. 165 U.S. 606, 41 L. ed. 844.

Where the real ownership of the stock is in one, his liability may be established, notwithstanding the registered ownership is in the name of a person, fictitious or otherwise, who holds for him. Ohio Valley Nat. Bank v. Hulitt, 204 U.S. 162, 51 L. ed. 423; Rankin v. Fidelity Ins. Trust & S.D. Co. 189 U.S. 242, 47 L. ed. 792; Stuart v. Hayden, 169 U.S. 1, 42 L. ed. 639; Bowden v. Johnson (Adams v. Johnson) 107 U.S. 251, 27 L. ed. 386, 2 S.Ct. 246.

The real owner of the shares of the capital stock of a national banking association may, in every case, be treated as a shareholder, within the meaning of § 5151, U.S. Rev. Statutes, whether the shares are registered in his name or not. Wright v. Keene, 82 Mont. 603, 269 P. 545, 60 A.L.R. 109; Houghton v. Hubbell, 33 C.C.A. 574, 91 F. 453.

The real owner of the stock should sustain the loss, and, if the nominal owner of the stock has to pay it, he may in such case recover from the real owner but the creditor may look either to the transferrer or the transferee. Robinson-Pettit Co. v. Sapp, 160 Ky. 445, 169 S.W. 869; Commissioner of Banks v. Tremont Trust Co. 259 Mass. 162, 156 N.E. 7; Western P.R. Co. v. Godfrey, 166 Cal. 346, 136 P. 284; Doster v. Modley, 38 Ga.App. 508, 144 S.E. 385; Early v. Richardson, 280 U.S. 496, 74 L. ed. 575, 69 A.L.R. 658.

An involuntary transferee of stock is liable for assessments, as through inheritance of the stock, without transfer of ownership on the records. Gahagan v. Whitney, 359 Ill. 419, 194 N.E. 581; Gillett v. Chicago, 230 Ill. 373, 82 N.E. 891.

A forfeiture of the stock shall not impair the right of the association to recover the amount of the assessment from the delinquent shareholder. First State Bank v. Cox, 61 N.D. 175, 237 N.W. 708.

A change in procedure for recovering upon a personal liability for stock assessment, like any other change in remedy, does not impair the obligation of the stockholder's contract. Hill v. Merchants' Mut. Ins. Co. 134 U.S. 515, 33 L. ed. 994; Bernheimer v. Converse, 206 U.S. 516, 51 L. ed. 1163; Henley v. Myers, 215 U.S. 373, 54 L. ed. 240.

Every grant of corporate power is subject to alteration, suspension or repeal. Pennsylvania College Cases, 13 Wall. 190, 20 L. ed. 550; Sherman v. Smith, 1 Black, 587, 17 L. ed. 163; State v. First State Bank, 52 N.D. 231, 202 N.W. 391; 7 R.C.L. 397.

Banks are so inextricably bound up in the general welfare of the people as to make them and their organization a proper subject for regulation even to the extent of impairing the obligation of contracts with stockholders. 7 C.J. 480; 3 R.C.L. 379; Noble State Bank v. Haskell, 209 U.S. 104, 55 L. ed. 112.

O'Keefe & Peterson, for respondent.

It is generally held that a person in whose name stock stands on the stock register of a bank is a stockholder of the bank and continues as such record stockholder for all purposes of the law, until such stock is presented to the bank for transfer on its books, even though he may have assigned his stock to another. Parker v. Brumder, 187 Wis. 75, 203 N.W. 941; Anderson v. Philadelphia Warehouse Co. 111 U.S. 479, 28 L. ed. 478; Lochnern v. State, 214 Wis. 109, 252 N.W. 695.

As a general rule, the legal owner of stock of a national banking association, that is, the one in whose name stock stands on the books of the association, remains liable for the assessment so long as the stock is allowed to stand in his name on the books. Matteson v. Dent, 176 U.S. 521, 44 L. ed. 571.

In the case of the purchase of shares the purchaser does not become a stockholder in the corporation until the stock is transferred upon the books of the corporation in accordance with the corporate charter, its by-laws or the governing statute. 14 C.J. 509; 14 C.J. 751, 752; Schafer v. Sell, 220 Wis. 112, 264 N.W. 620.

It is not competent for national banking associations to invest any portion of their capital permanently in the stock of another corporation, and they are not estopped from setting up such want of power against suits to enforce liability for assessments made by the Comptroller of the Currency. California Nat. Bank v. Kennedy, 167 U.S. 362, 42 L. ed. 198, 17 S.Ct. 831; First Nat. Bank v. Hawkins, 174 U.S. 364, 43 L. ed. 1007, 19 S.Ct. 739; Robinson v. Southern Nat. Bank, 180 U.S. 295, 45 L. ed. 536, 21 S.Ct. 383; Frater v. Old Nat. Bank, 86 F. 1006; 7 Am. Jur., Banks, p. 85.

A transferee of stock who does not appear upon the books of the corporation as such is not liable as a shareholder, unless some action taken by him or the corporation estops him from denying that he is a shareholder when sued by the corporation, or its creditors for calls or assessments. 60 A.L.R. 112, note para. 2; Smith v. Goldsmith, 50 S.D. 1, 207 N.W. 977; Ruden v. Heckenlaible, 60 S.D. 62, 243 N.W. 95.

Nuessle, J. Christianson, Ch. J., and Burr and Morris, JJ., concur.

OPINION

NUESSLE

This action was brought by the plaintiff bank to establish a claim against the First National Bank of Grand Forks in the hands of the defendant O'Connor as receiver. Plaintiff bank made an assessment on its capital stock pursuant to the provisions of chapter 96, S.L. 1931, and levied the same against 38 shares of stock which plaintiff contends were owned by the First National Bank. This assessment was not paid. The plaintiff made a purported sale of the shares for $ 19, leaving a claimed deficiency in the assessment of $ 3,781.00. Plaintiff brought this action to establish its claim in the amount of this deficiency. The case was tried to the court without a jury. Judgment was ordered and entered for the defendant. Whereupon the instant appeal was perfected.

The facts may be stated briefly as follows: On May 12, 1930, O. S. Hanson executed and delivered to the First National Bank of Grand Forks his note for $ 2,500, to be paid February 1, 1931, and as collateral gave a certificate for 38 shares of stock of the plaintiff Security State Bank of Adams. This certificate was duly endorsed by Hanson at the time the transaction was consummated. It was agreed between Hanson and the president of the First National Bank that Hanson would not be called upon to pay the note but that when the same fell due it would be returned to him and the stock retained by the bank. This arrangement was not reduced to writing, but on August 2, 1930, it was confirmed in a letter written to Hanson by the president of the First National Bank as follows:

"This letter is to confirm the understanding we have with you as follows:

"We hold your note dated May 12th, 1930, due February 1st, 1931, $ 2,500.00. This note is secured by Certificate No. 105 for 38 shares of stock in the Security State Bank of Adams, North Dakota. It is understood that we are to look to the collateral for payment of this note and that the note is to be returned to you by February 1st, 1931, the date on which it matures, without payment."

The note was not paid and on January 31, 1931, one day before it fell due, it was returned to Hanson marked "Cancelled." The 38 shares of stock were retained by the bank. The amount of the Hanson indebtedness was charged to the undivided profits account in the bank. The stock was not listed among the assets of the bank but was carried in the collateral records. No transfer of the stock to the First National Bank was made upon the books of the Security State Bank, either at this time or at any later date. On August 2, 1930, the First National Bank of Grand Forks wrote to O. H. Lundquist, the cashier of the Security State Bank, as follows: "We hold here as collateral Certificate No. 105 for 38 shares of stock in your bank. Would you be interested in buying this stock? If so, at what price? We would be willing to accept a reasonable payment and carry you along for awhile on the balance."

So far as appears the First National Bank never received any dividends on this stock and never attempted to exercise or enjoy any of the rights...