Latimer v. Equitable Loan & Investment Ass'n

SMITH, P. J. Statement. This is a suit in equity, the object of which was to recover of the defendant, a loan and investment association, incorporated under the laws of this state, the surrender value of five shares of stock which were issued by it to one Thompson, and for the appointment of a receiver and an accounting, etc. There was a trial resulting in a decree for defendant from which the plaintiff has appealed. The decree, we think, was for the right party and should be upheld. If it be conceded that the plaintiff as the receiver of the First National Bank has, by assignment, acquired the title — 466 — to said shares of stock in the defendant association, yet his action must fail. It appears from the undisputed evidence that on the first day of April, 1890, the defendant issued certificates for five' shares of its stock to said Thompson and a like number to each of its other six directors. It further appears that some time after the issue of the certificates to Thompson he indorsed and delivered the same to the said bank as collateral security for certain indebtedness of his to it. Later on, that is to say on the nineteenth day of January, 1892, the directors of the defendant declared a dividend of $500 on each of the said five shares of stock. In payment of this dividend on Thompson’s shares of stock a warrant was issued by defendant directed to him as treasurer and payable to him at said bank. It appears from the recitals therein that it was issued for dividend on original stock. It was paid by the bank in a few days after its issue. It does not appear that the defendant had any notice that Thompson’s stock had been hypothecated by him to the bank. It further appears that on September 7, 1894, the defendant’s board of directors by resolution declared that it had been ascertained that the said warrants so issued to the directors for the amount of said dividend were wrongfully paid and charged to the defendant’s dividend account, and that the said directors be requested to refund the said amount with interest. There is no pretense that Thompson’s stock was ever transferred to the bank on the books of the defendant in the manner required by the latter’s by-laws, or at all. So far as the defendant knew, or its books showed, Thompson was the owner of the stock at the time defendant paid the dividend thereon. The question now is, whether the bank acquired Thompson’s stock for value and without notice of any equities existing between him and the defendant. — 467 — Corporations knowledge of agent acting for himself: agent acting for himself and corporation. Although, at the time the transaction took place, by which the defendant acquired the stock, Thompson was cashier of the bank, yet if in that transaction he acted for himself and in his own interest, adversely to that of the bank, and through another one of its officers, therefore the bank is not chargeable with his uncommunicated knowledge. Johnston v. Shortridge, 93 Mo. 231; Bank v. Lovitt, 114 Mo. 525. But on the contrary, if Thompson, in such transaction, acted for both the bank and himself, the bank is chargeable with his knowledge. Stone Cutter Co. v. Myers, 64 Mo. App. 527; Withers v. Bank, 67 Mo. App. 115. It appears from the evidence that Thompson managed and controlled the bank without the knowledge of the directors and as completely as it was possible for him to do in his capacity of cashier. He drew at pleasure on the funds of the bank and borrowed the same without any restriction. _: agent: scienter: innocent purchaser. It is true, Thompson testified that some time after April, 1890, he had occasion to borrow some money from the bank and that he pledged the stock in question to it as collateral security for a loan of between $8,000 and $9,000, and that the negotiation was made with Mr. Newkirk, who was president of the bank. But little heed can be given to this testimony because it indubitably appears from the books of the bank that no such loan was made at the time mentioned by him in his testimony, but, on the contrary, it appears that if the stock was pledged to secure any one of his notes it was that for $8,320 which was a renewal and consolidation of other smaller notes which had been given to the bank a year or two before for borrowed money. The conclusion is irresistible that the stock was pledged to secure an antecedent debt and that no loan was primarily made on the stock as collateral security. We think the unmistakable inference — 468 — to be drawn, from all the facts and circumstances in evidence is that Thompson in pledging the stock acted for both the bank and himself. The bank was not an innocent purchaser of the stock for value. Its relation as holder of the stock was as to defendant not different from that of Thompson, had he not parted with his. title to it. Building and loan association: stock issued to promoters: dividends : ultra vires. Our attention has been called to no statute then in force authorizing the issue by defendant of the five shares of stock to each of its directors as promoters, as Mr. Thompson testified was done. Such stock seems to have been issued to them as a mere gratuity. It was not subscribed for by them. It was irregular, to say the least of it. Nothing is seen in the statute authorizing’ a dividend on this particular stock to the exclusion of the other shares. The statute does not seem to contemplate that building and loan associations shall dispose of their earnings in any such manner. By what authority did the directors, though promoters, cause to be issued to themselves this special stock, and then to declare a dividend of one hundred per cent thereon, whether or not any instalment had been paid thereon ? Erom whence did this stock derive its extraordinary preference that was accorded to it by the directors? The dividend was most manifestly unlawful. The scheme provided in article 9, chapter 42, Revised Statutes, under which defendant was organized, did not contemplate the payment of dividends on stock. Under defendant’s charter, already referred to, the holders of its stock could, at any time withdraw from it in the manner therein provided and thus withdraw their proportionate share of the profits,if any there was. R.S. 1889, sec. 2810. In the absence of express statutory authority a general power to declare and pay dividends out of the profits of the business of the association does not exist. Endlich on Building Ass’n, sec. 327. The act of the directors in paying the dividend in — 469 — ' question was ultra vires. They appropriated the funds of the association to the payment of an unlawful dividend on their own stock. Corporations: dividends: action to recover. Even if the directors had been authorized by statute, as they were not, to declare dividends when earned, yet they had no right to declare a dividend as they did 011 their own stock to the exclusion of the other shares, and especially so since they knew, or were bound to know, that there were no profits of the association to divide. In making such dividend they were guilty of negligence of that gross and palpable character that rendered their conduct so reprehensible as to subject them to the imputation of a legal fraud. Thompson received the unlawful dividend and has not returned it to the defendant’s treasury, and he is therefore liable to defendant for the amount thereof. Cook on Corp.,. sec. 550; Beach on Priv. Corp., sec. 609-610; Railway v. Bridges, 7 B. Mon. 556; Main v. Mills, 6 Biss. 98. Building and loan associations:dends: counterclaim. That the rule invoked and relied on by the plaintiff to the effect that a dividend declared and paid after a proper investigation of the condition of the company is irrevocable, even though, it turn out alter-wards that the company had not earned such dividend, can have no application to a case like this is, it seems to us, an indisputable proposition. And as the plaintiff stands in Thompson’s place, occupying no better position than he would were he suing to recover the surrender value of the stock, it ought to return the amount of the unlawful dividend received by Thompson, or, which is the same thing, the defendant is entitled to interpose this claim as a set off against that of the plaintiff’s for the surrender value of the stock. And as to whether or not the bank received the dividend is of no importance, or, if it were, it is sufficient to say that it could have received the same had it chosen to do so. — 470 — It is conceded that the defendant’s counterclaim for $175, evidenced by receiver’s certificate, is a valid counterclaim. It is therefore plain that the amount of the counterclaims of the defendant are clearly in excess of the surrender value of the plaintiff’s stock, and for that reason the decree of the lower court was for the right party and must be affirmed. All concur.