Scott v. Deweese

Background

A local national bank increased its stated capital and the Comptroller certified the increase. A man who paid the bank for fifty shares received a stock certificate, collected dividends for years, and claimed he was a shareholder. The bank later failed, a receiver was appointed to collect debts, and the receiver assessed shareholders for unpaid amounts. The man refused to pay, saying the full authorized increase had not actually been paid in and the issuance was wrongful or fraudulent.

Reasoning

The Court asked whether a person who paid for stock, held a certificate, and enjoyed shareholder rights was a "shareholder" for purposes of the statute that makes shareholders individually responsible for bank debts. The Court held that because he paid his subscription, accepted the certificate, and received dividends, he stood in the position of a shareholder when the bank failed. The statutory rule that an increase is invalid until completely paid does not let such a person avoid liability to creditors, though he may have other remedies against officers or the Government for fraud or improper conduct.

Real world impact

The decision means people who pay for and accept bank stock certificates can be held personally responsible for a failed national bank’s obligations, even if the bank’s larger capital increase was not fully subscribed. Creditors can therefore enforce assessments against those holders; those who believe they were defrauded must pursue relief against the bank’s officers or the Government rather than use that claim to avoid creditor liability.