Sherman v. Smith,
66 U.S. 587 (1861)

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U.S. Supreme Court

Sherman v. Smith, 66 U.S. 1 Black 587 587 (1861)

Sherman v. Smith

66 U.S. (1 Black) 587


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.


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

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