Pollard v. Bailey, 87 U.S. 520 (1874)
U.S. Supreme CourtPollard v. Bailey, 87 U.S. 20 Wall. 520 520 (1874)
Pollard v. Bailey
87 U.S. (20 Wall.) 520
Where by the charter of a bank, stockholders are "bound respectively for all the debts of the bank in proportion to their stock holden therein," one creditor cannot sue a stockholder at law (there being numerous other creditors) to recover the full amount of his debt, without regard to those other creditors or to the ability of the other stockholders to respond to their obligations under the charter, and so appropriate to himself the entire benefit of that stockholder's security and exclude all other creditors from it. He should proceed in equity, where the "proportion can be ascertained upon an account taken of debts and stock, and a pro rata distribution of the debts among the several stockholders."
Especially is this so when other parts of the charter indicate plainly that the exercise of the powers of a court of chancery which could bring before it all the necessary parties, and adjust all their rights, was, in a case of insolvency, contemplated.
By an act passed in 1854, the Legislature of Alabama chartered a bank to be called the Central Bank of Alabama. The capital was $900,000, divided into shares of $100 each.
The charter made certain provisions in case of the insolvency of the bank, or of its suspension of payments in specie. They were thus:
"SECTION 16 (ARTICLE 2). Individual stockholders, having shares in said bank, shall be bound respectively for all the debts of the bank in proportion to their stock holden therein."
"SECTION 20. If any debt due from said bank for an amount exceeding $100, shall remain unpaid for more than ten days after proper demand, the holder of such debt may file a bill in the chancery court, of the county . . . in which said bank may be located, for the settlement of all the debt of the bank, if he elect so to do, and may, on proof &c., pray an injunction to restrain the said bank and its officers from paying out, or in any way transferring or delivering to any person any money or assets of said bank, or incurring any obligation or debt until such order be vacated or modified; and if such chancellor shall be of opinion that the debt is justly due, and that the bank has no just defense against the demand, and if it shall appear expedient and necessary, upon the proof presented, in order to prevent fraud and injustice, he shall grant an order for such injunction, and the said chancellor shall then proceed to inquire whether the said bank be solvent or not; and if it shall appear that the said bank is not clearly solvent, then he may make an order declaring the same to be insolvent, and requiring its affairs to be wound up and settled; and, further, if, in his opinion, the safety of the creditors shall require it, such chancellor may appoint a receiver to take charge of all the assets of the bank, and to close and settle its affairs."
"SECTION 21. In case the said bank be found insolvent, and settlement of its affairs be ordered, the same shall be done upon
bill filed in said chancery court, under the orders of the court and rules of chancery, and full distribution shall be made of the assets according to the rights of all parties; but the holders of bank notes and obligations issued by the bank for circulation as money shall be first called in and paid, and shall have priority over debts due from the bank; and after the assets of the bank are exhausted, if they be not sufficient to pay all debts and liabilities, a further call shall be made on the shareholders in the bank for further payment of capital, over and above the sum of $100, of an amount equal to the deficiency, which shall be apportioned among all the shares of stock; and an order shall be made by the court for the payment of each shareholder of the sum or proportion due on his shares of stock; and each shareholder shall pay the sum so assessed to him severally in proportion to his stock, which shall be collected by the receiver and applied."
"SECTION 22. The summary remedy in this act, specially given for settling up and closing the affairs of said bank, shall apply to the case of insolvency, but shall not be allowed in case of a suspension only by the bank of specie payment, so long as suspension shall be sanctioned by the General Assembly; but nothing in this act shall be construed so as to deprive a creditor of said bank from his right to suit in any other appropriate mode of proceeding, or to prevent the General Assembly from hereafter regulating, by a general law in relation to banking institutions, the mode of enforcing and satisfying the rights of creditors of said bank, provided, any bill-holder shall also have the right to move in any court having jurisdiction, or before any justice of the peace in the city or county in which said bank is located, as the case may require, for the collection of any bill the payment of which may be refused."
Of the capital authorized by the charter a certain Pollard took $20,000, or two hundred shares. In 1865, the bank became insolvent, and in 1869 had ceased to do any business, having about $700,000 of bills outstanding and unpaid. In 1872, one Bailey, who had $17,000 of these bills, sued Pollard, at law, as the owner of two hundred shares of stock, assuming that he could thus sue him under the above-quoted section sixteen (article two) of the charter of the bank, which prescribes, as the reader will remember, "that the stockholders
shall be respectively bound for all of the debts of the bank in proportion to their stock holden therein." The declaration contained averments that the bank had ceased to do business since 1868, and that no demand had been made of the bank for the payment of the bills, and that a demand had been made of the defendant, who was a stockholder of the bank during the period the plaintiff had been the owner. But there was no reference to the other creditors or the ability of the other stockholders to pay any proportion of the claim.
The defendant demurred to the declaration, but the court overruled the demurrer and gave judgment for the plaintiff. From that judgment the defendant brought the case here.