Cahill v. Original Big Gun Beneficial & Pleasure Ass'n

• Decision Date: 16 January 1902
• Citation: 50 A. 1044,94 Md. 353
• Parties: CAHILL v. ORIGINAL BIG GUN BENEFICIAL & PLEASURE ASS'N OF SOUTH BALTIMORE.
• Court: Maryland Court of Appeals

50 A. 1044

94 Md. 353

CAHILL v. ORIGINAL BIG GUN BENEFICIAL & PLEASURE ASS'N OF SOUTH BALTIMORE.

Court of Appeals of Maryland

January 16,1902

Appeal from Baltimore city court.

Action by Winfield S. Cahill against the Original Big Gun Beneficial & Pleasure Association of South Baltimore. From a judgment for plaintiff, defendant appeals. Reversed.

Argued before McSHERRY, C.J., and FOWLER, BRISCOE, BOYD, PAGE PEARCE, SCHMUCKER, and JONES, JJ.

Robert E. Smith, for appellant.

Myer Rosenbush and Augustus a. Binswanger, for appellee.

BRISCOE J.

This is a suit at law, brought on the 15th of June, 1901, in the Baltimore city court, by the appellee against the appellant. The appellee was a depositor and creditor of the South Baltimore Bank, which was, on the 24th of February, 1898, by a decree of the circuit court of Baltimore city, adjudged to be insolvent, and Divas dissolved. The appellant, at the time of the failure of the bank, was the owner of 38 shares of its capital stock, and as such owner was a stockholder of the bank to the amount of $950, and one of its directors. The charter of the bank (Acts 1888, c. 294) contains the following provision: "The continuance of this corporation shall be on the condition that the stockholders and directors of this corporation shall be liable to the amount of their respective share or shares of stocks in this corporation for all its debts and liabilities upon note, bill or otherwise." The declaration contains several counts but the object of this suit is to recover from the appellant as stockholder, an indebtedness of the bank to the appellee on account of the statutory liability of the appellant as stockholder and director under the statute incorporating the bank. The appellant filed four pleas to the declaration. The fourth plea is an equitable plea, and sets forth the following defense on equitable grounds: "And for a fourth plea the defendant, for defense on equitable grounds says that this defendant paid to William Colton and Simon P. Schott, receivers of said South Baltimore Bank, prior to the institution of this suit, the sum of $2,995, which sum was by an order of the circuit court No. 2 of Baltimore city distributed amongst the creditors of the South Baltimore Bank, the plaintiff being one of said creditors, and having received his dividend out of said sum; and that by such payment the defendant became and is a creditor of said bank in the sum of $1,100, an amount greater than the amount of the shares of stock in said bank alleged to have been owned by him at the time of its failure; and that by reason thereof there is no liability on its part to the plaintiff." A demurrer was interposed to the plea, and from a judgment sustaining the demurrer this appeal has been taken.

It will be thus seen that the question raised by the demurrer to the plea is whether a stockholder of an insolvent corporation can set off in equity the indebtedness of the corporation to him against his statutory liability. This question has not been heretofore directly passed upon by this court, but the weight of authority seems to sustain the defense set up to the action in this case, and that is that the indebtedness of the company to the appellee constitutes an equitable defense or set-off against his statutory liability. It is admitted by the demurrer to the equitable plea that the appellant is a creditor of the bank to the extent of $1,100, an amount greater than the value of the shares of stock owned and held by him at the time of the failure of the bank. In other words, he is a creditor of the bank to the extent of $1,100, while the par value of the stock held by him is $950; and he claims the right to set off the amount which the bank owes him as against the amount for which he may be liable as the owner of the stock. In the recent case of Colton v. Mayer, 90 Md. 711, 45 A. 874, 47 L.R.A. 617, 78 Am.St.Rep. 456, this court held, in construing the provisions of the charter of the South Baltimore Bank, that the statutory liability of its stockholders was directly to the creditors, and not to the receivers for the benefit of creditors, and that the fund arising from such liability is in no sense a corporate asset of the corporation, and the receivers have no interest in it. The liability of the stockholder, then, under the statute, having been settled as a debt due from the stockholder to the creditor, there can be no valid reason, it seems to us, why a stockholder who is also a creditor should not be entitled, as a matter of equity, to set up as an equitable defense the debt of the bank to him against his own liability. Mr. Cooke, in his book on Corporations (section 225), says: "It has been held that, where the statute creates a fund out of which the creditors are to be paid ratably, then the stockholder cannot set off an indebtedness of the corporation to him. He must pay in what the statute requires, and then prove his claim against the corporation like any other creditor. But where the shareholder's liability by statute is immediate and personal and several, and...