The additional liability of the shareholders of corporations
depends on the terms of the statute creating it, and as such a
statute is in derogation of the common law it cannot be extended
beyond the words used.
Where the charter of a state bank provides for additional
liability of the shareholders as sureties to the creditors of the
bank for all contracts and debts to the extent of their stock
therein at the par value thereof at the time the debt was created,
a shareholder is not liable for a debt created after he has
actually parted with his stock and the transfer has been regularly
entered on the books of the bank.
Where the decisions of the highest court of a state show that it
regarded the construction and application of a statute as open for
review if another case arose, its prior determinations of the
questions do not necessarily have to be adopted and applied by the
federal courts in cases where the cause of action arose prior to
any of the adjudications by the state court.
Section 1496 of the Georgia Code of 1882, requiring shareholders
of banks to publish notice of transfer in order to exempt
themselves from
Page 192 U. S. 387
liability, does not apply to shareholders who have transferred
their stock prior to the inception of the debts at the time of the
failure of the institution.
This was a bill filed January 14, 1898, in the Circuit Court of
the United States for the District of Maryland by the Brunswick
Terminal Company and others, creditors of the Brunswick State Bank,
chartered by the State of Georgia, which failed and was declared
insolvent in May, 1893, to enforce, in behalf of its creditors,
against the National Bank of Baltimore, a statutory liability equal
to the par value of certain shares of stock in the state bank at
one time standing in the name of the Baltimore bank.
The case was first heard on demurrer to a plea of the Maryland
statute of limitations. The demurrer was overruled, the defense
sustained, and the bill dismissed. 88 F. 607. On appeal to the
Circuit Court of Appeals for the Fourth Circuit, the decree was
reversed and the cause remanded for further proceedings. 99 F.
635.
The cause was then heard on the pleadings and an agreed
statement of facts, the parties reserving the right to refer to any
pertinent laws or statutes of Georgia, as follows:
"That the Brunswick State Bank was a corporation chartered,
organized, and existing under the laws of the State of Georgia, and
was engaged in the general banking business in that state; that, on
or about the 30th day of May, 1893, William M. Wiggins and others
alleging themselves to be creditors of said Brunswick State Bank
filed their petition in the Superior Court of Glynn County,
Georgia, against said bank, alleging that it was insolvent, and
praying for the appointment of a receiver to take possession of its
assets, and administer them, and on the 29th day of June following,
the court decreed that the bank was insolvent and appointed a
permanent receiver for the purposes stated; that the State of
Georgia and Glynn County were, under the laws of Georgia, preferred
creditors, and the assets obtained by the receiver as the assets of
the bank were exhausted in the payment of these preferred
claims
Page 192 U. S. 388
and the costs of litigation, and nothing was left for the
payment of other creditors of the bank; that the following persons
are creditors of the said Brunswick State Bank in the amounts
stated in connection with their names, and were originally parties
plaintiff in said cause, or having become such subsequently, that
is to say: [Here follow lists of creditors.]"
"That the defendant is a national bank, chartered, organized,
and conducting a business of a bank at the City of Baltimore, in
the State of Maryland, under the provisions of the statutes of the
United States in relation to national banks and their
operation."
"That in the month of August, 1890, the defendant discounted for
one Lloyd a promissory note drawn by him, and F. E. Cunningham for
the sum of ten thousand dollars ($10,000.00), indorsed by the
copartnership firm of Lloyd & Adams, and by W. A. Cunningham,
and received, together with the note, as the collateral security
for its payment, one hundred and ten (110) shares of the capital
stock of said Brunswick State Bank of the par value of one hundred
dollars ($100.00) per share; that, in order to protect itself as
pledgee, the defendant caused this stock to be transferred into its
own name on the books of the Brunswick State Bank, on or about the
25th day of August, 1890; that the said note was paid to the
defendant at the time of its maturity, and the defendant being
under obligation to return the stock, the pledge being at an end
and the pledgeor entitled to its return, retransferred the stock on
the books of said Brunswick State Bank by direction of the
pledgeor, and the said transfer was fully completed on the books of
the said bank on or before the 20th day of October, 1890, but no
notice by publication of the fact of said retransfer was given by
the defendant; that the defendant never had or claimed any interest
in said stock, save under the pledge aforesaid, but never notified
the Brunswick State Bank, its stockholders or creditors, that it
held said stock otherwise than as the absolute owner thereof."
"That the indebtedness of said Brunswick State Bank to
Page 192 U. S. 389
all of the plaintiffs in this cause accrued after the said 20th
day of October, 1890, from transactions with said bank commenced
after that date, and the plaintiffs had no knowledge in fact that
the name of the defendant had appeared upon the books of said
Brunswick State Bank as a stockholder."
"It is agreed that the court may draw inferences from any of the
foregoing facts to the same extent as if the facts had been proven
by means of witnesses."
The circuit court rendered a decree dismissing the bill. 112 F.
812.
An appeal to the circuit court of appeals was taken, and that
court certified to this Court certain questions concerning which it
desired instructions for the proper decision of the case. After
full argument on the merits, this Court required the whole record
and cause to be sent up for consideration.
MR. CHIEF JUSTICE FULLER delivered the opinion of the Court.
The Baltimore bank was a national bank, and was not authorized
to permanently invest any portion of its capital in the stock of
other corporations, nor did it attempt to do so in this instance.
The shares of stock of the Brunswick bank were merely accepted as
collateral to a note discounted by the Baltimore bank. They stood,
it is true, for a few weeks in the name of the Baltimore bank on
the registry of the Brunswick bank, but they were then
retransferred to the pledgeor as appeared on the registry, the note
having been paid. Complainants became creditors long after the
transaction, and were chargeable with notice so far as the
Baltimore bank was concerned.
Page 192 U. S. 390
But notwithstanding the latter bank only held the shares as
collateral, and had returned the pledge in due course on the
payment of the loan, the contention is that the bank is under a
statutory liability to these subsequent creditors to the full
amount of the shares it had temporarily held as security.
This additional liability of a stockholder depends on the terms
of the statute creating it, and as it is in derogation of the
common law, the statute cannot be extended beyond the words
used.
As to stockholders of the Brunswick bank, such a liability was
imposed by the ninth section of the charter, granted in 1889, which
provided
"that said corporation shall be responsible to its creditors to
the extent of its property and assets, and the stockholders, in
addition thereto, shall be individually liable equally and ratably,
and not one for another, as sureties to the creditors of such
corporation for all contracts and debts of said corporation, to the
extent of the amount of their stock therein at the par value
thereof, respectively at the time the debt was created, in addition
to the amount invested in such shares."
Tested by the language of this section, the Baltimore bank was
never under liability to these creditors. For if this national bank
could have been regarded as the owner of these shares from August
25 to October 20, 1890, notwithstanding the actual facts and the
limitations on its powers, it was not such stockholder, in fact or
in appearance at the time complainants' debts were created. It
acquired the stock as pledgee August 25, 1890, and, the note to
which it was collateral having been paid, retransferred it October
20, 1890, the retransfer being regularly entered on the books of
the bank. It was after this that the transactions commenced from
which the indebtedness to complainants arose, and no element of
estoppel was involved.
Nevertheless, complainants contend that the Baltimore bank
remained liable as a stockholder because it did not give notice of
the retransfer under section 1496 of the Georgia Code of 1882,
reading as follows:
Page 192 U. S. 391
"When a stockholder in any bank or other corporation is
individually liable under the charter, and shall transfer his
stock, he shall be exempt from such liability unless he receives a
written notice from a creditor within six months after such
transfer of his intention to hold him liable;
provided, he
shall give notice once a month, for six months, of such transfer,
immediately thereafter, in two newspapers in or nearest the place
where such institution shall keep its principal office."
This section was obviously not intended to impose a liability,
but to exempt from an existing liability. If any debt had been
created from August 25 to October 20, and perhaps as to any debt
outstanding on August 25, the Baltimore bank, treating it as a
stockholder from August 25 to October 20, might have been held
liable because it did not give the statutory notice, but no such
case is presented. On the face of this record, it is immaterial
whether there were any creditors during the six months after the
retransfer to give or to receive notice or whether there was any
indebtedness incurred prior to August 25, or during the period from
August 25 to October 20, 1890.
We concur in the views of the circuit court, as thus expressed
by Morris, J.:
"As by the charter of the Brunswick State Bank a stockholder was
only liable as surety to creditors to the extent of his stock in
the bank at the time the debt was created, and as the defendant at
the time the debts of the plaintiffs were created, had no stock in
the bank and was therefore under no liability, it does not appear
that section 1496 of the Georgia Code could have any application to
this defendant. This section is applicable to a stockholder who,
being individually liable to a creditor or creditors, shall then
transfer his stock. The stockholders in the Brunswick State Bank
were only liable for debts created while they held their stock,
and, as applied to them, this section means that a stockholder who
has become individually liable to a creditor by holding stock at
the time the creditor's debts were created shall be exempt
Page 192 U. S. 392
from such liability, provided he publishes a notice that he has
transferred his stock, unless, within six months after the
transfer, the creditor gives him notice that he intends to hold him
liable. This would seem to be the plain meaning and intention of
the statute."
"As section 1496 enables a stockholder who, by the charter, is
already under liability to a creditor, to escape that liability by
transferring his stock unless the creditor gives him notice within
six months after the transfer, it is sensible and understandable
why notice of the transfer should be given; but, as to persons who
as yet had no dealing with the bank out of which debts could be
created, to require notice to them would not be sensible, and would
be a mere arbitrary penalty, without reason -- a thing which is not
to be imputed to the legislature if the section is capable of a
more reasonable interpretation. If no notice of transfer by
advertisement is given by the stockholder, then no notice within
six months need be given by the creditor, and both stand upon the
rights given by the charter, unaffected by section 1496 of the
Code."
But it is said that the highest judicial tribunal of Georgia has
decided otherwise, and that the circuit court and this Court are
bound to accept its interpretation of these statutory provisions.
Without discussing the exceptions to that rule the inquiry in the
first instance is as to what has been actually decided by the
Supreme Court of Georgia in respect of the construction and
application of those provisions in circumstances such as exist in
this case. We are referred to the cases of
Brobston v.
Downing, 95 Ga. 505, decided May Term, 1894, and
Chatham
Bank v. Brobston, 99 Ga. 801, decided December Term, 1895,
which involved the charter of the Brunswick State Bank.
The court delivered no opinion in
Brobston v. Downing,
but the first headnote by Bleckley, C.J., was in these words:
"With or without a clause in the charter restricting the
personal statutory liability of stockholders to the
Page 192 U. S. 393
amount of stock at its par value at the time the debt in
question was created, the liability exists and continues for any
debt incurred by the corporation at any time until the stockholder
who claims to be exempt by reason of having sold and transferred
his stock before the debt was created has given notice of such
sale, conformably to section 1496 of the Code. Lumpkin, J.,
concurring
dubitante."
This does not in terms refer to stock which has been held as
collateral, and retransferred on payment of the loan.
In the second case, there was no opinion of the court, but the
following headnotes appear:
"1. The decisions of this Court in the cases of
Brobston v.
Downing, and
vice versa, and
Brobston v. Chatham
Bank, 95 Ga. 505, upon a review thereof, are affirmed."
"2. Where the charter of a bank imposes on all of its
stockholders personal liability to its creditors, such liability
attaches as well to those who acquire a complete legal title to
stock of the bank by having the same transferred to them as
collateral security for debts due by the transferrers, as to those
who purchase such stock outright."
"3. Under the charter of the Brunswick State Bank and the
general rules of law applicable thereto, a stockholder is
individually liable for his
pro rata part of the
corporation debts created before he acquired his shares of stock by
transfer, as well as for a like part of those created during his
ownership of the shares."
"4. A stockholder in that bank is also liable to the same extent
upon debts of the corporation created after he transferred his
shares, unless he gave notice of the transfer, as prescribed in
section 1496 of the Code."
These were followed by four other headnotes, which need not be
set forth.
Of the three members of the court, Mr. Justice Lumpkin and
Gober, J., filed an explanatory opinion, in which, after giving the
ninth section of the Brunswick bank charter, and section 1496 of
the Code of 1882, they stated:
Page 192 U. S. 394
"In the case of
Brobston v. Downing, 95 Ga. 505, this
court in effect decided that a stockholder in this bank was
individually liable for his
pro rata part of the debts of
the corporation created before he became a stockholder, as well as
for a like proportion of the indebtedness incurred by it while he
held his stock. This decision controls the present cases. Upon a
review of it, duly allowed, Chief Justice Simmons and Justice
Lumpkin are of the opinion that it should be affirmed, and Judge
Gober, being thus bound by it, of necessity concurs in the
judgments now rendered. He is nevertheless of the opinion that, in
dealing with the cases reported in 95 Ga.,
supra, the
court, insofar as it held that a stockholder of this bank could be
made liable for any debt created by it before he actually became a
stockholder, misconstrued that portion of the bank's charter which
is quoted above. If free to do so, he would hold that, under the
language just referred to, the individual liability of a
stockholder of this corporation is limited to such debts only as
were contracted during the time be was an owner of stock and up to
the date when, relatively to such liability, he legally severed his
connection with the corporation. We all agree that any such owner,
although he may have transferred his stock, would still be bound,
under the above-cited section of the Code, for whatever liability
the charter fixed upon him, unless he gave the notice provided for
by that section."
"In 1894, an act was passed by the general assembly which
materially modifies the law bearing upon this subject, in that it
dispenses with any necessity for a stockholder, upon transferring
his stock, to publish notice of the fact in order to be discharged
from liability. That act declares that"
"whenever a stockholder in any bank or other corporation is
individually liable under the charter, and shall transfer his
stock, he shall be exempt from such liability by such transfer,
unless such bank or other corporation shall fail within six months
from the date of such transfer."
"Acts of 1894, p. 76; Civil Code,
Page 192 U. S. 395
section 1888.
* In view of the radical change
thus made in the law, the difference of opinion which exists
between the majority and the minority of the court as constituted
for the hearing of the cases now in hand is apparently of but
little practical importance, save as affecting the result of the
present litigation. If another case should arise the decision of
which would depend upon the question as to which we disagree, the
whole matter would still be open to review by a bench of six
justices. Accordingly, we have agreed among ourselves to let the
present decision stand upon the headnotes as announced, with the
foregoing explanation of our reasons for not entering upon a
discussion as to what should be the proper construction of the bank
charter now under consideration."
As the reference was to the increase of the number of justices
from three to six, which followed soon after, we think this
explanation indicated that it was contemplated that "the whole
matter would be open for review," before the new bench, if another
case arose. The power to reexamine would exist, and these remarks
were evidently intended to suggest that in the circumstances it
might be properly exercised. And this although the point of
disagreement was confined to the question whether liability
attached in respect of indebtedness created
Page 192 U. S. 396
before the particular stockholders sought to be charged became
such.
We conclude, therefore, that the questions before us have not
been so definitively determined by the state court as to entitle
such determination to be adopted and applied in this case. And this
conclusion is confirmed by other considerations. The foregoing
decisions were rendered in 1894 and 1895, and the Baltimore bank
was not a party to the litigation and was never within the
jurisdiction of the Georgia courts. The transaction with this bank
occurred in 1890, and fully terminated October 20 of that year.
When it took the collateral shares in its own name, it seems to
us that it had the right to assume that it ran no risk of incurring
liability by virtue of the terms of the charter of the Brunswick
bank for indebtedness created after, in the ordinary course of
business, it ceased to hold the stock, and that it could not
reasonably have supposed that section 1496 of the Code of Georgia
was intended arbitrarily to make all who might have held the stock
of the Brunswick bank from time to time liable for every
transaction during twenty years (the period of limitations), after
they had ceased to be stockholders.
There had been no such ruling in respect of the statutory
liability imposed by the charter of the Brunswick bank on its
stockholders when the loan was made and paid, and the cases cited
from Georgia reports prior to 1894, all of which we have carefully
examined, dealt with different provisions, and involved different
considerations.
The charter of the Brunswick bank was granted in 1889 at which
time section 1496 had been in force for many years, and its
application could only extend to the liability imposed by the
charter -- namely, liability for indebtedness created while the
relation of stockholder existed. The words "at the time the debt
was created" must be held to have been providently inserted as
words of limitation, and cannot be rejected nor rendered
inefficacious by the prior law, which only applied to the actual
situation, and did not control it nor purport to do so.
Page 192 U. S. 397
The question is not whether all stockholders remained such if
notice were not published, but whether the liability as
stockholders as to subsequent transactions continued in spite of
the termination of that relation, and that question is answered by
the explicit terms of the ninth section of the charter.
Decree affirmed.
* Sections 1, 2, and 6 of the act of 1894 are as follows:
"SEC. I.
Be it enacted by the general assembly of the State
of Georgia, etc., That from and after the passage of this act,
whenever a stockholder in any bank or other corporation is
individually liable under the charter, and shall transfer his
stock, he shall be exempt from such liability by such transfer,
unless such bank or other corporation shall fail within six months
from the date of such transfer."
"SEC. II.
Be it further enacted, That the stockholders
in whose name the capital stock stands upon the books of such bank
or other corporation at the date of its failure shall be primarily
liable to respond upon such individual liability; but upon proof
made that any of said shareholders at the date of the failure are
insolvent, recourse may be had against the person or persons from
whom such insolvent shareholder received his stock, if within a
period of six months prior to the date of the failure of such bank
or other corporation."
"SEC. VI.
Be it further enacted, That all laws and
parts of laws in conflict with this law be, and the same are,
hereby repealed."
