JEROME v. COGSWELL(1907)
The Second National Bank of Norwich, Connecticut, was a banking association, organized and existing under the laws of the United States, with a capital stock of $300,000.
As stated, in substance, by the supreme court of errors of Connecticut, the directors, having voted to recommend a reduction of the capital stock from $300,000 to $200,000, were advised by the Comptroller of the Currency that it would be approved, 'provided so much of the amount as is necessary is used to charge off bad, doubtful, and unproductive assets, the difference only being paid to the shareholders in cash,' [204 U.S. 1, 2] and that 'the shareholders of a national bank, upon a reduction in capital stock, are entitled to either receive the cash or the charged-off assets, and neither can be withheld without their consent.' The Comptroller also informed the president of the bank: 'The assets belong to the stockholders of record, and a trust fund must be created, so that those assets may be distributed among the stockholders of record when your capital is reduced.' The stockholders, in May, 1900, voted to make the reduction, and the president first, and then the directors, filed with the Comptroller a written statement that 'the whole amount of the reduction, viz., $100,000, will be used for the purpose of charging off bad, doubtful, and unproductive assets, no money to be paid to the shareholders unless realized from said assets, which are to be set aside and collected for the benefit of the shareholders of record at date of the issuance of the Comptroller's certificate approving the reduction.' The Comptroller gave his certificate, dated June 9, 1900, approving the reduction, without any qualifications.
The charter of the bank expired by lapse of time February 24, 1903, and its affairs were being settled in the manner provided by law, when a complaint in equity was filed by a stockholder in the superior court of Connecticut, asking for the appointment of a receiver to wind up its affairs, because of alleged misappropriation, and a receiver was appointed. The receiver filed a petition with the court, stating that in May, 1900, the capital stock of the bank was reduced from [204 U.S. 1, 4] $300,000 to $200,000, and that thereupon assets of the face value of $100, 000 were charged off and set aside, and that a question had arisen as to whether the proceeds of those assets be distributed to the stockholders of record at the time of the reduction or of the expiration of the charter.
Claims to the charged-off assets by virtue of ownership of original stock when capital was reduced; of such stock, although it had been surrendered and new stock issued; and of stock after the reduction,-were filed.
The superior court held that those assets belonged to the bank, and should be distributed to the stockholders of record at the expiration of its charter.
The supreme court of errors adjudged that the stockholders of record at time of reduction were entitled to the charged-off assets, and reversed the judgment of the superior court, with directions to distribute accordingly. 78 Conn. 75, 60 Atl. 1059
Whereupon this writ of error was brought.
Messrs. Donald G. Perkins and William H. Shields for plaintiff in error.
[204 U.S. 1, 6] Messrs. Frank T. Brown and Hadlai A. Hull for defendants in error.
Mr. Chief Justice Fuller delivered the opinion of the court:
This is not a case involving the rights of creditors or of minority stockholders as such, but a case raising the bare question to whom assets remaining on a valid reduction of the capital stock of a national bank belong.
The national banking act (title 62, Rev. Stat.) provides:
The reduction in this case was accomplished at a time when the bank was not being wound up, by the required vote of the stockholders, and with the approval of the Comptroller of the Currency, and the new shares on the basis of the reduction were accepted by all the stockholders.
The bank was left with good assets of more than $240,000, or, in other words, with an unimpaired capital stock of $200,000 and a surplus of 20 per cent,-that is, $40,000, exclusive of the assets, the distribution of which is the matter in controversy. These assets were set apart in compliance with the requirement of the Comptroller that certain bad, doubtful, and unproductive assets should be charged off or set aside for the benefit of those who were stockholders at the date of the approval. This requirement, though not stated in the certificate of approval, was evidently, on the facts, made a condition thereof, and presumably in accordance with the practice of the Comptroller's office, and was imposed to the end that justice might be done to the owners of the original shares.
It is said that the original capital of the bank of $300,000 was impaired prior to the reduction, say to the extent of $30,000, as shown by adding to the $240,000 the value of the scheduled assets, estimated at $30, 000.
As a general rule, it may be admitted that where capital stock is impaired and a reduction is made merely to meet that impairment, there can be no distribution. But that is not this case, in which the stockholders of record June 9, 1900, had a right to require a distribution among them of an excess upon reduction in proportion to their respective holdings. In the language of the Connecticut supreme court: 'The [204 U.S. 1, 8] right to receive what might ultimately be realized from the fund thus set apart became, therefore, irrevocably vested in those who were shareholders on June 9th, 1900, and they or their assigns are now entitled to whatever is to be distributed from it.' [78 Conn. 79, 60 Atl. 1060.]
It follows, as held, that the transfer of shares after the reduction of June 9, 1900, did not carry any right to an interest in the special trust fund, the proportionate interest therein having vested in the then shareholders as individuals. The result is unaffected by the fact that distribution in cash may have been contemplated as the assets set aside were realized upon.
The conclusion at which we have arrived dispenses with the necessity of discussing other questions suggested.