Jerome v. Cogswell

Background

This dispute involves a national bank and people who owned its stock. The bank’s shareholders voted to reduce the bank’s capital and got approval from the Comptroller of the Currency. After the approved reduction the bank still had good assets and a surplus, and the Comptroller required certain doubtful assets be charged off and set aside for the benefit of the shareholders who owned stock when the approval was given (June 9, 1900). A question arose about who could get whatever was later distributed from those set-aside assets.

Reasoning

The Court focused on the simple question: who owns the assets that were set aside when the bank’s capital was reduced with the Comptroller’s approval? The Court relied on the statutory rule allowing capital reductions with Comptroller approval and on the fact that the Comptroller’s approval included the condition to protect the earlier shareholders. The Court held that the right to any distribution from the special fund vested in the shareholders who held shares on the approval date. Therefore transfers of shares after that date did not carry rights to the trust fund.

Real world impact

The decision means people who owned stock at the time the Comptroller approved the reduction have the vested right to any distribution from the set-aside assets. Later buyers of shares cannot claim those funds. The judgment affirmed the lower court and resolved the narrow dispute about distribution after a valid capital reduction.