until the bank is placed in liquidation, to act as a stockholder and receives dividends, though without knowledge of the fraud, cannot rescind as against the bank's creditors.51

TRANSFER OF SHARES

96. The capital stock is personal property, and is transferable on the books of the association, as may be prescribed in the by-laws or articles, and every person becoming a shareholder by such transfer succeeds to the rights and liabilities of the holder of the shares. As between seller and buyer, a sale of shares is complete when the certificate, duly assigned, with power to transfer on the books, is delivered. Transfer on the books is necessary to protect the seller against subsequent liability as a stockholder to creditors of the association; but it seems that the rights of an unregistered transferee are superior to the rights of an attaching creditor of the transferror without notice.

The act provides that the capital stock is transferable on the books of the association in such manner as may be prescribed in the by-laws or articles of association, that every person becoming a shareholder by such transfer shall succeed to the rights of the prior holder of the shares, and that no change shall be made in the articles by which the rights, remedies, or security of the existing creditors shall be impaired. 52

A stockholder may make a bona fide transfer to any person capable of taking and holding the stock and assuming the trans

51 Scott v. Latimer, 89 Fed. 843, 33 C. C. A. 1. See, also, Wallace v. Hood (C. C.) 89 Fed. 11; Hood v. Wallace, 97 Fed. 983, 38 C. C. A. 692, affirmed 182 U. S. 555, 21 Sup. Ct. 885, 45 L. Ed. 1227; Lantry v. Wallace, 97 Fed. 865, 38 C. C. A. 510. Cf. Stufflebeam v. De Lashmutt (C. C.) 101 Fed. 367. See "Banks and Banking," Dec. Dig. (Key No.) § 242.

52 Rev. St. U. S. § 5139 (U. S. Comp. St. 1901, p. 3461).

ferror's liabilities.53 The directors or other shareholders have no authority to approve or reject a bona fide transfer, nor can they refuse to register it without a valid and lawful reason.54 As between the seller and buyer of shares, the sale is complete when the certificate, duly assigned, with power to transfer the same on the books of the bank, is delivered, and payment therefor received.55 "The entry of the transaction on the books of the bank, where stock is sold, is required, not for the translation of the title, but for the protection of the parties and others dealing with the bank, and to enable it to know who are its stockholders, entitled to vote at their meetings and receive dividends when declared. It is necessary to protect the seller against subsequent liability as a stockholder, and perhaps also to protect the purchaser against proceedings of the seller's creditors." The question of the rights of an attaching creditor to stock transferred by an unregistered assignment is left in the passage above quoted as not definitely settled. The view has generally prevailed, however, that the provisions of the National Bank Act with reference to the transfer on the books of the association was enacted for the benefit of the corporation, its shareholders, and creditors, and that as to other persons a transfer good at common law is sufficient, and that the rights of a transferee under an unregistered assignment are superior to the rights of a subsequent attaching creditor of the transferror without notice."7

53 Johnson v. Laflin, Fed. Cas. No. 7,393, 5 Dill. 65. See "Banks and Banking," Dec. Dig. (Key No.) § 243; Cent. Dig. §§ 904-908.

54 Johnson v. Laflin, Fed. Cas. No. 7,393, 5 Dill. 65, affirmed Johnston v. Laflin, 103 U. S. 800, 26 L. Ed. 532. See "Banks and Banking," Dec. Dig. (Key No.) § 243; Cent. Dig. §§ 904-908.

55 Johnson v. Laflin, Fed. Cas. No. 7,393, 5 Dill. 65. See, also, Larimer v. Beardsley, 130 Iowa, 706, 107 N. W. 935. Sce "Banks and Banking," Dec. Dig. (Key No.) § 243; Cent. Dig. §§ 904-908.

56 Johnston v. Laflin, 103 U. S. 800, 26 L. Ed. 532; post, p. 388. See "Banks and Banking," Dec. Dig. (Key No.) § 243; Cent. Dig. §§ 904-908.

57 Continental Nat. Bank v. Eliot Nat. Bank (C. C.) 7 Fed. 369; Scott v. Pequonnock Nat. Bank (C. C.) 15 Fed. 494; Hazard v. Na

LIEN ON SHARES

97. The association has not by the act a lien on the shares of stockholders for debts due from them to it; and any provision in the by-laws or articles prohibiting the transfer of shares of a stockholder indebted to the association, or otherwise giving the association a lien on his shares, is invalid.

At common law a corporation has no lien on the shares of its stockholders for debts due to it from them, and the fact that a stockholder is indebted to the corporation is not ground for its refusal to recognize and register a bona fide transfer, unless a lien is given or authorized by the charter.58 Under the act of 1863 the transfer of stock was subject to debts due by the stockholders to the bank, but that act was repealed by the act of 1864, which contains no such provision, and which prohibits any national bank from making loans or discounts on the security of or purchasing or holding the shares of its own capital stock.59 Under the present law a national bank cannot acquire a lien on the shares of its stockholders. It is true that the directors have power to define and regulate, by by-laws not inconsistent with the provisions of the act, the manner in which the stock shall be transferred, and that the stock is transferable on the books in such manner as may be prescribed by the bylaws or articles." But power to make and enforce a by-law giving a lien is not given, and any provision of the articles or by-laws prohibiting the transfer of stock owned by a stock

tional Exch. Bank (C. C.) 26 Fed. 94; Doty v. First Nat. Bank of Larimore, 3 N. D. 9, 53 N. W. 77, 17 L. R. A. 259. See, also, First Nat. Bank v. Lanier, 11 Wall. 369, 20 L. Ed. 172; Dickinson v. Central Nat. Bank, 129 Mass. 279, 37 Am. Rep. 351. See "Banks and Banking," Dec. Dig. (Key No.) § 243; Cent. Dig. §§ 904-908.

58 Clark, Corp. (2d Ed.) 401, 443.

59 Ante, pp. 249, 279. See cases cited post, note 61.

60 Rev. St. U. S. §§ 5136, 5139 (U. S. Comp. St. 1901, pp. 3455, 3461).

holder indebted to the bank until such indebtedness shall be satisfied, or otherwise giving the bank a lien on his shares, is invalid. 61

RIGHTS OF STOCKHOLDERS

98. Every stockholder is entitled to vote at meetings of the shareholders in person or by proxy, and has the common-law right to inspect the books of the corporation.

Right to Vote

In elections of directors and in deciding all questions at meetings of shareholders, shareholders are entitled to one vote on each share held by them, and may vote by proxies duly authorized in writing; but officers, clerk, teller, or bookkeeper, may act as a proxy, and no shareholder whose "liability is past due and unpaid" shall be allowed to vote.62 The past-due and unpaid liability of a shareholder which disqualifies him from voting is limited to his liability for unpaid subscriptions to stock.63

Right to Examine Books

The common-law right of a stockholder, for proper purposes and under reasonable regulations as to place and time, to inspect the books of the corporation, is not restricted as to national banks by Rev. St. U. S. § 5211 (U. S. Comp. St. 1901, p. 3498), requiring such banks to make reports to the comptroller of the currency, or by section 5240 (page 3516), providing for

61 First Nat. Bank v. Lanier, 11 Wall. 369, 20 L. Ed. 172; Bullard v. National Eagle Bank, 18 Wall. 589, 21 L. Ed. 923; Third Nat. Bank v. Buffalo German Ins. Co., 193 U. S. 581, 24 Sup. Ct. 524, 48 L. Ed. 801. See "Banks and Banking," Dec. Dig. (Key No.) § 245; Cent. Dig. §§ 909, 910.

62 Rev. St. U. S. § 5144 (U. S. Comp. St. 1901, p. 3463).

63 United States v. Barry (C. C.) 36 Fed. 246. See "Banks and Banking," Cent. Dig. § 941; "Corporations," Dec. Dig. (Key No.) § 197; Cent. Dig. §§ 747-763.

the appointment of examiners, or by section 5241 (page 3517), providing that no bank "shall be subject to any visitorial powers other than such as are authorized by this title, or are vested in the courts of justice"; and, in order to determine the value of his stock, a stockholder may obtain such relief in the state courts under a state statute declaring the books of any corporation subject to the inspection of stockholders."

DIVIDENDS

99. Power to declare dividends is expressly conferred upon the directors, subject to certain limitations. The declaration of dividend in violation of the act, while it may be ground for forfeiture of the charter, and for an action against the directors for damages suffered by the association, does not render them liable criminally.

The directors may semiannually declare a dividend of so much of the net profits as they shall judge expedient; but the association must, before declaring a dividend, convey one-tenth of its net profits of the preceding half year to its surplus fund until it shall amount to 20 per cent. of its capital stock.65 No portion of the capital must be withdrawn in the form of dividends or otherwise; and if losses equal to or exceeding the net profits have been sustained, no dividend shall be made; and no dividend shall ever be made to an amount greater than the net profits then on hand, deducting therefrom losses and bad debts, all debts due the association on which interest is past

64 Guthrie v. Harkness, 199 U. S. 148, 26 Sup. Ct. 4, 50 L. Ed. 130. See, also, Winter v. Baldwin, 89 Ala. 483, 7 South. 734; Woodworth v. Old Second Nat. Bank, 154 Mich. 459, 117 N. W. 893; People ex rel. Lorge v. Consolidated Nat. Bank, 105 App. Div. 409, 94 N. Y. Supp. 173. See "Banks and Banking," Dec. Dig. (Key No.) §§ 43, 246; Cent. Dig. $ 61, 912.

65 Rev. St. U. S. § 5199 (U. S. Comp. St. 1901, p. 3494).