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U.S. Supreme Court

Stockholders of Peoples Banking Co. v. Sterling, 300 U.S. 175 (1937)

Stockholders of Peoples Banking Co. v. Sterling

No. 298

Argued January 6, 7, 1937

Decided February 1, 1937*

300 U.S. 175


The Maryland Constitution (1867), Art. III, § 39, forbids the chartering of banks except upon condition that the stockholders shall be liable to the amount of their respective shares for the debts of the bank, and an early statute, couched in the constitutional language, was construed by the state courts as conferring upon the creditor of an insolvent bank a supplementary right of action ex contractu against its stockholders, but only those stockholders who were such when his credit was contracted -- a liability which followed the stockholder after he had ceased to be such, and which was subject to any right of setoff or counterclaim available to the stockholder against the bank at the time of the creditor's suit. A later enactment abolished this method, and made the stockholders' liability an asset of the corporation for the benefit ratably of all the depositors and creditors, and enforceable only against stockholders who were such at the time of the bank's liquidation, and by proceedings by a receiver, assignee, or trustee of the corporation acting under the orders of a court. Held that the later statute did not infringe the rights of stockholders under the contract clause of the Federal Constitution, because:

(a) The Maryland constitutional provision fixed the substantive stockholder liability; the statutes merely afforded remedies for its enforcement. Pp. 300 U. S. 178, 300 U. S. 181.

(b) The effect upon contracts, wrought by change in judicial construction of antecedent state laws or constitutional provisions, is not within the contract clause of the Federal Constitution. P. 300 U. S. 182.

(c) Stockholders who became such while the first statute was in force were chargeable with notice that a new remedy might be adopted if the one first chosen was inadequate, and this independently of a power of alteration or repeal reserved in the bank's charter. P. 300 U. S. 181.

Page 300 U. S. 176

(d) When a corporate charter is subject to the condition that it may be altered or repealed by the Legislature, there is no unconstitutional change of the obligation of a contract by a subsequent enlargement of the liability of stockholders as to debts afterwards contracted though the shares so affected were acquired before the charter was so amended. P. 300 U. S. 183.

(e) The Maryland constitutional liability of stockholders in banks is not a maximum, but a minimum, and the Legislature does not transcend the bounds of legislative power by increasing it as to existing stockholders under its reserved power to alter or amend charters. P. 300 U. S. 183.

Whether the legislative changes involved in this case would have gone too far if they had been made applicable to debts existing at date of enactment is not decided. @See 66 U. S. 594. The burden of proving that such debts existed was on the appellants, and in this they failed.

169 Md. 678, 182 Atl. 558; 169 Md. 696, 182 Atl. 566, affirmed.

Appeals, in two cases, from decrees reversing a lower court and sustaining special assessments against protesting stockholders, in two proceedings to liquidate banks.

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