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Bowden v. Santos.

Wood v. Dummer, 3 Mason, 308; Upton, Assignee, v. Tribilock, 1 Otto, 47; Sanger v. Upton, Assignee, id. 60; Webster v. Upton, Assignee, id. 71; Nathan, Receiver, v. Whitlock, 9 Paige (N. Y.), 159; 6 id. 337; see, also, 2 Story's Equity, § 1252. Any contract, especially among the officers of an incorporated company, involving the withdrawal of any portion of the capital stock from the reach of creditors, will not be tolerated by a court of equity. 6 Paige, 337; Ex parte Bennett, 27 Eng. L. and Eq. 572; Ex parte Walker, id. 576, etc.

In the case of Nathan, Receiver, v. Whitlock, 9 Paige, 159, the defendant, Whitlock, who had been a director of the company, transferred his stock to Brown, the president of the company, the latter giving his note, in place of Whitlock's, for the stock transferred. The company afterward failing, and Brown being insolvent, the receiver was allowed to recover of Whitlock the amount of his shares transferred to Brown. The court held the transfer of the stock to be a fraud upon the rights of the creditors, and ineffectual to relieve Whitlock of his liability, and that Whitlock, having been a director of the company, must be presumed to have known its situation, and had no right to shift from him. self to an irresponsible person the liabilities of a holder of the capital stock transferred.

In Upton, Assignee, v. Tribilock, 1 Otto, 47, the Supreme Court says "The capital stock of a moneyed corporation is a fund for the payments of its debts. It is a trust fund, of which the directors are the trustees. It is a trust to be managed for the benefit of its shareholders during its life, and for the benefit of its creditors in the event of its dissolution. This duty is a sacred one and cannot be disregarded. Its violation will not be undertaken by any just-minded man, and will not be permitted by the courts."

Again, in the case of Sanger v. Upton, Assignee, 1 Otto, 60, the law is laid down as follows: "The capital stock of an incorporated company is a fund set apart for the payment of its debts. It is a substitute for the personal liability which subsists in private copartnership. When debts are incurred, a contract arises with the creditors that it shall not be withdrawn or applied otherwise than upon their demands, untll such demands are satisfied."

Again, in the case of Webster v. Upton, assignee, it is said (p. 71, Otto): "The whole subscribed capital stock of a corporation is a

Bowden v. Santos.

trust fund for the payment of creditors when the corporation becomes insolvent........ The stock cannot be released, i. e., the liabilities of the stockholders cannot be discharged, to the injury of creditors, without payment."

In Angell & Ames on Corporations (10th ed.), § 535, it is said that a solvent stockholder who has given a stock note for his stock, cannot, upon the insolvency of the company, or in contemplation of that event, even with the consent of the directors, transfer his stock to an irresponsible person and be discharged from liability. So, at section 623, it is said that, however strictly the personal responsibility imposed upon members of an incorporated company may be construed to be against creditors, one point is very clear, and that is, that no member can exonerate himself from his liability, and defeat the claims of creditors, by transferring his stock to a bankrupt.

Any other doctrine is offensive to the plainest and best settled principles of morality and equity. A man is estopped to deny the truth of his admissions that have been acted upon by others." He who is silent when he ought to speak will not be heard when he ought to remain silent." So, as Mr. Santos silently sat by and saw innocent persons contracting with the First National Bank of Norfolk, perhaps on the strength of his name appearing on the stock list of the bank, he will not be heard in a court of equity to say, against the just demands of creditors, that "he was never the purchaser or owner of the stock transferred as aforesaid."

The ground of the equitable liability of the members is the credit which the company has gained, as a corporation, on the promise of the individual members to raise a fund to enable the corporation to fulfill its engagements. Angell & Ames on Corporations (10th ed.), § 603.

To the same effect many authorities might be cited, but it is confidently believed that sufficient has been adduced to establish the conclusions that the transfers of the stock made by Mr. Santos were illegal and void, and that consequently the defendant Santos must be held liable for the par value of the thirty-nine shares of stock transferred to his co-defendants.

I will sign a decree requiring the defendants, or either of them, to pay the par value of the shares held by Santos before their transfer, with costs.

Case v. Citizens' Bank of Louisiane.

CASE V. CITIZENS' BANK OF LOUISIANA.

(2 Woods, 23.)

"Insolvency" of National banks — Transfers in contemplation of.

The word "insolvency," as used in section 52 of the act of 1864 (13 Stat. at Large, 115; R, S., § 5242), making void all transfers, assignments, payments, etc., "made after the commission of an act of insolvency or in contemplation thereof," is synonymous with the same word as used in the Bankrupt Act, and means a present inability to pay in the ordinary course of busi

ness.

To make transfers, assignments, etc., void under said section 52, it is only necessary that the insolvency should be in the contemplation of the bank making transfers; the party receiving the transfers need not know of or contemplate such insolvency.

(Circuit Court, Fifth Circuit.)

BILL

sel.

ILL in equity and which was submitted for final hearing and decree upon the pleadings, evidence and arguments of coun

John A. Campbell, Thomas Allen Clarke, J. D. Rouse, and T. F. Case, for complainant..

Armand Pitot and M. M. Cohen, for defendant.

WOODS, Circuit Judge. The 52d section of the "Currency Act" (13 Stat. 115) declares that "all transfers of the notes, bonds, bills of exchange, or other evidences of debt owing to any association, or of deposits to its credit; all assignment of mortgages, sureties on real estate, or of judgments or decrees in its favor; all deposits of money, bullion, or other valuable thing, for its use, or for the use of any of its shareholders or creditors, and all payments of money to either, made after the commission of an act of insolvency, or in contemplation thereof with a view to prevent the application of its assets in the manner prescribed by this act, or with a view to the preference of one creditor to another, except in payment of its circulating notes, shall be utterly null and void."

Relying upon these provisions of the statute, the complainant, Charles Case, the receiver of the Crescent City National Bank, files this bill against the Citizens' Bank of Louisiana.

Case v. Citizens' Bank of Louisiana.

The bill, after averring the appointment of the complainant as receiver, alleges in substance that between the 1st day of December, 1872, and the 6th of February, 1873, the Crescent City Bank drew bills of exchange on F. de Lizardi & Co., of London, amounting in the aggregate to £26,501, 5s. 7d., each, being payable in sixty days after sight, and sold the same to the defendant, the Citizens' Bank. That afterward, about the 26th of February, 1873, the said Lizardi & Co., having, after the acceptance by them and before the maturity of the bills, failed, the defendant demanded from the Crescent City Bank indemnity against loss on said bills, and for the purpose of such indemnity the Crescent City Bank transferred to the defendant promissory notes, bills and evidences of debt amounting to $150,000, which were then and there the property of the Crescent City Bank. That at the time of the transfer, the Crescent City Bank had drawn and had negotiated for value bills of exchange on Lizardi & Co. to an amount largely exceeding its capital stock; that the bank had provided Lizardi & Co. with funds to meet the same at maturity; that by the failure of Lizardi & Co. the bills would be dishonored and the bank held liable therefor, and that the funds provided for the payment of said bills, had been then lost to the bank by reason of the failure of Lizardi & Co. and that by reason thereof and of other losses the bank was then insolvent; that its insolvency was known to itself and the defendant; that said notes, bills and evidences of debt were transferred to the defendant in contemplation of the insolvency of the Crescent City Bank, with a view to give preference to the defendant over other creditors. The bill prays that the transfer of said assets be declared void, and that defendant be compelled to account for them to the complainant.

The answer of the defendant, the Citizens' Bank, which is given under the common seal of the corporation, denies all the material averments of the bill, except that the Crescent City Bank had provided Lizardi & Co. with funds to meet the bills drawn on them; that by the failure of Lizardi & Co. the said bills would be dishonored and the bank held liable therefor, and that the funds provided had been lost to the bank at the time of the transfer to the defendant of said assets.

The complainant files the general replication.

In passing upon the case it is material to consider what it is necessary for the complainant to establish in order to render void

Case v. Citizens' Bank of Louisiana.

the transfer of the notes, bills, etc., to the. Citizens' Bank. The transfer must have been made after the commission of an act of insolvency, or in contemplation of insolvency, and with a view to give a preference to one creditor over another, or with a view to prevent the application of the assets of the bank in the manner prescribed by the Currency Act.

I know of no reason why a different meaning should be given to the word "insolvency" as applied to banks in the Currency Act, from the meaning given the same word in the Bankrupt Act, as applied to traders.

Insolvency, as used in the Bankrupt Act, when applied to traders does not mean an absolute inability of the debtor to pay his debts at some future time, upon a settlement and winding up of his affairs, but a present inability to pay in the ordinary course of his business; or in other words, that a trader is insolvent when he cannot pay his debts in the ordinary course of his business, as men in trade usually do, and such must be the conclusion even though his inability be not so great as to compel him to stop business. Wager v. Hall, 16 Wall. 599.

This definition of insolvency, in my judgment, is the meaning of the word in the Currency Act. It is only necessary that the insolvency should be in contemplation of the bank making the transfer. The party to whom the transfer is made need not know of or contemplate the insolvency of the bank which makes the transfer.

Thus it was held by Mr. Justice STORY, under the Bankrupt Act of 1841, that to constitute a conveyance "in contemplation of bankruptcy," it was not necessary that the professed creditor should know of the debtor's insolvency, or should co-operate with him to obtain a priority of payment. Peckham, Assignee, v. Burrows, 3 Story, 544.

The facts clearly established by the evidence and about which there seems to be no dispute, are as follows: Between December 2, 1872, and February 6, 1873, the Crescent City Bank had drawn bills on F. de Lizardi & Co., of London, which had been sold by the bank, and which were held as follows:

By the Citizens' Bank....

By the Canal Bank of New Orleans.

By the State National Bank of New Orleans.
By Eugene Kelly & Co....

£19,400

5,500

5,000

35,000

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