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v. Pim, 65 N. J. Eq. 36; Gage v. Fisher, 5 N. Dak. 297, 31 L.R.A. 557; Thompson-Starrett Co. v. E. B. Ellis Granite Co. 86 Vt. 282, 84 Atl. 1017; Carnegie Trust Co. v. America Sec. L. Ins. Co., 111 Va. 1, 31 L.R.A. (N.S.) 1186 and note.

One of the most familiar illustrations of a voting trust which may be lawful is where the object is to carry out a particular policy, with a view to promote the best interests of all the stockholders. Chapman v. Bates, 61 N. J. Eq. 658; Boyer v. Nesbitt, 227 Pa. St. 398, 76 Atl. 103.

Where by express statute individual stockholders are permitted to act through the medium of a trustee or by a proxy without any requirement that the trustee or proxy shall have a beneficial interest, it would seem that in the absence of any other expression of the state of its public policy, any number of the stockholders may join in the selection of joint agents, having the same lack of beneficial interest. Clark v. Foster, 98 Wash. 241, 167 Pac. 908.

Some decisions hold without qualification that, where stockholders combine to intrust and confide to others the formulation and execution of a plan for the management of the affairs of a corporation, and exclude themselves by acts irrevocable for a fixed period from the exercise of their judgment thereon, the agreement is contrary to public policy and void. This conclusion was reached in Kreissl v. Distilling Co., 61 N. J. Eq. 5, where there was an agreement signed by the owners of the majority in amount of the corporate stock, in which they transferred the same to trustees for a period of five years for the purpose of voting the same, and controlling the affairs of the corporation, and excluding themselves from all participation therein; Bridgers v. Tarborr First Nat. Bank, 152 N. C. 293, 67 S. E. 770, 31 L.R.A. (N.S.) 1199. Where there was an agreement between the majority stockholders of a national bank to prevent the control of a majority of stock passing by purchase into the hands of a single stockholder which conferred on the trustees and their successors uncontrolled power to manage the bank for 15 years, and further gave them power to fill vacancies in their number. The courts said, inter alia: "While it may be, in exceptional cases, that some good may be accomplished by such agreements, yet the general effect is vicious and in contravention of a sound public policy." Sheppard v. Rockingham Power Co., 150 N. C. 776, 64 S. E. 894.

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On the other hand, other decisions uphold agreements of this character without other qualification than that the management contemplated must be fair to all stockholders and secure no unjust advantage to the stockholders who are parties to the agreement. Ecker

v. Ky. Refining Co., 144 Ky. 264, 138 S. W. 264; White v. Snell, 35 Utah 434, 100 Pac. 927; Clark v. Foster, 98 Wash. 241, 167 Pac. 908; Winsor v. Com. Coal Co., 63 Wash. 62, 114 Pac. 908, 33 L.R.A. (N.S.) 63, where an agreement made in good faith, by which the majority stockholder of a corporation transferred his stock temporarily to one who obtained money to operate the business, the transferee to have the privilege of pooling such stock with other stock, so as to dominate the election of directors, etc., was held to be valid, it being for the interest of the stockholders. Where the purpose of the voting trust is lawful, and the action contemplated is to be carried out in the interests of all the stockholders, a part of the stockholders may, in the absence of constitutional or statutory restriction, suspend for a time their right to vote and vest such right in others who have a beneficiary interest in the stock or corporate business. Mobile &c. R. Co. v. Nicholas, 98 Ala. 92; Chapman v. Bates, 61 N. J. Eq. 658; Warren v. Pim, 66 N. J. Eq. 353, where the court said: "Can it be contended that, if a corporation finds it necessary to borrow money upon bonds issued for a long term of years, the stockholders cannot, consistently with public policy, in order to secure the

loan, vest the management of the corporation in hands satisfactory to the lenders and for a term commensurate with the loan?" Boyer v. Nesbitt, 227 Pa. St. 398, 76 Atl. 103; Thompson-Starrett Co. v. E. B. Ellis Granite Co. 86 Vt. 282, 84 Atl. 1017; Carnegie Trust Co. v. America Security L. Ins. Co., 111 Va. 1, 68 S. E. 412, 31 L.R.A. (N.S.) 1186 and note.

The New York Stock Corporation Law, § 50 with respect to voting trust agreements provides that a stockholder may, by agreement in writing, transfer his stock to any person or persons for the purpose of vesting in him or them the right to vote thereon for a time not exceeding five years upon terms and condi tions stated, pursuant to which such person or persons shall act; and every other stockholder, upon his request therefore, may, by a like agreement in writing, also transfer his stock to the same person or persons and thereupon may participate in the terms, conditions and privileges of such agreement; the certificates of stock so transferred shall be surrendered and canceled and certificates therefor issued to such transferee or transferees in which it shall appear that they are issued pursuant to such agreement and in the entry of such transferee or transferees as owners of such stock in the proper books of the corporation that fact shall also be noted and thereupon he or they may vote upon the stock so transferred during the time in such agreement specified.

See also West v. Guaranty Trust Co. 162 App. Div. 301, 147 N. Y. Suppl. 421, and In re O'Gara Coal Co., 260 Fed. 742. (1922.)

906a. Executor has right to vote national bank shares standing in name of testator at stockholders' meeting.Is a director of a national bank entitled to vote at an annual meeting of stockholders on stock that he holds as executor?

Opinion: It is a general rule of law that an executor has the right to vote with respect to stock standing on the corporate books in the name of the testator on exhibiting an exemplified copy of his letters testamentary (Market St. R. Co. v. Hellman, 109 Cal. 571), and there is nothing in the National Bank Act which restricts this right. That Act (U. S. Rev. Stat. § 5144 [Comp. Stat. § 9682]) provides that "in all elections of directors and in deciding all questions at meetings of shareholders, each shareholder shall be entitled to one vote on each share of stock held by him. Shareholders may vote by proxies duly authorized in writ ing; but no officer, clerk, teller or bookkeeper of such association shall act as proxy and no shareholder whose liability is past due and unpaid shall be allowed to vote." An executor cannot, however, be a director by virtue of shares belonging to the estate as the Act (Rev. Stat. § 5146 [Comp. Stat. § 9684]) provides that every director must own "in his own right" at least ten shares of stock. But where, as in the present case, a director by virtue of shares owned in his own right also holds shares as executor, there is nothing in the Act to prevent his voting the shares he holds as executor, equally as his own individual shares. (1915.)

WHO MAY BE A STOCKHOLDER?

908a. Corporation may be a stockholder.-A representative of a corporation presents certificate of stock in this Bank to us for transfer, asking that same be transferred to the name of his corporation. What is our position in this regard?

Opinion: The rule supported by the great weight of authority is that a corporattion cannot take and hold stock in another corporation unless such power has been expressly granted to it or is conferred by necessary implication. Central Life Sec. Co. v. Smith, 236 Fed. 170; Lester v. Beme's Lumber Co., 71 Ark. 379, 74 S. W. 518; Dunbar v. American Tel. &c. Co., 224 III. 9, 79 N. E. 423; Hunt v. Hauser Malt. Co., 90 Minn. 282, 96 N. W. 85; Holmes &c. Mfg. Co. v. Holmes

&c. Metal Co., 127 N. Y. 252, 27 N. E. 831; Dillard &c. Co. v. Richmond Cotton Oil Co. 140 Tenn. 290, 204 S. W. 758. The reasons ordinarily assigned for the rule are that: (1) It involves the investment of corporate funds in enterprises over which the corporate officers have no control, and risks them in a business which is foreign to that for which the stockholders advance their money. Louisville Trust Co. v. Louisville &c. R. Co., 75 Feď. 433: (2) It is against public policy to permit the officers of a corporation to take the corporate funds belonging to the stockholders and expend it in purchasing or speculating in the stock of other companies. Milbank v. N. Y. &c. R. Co. 64 How. Pr. (N. Y.) 29: (3) If a corporation can purchase any portion of the capital stock of another corporation it can purchase the whole, and invest all of its funds in that way, and thus be enabled to engage exclusively in a business entirely foreign to the purposes for which it was created. Franklin Co. v. Lewiston Inst. for Sav. 68 Me. 43: (4) The state which conferred the franchise, as well as the stockholders who invested their capital in the enterprise, and the creditors who advance money on the faith of it, have the right to rely on the corporation's not engaging its funds or risking its property in any business which is not expressly or impliedly permitted by its charter. Marbury v. Ky. Union Land Co., 62 Fed. 335. In some jurisdictions express permission is given to corporations created under particular statutes to hold stock in other corporations. Bancroft &c. Co. v. Bloede, 106 Fed. 396, 52 L.R.A. 734; Hyams v. Old Dominion Co., 113 Me. 294, 93 Atl. 747, L.R.A.1915D, 1128 and note; State v. Atlantic City &c. R. Co., 77 N. J. L. 465, 72 Atl. 111; Venner v. Rail. Co., 226 N. Y. 583; Motter v. Kennett Tp. Electric Co., 212 Pa. St. 613, 62 Atl. 104; State v. Pacific County Super Ct. 52 Wash. 214, 105 Pac. 637. Thus, it has been held that where the exercise of such power is not forbidden by the charter or the nature of the business of the corporation, it may invest surplus funds in the stock of other corporations, provided it acts in good faith and without unlawful purpose. Booth v. Robinson, 55 Md. 419; Pearson v. Concord R. Corp. 62 N. H. 537.

So a corporation may hold stock of another as security for a debt. Taylor County Ct. v. Baltimore &c. R. Co., 35 Fed. 161; Milbank v. N. Y. &c. R. Co., 64 How. Pr. (N. Y.) 20; or take such stock in payment of a debt. Byrne v. Schuyler Electric Mfg. Co., 65 Conn. 336, 31 Atl. 833, 28 L.R.A. 304; Howe v. Boston Carpet Co. 16 Gray (Mass.) 493; Hyde v. Equitable L. Ins. Co. 61 Misc. 518, 116 N. Y. Suppl. 219. In the case submitted it would be the duty of the officers of the bank to make the transfer of stock to the corporation, as requested, for even if the transferee corporation was committing an ultra vires act in acquiring such stock, the bank could not question such act. The validity of such acquisition on the part of the corporation could only be raised in proper proceedings by its stockholders or creditors, or by the attorney general of the state. (1923.)

909a. Stockholder in insolvent bank cannot be stockholder in reorganized bank.-I own 140 shares of stock in a national bank which has been closed some time for liquidation and is in the hands of a receiver. I fully acknowledge 100% liability as stock assessment, which is being discharged, and at the present time the receiver of the bank in question, together with other citizens contemplate the organization of a national bank and have approached me with the request that I issue a waiver to all rights or interest that I now or heretofore have had in said bank. I have not been furnished with a statement of the conditions of the bank after the assessments have been paid in but I take it that the parties organizing the bank wish to eliminate me from the organization of the new institution. You understand I have paid the assessment in accordance Paton's Digest.-82.

with the law and I should like to know if the parties organizing the new bank can arbitrarily eliminate me as a shareholder. In other words, what recourse have I in the matter?

Opinion: The National Bank Act permits the owners of two-thirds of the stock of a national bank by vote to liquidate it. They may organize a new bank, to the exclusion of minority dissenting stockholders of the old bank. (Green v. Bennett, (Tex. Civ. App.) 110 S. W. 108.) In such case the minority stockholders have only the right to demand that the assets of the bank be disposed of so that the full value thereof shall be received for distribution among the shareholders. Green v. Bennett, supra; Bonnet v. First Nat. Bank, 24 Tex. Civ. App. 613.)

By analogy, in case of the insolvency of a national bank the only right a stockholder has is his right to his distributive share of the assets of the bank in case there should be such, after full liquidation and payment of all claims against it. In the case submitted he cannot, of course, be compelled to sign a waiver to all his rights or interest in the defunct bank; but he cannot compel the incorporators of the new bank to allow him to participate in the reorganization, and to have the option of subscribing to stock in the new organization. There is nothing in the National Bank Act which gives this right to a stockholder in the failed bank. He is as much a stranger to the new organization as would be any other third party. (1923.)

910a. Stock may be issued in names of husband and wife with right of survivorship.-The capital stock of this Bank was recently increased and a portion sold to new subscribers for cash. In a few instances we are requested to issue the new certificates in the names of husband and wife jointly. Kindly advise me if a certificate made to "John Smith and Ruth Smith, his wife, joint tenants with right of survivorship" would give the survivor power to sell, assign, or transfer, and if the Treasury Department would take any exception to certificates issued in that form. If there are any other forms in use by national banks, will you kindly favor us with a copy.

Opinion: Certificates of stock may be issued in two names. (Markell v. Ray, 75 Minn. 138; Matter of Pioneer Paper Co. 36 How. Pr. (N. Y.) 111.) Indeed, the Uniform Stock Transfer Act, § 22, clearly recognizes the right of legal joint ownership of stock by providing that the word "person," as used in the Act, includes two or more persons having a joint or common interest. The state of Pennsylvania has enacted the Uniform Stock Transfer Act, Pa. Stat. (1920) §§ 57005723. Certificates of stock may be legally issued in two names, payable to the survivor. Phelps v. Simons, 159 Mass. 415, holding that where stock is devised to a husband and wife jointly, the assignee of the husband's interest is entitled only to his share of the dividends during life, and if the wife survives her husband, the stock goes to her, even in jurisdictions where joint tenancies have been abolished. Thieme v. Union Tel. Co., 32 Ind. App. 522, holding that under the Indiana statute the survivor of joint owners of stock takes the entire stock where the instrument creating the title expressly so provides. There is nothing in the National Bank Act prohibiting the issue of national bank stock in the joint names of two persons; and in the case submitted a certificate of their bank stock issued to "John A. Smith and Ruth B. Smith, his wife, joint tenants with right of survivorship," would vest the absolute ownership of such stock in the survivor upon the death of either spouse.

From the standpoint of the treasury department there is no objection. But for the purpose of taxation the survivor would be taxed on the entire number of shares, unless he or she proved ownership of a proportion in his or her own right, when it would be dimin ished pro tanto for taxation. See U. S. Comp. Stat. § 6336 c. (1923.)

911a. Bank stock may be issued to a firm in the firm name and a director's qualification shares may be held by partnership of which he is member.-Can a certificate of bank stock be issued in the name of a firm? A father and son are in partnership under the name of John Smith & Son and have bought shares of our stock, and desire it registered in the partnership name. I am a little in doubt whether it would be proper to so issue the certificate. I have in mind difficulties which might arise in case one of the firm should desire to become a director, whether stock issued in the firm name would be sufficient to qualify him.

Opinion: A certificate of stock may be issued in the firm name and a director's qualification shares may be held by the partnership of which he is a member. The following authorities are pertinent to your inquiry:

A partner, like an agent, or acting as an agent, may make a subscription to the capital stock of a corporation for his firm and in its name. Union Hotel Co. v. Hersee, 79 N. Y. 454, where certificates of stock were issued to two partnership concerns thus: "B. & S. M. Spencer" and "Sidney Shepard & Co." respectively, upon the signature of one partner to the subscription list. The fact that a certificate of stock may be, and often is issued in the name of a firm, is illustrated in the case of Morse v. Pacific Ry. Co., 191 Ill. 356, where the certificate was issued to a partnership under the title "Reid & Murdock." See also Rehbein v. Rahr, 109 Wis. 136, where the certificate of stock was issued in the name of "William Rahr's Sons," a partnership.

Where the charter or by-laws of a corporation require that in order to be eligible to the office of director a person must be a stockholder in the corporation, a director's qualification shares may be held by him jointly with another person, or by the partnership of which he is a member. In re Glory Mills Co. 3 Ch. 473, 63 L. J. Ch. 885.

Where a certificate of stock is issued in the name of a partnership, a valid transfer thereof may be executed by any member of the firm who is authorized to sign the firm name. Barton v. London &c. R. Co., 24 Q. B. D. 77; Kortright v. Buffalo Commercial Bank, 20 N. Y. 91; Plymouth v. Norfolk Bank, 10 Pick. [Mass.] 454.

Cook in his work on Corporations is authority for the statement that one partner may sell and convey stock standing in the partnership name. Cook on Corporations, Chap. 24, § 429.

If, however, the general law, charter or by-laws require that a director shall, in order to qualify, own a certain number of shares in his own name or in his own right, he could not qualify on the basis of being a member of a partnership which owned the requisite number of shares. (1918.)

PURCHASE OF STOCK

On

912a. Purchase of stock may be rescinded on ground of fraud.-On November 28th, 1921 while a member of the board of directors of a national bank, A sold and duly transferred 20 shares of said bank's stock, receiv ing $125 per share, the same being sold to B. December 12th, 1921, B, in turn, duly sold and transferred 5 shares of said stock to C. At about the same time B sold and transferred 15 of the shares to D, his brother, the said 15 shares being sold and transferred from D to C on January 9th, 1922 the said C believing that same had been bought from B direct. On February 25th, 1922, the bank closed its doors to the public and is now in the hands of a receiver."

(1) Can C hold A responsible in anyway for the consideration he paid for said stock?

(2) Can C hold B responsible in anyway for the consideration he paid for said stock?

(3) Can B hold A responsible in anyway for the consideration he paid for said stock?

(4) Would D be involved in anyway with reference to C when the latter knew nothing of his ownership of the stock?

Please explain in detail in answering the above questions and give citations if similar conditions and questions have been passed on by our Courts.

Opinion: In the case submitted the sale of the bank stock by the bank director A might be avoided on the ground of fraud, provided the facts in the case warranted it. However, the mere fact that the seller of the stock was a director in the bank which failed within three months after such sale, would not per se be conclusive evidence of fraud, though it is a highly suspicious circumstance, and tends to cast grave doubt upon the bona fides of the whole transaction. This, however, would all depend upon the inducements held out by the seller in the nature of statements of alleged facts as to the solvency of the bank, warranties, etc.

Fraud is a false representation of a fact, made with knowledge of its falsity, or recklessly, without belief in its truth, with the intention that it shall be acted upon by the complaining party, and actually inducing him to act upon it to his injury. Fraud renders a sale or a contract to sell voidable; Cotner v. Banks, 137 Ark. 394, 209 S. W. 80; Pikes Peak Paint Co. v. Masury, 19 Colo. App. 286, 74 Pac. 796; Brumbaugh v. Mellinger, 68 Ind. App. 410, 120 N. E. 676; Snellgrove v. Dingelhoef, 25 Ga. App. 334, 103 S. E. 418; Kingsbury v. Smith, 13 N. H. 109; Rail Co. v. Fucello, 91 N. J. L. 476, 103 Atl. 988; Hunter v. Hudson River Iron &c Co. 20 Barb. (N. Y.) 493; Fleming v. Hanley, 21 R. I. 141 and the same state of facts which is ground for avoidance of the contract may also, although not necessarily, give rise to an action for deceit. Eamos v. Morgan, 37 Ill. 260; Ley v. Met. L. Ins. Co., 120 Iowa 203; Busterud v. Farrington, 36 Minn. 320.

As a rule the misrepresentation must be of fact, as distinguished from opinion, intention, or matter of law. Ayres v. Blevins, 28 Ind. App. 101; Wilt v. Cuenod, 9 N. M. 143; Fleming v. Car Co. 86 Oreg. 195, 159 Pac. 1153; Fryar v. Farms, 97 Wash. 78, 165 Pac. 1084. And the general rule is that the mere failure of a party to a contract to disclose facts does not constitute fraud, but the failure to disclose must be accompanied by an active attempt to deceive. Whiteworth v. Thomas, 83 Ala. 308; Barnett v. Sheir, 93 Ga. 762; Cogel v. Kniseley, 89 Ill. 598; Milliken v. Chapman, 75 Me. 306; Farrell v. Manhattan Market Co., 198 Mass. 271, 84 N. E. 481, 15 L.R.A. (N.S.) 884, and note; Laidlaw v. Organ, 2 Wheat. (U. S.) 178, 4 L. ed. 214.

With respect to any right of action by the subsequent purchasers of the stock against the original seller, it could only be on the ground of warranty. Ordinarily a warranty is addressed to some particular person, and the buyer alone can avail himself thereof. (Phillip v. Vermillion, 91 Ill. App. 133; Thisler v. Keith, 7 Kan. App. 363; Clark v. People's Col. Loan Co., 46 Mo. App. 248). A warranty on the sale of personalty does not run with the property, (Nelson v. Armour Pack. Co., 76 Ark. 352; Smith v. Williams, 117 Ga. 782; Booth v. Scheer, 105 Kan. 643, 185 Pac. 898, 8 A.L.R. 663 and note) and assignees of or purchasers from the buyer cannot avail themselves thereof as against the original seller, (Grocery Co. v. Boykin, 203 Ala. 187, 82 So. 437; Bank v. Mathers, 183 Iowa, 226, 166 N. W. 1050; Prather v. Campbell, 110 Ky. 23; Bordwell v. Collie, 45 N. Y. 494; Post v. Burnham, 83 Fed. 79) unless the assignee or purchaser assumes payment of the original purchase price, or the warranty is specifically assigned to the second purchaser, (Boyd v. Whitfield, 19 Ark. 447; Booth v. Scheer, 105 Kan. 643, 185 Pac. 898, 8 A.L.R. 663 and note; Crook v. Baltimore &c R. Co., 80 Md. 338; Ranney v. Meisenheimer, 61 Mo. App. 434) or by a usage of the trade a warranty inures to the benefit of subsequent purchas(Conestoga Cigar Co. v. Finke, 144 Pa. St. 159, 13 L.R.A. 438 and note.)

ers.

As between B, C, and D in the absence of fraud it would seem that neither one would be liable to the

other. However, under the facts as stated it would seem that D knew of the fraud he was perpetrating on C, and if he did he would be liable to C, and the fact that C did not actually know that D was in fact owner would not protect D from the consequences of his fraud. (1922.)

913a. Clause in by-laws of bank or printed on stock certificate giving bank option to purchase stock of no avail-Bank cannot be holder or purchaser under Wisconsin law. In a recent bulletin of a banking authority the information was given that a bank having incorporated in its by-laws and in its stock certificates the following section, or a similar section, would be afforded considerable protection by it. The section is, "Whenever a stockholder desires to dispose of his stock he shall give notice to that effect in writing to the cashier of the bank. For a period of ten days following the filing of this notice the Bank shall have an option for the purchase of this stock at such figure as may be agreed upon between the stockholder and the directors. In the event that the stockholder and the Board of Directors are unable to agree upon a price for the stock, then the stockholder shall name a disinterested person and the Board of Directors shall name another disinterested person. These two shall select a third and the three shall constitute a commission for the purpose of appraising the stock and the findings of this body shall be binding upon the stockholder and the directors." Your opinion as to the legality of such a provision under the laws of the state of Wisconsin is very much desired. Further, would the incorporation of such a section in the by-laws of the Bank be binding upon the stockholders of the Bank without incorporating it in the stock certificates? And if not, how would you recommend obtaining this protection for a bank whose stock certificates have been issued and are outstanding? Opinion: An abstract from the Banking Law of Wisconsin is as follows:

The Wisconsin Banking Act provides:

"No bank shall be the holder of or purchaser of any portion of its capital stock, unless such purchase shall be necessary to prevent loss upon a debt previously contracted in good faith. Stock so purchased shall in no case be held by the bank for a longer time than six months if the stock can be sold for the amount of the claim of the bank against the same, and it must be sold for the best price obtainable within one year, or it shall be canceled, and shall then amount to a reduction of the capital stock; provided, that, if such reduction shall reduce the capital stock below the minimum required by law, such capital stock shall be again increased to the amount required by law as provided herein. Wisconsin Stat. (1923) § 221.30.

Subsection 2 of this section likewise provides that no bank shall loan any part of its capital, surplus or deposits on the capital stock of its own bank as collateral security.

In view of the law prohibiting a bank from being the holder or purchaser of any portion of its capital stock except in the contingencies stated, I see no escape from the conclusion that a provision such as you quote incorporated in the by-laws and the stock certificates of a bank seeking to compel a stockholder who desires to sell his stock to give notice to the bank in writing and giving the bank a ten days' option to purchase the stock at an agreed price or at a price fixed by appraisers, would be invalid.'

This renders unnecessary consideration of your further question as to the validity of the by-law not incorporated in the stock certificate. (1923.)

ISSUE OF STOCK

915a. Liquidating national bank has no power to issue new stock certificates.-A shareholder in a national bank which went into liquidation last October holds two certificates, one for thirty and one for ten shares. Can officers of the liquidation bank issue two new cer

tificates of twenty shares each to this shareholder in exchange for the original certificates?

Opinion: The Supreme Court of Washington has held in Muir v. Citizens National Bank of Fairhaven, 80 Pac. 1007 that where a national bank went into voluntary liquidation, it thereby ceased to do business as a going concern, and was not thereafter required to register a subsequent transfer of its stock and to issue new stock to the transferee.

This decision is simply to the effect that the officers are not compelled to issue new certificates and does not decide the question whether they may lawfully do so. Some of the language of the court, however, would seem to indicate that they would have no authority so to do. Thus the court says:

"If the power of the bank, after voluntary liquidation begins, is limited to final settlement and winding up of its affairs, it seems to follow that no new stock may be issued pending such settlement. The act of issuing new stock or new and original certificates of stock would upon its face seem to contradict the fact that the corporation was in process of liquidation or of dissolution, and would indicate that the corporation was an active, going concern. The policy of the statute is certainly opposed to the issuance of new certificates of stock pending the dissolution of the corporation, or of any act which would belie the true condition of the corporation, and which is not necessary or proper in the final settlement and winding up of the affairs of the corporation. A stockholder may no doubt transfer and sell his stock in a banking corporation in process of liquidation, and the purchaser may acquire all the rights of such stockholder in and to the assets of the corporation."

In Richards v. Attleborough National Bank, 148 Mass. 187, 19 N. E. 353, 1 L.R.A. 781 and note, a national bank determined to close its business at the end of twenty years and to liquidate its affairs. It was held that the stock was not thereafter transferable and a stockholder cannot place another in the position of a stockholder even if he may invest him with such rights as he himself equitably may have. (1924.)

VALUE OF BANK STOCK

916a. Value of shares for fixing damages.-We have a case in court where, if judgment is entered against us we shall be liable for the value of a certain number of shares of stock of our own bank. Would you kindly advise us what is the practice in determining the value of bank stock. An attorney for the plaintiff in this action contended that the value as shown by the books or statement of the bank, or book value, determined the amount of liability, and not the value as determined by an examination of the assets. It is a well-known fact that many banks carry valuable assets on their books at a nominal figure, many banks carrying their banking house at $1.

Opinion: The value of stock in any corporation is ordinarily its market value. Ralston v. California Bank, 112 Cal. 208, 44 Pac. 476; Culloden Bank v. Forsyth Bank, 120 Ga. 575, 48 S. E. 226; Bank of America v. McNeill, 10 Bush (Ky.) 54; Attica Bank v. Manufacturers' &c. Bank, 20 N. Y. 501. And in the absence of evidence of actual sales its par value, if it is fully paid up, is presumptively, its market value. Brinkerhoff-Farriss Trust &c Co. v. Home Lumber Co., 118 Mo. 447, 24 S. W. 129. But if the stock has no market value, its actual value constitutes the measure of damages to be assessed, as in the case of the conversion of such stock. Brinkerhoff-Farris Trust &c. Co. v. Home Lumber Co., 118 Mo. 447, 24 S. W. 129, held that actual value may be established by proof of the corporation's dividend earning capacity, the value of the corporate assets, and individual sales not under compulsion. Siegel v. Riverside Box &c. Co., 89 N. J. L. 595, 99 Atl. 407; Bushey v. Coffman, 109 Kan. 652, 201, Pac. (1921) 1103. (1924.)

See

BANKRUPTCY AND INSOLVENCY

ENFORCEMENT OF SECURED AND UNSECURED CLAIMS

921a. Remedy against insolvent Nebraska corporation and officers. We have a note given by a Nebraska corporation with a paid-up capital of $15,000. At the time our note of $2,500 was taken, another note of $3,500 was placed with another bank. The corporation had no other debts then. The company, through mismanagement and accidents, incurred debts which now greatly exceed its resources, and also exceeds the two-thirds limit placed on indebtedness for corporations under our state law. Would the creditors on the two notes above named have a prior right to the assets in the proportion that the total of said notes ($6,000) bore to the two-thirds limit placed on indebtedness which would be $9,000? In other words, would the holders of the $6,000 in notes given when the company was free from debt be entitled to six-ninths of the assets if the assets did not exceed two-thirds of the paid-up capital stock. Would the fact that the officers of said corporation permitted the company to become indebted in excess of the two-thirds limit set by law, make the officers and stockholders liable, inasmuch as the violation of this law operated to remove the protection which creditors should have had?

Opinion: The Nebraska statute provides that the articles of incorporation must fix the highest amount of indebtedness or liability to which the corporation shall, at any one time, be subject, which must in no case exceed two-thirds of the capital stock. [Neb. 1923, c. 36, p. 148, removed the limitation where the liabilities were incurred through banks.]

The statute likewise provides that every corporation shall give notice annually in some newspaper printed in the county in which its business is transacted of the amount of all existing debts of the corporation, and if any corporation shall fail to do so, after the assets of the corporation are first exhausted, then all the stockholders of the corporation shall be jointly and severally liable for all the debts of the corporation then existing, and for all that shall be contracted before such notice is given, to the extent of the unpaid subscription of any stockholder to the capital stock of such corporation, and in addition thereto the amount of capital stock owned by such individuals. [Neb. Comp. Stat. (1922) § 470.] First Nat. Bank v. Cooper, 89 Nebr. 632.

The Nebraska statutes do not give priority in satisfaction of their claims to creditors of a corporation which has exceeded its statutory debt limit who became such prior to the time when such excess indebtedness was incurred, but only require the corporation to publish annually a notice or statement of the amount of all existing debts of the corporation; and in the event of the failure of a corporation to so publish, they penal ize the stockholders of such corporation by making them pro rata liable for all the debts of the corporation to the extent of the amount of capital stock owned by the respective stockholders.

With respect to the individual liability of officers and directors, the statute provides, in addition, that if any deception be practiced by any corporation upon the public or individuals, in relation to means or liabilities, all those engaged in such deception shall be liable to a fine not exceeding $500; and any person injured by such deception may recover double the amount of damages he may have sustained by reason of same. § 474.)

(Id.

There is no provision in the Nebraska statutes which eo nomine, or by implication, penalizes the officers, agents, or directors of a corporation for permitting such corporation to contract debts in excess of the statutory limit-namely, two-thirds of its capital stock.

In the light of the above, I do not think the creditors upon the two notes given for indebtedness incurred while the corporation was free from debt would be entitled to preferential payment out of the assets of the insolvent corporation. Concerning the individual liability of the officers and directors for incurring indebtedness beyond the legal limit, while the statute gives no right of action against them for this cause, I think there might be a common law liability for mismanage ment by which the corporation has been injured and made insolvent enforceable probably in an action by the receiver for the benefit of creditors. I do not think the stockholders could be held for such mismanagement, but there is a statutory liability as shown above, on the part of stockholders to the extent of the amount of their stock, if the corporation has failed to publish annually a newspaper notice of the amount of all existing debts, which is enforceable against them after the assets of the corporation have been exhausted; and there is also a statutory liability of officers and directors for any deception practiced, to any person injured by such deception for double the damages sustained. (1920.)

924a. Creditor who has no notice or knowledge of bankruptcy proceedings prior to discharge and whose claim not listed in schedule, may recover from bankrupt. -John Doe owes this bank a given sum, and is forced into bankruptcy; he advises his counsel that he does not want this bank's claim listed with the amount of his liabilities for he does not care to be relieved of this claim, as he desires to pay it. This course is taken and the claim is not listed, and does not show in the schedule filed. After his discharge, he has a change of heart, and decides that he does not care to pay the claim.

Can this bank sue and get judgment, or is the claim against him null and void on account of the fact that he has gone through the bankrupt court and received his discharge? The facts, as stated, can be substantiated. Your opinion on the subject will greatly oblige

us.

Opinion: If your bank had no notice or actual knowledge of the bankruptcy proceedings until after the bankrupt obtained his discharge, such discharge would not release the bankrupt and you can sue and obtain a judgment upon your claim. Section 17 of the National Bankruptcy Law provides that "A discharge in bankruptcy shall release a bankrupt from all of his provable debts, execpt such as (3) have not

been duly scheduled in time for proof and allowance, with the name of the creditor if known to the bankrupt, unless such creditor had notice or actual knowledge of the proceedings in bankruptcy."

It has been held in many cases that a bankrupt's discharge will not release him from any debt omitted from the schedule annexed to his petition where the omitted creditor had no notice or knowledge of the bankruptcy proceedings in time to have proved his claim and the Supreme Court of the United States has held (Birkett v. Columbia Bank (1904) 195 U. S. 345, 25 Sup. Ct. 38, 49 L. ed. 231) that knowledge of bankruptcy proceedings on the part of a creditor of the bankrupt, which is not acquired until after the discharge, though in time to prove his claim under § 65 and to move under § 15 to revoke the discharge, is not the "actual knowledge of the proceedings in bankruptcy" which is essential to the release, by the discharge, of the provable debts which have not been duly scheduled in time for proof and allowance.

If, however, during the pendency of the bankruptcy proceedings and prior to the discharge, your bank had notice or knowledge of such proceedings, the courts hold that the debt is released by the discharge although it is not scheduled; and even though the omission is inten

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