The herald., 1894-03-04
THE LAW CLEARLY LAID DOWN.
A Defense Looked on With Dis
favor by Courts.
The Liability Of National Bank as
@ Stakeholder.
Another Of President OoIIius' Abortive 9
sohomss-An Interesting Ansheim
Case Dscided-A San Luis
ObIspo Case.

III bno chho OF honnoQY, respondent,
Va. the California Savings bank ct al,
appellants and defendants, the judg-
ment OF the superior court is affirmed.
The facts OF the case were that during
the year 1891 the plaintiff deposited
with the savings bank different sums OF
money, for which certificates of deposit
were issued, aggregating sl5, 900. Novem
ber IL, 1891. plaintiff demanded pay
ment OF the bank, and upon its refusal
brought this euit, making the other de-
fendants parties to the action. to recover
from them their proportion OF the in
debtedness as stockholders. Judgment
WAS recovered against the bank for the
full amount OF the claim, and against
the other defendants for their respect
i've proportions 30 stockholders.
The California National bank, one OF
the defendants, appealed ON the ground
that by virtue OF the statutes under
which it is organized, 1t had no power
to become q etockholder i'll another
corporation, and that 1t cannot be made
liable for any portion OF the indebted
ness of the corporation.
This defense, the supreme court SAYS,
is looked upon by courts with disfavor
whenever ii is presented for the purpose
OF avoiding an obligation which cor
poration has assumed merely in excess
of the powers conferred upon it. and
not in violation of some express pro-
hibition OF the statute. Courts are in
clined to treat the corporation as
estopped from setting up this defense in
all cases where it has received and re-
tains the benefits of the transaction and
seeks by this plea to avoid its correla-
tive obligations.
The supreme court. in further dis
cussing the question, makes the follow
ink important ruling:
"There is no provision in the statu to
by which national bank is expressly
prohibited from becoming stock
holder in another corporation, and,
while it may be conceded that it's sub
scrlption to the shares of another COR
poration would be so far in excess of the
powers conferred by the statutes under
which it WAS organized that ita execu-
tory contract therefor would not be en-
forced, it by no means follows that, if
such contract is executed, and it has
been registered as such stakeholder, it
is not entitled TO q voice in its corporate
AAbnhhCblOAs vi W Abb onhLG VI lQb CUI-
porate earnings while the corporation
is in existence, or of its assets upon a
dissolution thereof.
'It may take shares in another cor
poyation as collateral security for loan
made by it, and have them registered in
it's name upon the books of that cor
poration; and In such case it is sub
ject to the same liabilities as any other
stockholder. In National Bank vs.
Case, 80 U. s. 62S, the bank mad become
stockholder in another corporation
under such circumstances, and it was
held to be liable for its proportion of the
debts of the corporation in which it had
been Q stockholder, although it had
transferred the stock to one of its clerks
for the purpose of avoiding such liza.
bility.
'As the appellant therein could have
the stock of the savings bank in salts
faction OF loan, for which it had been
pledged to it as security, it was within
the ecope OF its power to become stock
holder therein, go that it cannot be
said that it was prohibited by statute
from becoming such stockhoider. Hev.
ing caused itself to be- registered upon
the books OF the corporation as a stock
holder, any person dealing with the
corporation would be justified in assum-
ing that it had become such stockhold-
or by virtue Of a transaction within its
power, rather than in violation of the
laws OF its creation, and as long as it
held itself out as such it ought not to
be permitted to defend against its liza
bility as such stockholder by showing
that 1t had become such in violation OF
law.
THE appellant has not repudiated the
agreement under which it received the
stock" concludes the court, "but still
retains it, and, so far as is shown by the
record, claims to be the owner of it, and
to share In all the earnings and assets OF
the corporation. During the period that
1t has claimed to be such owner it has
received dividends OFT OF the assets of
the savings bank, snd 10 that extent
diminished the corporate property
which otherwise might have been an
propriated in satisfaction of the plaint-
IFS claim. Having mad the benefit OF
the transaction, and still ENJOYING its
fruits, the appellant is estopped from
denying liability which is correlatiye
to such benefits and fruits, and depend
ant thereon. The judgment and order
are affirmed"
The judgment Of the superior court of
Los Angeles county is also reversed in
the case of the Los Angeles National
bank, respondent, vs. j. Wiley Wallace,
appellant, and M. s. Babcock, defen-
dant.
Babcock and Collins owned some
nursery stock, which included large
number OF orange trees,
Wallace was an experienced horticul-
turist. The three purchased from E. j.
Baldwin 300 acres of land believed to
be well adapted to the growth of or
anges.
Nothing was paid on account of the
purchase, bat 1t WAS conveyed to Bah
cock end Wallace, who gave a mortgage
upon 1t to secure the purchase money.
Collins was banker and did not wish
to be known in the transaction, there
fore everything was in the names of
Wallace and Babcock. They were to
put their nursery stock into the enter
prise. The orange trees for planting the
land were TO come from it, and the bal
anco OF the stock was TO be sold and
proceeds applied to the enterprise.
Collins was to advance further money
to pay expenses to the extent OF
S82, 900. Wallace Was to man
age the property and receive
salary of $50 per month. 1t was thought
IL would take six yesrs or longer to real
iEe sufficient profit from the. orchard to