fraud, or to render the acceptance of office practically a fraud by reason of entire incapacity and unfitness for it, give no right of action. But any fraudulent act, or any breach or neglect of statutory or charter provisions, whereby loss is entailed upon the corporation, and the value of the shareholders' property is as a necessary consequence depreciated, gives a right of action at law to each one of them to recover the damage or loss which he individually has sustained. The suit need not join all the directors, nor even all who participated in the wrongful act, as defendants; but any one of them may be sued singly.1 In this case, however, the declaration is insufficient if it alleges simply that this sole defendant did an act which could in fact be done only by several directors. The allegation must be that he, together with others, did the act, neither is it sufficient simply to allege that he has done wrongful acts. The nature of the acts should be set forth in general terms; though an accurate description of each part or element going to make up the entire act complained of must often be impossible and may be dispensed with. Thus if the fault lay in discounting a number of notes in excess of the amount allowed by law, it is sufficient to declare generally that such excessive discounting has been performed, without describing the precise notes and loans through which it was done. An allegation that by reason of the act the plaintiff's shares depreciated in value, is a sufficient allegation of loss. That the directors declared a dividend out of the capital stock of the bank, instead of out of earnings, is a good cause of action. Nor is it a defence that the shareholder who brings the suit has himself received the dividend upon his own shares, provided that he did not know at that time the improper basis upon which it had been declared. It has been held in Massachusetts that the suit must be brought in contract, and that an action sounding in tort will not lie. The portion of the opinion which lays down this rule is clear and conclusive, though it was gratuitously advanced by the

1 Conant v. Seneca County Bank, 1 Ohio St. 298; Buell v. Warner, 33 Vt. 570; also in Foster v. Essex Bank, 17 Mass. 479, per Pickering and Webster arguendo, and by implication in the judgment of the court.

2 Ibid.; Gaffney v. Colvill, 6 Hill, 587.

court, the point not being strictly necessary to the decision of the cause.1

But the right of action of the shareholder, and the claim on which it is founded, though good as against every member composing the board of directors, yet runs against them as individuals and not in their official capacity. It constitutes their private indebtedness to be discharged by them from their private property. The corporation is in no sense liable for it, though the act out of which it arose was that of the corporate government acting officially. The suit could not be brought against the corporation, and corporate funds could not be used to compound or discharge it. Hence it follows that a shareholder cannot avail himself of a claim of this nature by way of set-off against a debt due from himself to the bank.2

Sovereign States as Shareholders.

It has been already observed that the "State banks" which have at various times been established by divers of the States, though differing from each other in sundry less important particulars, have resembled each other in their main characteristics. The State is a shareholder, sometimes jointly with others, sometimes as sole shareholder. Sometimes it is one of the corporators, sometimes it is not. It usually contributes to the capital from the public funds, and sometimes contributes the whole capital. It shares in the profits, or takes all the profits, as the case may be. But under all the various schemes which have been devised the State, as a political entity, remains distinct from the bank as a corporate entity. Hence it follows, and has been uniformly held, that the creditors of the bank have precisely the same rights to enforce their claims against the corporation, and to subject its assets to the payment of their demands as if there were no manner of connection or relationship between the bank and the State. Laws which seek to provide means of winding up the corporation upon any plan which would prefer the State to private credit

1 Vose v. Grant, 15 Mass. 505.

2 Whittington v. Farmers' Bank, 5 Har. & J. 489.

ors, or return to the State its investment to the damage and loss of the private creditors, are contrary to the Constitution of the United States, as impairing the obligation of contracts. The State, having gone into a business enterprise, cannot exercise its sovereign powers in such a manner as to gain for itself any peculiar privilege or advantage at the cost of others who have gone into the same enterprise, or who have dealt with the corporation in the due and ordinary course of its business as a bank.1

In the case of the Bank of the United States v. Planters' Bank of Georgia,2 the decision was, substantially, that the fact of the State of Georgia being a shareholder in the defendant corporation, did not prevent the corporation from being sued in the courts of the United States. Had the State itself been the defendant, the constitution would have denied jurisdiction to these courts; but it was said in the opinion that a suit against the bank was "no more a suit against the State of Georgia than against any other individual corporator. . . The State does not, by becoming a corporator, identify itself with the corporation. . . . It is, we think, a sound principle that when a government becomes a partner in any trading company it divests itself, so far as concerns the transactions of that company, of its sovereign character, and takes that of a private citizen. Instead of communicating to the company its privileges and its prerogatives, it descends to a level with those with whom it associates itself, and takes the character which belongs to its associates and to the business which is to be transacted. . . . The government of the Union held shares in the old Bank of the United States; but the privileges of the government were not imparted by that circumstance to the bank. . . . The government, by becoming a corporator, lays down its sovereignty, so far as respects the transactions of the corporation, and exercises no power or privilege which is not

1 Bank of the United States v. Planters' Bank of Georgia, 9 Wheat. 907; Bank of the Commonwealth of Kentucky v. Wister, 2 Pet. 318; Curran v. State of Arkansas, 15 How. 304; State v. Bank of the State of South Carolina, 1 Rich. S. C. N. s. 63.

29 Wheat. 904.

derived from the charter." This ruling was afterward affirmed in a case where the State was the sole proprietor, but not (as in the earlier case) a corporator.1 Curran v. State of Arkansas,2 following in the same logical sequence, holds that the creditor of a State bank, wherein the State is sole proprietor and original furnisher of all the capital stock, may follow the assets and capital of the bank, in equity, for the satisfaction of his claims, in spite of State legislation whereby the legislature has attempted to appropriate to the State (in reimbursement of its original contribution) all the assets of the corporation.

In the South Carolina case cited, the State had pledged its faith for the support of the credit of the bank, and when the institution found itself in financial difficulties, the State then sought to take the corporate assets on the ground that it was a surety for the indebtedness of the bank, was directly liable to the creditors of the bank, and was therefore entitled to appropriate the assets of the institution whose debts it must pay. But, upon the strength of the principles laid down by the Supreme Court of the United States in the foregoing cases, the State court very properly overruled these positions.

1 Bank of the Commonwealth of Kentucky v. Wister, 2 Pet. 318. 2 15 How. 304.

3 State v. Bank of the State of South Carolina, 1 Rich. S. C. N. s. 63.

3.

CHAPTER X.

RIGHTS OF ACTION AGAINST BANKS.

Customer's Right to sue for his Deposit.

IT has been already said that the bank is debtor to the depositor for the balance of his deposit account. But though the relationship between the bank and the depositor is in nearly all respects that of simple debtor and creditor, yet the usages of the banking business have introduced certain special rules. For example, the usage of banks to make payments only in response to checks, drafts, or notes made payable at the bank of the promisor has given rise to the rule that ordinarily an action cannot be maintained by a depositor against a bank to recover the amount of his deposit until a formal demand has been made. The bringing an action does not amount to a demand in such cases.1

Customer's Right of Action for Refusal to honor his Check.

We have already stated that a bank is under obligation to pay the checks, drafts, and orders of a depositor so long as it has in its possession funds of his sufficient to do so, and which are not incumbered by the attaching of any earlier lien in favor of the bank. The duty of the bank to make such payments, and the reciprocal right of the depositor to have them made, arise from the contract to that effect which, though probably never definitely expressed, will always be considered to be implied from the usual course of the banking business.2

1 Chemical National Bank v. Bailey, 12 Blatch. 480; Payne v. Gardner, 29 N. Y. 146.

2 Ante, p. 35, and authorities there cited; Byles on Bills, Sharswood's ed. p. 18; Downes v. Phoenix Bank, 6 Hill, 297.