over to another. Hence it follows that there is no warranty of value, or of ultimate payment, upon the transfer of a banknote; though it is probable that there is a warranty of its genuineness, as being in fact a note for the amount named on its face, issued and payable by the bank by which it purports to have been issued and to be payable.1

A principle, which would seem too obvious to require judicial sanction, has been declared in Massachusetts: that a bank cannot issue bills or notes upon the basis of a "special deposit. This deposit could not be used for their redemption; it cannot be availed of in business transactions to produce profit and increase the funds of the bank. The bank has not even the right to meddle with it temporarily further than is essential for its safe-keeping.

In Pennsylvania the State law required banks to keep their circulation at par, and imposed a forfeiture amounting to a certain percentage upon their circulating paper if they failed. to do so. It was held by the courts that the phrase "at par' signified ordinarily equivalent to gold and silver for financial and commercial purposes; also that the forfeiture was in the nature of a penalty, not of a tax.3

Issue of Circulating Notes by Banks of States.

In divers States, banks have been established which were, properly speaking, State institutions, and not corporations of the ordinary sort established by individuals from their private funds and conducted by them for their private benefit. The various institutions of this description do not of course repeat each other in all matters of detail, but those of them at least which have come into the courts resemble each other in their main features, and consequently in the legal character impressed by those features. Formally a corporation is created. It has its corporate name and seal, its president, directors, and other customary officers of the bank. But the election of the officers is reserved to the legislature. The capital is supplied

1 Edmunds v. Digges, 1 Gratt. 359.

2 Foster v. Essex Bank, 17 Mass. 479.

8 Harrisburg Bank v. Commonwealth, 26 Penn. St. 451.

from the public treasury or from the pledge of public revenues, and the State is the sole stockholder. Further, the State sometimes directly guarantees the ultimate redemption of the circulation for these banks have been uniformly banks of issue; in fact the plausible purpose of their creation has usually been the furnishing of a stable and reliable currency for the people of the commonwealth. The assumption of this function it is which has caused the constitutionality of the banks and the legality of their notes or bills to be questioned, on the ground that the issuing of these notes or bills was in truth and in substance the emission of bills of credit by the State, in contravention of the provision of the National Constitution. Twice the Supreme Court of the United States has had occasion to hear and determine causes involving this point, and each time after thorough arguments the decision has been in favor of the constitutionality of the bank and the validity of its bills or

notes.1

The reasoning in the opinions which embody these rulings must be regarded as perfectly satisfactory. The definition of the term "bills of credit" has, not unnaturally, given considerable difficulty to the judges. Perhaps the best is to be found in the cause cited from 11 Peters, which is as follows: "A paper issued by the sovereign power, containing a pledge of its faith, and designed to circulate as money." To whatever other criticism this may be open, it certainly must be deemed broad enough. Even if it be conceivable that an instrument could fall within this description and not be a bill of credit, it must at least be admitted that an instrument which does not fall within this description cannot be a "bill of credit," in the sense of the prohibition of the United States Constitution. It does not require much thought to see that the bills or notes issued by the bank of a State do not display these characteristics. They are not issued by the sovereign power, not even by an agent, at least in a legal sense, of the sovereign power. They are issued by an independent corporation, having every essen

1 Briscoe v. Bank of the Commonwealth of Kentucky, 11 Pet. 257; Darrington v. Bank of the State of Alabama, 13 How. (U. S.) 12; Owen v. Branch Bank at Mobile, 3 Ala. 258.

tial and customary attribute of a complete and perfect corporate banking company. They are not issued upon the credit or faith. of the State. They do not on their face bear any promise or pledge by or even on behalf of the State for their redemption. The directors of the bank have no authority to offer such a pledge. On the contrary they put forth instruments whose promise purports to be and is based upon the corporate responsibility solely. The corporation may be sued on the bills. It has assets and a capital. It is upon the faith or credit of these primarily and immediately that the circulating notes are issued, or must be conclusively presumed to be issued. A contingent and remote undertaking of the State finally to redeem them if the bank is unable to do so does not in the view of the law constitute the credit upon which they are issued or circulate. A case which came into the Supreme Court from the State of Missouri is useful in this connection, as demonstrating by contrast the accuracy of these positions. In that case promises to pay were issued under legislative authority; they were signed and countersigned, and offered to the public by State officials; they were to be redeemed in a designated manner also by State officials out of public moneys; they ranged in denomination from fifty cents to ten dollars each. It could not be questioned that these were properly "bills of credit." When the genuine bill thus appears in its proper shape, it appears as a very different article from the bank-notes of the Bank of the State of Alabama or of the Bank of the Commonwealth of Kentucky.

This brief disposition of the topic suffices only for stating what must be deemed a doctrine established beyond possible question hereafter, and which, as such, would not justify a longer discussion here; but the cited cases, especially that in 11 Peters, are very exhaustive, and deserve thorough examination if the complete history of the discussion is sought for.

1 Craig v. State of Missouri, 4 Pet. 410.

CHAPTER IX.

SHAREHOLDERS.

Liability of Subscribers for the Full Amount of their Subscriptions.

THE obligation of payment upon a subscription for shares in the capital stock of a banking corporation is created and perfected by the act itself of subscription. In the absence of a proviso to the contrary, the whole amount is payable immediately upon demand. But it may be stated that it shall be demanded only in instalments of specified amounts, respectively, to be called for not before certain periods; and the statement will enter into and become a valid part of the contract of subscription, except in cases where it conflicts with the charter or the organic law under which the corporation exists. But no statement, however explicit, in the original contract of subscription can relieve the subscriber from the ultimate necessity of paying the full par value of the full number of shares he subscribes for, so long as any creditors of the corporation remain unpaid.1

The shifts to which shareholders who have only paid a portion of the par value of their shares have resorted, in order to avoid further payments after the corporation has proved unsuccessful, are very numerous. But they have uniformly met with well-deserved failure, at least so long as bona fide debts of the bank were outstanding. Among the most common of these subterfuges has been an agreement or understanding entered into at the time of subscription between the subscriber and the directors to the effect that only a partial payment, or sometimes

1 Palmer v. Lawrence, 3 Sandf. 161; Lewis v. Robertson, 13 Sm. & Mar. 558.

even no real payment at all, shall be demanded. Notes of the nominal subscriber are then given, upon which it is agreed that no collection shall ever be demanded. The shares are or are not actually transferred, as the case may be; but whether transferred or not they are always regarded as the property of the bank; while at the same time the direction is able to assume that all the stock has been taken and paid for. Want of consideration, it has been held, cannot be set up in suits upon such subscriptions or notes.1 An irregularity in the organization of the corporation, whether intentional and fraudulent, or merely accidental, has also often been urged as a ground for invalidating stock subscriptions, at least so far as they have not been already paid up.2 But this plea cannot be sustained to the injury either of corporate creditors or of subsequent bona fide purchasers or holders of the stock, who have taken it without participation in or knowledge of any illegality or fraud. Where there has been fraud, the maxim in pari delicto potior est conditio possidentis has been relied upon as a ground why the corporation could not recover. It might avail if the question lay only between the bank and the subscriber; but the corporation in such cases is not regarded as the real or exclusive party in interest. It is rather a trustee for the creditors; and they, who are therefore the real parties, are certainly not in delicto.

Neither does it relieve any one subscriber that the subscription of another is invalid. It does not on this account follow that his own subscription is invalid. Each one may be individually sued; and if he would defend, he must set up some matter going to his own individual case, and constituting a part of his own especial dealing or contract with the corporation. That the corporation has been dissolved by the expiration

1 Agricultural Bank v. Burr, 23 Me. 256; Litchfield Bank v. Church, 29 Conn. 137; Connecticut & Passumpsic River R.R. Co. v. Bailey, 24 Vt. 465; Blodgett v. Morrell, 20 id. 509.

2 Palmer v. Lawrence, 3 Sandf. 161; Pine River Bank v. Hodsdon, 46 N. H. 114, and cases cited; Cowles v. Gridley, 24 Barb. 301; Johnston v. Southwestern R.R. Bank, 3 Strobh. Eq. 263; Minor v. Mechanics' Bank of Alexandria, 1 Pet. 46; McDougald v. Lane, 18 Ga. 444.

3 Sagory v. Dubois, 3 Sandf. Ch. 466; Litchfield Bank v. Church, 29 Conn. 137.