178 N.E. 581 | Ohio | 1931
This suit is on behalf of creditors against the stockholders of an insolvent corporation "authorized to receive money on deposit." This liability exists by virtue of provisions found in Section
"Dues from private corporations shall be secured by such means as may be prescribed by law, but in no case shall any stockholder be individually liable otherwise than for the unpaid stock owned by him or her; except that stockholders of corporations authorized to receive money on deposit shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such corporations, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares."
In Lang v. Osborn Bank,
It is urged, however, that Andrews is entitled to have his rights measured by rules of equity. It is argued, first, that it having been agreed that the money would be applied upon the double liability, it becomes charged with a trust to be used for creditors exclusively, and, second, that it becomes an equitable set-off against that liability when later asserted. Equity has no such efficacy. Equity is only open to those who have just rights to enforce where the law is inadequate. Equity will not give validity to a transaction which is void at law. Equity will not disregard constitutional statutory provisions. Applying these principles to the case at bar, equity will not disregard the rights of creditors in order to compel the superintendent of banks to observe an agreement he had no right to make. Those principles are so well settled as to be axiomatic. Among the numerous cases which might be cited, three leading authorities are Hedges v. Dixon *356 County,
In the instant case, the money paid in by the stockholders on August 5th was not kept separate from other funds of the bank. Its identity was immediately lost by becoming mingled with the general funds of the bank. This fact alone would preclude the application of the principle of a trust fund.
The distinction between restoration of capital of a going concern, and responding to the double liability after dissolution has been ordered, has never been declared in any previous case decided by this court, but has been recognized by a large number of cases in other jurisdictions. Delano v.Butler,
In addition to all the foregoing considerations, the plaintiff in error must fail for the additional reason that the fund collected from stockholders upon their double liability would constitute a trust fund applicable *357
solely to the claims of creditors of the bank. The trust fund theory will be discussed on the second branch of this error proceeding, viz., whether Andrews is entitled to offset his deposit in the bank against his double liability as a stockholder. On this point it must be admitted that the authorities are in sharp conflict. The case of King v.Armstrong, Recr.,
"The indebtedness of the stockholders on their individual liability, together with the other assets of the insolvent bank, constitute a trust fund for the benefit of its creditors; and in equity, such indebtedness of a stockholder who is insolvent, may be set off against a dividend, payable out of the trust fund, on a balance due him on his deposit account with the bank at the time of its failure."
It will be observed that the court declared that it was only the dividend which could be offset, and not the claim itself. In that case the stockholder assigned his claim to the deposit to a third party in payment of a pre-existing debt. The court, however, refused to recognize the claim of the assignee of the debt, the stockholder being at the time insolvent, and held the dividend as a credit upon the judgment against the stockholder. The principle declared in that case is in line with the prevailing weight of authority on that subject. It is in harmony with Sawyer v. Hoag, Assignee, 84 U.S. (17 Wall.), 610,
It is believed that all of the text-books on banking declare the trust fund theory as prevailing, both upon reason and authority. The authorities on this subject are reviewed pro and con in the report of the case of Reimers v. Larson, in 40 A.L.R., in an editor's note at page 1183. It is believed that the law on this subject was regarded as definitely settled in favor of the trust fund theory, and a denial of the right of set-off, both upon the liability of stockholders for unpaid balance of stock and upon the double liability of stock for the benefit of creditors of insolvent corporations in process of liquidation, until the decision of Niles, Assignee, v. Olszak,
"In an action by a receiver of an insolvent private corporation against a stockholder on unpaid stock subscription, the stockholder is not entitled to set off amounts due to him from the corporation under a contract for commissions for the sale of stock, nor for payments made by him on behalf of the corporation. (Niles, Assignee, v. Olszak,
It would now seem, in view of the present controversy and the confusion caused by the Olszak case, that it would have been better to have declared that that case was pro tanto overruled.
We are of the opinion that Crawford v. McDowell states the better doctrine, and that the opinion in Niles, Assignee, v.Olszak, in so far as it discusses double liability of stockholders, is contrary to the weight of authority.
We have reached the conclusion that the double liability of stockholders to the creditors of an insolvent bank in process of liquidation is not subject *360 to set-off by deposits of the stockholder, except so far as dividends may be paid thereon.
It results that upon the petition in error of the plaintiff in error the judgment of the Court of Appeals must be affirmed, and that upon the cross-petition in error, relating to the set-off of the deposit, the judgment of the Court of Appeals must be reversed.
Judgment affirmed in part and reversed in part.
JONES, MATTHIAS, DAY, ALLEN, KINKADE and ROBINSON, JJ., concur.