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

Briscoe, J., delivered the opinion of the Court. 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 was dissolved. The appellant, at the time of the failure of the bank was the owner of thirty-eight shares of its capital stock and as such owner was a stockholder of the bank to the amount of $950.00 and one of its directors.

The charter of the bank, Acts of 1888, ch. 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 ³⁵⁴ their respective share or shares of stock 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 fora 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 eleven hundred dollars, 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 his 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 eleven hundred dollars, an amount greater than the value of the ³⁵⁵ 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 eleven hundred dollars, while the par value of the stock held by him is nine hundred and fifty dollars, 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,’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, vol. 1, sec. 225 (c), says that 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