114 Ark. 344 | Ark. | 1914
Lead Opinion
The plaintiff, as treasurer of Sebastian County, instituted this action against the Bank of Midland, a domestic corporation engaged in the banking business, and its stockholders, to recover the sum of $1,367.51, alleged to have been deposited by plaintiff as treasurer in said bank and which the bank failed or refused to pay over oil demand.
The case was tried before a jury, -and a verdict was returned against all of the defendants save one, and they appealed to this court. The plaintiff appealed from the judgment in favor of defendant, Johnson.
Plaintiff was elected as treasurer of Sebastian County, and served for the term of two years, ending October 31,1912. During the time for collection of taxes the tax collector deposited part of his collections in the Bank of Midland, and when he made his settlement with the county court and paid over the county funds to the treasurer he g’ave that officer a check on the Bank of Midland for the sum of $1,437.51, which the treasurer turned over for credit and deposit in that bank. This occurred on or about the 1st day of July, 1912, and the bank failed on August 7, 1912. A few days thereafter plaintiff, as treasurer, made demand for the funds, and upon failure to pay, he instituted this action before’ the expiration of his term. He made his settlement with the county, and paid over all the funds due the county, including the amount involved in this controversy, after the expiration of his term, but before the trial of this case, and when the case came on for trial the defendants sought an abatement of the action on the ground that the stockholders of the bank were liable only to the county, and not to the treasurer personally, and that since the funds had been paid over to the county all liability on the part of the stockholders ceased.
That is the first question presented for our consideration.
The statute (Kirby’s Digest, § 1990) provides that “the said officers and the sureties on their official bonds, the bank and the stockholders of the bank, shall be liable for all funds that such bank on demand shall fail to pay to the person entitled to receive the same.”
This refers to the public funds mentioned in the preceding' clause of the statute, and, of course, only establishes a liability to the county.
Learned counsel for defendants cite authorities which appear to militate against the right of subrogation under a statute enacted purely for the protection of public revenues.
We think, however, that these authorities have no controlling force in this case, for the reason that they relate merely to the remedy, and hold that there is no subrogation to the remedies given to the public by the statute. It has been held by this court in numerous oases that a tax purchaser under void tax sale is subrogated to the rights of the State for the tax lien which has been discharged, but, of course, the purchaser is not subrogated to the remedies of the State as to a summary sale of the property.
It is also urged that subrogation is an equitable remedy, which can not be invoked at law.
The defendants who have appealed defended on the ground that they were not stockholders, some of them that they never owned stock in the corporation, and others that they parted with their stock before the liability attached. The defense of each of them presents somewhat different questions and must be discussed separately.
One of the defendants, McEachin, was the principal stockholder and cashier of the bank, and had active management of it up to the time he sold his stock on May 14, 1912. He sold his stock to one I. H. Cunningham by written assignment and executed a power of attorney authorizing the transfer of the stock on the books of the bank. Cunningham paid for the' stock and McEachin immediately ceased all connection with the bank as stockholder. He testified that the bank was solvent at that time, and that it became insolvent solely on account of money of the bank which was taken out by Cunningham after the latter took charge. The transfer was never recorded on the books of the corporation, nor was certificate thereof filed in the office of the county clerk as ■provided by the statute. I. H. Cunningham and W. R. Cunningham (presumed to be kinsmen, but this is not definitely shown in the evidence), took charge of the bank and managed it up to the time of the failure. I. H. Cunningham was president and W. R. Cunningham cashier. The Cunninghams assumed active management of the bank at the time of the purchase of McEachin’s stock, and continued until the bank failed and was placed in the hands of a receiver in August, 1912.
The court, over the objection of the defendants, gave the following instruction:
“3. If you find from the evidence that R. A. Mc-Eachin, W. T. Quinley, Amos Johnson, or either or all' of them, were stockholders in said Bank of Midland on the dates when said T. A. Harris, as such sheriff and collector, deposited said public funds in said bank, and that they, or either of them, thereafter and before said 7th day of August, 1912, sold or transferred their stock in said bank, notwithstanding said sale, you should find for the plaintiff, if you find that they, or either of them, from their relation with or to said bank, or from knowledge or information with reference, to its financial condition knew, or could’have known, of its solvency from knowledge or information sufficient to put them on notice that same was solvent at time of the sale of their said’ stock, if you find a sale was made, and that the bank was insolvent.”
“Section 1990 of Kirby’s Digest provides'that the stockholders of the bank shall be liable for the public funds therein deposited when the bank shall fail to make payment upon demand, and this in effect fixes the time when such liability arises, and that is when default in payment is made; this also determines that such liability is against only those who are stockholders at the time of such default.”
The court was, therefore, in error in giving the third instruction, which made the liability of the stockholders turn upon their knowledge or information of the financial condition of the bank at the time they transferred the stock, even though that occurred before the money was deposited. The fact is uncontradicted that McEachin transferred his stock to Cunningham before the money was deposited; but the transfer was not recorded upon the books of the corporation.
There is a very wide conflict in the authorities on this question, but we must treat it as settled by the decisions referred to, and the only question in this case is whether or not the evidence concerning McEachin’s transfer of his stock to Cunningham brings it within that rule.
The evidence shows that McEachin had control of the bank when he assigned his stock, he being cashier at the time, and that when he severed his relations by transferring his stock there was no one legally in charge to record the transfer. However, he delivered the transfer to I. H. Cunningham, who, together with the other, W. R. Cunningham, immediately took charge of the bank, and the transferree became president. While it is true that he did not deliver the transfer into the “hands of the proper official to enter same upon the books,” for the reason that there w.as no such official, but he did deliver it to one who was. to become such official and who did become such official, and served as such for a period of nearly two months before the deposit was made. This was done openly, and the business of the bank was openly conducted by the Cunninghams with the implied, if not the express, approval of the other stockholders.
We are of the opinion, therefore, that this evidence shows beyond dispute that McEachin did all that a careful and prudent business man would ordinarily do to consummate the transfer and that he escaped liability for future deposits.
W. T. Quinley, another one of the defendants, sold and transferred his stock to I. H. Cunningham on May 14, 1912, and delivered him a power of attorney containing authority to make the transfer on the books. Quinley was originally one of the directors, but several years before he sold his stock he had severed his official relations with the bank and had no connection with it except as stockholder and depositor. He had nothing to do with the management of the bank. His case is, therefore, a stronger one than that of McEachin, and for the reasons already stated he was, according to the undisputed evidence, not a stockholder within the meaning of the statute at the time the liability of the stockholders attached.
Dyke Bros., a partnership, composed of two brothers of that name, were recorded as being the owners of eleven shares of stock. Their contention is that certificates had never been issued to them, and that they were not, in fact, stockholders.
We are of the opinion, however, that there is enough evidence to establish the fact that they were stockholders, and that being true, there is no effort to show that that relation was severed prior to the default of the bank in regard to the public funds.
(9) The list of stockholders, certified by the president .and secretary of the corporation, on file in the clerk’s office, is competent evidence for the purpose of showing who were the stockholders, and is prima facie evidence of that fact.
This list recorded the names of Dyke Bros, as holders of eleven shares of the. stock.
A witness, who was formerly connected with the bank at the time of its organization, testified that the stock book of the bank was lost, but 'that the corporation had purchased a lot of furniture from Dyke Bros, and paid them in shares of stock of the bank.
One of those defendants testified that they were not stockholders and had never been notified of the issuance of any stock to them; but all of that testimony made a question for the jury, and we think it is sufficient 'to sustain the finding that those defendants were, in fact, stockholders.
H. B. Weir is another one of the defendants who has appealed, and it is contended for him that the evidence does not show thart he was a stockholder.
Mr. Weir was certified, on the list heretofore referred to, as the holder of three shares of stock. He testified that he subscribed for shares of stock and gave a check in payment of the amount but that the shares were never actually delivered to him. The evidence was, we think, sufficient to establish the fact that he was, in fact, a stockholder of the bank.
The jury found in favor of defendant, A. S. Johnson. He owned thirteen shares of stock of the bank, which he assigned to McEachin, and the transfer was duly recorded, those shares being part of the stock which was assigned by McEachin to Cunningham.
The registered list shows that defendant Johnson owned another share. He testified that he knew nothing about that, except that Mr. Denman, one of the organizers of the bank, told him that he had given him a share of the stock, bnt that he never received it or paid for it.
We think there is enough testimony to warrant the jury in finding’ that defendant Johnson was not a stockholder.
The judgment in Johnson’s favor is affirmed, and the judgments in favor of plaintiff against defendants Dyke Bros, and Weir are also affirmed. The judgments against defendants MeEachin and Quinley are reversed and the cause as to them is dismissed.
Rehearing
on rehearing.
Counsel for appellants, Dyke Bros., call -our attention to the fact that we failed to decide the question raised by them that the proof was incomplete to establish the corporate existence of the Bank of Midland, and it is insisted, for that reason, that the judgment is not supported .by sufficient evidence. The opinion of the court is silent on that question and a decision on the petition for rehearing calls for a discussion of that subject.
Dyke Bros, denied the corporate existence of the Bank of Midland, and they were the only ones of the defendants who raised that question. The plaintiff introduced in evidence the original articles of incorporation filed in the office of the county clerk, and also the record made in the office of the clerk, but there was no attempt to prove that the articles had ever been filed in the office of the Secretary of State. The case, therefore, stands, according to the record, as if the articles of incorporation were never filed with the Secretary of State and no certificate of incorporation ever issued by that officer. The proof is undisputed, however, that there was an organization of the bank pursuant to the articles filed in the office of the county clerk, that directors and other officers were duly elected, and that the business was operated thenceforth as a banking corporation.
Our statute provides that before 'any such corporation shall commence business, the president and directors shall file the articles of association, together with a certificate, setting forth the purposes for which the corporation is formed, the amount of capital stock, the ■amount actually paid in, the names of its stockholders and the-number of shares owned by each, with the county clerk of the county in which the corporation is to have its principal place of business; and also shall file said articles of incorporation and certificate, with the endorsement of the county clerk, in the office of the Secretary of State, and that the latter officer shall, upon the filing of such endorsed articles and certificates and the payment of the fees required by law, issue to the incorporators a certificate of incorporation which “shall be admissible in all the courts of the State as prima facie evidence of due incorporation.” Kirby’s Digest, § 845.
“The statutory requirements for the organization of corporations,” says Professor Thompson, “are generally regarded as conditions precedent to the formation of a corporation, and a substantial compliance is necessary in order to constitute a corporation de jure. But in the nature of the case, and under the definition given, if some step in the progress of the organization is unintentionally omitted, and the other requirements are present, there will be a corporation de facto. The accidental failure to comply with some legal requirement is one of the elements to the corporate existence de facto; otherwisej it would be a corporation de jure. A very common omission of strict or substantial compliance is found in the failure either to properly execute, acknowledge or record the certificate of incorporation or articles of association. The general rule is that The mere failure to properly execute and acknowledge the certificate or the failure to record the certificate or articles of association will not be fatal to the existence of a corporation de facto, where the other elements are present.” 1 Thomp. Corp. (2 ed.), § 234.
Further on in the same volume (section 255) the learned author says: “Not only is the corporation itself bound, but its officers and stockholders, or other persons interested, as well as those who have dealt with the pretended corporation with knowledge of a claim of corporate capacity, are not permitted to set up either for themselves, or on behalf of the corporation, any irregularity in the organization, for the purpose of either shielding the corporation, or of freeing themselves from personal liability. The certificate of incorporation is made for the benefit of the public, and neither for the corporation nor its stockholders.”
Another text writer on the subject states the rule broadly that “the corporation is a de facto- corporation where there is a law authorizing such a corporation and where the company has made an effort to organize under the law and is transacting business in a corporate name.” 1 Cook on Corporations (7 ed.), § 234.
Still another text writer states the same rule in the following language: “Cases not seldom arise in which some condition precedent to the legal organization of a corporation has been omitted, and in which no conclusive certificate of due incorporation exists, and in which no estoppel to deny the company’s existence can be invoked. In such cases, the American courts generally will, under certain conditions, hold that the association although not legally incorporated, is nevertheless a corporation de facto, that is to say, an association whose right to corporate functions and attributes is complete as against all the world except the sovereign.” 1 Machen on the Modern Law of Corporations, § 284.
To the same effect see Helliwell on Stock and Stockholders, § 438.
The text writers fortify their conclusions with numerous citations of ¡authorities, showing (beyond peradventure that this is the generally established rule.
Judge Battle, in delivering the opinion of the court in Forbes v. Whittemore, 62 Ark. 229, recognized that principle by using the following language: “They (the parties who were attempting to escape liability as they were stockholders) never undertook to organize themselves into a corporation, and were not a corporation de facto.”
This court decided in the ease of Garnett v. Richardson, 35 Ark. 144, that where the act of incorporation was incomplete by reason of the same defect in this case (i. e., not filing the articles with the Secretary of State), the incorporators were personally liable as partners. That decision seems to be against the weight of modern authority, and the doctrine of it should not be extended any further. It does not follow that the corporation itself would not also be liable as a de facto corporation, nor that statutory liability of incorporators would be unenforceable,
It is also insisted that we erred in holding that the evidence was sufficient to show that Dyke Bros. Avere stockholders. They were not mentioned as stockholders in the original certificate to the articles of incorporation, but were listed as stockholders in an annual certificate filed by the president and secretary pursuant to the terms of section 848 of Kirby’s Digest, which provides that the president and secretary of every snch corporation shall annually make a certificate showing, among other things, the amount of capital actually paid in, and the name and number of shares of each stockholder. We said in the former opinion in this case that such certificate was prima facie evidence of the facts therein recited, and also that the testimony of one of the witnesses introduced by the plaintiff tended to show that Dyke Bros, were stockholders. We adhere to that conclusion.
It is insisted that the testimony of the witness referred to was purely hearsay, and therefore inadmissible, but, after a careful re-examination of it, we think that the testimony as it appears in the record is not altogether hearsay. The statements of the witness are to some extent contradictory, and in some places appear to be statements of fact within his own knowledge and at other places mere hearsay. We can not, however, from a perusal of the statements of the witness, say definitely that all of it is hearsay, for we think that was a question for the determination of the court and jury who heard the witness testify in person and could better judge of his statements as to personal knowledge of facts which he attempted to relate.
Rehearing denied.
