Under the National banking act the First Old National Bank of Detroit was precluded from dealing in stocks, bond and investment securities, for a long time considered a very profitable trade, somewhat correlated to, but *Page 376 distinct from, the banking business. The reciprocal advantages accruing to a large bank and a very closely affiliated investment company were manifest. In 1919 the First National Company of Detroit was organized under the State law, to engage in the buying, selling and holding of stocks and bonds, and for other purposes. Under a general deposit agreement, all of the stock of the First National Company, except qualifying shares, was placed in the hands of trustees who were also directors of the First National Bank, for the benefit of persons who from time to time might hold stock in the bank. The certificates of stock of the bank recited that the holders thereof had a specified proportionate interest in the First National Company. It is not contended that any fraud, concealment or improper motive entered into the conception, organization or conduct of the First National Company. The bank and the company were kept distinctly separate, each having different purposes, officers, offices, books of account and capital. The company did a very large volume of business running into vast sums of money. The claim evidently is not made that the bank could have been held liable for the debts of the company so that the bank's capital and its depositors might be endangered by transactions in which the bank had no power to engage, and which were conducted in the regular course of business of an independent company.
In September and October, 1929, the First National Company purchased stock in the American State Savings Bank of Lansing, by virtue of which the present assessment has been levied. Approximately three months later the Detroit Bankers Company was organized. It acquired substantially all of the stock of the First National Bank, thus becoming *Page 377 the beneficial owner of the stock of the First National Company, under the deposit agreement above mentioned. The First National Company subsequently turned over its stock and bond business to the First Detroit Company, but retained stocks and bonds of a book value of $6,000,000, including the stock of the American State Savings Bank. From that time the First National Company acted only as a holding company, a purpose permitted by law (2 Comp. Laws 1929, § 9968). Its operations became very limited and it was engaged principally in the liquidation of its assets. The company later changed its name to Assets Realization Company. Because of the limited scope of its operations, but little office space or management was required, and while the company kept in very close communication with its sole stockholder, the Detroit Bankers Company, there was no impropriety in so doing. It remained a distinct entity, and was at no time merged with or absorbed by the Detroit Bankers Company.
It is claimed, however, that as the beneficial owner of the entire stock of the Assets Realization Company, the Detroit Bankers Company was also the real, beneficial owner of the American State Savings Bank stock held by the Assets Realization Company, and is therefore liable for the stock assessment sought to be imposed in the instant case. This claim is based upon the general principle that the actual and real owner of bank stock is liable for the assessment; that such owner cannot relieve himself of liability by the device of transferring the stock to another for his benefit, but the law will look through the subterfuge of pretended ownership to fasten liability upon the real owner. A brief resume of the leading cases, referred to in the opinion of Mr. Justice NORTH, in which the above principle has been *Page 378 applied, will indicate their inapplicability to the case at bar.
Rankin v. Fidelity Ins., Trust Safe Deposit Co.,189 U.S. 242 (23 Sup. Ct. 553), Ohio Valley National Bank v. Hulitt,204 U.S. 162 (27 Sup. Ct. 179), and Pauly v. State Loan TrustCo., 165 U.S. 606 (17 Sup. Ct. 465), are cases involving the liability of a pledgee of national bank stock. In the OhioValley Case, where the pledgee because of special circumstances was held to be the true owner of the stock, it was held that he could not escape liability by registering the stock in the name of an employee for the purpose of evading the assessment. InFoster v. Chase, 75 Fed. 797, one who had purchased national bank stock in the name of his children was held liable for the assessment on the ground that minors could not assent to becoming stockholders. In Houghton v. Hubbell, 33 C.C.A. 574 (91 Fed. 453), the real owner of bank stock was held liable, although the stock was registered on the books of the bank in the name of his agent. In Wright v. Keene, 82 Mont. 603 (268 P. 545, 60 A.L.R. 109), the assignee of bank stock was held liable as the real owner thereof, although the assignment appeared only on the back of the stock certificate and not on the books of the bank.
In Keyes v. American Life Accident Ins. Co.,1 Fed. Supp. 512, a bank and trust company were merged and stock in each of them was placed in the names of trustees, who in return issued certificates representing 70 per cent. of the stock of the bank and 30 per cent. of the stock of the trust company. A holder of trust certificates was held liable for an assessment levied on the bank stock, in such proportion as that stock was represented in his certificates, on the theory that he was the beneficial owner of the *Page 379 stock for which the certificates had been issued. The same facts were involved in Laurent v. Anderson (C.C.A.), 70 Fed. (2d) 819. In Corker v. Soper (C.C.A.), 53 Fed. (2d) 190, the president and director of a bank issuing new stock did not wish to incur the risk of an assessment by subscribing in his own name. He therefore subscribed as agent of a corporation which he was organizing and paid for the stock with money obtained on his personal note. After the corporation had been organized, with defendant and his two sons as sole stockholders, it ratified the stock purchase and gave him its notes in payment for the subscription. No other corporate action was ever taken by the new company. It issued no stock certificates and kept no books, and the only money it ever possessed was $20 paid by defendant for organization purposes. The company had no assets except the stock in its name, and it had no credit. The court held that the corporation was organized simply for the purpose of holding the stock as agent for defendant, who remained the real owner of the stock at all times; and that the law would look through the subterfuge of pretended ownership to fasten liability on the shareholder to whom in fact the shares belonged.
The above cases are far different from the instant case. The Detroit Bankers Company at no time owned stock in the Lansing bank. It was the beneficial owner of all the stock of the First National Company, subsequently known as the Assets Realization Company, which in turn was a stockholder of the Lansing bank. In none of the above decisions, nor in any other reported case, has it been held that liability for an assessment on bank stock may be imposed upon a person for the sole reason that he is a stockholder in a corporation owning such *Page 380 bank stock. In Simons v. Groesbeck, 268 Mich. 495, liability imposed on stockholders of the Detroit Bankers Company for an assessment against bank stock owned by that company was based upon an express contract which provided that the stockholders should be liable for all assessments on stock owned by the Bankers Company. In Corker v. Soper, supra, defendant's liability was based not on the fact that he was sole stockholder of a corporation owning bank stock, but rather on the fact that he had organized the corporation for the sole purpose of transferring the bank stock to it, to be held by it as his agent. No such subterfuge can be claimed in the instant case. The First National Company was organized for a legitimate purpose, and not to avoid liability in the purchase of bank stock. It was in existence for over 10 years before the Detroit Bankers Company was organized. It became the owner of the Lansing bank stock in September, 1929, three months before the organization of the Bankers Company, and has been the real, beneficial owner of that stock ever since. That ownership did not change when the Detroit Bankers Company became the sole stockholder of the First National Company. We therefore hold that the Assets Realization Company is the sole, actual and beneficial owner of the Lansing bank stock, and that it alone is liable for the assessment.
The fact that substantially all of the stock of the Assets Realization Company was acquired by the Detroit Bankers Company does not make the latter company the owner of assets held by the former, or liable for its debts. It cannot be claimed, as a general rule, that because a single person owns all of the stock in a corporation, he is the beneficial owner of its assets. The same principle applies to a corporation *Page 381 owning the entire stock of another corporation. First NationalBank of Memphis v. Towner, 152 C.C.A. 311 (239 Fed. 433);Eichelberger v. Arlington Building, Inc., 52 App. D.C. 23 (280 Fed. 997); Button v. Hoffman, 61 Wis. 20 (20 N.W. 667, 50 Am. Rep. 131); Brock v. Poor, 216 N.Y. 387 (111 N.E. 229). Nor is there any legal obstacle against the organization of a holding company which may own all of the stock in another corporation. The exception to the rule is stated as follows inPeople, ex rel. Attorney General, v. Michigan Bell TelephoneCo., 246 Mich. 198, 204 (P. U. R. 1929B, 455, P. U. R. 1929E, 27).
"Where a corporation is so organized and controlled and its affairs so conducted as to make it a mere instrumentality or agent or adjunct of another corporation, its separate existence as a distinct corporate entity will be ignored and the two corporations will be regarded in legal contemplation as one unit."
In Pittsburgh Buffalo Co. v. Duncan, 146 C.C.A. 542 (232 Fed. 584), in an opinion written by the late Judge Knappen of the circuit court of appeals for the sixth circuit, it was stated:
"As respects stock ownership and corporate control: The mere fact that the stockholders in two or more corporations are the same, or that one corporation exercises a control over the other through ownership of its stock, or through identity of its stockholders, does not make either the agent of the other, nor does it merge them into one, so as to make a contract of one corporation binding upon the other, where each corporation is separately organized under a distinct charter. Central TrustCo. v. Bridges, 6 C.C.A. 539 (57 Fed. 753); Richmond I.Constr. Co. v. Railroad Co., 15 C.C.A. 289 (68 Fed. 105, 108, 34 L.R.A. 625); In re Watertown Paper Co., *Page 382 94 C.C.A. 528 (169 Fed. 252, 255). True, the legal fiction of distinct corporate existence will be disregarded when necessary to prevent fraud, or when a corporation is so organized and controlled and its affairs so conducted 'as to make it only an adjunct or instrumentality of another corporation.' In reWatertown Paper Co., supra; Gay v. Hudson River Electric PowerCo., 109 C.C.A. 66 (187 Fed. 12, 14); Foard Co. v. Maryland, 135 C.C.A. 497 (219 Fed. 827, 829). But 'it requires a strong case to induce a court of equity to consider two corporations as one, on account of one owning all the capital stock of the other.' 1 Cook on Corporations (7th Ed.), § 317; and seePeterson v. Railway Co., 205 U.S. 364, 393 (27 Sup. Ct. 513)."
The facts in the present case do not bring it within the exception to the rule as above stated. There is no evidence that the First National Company was so organized and controlled and its affairs so conducted as to make it a mere instrumentality, agent or adjunct of the Detroit Bankers Company. The acts cited by plaintiff as showing domination and control, such as the making of recommendations by the Detroit Bankers Company to the First National Company and the lending of assistance in other ways, evidence only the natural interest which a principal stockholder would normally have in preserving the value of his interest as a stockholder, and are not grounds for disregarding the corporate entity. The record shows that the Assets Realization Corporation acted independently, at times refusing to follow the recommendations of the Detroit Bankers Company.
Since there is no evidence that the real ownership of the American State Savings Bank stock was in the Detroit Bankers Company, or that the title to the stock was placed in the First National Company *Page 383 for any fraudulent purpose whatsoever, or that the First National Company was so organized and controlled and its affairs so conducted as to make it a mere instrumentality or agent of the Detroit Bankers Company, the Detroit Bankers Company cannot be held liable for an assessment levied upon stockholders of the American State Bank. Nor does the fact that the Assets Realization Company, the real owner of the Lansing bank stock, is now insolvent, constitute any legal basis for fastening liability upon the Detroit Bankers Company. InPottorff v. Dean, 8 Fed. Supp. 670, the court said:
"The doctrine has never been extended so as to read that there shall at all times be a holder of sufficient financial liability so that he could respond to the assessment."
Again in Lucas v. Coe, 86 Fed. 972, the court stated:
"The fact that the defendant is responsible and thecestui que trust presumably irresponsible is a matter of no moment. There is nothing requiring a shareholder in a national bank to be solvent. * * * The question for the receiver in making an assessment is, who own the shares, not who is best able to pay?"
The decree of the lower court should be reversed, with costs to appellants, and the bill of complaint dismissed.
WIEST, J., concurred with BUTZEL, J. FEAD and BUSHNELL, JJ., did not sit. *Page 384