The State of New York established a general banking law,
containing a provision that members of an association organized
under it should not be individually liable for its debts unless by
their own agreement, but reserving to the state the right to repeal
or change the law. Afterwards an amendment to the state
constitution and an act of the legislature declared that the
shareholders of all banks which should continue to issue notes
after a certain time must be individually responsible.
Held:
1. That the stockholders of a bank organized under the general
banking law before the amendment of the constitution are liable for
the debts of the association in their individual capacity.
2. That the articles of association, made by the stockholders at
the time they organized themselves as a bank, were not a contract
with the state.
3. That the change made by the constitution and subsequent act
of the legislature were not the less constitutional and valid as
against this bank because the stockholders, in their articles of
association, had declared that they would not be individually bound
for the debts of the concern.
Oliver Lee & Company's Bank, at Buffalo, was organized in
January, 1844, under the Act of the legislature to authorize
banking, passed 18 April, 1838. Watts Sherman was one of the
shareholders. In the articles of association it was agreed that the
shareholders should not be liable individually for the debts of the
bank, and this was in accordance with the act of 1838, under which
the association was organized, and which declared that no
shareholder should be liable unless the articles
Page 66 U. S. 588
of association signed by himself made him so. But this act
contained a provision that the legislature might at any time alter
or repeal it. In 1846, a change was made in the constitution of the
state which imposed individual liability on the stockholders of
banks, and in 1849 the statute was passed under which this
proceeding was commenced and carried on to enforce that
responsibility.
In 1857, Henry B. Gibson, one of the stockholders, presented his
petition, agreeably to the act of 1849, to a judge of the supreme
court of the state, setting forth that this bank was insolvent and
praying that it might be declared so and a receiver appointed, and
such other relief given as might be required. The proceeding thus
begun ended in a judgment of the supreme court, affirmed by the
Court of Appeals, making Watts and the other stockholders liable in
their individual capacity for an amount of the debts equal to their
stock. James M. Smith, the defendant in error, was appointed
receiver.
The question argued here was whether the constitution of 1846
and the statute of 1849 were or were not in conflict with that
provision in the federal Constitution which forbids the states to
make any law impairing the obligation of contracts. The point was
raised below, but was decided against the stockholders in every
court to which the cause was carried, including the highest.
Page 66 U. S. 590
MR. JUSTICE NELSON.
The proceeding was instituted under an act of the Legislature of
the State of New York to enforce the responsibility of stockholders
in certain banking corporations or associations.
The judge before whom the proceedings were instituted declared
the bank insolvent and appointed Smith, the defendant in error, the
receiver to take charge of its assets, and to perform such other
duties as the law imposed.
The case was afterwards referred to judge Hall, as a referee, to
apportion the debts and liabilities of the bank which had been
contracted after the first day of January, 1850, and remained
unsatisfied among the stockholders ratably in proportion to their
stock, according to the principles declared by an Act passed April
5, 1849, and report to the court. judge Hall reported that the
capital of the bank was $170,000, and its indebtedness $502,944.22,
and further that the assets in the hands of the receiver, and an
assessment upon the stockholders of an amount equal to the capital
of the bank, would be insufficient to discharge its debts and
liabilities, and hence apportioned upon each of the stockholders an
amount equal to the amount of stock held by them respectively in
the bank. The sum of $7,000 was assessed upon the plaintiff in
error.
The referee further reported that this bank was an association
formed 23 April, 1844, under the general banking law of the state,
passed 18 April, 1838, and inserted in his report a copy of the
articles of association, among which is one that declares:
"The shareholders of this association shall not
Page 66 U. S. 591
be liable in their individual capacity for any contract, debt,
or engagement of the association."
The counsel for the plaintiff in error appeared before the
referee and objected to the assessment, on the ground, among
others, that the clause in the articles of association above
referred to, and which were authorized by the General Banking Act
of 1838, constituted a contract; that the stockholders were not to
be made individually liable for the debts of the association, which
was protected by the Constitution of the United States; and that
the provision of the Constitution of the state of New York, of
1846, imposing upon them individual liability, and the act of the
legislature of 1849 carrying it into effect, were inoperative and
void. The counsel further objected that a reservation by the state,
in express terms, of a power to impair by subsequent laws the
obligation of contracts between individual citizens, lawful at the
time it was made, would be in conflict with the federal
Constitution.
Numerous other objections were taken to the assessment before
the referee, but the above are the only ones material to notice in
this Court.
The referee overruled these objections, and the report was
afterwards confirmed by the judge.
This judgment confirming the report was appealed from to the
supreme court of the state, which affirmed it. An appeal was
afterwards taken to the Court of Appeals, the highest court in the
State of New York, in which the judgment in the supreme court was
affirmed and the record remitted to that court to have the judgment
carried into execution.
As this case comes before us under the 25th section of the
Judiciary Act, the only question involved is whether or not the
court below erred in denying a right set up by the plaintiff in
error under the Constitution of the United States -- in other
words, whether the Constitution of the State of New York of 1846 or
the act of the legislature of 1849, or both, which subjected the
stockholders of the bank to personal liability for its debts
accruing after the first day of January, 1850, impaired the
obligation of any contract with the stockholders in its
charter.
Page 66 U. S. 592
The General Banking Law of 1838, under which this bank was
organized, provided in the 23d section, that
"No shareholder of any such association shall be liable in his
individual capacity for any contract, debt, or engagement of such
association unless the articles of association by him signed shall
have declared that the shareholder shall be liable."
The 15th section provided, that
"Any number of persons may associate to establish offices of
discount, deposit, and circulation, upon the terms and conditions
and subject to the liabilities prescribed in this act."
One of the articles of association, as we have already seen,
provided that the shareholders should not be liable in their
individual capacities for any contract, debt &c.
The 32d section of the general banking act provided, that "the
legislature may at any time alter or repeal this act."
The argument on the part of the plaintiff is that this
stipulation of the stockholders in the articles of association from
exemption from all personal liability for the debts of the
institution constitutes a contract within the authority of the act
under which it was organized that cannot be legally impaired by the
provision in the Constitution of New York or by the act of 1849,
which seeks to change the obligation and impose upon them personal
liability; that in respect to this bank, the provision in the
constitution and the law are void as against the Constitution of
the United States.
Now in the first place it is to be observed that the article of
association relied on is but an affirmation of the principle
contained in the 23d section of the act of 1838, and can be
entitled to no greater effect or operation than the law itself
unless indeed, by incorporating it into the articles, it can be
made permanent or perpetual. The section expressly exempts the
individual liability of the stockholder, but confers the privilege
upon the association to subject him to personal liability if they
think fit. It was competent for the stockholders to avail
themselves of this privilege in their articles of association, and
thus perhaps increase public confidence in the credit of the
institution. But we can discover no authority in the section or any
necessity or propriety on the part of
Page 66 U. S. 593
the association, for incorporating the law itself into their
articles. Certainly in so doing they cannot change it or make it
more or less effectual.
In the second place, we remark that this article of association
is not within any authority conferred on the stockholders by any
provision of the general banking law.
By the 15th section, any number of persons may associate to
establish offices &c., upon the terms and conditions, and
subject to the liabilities, prescribed by the act. These terms and
conditions, as it respects the personal liability of the
stockholders, are found in the 23d section, which exempts them,
unless they see fit to impose it upon themselves. It is not in
their power to change the rule of liability except as specified in
the section, and that they have not attempted.
This article of association therefore, being a mere attempt to
reenact a provision of the law, and this even without and authority
in the general charter, cannot be regarded as a contract in any
legal sense of the term, and of course not within the protection of
the provision of the Constitution of the United States.
Another view of this question, even assuming that the
stipulation of the stockholders in the article of association
amounted to a contract, is equally conclusive against the
stockholder.
According to the 15th section, the association was authorized to
establish a bank of discount, deposit, and circulation, "upon the
terms and conditions, and subject to the liabilities, prescribed in
this act." It was not competent for the association to organize
their bank upon any other terms or conditions or subject to any
other liabilities than those prescribed in the general charter. Now
the 32d section, which reserved to the legislature the power to
alter or repeal the act, by necessary construction reserved the
power to alter or repeal all or anyone of these terms and
conditions or rules of liability prescribed in the act. The
articles of association are dependent upon and become a part of the
law under which the bank was organized, and subject to alteration
or repeal the same as any other part of the general system.
Page 66 U. S. 594
The saving clause in the Constitution of the State of New York
has been referred to, which provided that
"Nothing contained in this constitution shall affect
any
grants or charters to bodies politic or corporate made by this
state, or by persons acting under its authority."
This provision saved the charter of the bank in this case and
all others organized under the general banking law, as well as all
those created by special charters, but it saved each of them as a
whole, as an entirety; the charters remained after the adoption of
the constitution the same as before, with all their privileges and
disabilities intact. We do not perceive that this provision has any
bearing upon the question in the case.
It is unimportant to inquire into the effect of this provision
of the Constitution of the State of New York or of the act of 1849
when applied to the personal liability of the stockholder for debts
of the bank existing at the adoption of the one or the passage of
the other, as no such question is presented in the case. The
constitution imposed the liability only in respect to all debts
contracted after the first day of January, 1850, and the act of
1849 simply carries the provision into execution. Neither do we
inquire whether or not this constitutional provision applied to
existing banks, as that question has been determined by the state
court, to which it belonged. Our inquiry has been, assuming this to
be the true construction, whether or not any contract in the
charter of the bank with the state has been impaired within the
meaning of the Constitution of the United States, and we are
perfectly satisfied that the answer must be in the negative.
Judgment of the state court affirmed.