The Citizens Bank of Lane v. Needham

• Decision Date: 06 March 1926
• Docket Number: 26,678,26,805,26,804,26,670,26,673
• Citation: 120 Kan. 523,244 P. 7
• Parties: THE CITIZENS BANK OF LANE, by WILLIAM DOCKING, Receiver, Appellee, v. S. D. NEEDHAM, Appellant. THE OSAWATOMIE STATE BANK, by WILLIAM DOCKING, Receiver, Appellee, v. C. S. LANPHERE, Appellant. THE OSAWATOMIE STATE BANK, by WILLIAM DOCKING, Receiver, Appellee, v. G. W. MCLAIN, Appellant. THE FARMERS STATE BANK OF LARNED, Appellee, v. THOMAS KEAST, Appellant. THE FARMERS STATE BANK OF LARNED, Appellee, v. J. L. DEWEY, Appellant
• Court: Kansas Supreme Court

244 P. 7

120 Kan. 523

THE CITIZENS BANK OF LANE, by WILLIAM DOCKING, Receiver, Appellee, v. S. D. NEEDHAM, Appellant.

THE OSAWATOMIE STATE BANK, by WILLIAM DOCKING, Receiver, Appellee, v. C. S. LANPHERE, Appellant.

THE OSAWATOMIE STATE BANK, by WILLIAM DOCKING, Receiver, Appellee, v. G. W. MCLAIN, Appellant.

THE FARMERS STATE BANK OF LARNED, Appellee, v. THOMAS KEAST, Appellant.

THE FARMERS STATE BANK OF LARNED, Appellee, v. J. L. DEWEY, Appellant

Nos. 26,670, 26,673, 26,678, 26,804, 26,805

Supreme Court of Kansas

March 6, 1926

Decided January, 1926.

Nos 26,670, 26,673, and 26,678, Appeals from Miami district court; JABEZ O. RANKIN, judge.

Nos 26,804 and 26,805, Appeals from Pawnee district court; ROSCOE H. WILSON, judge.

Judgments affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

1. BANKS AND BANKING -- Stockholders' Liability -- Assessments and Double Liability Distinguished. Assessment of bank stock to make good impairment of capital, and double liability of stockholders, subserve entirely distinct and wholly different purposes. One is an incident of operation; the other is an incident of liquidation.

2. SAME--Stockholders' Liability--Effect of Assessment on Double Liability. Payments made by stockholders to a bank in consequence of impairment of capital, with purpose or effect to repair breach in capital or to keep the bank a going concern, are voluntary payments, however induced, and have no effect to discharge double liability.

Nos. 26,670, 26,673, and 26,678, Alpheus Lane and Karl V. Shawver, both of Paola, for appellants.

Elmer W. Columbia, of Oswego, for the appellees.

Nos. 26,804 and 26,805, G. W. Finney, Roscoe E. Peterson, both of Larned, and William Osmund, E. C. Cole, T. B. Kelley, all of Great Bend, for the appellants.

W. H. Vernon, Jr., and J. S. Vernon, both of Larned, for the appellee.

T. F. Garver, James E. Larimer, Robert Stone, George T. McDermott, R. L. Webb, Beryl R. Johnson, Ralph T. O'Neil, John D. M. Hamilton, all of Topeka, Benj. F. Hegler, A. V. Roberts, both of Wichita, and S. N. Hawkes, of Bartlesville, Okla., as amici curiae.

OPINION

BURCH, J.:

The plaintiff in each of these cases is an insolvent bank in process of liquidation, suing by its receiver. The defendant in each case is a stockholder of the bank. The purpose of each action was to enforce the stockholder's double liability. Before his bank was finally closed, and while its capital was impaired, each defendant paid to the bank, on account of his stock, which was fully paid up, an additional sum equal to par value of the stock. In each case the judgment of the district court sustained the contention of the receiver that, notwithstanding the previous advancement, double liability subsisted, and was enforceable. The stockholders have appealed.

Because of intrinsic importance of the question, and because conditions of which the court takes cognizance are such that decision of the question is a mater of public importance, the court invited briefs from attorneys representing the receiver and the stockholders of failed banks, in other cases pending in this court, in cases pending in district courts, and in cases not commenced but imminent under the policy adopted by the receiver. The response is most gratifying, and the court is enabled to proceed to determination of the appeals with assurance that it has been fully advised concerning the problem they present.

In the bank of Larned cases, an examination of the bank disclosed that its capital was impaired. The board of directors called a meeting of the stockholders, and at the stockholders' meeting, held on December 8, 1921, the following resolution was adopted:

"Whereas, it appears that the capital stock of the Farmers State Bank has become impaired; and whereas, the bank commissioner of the state of Kansas has notified said bank to make the impairment good within 90 days; and whereas, a special meeting of the stockholders of the said bank has been called for the purpose of making an assessment of the capital stock sufficient to cover the impairment: Now therefore be it resolved, that an assessment of 100 per cent on the capital stock of said bank be made for the purpose of covering the impairment of said stock."

Keast and Dewey paid the assessment on their stock, and the bank continued to do business until September 15, 1922, when it was closed. The stockholders' meeting was attended by deputy bank commissioner Chapman. At the meeting one of the stockholders inquired of Chapman what assurance they had that this assessment would put the bank in good condition, and whether there would be any more assessments. Chapman replied that the assessment would put the bank in good condition. At that time he believed the assessment would put the bank in good condition, and that it would be able to continue to operate.

On January 5, 1922, the stockholders of the bank of Lane unanimously voted an assessment of 100 per cent on the capital stock, and the bank continued to do a general banking business until June 14, 1923. On April 18, 1923, a majority of the stockholders voted a second stock assessment of 100 per cent. The second assessment was not paid, and the bank was obliged to close its doors. The defendant Needham paid the first assessment on his stock. The circumstances under which the first assessment was made are in dispute. The bank's capital was impaired, but no formal notice was sent by the bank commissioner to the bank to make good the impairment, pursuant to the statute providing for such notice. Needham, who was cashier, testified he was told by representatives of the banking department that it would be necessary to make the assessment or close the bank. He further testified that assistant bank commissioner Sandell and deputy bank commissioner Howard made statements to him to the effect that the stockholders might as well try to keep the bank going as to close it; they would be liable to assessment if the bank closed; and by paying an assessment to keep the bank going, they would avoid double liability. Sandell and Howard denied making statements to the effect that assessments to make good impaired capital and keep the bank going would discharge double liability if the bank were subsequently closed, and Sandell's views relating to stock assessment were stated in a letter to the president of the bank dated May 17, 1922, which drew the distinction between an assessment on capital stock and double liability of stockholders:

"The case (relating to repeal by constitutional amendment of the statute imposing double liability on stockholders) is now before the supreme court, and will have nothing to do so far as the requirements are concerned where a bank continues to operate and keep in business. If the bank makes losses, it becomes necessary for the stockholders to vote an assessment to cover the amount, unless the bank has sufficient earnings to make good.

"If the stockholders do not vote the assessment, then, of course, it is up to the banking department to request that it be made, and should the stockholders refuse to do so, there would be nothing for the department to do but to close the bank.

"You are right in that the pending case in the supreme court only involves the right to sue and recover judgment against the shareholders. It is our opinion that the bank has the authority to make the assessment under the law, and if the assessment is not paid, the stock can be sold."

Howard's report to the bank commissioner, made the day the first stock assessment was levied, showed the bank was in bad condition, but in better condition than it was six months before. The board of directors would not admit that any asset was doubtful except one loan, on which some loss was expected. Howard hoped the bank's surplus of $ 8,000, and the assessment of 100 per cent on the stock, would take care of losses in sight. As indicated, the bank continued to do business for approximately eighteen months.

The Osawatomie bank suspended, and was taken in charge by the bank commissioner on February 21, 1922. At that time many banks in the state were failing, and the bank commissioner greatly desired that the Osawatomie bank should not be permanently closed. Examination disclosed the bank was insolvent, but the bank commissioner believed it could reopen if $ 40,000 in cash were substituted for that amount of bad paper. The bank commissioner conferred with some of the stockholders, who elected to advance $ 40,000 to the bank rather than suffer an assessment on stock to make good impaired capital. The advancement was made pursuant to a written contract between the electing stockholders and the bank, prepared by the bank commissioner, and executed on March 8, 1922. Portions of the contract follow:

"Whereas the bank commissioner of the state of Kansas deemed it necessary for said bank above named to make an assessment on its stockholders of a sufficient per cent on its capital stock to raise the sum of forty thousand dollars ($ 40,000) for the purpose of providing a fund against which may be charged losses of said bank, or in lieu of said assessment provide said fund of $ 40,000 from some other source, and the parties of the first part hereto having elected to provide said $ 40,000 themselves instead of having said bank make said assessment, and acting upon said election the parties hereto have paid into said bank as and for said fund the following amounts respectively, towit: [Names and amounts.]

"Now therefore, The parties of the first part, each for himself, agrees that the sum by him paid into said $ 40,000 fund, and the whole of said fund, shall not be a liability against said bank in any event or under any circumstances until all depositors and other creditors of said...