165 F. 822 | U.S. Circuit Court for the District of Western Kentucky | 1908
The complainants, citizens of Indiana, who allege themselves to be creditors of the Owensboro Savings Bank & Trust Company (hereafter for brevity called “the bank”), filed this bill for the benefit of themselves and all other creditors of the bank who might come in and contribute to the expenses of the suit, and seek not only to establish their claims, but also to have collected and distributed certain sums of money due from the stockholders of the bank under the law of Kentucky presently to be stated, and whereby
Section 547 of,the Kentucky Statutes of 1903 is in this language:
"The stockholders of each corporation shall be liable to creditors for the full amount of the unpaid part of stock stibscribed for by them, and uo stockholders shall be liable because of being a stockholder, for any sum more than to tlie amount of the unpaid part of stock held by such stockholder of any company, except stockholders in hanks, trust companies, guaranty companies, investment companies and insurance companies shall be liable equally and ratably, and not one for the other, for all contracts and liabilities of such corporation to the extent of the amount of their stock at par value, in addition to the amount of such stock; but persons holding stock as fiduciaries shall not be personally liable as stockholders, but the estates in their hands shall be liable, in the same manner and to the same extent as the property of other stockholders, and no transfer of the stock shall operate as a release of any such liability existing at the time of such transfer: Provided, the action to enforce such liability shall be commenced within two years from the time of transfer.”
Though not having obtained judgments, the complainants are creditors of the bank to the amount of at least $5,000, and in this suit seek not only to establish their claims, but to obtain the benefit of the statutory provisions just copied. We have concluded that the so-called “double liability” thus provided for necessarily constitutes a trust fund, and, therefore, that the complainants suing for the benefit of all the creditors of the bank who may become parties can maintain this suit to have the trust thus created administered in a court of equity without having first obtained a judgment at law upon their demands. We regard this ruling as clearly supported by Case v. Beauregard, 101 U. S., in its opinion in which, at pages 690, 691 (25 L. Ed. 1004), the Supreme Court said:
“It is no doubt generally true that a creditor's bill to subject his debtor’s interests iu property to the payment of the debt must show that all remedy at law had been exhausted; and, generally, it must be averred that judgment has been recovered for the debt, that execution has been issued, and that it has been returned nulla bona. The reason is that until such a showing is made it does not appear, in most cases, that resort to a court of equity is necessary, or, in other words, that the, creditor is remediless at law. In some cases, also, such an averment is necessary to show that the creditor has a lien upon the property he seeks to subject to the payment of his demand. The rule is a familiar one that a court of equity will not entertain a ease for relief where the complainant has an adequate legal remedy. The complaining party must therefore show that he had done all that he could do at law to obtain his rights.
“But, after all, the judgment and fruitless execution are only evidence that his legal remedies have been exhausted, or that he is without remedy at law. They are not the only possible means of proof. The necessity of resort to a court of equity may be made otherwise to appear. Accordingly the rule, though general, is not without many exceptions. Neither law nor equity requires a meaningless form. ‘Bona, sed impossibilia. non cogit- lex.’ It has been decided that where it appears by the bill that the debtor is insolvent, and that the*825 issuing oí ¡m execution would be of no practical utility, the issue of an execution is not a necessary prerequisite to equitable interference. Turner v. Adams, 46 Mo. 95; Postlewait & Creagan and Keeler v. Howes, 3 Iowa, 365; Ticonic Bank v. Harvey, 16 Iowa, 141; Botsford v. Beers, 11 Conn. 369; Payne v. Sheldon, 63 Barb. (N. Y.) 169. This is certainly True where the creditor has a lien or a trust in his favor.
•‘So it has been held that a creditor, without having first obtained a judgment at law. may come into a court of equity to sec aside fraudulent conveyances of his debtor, made for the purpose of hindering and delaying creditors, and to subject the property to (lie payment of the debt due him. Thurmond and Others v. Reese, 3 Ua. 449, 46 Am. Dec. 440; Cornell v. Radway, 22 Wis. 260; Sanderson v. Stockdale, 11 Md. 563.
"In Brisay v. Hogan, 53 Me. 554. it was ruled that when a creditor seeks by his bill to obtain payment of his debt from laud paid for by tile debtor, but conveyed to his wife, a levy of an execution is unnecessary, if the debtor never had legal title to the land. See, also, Day et al. v. Washburn, 24 How. 352, 16 L. Ed. 551.
"The foundation upon which these and many other similar cases rest is that judgments and fruitless executions are not necessary to show that the creditor has no adequate legal remedy. When the debtor's estate is a mere equitable one, which cannot be reached by any proceeding at law, there is no reason for requiring attempts to reach it by legal processes.
"Bnr, without pursuing this subject further, it may tie said that whenever a creditor has a trust in his favor, or a lien noon property for the debt due him, ho may go into equity without exhausting legal processes or remedies.”
See, also, the remarks of judge (afterwards Mr. Justice) Jackson in Stutz v. Handley (C. C.) 41 Fed. 537.
If the liability thus created by the statute cannot be regarded as a trust fund and administered upon, collected, and distributed in a court of equity, it cannot be administered and distributed at all, as no mode of otherwise doing so is expressly provided in the statute by which the trust is created. It would lie difficult to imagine a case which would call more strenuously for the aid of an equity tribunal, as distinguished from a common-law court, than one arising under this statute. Certainly the greatest possible confusion would ensue if each creditor might for himself separately sue each stockholder for his proportion of the individual liability. How each creditor’s share in the liability of each stockholder could be adjusted in such a contingency it is impossible to conceive, and it is therefore obvious that anything other than one comprehensive suit in equity for the settlement of all the questions involved would be wholly impracticable. Nor do we think that the nice calculations made on behalf of the defendants as to what interest the complainants can have in the fund can be determinative of the question of jurisdiction. The debts of the complainants who are citizens of Indiana against, the Owensboro Savings Bank & Trust Company, a citizen of Kentucky, largely, as we have seen, exceed $2,000, exclusive of interest and costs, and manifestly the trust fund would, at least nominally, be $200,000 — the amount of the capital stock. Precisely what proportion of the liabilities of the stockholders would be paid, and precisely what per centum of his claim each creditor would ultimately obtain, would depend upon the amount realized from the double liability and the amount of claims presented and proved against the fund thus provided. Possibly the per centum of collections and the per centum of claims proved would be such as to pay complainants nearly or quite all of their demands, so that the calculation
The complainants joined as defendants numerous holders of the capital stock of the defunct bankj and sought to make the trust fund available by having it realized and collected in this action. The demurrers to the bill have also raised the question of whether the claims against the stockholders individually can be adjudicated and enforced in this suit, or whether proper practice requires that each stockholder shall be sued by the court’s receiver in a separate action. It seems to the court that either course is open in a suit to gather in the trust funds, although, if any issues of fact are raised by any defendant’s pleading, such defendant might, if he so desired, have the right to a jury to try those issues. So that, while we think the demurrers should all be overruled, we do not mean to say that upon proper application the court would not direct the liability of stockholders to be determined and enforced by actions at law to be brought by its receiver. We do not pass upon that phase of the case now, because it has not been presented. What we hold is that the “double liability” constitutes a trust fund for creditors which it is competent for this court to administer in a suit in equity, and that, in order to do this effectually, the fund would have to be brought into court. We further think that in its discretion the court plight pursue either the course of enforcing the liability in this suit, or, by directions to its receiver, cause him to sue each or any of the stockholders in separate actions in any court having jurisdiction of such actions. We think this indicates the proper practice, and that it is supported by the authorities. Terry v. Little, 101 U. S. 216, 25 L. Ed. 864; Pollard v. Bailey, 20 Wall. 520, 22 L. Ed. 376; Hatch v. Dana, 101 U. S. 205, 25 L. Ed. 885; Stutz v. Handley (C. C.) 41 Fed. 531.
Stated generally, these are the views we entertain, but we have never shut our eyes to the fact, shown by the bill, that certain proceedings are pending in the state court which were begun before the commencement of this action, but the precise scope of which has never been made to appear. Whether those proceedings were adjusted or designed to subject and administer for the benefit of all creditors the trust fund created by the Kentucky statutes, as distinguished from the bank’s own assets, we do not know from anything that appears in the record. If, however, that be the scope of the suit in the state court, independently of the statutory suit presently to be referred to, we should probably be compelled to yield to it as having first ac
“The Secretary oí State, upon becoming satisfied that any bank or corporation has become insolvent, or that its capital has become, and is permitted to remain, impaired, or that it has violated any of the provisions of tlie law under which it was organized, may, with the approval of the Attorney General, apply to the Circuit Court, or .judge thereof in vacation, of the county in which the bank or corporation is located, for the appointment of a receiver, wlio, under the direction of ihe court or judge, shall take possession of books, papers, and assets of every description, and all business of the bank or corporation, and collect all collectible debts and demands, and sell or compound, under the order of the court, all bad debts, and sell all the real and personal property of the bank or corporation, on such terms as the court may direct. The receiver shall be resident of the county in which the action is pending, and give bond, with good surety, to be approved by the court, and settle his accounts under the general laws.”
It will be observed that this section authorizes the appointment of a receiver by the state court whose duty it shall be to-—
"take possession of booirs, payers and assets of every description, and all business of the bank or corporation, and collect all collectible debts and demands, and sell or compound, under the order of the court, all bad debts, and sell all (he real and personal property of the bank or corporation, on such terms as the court may direct.”
Prima facie this refers to the property and assets of the corporation, as such, and we think that under the language of section 547, supra, the double-liability obligation ought not in any wise to be regarded as the property of the corporation or as any part of its assets. Section 547, which creates the liability, in express terms gives the benefit of it not to the corporation (which indeed has been paid in full for all the stock it had issued), but in express terms makes the stockholders liable to the “creditors,” but not to any other person. We cannot find that the Kentucky Court of Appeals has ever definitely construed these two sections in connection, though in Covington Stone, etc., Co. v. Rosedale, etc., Co., 76 S. W. 506, 25 Ky. Raw Rep. 964, it gave some indication of its views thereon. We are, therefore, without guidance from that tribunal except to the extent just mentioned, and must decide for ourselves. What we have said will, for present purposes, sufficiently indicate our views, which seem to accord with, those of the Court of Appeals.
Orders will he entered overruling each and all demurrers and pleas filed by the complainants to the bill of complaint.
