Citizens' Nat. Bank of Stamford v. Stevenson

Appellant brought this suit against appellee on a note for $958.65. The defense is that it was given for the purchase money of Lank stock issued by appellant which is inhibited by law; that, therefore, the note is void. Tried without a jury, and judgment rendered for appellee, from which this appeal.

The dealings between the parties leading up to and culminating in the execution of the note sued on are substantially as follows:

The Citizens' National Bank of Stamford being incorporated with a capital stock of $30,000, determined to increase its capital stock to $100,000, and thereupon solicited the defendant, by its cashier to purchase of this issue. The defendant replied that he had no money with which to make a purchase. The defendant testifies that the cashier then replied that he would make him able to buy; that thereafter he executed his demand note for $600, payable to the plaintiff. This latter statement is denied by the cashier, he testifying that defendant executed a 30-day note, payable to the Western National Bank of Ft. Worth, Tex. The trial court made the following finding of fact with reference to above and the after dealings of the parties:

"That defendant was informed that the money would be procured by him signing his note to the Western National Bank of Ft. Worth, which he on June 25, 1909, accordingly did. This note was for $600, representing the purchase price of five shares of stock of the value of $125 each; that the said note of the defendant was a demand note, and was placed by the plaintiff, or J. S. Morrow acting for the plaintiff, with the said Ft. Worth bank, and indorsed by the said J. S. Morrow, and the testimony authorizes the conclusion of fact that the money for the face value of the same was placed to the credit of plaintiff on the books of the Western National Bank; that several days thereafter the plaintiff notified the Comptroller of Currency that — the necessary amount of capital stock had been subscribed and paid to the plaintiff, and thereupon the Comptroller of Currency issued his certificate to the effect, authorizing the said increase of capital stock as applied for by the plaintiff.

"That about the time of the execution of the said note by the defendant to the Western National Bank of Ft. Worth Tex., five shares of the stock of plaintiff of the par value of $100 per share was issued, but not delivered, to the defendant, but placed by the plaintiff with the Western National Bank of Ft. Worth, as collateral security for the note of the defendant. That thereafter, and in about 30 days, the defendant executed his note to the plaintiff to cover the amount of his note to the Western National Bank of Ft. Worth, whereupon the note executed by the defendant to said Western National Bank was redeemed or paid and satisfied, and at the same [time] of the execution of the note by defendant to plaintiff in lieu of the Ft. Worth bank note the plaintiff then delivered said five shares of stock of plaintiff to the defendant. That defendant in this case from time to time renewed his note so given to the plaintiff, culminating in the final note sued on in this case for the sum of $958.65, the interest being added in as the note was renewed from time to time.

"The court concludes from all the evidence in this case that the plaintiff wanted to increase its capital stock, and that in order to do so it was necessary to resort to several parties, including, among others, the defendant, to get their notes for the purposes, they not having the money, or at least not paying the cash for the stock at the time, and that the object of the plaintiff in having the defendant to execute his note to the Western National Bank of Ft. Worth, instead of to the plaintiff itself, was to avoid the articles of the National Banking Law of the United States relating to the subject of increase in the capital stock, to wit, * * * and that the note of the defendant to the Westtern National Bank of Ft. Worth was intended to be merely temporary, for which the note of the defendant to the plaintiff was to be thereafter substituted and given in lieu thereof after the Comptroller of Currency had been notified that the capital stock had been paid in in order to induce him to issue the certificate authorizing the increase, neither the plaintiff nor defendant expecting defendant to pay the Ft. Worth note.

"The court finds that the plaintiff did not intend to violate the law, but did intend to use this method of getting around the absolute requirements of the law, which the court finds in fact, regardless of plaintiff's intentions, merely a makeshift, and that nothing whatever was added to the assets of the bank by this transaction.

"The court further finds that the defendant tendered back to the plaintiff the stock so issued to him.

"Conclusions of Law. "1. The court concludes that the articles of the Statutes of the United States regulating the incorporation of national banks and the increase of stock thereof are not in conflict with the laws of the state of Texas authorizing the incorporation of corporations and increasing the capital stock thereof, but that they are for all practical purposes in harmony with each other, and that consequently this case upon its face is to be and ought to be tried as any other case arising under the corporation laws of the state of Texas under a similar state of facts, and further concludes that both the Statutes of the United States and the laws of Texas prohibit the formation of a corporation or the increase of the capital stock thereof until the money or something of value or its equivalent was actually paid in.

"2. And the court concludes as a matter of law that the facts as found by the court from all the testimony would show that the law governing the transactions requiring the capital stock first to be paid in were not complied with as required by law, but that same was a pending transaction or debt at all times up until the stock was delivered to the defendant in this case, and so continues to this day; that at the time the defendant executed the first note to the plaintiff in this case, and on or about the time the stock was delivered to him, he had never paid for said stock, but the note still represented his attempted obligation for same, and that the transaction in its entirety was merely a makeshift to avoid the law.

"The court therefore concludes that the note sued on is absolutely void, and that the plea of the defendant should be sustained, and therefore renders judgment that the plaintiff take nothing by this suit."

The appellant presents seven assignments of error in his brief. One, 2, 3, and 4 were not incorporated in the motion for new trial, nor otherwise filed in the trial court; therefore do not appear in the transcript; hence, we have no authority to review the matters complained of therein. Ludtke v. Smith, 186 S.W. 266.

The fifth, sixth, and seventh are grouped, raising substantially the same question.

"The court having found that originally a note was executed and delivered by defendant to the Western National Bank of Ft. Worth for the price of the stock defendant had agreed to purchase, to which note said stock was attached as collateral security; that the Western National Bank issued to plaintiff a statement of deposit showing the amount of said note had been placed to the credit of plaintiff on its books; that said note was held by said Western National Bank and owned by said Western National Bank until its maturity — it was error to hold the money for the purchase of said stock was not paid to plaintiff prior to the issuance of same."

There is no pretense in this case that there was any money paid into the plaintiff's bank by the Ft. Worth bank. It is only claimed that a credit was given upon the books of the Ft. Worth bank, and then the amount placed to the credit of the capital stock upon the books of plaintiff. Credit of this nature is not equivalent to cash within the meaning of the Constitution and statutes.

It is further admitted that it was agreed before this stock was issued that when issued it would be sent to the Ft. Worth bank as security for the note. Under this state of facts the original note was void even in the hands of the Ft. Worth bank, for it had notice that it was issued in payment of this very stock. Patterson v. Onion, 202 S.W. 327.

But the way we view the facts the stock was issued to defendant upon the execution and delivery of the note sued on, and for that reason the transaction is void, and it is not relieved of any of its vice by reason of the former note and transactions concerning it. Bank of Commerce v. Goolsby, 129 Ark. 416, 196 S.W. 808; Sturdevant v. Falvey, 176 S.W. 908. For, the former note being unenforceable in the hands of either bank, it would not be a valid consideration for the note sued on.

The question suggested by the dissent is not proposed or urged by either party.

There is no question here of the completeness of the organization of appellant's bank, and no question of going behind the comptroller's certificate, as in the cases cited, in attack on the bank's lawful organization and right to sue as such, but the question here is, was the appellee's note subject to the defense that it was given in consideration of the issuance of the stock by appellant's bank? All courts are in accord in holding that considerations for notes inhibited by law are void. The issuance of stock by corporations in consideration of a note is inhibited both by the state law and by act of Congress. It is expressly held that in so far as not repugnant to acts of Congress, the contracts and dealings of national banks are left subject to the state law. Davis v. Elmira Savings Bank, 161 U.S. 275, 16 S. Ct. 502, 40 L. Ed. 700. In the first place there is no repugnancy between the state law and the acts of Congress.

We have found no case, and have been cited to none, from the United States courts construing this act of Congress or the state law; therefore think we should be governed by the construction placed upon our law, similar to the congressional act, by our appellate courts; and, believing that the defense is good under either, it follows, that the cause should be affirmed.