author: Speak, J.

text:
    Kulp v. Fleming.

      Individual liability of corporation stockholder — Provision of statutes does not alone create liability — Legal status of stockholder under the statute — Rule as to statute becoming part of contract — Validity of contract where made, recognized where performed, tohen — Construction of statute of sister state by highest court followed — Stockholders liability in Kansas enforced in Ohio, when — Interstate law — Contract law.

    1. A provision of statute that the stockholders of a corporation shall be individually liable to creditors for the debts of the company does not alone create the liability. It is rather a legislative requirement that whoever becomes a stockholder shall thereby assume an individual liability, and thus gives legal effect to the acts of the parties. The actual liability becomes operative by the act of a shareholder in becoming such, being founded on his proposal to become liable which arises from the membership and individual agreement to abide by the organic law of the corporation, and the acceptance thereof by the creditor by extending credit. Such obligation is contractual.
    2. The law of the state where a contract is executed and is to be performed, enters into and becomes a part of the contract in the sense that its construction, validity and obligatory effect are to be controlled by that law; and when valid there the contract will be sustained elsewhere, and accorded the interpretation required by the law of the place where made, unless the contract is against good morals, or contravenes a settled policy of the state in whose tribunals its enforcement is sought.
    3. The construction of the statute of a sister state by its highest court will be followed by this court.

      4. The individual liability of stockholders for debts of a corporation, provision for which is made by the constitution and statutes of Kansas, is not penal but is contractual. That liability may be enforced in Ohio. And a petition of a creditor in a suit against a stockholder which shows the constitutional and statutory provisions respecting such liability, and sets forth the construction given by the court of last resort of Kansas holding the liability to exist and to be several and contractual, and alleges other facts showing the ownership of the claim by plaintiff, the ownership of the stock by de fendant, the insolvency of the corporation, its dissolution under the provisions of the statute and that it had suspended business more than a year before the commencement of the action, states a cause of action.
    (Decided December 3, 1901.)
    Error to the Circuit Court of Medina county.
    The action below was brought by the defendant in error against the plaintiff in error in the common pleas of Medina, to recover on a claimed liability as' a stockholder in the State Bank of Kansas, a corporation of that state, the plaintiff below being a creditor of that corporation. A general demurrer to the amended petition having been sustained, and judgment against the plaintiff entered, error was prosecuted to the circuit court where the judgment of the common pleas was reversed and the cause remanded for further proceedings. To this judgment of reversal the defendant below brings error.
    The amended petition among other things avers that the defendant, Kulp, “is and has been for more than five years last past, a resident of the state of Ohio, and on the 15 th day of October, 1886, was and ever since has been, a stockholder in the State Bank of Oberiin, Kansas, a corporation organized in said state under the provisions of the constitution and laws thereof;” * * * that by article 12, section 2 of the constitution of the state of Kansas, in force at said date and to the present time, it was provided that “dues from corporations shall be secured by individual liability of the stockholders to an amount equal to the stock owned by each stockholder, and such other means as shall be provided by law;” * * * that section 46 of an act entitled “An act concerning private corporations,” passed by the legislature of said state of Kansas in 1868, and con-tinning in force to the time óf the filing of the amended petition, being section 1206 general statutes of said state, provides “that no stockholder shall be liable to pay debts of a corporation beyond the amount due on his stock and an additional amount equal to the stock owned by him;” * * * that section 40 of the above entitled act, as amended and passed in 1883, and continuing in force to the time of the filing of the amended petition, being section 1200 of general statutes of Kansas, among other things provides “that any corporation shall be deemed to be dissolved for the purpose of enabling any creditor of such corporation to prosecute suit against the stockholders thereof to enforce their individual liability, if it be shown that such corporation has suspended business for more than one year;” * * * that section 44 of said act, continuing in force to the time of the filing of the amended petition,-being section 1204 of general statutes of Kansas, provides among other things: “If any corporation created under this or any general statute of this state, except railway or charitable or religious corporations, be dissolved, leaving debts unpaid, suit may be brought against any person or persons who are stockholders at the time of such dissolution without joining the corporation in said suit.” The amended petition further averred a construction of the foregoing sections by the Supreme Court of the state of Kansas to the effect that under said statutes the liability of the stockholders to the creditors of a corporation is several and not joint; that each stockholder must be sued separately; that the liability arises upon contract, and the action to enforce it is transitory and may be brought in any state where service can be obtained on any stockholder; that the creditor who first proceeds by suit against a stockholder obtains a prior lien upon such stockholder’s liability.
    The amended petition made all other averments necessary, showing the ownership of the claim of the plaintiff; the ownership of stock by the defendant; the insolvency of the corporation; its dissolution under the provisions of the foregoing sections of the statute; that its property had been fully administered upon, appropriated and exhausted for the benefit of its creditors, and that at a date more than one year before the commencement of the action the corporation had suspended business.

      Lee Elliott, for plaintiff in error.
    In the first place we contend that a stockholder in a Kansas corporation is not liable for the debts of the corporation after his stock has been fully paid up. It is not claimed that any amount remained unpaid on Kulp’s stock in the State Bank of Oberlin, so that the liability upon which this action is founded, must be upon the double liability of stockholders. If not subject to this double liability as a holder of this stock, this action cannot be maintained against Kulp. In considering the question of liability of stockholders for the indebtedness of a corporation it should be borne in mind that the liability to creditors on unpaid stock is an entirely different thing from “double liability,” or the superadded liability to an amount equal to the amount of stock owned.
    The liability of a stockholder to creditors for the amount remaining unpaid on his stock existed at common law and might be subjected by any creditor to the payment of his claim, but after the stock had been fully paid up there was no liability on the part of the stockholder for the debts of the corporation in the absence of a statute creating such a liability. Morley v. Thayer, 3 Fed. Rep. 737; Terry v. Little, 101 U. S., 216; Carr v. Iglehart, 3 Ohio St., 457; Beach on Corp., 115; Pollard v. Bailey, 87 U. S., 520.
    The liability of the-defendant, Kulp, if it exists, must, therefore, rest on statutory provisions, and since it appears by the petition that the corporation for whose debts it is sought to charge the defendant with liability was organized in the state of Kansas under its constitution and laws, the test of liability must be the constitution of Kansas and the laws passed under it. And since, as to the courts of Ohio, Kansas is a foreign jurisdiction, only those provisions of the constitution and laws pleaded in the petition can be considered in determining the question of liability.
    The language of this provision does not purport to create any liability in and of itself, but is rather a direction to the legislative body that in its legislation authorizing the organization of corporations, if any such legislation is enacted under the constitution, dues from corporations must be secured in the mí nner pointed out, leaving it for the legislature to provide in detail the manner in which such security shall be effected and enforced. The entire language of the provision clearly contemplates legislative action in some manner to carry it into effect. It does not ex proprio vigore, create a liability itself, but leaves such liability to be brought into being by some future action of the legislature from which it will spring if any such liability ever falls upon the stockholders. Thompson on Corp., section 3004.
    This provision of the Kansas constitution has been considered by the court of appeals of New York and was held not self-executing and to create no liability. Marshall v. Sherman, 148 N. Y., 9 (51 Am. St. Rep. 564). The same holding was made in Tuttle v. Bank, 161 Ill., 497; Bell v. Farwell, 176 Ill., 489.
    Constitutional provisions couched in substantially the same language as the one under consideration were held not self-executing in Morley v. Thayer, 3 Fed. Rep., 737; Fusz v. Spanhorst, 67 Mo., 256; Groves v. Slaughter, 40 U. S. (15 Pet.), 449; French v. Teschemaker, 24 Cal., 518.
    A comparison of section 3258 with that pleaded as the law of Kansas which it is claimed was intended to accomplish the same end, will show how far short that falls of accomplishing what was intended, if it was intended by the Kansas legislature to create the liability claimed in the petition.
    The utmost that can be said for the construction claimed for the Kansas statute is, that because it is. enacted that stockholders shall not be liable beyond a certain point, therefore it is equivalent to saying that up to that point they shall be liable. In other words that the liability claimed is created by inference and not by direct language. It is submitted that legislation authorizing the taking of property of one person to pay the debt of another is the exercise of too high a prerogative to be left solely to inference as to what the intention of the legislature was. Steamboat Ohio v. Stunt, 10 Ohio St., 582.
    However desirable or in accord with the court’s ideas of proper public policy it may be to hold the stockholders liable for the debts of a corporation, the intention of the statute is to be derived from the words used and not from speculation aliunde. Brower v. Hunt, 18 Ohio St., 311. If the intention is doubtful, the literal and obvious meaning must be adhered to. Burgett v. Burgett, 1 Ohio 469. But if the language of the statute is unambiguous there is no room for construction. McCormick v. Alexander, 2 Ohio, 65. Even though what the eourt may conceive to he the objects of the act, are defeated. Bruner v. Briggs, 39 Ohio St., 478. Applying these rules of construction to the language of the statute relied on there can be no doubt that it entirely fails to sustain the liability claimed under it.
    The decision pleaded is a construction of sections of the Kansas statute which relate to the remedy and do not of themselves create or purport to create a liability but merely provide the means for enforcing a liability which is assumed to exist but which this legislation did not undertake to create. Tuttle v. Bank, 161 Ill., 497.
    Even if effect be given to what the petition alleges to have been decided by the Supreme Court of Kansas, there is nothing pleaded that can affect the question of liability in the case at bar. The liability of a stockholder in a corporation in Ohio is also several and not joint. Umsted v. Buskirk, 17 Ohio St., 113. That the ruling that each stockholder must be sued separately is a construction of a statute providing a local remedy is shown by the fact that while the rule is the same in both states as to the stockholders’ liability being several, the Supreme Court of Ohio before the statute providing a special remedy, section 3260, Revised Statutes, held that the action to enforce the liability must be for the benefit of all the creditors and that all stockholders must be parties and that no creditor could maintain an action for his sole benefit or acquire any rights thereby. Wright v. McCormick, 17 Ohio St., 86; Terry v. Little, 101 U. S., 216.

      The question as to whether the liability arises on contract or is transitory is determined by the law of the forum and not that of the location of the corporation. Hence these are questions relating to the remedy and are to be determined by the lex fori.

    It seems to us therefore that it clearly follows from the foregoing reasoning and authorities that:
    (a) The provision of the Kansas constitution relied on is not self-enforcing and creates no liability.
    (b) Neither does the legislation pleaded as section 46 of the act concerning corporations or 1206 general statutes of Kansas.
    (c) Nor do the remaining sections pleaded since they relate to the remedy merely.
    {d) The Supreme Court of Kansas has not in fact passed upon the question as to whether or not the liability exists and this court is consequently at liberty to determine that matter by its own rules of interpretation.
    (e) Which must lead to the result that no liability exists.
    A penalty is in the nature of a punishment for the non-performance of an act or the performance of an unlawful act. 18 Enc. Law, 269; Woolverton v. Taylor, 22 Am. St. Rep., 521. This case comes strictly within the definition. Through the alleged non-performance by the corporation, of its duty to continue its business, the penalty is visited, not upon the corporation in default, but upon its stockholders, by making them liable to be forced to pay its debts in case of suspension for the time named.
    This act is certainly not .less penal in its nature than suit on a bond for treble damages for misfeasance in office which is held penal, and not enforceable by this court. Indiana v. John, 5 Ohio, 217;
      Sturgess v. Burton, 8 Ohio St., 215; Lawler v. Burt, 7 Ohio St., 340; Attrill v. Huntington, 70 Md., 191; 14 Am. St. Rep., 344; Heaton v. Eldridge, 56 Ohio St., 87; Mack v. DeGraff Quarries, 57 Ohio St., 463; Beach on Corp., section 148.
    There was no liability of the stockholders at common law, consequently the liability claimed, if- it exists at all, must be statutory. If a new right be created by statute, one that did not exist at common law, and a statutory method be provided for its enforcement, that remedy is exclusive of all others, and must be strictly pursued. State v. Marlow, 15 Ohio St., 114; Dunn v. Kanmacher, 26 Ohio St., 497.
    ' The remedy sought in the petition would not have been proper in this state, either under section 3260 of the Revised Statutes, or under the procedure prescribed by the Supreme Court before its enactment. Its only warrant, therefore, is the statute of Kansas, providing a remedy for right conferred by its statutes — that is, as said by Beach, quoted above, it is “The remedy prescribed by the statute of the state from which the corporation derives its charter.” But the petition wholly fails to meet the further requirement that “it should be made to appear therein that it can be employed in the state of the forum.”
    That this is essential, and a failure in this respect is fatal, is supported by the leading text writers, as well as by the reported cases. Cook on Stockholders, sections 220, 223; Thompson on Corporations, section 3423.
    There certainly could not well be imagined a case where the special remedy prescribed in the state where the corporation exists, could be more “contrary to the course of the foreign court of the foreign state in which it is sought to charge the stockholder,” than that in this case. The policy of Ohio in this respect, both that announced by the Supreme Court in Umsted v. Buskirk, supra, before the enactment of section 3260, and the practical adoption of the holding in that case by its enactment, was to avoid a multiplicity of suits by requiring the affairs of a corporation to be settled in one suit, in which the claims of all the creditors, and the liability of all the stockholders, both as to the creditors and between themselves, should be definitely settled in one suit, all the parties interested being before the court. •
    The Kansas procedure, as pleaded in the petition, being precisely the reverse, permitting at least as many'different suits as equals the square of the num-' ber of stockholders multiplied by the whole number of creditors, in many different jurisdictions^ and rendering the final settlement of the affairs of the corporation and the rights and liabilities of its creditors and stockholders, certainly very difficult and expensive, if not quite impossible. Bank v. Rindge, 154 Mass., 203.
    Our own statute, section 3260, has been held a special and exclusive remedy, not enforceable in the courts of another state. If that be true, much more is that provided in Kansas as pleaded in the petition. Nimick v. Mingo Iron Works Co., 25 W. Va., 184.
    A bill in equity to ascertain and determine the extent of this individual liability against the stockholders of such corporation cannot be sustained in the courts of this state. Marshall v. Sherman, 148 N. Y., 9; Lowry v. Inman, 46 N. Y., 120; Christensen v. Eno, 106 N. Y., 97; Bank v. Bliss, 89 N. Y., 338; Fowler v. Lamson, 146 Ill., 472; Young v. Farwell, 139 Ill., 326; Tuttle v. Bank, 161 Ill., 497; May v. Black, 77 Wis., 101; Thompson v. Bank, 19 Nev., 103;
      Derrickson v. Smith, 27 N. J. L., 166; Morley v. Thayer, 3 Fed. Rep., 737; Bell v. Farwell, 176 Ill., 489.
    That the course pursued by the defendant in error, if sustained, could not fail to work great hardship, if not in fact result in a practical miscarriage of justice in many cases at least, seems to me very apparent. In any event the burden imposed on the stockholder must be very materially increased by the very process of adjustment, and the attempt to introduce such a practice into Ohio must, if successful, result in discriminating against the resident of Ohio and in favor of the citizen of another state.
    The difficulty, if not the actual impossibility, of arriving at any result that would serve the ends of justice between the parties was very forcibly put ini Post v. Railroad Co., 144 Mass., 341.

      Frank Spellman and Virgil P. Kline, for defendant in error.
    First. We desire to discuss, first: What has been the construction of the constitution and statutes of the state of Kansas quoted in this amended petition?
    Second. What effect will the courts of this state give to such construction?
    First. Construction by the Supreme Court of Kansas.
    1. The liability arises upon contract, and the action to enforce it is transitory, and may be enforced in any state where service can be obtained. Howell v. Manglesdorf, 33 Kan., 194.
    2. Each stockholder must be sued separately.
    “Under section 44 (1204) of the law concerning private corporations, the liability of the stockholder to the creditors of a corporation is several and not joint, and each must be sued separately.” Abbey v. Dry Goods Company, 44 Kan., 415.
    3. It has been' held that the creditor who first moves in conformity to section 32 to charge stockholders, obtains a prior lien upon the liability of the stockholder proceeded against. Wells v. Robb, 43 Kan., 201; Ball v. Reese, 58 Kan. 614.
    From this it necessarily follows that the creditor who first proceeds by suit against a stockholder obtains a prior lien upon such stockholder’s liability.
    4. This stockholder’s liability under the Kansas statute is in lieu of the partnership liability that the stockholders escape by means of their incorporation. Abbey v. Lang, 44 Kan., 688.
    From the foregoing decisions it appears that under the Kansas law the stockholder’s liability is a liability arising upon contract, wherein each creditor proceeds against each stockholder separately by an ordinary action at law; that a suit to enforce one stockholder’s liability brought by one creditor is in no sense dependent upon any other suit brought by any other creditor, or the same creditors against any other stockholder; that such a suit is in no sense an equitable proceeding, and hence the rules of equity practice have no application to suits to enforce this liablitiy; this is manifest:
    1. Because each stockholder must be sued separately.
    2. Because the creditor who first takes steps to enforce the liability acquires a prior right to the fund.
    3. Because this stockholder’s liability under the Kansas law is in lieu of the partnership liability that the stockholders escape by reason of the incorporation; in other words stockholders in Kansas corporations are partners with a several limited liability, which can only be enforced after judgment has been obtained against the corporation and an execution issued and returned unsatisfied (Section 32), or if the creditor does not wish to proceed against the cor poration first, after the corporation has ceased to do business more than one year. (Sections 40 and 44. i
    From the above it is obvious that it has never occurred to the Supreme Court of Kansas that the liability of a stockholder to a creditor had not been definitely fixed under the constitution by the fore going sections quoted. On the contrary, that court, as will be seen above, enforced the liability against stockholders in behalf of creditors, and has construed the legislation as authorizing suits to be brought in a foreign jurisdiction as upon contract.
    Second. What construction will be given to this interpretation of the constitution and laws of Kansas by the highest tribunal of that state when suit is brought to enforce the contractual liability thus said to exist in the courts of another state? Bank v. Ellis, 166 Mass., 414.
    Again the Kansas statutes come under consideration by the Supreme Coiirt' of Illinois in the cases; Bell v. Farwell, 176 Ill., 489 (52 N. E. Rep., 346); Aultman’s Appeal, 98 Pa. St., 506; Van Riper, Ex parte, 20 Wend., 614; Savings Association v. O’Brien, 3 N. Y. Sup., 764; 20 N. Y., 826; Payne v. Stewart, 33 Conn., 516; Hodgson v. Cheever, 8 Mo. Appeal, 318; Bank v. Mining Co., 42 Minn., 327; Flash v. Conn, 16 Fla., 428; affirmed by the U. S. Cir. Ct. (Florida), 109 U. S., 371; Lowry v. Inman, 46 N. Y., 120; Guykendall v. Miles, 10 Fed. Rep., 342; Bagley v. Tyler, 43 Mo. Appeal, 195; Bank v. Rindge, 57 Fed. Rep., 279; Nimick v. Iron Works, 25 W. Va., 184.

      The doctrine that the statutes of a state as interpreted by the highest tribunal of that state will be enforced by the courts of a sister state is too well established to need further authorities. Morawetz on Corporations, section 875.
   Speak, J.

Did the amended petition state a case is the question before us, the ultimate question being can a creditor of an insolvent Kansas corporation maintain an action in Ohio, against a citizen of this state, to enforce statutory liability against him as a stockholder in a Kansas corporation?

Against such liability, and against the judgment of the circuit court, it is insisted that the provision of the Kansas constitution is not self-enforcing; that the legislation pleaded creates no liability, and that the Supreme Court of Kansas has not in fact passed upon the question as to whether or not the liability exists. Hence this court is at liberty to determine the matter by its own rules of interpretation, and this must lead to the result that no liability does exist.

The constitutional provision is given in the statement, but for perspicuity it is here repeated: “Dues from corporations shall be secured by individual liability of the stockholders to an additional amount equal to the stock owned by each stockholder, and such other means as shall be provided by law.” It may be conceded that this constitutional provision, standing alone, is not sufficient; it is not self-executing. This conclusion is in consonance with the rules of construction generally adopted and is distinctly held by the Supreme Court of Kansas in Woodworth v. Bowles, 61 Kansas, 569. It does not follow, however, that the provision is to be ignored. It is not improper to consider it in connection with the statutes of that state upon the subject. It may be conceded, further, that the language of the Kansas statutes respecting the liability of stockholders is not as direct as it might have been made, and much is claimed against the provision for liability by reason of the peculiar phraseology. But the question, in arriving at the proper construction is, what did the legislature mean by the language that is used? One provision, adopted in 1868, is that “no stockholder shall be liable to pay debts of a corporation beyond the amount due on his stock and an additional amount equal to the stock owned by him.” The act further provides that “if any corporation, created under this or any other general statute of this state, except railway or charitable or religious corporations, be dissolved, leaving debts unpaid, suit may be brought against any person or persons who are stockholders at the time of such dissolution, without joining the corporation in such suit.” Another provision, enacted in 1883, is to the effect that “any corporation shall be deemed to be dissolved for the purpose of enabling creditors of such corporation to prosecute suits against the stockholders thereof and enforce their individual liability, if it be shown that such corporation has suspended business fot more than one year.”

Giving effect to the duty imposed upon the legislature by the imperative mandate of the constitution,, “dues shall be secured,” etc., how can it be supposed that the statutes enacted by the legislature upon the subject, and to which reference has been made, had any other purpose than to comply with this requirement, and can it be seriously doubted that that body intended by its legislation to make the provision which the constitution thus enjoins? We think not; and however inartificial the language of the section of the statute first referred to, it seems to us clear that, being guided by the usual canons of construction, the reasonable conclusion is that, taking the entire legislation together, there is sufficient provision of law to establish the liability of the stockholder. But if there remain doubt about this, such doubt would be effectually removed by the holding of the Supreme Court of that state, pleaded in the petition, and found in the following decided cases, viz: Howell v. Manglesdorf, 33 Kan. 199; Wells v. Robb, 43 Kan., 201; Abbey v. Dry Goods Company, 44 Kan., 415; Ball v. Reese, 58 Kan., 614; Woodwort v Bowles, 61 Kan., 569. True, the holding of the court is not in direct, affirmative terms, but the judgments rendered are based upon the premise that the liability does exist, and would not have been rendered but for such condition.

Having thus ascertained that the liability of the defendant stockholder is fixed by the law of Kansas, we come to the question whether such liability may be enforced in the courts of Ohio. It is insisted by counsel for plaintiff in error that the obligation is purely statutory, if it exists at all; that it is in reality a penalty and a penalty only, and if so, would, as matter of course, not be enforceable outside the limits of the state of Kansas. This latter proposition may be conceded. But is the obligation purely statutory, and is the liability in the nature of a penalty? A penalty of a character which will not be enforced outside the jurisdiction, implies some wrong done and that the money claimed is compensation, or by way of punishment. An instance of this character is found in Diversey v. Smith, 103 Ill., 378. The statute declares that a corporation shall not transact business until certain specified things have been done, and if it does so in violation of the statute, the trustees and corporators shall be liable in a specified amount, and this was held a penalty; but the distinction is clear between such an obligation and one where the liability is primary, or is based on contract. No fact appears in the present case to show that the stockholder has violated any statute or committed any wrong, and the wrong of the corporation is not the violation of any positive, duty enjoined by law, but the failure to make a success of its business. Upon principle it seems clear that the demand is not for a penalty. And this conclusion is supported by abundant authority. Aultman’s Appeal, 98 Pa. St., 505; Bank v. Mining Co., 42 Minn., 327; Flash v. Conn, 16 Fla., 428; Lowry v. Inman, 46 N. Y., 119; Cuykendall v. Miles, 10 Fed. Rep., 342; Bagley v. Tyler, 43 Mo. App., 195; Bank v. Rindge, 57 Fed. Rep., 279; Crippen v. Laighton, 69 N. H., 540; Kirtley v. Holmes, 107 Fed. Rep., 1. What, then, is the nature of the stockholder’s liability? Is it wholly statutory, resting entirely on the peculiar-provisions of the Kansas statute, or is there another element which enters into the obligation? It may be conceded that it is not supported by any rule of the common law, but this does not end the inquiry. The charter of this banking corporation — that is the statute — provided that the stockholders should be liable individually to creditors upon the arising of . certain contingencies. Knowing this the stockholders became such with full knowledge, not only that they were thus stipulating for this liability, but with the knowledge that persons giving credit to the corporation would do so, and would rightfully give it, upon the faith of the personal liability of the stockholders. It was an offer to become liable on tbe part of tbe stockholders, accepted by the creditor when the credit was given and thus became a contract, made, it is true, not directly with the creditor, rather with the corporation perhaps, but one which was for the benefit of creditors, and to which, upon well settled principles in this state, (Emmitt v. Brophy, 42 Ohio St., 82,) the creditors would have the right to resort in case the corporation itself should fail to respond. Brown v. Hitchcock, 36 Ohio St., 678; Corning v. McCullough, 1 Comst., 47. The provision of the statute does not create the liability; it is merely a legislative requirement that whoever becomes a stockholder shall at the same time assume an individual liability to the creditor; it is to declare the legal effect of the acts of the parties, which enable them to contract in a manner not authorized at common law. It was thus, as it seems to us, on principle, in the nature of a guaranty. But whether so or not the question has been settled by the decisions of the Supreme Court of Kansas. It is held by that court that the liability of a stockholder is a contractual liability, and arises from the contract of subscription to the capital stock, and that in so subscribing and becoming a stockholder, he thereby guarantees payment to the creditors of an amount equal to the par value of the stock owned by him. It is further held by that court that this liability is several; that it should be payable to the judgment creditor who first brings action, and that such action is transitory and may be brought wherever personal service can be made upon the stockholder. These facts are alleged in the petition, and the allegations are supported by the decisions heretofore cited. See, also, Morawetz on Priv. Corps., section 870, and Cook on Stock, etc., section 223. And the construction thus given to the constitution and statutes of Kansas would be binding upon this court even though we did not agree with the interpretation there given on principle. It being thus determined that the liability is contractual, that it is several, and that the creditor first bringing action obtains a prior lien with which other creditors may not interfere, we see no reason why it cannot be enforced against the stockholder individually in Ohio, by action against him alone. True, our method of enforcing the liability of stockholders is by a proceeding in the nature of a suit in equity which contemplates the bringing in of the corporation, of all the creditors, and of all the stockholders, and a decree which will adjust and finally settle the rights and liabilities of the parties. This is made practicable because the corporation is a creature of our law, the stockholders principally residents of the state, and a multiplicity of suits may thus be avoided. But our courts have no jurisdiction to adjudicate the affairs of a foreign corporation, and any attempt to wind up its business by a comprehensive decree in our courts would be futile. Whether, where it is shown that there are other stockholders residing in Ohio, the plaintiff might, properly make them parties, and maintain a suit against all that might be served, we need not inquire, for no such fact appears in the present case. However that may be, we think it cannot be said that the Kansas statutes are at variance with our legislation upon any matter of principle, or with the public policy of the state. The right to maintain the action here does not depend upon the exercise of comity; it rests wholly .on the duty of the Ohio courts to enforce a contract voluntarily entered into in another state and made legal by the laws of that state. And, as observed by Williams, J., in Heaton v. Eldridge, 56 Ohio St., 97: “The law of a state or country where a contract is executed and is to be performed, enters into and becomes a part of the contract in the sense that its validity and obligatory effect are to be determined and controlled by that law; and when valid there, the contract will be sustained everywhere, and accorded the interpretation required by the law of the place where made, when the law is properly brought to the attention of the court, unless the contract is against good morals or contravenes a settled policy of the state or country in whose tribunals its enforcement is sought”

We are aware that this ground of action is not favored by the courts of several of the states, notably those of New Hampshire, New York and West Virginia, the holding being that the liability is wholly statutory and opposed to the policy of these states. Grippen v. Leighton, supra; Marshall v. Sherman, 148 N. Y., 9; Nimick v. Iron Works, 25 W. Va., 184. On the other hand the right to such remedy is maintained by the Supreme Court of Massachusetts and Illinois, in late decisions, although earlier decisions of the same courts denied them. Bank v. Ellis, 166 Mass., 414; Bell v. Farwell, 176 Ill., 489. Also by the courts of Alabama (Morris v. Glenn, 87 Ala., 628), of California (Ferguson v. Sherman, 116 Cal., 169), of Michigan (Bank v. Lawrence, 117 Mich., 669), and of Missouri, (Guerney v. Moore, 131 Mo., 650). Federal decisions are to like effect. McVickar v. Jones, 70 Fed., 754; Flash v. Conn, 109 U. S., 371. See, also, Morawetz, section 875.

We think the amended petition states a ease, and •the judgment of the circuit court overruling the dedemurrer will he

Affirmed.

Minshall, C. J., Williams, Burket, Davis and Shauck, JJ., concur.


source: Caselaw Access Project

author: Ruexcbt, J.

license: Public Domain

text:
    Zinn v. Baxter et al.

      Directors of a national bank — Violating National Banking Act — 1 Action may be maintained by shareholder — But in behalf of himself and other shareholders, and not for own benefit, alone — Bank must be party — Result of judgment as to bank and shareholders — Former shareholders cannot maintain action against directors before dissolution, when — Bank corporation law.

    1. Where the directors of a national bank have violated the provisions of the National Banking Act, to the damage of the bank and its shareholders, and the bank fails upon request to bring an action against such directors for the recovery of . such damages, an action may be maintained for that purpose by a shareholder; but such action must be brought by such shareholder on behalf of himself and all the other shareholders, the bank must be made a party, the judgment must be in its favor, and the proceeds of such judgment will inure to the common benefit of all the shareholders alike. Such action may be brought in a state court.
    2. In such ease a shareholder cannot maintain such action for his benefit alone while the bank is a going concern, and has not been dissolved by proper action by the comptroller of the currency in a federal court.
    3. One who has been a shareholder in a national bank, but has parted with his stock, cannot maintain such action against the directors before the dissolution of the bank by proper proceedings in a federal court. Whether he can do so after such dissolution is not involved in this case, and is not here decided.
    (Decided December 3, 1901.)
    Error to the Circuit Court of Allen county.
    On the tenth day of September, 1897, the plaintiff, Walter Zinn, filed his petition in the court of common pleas against the persons who were directors of the First National Bank of Lima, Ohio, during the years 1893 and 1894, and also made the hank a party defendant.
    The petition is as follows, omitting the caption, signature and verification, and also omitting the averments as to who were the officers and directors during those years, and which averments are contained in paragraphs numbered from five to thirteen, inclusive:
    “First. Walter Zinn, the plaintiff, above named, says that he was on and prior to the first day of January, 1893, the owner of one hundred shares of the capital stock of the First National Bank of Lima, Allen county, Ohio, for which he paid the sum of thirteen thousand ($13,000) dollars in cash.
    “Second. That he continued to be the owner of said stock until the sale thereof by said bank for the non-payments of the assessments on the same, on the -day of-, 1895.
    “Third. That said bank ©n and prior to the said first day of January, 1893, was, and now is a duly organized and incorporated national bank under the laws of the United States, and doing business as such under the name of The First National Bank of Lima, Ohio.
    “Fourth. That said national bank was so incorporated with a capital stock of one hundred thous- and dollars.
    “Fourteenth. That said board of directors and its said officers in and for the years 1893 and 1894, had the sole charge and management of all the property and affairs and the business of said bank.
    “Fifteenth. Said plaintiff says that said S. S. Wheeler, president; C. S. Brice, vice-president; O. M. Hughes, Jr., cashier, and F. C. Cunningham, assistant cashier, the officers of said bank, did knowingly permit the total liabilities to said bank of a certain corporation, known as the Munroe Manufacturing & Lumber Company, of Lima, Ohio, and doing business as such in the said city of Lima, Ohio, for money borrowed, including in.the liabilities of said manufacturing company, the liabilities of the several members thereof to exceed one-tenth part of the amount of the capital stock of said bank actually paid in, not including in said indebtedness the discount of bills of exchange drawn in good faith, against actually existing values, nor the discount of commercial or business paper actually owned by the said manufacturing company and the several members thereof.
    “Sixteenth. Said plaintiff further says that said bank was found by the comptroller of the currency to have its capital stock impaired on and prior to the 1st day of October, 1894, and that an assessment of one hundred per cent, on its capital stock should be made, and was made, and that the indebtedness of the said Munroe Manufacturing & Lumber Company, of Lima, Ohio, for money borrowed by said company and the individual members thereof from said bank, consisted of the following sums of money and the dates of said loans named, to-wit:
    “(The dates and amounts of the several loans are here omitted.)
    “Making the sum total of $145,150, which was loaned by said bank to said company in the amounts and dates above named, without any security whatsoever, and the same was a total loss to said bank; and at the dates of the loans aforesaid said bank and said manufacturing company were insolvent, and were known to be so by said directors and the officers of said bank at the time |he loans were made, or if not known, could have been ascertained by the slightest investigation and inquiry.
    “Seventeenth. Said plaintiff further says that the aforesaid liabilities of said manufacturing company, and the several members thereof, for money borrowed as aforesaid, were contracted with the knowledge and assent of each of said directors, or if either of the said directors failed to have actual knowledge thereof, that said directors were grossly negligent of their duty in the management of the affairs of said bank, in failing to examine the books of account and evidence of indebtedness held by said bank during all the period in which said liabilities were being contracted, and in failing to exercise the slightest diligence or in making the slightest investigation of the conduct of said bank; and that any investigation or supervision of the affairs of said bank, or any examination of its books, and the evidence of indebtedness held by this bank during that period, would have disclosed to either of said officers or directors that said liabilities were incurred, and the amount and extent thereof, and what security, if any, had been required by said directors and said officers for the loans so made by said bank to said company.
    “Eighteenth. That said directors of said bank, in and for the years Í893 and 1894, knowingly and carelessly permitted said Baxter, president, said O. M. Hughes, Jr., cashier, to manage and control the business affairs of said bank without any supervision or investigation whatsoever, when they knew, or ought to have known upon the slightest investigation arid inquiry, that they were grossly negligent, incompetent and dishonest in regard to the making of said loans of money by said bank to said company, and that they were both finally removed as said officers and directors of said bank, in October, 1894, because of their misconduct and mismanagement of said bank.
    “Nineteenth. That said C. M. Hughes, Jr., cashier, taking advantage of his position as such officer, negligently and willfully concealed the protested notes and drafts of said manufacturing company, upon which the said bank had loaned its money to the amount of over eighty thousand dollars, which were protested and returned to said bank, thus impairing the assets of said bank to that extent; that the same was known to said directors in and for the years 1893 and 1894, or, if not known, might and could have been known to the directors of said bank if said directors had made the slightest investigation and inquiry from him or made any investigation of the books of said bank.
    “Twentieth. Said plaintiff further says that said directors of said bank in and for-the years 1893 and 1894, knowingly, carelessly and negligently failed to require said C. M. Hughes, Jr., cashier, to execute his bond with security in the sum of fifteen thousand dollars, for the faithful and honest discharge of his duties as such cashier, as required by section 8 of the by-laws of said bank and in violation thereof.
    “Twenty-first. Said plaintiff further says that-said C. M. Hughes, Jr., while acting as such cashier as aforesaid, wilfully marked certain certificates of deposit on said bank “void or paid,” to-wit, one in the name of L. M. Swan for the sum of twenty-five thousand dollars ($25,000) on April 9, 1894, and one in the name of Mrs. W. W. Firestone in the sum of four thousand dollars, December 19, 1893, when he-knew that they were outstanding against the bank; and said directors of said bank knew of the transaction at the time, or if they did not know could easily have ascertained the facts, by the slightest investigation and inquiry from said Hughes, and from an investigation of the books in the bank that he had so marked said certificate of deposit.
    “Twenty-second. Plaintiff further says that prior to and during the years 1893 and 1894 he lived in the city of Columbus, Ohio, and that he had no knowledge, directly or indirectly, of the negligent and careless management of said bank as aforesaid and the enormous sums of money loaned as aforesaid, when he received a letter from the president of said bank asking him to pay an assessment upon his stock, October 4, 1894.
    “Twenty-third. Said plaintiff further says that the losses of said bank, the impairment and misapplication of the capital stock of said bank, and the profits thereof, the needless wasting of the dividends of the stockholders and the lessening of the value of their shares, and their total loss in value and the complete insolvency of said bank, the violation of its charter and by-laws, the wasting of its assets, the loss of his thirteen thousand dollars and the loss of one hundred and forty-five thousand, one hundred dollars to said bank, and the needless assessment on said stock, were directly occasioned by the wrongful, reckless and negligent mismanagement, the utter absence of supervision and examination and the gross neglect of duty and inattention in the conduct of the business of said bank on the part of said directors and officers of said bank during the years 1893 and 1894.
    “Twenty-fourth. Plaintiff further says that on the 6th day of April, 1897, he served a written notice upon the then directors of said bank to pay him. said sum of money, or upon a failure to do so, to bring an action against the defendant directors of said bqnk for the year 1894 prior to the resignation of Charles M. Hughes, Jr., for the causes set forth in this petition, and no attention whatsoever was paid thereto by said directors; and that on the 24th day of July, 1897, he again served a notice in writing embracing in substance the contents of this petition upon C. B. Crites, cashier, in person, in the bank in Lima, Ohio, requesting the present directors of said bank to pay him said sum of money, or on a failure to do so, to bring an action against the defendant directors named herein, to which request the present directors of said bank made no response whatsoever; and that on the 18th day of August, 1897, he again served the present directors of said bank with a notice in writing, by handing the same in person to T. D. Robb, the president of said bank, asking him to pay him said sum of money, or on a failure so to do, to bring an action against the said defendant directors named herein for the said sum of money, and also to call a meeting of the present directors of said bank to consider the requests and notices named above, to which no answer was made, although requested so to do immediately, and that the present directors of said bank now decline and refuse to pay said sum of money to this plaintiff, or to bring any action against said defendant directors for the years 1893 and 1894.
    “Twenty-fifth. Said plaintiff further says that he now brings and prosecutes this action on behalf ol himself and all other stockholders who wish to become parties to this action.

      “Twenty-sixth. 'Wherefore, this plaintiff asks that an account be taken of the loss and damage to said bank, its shareholders and creditors, sustained by the reason of the unlawful acts, misconduct and negligence of said defendant directors and officers, and each of them, as hereinbefore set forth, and that he may have a judgment for the said sum of thirteen thousand dollars ($13,000) and interest thereon from the-day of - — , 189 — , against said defendants, and each of them, in his personal and individual capacity for said loss and damages aforesaid, and that he may have such other and further relief as he may be entitled to in the premises, and for a judgment in favor of other shareholders in such sum as the court may find due.”
    The defendants demurred to this petition upon the following grounds:
    “First. That the plaintiff has not legal capacity to sue.
    “Second. That separate causes of action against several defendants are improperly joined.
    “Third. That said petition does not state facts sufficient to constitute a cause of action.”
    The court of common pleas sustained the first and third grounds of demurrer and dismissed plaintiff’s petition at his costs. The circuit court upon petition in error affirmed the judgment. Thereupon the plaintiff filed his petition in error in this court seeking to reverse the judgments of the courts below.

      P. H. Kumler; John Wentzel and Ridenour & Half-hill, for plaintiff in error.
    We stand upon section 4993, Revised Statutes, which provides that an action must be prosecuted in the name of the real party in interest.

      Transfer of interest, if made, section 5012, Revised Statutes. Weber v. Miller, 4 Circ. Dec. 483; 9 C. C. R., 674; Wolf v. Coddington, 5 Circ. Dec., 671; 12 C. C. R., 261; Taylor v. Exporting Co., 5 Ohio, 162; Mabey v. Adams, 3 Bosworth, N. Y., 346; Bartges v. O’Neil, 13 Ohio St., 76; Bliss on Code Pleading, (2 ed.) section 21; Dicey on Parties to Actions, 374, 353, 429, 432; 17 Am. & Eng. Enc. Law, 559; 4 Thompson on Corp., sections 4564, 4567, 4568.
    We especially invite the attention of the court to the following: The stockholder need not allege that he was a stockholder at the time of the act, or that his stock has since come to him by operation of law. 2 Cook on Stockholders, section 742; Parson v. Joseph, 8 So. Rep., 788; 1 Angell and Ames on Corp. (11 ed.), section 312; 4 Thompson on Corp., 4479; Pom. Eq. Jur., section 1095; 2 Kinkaid Code Pleading, sections 958, 995; Bartholomew v. Bentley, 15 Ohio, 659; 4 Thompson on Corp., section 4569; Alexander v. Searcy, 81 Ga., 536; 8 S. E. Rep., 630; Moore v. Mining Co., 104 N. C., 534; 10 S. E. Rep., 679; Kenedy v. Benson, 54 Fed. Rep., 836; Smith v. Thompson, 54 N. W. Rep., 168; Holly v. Hegeford, 8 Pick., 78; Ellis v. Allen, 80 Ala., 515.
    Stock is personal property. Section 3255, Ohio Revised Statutes; 1 Cook, section 12.
    Second ground of demurrer.
    Because the petition does not state facts sufficient to constitute a cause of action.
    The liability of directors to the corporation for damages, caused by unauthorized acts, rests upon the common law rule, which renders every agent liable who violates his authority to the damage of his principal. Morawetz on Corporations, section 556; Briggs v. Spaulding, 141 U. S., 132; Dodge v.

      Woolsey, 3 O. F. D., 300; 59 U. S. (18 How.), 331; Davenport v. Dows, 85 U. S. (18 Wall.), 626; 1 Morawetz on Corp., sections 554, 555, 5556, 5561; 2 Cook on Stockholders, section 701; Taylor v. Exporting Co., 5 Ohio, 162; 4 Thompson on Corp., section 4479, note 3; Angell & Ames Corp. (11 ed.), section 312; Pom. Eq. Jur., section 1095; McMullin’s Appeal, 18 Atl. Rep., 1056 (Pa., 1890); 2 Morse on Banks and Banking, 717; Williams v. McKay, 18 Atl. Rep., 824; 40 N. J. Eq., 189; Nelson v. Burrows, 9 Abb., N. C., 280; Brinkerhoff v. Bostwick, 88 N. Y., 52; Ackerman v. Halsey, 37 N. J. Eq., 356 ; affirmed in 38 N. J. Eq., 501; 1 Morawetz, section 561; Kimmel v. Stoner, 18 Pa. St., 155; Kimmel v. Geeting, 2 Grant Cases (Pa.), 125; Hanley v. Balch, 53 N. W. Rep., 954; Horn Min. Co. v. Ryan, 44 N. W. Rep., 56; Martin v. Webb, 110 U. S., 7; Cutting v. Marlor, 78 N. Y., 454; Preston v. Prather, 137 U. S., 604; Hun v. Cary, 82 N. Y., 65; Ackerman v. Halsey, 37 N. J. Eq., 356; Halsey v. Ackerman, 38 N. J. Eq., 501; Shakers v. Underwood, 9 Bush., 609; Horn Silver Co. v. Ryan, 42 Minn., 196; United States v. Means, 6 O. F. D., 434 (42 Fed. Rep., 599); Delano v. Case, 121 Ill., 247; Percy v. Millander, 3 La., 568; Marshall v. Bank, 85 Va., 676; Trustees v. Bossieux, 3 Fed. Rep., 817; Corporation v. Sutter, 2 Atk., 400.
    Directors of the bank are trustees. He does not represent them as persons, or represent their personal interest. He represents them as stockholders and their interests as such. He is trustee for the company. Gooding v. Canal Co., 18 Ohio St., 169; Rouse v. Bank, 46 Ohio St., 493; Taylor v. Exporting Co., 5 Ohio, 162.
    The petition. The allegations which set forth the complaining stockholders’ cause of action will, of course, depend largely on the particular facts of each case. It is necessary, however, to determine, first, whether the allegations are to make out a case of fraud or an ultra vires act, or of a negligent act. The complainant need not allege who the other stockholders are, how numerous or whether a majority. The stockholder need not allege that he was a stockholder at the time of the act. 2 Cook on Stockholders, section 742; Zinn v. Baxter, 9 Circ. Dec., 731; 17 C. C. R., 283.
    If the defendants are liable to the bank, they are certainly liable to the stockholder at the time of the injury. This is a suit in equity to remedy a wrong committed by the defendants. The bank might and should have brought this action, but the defendant directors who are and were the guilty parties at the time of the injury complained of, refused to bring this action. The petition alleges specifically that all the losses to the bank — the impairment of its capital stock — are and were directly occasioned by the wrongful, reckless and negligent mismanagement, the utter absence of supervision and examination and the gross neglect of duty and inattention in the conduct of the business of the bank in 1893-4.
    The plaintiff in error asks that an account be taken of the loss and damage to said bank, its shareholders. “It is well settled that the prayer for relief may be in the alternative.” 2 Cook on Stock, section 743.
    The capital stock of the bank was $100,000. The .plaintiff in error alleges that the president, vice-president, cashier and his assistant, knowingly permitted the liabilities to said bank of a certain corporation known as the Munroe Manufacturing Company, for money borrowed exceeding one-tenth of the capital stock of the bank actually paid in. Here we find that said officers, in violation of the law, loaned out $45,150 over and above its capital stock to one worthless concern. This clearly states a case against the directors and officers of the bank. Cockrill v. Cooper, 86 Fed. Rep., 7.
    This construction is unanswerable. This opinion also decides that a stockholder need not awáit a forfeiture of charter before suing, and that the provisions of the national banking law, making the directors liable, do not create a new cause of action, but exists without and independent of them. 1 Morawetz on Corp., section 554.
    The directors are bound to manage the affairs of the company with the same degree of care and prudence which is generally exercised by business men in the management of their own affairs. Hun v. Cary, supra; 1 Morawetz, section 554.
    The comptroller of the currency prior to the 1st day of October, 1894, found the bank insolvent, and ordered an assessment of 100 per cent, on the capital stock. The decision of the comptroller is conclusive that the bank was hopelessly insolvent. Kennedy v. Gibson, 75 U. S. (8 Wall.) 498; Bank v. Case, 99 U. S., 628; Cary v. Galli, 94 U. S. Rep., 673.
    But it is said that the plaintiff in error has no interest in this bill in the event of a recovery. We deny this proposition. 1 Morawetz on Corp., section _, pages 272, 273 ; 2 Cook, section 735; Mining Co. v. Baker, 20 Fed. Rep., 4; Kimmel v. Geeting, 2 Grant’s Cases, 125.
    Directors of a national bank are liable when they loan money to irresponsible persons, allow overdrafts, employ dishonest, unfaithful and incompetent clerks, and neglect to take security from the cashier, president and other officers for good conduct and the performance of duties. They are bound to observe every provision in the company’s charter or by-laws, or if they wrongfully create obligations binding upon the company and cause its property to .be wasted or misapplied. 1 Morawetz on Corp., section 555; note 1 and 1; 2 Cook on Stockholders, section 702; Williams v. McKay, 18 Atl. Rep., 824. Cashier liable if he loans in excess of ten per cent. Bank v. Burt, 98 N. Y., 233. Cashier liable for representation. Bank v. Bank, 59 Fed. Rep., 388; Bank v. Blakesley, 42 Ohio St., 645.
    National banks may be sued in state courts. 16 Am. & Eng. Enc. Law, 152, 153; Bank v. Cooper, 120 U. S., 178; 3 N. B. C., 208; Nelson v. Burrows, 9 Abb., S., 178; 3 N. B. C., 208; Nelson v. Burrows, 9 Abb., N. C., 280; 2 Morawetz on Corp., section 987; Bethel v. Bank, 81 U. S. (14 Wall.) 383; Claflin v. Houseman, 93 U. S., 130; Hade v. McVay, 31 Ohio St., 231; Prescott v. Haughey, 65 Fed Rep., 653.
    Forfeiture not necessary before stockholders can sue. Taylor v. Exporting Co., 5 Ohio, 162; 3 Thompson on Corp., section 4303; Hayden v. Thompson, 71 Fed. Rep., 60; 17 C. C. A., 592; Bank v. Wade, 84 Fed. Rep., 10; sections 5200, 5204, 5239 of the national banking act.
    The remedies provided in the national banking act are not exclusive. The plaintiff in error is not bound to pursue his remedy under the sections named, but a stockholder or any other person may file a bill independently of said sections. 1 Morawetz on Corp.,- — ; Briggs v. Spaulding, 141 U. S., 132; Ohio Revised Statutes, 3821-84, section 29.
    That separate causes of action against several defendants are improperly joined.
    In all cases where there is a joint or several liability all may be made parties defendant. All wrongdoers are liable and it is not error to join them in am action either at law or in equity. The bill shows that all of the defendant directors and officers were parties, not only to the same transaction, but transactions connected with the same subject. Pomeroy’s Code Rem., sections 361, 362, 363; Code R. S., 5019; 4 Thompson on Corporations, section 4566 (note), 4095, 4096; Brown v. Deposit Co., 128 U. S., 403; Brinkerhoff v. Brown, 6 Johns Ch., 139; Fellows v. Fellows, 4 Conn., 682; Dodge v. Woolsey, 3 O. F. D., 300; 59 U. S. (18 How.), 331.
    Not a misjoinder of causes of action under blew York code. 4 Thompson on Corp., section 466; Dennis v. Kennedy, 19 Barb., N. Y., 517; Barr v. Railroad Co., 96 N. Y., 444. Section 5239, U. S. Revised Statutes and section 3821-84, section 29, are substantially alike in designating who may sue. In the Ohio statutes — “The company, its shareholders. or any other persons,” may sue.
    Under section 5239, U. S. Revised Statutes, “the association, its shareholders, or any other person,” may sue. The phrase “or any other person” is used in both statutes. These statutes are only declaratory of the common law, and our right to sue does not depend, upon their enactment. These statutes simply enact the principle, that “a shareholder or any other persons” may sue, and the right of action is not confined at common law or under the statute to a stockholder, but damages, with or without the statutes, may be recovered by “any other persons” who have sustained damages “in consequence of such violation.” 1 Morawetz, section 556.
    It is not necessary to allege or prove that the plaintiff in error was a stockholder at the time this suit was brought on behalf of Mmself and others.. It is sufficient in law and equity that he allege and prove that he and the bank sustained the loss at the time he held and owned the stock. The plaintiff asks thát an account be taken of the loss and damage to the bank, its shareholders and creditors, etc.
    Separate brief of John Wentzel, for plaintiff in error.
    The right to sue directors for malfeasance in office, whereby loss accrues to the shareholders, is often expressly given to the shareholder by statutory enactment; though without doubt, it exists at common law in the absence of any legislative intervention. 2 Morse on Banks and Banking, section 717.
    To show that the right to sue directors is given by statute; 76 Ohio Laws, 74, section 25; section 3821-80, Bates’ Ohio Revised Statutes, and 49 O. L., 41, section 29, Bates’ Ohio Revised Statutes.
    Here we find that the director who violated the law, participated in or assented to the same, shall be held liable in his personal and individual capacity for all damages which its shareholders shall- have sustained in consequence of such violation. The language of the statute is broad, intending that no person, body politic or corporate should lose. Sections 5239 and 5200, U. S. Revised Statutes: R. S. of: New York, Yol. 2 (8 ed.), Part 1, Chap. 18, page 1555, section 188.
    So it seems that the statutes of Ohio, of the United States and of New York permit the shareholder that sustains the loss to recover damages from the directors. Mabey v. Adams, 3 Bosworth, N. Y. Sup. Ct., Rep., 346; Buell v. Warner, 33 Vt., 570; Robinson v. Smith, 3 Pai. Ch., 222.
    Now for a stockholder to sustain a loss he must be a stockholder at the time such loss accrues. Alex

      ander v. Searcy, 81 Ga., 536; Hawes v. Oakland, 104 U. S., 450; Dimpfell v. Railroad Co., 110 U. S., 209; United Elec. Sec. Co. v. Electric Light Co., 68 Fed. Rep., 673.
    The Supreme Court of the United States made it a rule of the federal courts that a transferee of stock can not sustain a stockholder’s suit to remedy a corporate wrong which was perpetrated before he became a stockholder. Rule 94. Whittemore v. Bank et al., 26 Fed. Rep., 819; Symmes v. Trust Co., 60 Fed. Rep., 830.
    Defendants claimed that before plaintiff could bring his action for the violation of the banking laws of the United States that it was necessary first to forfeit the bank’s charter. Cockrill v. Cooper, 86 Fed. Rep., 7; Stephens v. Overstotz, 43 Fed. Rep., 771; Bank v. Wade, 84 Fed Rep., 10.
    The jurisdiction of the state court is challenged by the demurrer.
    In Brinckerhoff v. Bostwick, 88 N. Y., 54, the court held that a stockholder in a national bank may maintain an action for himself and other stockholders against the directors for loss of funds by their gross negligence, without alleging a direction from the comptroller or his refusal to direct the receiver to sue; that such action may be brought in a state court. In this case the petition alleged violations of section 5239 of the Revised Statutes of the United States. Claflin v. Houseman, 93 U. S. Rep., p. 130; Nelson v. Burrows, 9 Abbott’s New Cas., 280 (N. Y.); Hade v. McVay, 31 Ohio St., 231.
    So, for any violation of the banking laws of the United States, the directors are liable in damages to stockholders for damages they may sustain, and an action for such damage is within the jurisdiction of the state courts. Taylor v. Exporting Co., 5 Ohio, 162; Duranty’s case, 26 Beav., 268.
    This holds that a transferee of the shares cannot bring the suit. The fraud is personal to the original subscriber. Lewis v. Improvement Co., 90 Va., 693; Cook on Corporations, section 154; Cook v. Jewett, 12 How. Prac., N. Y., 19.
    It is contended by the defense that the liability of the directors for malfeasance, etc., as alleged in the petition, is an asset of the bank and that the bank is made a defendant for the purpose of receiving the fruits of this litigation.
    Let us suppose that the bank, instead of continuing as a corporation had expired, whether by its own limitation, by surrender, abandonment of its members, by judgment of dissolution, or by a forfeiture of its charter, just after the capital stock had been wasted, as set out in the petition. There would then be no bank, no corporation to claim the assets or the fruits of this litigation. Then would the stockholder who sustained the loss lose his right to recover from the wrong-doing directors? The liability of a wrong-doing director is certainly not dependent upon the continuance or dissolution of the corporation, nor are the rights of the stockholder to recover for losses sustained dependent upon such conditions of the corporation.
    The liability of the director is created by his own act, and in derogation of chartered privileges, while acting as trustee for the stockholder. Then if a corporation expires, as aforesaid, how would a stockholder recover the losses he sustained from a wrongdoing director? We answer, a court of equity would permit, the stockholder to bring all parties before the court and would lay hold of the fruits of the litigation and administer and distribute them for the benefit of all interested. Hightower v. Thornton, 8 Ga., 492; Hargroves v. Chambers, 30 Ga., 606.
    The right of a shareholder to recover from a wrongdoing director must necessarily then rest not upon the contention that the corporation receives the fruits of the litigation as an asset, but upon the fact that the shareholder sustained a loss. Was it not the plaintiff, Zinn, that sustained the loss and is he not then the party in interest and the one' under our code who has the right to bring the action? Section 4993, Ohio Revised Statutes.
    The action herein is a proceeding in equity and all parties interested are and should be made parties. Sections 5005, 5006 and 5008, Ohio Revised Statutes.

      Richie cG Richie; Williamson & Blank, and Wheeler cG Brice, for defendants in error.
    The first question which presents itself in the consideration of this case is: Does a stockholder, as such, sustain such a relation to the board of directors of a corporation as to permit him to bring an independent action against directors for damages on account of the neglect of their duties as such directors?
    The leading case upon this subject is Smith v. Hurd, 53 Mass., 383. The law as laid down by Chief Justice Shaw in the latter case has been followed, without question, in all the adjudicated eases upon the subject since that time.

      Allen v. Curtis, 26 Conn., 459. Thompson on Corporations, section 7441, et seq.; Beach on Corporations, section 878, et seq.; Morawetz on Corporations, section 227, et seq.; Angell & Ames on Corporations, section 312; Smith v. Poor, 40 Maine, 415; Emery v. Fowler, 63 Am. Dec., 627; Craig v. Gregg, 83 Pa. St., 19; Hodgson v. Railroad Co., 46 Minn., 454; 49 N. W. Rep., 197; Gas Co. v. Fuel Co., 145 Pa. St., 13; 23 Atl. Rep., 224; Compton v. Railway Co., 45 Ohio St., 592.
    By reason, however, of the fact that at times a corporation remains within the control of the directors who have incurred a liability to it by neglect of their duties, or for various reasons a corporation* itself refuses upon request of a stockholder to bring action against such directors to enforce such liability, a rule has become recognized in equity which may be fairly stated as follows:
    Where the corporation itself refuses to bring the action, or where the corporation is entirely within the control of the offending directors, a stockholder or stockholders in such corporation may bring an action in equity on behalf of himself and the other stockholders to enforce such liability upon the part of the directors on account of malfeasance or misfeasance; but in such a case the corporation must be made a party, and the finding must be in favor of the corporation, and the proceeds of such suit paid to the corporation, and distribution made by the corporation to the stockholders in case a recovery is had. In other words, equity recognizes the right of a stockholder to institute a proceeding on behalf of the corporation itself in cases where the corporation itself refuses to institute such proceeding.
    The rule is stated in the case of Wallace v. Savings Bank, 89 Tenn., 630; 24 Am. St. Rep., 658.
    To the same effect are the following authorities: Pomeroy’s Equity Jurisprudence, section 1095; Thompson on Corporations, section 4479; Angell & Ames on Corporations, section 312; Brewer v. Boston Theatre, 104 Mass., 378; Hersey v. Veazie, 24 Maine, 9; 41 Am. Dec., 364; Robinson v. Smith, 3 Paige N. Y., 222 (24 Am. Dec., 212); Peabody v. Flint, 6 Allen (Mass.), 52; Greaves v. Gouge, 69 N. Y., 154; Hawes v. Oakland, 104 U. S., 450; Smith v. Poor, 40 Me., 415 (63 Am. Dec., 672); Miller v. Murray, 17 Col., 408 (30 Pac. Rep., 46); Byers v. Rollins, 13 Col., 22 (21 Pac. Rep., 894); Whitney v. Fairbanks, 54 Fed. Rep., 985; Shawhan v. Zinn, 4 Am. & Eng. Corp. Cas. (Ky.), 243; Dunphy v. News Assn., 19 Am. & Eng. Corp. Cas. (Mass.), 346.
    Pomeroy in his equity jurisprudence, at section 1095, above referred to, has admirably stated the law as covered by the foregoing decisions.
    It seems perfectly clear that both at law and in equity, the officers and board of directors of a corporation directly represent and OAve their duty to the corporation itself, and in cases of Adulation of their duties, their liability is to the corporation itself.
    There can be no question but that such a liability to the corporation itself is at any time subject to be extinguished and settled by agreement between the corporation and the offending officers, and that having been so extinguished, no right exists upon the part of any one to open up the subject again.
    It is equally clear that such a liability upon the part of offending officers, and OAving to the corporation itself, is an asset of the corporation just as much as any other of its property; and that a stockholder is interested in such asset only to the extent of his present OAvnership of stock.
    The question arises: Does section 5239 of the, Revised Statutes of the United States change the. rule so as to entitle plaintiff to the relief demanded?
    It will be observed that section 5239 is a part of the national banking act, pertaining to dissolution and receivership of banking corporations, and the great weight of authorities in construing this section sustains the proposition, that in order to entitle any one to avail himself of these provisions, the franchises of the corporation must first be forfeited by a suit brought for that purpose by the comptroller of the currency in a United States court. Welles v. Graves, 41 Fed. Rep., 459; Bank v. Peters, 44 Fed. Rep., 13; Howe v. Barney, 7 O. F. D., 8 (45 Fed. Rep., 668); Bailey v. Mosher, 63 Fed. Rep., 488; Hayden v. Thompson, 67 Fed. Rep., 273: Gerner v. Thompson, 74 Fed Rep., 125.
    We submit that the only reasonable construction of said section 5239 is, that congress intended to create a liability upon the part of bank officers for a violation of the national banking act, simply with reference to the acts themselves, and not with reference to the persons in whose favor such liability would accrue.
    For example: The act of loaning more than one-tenth of the capital stock of the bank to a single individual in good faith, would not be an act which would create a liability upon the part of the bank officers at common law, because there would not be any bad faith involved in it; but the national banking act, provides that no such loans shall be made by the board, and the effect of this section of the statutes is to create a liability for so doing in case loss ensues to the bank without regard to the question of good faith.
   Ruexcbt, J.

It will be noticed by reading this petition that the bank in question was and is organized under the national banking act, that the plaintiff was a stockholder when the wrongs of which he complains took place, that the defendant directors were at that time directors of said bank, and that all were controlled and governed by that. act. The rights of the bank and of its stockholders, as well as the liabilities of its officers and directors, were fixed and imposed by that act alone, and therefore the statutes of Ohio, the common law, and rules of equity, as to such rights and liabilities, have no application; but the rights and liabilities being ascertained under the provisions of said act, the same may be enforced in the state courts unless otherwise provided by act of congress. It is not otherwise provided by act of congress as to the grievances of which complaint is made in the petition, and therefore the action was properly brought in the courts of this state.

The section of the national banking act which gives the right, and imposes the liability, is No. 5289, which reads as follows:

“If the directors of any national banking association shall knowingly violate or knowingly permit any of the officers, agents or servants of the association to violate any of the provisions of this title, all the rights, privileges and franchises of the association shall be thereby forfeited. Such violation shall, however, be determined and adjudged by a proper circuit, district or territorial court of the United States in a suit brought for that purpose by the comptroller of the currency, in his own name, before the association shall be declared dissolved. And in cases of such violation, every director who participated in or assented to the same shall be held liable in his personal and individual capacity for all damages which the association, its shareholders or any other person shall have sustained in consequence of such violation.”

There is no averment in the petition to the effect that the association has been adjudged dissolved by a federal court as provided in that section, and therefore it must be regarded for the purposes of this case, that the assessment made by the comptroller of the currency in October, 1894, was paid, and that the bank is and ever has been since its organization a going concern. What would be the rights of stockholders, or the liabilities of directors, after such dissolution, is therefore not involved in this case, and is not here decided. The question here' is as to the rights of stockholders, and the liabilities of directors, in cases where the bank, has not been dissolved.

It seems clear that the acts of omission and commission charged in the petition-were in violation of the provisions of the national banking act, and sufficient to impose a liability upon such directors as participated therein, or assented thereto, and that the plaintiff suffered loss by reason of such acts.

Whatever may be the case after a national bank has been adjudged dissolved by a federal court, and gone into the hands of a receiver, or after such receiver has been discharged, it seems too clear for controversy, that before such dissolution, and while the bank is open and carrying on its usual business, the loss caused by the wrongful acts of its directors, is an asset of the bank, and that the bank may recover from such directors all damages which it may have sustained in consequence of such wrongful acts.

Said section 5239 provides that where the provisions of the act are knowingly violated by the directors, every director who participated in, or assented to the same, shall be held liable in his personal and individual capacity for all damages which the association, its shareholders, or any other person shall have sustained in consequence of such violation. As the directors are to be held liable for the damages which the association, the bank, has sustained, it follows that they are liable to the bank for such damages, .and that the damages are therefore an asset of the bank, and may be recovered by it in an action for that purpose. And if the bank brings its action and recovers the damages, such damages inure to the benefit of all the stockholders, by an increase in the value of their respective shares, or the payment of increased dividends; and in such case the shareholders would have no right of action against the directors, for the reason that while they may have been damnified in the first instance, such damages have been paid to their benefit, and they have no right to be compensated twice for the same injury; and the directors can not be compelled to pay twice for the same wrong.

In case the bank fails to bring an action against the directors for the damages by it sustained, then by the law of civil procedure, one or more of the shareholders may bring an action against the delinquent directors in behalf of himself and all the other shareholders, making the bank a party defendant. The action must be in behalf of all the shareholders, and not as in this petition, in behalf of such shareholders as wish to become parties to the action. In such action the shareholder who sues can not recover a separate judgment for himself for the damages he has individually sustained, but the judgment must be in favor of the bank for the full amount of damages sustained by all the shareholders combined, and the judgment when collected must go to the bank, and inure to the equal benefit of all the shareholders, the same as if the action had been brought by the bank. Smith v. Hurd, 53 Mass., 371; Allen v. Cur tis, 26 Conn., 456; Wallace v. Lincoln Savings Bank, 89 Tenn., 630, 24 Am. St. Rep., 658; Thompson ou Corporations, section 7441, et seq.; Beach on Corporations, section 878, et seq.; Morawetz on Corporations, section 227, et seq.; Angell & Ames on Corporations, section 312; Smith v. Poor, 40 Maine, 415 (63 Am. Dec., 627); Craig v. Gregg, 83 Pa. St., 19; Hodgson v. Railroad Co., 46 Minn., 454 (49 N. W. Rep., 197); Gas Co. v. Fuel Co., 145 Pa. St., 13 (23 Atl. Rep., 224) ; Pomeroy’s Equity Jurisprudence, section 1095; Thompson on Corporations, section 4479; Brewer v. Boston Theatre, 104 Mass., 378; Hursey v. Veazie, 24 Maine, 9; 41 Am. Dec., 364; Robinson v. Smith, 3 Paige N. Y., 222 (24 Am. Dec., 212); Peabody v. Flint, 6 Allen (Mass.), 52; Greaves v. Gouge, 69 N. Y., 154; Hawes v. Oakland, 104 U. S., 450; Smith v. Poor, 40 Me., 415, 63 Am. Dec., 672; Miller v. Murray, 17 Col., 408; 30 Pac. Rep., 46; Byers v. Rollins, 13 Col., 22; 21 Pac. Rep., 894.

The above authorities are clearly to the effect, that- while the bank is a going concern, and has not been dissolved, the action of a shareholder against the directors for damages for wrongful acts can be maintained only for the common benefit of himself and all the other shareholders, and that a single shareholder can not maintain an action against such directors for his individual share of the common damages suffered by all the shareholders in consequence of the wrongful acts of the directors. And on principle the same rule must prevail when the action is brought as this one was under said section 5239. Whether a shareholder can maintain such action for his individual benefit after the dissolution of the association, need not now be decided as the question is not involved in this case.

As the action by a shareholder against the directors for damages, before dissolution of the bank, must be for the common benefit of all the shareholders, and as the judgment must be in favor of the bank for their common benefit, it follows that such action can be maintained only by a shareholder while he still owns his shares, because after he has parted with his shares he has no longer any interest in the proceeds to be derived from the litigation, as such proceeds must go to the bank for the common benefit of the then shareholders.

Counsel for plaintiff concede that if the wrongful acts of the directors occurred before a particular shareholder obtained his shares, that such shareholder can not maintain an action against the directors for damages resulting from such acts, but they claim that a shareholder who has parted with his stock may maintain an action against the directors for damages arising from their wrongful acts while he was the owner and holder of his stock, and they cite a New York case to sustain their contention. The statute of New York under consideration in that case is different from said section 5239 in this, that it gives no right of action to the bank, but only “to the creditors and stockholders, respectively, of the corporation of which he shall be a director to the full extent of any loss they may respectively sustain from such violation.” This New York statute clearly gives a right of action against such directors, to each creditor, and to each stockholder for any loss that each one may sustain individually, and the judgment under that statute would not be in favor of the corporation, but in favor of the individual stockholder, and the proceeds would go, not to the bank for the benefit of all the stockholders, but to the individual stockholder bringing the action for his own benefit. The New York case, Mabey v. Adams, 3 Bosworth, New York Superior Court, 346, is therefore not in point. The same is true, and for the same reason, of Buell v. Warner, 33 Vt., 570.

But is is urged that at common law, and under the rules of equity, a shareholder may maintain an action against the directors for such damages as he has individually sustained by reason of the wrongful acts of the directors, even though the same acts damnified all the sockholders in the same degree as they did him, and even though the corporation is a going concern, and has not been dissolved. The error of this contention lies in supposing that the statute, the common law, and rules of equity, may all be invoked in the same case, and that where one may be found too narrow, the other may be called in to help out, and that the right of action is given partly by statute, partly by the common law, and partly by the rules of equity. The correct rule is, that as congress has legislated upon the subject, and given and defined the right of action, the right thus given by congress is the only right, and that the action must be maintained under the act of congress or fail; and that the liability of the directors of a national bank is measured by that act alone, and can not be enlarged or changed by the common law or rules of equity. In the case of Briggs v. Spaulding, 141 U. S., 132, which was a bill by a receiver of a national bank against the directors for damages as in the present case, the bill charged that independently of the acts of congress the directors were liable as trustees for the bank, its stockholders and creditors; and upon the hearing this view was ably urged by counsel; but the Supreme Court of the United States ignored the claim and disposed of the case in favor of the directors upon the provisions of the national banking ad alone. The duty of directors being declared by that act, as well as their liability for the violation of that duty, it is competent to resort to the common law and rules of equity to ascertain whether such duty has been properly performed, and that was done in the above cited case, but the court went no further. It is therefore clear that the common law and rules of equity can not be invoked in opposition to the acts of congress to enable a shareholder in an action like the one at bar to maintain such action against the directors after he has parted with his stock, and before a dissolution of the bank.

But it is further urged by counsel for plaintiff, that under the national banking act, the plaintiff having parted with his stock, is no longer a shareholder, and that he may now maintain his action against- the directors in his capacity of “any other person,” because the act provides that the directors shall be liable “for all damages which the association, its shareholders or' any other person shall have sustained,” and that in an action by a person other than a shareholder, the judgment must be in favor of such person, and not in favor of the bank, and the money when collected must be awarded to such person, and not to the bank. It is true that in an action by such person the judgment would be in his favor, and the money when collected would be awarded to him, and if that wrere all, he might maintain the action. But the words “any other person” in that section, do not reach back and include shareholders, nor causes of action which have accrued to shareholders, but has reference to creditors and persons other than shareholders. And where a cause of action under that section has accrued to a shareholder in his capacity as such, and he has not availed himself of beginning an action against the directors before parting with his stock, he can not thereafter change his cause of action from what it was when it accrued — a cause in favor of a shareholder — to a cause of action in favor of a creditor, or person other than a shareholder. The only cause of action against the directors which ever accrued to the plaintiff was a cause as shareholder, and having allowed that to go by without bringing his action, he now shows no cause of action in his favor in the capacity of “any other person ” He slept on his rights until they were gone, by reason of parting with his stock, and now his petition shows no cause of action in his favor.

It may well be doubted whether the demurrer as to the first ground thereof should have been sustained, because it is not a want of capacity in the plaintiff to sue, but the lack of a cause of action in him. We regard the principle stated in Buckingham v. Buckingham, 36 Ohio St., 68, as applicable. The principle is there stated as follows:

“The objection, that a cause of action for which the plaintiff sues was assigned before the commencement of the action, does not relate to the capacity of the plaintiff to sue, but to the fact that the right of action sought to be enforced is not in the plaintiff. To warrant a recovery the petition must show a cause of action in the plaintiff.”

It is clear, however, that the common pleas was right in sustaining the third ground of demurrer, as was also the circuit court in affirming the> judgment.

Judgment affirmed.

Minshall, O. J., Williams, Spear and Davis, JJ., concur.

Shauck, J., not particpating.