Case Name: Executors of Gilmore v. The Bank of Cincinnati et al.
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1837-12
Citations: 8 Ohio 62
Docket Number: 
Parties: Executors of Gilmore v. The Bank of Cincinnati et al.
Judges: 
Reporter: Cases decided in the supreme court of ohio : upon the circuit at the special sessions in Columbus
Volume: 8
Pages: 60–70

Head Matter:
Executors of Gilmore v. The Bank of Cincinnati et al.
.Lapse of time precludes creditors-of broken banks from coming into equity to enforce rights, which, if freshly pursued, would be available. Under circumstances, twelve years may constitute this lapse of time.
This cause was adjourned from the county of Hamilton.
The original and amended bill sets forth that J. & G. R. Gilmore have-recovered a judgment against the Bank of Cincinnati, foreight ■thousand seven hundred and eighty-four dollars and fifty-one cents .and costs; that execution has issued thereon, and that no property •can be found. It charges that part of the defendants are indebted to the bank for moneys loaned; that others are indebted to the institution as original subscribers for stock; that others have become the owners of shares of stock not paid up. It is charged that the bank has become dissolved by non user, that no officers have been ■chosen, nor has any business been done by the institution for several years past; and the prayer of the bill is, that those of the defendants who may be indebted -to the bank, either for stock or otherwise, be decreed to pay their debts to the complainants, so far as ¿nay be necessary to pay and discharge their debts.
The facts established are, that the plaintiffs, and also the Bank of the United States, are judgment creditors of the Cincinnati Bank; that no officers have been chosen to manage the institution forseveral years; and that it has long since ceased to transact any banking or other business; and that many and nearly all of the-original subscribers are indebted to the institution for portions of their subscriptions. Many of these original subscribers have long' since transferred their stock. The subscriptions, however, have not been paid up.
*Fox, for complainants:
From the facts of the case, the following questions arise:
1. Are the original subscribers to the stock of this bank, and now holding the same, now liable to pay up the balance due on their subscriptions?
2. Are those original stockholders or subscribers who have-transferred their shares, still liable to make good their original, promise to pay for the stock ?
3. Are any of the assignees of this stock liable to these creditors, or were they liable to the bank for the amount of subscriptions ■ made by the first purchaser or subscriber?
4. If any or all of these classes of defendants are liable, in what ■ way or manner shall they contribute, should all of the subscriptions not be required to pay the debts of the bank?
I suppose that there can be no question of the liability of the-original stockholders to the corporation (was that in existence) to pay the amount originally subscribed for. They contracted to-pay, for the several shares by them subscribed, a certain amount. The subscription by the subscriber and the acceptance of it by the bank, or those authorized to receive subscriptions, constituted a binding contract; and the subscribers must comply with-this, as with any other contract. On what pretense can it be seriously contended that these original subscribers are not liable?' They have made a contract — they have pledged their property to • the amount of their subscriptions to the creditors of the institution for the fulfillment of its contracts. It was on the faith of their promises and undertakings being complied with, that the-bank obtained its credit; and after giving a credit to the paper of the bank by the weight of their names, they ought to redeem their pledges. It is useless to argue this question. It appears to me-' so plain that argument is useless. The principle has been fully recognized and acted upon in the following eases: 1 Bin. 74; 16 Berg. & Rawle, 140; 9 Johns. 217; 14 Ib. 244; 15 Mass. 522; 16 Ib. 15, 100.
In equity, it is well settled that the stock is considered as *a pledge for the payment of the debts of the corporation. 3 Mason, 311; 19 Johns. 474; 15 Mass. 522; 16 Ib. 15; Hopk. Ch. 304; 8 Cow. 396.
The second question is decided by the decision of the first. If the original subscriber was at any time liable, it is by virtue of the contract he made at the time of subscribing; and he could *not release himself from the obligation of that contract by transferring his stock to a third person. The original subscriber in this respect is precisely in the situation of an original lessee of an estate. He is always liable to pay the stipulated rent,-because •of his contract to do so, while his assignee is only liable so long as ‘•he enjoys the estate; but even the assignee’s liability, while he is in the possession, does not prevent the lessor suing his lessee on -his original contract. The subscriber who transferred his stock has recourse against his assignee for the amount he may have to pay, provided the assignee agreed to pay the balance due on the •subscription; and, at all events, that is a matter between the subscriber and his assignee.
As to the third question propounded, I am not aware that the -complainant is much interested in the result of the decision on that point. It would seem to me that inasmuch as the court have all the parties before them, both original subscribers and their assignees, if the latter would be ultimately liable to the assignee there would be no impropriety in making him directly liable. I am aware, however, that at law it has been held that an assignee of stock is not liable to a suit for the sum due on the subscription. 1 Bin. 70; 10 S. & R. 273; 14 lb. 422.
But I understand it will be contended that the subscribers are not liable until the directors of the company have called for installments ; so that if the directors refuse or neglect to make the stockholders comply with their contracts, the creditors are with-out remedy? Can such be the law? This question, however, has been frequently decided. In the case of Briggs v. Penniman, Uowen, 395, the court say. “ The stock subscribed and agreed to -be paid in to the company became corporate property, and when paid in might be reached by ordinary proceedings; and if not paid in, a court of equity would compel the trustees to collect and apply it io the payment of debts." 3 Mason, 311.
The stock subscribed is the fund which the creditors depend upon for the payment of their debts. It is a fund substituted for the individual responsibility of the parties who are interested in the profits of the business. Take away this responsibility of the subscribers to the amount of stock subscribed, and what is there left on which the community can rely for the fulfillment of corporation promises? There is already an unfavorable opinion with regard to corporate institutions. They are looked upon suspiciously by many; and if the doctrine now contended for by these ^subscribers shall be tolerated, such institutions will not be endured. For the credit of these institutions, the subscribers ought to be held strictly to their engagements. They have promised to create a fund for the payment of their debts, and have neglected to comply with their promises. They have appointed directors to see that the contract was complied with; these directors, who are trustees for the benefit of stockholders and the creditors of the institution, have violated their trust. They have failed to discharge their duty by calling in the necessary installments, and we now ask the court to appoint other trustees, or to do that which the trustees ought to have done— compel the stockholders to pay up the amount due on their stock.
I contend, further, that the rights of the creditors are not only not affected by the palpable omission or neglect of their directors to do their duty, but that the directors and stockholders could not, by any act of theirs, deprive the creditors of their right to compel the subscribers to pay up their subscriptions. This question is directly decided in the case of Slee v. Bloom, 19 Johns. 456. In that case the stockholders and directors passed a resolution allowing subscribers to forfeit their stock on paying thirty per cent, on the amount of their subscriptions. It was held that this resolution could not destroy the rights of the creditors of the institution without their consent. The resolution was declared by Chief Justice Spencer, page 478, “to be against the fundamental principles of law and equity, legally fraudulent, and therefore void and inoperative.”
But from the fact of the defendants having procured the original articles of association, I presume they rely upon those as affording evidence of their exemption from the calls of the complainant. I have read these articles, and have discovered a clear and manifest intention on the part of the person who penned them, to repeal the law of the land by association. By the first clause of these articles, which may be deemed a sort of proclamation, it is made known and “ proclaimed,” that “ the subscribers have formed a company or limited partnership,” and have agreed to conduct their business under the name and style of “The President and Directors of the Bank of Cincinnati.” By section 16, it is provided and “ expressly, and explicitly declared to be the object and intention of the persons who associate under the name or firm of the president and directors of the Bank of Cincinnati, that the joint stock or property of the said company, exclusive of dividends to bo made, shall alone be responsible for the-debts and engagements *of the company; and that no person dealing with the company shall, on any pretense whatever, have recourse against the separate property,” etc. And by the second section it is provided, that, the capital stock shall consist of six hundred thousand dollars, and be divided into shares of fifty dollars each, to be paid two dollars on each share at the time of subscribing, or in ten days thereafter; eight dollars within ninety days, and all further installments to be paid at the discretion of the president and directors. And by section 17, after providing for the payment of dividends, it is declared, “ that the capital stock of the company shall never' be impaired by dividends;” and if more than the actual profits shall bo divided, the-directors present at the declaring of any such dividends are, by section 18, made personally liable for the amount of capital stock so divided. These are all the material provisions contained in the articles of association which appear to me to have any bearing upon the question now before the court. And I must confess that I do not see how these articles of association can be made to favor the defense set up. They show distinctly that each subscriber agreed to pay fifty dollars for each share subscribed; that the whole amount subscribed was distinctly pledged to pay the debts and engagements of the company; and they contain a direct prohibition of appropriating any portion of their stock for any other-purpose. As to the provision of the forty dollars per share being only payable at the discretion of the president and directors, it. must be understood to be a legal honest discretion — not an arbitrary unjust discretion. The directors, as just trustees, were legally bound to regulate their calls as claims against the institution required. It was their duty to have a fund to meet the demands against the institution, and it is because they failed to discharge that duty7 that we are compelled to ask the aid of this court.
With regard to the mode in which the subscribers should contribute, I do n’t know that the complainants have any interest in discussing the question. It is more interesting to the subscribers themselves than to the complainants. I suppose that, as the subscribers are all debtors to the bank, and as we have aright to pursue all such debtors, we ought to have a decreo against each for the amount of subscription unpaid. I know of no distinction that can be made. To the extent of the stock subscribed the subscribers are all debtors, and we claim, therefore, a decree against each for that sum. If one subscriber should have to pay more than a co-subscriber, the question of contribution may then %rise between them; the complainant is not interested in that question.
N. Wright,, for respondents:
The points taken by the counsel for complainants may be included in two inquiries, viz :
1. Whether any stockholders, after assigning their stock, can be made liable for installments on the stock. ,
2. Whether the present holders of the stock can now be compelled, in chancery, to pay installments on stock not called by the directors.
The Bank of Cincinnati was incorporated by the general law, passed February 23, 1815. 14 Ohio L. 87, see. 11. At this time it was an existing association, and is incorporated as such; and we suppose that the articles of association, so far as not varied or superseded by the charter, may, to some extent, form the present rules of the corporation. We have, therefore, made proof of these articles.
As to the first question above stated, it does not seem to require much argument. Both the charter and the articles of association provide for a transfer of the stock; when such transfer is made, the assignee becomes the party recognized by the bank, and is the only one with whom she has any concern. New certificates are ordinarily issued to him, and the remedy for default of payment of the installments is a forfeiture of the stock, or sale of it in market. Banks usually require transfers to be made on their ■own books, thereby securing to themselves the benefit of any lien or claim they may have against the original holder. But when they have once admitted the transfer to be made, they have waived all further claim on account of the stock.
The original subscribers stand in the same situation as any intermediate holders of the stock. They are mere stockholders, and that the bank should have a right to call on them for installments, after admitting their assignees as stockholders, is most unheard of and most preposterous.
If the bank itself could not maintain such a claim, surely the present complainants can not. The bill seeks to subject debts due to the bank, and can go no further. It can not compel any one to pay anything which the bank itself could not compel. It can reach nothing but liabilities to the bank; and, of course, if the *bank had no claim on such stockholders, the complainants can establish none.
• The next inquiry is, whether the present holders of stock can now be compelled to pay installments not called by the directors.
To settle this question we must first examine the charter. Section 8 of the above law provides that one-tenth of the stock shall be paid at the time of subscribing, and the balance in such installments as the directors shall direct, with sundry restrictions as to the amount, time, and manner of calling installments. Public notice must be given ; only ten per cent, can be called at a time, and three months must intervene between calls. If there be any doubt whether this section applies to the Cincinnati Bank, the articles of the association, article 2, contain the same provisions in substance. But we suppose that the concluding clause of section 11 makes section 8 a substitute for this article.
Section 29 provides that the whole amount of debts 'which the bank shall, at any time, owe, exclusive of deposits, shall not exceed three times the stock subscribed and actually paid into the bank ; and in case of excess, the directors to be personally liable.
By the last provision it is obvious that the capital of the bank, on.which she is authorized to do business, is not the nominal amount of stock, but the amount actually paid in thereon. The directors, therefore, may, if they see proper, call only one-fifth of the stock, and then can contract debts only to three times that amount. In other words, they may limit their capital to one-fifth ■of the nominal amount of the stock; or, at their discretion, may increase it by calling installments to the full amount of the shares. The community, or the creditors of the bank, have no interest in the matter, and no right to complain, for their security is not diminished by refusing to call in the whole amount; because if the whole amount is called, the bank may incur debts to three times that amount; whereas, if only one-fifth is called, •debts can be incurred to only three times that fifth. It operates precisely as an increase or diminution of the capital on which the bank can trade; and the directors are, by the charter, vested with the discretion to fix the amount of that capital.
Now, under such a charter can it be said that thereys any constructive contract or obligation by the stockholders to pay any installments beyond what the directors see fit to call? The circumstances of the times may render it expedient for the bank to confine itself to a small business ; the issues of the bank must be •^restricted accordingly, and, of course, its profits will be ratably small. The directors alone are vested with the discretion to decide on this matter. It is an important discretion, and no others can exercise it for them. Surely it can not be said that there is any implied obligation upon the stockholders to increase this capital unless the directors should so decide. It is not a debt of the stockholder until the directors make it so by deciding to make a call. Did the charter make the whole stock payable at all events, or authorize business to be done on the whole capital stock, the case would be different.
Neither can it be claimed that the directors are in fault for not ■calling further installments, and therefore ought now to be com-polled to call them, or this court will treat them as called. The protection of creditors of the bank, and of the community, is, that the bank liabilities are restricted to three times the amount actually paid in on the stock. Suppose additional installments had been called; those installments would stand in security for the additional liabilities of the bank, accruing on her increased means. Creditors are in no way wronged or misled. They might as well claim an equity to have the original capital stock increased, for ■ he payment of their claims, because the original means are exhausted. "We may concede that the effects of a corporation, and the installments actually due on its stock, are a trust fund for the benefit of its creditors; and the concession would not affect- the- present case. Here the business is limited to the installment», paid, and the dividends were made, not on the original amount of the stock, but on the installments actually paid thereon.
The lapse of time is .another reason why installments can not-now be called on the stock, even if they were ever collectable. The bank ceased all business about 1820 or 1821. Only twenty dollars on a share was ever called by the directors; this bill was filed, so far as relates to the present questions, March 26, 1832,. ten- or twelve years after the bank was broken up ; indeed, near-fourteen years after she stopped specie payments. In the mean time, as the record shows, many of the stockholders are dead» doubtlesR a.large portion of them are insolvent, many left the state; of course, a call of installments now would operate most, unjustly. Probably not one in twenty could be compelled to pay The charter contemplates equal assessments on the stock ; and no assessment could be equitable which was not equal. Circumstances are so changed by the lapse of time (they must be in the ordinary course of human events), that no assessment now can ^operate equally. The modes provided by the charter for enforcing payments of installments have become entirely nugatory ■ those who should be compelled to pay have lost all means of being remunerated from others, or of deriving any of the benefits secured to them under the charter. The State of Ohio itself is a-large stockholder; whether she would be called on for her installments is, perhaps, doubtful. The charter makes them payable in the first instance out of the dividends; and if they are-payable only in that way, the insolvency of the bank has entirely destroyed the equality between her and other stockholders, in ease-of a new assessment on the stock.
On this point, it is not necessary to cite the law on the effect of delay and lapse of time. Equity aids only the diligent, and especially it gives extraordinary remedies only to clear equity and prompt claim. It is now at least nineteen years since the complainants’ claim must have originated.
Another point made in some of the answers, though not touched in argument by complainants’ counsel, is the statute of limitations. Whether it is now to be considered by the court, I do not know. We insist that it is a bar of any claim for installments on stock If any such can be called, it is by virtue of an implied contract by the stockholders, and of course is barred by the statute. Perhaps s, decision of this point, as applicable to the case, may involve too much of fact to be now decided. It may turn on the special circumstances of each defendant who may set it up.
Another question will arise, though perhaps not as a subject of much controversy, whether stockholders can be reached, if at all, until after the debts due to the bank are exhausted. A large amount of debts appear to be due to tne bank, but whether solvent or insolvent does not appear.
S. P. Chase submitted a separate argument for respondent, ■Stone.

Opinion:
Judge Wood
delivered the opinion of the court:
Upon the facts as stated, in this case, the counsel for the complainants present four distinct points for consideration and decision.
1. Are the original subscribers to the stock of this bank, who still continue stockholders, now liable to be made pay up their stock to create a fund for the payment of its debts?
In equity, it is an established rule that the stock of a trading *corp'oration is a pledge for the payment of its debts. Upon 'this stock it originally obtains credit, It is the duty of its managers to see that the stock is contributed, and it is not less the duty of the subscribers punctually to contribute it when required to do so. If not thus contributed, equity may compel it to be done, in a proper case, and where good faith requires it. While in full life, the court would operate upon its corporate faculty. The abandonment of its duties, by that faculty, can not defeat the rights of third persons. Under our statute, we believe that equity, in behalf of a judgment creditor, may invest him with all the rights to act, in settling the concerns of the bank, and one of these might be to compel a contribution-of unpaid stock. But this must depend upon all the particular circumstances of the case.
2. The second point raises the question : In a bill like this, can •original stockholders, who have bona fide transferred their stock, when they had paid up all the calls made, be called upon to contribute the unpaid proportion, for the satisfaction of creditors? We have come to the conclusion that such contribution can not be -exacted. The right of bona fide transfer is secured by the terms of the charter. It relates to the honest conditions of the parties at the time of the transfer. When this transfer is fairly made} new certificates generally issue, and the stock assumes a new character as to the ownership. The new owners incur the responsibilities of their position, and those who honestly make the. transfers are discharged. But the transferees succeed to all the. legal responsibilities of the original parties from whom they purchased, and nothing more. The extent of these responsibilities is-usually settled at the time of transfer. If not then adjusted, the-liabilities of those implicated may depend upon circumstances.
In the view we take of the case before us, it was not absolutely necessary that we should have gone as far as we have, in deciding-the two points disposed of; but, in doing so, we think we may make our final decision more clear and comprehensible.
3. The third point involves the liabilities of assignees of stock... This, we have said, depends upon facts connected with the transfer.
4. The fourth point covers not only the case of stockholders, but that of debtors also. The respondents insist that the lapse of time and change of circumstanoes forbid that any of these should be subjected in this case. And in this position we concur. In relation to the stock of this bank, to the debts due it and due from it, all values have changed, while the complainants have* been sleeping over, or creeping on in the pursuit of their rights. Changes-*of this kind have rendered it impracticable to do anything like equity among all who may possibly be affected. The case-has become stale and is not to be favored. Clark v. Bond, S. C. 282; 1 Mad. Ch. 15, etc.; 1 Ohio, 22, 532; Story's Equity, Com. 785. In fact, all the cases concur that time may become decisive-of a party's rights in a case like the present.
Bill dismissed, as to certain defendants; retained as to others-