CASES ARGUED AND DETERMINED IN THE COURT OF APPEALS OF THE STATE OF NEW YORK, March Term, 1860. In the Matter of the Application of HENRY B. GIBSON, for an Order appointing a Receiver of OLIVER LEE & Co's BANK, of Buffalo. Article 8, section 7 of the Constitution of 1846, subjecting the stockholders of banks to personal liability, applies as well to banking corporations then existing, as to those created afterwards. The rule of interpretation by which that construction of a statute is to be avoided, which gives it a retrospective operation, has little if any application in construing the organic law. The provision of the general banking law reserving to the Legislature the Such modification may be made, it seems, as well by a change of the State The articles of association of a corporation formed in 1844, under the gene- Although the issuing of circulating bills after 1850, by which the liability is incurred, be the act of the corporation as such, and not of the stockholdSMITH.-VOL. VII. 2 In the Matter of Oliver Lee & Co's Bank. ers, and although a stockholder be unable to prevent it, the liability attaches in consequence of the exercise of a power which he has conferred upon the corporation, and is therefore within his contract. APPEAL from a final order made in the Supreme Court, in a proceeding taken pursuant to the act of 1849, to enforce the responsibility of stockholders in certain banking corporations and associations, &c. (Ch. 226.) Oliver Lee & Company's Bank, at Buffalo, was organized pursuant to the general banking law of 1838, and commenced the business of banking in January, 1844. It stopped payment and became insolvent in September, 1857; and this proceeding was instituted soon afterwards at the instance of one of the stockholders. The association at all times prior to its failure issued bank notes to circulate as money. By the articles of association, the associates declare themselves contracting parties with the People of the State of New York, under the act of the Legislature, and accept the privileges and franchises thereby tendered to any association organizing under the act. The 14th section is in the following words: "The shareholders of this association shall not be liable in their individual capacity for any contract, debt, or engagement of the association;" and the certificate of incorporation contained a similar provision. By the report of the referee appointed under the 16th section of the act, it appeared that the capital stock of the association at the time of its failure, was $170,000, and that it was held by eight individuals in different proportions; and that its unpaid debts and liabilities exceeded the sum of $500,000, all of which were contracted after January 1, 1850; and that the assets in the hands of the receiver, together with the assessment upon and collection from the shareholders of $170,000, would not under any circumstances produce a sufficient amount to pay the debts. The referee accordingly proceeded to apportion the sum of $170,000 among the individuals whom he had ascertained to be shareholders, in proportion to the number of shares respectively held by them; charging the appellant Watts Sher man, with $7,000; the appellants Duncan, Sherman & Co., with $50,000 of the amount. Upon the hearing before the referee, In the Matter of Oliver Lee & Co's Bank. these appellants submitted certain objections, and among others, those relied upon on the present appeal, namely, that the provisions of the Constitution of 1846 (art. 8, § 7), and that of the act of 1849, prescribing and enforcing the liabilities of stockholders, did not apply to banking corporations or associations created before the adoption of the Constitution; but if by the true construction of the Constitution and statute, they did apply to such banks, they were respectively violations of the provision of the Constitution of the United States, by which the States are forbidden to pass any law impairing the obligation of contracts. (Art. 1, 8 10,¶ 1.) The referee overruled the objection, and his report was confirmed at a special term. Final judg ment was entered pursuant to the act, which was affirmed at a general term of the Supreme Court. Watts Sherman, and Duncan, Sherman & Co., appealed. John K. Porter, for the appellants. John Ganson, for the respondent. DENIO, J. The first question to be determined relates to the construction of the constitutional provision imposing personal liability upon the stockholders of banks (Const., art. 8, §7); and the inquiry is whether it is limited to banks thereafter to be created, or applies equally to existing banking corporations. There is nothing in the language which looks to a discrimination between the two classes. It declares, generally, that the stockholders in every corporation and joint-stock association for banking purposes, issuing bank notes, after January 1, 1850, shall be individually responsible, &c. If we look to the apparent object of the provision, no motive can be discovered for confining its operation to future banks. The intention was to protect more adequately the creditors of these institutions, and to take from their proprietors, to a qualified extent, the shield afforded by the corporate personality in which their individual ownership was merged. There were strong reasons for the establishment of a uniform system in this respect, if it could be In the Matter of Oliver Lee & Co's Bank. done without manifest injustice. The existing banks were numerous, and if they were exempted from the principle of personal liability, it would be a long time before it would be generally established. By the general banking law, the associations had the power to prescribe for themselves the duration of their corporate existence, and a long term had generally been named. Hence, if the rule of personal liability only reached the case of future banks, there would continue to be two classes of banking institutions for many years to come. The defendant's counsel insists that we should not construe the clause so as to disturb vested interests, unless compelled by language which would not admit of any other meaning. But we are not to interpret the Constitution precisely as we would an act of the Legislature. The Convention was not obliged, like the legis lative bodies, to look carefully to the preservation of vested rights. It was competent to deal, subject to ratification by the people, and to the Constitution of the Federal Government, with all private and social rights, and with all the existing laws and institutions of the State. If the Convention had so willed, and the people had concurred, all former charters and grants might have been annihilated. When, therefore, we are seeking for the true construction of a constitutional provision, we are constantly to bear in mind that its authors were not executing a delegated authority, limited by other constitutional restraints, but are to look upon them as the founders of a State, intent only upon establishing such principles as seemed best calculated to produce good government and promote the public happiness, at the expense of any and all existing institutions. which might stand in their way. The rule laid down in Dash v. Van Kleck (7 John., 477), and other cases of that class, by which the courts are admonished to avoid, if possible, such an interpretation as would give a statute a retrospective operation, have but a limited application, if any, to the construction of a Constitution. When, therefore, we read in the provision under consideration, that the stockholders of every banking corporation shall be subject to a certain liability, we are to attribute to the la guage its natural meaning, without inquiring whether In the Matter of Oliver Lee & Co's Bank. private interests may not be prejudiced by such a sweeping mandate. But, independent of this consideration, there is enough on the face of the provision to show that it was intended to apply to all banks of issue, which should be in existence three years after the Constitution should take effect, without regard to the time when they were created. The individual responsibility was applied only to banks which should issue bank notes or some kind of paper credits to circulate as money after the 1st day of January, 1850, and only to such debts of those banks as should be contracted after that day. The delay was apparently afforded in order to enable the proprietors of existing banking institutions to determine whether they would remain banks of issue, and assume the burden of individual liability, or avoid that consequence by winding up their affairs, or confining themselves to other branches of banking. It is impossible to suggest any other motive for postponing the operation of the provision. If the existing banks were to be exempt from its influence during the continuance of their charters, no delay would be needed on their account; and as to future banks to be organized under general laws, their proprietors would embark in the business with a full knowledge of its hazards and responsibilities, and hence would not require any time to accommodate themselves to it, and would have no reason to complain of the sudden change of policy. If, therefore, it were doubtful, upon the general language of the provision, whether the banks already established were intended to be embraced, the postponement of its operation for three years, for no conceivable motive but their convenience, would show very clearly that they were intended to be brought within its scope at the expiration of that period. If we look into the proceedings of the Constitutional Convention, we shall find the most authentic evidence that the actual intention of its members was such as I have supposed. It appears that while the article in which the provision is found was under consideration, Mr. Kirkland, a member from Oneida county, moved to amend it, so as to confine the individual liability to corporations and associations |