the present receiver), was appointed and took possession on June 5, 1897, a fortnight after the failure of the bank; that on September 14, 1897, the Comptroller levied an assessment of $86 a share upon the capital stock; that on May 8, 1894, Charles P. Dewey was the owner of 105 shares of stock, and was registered as such; that the bank was then, and continuously remained, insolvent; that this insolvency was known to Dewey, who on that day, May 8, assigned 95 of these shares to the defendant Jewett, who was wholly irresponsible; that the transfer was colorable only, and made for the sole purpose of evading Dewey's liability as a stockholder; that Jewett thereafter, at various times, transferred 80 of the 95 shares to the several other defendants, and that on January 3, 1895, Dewey transferred his remaining 10 shares to Jewett, so that the bank failed said 105 shares were registered on the books of the bank in the names of the several transferees; that the several transfers were made at a time when the bank was insolvent, and known by Dewey to be so, for the purpose of evading liability for assessments, and to irresponsible persons.

The answer of Dewey contained a general denial of all material allegations, and set up that the transfers were outright and for the par value of the stock; that he had sold all his stock, and with the exception of the 25 shares, all transfers had been made on the books of the bank prior to its suspension.

The Circuit Court found that the sales of stock were all made through Jewett, who acted merely as the agent of Dewey and had no interest in the stock, but held it for Dewey in his name; that the bank failed about two years and five months after the sale by Dewey; that the bank was insolvent in December, 1894, and January, 1895, at the time Dewey sold the hundred and five shares, and that Dewey, who was vice president of the bank from 1892 to 1895, knew, or ought to have known, that fact; that three certificates, aggregating twenty-five shares, were not transferred on the books of the bank and still stood in the name of Jewett when the bank suspended; that the claims of the creditors of the bank, who were such when Dewey sold his

202 U.S.

Argument for the Receiver.

stock and remained such at the time of the failure, aggregated $11,839.15, of which, however, only $2,787.97 remained unsatisfied, and that of this the ratable share of Dewey was $585.48, for which sum a decree was rendered.

On appeal by the receiver to the Circuit Court of Appeals the decree of the Circuit Court was reversed and a new decree directed to be entered for the full amount of the assessment on the twenty-five shares standing in the name of Jewett at the time of the failure; that as to the eighty shares there could be no recovery, although the bank was insolvent at the time of the sale of the stock, and was known to be insolvent, and the transfer was made for the purpose of evading liability; but that there could be no recovery without proof of the additional fact that the several transferees were likewise insolvent; that as to the twenty-five shares Dewey remained liable, as he had not surrendered the certificate to the bank or given the officers such data as to enable them to make such transfer on its books. The case was remanded to the Circuit Court, with directions to render a decree against Dewey for his full assessment on twenty-five shares. From this decree both parties appealed to this court.

Mr. Frank M. Hall, with whom Mr. Roscoe Pound and Mr. E. E. Prussing were on the brief, for the receiver:

Upon proof of the insolvency of the bank at the time of the assignment, knowledge thereof by Dewey at that time, and that the purpose and intent of the transfer was to escape his liability upon the stock in an insolvent bank, a decree should be rendered for the full assessment on 105 shares. Stuart v. Hayden, 169 U. S. 1; Earle v. Carson, 188 U. S. 42; National Bank v. Case, 99 U. S. 632; Bowden v. Johnson, 107 U. S. 251.

Under a proper construction of the National Banking Act, Dewey's estate should be held for the full assessment on 105 shares, upon the facts found. The purpose of the statutory provision as to sale of the stock is to permit sale of stock in a solvent bank, not to permit evasion of liability upon stock in VOL. CCII-33

Argument for the Receiver.

202 U.S.

a bank known to be insolvent, and the statute should be construed accordingly.

The word "transfer" in section 5139 means transfer in good faith; that good faith, in this connection, means that good faith which inheres in the ordinary sale of stocks and securities in the usual course of business, and that a transfer made in view of known insolvency, with a purpose of avoiding liability, is the sort of transfer excluded.

The liability of a stockholder in a national bank is contractual in its nature. Richmond v. Irons, 121 U. S. 27; Concord Nat. Bank v. Hawkins, 174 U. S. 365; Whitman v. Oxford Nat. Bank, 176 U. S. 559, 565; Stuart v. Hayden, 169 U. S. 1.

This court has held expressly that insolvency of a national bank changes at once the relation between stockholders and creditors. McDonald v. Williams, 174 U. S. 397.

The American rule as to the effect of transfers of stock in an insolvent corporation upon statutory stockholder's liability, is that such transfers will only divest the liability where made both in good faith and to solvent transferees, and that if made for the purpose and with the intent of avoiding liability upon the stock of a corporation known to be insolvent, the assignor remains liable. See National Bank v. Case and Bowden v. Johnson, supra.

The general rule is, undoubtedly, that a stockholder may freely transfer his shares to any person capable of acquiring them and thus substitute the latter as a member of the corporation in his stead. This rule, however, which permits a transfer of a liability, without the concurrence of those for whose benefit the liability exists, is anomalous, and rests upon special reasons, which are the measure of its extent. National Carriage Co. v. Story Commercial Co., 111 California, 537.

The ordinary run of transfers made to avoid liability are, for obvious reasons, made to insolvent or irresponsible transferees. Hence many text-writers and many courts have coupled the two propositions-intent to avoid liability and insolvency of the transferees. But it does not follow from this

202 U.S.

Argument for the Receiver.

not unnatural juxtaposition of these propositions that both of these elements are essential in order to hold the transferrer, and must co-exist with insolvency of the corporation before he can be held liable. On the contrary, a detailed examination of the long list of cases in which this question has been before the courts of this country, will show these significant facts:

In substantially every case in which courts have held that a transfer of stock would divest the liability, they have qualified this statement by the proviso that the transfer must be in good faith. Moss v. Oakley, 2 Hill (N. Y.), 265; Tucker v. Gilman, 121 N. Y. 189; Rochester & Kettle Falls Land Co. v. Raymond, 158 N. Y. 576; Middletown Bank v. Magill, 33 Connecticut, 28, 70; Aultman's Appeal, 98 Pa. St. 505, 517; Harpold v. Strobart, 46 Ohio St. 397, 406; Cole v. Adams, 19 Tex. Civ. App. 507; Stewart v. Walla Walla Co., 1 Washington, 521. In those cases in which intent to evade liability and insolvency on the part of the transferees co-existed, the courts have uniformly insisted upon the former as the material and important element. Scofield v. Twining, 127 Fed. Rep. 486; Ward v. Joslin, 100 Fed. Rep. 676; Foster v. Lincoln, 79 Fed. Rep. 170; Cox v. Montague, 78 Fed. Rep. 845; Miller v. Great Republic Ins. Co., 50 Missouri, 55; Burt v. Real Estate Exchange, 175 Pa. St. 619. It has been held in many cases, by courts of high authority, that there need not be both intent to escape liability and insolvency of the transferees, but that one of these, coupled with known insolvency of the corporation, is enough. These cases are of two types, those which hold the original stockholder liable upon proof of known insolvency of the corporation and insolvency of the transferees, alone, without regard to proof of the intent with which the transfer was made, and those which hold him liable by reason of the known insolvency of the corporation and intent to escape liability, alone, without regard to the financial condition of the transferees. Cases of the first type are: National Carriage Co. v. Story & Isham Co., 111 California, 537; Welch v. Sargent, 127 California, 72.

Of course, a transfer to an insolvent with knowledge of in

Argument for Dewey et al.

202 U.S.

solvency of the corporation is in and of itself a fraud. Cases like Anderson v. Philadelphia Warehouse Co., 111 U. S. 479, where pledgees, seeking to protect their claims, put the stock in the name of irresponsible trustees, are quite different. Such a transaction is no fraud, since the pledgee is merely interested to the extent of security.

Cases of the second type, holding that a transfer with knowledge of insolvency of the corporation, made for the purpose and with the intent to escape the impending stockholder's liability, will not divest such liability, without regard to the financial status of the transferees, are: Marcy v. Clark, 17 Massachusetts, 330; McLaren v. Franciscus, 43 Missouri, 452; Provident Savings Inst. v. Skating & Bathing Rink, 52 Missouri, 557; Stewart v. Printing & Publishing Co., 1 Washington, 521; Sykes v. Holloway, 81 Fed. Rep. 432.

The transfers being fraudulent and invalid when made, the assignor remained liable down to the failure, and should be held for the full amount of the assessment.

Mr. William B. McIlvaine, with whom Mr. John P. Wilson and Mr. Nathan G. Moore were on the brief, for Dewey et al.

The only question presented by the record in this case is whether a sale of stock in a national bank, in operation as a going concern, and made with actual or imputed knowledge of the bank's insolvency, is under all circumstances voidable by the receiver..

There was no finding by the Circuit Court that the sale by Dewey was made in bad faith to avoid liability as a stockholder. This was a contested proposition, and if appellant was not satisfied with the court's ruling thereon, he should have brought the matter to the attention of the Court of Appeals in assignments of error. The Circuit Court expressly found that there was no evidence tending to show any fraud upon the creditors. This was equivalent to a finding that there was no bad faith or fraudulent intent.

The receiver was evidently satisfied that the concurrence of