Case Name: J. S. LAPSLEY, Respondent, v. MERCHANTS BANK OF JEFFERSON CITY, Appellant
Court: Kansas City Court of Appeals
Jurisdiction: Missouri
Decision Date: 1904-02-15
Citations: 105 Mo. App. 98
Docket Number: 
Parties: J. S. LAPSLEY, Respondent, v. MERCHANTS BANK OF JEFFERSON CITY, Appellant.
Judges: Broaddus, J., concurs; Smith, P. J., not sitting.
Reporter: Missouri Appeal Reports
Volume: 105
Pages: 98–105

Head Matter:
J. S. LAPSLEY, Respondent, v. MERCHANTS BANK OF JEFFERSON CITY, Appellant.
Kansas City Court of Appeals,
February 15, 1904.
1. BANKS AND BANKING: Statutory Construction: Dividends: Surplus. The provision of section 1293, Revised. Statutes 1899, requires that 10 per cent of the net profits shall be set aside as surplus before dividends can be declared on the stock; this provision is mandatory since any other construction would defeat the whole aim and object of the statute. Adhered to on motion for rehearing.
2. -: Dividends: Surplus: Pleading: Issues. In a stockholder’s suit for dividends on his stock the petition averred that the directors declared the dividend and that they had competent authority to so do. The answer in addition to a general denial alleged the dividend was illegal and payment unlawful and denied that such dividend was in law or fact ever declared. No objection was made to the indefiniteness of the answer. Held, the question can be raised on the pleadings as to whether 10 per cent had been carried to the surplus before declaring the dividend.
3. -: Officer’s Salary: Instruction: Contract. If the president of a bank fails to comply with the contract of his employment, 'he ought not to recover on it, and instructions to that effect should be given. Adhered to on motion for rehearing.
4. -: Pleading: Evidence: Objection. While the pleading in this case was broad enough to admit the evidence of failure to carry a part of the earnings to the surplus fund, yet if it be not so, the fact that the evidence was admitted without objection precludes the plaintiff from raising the poiijt.
5. APPELLATE PRACTICE: Motion for New Trial: Abstract: Record Proper. When the appellant fails to make it appear in his abstract that the record proper shows that the motion for a new trial was filed and overruled, yet if the additional abstract of the respondent shows -such fact, that is all that is necessary since a recitation of the fact and not a copy of the record is sufficient.
Appeal from Osage Circuit Court. — Hon. W. A. Davidson, Judge.
Reversed and remanded (with directions).
W. S. Pope and W. L. Vaughan for appellant.
(1) Defendant contends that a dividend of five per cent conld not have been paid ont of the net earnings of the previous year, after setting aside ten per cent thereof as required by law; that the directors did not pretend to set aside anything to the surplus fund before declaring the dividend, and that such dividend was declared contrary to the provisions of sec. 1293, R. S. 1899; and that the court by refusing declaration of law numbered 6, asked by defendant, ignored the fact that the directors had not complied with said section of the statute and had declared a dividend that could not be paid out of the net earnings of the preceding year, after deducting ten per cent thereof and setting it aside for the surplus fund. Hall’s Bank Laws, secs. 26-7-8; 1 Morse on Banks and Banking, sec. 66, see. 172b, sec. 128a; Brown’s National Bank cases,' 493; Insurance Co. v. Page & Richardson, 56 Ky. 412, 17 B. Monroe; Ball on National Banks, 19. (2) “Losses and bad debts must be deducted in arriving at net profits.” May hold dividend for debt of shareholder. Ball on National Bank, 200; Cleveland’s Bank Laws, 5, secs. 2, 3, 4, 5; Bailes on National Banking, section 107; R. S. 1899, sec. 1288. (3) The refusal of the court to give instructions 8, 9 and 10, asked by appellant, clearly indicates that the court did not take into consideration the question as to whether the respondent complied with the terms of his employment. The court took the view that he was entitled to the six months’ salary regardless of the manner in which he performed his duties.
Byors & Vosholl and Silver & Broion for respondent.
(1) The objection that the directors before declaring the dividends omitted to set apart ten per cent of the net profits to the surplus fund, and therefore plaintiff can not recover the dividends sued for was rightly overruled, (a) Because no defense of this character was set up in the answer. Christian v. Ins. Oo., 143 Mo. 461; Musser v. Adler, 88 Mo. 445. (b) Because section 1293, R. S. 1899, is" directory in its character and the consequence contended for by appellant does not attach because of its non-observance. .Wolf v. Brown, 142 Mo. 612. (c) Because the observance of said section 1293 by banks is properly enforcible by the Secretary of State under the State banking laws. R. S. 1899, secs. 1304-5. (d) Because it appears from the evidénce that after deducting from the earnings the dividend of five per cent declared on defendant’s capital, there remained in said earnings a sum largely in excess of ten per cent thereof as the same stood before the declaration of the dividend.

Opinion:
ELLISON, J.
The plaintiff was president of the defendant bank and was likewise a stockholder and director. He charges in the first count of his petition that the bank owes him a dividend of five per cent on his stock; and in the second count, that it owes him for six months' salary as president. On trial before the court judgment was rendered for plaintiff on each count.
It appears that the defendant bank was in such condition as to alarm the Secretary of State who has in charge, as a department of his office, the supervision of all banks with State charters. It had loaned to plaintiff and two others associated in the grocery business with him and also directors in the bank sums aggregating largely more than the capital stock. It was in such condition on that and other important matters as to cause the Secretary to advise the directory that if the indebtedness was not reduced and the affairs of the institution quickly put into a more satisfactory condition, he would be compelled to adopt stringent meas ures Tinder the law. It appears that an examination had been made by one of the Secretary's bank examiners in the first part of January, 1900, and that from thence on till the 29th of that month the Secretary was demanding that the institution be put upon a more businesslike footing. On the 15th of that month, the directors, including this plaintiff and his two associates in business, made and entered the following dividend, order:
"After cashier had made a statement of the earnings of the bank for the past year, upon motion, the Board declared that a dividend of 5 per cent be paid to stockholders. The shares paid up in May to receive only a pro rata share of said 5 per cent according to the time the money for said shares has been in possession of the bank."
Defendant contends that this order was made without first setting aside 10 per cent of the net profits of the bank for the period covered by the dividend and was therefore in violation of the express provisions of the statute, section 1293, Revised Statutes 1899, which reads as follows: "The board of directors of any bank institution in this State, when it shall declare a dividend, shall first set apart to the surplus fund ten per cent of the net profits of the bank for the period covered by the dividend, until the same shall amount to 20 per cent of its capital stock, and said surplus shall not be diminished except for the payment of any losses which may occur: Provided, if there are undivided profits, these shall first be used in payment of such losses."
Plaintiff claims this statute to be merely directory and that a compliance therewith is not necessary to enable him to recover the dividend declared in the order. We are clearly of the opinion that plaintiff's claim is not the proper construction of the statute. The statute in positive terms declares that 10 per cent of the net profits shall be first set apart to the surplus fund until that fund shall amount to twenty per cent of the capital stock. The evident object and purpose of the statute was to create a fund, in addition to the capital stock, for the security of depositors and others doing business with the bank. Current history shows an unmistakable demand on the part of the people and a corresponding effort on the part of the law-makers to provide safe banking methods. And undoubtedly the'statute in question, which is recently enacted, was to secure that end in whatever degree it would be secured by a strict compliance therewith.' "Where the whole aim and object of the legislature would be plainly defeated if the command to do the thing in a particular manner did not imply a prohibition to do it in any other, no doubt can be entertained as to the intention." Endlich on Statutes, section 431.
As just stated, it is manifest that the ' ' aim and object" of the statute in question is to compel the accumulation of a surplus fund out of net profits, and it is equally manifest that the result may not be secured if dividends are permitted to be declared and paid out of such profits in preference to the surplus. Whenever third persons or the public have an interest in having done that which is prescribed by the legislature then the act is mandatory, even though words permissive, as "may," are used,- instead .of words mandatory as, "shall." Potter's Dwarris on Statutes, 220. Before there can be a dividend which the law would recognize in a suit to recover it, there must be a net profit; 'and then the dividend can only be declared on that portion of the profit remaining after ten per cent has been set aside to the surplus fund. Such process for the allowance of dividends continues under the terms of the statute until the surplus shall have equalled twenty per cent of the capital stock.
It is, however, claimed by plaintiff that defendant did not set up this defense in its answer. We are of the opinion that connecting the answer with the allegations of the petition that the hoard of directors declared the dividend and that "said hoard had competent authority so to do;" it stated enough to let in such defense. The answer, besides being a general denial, alleged that the dividend was illegally declared. It alleged that the reason the dividend had not been paid was "because the payment thereof would have been unlawful." It furthermore denied that "any such dividend as stated in plaintiff's petition was in law or fact ever declared." No objection by way or motion or demurrer was made that the answer was incomplete, or otherwise indefinite, or uncertain.
Passing to plaintiff's claim for salary as set up in the second count of the petition, we are of the opinion that error was committed in refusing defendant's instructions Nos. 9 and 10. It does not appear upon what possible theory they could have been refused, since they were amply supported by evidence. If plaintiff failed to comply with his contract he surely ought not to recover on it.
The judgment will be reversed and the cause remanded with directions to enter judgment for defendant on the first count and for a new trial on the second.
Broaddus, J., concurs; Smith, P. J., not sitting.