find out the real owner. This question is of great importance, especially when bank stock has been pledged as security for a debt. Though a national bank can not take its own stock as security for a debt at the time of making a loan, it can take it as security for a previous one, the ultimate discharge of which may be feared; and if it is thus taken, suppose the bank whose stock is pledged should fail, would the other bank, which has taken it, be liable for an assessment? This question troubled the courts for several years, but the Supreme Court of the United States decided the question in the Pauly case in such a clear and satisfactory manner as to remove all difficulties.1 Several principles were announced that may be briefly stated. (1) That the real owner of the shares in a national bank may be treated as a shareholder. (2) If the shares are pledged to a bank and transferred in such a way as to indicate a change of ownership, it is liable to an assessment. (3) But if the mode of transfer shows that the bank is simply the pledgee and not the real owner, it can not be assessed. (4) Lastly, if shares are transferred simply to evade liability, the original owner may be assessed. Thus, suppose the owner of shares transfers them to another and never says anything about the matter, and after the failure of the bank the transferree should make the unwelcome discovery that he was a shareholder. He has never bought or paid for them; in truth, would not have purchased them had they been offered to him. In such a case it would be unjust to hold him liable, and the law does not go so far. But if a person knows that his name is on the stock book as a holder, he can not after the failure of the bank show it ought not to have been there.

1 165 U. S. 606.

BOLLES: M. B. & F.-4

VI. ANNUAL MEETINGS

1. An Annual Shareholders' Meeting must be held. During the first month of the year national banks are required to hold their annual shareholders' meeting. The state banks and trust companies also hold a similar meeting, though perhaps not in the same month. Indeed, every corporation is required to hold an annual meeting at which all of its members may participate.

2. By-laws regulate the Time and Manner of holding it.

The by-laws usually regulate the monthly date for holding the meeting and the length of the notice that must be given to shareholders. The requirements of the law and by-laws should be carefully regarded, for it is important to act legally on such occasions. "It is not only a plain dictate of reason, but a general rule of law, that no power or function intrusted to a body consisting of a number of persons can be legally exercised without notice to all the members composing such body.' Suppose there is a controversy among the shareholders over the election of directors, and the requirements concerning the time and place and matters relating to the meeting at which they were elected have not been properly followed. They may after all be defeated by judicial action.

1

The by-laws should be careful to state how the notice of the meeting is to be given to each shareholder, through the post office or personally. If no mode is provided, the notice must be served on each shareholder.

1 Morawetz, Private Corporations, § 354.

This is

the legal rule, though perhaps if notice had been given through the post office long enough to establish a custom or usage, that might suffice.

Again, the meetings can not be held at an unreasonable hour, or at an unusual place where all the shareholders can not without great inconvenience be present. Furthermore, after a meeting has been organized, it may be adjourned from time to time for the transaction of business without giving another notice to the shareholders, for it is a continuation of the same meeting.

3. Majority act for All. When such meetings are properly called, it is a general rule that the majority act for the corporate body, unless the charter or other law plainly requires action by the larger number in order to bind all. "Each and every shareholder contracts that the will of the majority shall govern in all matters coming within the limits of the act of incorporation." 1

By "majority" is meant more than one half of those who are present at the meeting. To hold a legal meeting a majority of all the shareholders need not be present or represented, or a majority of all the shares need not be voted; but those who do assemble will form a quorum for transacting business, and a majority of that quorum can bind the whole body.

4. How Shareholders must transact Business. -When the shareholders assemble, they must transact their business as their charter or other laws or customs prescribe. If, for example, business is transacted before the hour set for holding the meeting, it would be invalid, regardless of the number present, unless perhaps every shareholder was at the meeting. And if it be a special one the notice must indicate the nature of the business to be transacted.

1 Morawetz, Private Corporations, § 354.

This is not needful in the case of an annual meeting, because every shareholder is supposed to know what is to be done. If, however, any extraordinary action is to be taken, like the sale or purchase of a banking house, in which the wishes of the shareholders are desired, it is proper and usual to specify this in the notice.

5. Who act as President and Clerk. At these meetings the president presides and the cashier serves as a clerk.

6. Who can vote. One other point remains for consideration, who can vote at a meeting? Every shareholder is entitled to one vote on each share. He can also authorize another to vote for him, and this is often done. The person thus acting is called his attorney or agent, and the document whereby he acts is known as a proxy. One of the peculiarities of the national bank law is, no officer can act as attorney for another at the annual meeting. The law aims to keep the officers apart from the shareholders as much as possible. But when a person has sold his stock, which has not been transferred on the books of the bank, who can vote thereon? The real owner is the new purchaser, yet his name is not on the company's books. It must follow the record. Accordingly it is a well-known rule of law that one who has sold his shares has a right to vote on them until the transfer has been recorded on the books of the bank. The pledgor of a stock has the same right, and for the same reason.

7. Comparison between Bank Meetings in the United States and Canada. - The annual meetings of banks in this country are usually very brief and tame affairs. In Canada shareholders proceed very differently. An elaborate statement is prepared by the manager setting forth the history of the business of the bank during the year, accompanied with suggestions pertaining to future opera

tions. Many shareholders attend and often ask numerous questions, which he answers. They are given a full history of the bank's operations, and go away feeling that their bank is not a mere blind pool into which they have thrown their money. The practice of these institutions can not be too highly commended.

It is often said in defense of American methods that a successfully conducted bank must be, after all, largely a one-man affair. It is true that its business must be largely given up to a manager, but there are times and seasons when it is proper to ask him to give an account of his stewardship, however competent and worthy of confidence he may be. Too often shareholders wait until some grave misdeed has been committed before making inquiry. It is well to have confidence in one another, to give bank officers all the authority they need for the successful conduct of the bank's business; nevertheless, they should be required to report what they have done, and inquiry be made into their work on all proper occasions to the end that they may never relax their vigilance, and continue to serve with the utmost fidelity.