Merchants Bank & Trust Co. v. Walker ( 1942 )

DISSENTING OPINION. The statutes to be construed and applied are the last paragraph of Section 3786 and the first sentence of Section 3788, of Chapter 85, Banks and Banking, Code of 1930, and Section 4148 of Chapter 100, Corporations, Code of 1930, which are here copied in the order stated:

"Such capital shall be in money, commercial paper, bank furniture and fixtures, or the necessary bank building, including the lot or lots on which the building is situated, which lot or lots shall be unincumbered.

"All of the capital stock of every corporation engaged in the banking business shall be paid up in money before such corporation shall be authorized to commence business.

"A note, obligation, or security of any kind given or transferred by any subscriber for stock in any corporation shall not be considered, taken, or held as payment of any part of the capital stock of the company."

Section 4148 was in force long before our bank supervision laws were adopted, therefore banks were lifted out of the operation of that statute by the other two statutes referred to. Construing the last paragraph of Section 3786 and the first sentence of Section 3788 together they mean that the capital stock of a bank may be subscribed for in commercial paper, personal property or real estate, but when the bank opens for business all such paper must have been turned into cash, otherwise it would not have the right to go on. Under the law real and personal property could be treated as cash. Lee, Rec'r v. Cutrer, 96 Miss. 355, 51 So. 808, 809, 27 L.R.A. (N.S.) 315, Ann. Cas. 1912B, 478. In that case the charter of the bank involved required that its capital stock should be paid for "in cash or in monthly installments." Cutrer paid for his in legal services. The court held that the charter did not preclude payment for the stock in property or services. As to the commercial paper given for stock it had to be converted into cash by suit or otherwise before the bank could open for business. In other words, the paper itself could not be accepted as payment for the stock. Therefore the note sued on could not have been accepted by the bank as payment for Walker's stock although the evidence showed without any substantial conflict that it was commercial paper secured and worth its face value. To illustrate, applying those principles to a bank being organized: The capital stock proposed is $100,000. "A" has a house and lot suitable for the banking business. He and the organizers of the bank agree that its fair value is $25,000. "A" is willing to give and the organizers are willing to receive a conveyance of the building and lot in payment for $25,000 par value of its capital stock. "B" owns the necessary bank furniture and fixtures which he is willing to transfer to the bank in payment for stock. He and the organizers agree that a fair price is $10,000. They agree that "B" shall transfer them to the bank in payment of stock of that par value. The balance of the stock, $65,000 par value, is subscribed for by numerous persons payable in the form of commercial paper. Under the law when the subscribed real estate and personal property is conveyed and transferred to the bank the agreed value is treated as so much cash. Before beginning business, however, all of the commercial paper must be converted into cash at its face value by necessary suit or otherwise. If it turns out that the organizers are never able to so convert the subscriptions for the stock into cash the scheme must be abandoned and the cash paid on all subscriptions must be returned to the subscribers.

The same principles, of course, apply to a bank which is a going concern and issuing additional stock under the law. It cannot use additional stock until it is paid for in cash.

The bank ought to have had a directed verdict.