Winters v. Armstrong

• Decision Date: 28 January 1889
• Citation: 37 F. 508
• Parties: WINTERS v. ARMSTRONG. ARMSTRONG v. STANAGE. SAME v. WOOD.
• Court: U.S. District Court — Southern District of Ohio

37 F. 508

WINTERS v. ARMSTRONG. ARMSTRONG v. STANAGE. SAME v. WOOD.

United States Circuit Court, S.D. Ohio, Western Division.

January 28, 1889

E. W Kittredge and W. B. Burnet, for the receiver.

Paxton & Warrington, for J. H. Winters and W. H. Stanage.

Jordan & Jordan, for William Woods.

JACKSON J.

These three cases, standing on exceptions to the answer of the receiver in the first, and demurrers to his replies in the second and third of the above-entitled causes, present substantially the same questions, and, having been heard together, will be considered and determined together. The material facts disclosed in the pleadings, and on which the legal questions arise, are the following, viz: The Fidelity National Bank of Cincinnati was organized in February, 1886 with a capital stock of $1,000,000, which 'its articles of association' provided might be increased, according to the provisions of section 5142, Rev. St., to any sum not exceeding $3,000,000. Said section 5142, in force when the bank was organized, provides that 'any association formed under this title may, by its articles of association, provide for an increase of its capital, from time to time, as may be deemed expedient, subject to the limitations of this title but the maximum of such increase to be provided in the articles of association shall be determined by the comptroller of the currency, and no increase of capital shall be valid until the whole amount of such increase is paid in and notice thereof has been transmitted to the comptroller of the currency, and his certificate obtained, specifying the amount of such increase of capital stock, with his approval thereof, and that it has been duly paid in as part of the capital of such association. ' By an act of congress approved May 6, 1886, it is provided that 'any national banking association may, with the approval of the comptroller of the currency, by the vote of shareholders owning two-thirds of the stock of such association, increase its capital stock in accordance with existing laws to any sum approved by said comptroller, and no increase of the capital stock of any national banking association, either within or beyond the limit fixed in its original article of association, shall be made except in the manner herein provided. ' After this act of May, 1886, went into operation, the directors of the Fidelity National Bank, in March, 1887, passed a resolution that the capital stock of said bank be increased $1,000,000; that said increase of stock be furnished to the shareholders in like proportion to the amount of their holdings of original stock, at the rate of $135 per share of $100; and that shareholders should be notified of the board's action, so as to give them the opportunity and prior right to subscribe for such increased stock. Thereafter, in April and May, 1887, the plaintiff, Winters, and the defendants, Stanage and Woods, as holders of original stock of the bank, subscribed for such proposed increase of its capital stock, in proportion to their respective holdings of the old stock. Winters paid in his subscription in two cash installments made in April and May, 1887, taking from the bank a receipt or receipts therefor, specifying the number of shares of the new stock which were to be issued to him by the bank when the increase was made. Woods and Stanage each executed notes to the bank for the amounts of their respective subscriptions to the proposed increase of stock payable at four months and ninety days from April 7, 1887, but neither paid in any money on their subscriptions or their notes. No certificates of stock on the proposed increase were issued to Woods or Winters, but one was issued to Stanage; but it does not appear that either of them ever voted such stock, or accepted any dividends thereunder. The bank was in fact insolvent when this increase of the stock was proposed by the directors, and the subscriptions were made in the belief that the bank was solvent, and that the new stock was or would be worth what the subscribers agreed to pay for it.

It does not appear from the answers and replies of the receiver, which are excepted and demurred to, that this proposed increase of the capital stock of the bank was sanctioned or authorized by the vote or approval of shareholders owning two-thirds of the stock of the association; and it is conceded that no steps were taken by the bank to perfect the proposed increase of stock in conformity with the provisions of the national banking laws. No notice of the proposed increase of its capital stock was given, either by the association, its directors, or stockholders, to the comptroller of the currency; nor was such proposed increase of stock ever assented to or approved by said comptroller; nor was any certificate ever issued by or obtained from the comptroller, specifying the amount of such increase of the bank's capital stock, or that it had been duly paid in as part of the bank's capital. It is conceded in the pleadings of the receiver, and by his counsel in argument, that no valid increase of the capital stock of the bank was ever in fact made in conformity with the requirements of the national banking laws. This is manifestly so under the admitted facts. Corporations have no power to increase or diminish their stock unless expressly authorized so to do. It is also well settled that the directors of a corporation cannot, in the absence of power expressly conferred, make any valid increase of its capital stock. In Railway Co. v. Allerton, 18 Wall. 233, the charter of the corporation provided that its capital stock should be a designated sum, 'and may be increased from time to time, at the pleasure of the said corporation. ' It was held that the directors alone could make no valid increase of the stock of the corporation. Directors of national banks have no authority under the law to increase the capital stock of such associations; nor can the assent of individual shareholders or subscribers for such new stock to their action in attempting so to do confer the requisite authority, or make such increased stock valid, under the provisions of section 5142, Rev. St., or of the act of May, 1886, above quoted. It is not material to determine how far, or to what extent, the latter act either modifies or repeals the provisions of section 5142, Rev. St., for under neither can it be properly claimed that the proposed or attempted increase of the capital stock of the Fidelity National Bank was made in a way to give it any legal validity, or to confer upon the subscribers therefor any rights as actual stockholders of the association. In Delano v. Butler, 118 U.S. 649, 7 S.Ct. 44, Mr. Justice MATTHEWS, speaking for the court, says that, under section 5142 of the Revised Statutes, three things must concur to constitute a valid increase of the capital stock of a national banking association, viz.:

'(1) That the association, in the mode pointed out in its articles, and not in excess of the maximum provided for by them, shall assent to an increased amount; (2) that the whole amount of the proposed increase shall be paid in as part of the capital of such association; and (3) that the comptroller of the currency, by his certificate specifying the amount of such increase of capital stock, shall approve thereof, and certify to the fact of its payment.'

These several requirements were not complied with by the Fidelity National Bank. There was no formal or proper assent of the association to the proposed increase. The whole amount of such increase was not paid in as a part of the capital of the association. No notice of the proposed increase was given to the comptroller of the currency. The comptroller never approved such increase, and never issued any certificate specifying the amount of such increase, with his approval thereof, nor certified to the fact of its payment. It is equally clear that there was no compliance with the provisions of the act of May, 1886. Under that act an increase of the capital stock of any national banking association, either within or beyond the limit fixed in its original articles of association, can only be legally and validly made with the approval of the comptroller of the currency, and with the assent or by the vote of shareholders owning two-thirds of the stock of such association; and such increase must also be made 'in accordance with existing laws to any sum approved by said comptroller;' and except in the manner thus provided and prescribed, the act declares that no increase 'shall be made.' As repeals by implication are not favored, and as the act of 1886 is not in conflict or inconsistent with the second and third requirements under section 5142, Rev. St., 'that the whole amount of the proposed increase shall be paid in, and that the comptroller, by his certificate specifying the amount of such increase of capital stock, shall approve thereof, and certify to the fact of its payment, ' it follows, as we think, that such payment and certification by the comptroller are still required under the act of 1886, in order to make the increase of capital stock 'in accordance with existing laws.' These acts of congress constitute the charter powers of national banking associations in respect to an increase of their capital stock. The act of 1886 makes the matter or subject of an increase in their capital stock conform to that of a reduction of such capital stock, as provided for by section 5143, Rev. St. The general government, under whose laws national banking associations are created, and their powers defined, has, in and by these provisions of the law, reserved to itself to say, through its designated agent or officer intrusted with the supervision of such matters, when and to what extent such associations shall be...