remains the property of the corporation, and can be followed into the hands of any volunteer.

The section provides that "no association, or any member thereof, shall, during the time it shall continue its banking operations, withdraw, or permit to be withdrawn, either in the form of dividends or otherwise, any portion of its capital." What is meant by this language? Has a shareholder withdrawn, or permitted to be withdrawn, in the form of a dividend, any portion of the capital of the bank when he has simply and in good faith received a dividend declared by a board of directors of which he was not a member, and which dividend he honestly supposed was declared only out of profits? Does he in such case, within the meaning of the statute, withdraw or permit to be withdrawn a portion of the capital? The law prohibits the making of a dividend by a national bank from its capital or to an amount greater than its net profits then on hand, deducting therefrom its losses and bad debts. The fact of the declaration of a dividend is in effect the assertion by the board of directors that the dividend is made out of profits. Believing that the dividend is thus made, the shareholder in good faith receives his portion of it. Can it be said that in thus doing he withdraws or permits to be withdrawn any portion of the capital of the corporation? We think he does not withdraw it by the mere reception of his proportionate part of the dividend. The withdrawal was initiated by the declaration of the dividend by the board of directors, and was consummated on their part when they permitted payment to be made in accordance with the declaration. We think this language implies some positive or affirmative act on the part of the shareholder by which he knowingly withdraws the capital or some portion thereof, or with knowledge permits some act which results in the withdrawal, and which might not have been so withdrawn without his action. The permitting to be withdrawn can not be founded upon the simple receipt of a dividend under the facts stated above.

One is not usually said to permit an act which he is wholly ignorant of, nor would he be said to consent to an act of the commission of which he had no knowledge. Ought it to be said that he withdraws or permits the withdrawal by ignorantly yet in entire good faith receiving his proportionate part of the dividend? Is each shareholder an absolute insurer that dividends are paid out of profits? Must he employ experts to examine the books of the bank previous to receiving each dividend? Few shareholders could make such examination themselves. The shareholder takes the fact that a dividend has been declared as an assurance that it was declared out of profits and not out of capital, because he knows that the statute prohibits any declaration of a dividend out of capital. Knowing that a dividend from capital would be illegal, he would receive the dividend as an assurance that the bank was in a prosperous condition and with unimpaired capital. Under such circumstances we can not think that congress intended by the use of the expression "withdraw or permit to be withdrawn, either in the form of dividends, or otherwise," any portion of its capital, to include the case of the passive receipt of a divi

dend by a shareholder in the bona fide belief that the dividend was paid out of profits, while the bank was in fact solvent. We think it would be an improper construction of the language of the statute to hold that it covers such a case.

*

We may concede that the directors who declared the dividend under such circumstances violated the law, and that their act was therefore illegal, but the reception of the dividend by the shareholder in good faith, as mentioned in the question, was not a wrongful or designedly improper act. Hence the liability of the shareholder should not be enlarged by reason of the conduct of the directors. They may have rendered themselves liable to prosecution, but the liability of the shareholder is different in such a case, and the receipt of a dividend under the circumstances is different from an act which may be said to be generally illegal, such as the purchase of stock in one national bank by another national bank for an investment merely, which is never proper. Concord First National Bank v. Hawkins, just decided, 174 U. S. 364. (We answer the first question in the negative, and it becomes unnecessary to answer the second question.)

Accord: 1899, In re Nat'l Bk. of Wales, 68 L. J. Ch. 634, 81 L. T. R. (N. S.) 363; 1899, Dykman v. Keeney, 160 N. Y. 677, 54 N. E. Rep. 1090. But see preceding case.

Sec. 699. Same. 5. Remedy only in equity, not at law.

LURTON, CIRCUIT JUDGE, IN LAWRENCE v. GREENUP.

1899. IN THE UNITED STATES CIRCUIT COURT of Appeals, MICHIGAN. 97 Fed. Rep. 906, on 910, 911.

[Action at law by the receiver of a national bank to recover of Greenup a dividend of 50 per cent. of his $2,000 of stock in the bank, paid in good faith to him by the directors of the bank, and by him received in good faith, out of the capital of the bank, while it was, and which left it solvent, and while it was in the process of voluntary liquidation for the purpose of consolidation or merger with the Mecosta Savings Bank. Afterwards other dividends were paid to other parties, but not to Greenup, which had the effect with certain claims of the savings bank which arose upon contracts made after the bank went into liquidation, to make the latter insolvent.]

We express no opinion as to the effect of a fraudulent distribution of the assets of a corporation with the purpose of defeating its creditors; nor need we deal with the question of the legal right of the receiver to maintain this suit if the dividend had been paid or received in bad faith, or for a dividend paid and received in violation of section 5204, revised statutes, as in Finn v. Brown, 142 U. S. 56, 12 Sup. Ct. 136. The dividend sued for here was both paid and received in good faith, both the directors who declared it and the stockholders here sued be

lieving that the bank was solvent, the assets being such as to justify this dividend. Neither is it shown that the payment of the 50 per cent. dividend was made when the bank was in fact insolvent, or that the payment reduced the bank to a condition of insolvency. Subsequently other dividends were paid, in which the defendant in error did not participate.

From the showing of assets now on hand, and debts yet unpaid, it is indeed plain and obvious that the distribution made through the original 50 per cent. dividend of November, 1895, did not reduce the bank to its present probable condition of insolvency. The subsequent dividends are alone responsible for the present condition. The fact that this bank was in liquidation does not materially affect the situation. The corporation was still in absolute control of its assets, and its power of disposition was unaffected. Those in charge of the liquidation were charged with the duty of winding up the affairs of the bank, and applying the proceeds, first, to the payment of debts, and, second, to the distribution of the remainder among the shareholders. If the bank was not insolvent when this dividend was declared or paid, and the division of a portion of the assets did not reduce the bank to a condition of insolvency, on what theory can it be maintained that the bank, or a receiver subsequently appointed, could maintain an action at common law upon implied promises to return the dividend so paid and received? The distinction between this case and that of McDonald v. Williams,1 cited above, is that the dividend was confessedly paid out of capital, and received with knowledge of that fact. But in the case referred to the bank was a going concern, and prohibited by section 5204, revised statutes, from withdrawing any part of its capital for the purpose of paying dividends while it should “continue its banking operations." The directors who declared the dividend out of capital were said by the court to have rendered themselves liable under the statute, but the stockholder who received it was acquitted from liability to return same, though in fact paid out of capital, and though the bank subsequently became insolvent, because he did not receive it knowing that it was paid in violation of the statute. Section 5204 has no application here, because this bank was not engaged in its ordinary banking operations, and was in voluntary liquidation. If this dividend was paid in good faith at a time when the assets were abundantly sufficient to justify such a return of capital without depriving existing creditors of a fund ample to pay their dividends, it is difficult, under the doctrine of the cases we have cited, to see any ground upon which the stockholders can be made to refund.

The considerations we have mentioned lead us to the conclusion that the plaintiff in error can not, in an action at law, recover dividends paid by a liquidating bank which was solvent when the dividend was declared and paid, although paid wholly out of capital, if paid and received in the honest belief that the assets jutified such payment. The case of McDonald v. Williams, and the cases preceding that, leave no room to doubt but that in the absence of fraud, or bad faith, equivalent to fraud, the condition of trust neces1 174 U. S. 397, supra, p. 1981.

sary to give a corporate creditor, or a receiver representing both the corporation and creditors, the right to follow and compel the return of the dividends paid out of capital, depends upon, and arises out of, an established insolvency. The right when insolvency is shown to have existed is an equitable right, and will not support a purely legal action. If we assume, therefore, that insolvency existed in fact when this dividend was paid, the remedy-there being no fraud or bad faith-where it is sought to compel the return of such dividend, is in equity and not at law.

Note: See supra, § 688, and note; also, infra, § 715 and note.

C STATUTORY LIABILITY OF SHAREHOLDERS.

ARTICLE I. GENERAL CHARACTERISTICS.

Sec. 700. 1. Kinds: Contractual and penal.

ALFRED H. WILES ET AL., RESPONDENTS, V. LAMBERT SUYDAM,. APPELLANT.1

1876. IN THE Court of Appeals of New YorK. 64 N. Y. Rep.. 173-179.

[Appeal from general term, overruling a demurrer to plaintiff's complaint.]

pros

CHURCH, C. J. The ground of demurrer relied upon is that several causes of action are improperly united. The complaint contains but one count composed of a series of allegations, and was doubtless framed upon the theory that there is but one cause of action contained. If, however, the complaint does contain several causes of action, and they are improperly united, the omission to state the causes of action in separate counts properly numbered does not deprive the defendant of the right to demur. (Goldberg v. Utley, 60 N. Y. 427.) The complaint alleges an indebtedness against the Imperishable Stone Block Pavement Company of New York City, which had been ecuted to judgment and execution; that the defendant was a "stockholder to the amount of $50,000,' but had not paid for the same, and that no certificate had been made and recorded that the capital was paid in. Section 10 of the act authorizing the formation of corporations for manufacturing and other purposes declares that until such certificate is recorded the stockholders shall be liable for the debts of the company to the amount of their stock respectively. The complaint also alleges that at the time the debt was contracted, and ever since, the defendant was a trustee of the corporation, and that no report was filed on the 1st day of January, 1873, nor at any time since, and for this neglect the twelfth section of the act aforesaid de1 Statement, except as given in the opinion, and part of the opinion omitted.

clares that the trustees shall be liable for all the debts of the corporation then existing, or which may be thereafter created, until such report is filed.

It is insisted by the counsel for the plaintiff that this constitutes but one cause of action, and he argues that the cause of action is to recover the debt upon two grounds of personal liability created by statute. I am unable to concur in this view. The recovery of the debt is the object of the action, but a cause of action must have two factors-the right of the plaintiff and the wrong or obligation of the defendant. These must concur to give a cause of action. The cause of action against the defendant as a stockholder consists of the debt and the liability created by statute against stockholders when the stock has not been paid in and a certificate of that fact recorded. In effect, the statute in such a case withdraws the protection of the corporation from the stockholders, and regards them liable to the extent of the amount of their stock as copartners. (Corning v. McCullough, 1 N. Y. 47.) The allegations in the complaint are sufficient to establish a perfect cause of action against the defendant as a stockholder primarily liable for the debts to the amount of his stock. The allegations against the defendant as trustee also constitute a distinct and perfect cause of action, but of an entirely different character. Here the liability is created by statute and is in the nature of a penalty imposed for neglect of duty in not filing a report showing the situation of the company. The object of the action is the same, viz., the collection of the debt; but the liability and the grounds of it are entirely distinct and unlike. That there are two causes of action in this complaint seems too clear to require much argument. The more difficult question is, whether they may be united in the same complaint. The first cause of action against the defendant as a stockholder is an action on contract. The six years' statute of limitations applies. (1 N. Y., supra.) The defendant is entitled to contribution. (3 Hill 188.) But in respect to the action against defendant as trustee, this court held, in Merchants' Bank v. Bliss (35 N. Y. 412), that the three years' statute of limitations applied under the following provisions of the code: "An action upon a statute for penalty or forfeiture when the action is given to the party aggrieved." (§ 92.)

With this decision before us, which we do not feel at liberty to overrule, this cause of action must be regarded as an action upon a statute for a penalty or forfeiture. The liability is far more extensive than that of stockholder, it is for all debts, while the former is limited to the amount of the stock. The defendant would not be entitled to contribution except by statute (Laws of 1871, p. 1435), and contributions would be from different persons than in the other case. It is claimed also that execution against the person might issue and this would seem to follow from the decision in 1 New York (supra), but we do not deem it necessary to pass upon that question. If these actions may be united it must be by virtue of the first subdivision of section 167 of the code. From the nature of the two actions they do not come under either of the other subdivisions. The first subdivis