STEVENS’ APPEAL.
Opinion by
Mr. Justice McCollum,
The appellant sold his stock in the Columbian Bank on Jan. 4, 1887, and the learned auditor finds that the bank was the purchaser of it and then insolvent. In these findings he is well sustained by the evidence. The Columbian Bank began business about March 1, 1883, as the successor of a partnership [434]*434engaged in banking under the name of the Columbian Loan Association and Savings Fund, of which Charles Phillips was president, and the actual capital of the bank was then limited to the assets, subject to the liabilities of the firm to which it succeeded. In order to make the assets balance the liabilities it was necessary to include in the former the “ good-will ” of the loan association at $28,000, and the “good-will” of Charles Phillips at $10,000. When it is considered that the deposits with the association were less than $26,000, the estimate of the value of the good-will, included as assets, seems exorbitant. The appellant was a director and vice president of the bank from the time it commenced business until Dee. 31, 1886, and Phillips was the president of it until its suspension in J uly, 1887. When the suspension came, the liabilities, exclusive of capital stock, were $300,000, and the assets were about one third of that sum. Of the latter the learned auditor says: “ The assets were found to consist, in addition to the ordinary bank assets, of a multitudinous variety of merchandise, the inventory exhibiting upwards of fifty folio pages descriptive of these articles. The cash resources were practically exhausted, only $1,285.93 remaining in hand. The bills receivable and other loans, appraised as good, were only partially available for the benefit of the creditors in general, as in many instances they were set off in whole or in part by the deposit accounts of the debtors.” A short time before the appellant sold his stock, he scrutinized the condition and management of the bank, and made discoveries concerning them which “ startled ”' him. His resignation as vice president and director was the result of this scrutiny. He determined to dispose of his stock, and threatened to sell it at auction, but was induced by Phillips to refrain from a public sale of it in order to save the credit of the bank. Ifrom these facts, which are undisputed, the learned auditor drew the inference, and we think properly, that the bank was insolvent when it made the purchase. There is no evidence that the bank sustained any losses, that there was any depre*ciation in the value of its assets, or that its indebtedness was materially increased between the sale and the suspension. In the absence of any showing, indicative of a change in the condition of the bank after its purchase of the stock, and in the [435]*435presence of the facts already mentioned, the only conclusion admissible is that reached by the auditor.
The appellant was a director and vice president of the bank when he threatened to sell his stock at auction, and advised with Phillips in relation to the sale of it, and it is clear from the testimony that the latter was anxious that the former’s dissatisfaction with the condition and management of the bank, and his purpose to sever his connection with it, should not be generally known. It is worthy of note that, in the interviews between them concerning the sale of the stock, no person was named as the probable purchaser of it, that the appellant made no inquiries on this point, and that the only parties known to him in the transaction were the president of the bank and its cashier, to whom he delivered the stock, and who gave him, in exchange therefor, interest-bearing obligations of the bank payable to his order. These facts, considered by themselves, are persuasive evidence that the stock was sold to the bank, and the subsequent formal transfer of it to the cashier for his worthless note is confirmatory of this view, because it was manifestly a device to hide the real nature of the transaction. The appellant is chargeable with knowledge of the insolvency of the bank and of its purchase of his stock. The sale was the result of his investigation of its affairs, and was completed four days after its acceptance of his resignation as director and vice president. As a director it was his duty to participate intelligently in its management, and he must be considered as possessed of the information respecting its condition which the discharge of that duty would have given him. In such case the duty to know is, in its legal effects, the same as actual knowledge. The circumstances connected with the sale of his stock were sufficient to put him on inquiry as to the purchaser, and it is reasonable that he should be held to have 'the knowledge to which such inquiry would have led him.
But, aside from these circumstances and the duty they imposed, his agent to sell the stock was the president of the bank which purchased it, and the law imputes to the principal the knowledge acquired by the agent in the course of his employment. In Johnson v. Laflin, 103 U.S. 800, a case cited by the appellant, Mr. Justice Field said: “The general doctrine that the principal in a transaction is chargeable with notice of mat[436]*436ters affecting its validity coming to the knowledge of bis agent pending the proceeding, is not questioned. Had Geralt, the bookkeeper, been appointed by Laffin to make the sale, and had he, in negotiating it, learned the facts as to the purchase and use of the funds of the bank, there would be ground to invoke the application of the doctrine.” The present case, on the point under consideration, falls clearly within this principle.
We have, then, the case of a stockholder in an insolvent bank who, with knowledge of its insolvency, sold his stock to it, and, in the distribution of its assets, claims a dividend on the price or sum the bank agreed to pay him for it. It is obvious that an allowance of this claim will injure the creditors of the bank by reducing the dividends they would otherwise receive from its assets, and proportionately increase their losses. It is well settled in England that a purchase by a corporation of its own stock is ultra vires, unless the power to purchase it is clearly conferred by its charter. In our country the decisions on this point are conflicting, but they are practically unanimous in holding that an insolvent corporation cannot buy its own shares to the detriment of its creditors. As its capital stock is a trust fund for the payment of its debts, the use of this fund in the purchase of shares, in itself, is destructive of a security intended primarily for the creditors, and a plain misappropriation of it. If the corporation was permitted to so use the trust fund, it might in this way distribute its capital among its shareholders, extinguish their personal liability and leave its creditors without security or remedy. We cannot concede that it has a power which would make such results practicable. The certificates of deposit on which the appellant bases his claim to a dividend, were received by him from the bank in part payment for the stock which he sold to it, and they gave him no better standing to participate in the distribution of its assets than he had as a shareholder. It follows that the learned auditor was right in rejecting his claim.
Decree affirmed, and appeal dismissed at the cost of the appellant.
mcgkath’s appeal.
Mk. Justice McCollum,
February 22, 1892.
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STEVENS’ APPEAL.
Opinion by
Mr. Justice McCollum,
The appellant sold his stock in the Columbian Bank on Jan. 4, 1887, and the learned auditor finds that the bank was the purchaser of it and then insolvent. In these findings he is well sustained by the evidence. The Columbian Bank began business about March 1, 1883, as the successor of a partnership [434]*434engaged in banking under the name of the Columbian Loan Association and Savings Fund, of which Charles Phillips was president, and the actual capital of the bank was then limited to the assets, subject to the liabilities of the firm to which it succeeded. In order to make the assets balance the liabilities it was necessary to include in the former the “ good-will ” of the loan association at $28,000, and the “good-will” of Charles Phillips at $10,000. When it is considered that the deposits with the association were less than $26,000, the estimate of the value of the good-will, included as assets, seems exorbitant. The appellant was a director and vice president of the bank from the time it commenced business until Dee. 31, 1886, and Phillips was the president of it until its suspension in J uly, 1887. When the suspension came, the liabilities, exclusive of capital stock, were $300,000, and the assets were about one third of that sum. Of the latter the learned auditor says: “ The assets were found to consist, in addition to the ordinary bank assets, of a multitudinous variety of merchandise, the inventory exhibiting upwards of fifty folio pages descriptive of these articles. The cash resources were practically exhausted, only $1,285.93 remaining in hand. The bills receivable and other loans, appraised as good, were only partially available for the benefit of the creditors in general, as in many instances they were set off in whole or in part by the deposit accounts of the debtors.” A short time before the appellant sold his stock, he scrutinized the condition and management of the bank, and made discoveries concerning them which “ startled ”' him. His resignation as vice president and director was the result of this scrutiny. He determined to dispose of his stock, and threatened to sell it at auction, but was induced by Phillips to refrain from a public sale of it in order to save the credit of the bank. Ifrom these facts, which are undisputed, the learned auditor drew the inference, and we think properly, that the bank was insolvent when it made the purchase. There is no evidence that the bank sustained any losses, that there was any depre*ciation in the value of its assets, or that its indebtedness was materially increased between the sale and the suspension. In the absence of any showing, indicative of a change in the condition of the bank after its purchase of the stock, and in the [435]*435presence of the facts already mentioned, the only conclusion admissible is that reached by the auditor.
The appellant was a director and vice president of the bank when he threatened to sell his stock at auction, and advised with Phillips in relation to the sale of it, and it is clear from the testimony that the latter was anxious that the former’s dissatisfaction with the condition and management of the bank, and his purpose to sever his connection with it, should not be generally known. It is worthy of note that, in the interviews between them concerning the sale of the stock, no person was named as the probable purchaser of it, that the appellant made no inquiries on this point, and that the only parties known to him in the transaction were the president of the bank and its cashier, to whom he delivered the stock, and who gave him, in exchange therefor, interest-bearing obligations of the bank payable to his order. These facts, considered by themselves, are persuasive evidence that the stock was sold to the bank, and the subsequent formal transfer of it to the cashier for his worthless note is confirmatory of this view, because it was manifestly a device to hide the real nature of the transaction. The appellant is chargeable with knowledge of the insolvency of the bank and of its purchase of his stock. The sale was the result of his investigation of its affairs, and was completed four days after its acceptance of his resignation as director and vice president. As a director it was his duty to participate intelligently in its management, and he must be considered as possessed of the information respecting its condition which the discharge of that duty would have given him. In such case the duty to know is, in its legal effects, the same as actual knowledge. The circumstances connected with the sale of his stock were sufficient to put him on inquiry as to the purchaser, and it is reasonable that he should be held to have 'the knowledge to which such inquiry would have led him.
But, aside from these circumstances and the duty they imposed, his agent to sell the stock was the president of the bank which purchased it, and the law imputes to the principal the knowledge acquired by the agent in the course of his employment. In Johnson v. Laflin, 103 U.S. 800, a case cited by the appellant, Mr. Justice Field said: “The general doctrine that the principal in a transaction is chargeable with notice of mat[436]*436ters affecting its validity coming to the knowledge of bis agent pending the proceeding, is not questioned. Had Geralt, the bookkeeper, been appointed by Laffin to make the sale, and had he, in negotiating it, learned the facts as to the purchase and use of the funds of the bank, there would be ground to invoke the application of the doctrine.” The present case, on the point under consideration, falls clearly within this principle.
We have, then, the case of a stockholder in an insolvent bank who, with knowledge of its insolvency, sold his stock to it, and, in the distribution of its assets, claims a dividend on the price or sum the bank agreed to pay him for it. It is obvious that an allowance of this claim will injure the creditors of the bank by reducing the dividends they would otherwise receive from its assets, and proportionately increase their losses. It is well settled in England that a purchase by a corporation of its own stock is ultra vires, unless the power to purchase it is clearly conferred by its charter. In our country the decisions on this point are conflicting, but they are practically unanimous in holding that an insolvent corporation cannot buy its own shares to the detriment of its creditors. As its capital stock is a trust fund for the payment of its debts, the use of this fund in the purchase of shares, in itself, is destructive of a security intended primarily for the creditors, and a plain misappropriation of it. If the corporation was permitted to so use the trust fund, it might in this way distribute its capital among its shareholders, extinguish their personal liability and leave its creditors without security or remedy. We cannot concede that it has a power which would make such results practicable. The certificates of deposit on which the appellant bases his claim to a dividend, were received by him from the bank in part payment for the stock which he sold to it, and they gave him no better standing to participate in the distribution of its assets than he had as a shareholder. It follows that the learned auditor was right in rejecting his claim.
Decree affirmed, and appeal dismissed at the cost of the appellant.
mcgkath’s appeal.
Mk. Justice McCollum,
February 22, 1892.
The appellant owned stock in, and was a director of, the [437]*437Columbian Bank. On Jan. 18, 1887, he sold his stock to the bank,- which was then insolvent. He was, as a director, chargeable with knowledge of its insolvency. He received the bank’s certificate of deposit in payment of the price for which he sold the stock. On this certificate he claims a dividend from its assets. The learned auditor disallowed his claim. This ruling is sustained by Stevens’Ap. [the preceding case], decided at this term. We need not repeat what was there said.
Decree affirmed, and appeal dismissed at the cost of the appellant.
steward’s appeal.
Opinion by Mr.
Justice McCollum,
Charles Phillips was one of the executors of the estate of John Steward, Jr.; he was also the president of the Columbian Association and Savings Fund, and of its successor in business, the Columbian Bank. His coexecutors in the management of the estate were Mary A. Steward, the appellant, and John Stevens. The will under which they acted authorized them to dispose of real and personal property belonging to the estate, and to make such investments of the proceeds as any two of their number approved. Prior to March 1,1888, the moneys of the estate received by Phillips were deposited by him with the loan association. He had three deposit accounts with it, one in his individual name, one in his own name as “ trustee,” and one as executor of the estate of Annie Miller. These accounts were transferred to, and continued with, the Columbian Bank after it succeeded to the business, assets and liabilities of the loan association. The bank made an assignment for the benefit of its creditors, on July 27,1887, and the aggregate amount of the balance to his credit in these accounts was, at that time, §372.40, of which sum §94.99 belonged to the account as “ trustee.” If all the trust moneys he deposited, exclusive of the moneys of the Miller estate, entered into the “ trustee ” account, it included the moneys of the Steward estate and of other trusts managed by him during the period covered by it. It is impossible to ascertain, from this account, the dates and amounts of the Steward deposits, as distinguished from deposits of other trust moneys, and these [438]*438were not shown by evidence aliunde. The accounts, therefore, fail to disclose any indebtedness by the bank to the Steward estate. They show that the moneys deposited by Phillips with the loan association and with the bank, whether in his own name as “ trustee,” or as executor, were substantially exhausted before the assignment. It appears that on March 1, 1883, four hundred shares of the capital stock of the loan association, of the par value of $10 each, were in the name of Charles Phillips, as executor of the Steward estate, and- that, on the organization of the Columbian Bank, forty of its shares, of the par value of $100 each, were substituted for them ; that soon thereafter Phillips tranferred forty of its shares, which he held individually, to his own name as executor of said estate, so ..that, early in the year 1884, the estate appeared on the books of the bank as the owner of eighty shares of its capital stock. The holding of this stock by the estate was known to, and acquiesced in by Stevens, who was one of the executors, and a director of the bank, and it was also within the knowledge of N. Harper Steward, a son of the testator, and interested in the estate in remainder after the death of his mother. The learned auditor has found that the appellant was not informed of this investment; but it seems almost incredible that she was ignorant of it, when it is remembered that at least one half of the stock was held by the estate five years; that she was entitled to the use of the entire estate during her life, and that she was joined with Phillips and Stevens in the administration of it. But we need not pursue this subject further. We accept the facts as found by the auditor, and decide the case upon them. Five days before the suspension forty shares of the stock, held as above stated, were sold to the bank at par, and a certificate of deposit for the price was issued by the bank to Mary A. Steward, executrix of the estate of John Steward, Jr. The appellant’s claim upon the assets of the bank is founded on this certificate.
In Stevens’ Appeal, supra, we held that a purchase by an insolvent bank of its own stock was invalid as to its creditors, and that the seller’s right to the assets as against them was no greater than a shareholder’s. This ruling was based on the familiar principle that the capital stock of a bank is a trust fund for the payment of its debts, and that the claim [439]*439of its shareholders upon the fund are subordinate to the claims of its creditors. It is contended, however, that the claim of the appellant does not fall within this principle, because of an alleged violation by Phillips of his trust in using the moneys of the Steward estate in the purchase of the stock he held as executor. It should be stated, in this connection, that it nowhere appears that more than five shares of the stock which was issued to Phillips individually, and was afterwards transferred by him to the Steward estate, was purchased with the moneys of 'the estate, nor does it appear whether the stock which was sold to the bank in July, 1887, was that which was substituted for the estate’s shares in the loan association, or that which was transferred to it by Phillips. Certainly, if Phillips was the owner of the stock which was issued to him individually, his transfer of it to the Steward estate did not in any degree change its character or impair its value as a security for the creditors of the bank.
If it be conceded that the stock sold to the bank, and for which the certificate of deposit was issued, was purchased by Phillips with the moneys of the estate, and that the investment was unauthorized, it does not follow that the estate can recover as against these creditors, the price the bank agreed to pay for the stock or the moneys expended by Phillips in its purchase. The moneys deposited bjr Phillips in his own name, as “ trustee ” or as executor, were paid out on his checks and such payments discharged the obligation created by the deposits. If the moneys so paid were invested in the purchase of the stock of the bank, its liability thereafter was to the owner of the stock, not as a creditor, but as a shareholder. The sale of the stock to the bank was really made at the instance of the appellant, who, by her agent, N. Harper Steward, directed Phillips “ to take the moneys of the estate invested in the stock out and pay off the mortgages against the property of the estate.” Her possession of the certificate of deposit, which is the basis of her present claim, is a result of the direction so given, and it was prompted by her agent’s investigation of the affairs of the bank, six months before the sale. For three years before the assignment by the bank, its books showed that eighty shares of its capital stock were in the name of Charles Phillips, as executor of the John Steward estate. John Stevens, a coexec[440]*440utor of Phillips in the management of said estate, knew this and did not object to it. His knowledge and acquiescence may fairly be taken as an approval by him of the investment. We think it is clear, on the facts shown, that, in the distribution of the assets of the bank, and as against its creditors, the estate must be regarded as having only the rights of a shareholder. Bank v. King, 57 Pa. 202, and Hallett’s Estate, 13 Ch. Div. L. R. 696, are not applicable to the case under consideration. In the case first named, an agent deposited in a bank in his own name the moneys of his principal; a creditor of the agent attached the deposit, and it was held that the attachment could not prevail against the beneficial owners of the fund. In Hdllet’s estate a trustee blended trust moneys with his own in an account at his bankers in his individual name, and afterward drew out a portion of the moneys so deposited. It was held that it must be taken that he drew out his own money first, and that the beneficial owners of the moneys remaining on deposit should receive them. In both cases the obligation of the depositaries was conceded. In the case before us, the Columbian Bank is not a debtor of the Steward estate, or of its unfaithful trustee. The liability of the bank is to the owner of its stock as a shareholder, who cannot take any portion of its assets until its creditors are satisfied.
We need add nothing to what the learned auditor has said concerning the identification of the trust moneys. On this branch of the ease his views are in line with the doctrine of Thompson’s Ap., 22 Pa. 16, and kindred cases.
Decree affirmed, and appeal dismissed at the cost of the appellant.