SECTION IX.

MISCONDUCT-FRAUD AND EMBEZZLEMENT-CIVIL LIA

BILITY.

9. No officer, trustee, attorney, agent or servant of any association hereby incorporated, shall use or dispose of any part of the funds of such association, or assign, transfer, cancel, deliver up or acknowledge satisfaction of any bond, mortgage or other written instrument belonging to such association, unless duly authorized, or be guilty of any fraud in the performance of his duties; and every person guilty of a violation of this section shall be liable civilly to the party injured, to the extent of the damage thereby incurred, and shall also be liable to an indictment for a misdemeanor, punishable by fine or imprisonment, or both, in the discretion of the court by which he shall be tried.

Directors may be said to be, in the sense of this section, included among "officers." Gross inattention and negligence may by their consequences amount to fraud.

Watts' Appeal, 78 Pa. St. 370.

Errors in judgment, although gross and ridiculously absurd, have been held to be not fraudulent.

Spering's Appeal, 71 Pa. St. 11.

Smith v. Prattville Manufacturing Company, 29 Ala. 503.

SECTION X.

ANNUAL REPORT—PUBLICATION OF WHO SHALL VERIFY.

§ 10. Each association formed under the provisions of this act, shall, at the close of its first year's operations, and annually at the same period in each year thereafter, publish in at least two newspapers published in the place where their business may be located, or if no newspaper shall be published in such place, then in any two newspapers published nearest such place, a concise statement verified on the oaths of its president and secretary, showing the actual

56

PERSONAL LIABILITY OF STOCKHOLDERS, ETC.

financial condition of the association, and the amount of its property and liabilities, specifying the same particularly.

This publication of the annual report is not superseded by the annual report to the superintendent of the Banking Department. A publication of a copy of the official report to the superintendent, duly authenticated by the affidavits of the president and secretary or of the officers acting in their places, will be sufficient.

SECTION XI.

PERSONAL LIABILITY OF STOCKHOLDERS, DIRECTORS AND

OFFICERS.

§ 11. All the shareholders of any association formed under this act, shall be individually liable to the creditors of said association, to an amount equal to the amount of stock held by them respectively, for all debts contracted by such association. The directors or other officers of every association formed under this act, shall be personally liable for any fraudulent use, disposition or investment of any moneys or property belonging to such association, or for any loss which shall be incurred by any investment made by such directors or other officers, other than such as are mentioned in and authorized by this act; but no director or other officer of any such association shall be liable as aforesaid, except he authorized, sanctioned, approved or made such fraudulent use, disposition or investment as aforesaid.

This section is consistent with the general statutory liability of corporations generally. See index.

The question is here suggested whether this liability extends to the full matured values of the shares held by a member, or only to the amount of dues or fees payable at the time of the creation of the corporation's indebtedness. The capital stock of these associations is an anomaly in the law of corporations, and from its nature it cannot be fully paid in until the termination of the association or of the series. The general statutory liability defined in previous pages qualifies this responsibility under certain contingencies; as when the whole

LIABILITY OF PLEDGOR AND PLEDGEE, ETC.

57

capital has not been paid in, the stockholders must bear a proportionate share of the excess of corporate indebtedness over the capital actually paid in, but such proportion not to exceed the par value of stock held by the stockholders. With this qualification of the foregoing section in view, it seems most reasonable to regard the capital of these associations as not fully paid in until the termination of corporate existence. The text of the statute extends the liability "to the amount of stock held by them respectively." As the stock is not truly paid for until the shares have matured at the end of the corporate life of the association, this special liability and the general statutory liability of corporations are in harmony.

It seems that each stockholder is liable only in due proportion with the others and cannot be proceeded against singly. Mann v. Pentz, 3 N. Y., 415. (Reversing same case 2 Sandf. Ch. 257.)

In some respects contrary to this is the case of Remington v. King, 11 Abb. Pr. 278. The plaintiff had secured judgment against a building association which had been organized under the act of 1851, and then sued the defendant Remington as a stockholder of the association under the provisions of Section 11. The defendant admitted the ownership of the stock but alleged an indebtedness of the association to him equal to the value of his stock. The court held that the defendant might set off his claim against the association against plaintiff's claim; that the defendant was also a creditor within the meaning of Section 11 and was therefore entitled to equal equities with all other creditors.

A member seems to be liable for his pro rata share of losses sustained, determined or discovered after service of notice of intention to withdraw, if such losses spring from a contract or act of the association consummated during the membership of the withdrawing member. Knoblach v. Blum Building and Loan Association. 8 Pittsburgh Leg.. Jour. 39.

Shareholders cannot evade liability for losses by transfer of shares: without the consent of the association.

McGrath v. Hamilton Building Association, 44 Pa., 383.

SECTION XII.

LIABILITY OF PLEDGOR AND PLEDGEE, EXECUTORS, ETC. § 12. No person holding stock in any such company, or executor, administrator, guardian or trustee, and no person holding such stock as collateral security, shall be personally

58 EXECUTOR OR TRUSTEE MAY VOTE ON STOCKS IN TRUST.

subject to any liability as stockholder of such company, but the person pledging such stock shall be considered as holding the same, and shall be liable as a stockholder accordingly; and the estate and funds in the hands of such executor, administrator, guardian or trustee shall be liable in like manner, and to the same extent as the testator or intestate, or the ward or person interested in such trust fund would have been if he had been living and competent to act, and hold the same in his own name.

The meaning of Section 12 and of Section 13 post construed together seems to be that when stock is pledged to a member or third person, the person holding the stock as security will not be liable for any indebtedness of the actual owner or of the association. The owner of the stock is the real member and is alone entitled to the benefits and subject to the duties and penalties attaching to membership. In the case of an executor becoming entitled to the rights of membership by reason of his testator's ownership of stock he is responsible for liabilities of the association only to the extent of testator's property. In the case of guardianship or trust the guardian is answerable to the amount of the ward's property in the hands of the guardian. (See Section 6, Minors," index.)

SECTION XIII.

EXECUTOR OR TRUSTEE MAY VOTE ON STOCKS OF TESTATOR OR WARD.

§ 13. Every such executor, administrator, guardian or trustee, shall represent the share of stock in his hands at all meetings of the company, and may vote accordingly as a stockholder; and every person who shall pledge his stock as aforesaid, may, nevertheless, represent the same at all such meetings, and may vote accordingly as a stockholder.

When an association has limited the right of voting to one vote to each member, irrespective of the number of shares he may own, this restriction will apply to trustees, executors, and similar representatives of members. See index, "Voting."

ELECTION-LEGISLATIVE RESERVATION- -CAPITAL STOCK. 59

SECTION XIV.

ELECTION OF OFFICERS AND TRUSTEES-FAILURE TO ELECT -TRUSTEES TO ACT.

§ 14. In case it shall happen at any time, that an election of officers shall not be made on the day designated by the by-laws of said company, when it ought to have been made, the company for that reason shall not be dissolved; but it shall be lawful, on any other day, to hold an election for trustees, in such manner as shall be provided for by the said by-laws; and all acts of trustees shall be valid and binding as against such company, until their successors shall be elected.

If the mode of election is prescribed in the articles of association or by-laws it should be carefully followed; if no special mode is provided then any mode adopted in good faith will be sufficient. Angell and Ames on corporations, Section 138.

SECTION XV.

LEGISLATIVE RESERVATION AS TO REPEAL OR SUSPENSION OF CORPORATE RIGHTS.

§ 15. The legislature may at any time alter, amend, or repeal this act, or may annul or repeal any incorporation formed or created under this act; but such amendment or repeal shall not, nor shall the dissolution of any such company take away or impair any remedy given against any such corporation, its stockholders or officers, for any liability which shall have been previously incurred.

SECTION XVI.

CAPITAL STOCK - INCREASE OR DIMINUTION OF - WHEN INDEBTEDNESS EXISTS.

§ 16. Any company which may be formed under this act may increase or diminish its capital stock, by complying