We are therefore of the opinion that the demurrers to the defendant's special plea in bar should be overruled and the pleas sustained.

Judgment for the defendant for costs.

TERRY V. LITTLE.

IN THE SUPREme Court of THE UNITED STATES, OCTOBER TERM,

1879.

101 United States Reports 216 (1879).

ERROR to the Circuit Court of the United States for the Western District of North Carolina.

By sec. 4 of the charter of the Merchants' Bank of South Carolina, at Cheraw, it was provided that, in case of the failure of the bank, "each stockholder, copartnership, or body politic having a share or shares in the said bank at the time of such failure, or who shall have been interested therein at any time within twelve months previous to such failure, shall be liable and held bound individually for any sum not exceeding twice the amount of his, her, or their share or shares." It is alleged in the declaration that the bank failed March 1, 1865. The general assets have since been collected and applied to the payment of debts, under the provisions of an act of the legislature of South Carolina, passed March 13, 1869, placing the bank in liquidation. Debts to the amount of several hundred thousand dollars are still unpaid. The capital stock was $400,000, divided into shares of $100 each. Of these shares the defendant, Benjamin F. Little, owned at the time of the failure one hundred and ten, and John P. Little one hundred and fifty-eight. On the 21st of August, 1875, Terry, the plaintiff, commenced an action at law in the court below against the defendants jointly to recover from them, on account of their individual liability as stockholders, $5,440, the amount due him from the bank on its bills which he held. The defendants demurred to the declaration, and among others assigned for cause, in substance1. That the individual liability of the stockholders as created and defined by this charter could not be enforced in an action at law by one creditor for his sole use to the exclusion of others; and 2. That even if it could, the defendants cannot be joined in one such action, because their liability is not joint, but several. The Circuit Court sustained the demurrer and gave judgment for the

defendants. This writ of error has been brought to reverse that judgment.

WAITE, Ch. J. The individual liability of stockholders in a corporation is always a creature of statute. It does not exist at common law. The first thing to be determined in all such cases is, therefore, what liability has been created. There will always be difficulty in attempting to reconcile cases of this class in which the general question of remedy has arisen, unless special attention is given to the precise language of the statute under consideration. The remedy must always be such as is appropriate to the liability to be enforced. The statute which creates the liability may declare the purposes of its creation and provide directly or indirectly a remedy for its enforcement. If the object is to provide a fund out of which all creditors are to be paid share and share alike, it needs no argument to show that one creditor should not be permitted to appropriate to himself, without regard to the rights of others, that which is to make up the fund.

The language of the charter is peculiar. The stockholders are not made directly liable to the creditors. They are not in terms

* * *

* * *

their

obliged to pay the debts, but are "liable and held bound for any sum not exceeding twice the amount of * * * shares." This, we think, means that on the failure of the bank each stockholder shall pay such sum, not exceeding twice the amount of his shares, as shall be his just proportion of any fund that may be required to discharge the outstanding obligations. The provision is, in legal effect, for a proportionate liability by all stockholders. Undoubtedly, the object was to furnish additional security to creditors, and to have the payments when made applied to the liquidation of debts. So, too, it is clear that the obligation is one that may be enforced by the creditors; but as it is to or for all creditors, it must be enforced by or for all. The form of the action, therefore, should be one adapted to the protection of all. A suit at law by one creditor to recover for himself alone is entirely inconsistent with any idea of distribution. the liability of the stockholder is not to any individual creditor, but for contribution to a fund, out of which all creditors are to be paid alike, the appropriate remedy is by suit to enforce the contribution, and not by one creditor alone to appropriate to his own use that which belongs to others equally with himself. We think this case comes clearly within the rule laid down in Pollard v. Bailey, 20 Wall, 520, to which we adhere.

The second ground of demurrer is equally fatal. The liability of the stockholders is several and not joint. Each stockholder is

bound for his own share and no more. No judgment can be rendered against him for what another should pay. It follows that in an action at law each stockholder must be separately sued. In equity it is different, for there the decree can be moulded to suit the exigencies of the case, and each stockholder can be held liable and proceeded against for what he is bound to pay, and no more. Undoubtedly, under the provisions of some charters, suits at law may be maintained by one creditor against one or more of the stockholders. The form and extent of a statutory liability of this kind depend upon the particular phraseology of the statute which creates the liability. All we decide is that under this charter the suit to enforce the liability should be in the nature of a suit in equity, by or for all creditors, and that it cannot be at law by one creditor for himself alone against two stockholders who are not jointly liable on account of the shares standing in their respective

names.

Judgment affirmed.

(h) Rights of Creditors against Shareholders under so-called Trust-Fund Theory.

JOSHUA B. WOOD AND OTHERS V. JEREMIAH DUMMER AND OTHERS. 3 Mason (U. S. C. C.) 308 (1824).

BILL IN EQUITY brought by the plaintiffs, as holders of the banknotes of the Hallowell and Augusta Bank, against the defendants, as stockholders in the same bank, for payment of the same notes, upon the ground of an asserted fraudulent division of the capital stock of the bank by the stockholders. The defendants put in answers, denying the fraud, but admitting the division of the capital stock, etc., and denying the plaintiffs' title to relief. The general replication was filed, and the cause was set down for a hearing upon the whole merits, at the last October term of the court, upon certain admissions of the parties, and was argued by Alden and Whitman for the plaintiffs, and by Bond and Longfellow for the defendants. And at this term the opinion of the court was delivered in substance as follows:

STORY, J. The Hallowell and Augusta Bank was incorporated in March, 1804, by the legislature of Massachusetts, with a capital stock of $200,000, divided into shares of $100 each, for a term which expired on the first Monday of October, 1812, with

the usual rights and privileges belonging to the banks in the same state. In June, 1812, the legislature passed an act (act of 1812, c. 57) continuing all the banks whose charters would expire on the first Monday of October, 1812, as corporate bodies until the first Monday of October, 1816, " for the sole purpose of enabling said banks gradually to settle and close their concerns, and divide their capital stock." And by a further act, passed in December, 1816 (act of 1816, c. 110), the term was prolonged for three years from the passing of this last act. In January, 1813, at a meeting of the stockholders of the Hallowell and Augusta Bank, a vote was passed ordering a dividend to be made among the stockholders of the bank of fifty per cent. of the capital stock thereof; and in October in the same year, a vote was passed for a further dividend of twenty-five per cent, of the capital stock, making in the whole a dividend of seventy-five per cent. of the whole capital stock among the stockholders. The notes of the bank continued to circulate in good credit until after November, 1814; and the plaintiffs were, in October and November, 1814, owners in their several rights of notes of the same bank to a sum in the aggregate amounting to more than $29,000, which were presented for payment to the bank, and payment refused. The plaintiffs received certain notes of the directors as collateral security, but these were never paid. In fact, one-quarter part of the capital stock of the bank had never been paid in, but was secured by the notes of the stockholders, called stock notes; and about $90,000 of debts (besides stock notes) were due from certain directors of the bank, who became insolvent and utterly unable to pay the same. So that nearly three-quarters of the stock was lost or unpaid, either from insolvency or some other cause, and left the bank involved, after the division of the stock, in deep insolvency. In June, 1812, another and new bank was incorporated, composed in part of the same persons, with the same corporate name. The new bank, for a considerable time, continued to give credit to and circulate the notes of the old bank; and the bill asserted the new bank to have become possessed of the funds of the old bank to a very large.

amount.

Such are the principal facts; and the claim of the plaintiffs is to be reimbursed by the defendants (who are owners of 320 shares) out of the dividends of the capital stock received by them, the amount of the debts so due to the plaintiffs respectively, for the banknotes above stated.

The case is full of difficulties. The bill is drawn in a very loose and inartificial manner. It proceeds principally upon the grounds

of a gross overissue of banknotes, and other violations of the charter, and of a fraudulent dividend by the stockholders with a knowledge of their insolvency, grounds which are denied by the answers, and are not in the slightest degree established in the proofs. It does not directly proceed upon the ground that the defendants hold a trust fund applicable to the payment of the debts of the corporation, but leaves this to be picked up in fragments by a minute analysis of the bill. I pass, however, over these objections, for the purpose of considering that which is the principal point argued in the cause- whether the capital stock in the hands of the stockholders is liable to the payment of the debts of the bank.

It appears to me very clear upon general principles, as well as the legislative intention, that the capital stock of banks is to be deemed a pledge or trust fund for the payment of the debts contracted by the bank. The public, as well as the legislature, have always supposed this to be a fund appropriated for such purpose. The individual stockholders are not liable for the debts of the bank in their private capacities. The charter relieves them from personal responsibility, and substitutes the capital stock in its stead. Credit is universally given to this fund by the public, as the only means of repayment. During the existence of the corporation it is the sole property of the corporation, and can be applied only according to its charter that is, as a fund for payment of its debts, upon the security of which it may discount and circulate notes. Why, otherwise, is any capital stock required by our charters? If the stock may, the next day after it is paid in, be withdrawn by the stockholders without payment of the debts of the corporation, why is its amount so studiously provided for, and its payment by the stockholders so diligently required? To me this point appears so plain upon principles of law, as well as common sense, that I cannot be brought into any doubt, that the charters of our banks make the capital stock a trust fund for the payment of all the debts of the corporation. The billholders and other creditors have the first claims upon it; and the stockholders have no rights, until all the other creditors are satisfied. They have the full benefit of all the profits made by the establishment, and cannot take any portion of the fund, until all the other claims. on it are extinguished. Their rights are not to the capital stock, but to the residuum after all demands on it are paid. On a dissolution of the corporation, the billholders and the stockholders have each equitable claims, but those of the billholders possess, as I conceive, a prior exclusive equity. The same doctrine has