184 P. 929 | Utah | 1919
This action was commenced in the district court of Juab county by the plaintiff, as receiver of the Merchants’ Bank of
The plaintiff, in his complaint, in substance, alleged: That in a certain proceeding he was, by the district court of Salt Lake county, duly appointed receiver of the Merchants’ Bank. That said bank was organized pursuant to the laws of Utah about July 1, 1908,- with a capital stock of $250,000, divided into 2,500 shares of the par value of $100 each, and that all of said stock was issued and outstanding, and that the defendant is the owner of five of said shares. That “at the time of the appointment of said receiver and prior thereto the said bank was hopelessly insolvent, and its assets were and are insufficient to pay its debts and liabilities, and in order to pay the same it is necessary to collect the full and entire amount of the statutory stockholders’ liability provided by chapter 25, Session Laws of Utah 1911, and on or about the 2d day of December, 1918, in due course of administration and upon petition of said receiver duly made, served, and filed in the said receivership proceedings, and upon hearing thereon regularly noticed and had, and evidence duly presented, the said * * * district court, being fully advised in the premises and satisfied of the propriety and the necessity therefor, duly made and entered its order as follows: ‘ That the necessity for collecting the full amount of the statutory stockholders’ liability fully appearing, Stephen H. Lynch, as receiver in the above-entitled cause, is hereby authorized and
To this complaint the defendant demurred: (1) That the facts stated do not constitute a cause of action against the defendant; (2) that the complaint is uncertain and ambiguous (stating various particulars wherein it is so) ; (3) that the plaintiff has not legal capacity to sue, for the reason, among others, that the right of action is in the creditors of the bank and not in plaintiff as receiver; (4) that there is a defect of parties, in that the other stockholders are necessary parties to the action and are not made so; and (5) that the act authorizing the reeéiver to maintain an action to enforce the stockholders’ additional liability is unconstitutional and therefore void for the reasons stated in the demurrer, and which will hereinafter more specifically be referred to
The district court sustained the special demurrer, upon the sole ground, however, that the act authorizing the receiver to sue the stockholders and recover from them the additional liability is void because the stockholders are liable to the creditors of the bank only for the additional liability imposed by the Constitution.
The plaintiff elected to stand upon his complaint, and the
We remark that, in view that the sufficiency of the complaint is attacked generally, and as counsel for both parties have requested it, we shall dispose of all the legal questions that are necessarily raised by the demurrer. We deem it more convenient, however, to consider the constitutional ground of the demurrer first.
Our Constitution, art. 12, section 18, provides:
“The stockholders in every corporation, and joint-stock association for banking purposes, in addition to the amount of capital stock subscribed and fully paid by them shall be individually responsible for an additional amount equal to the amount of their stock in such corporation for all its debts and liabilities of every kind.”
The foregoing constitutional provision was incorporated into the Revised Statutes of 1898, as section 382 of that revision, in the exact language as it was adopted in the Constitution except that in the last line the word “its” is omitted from the statute. Section 382 was subsequently carried forward into Compiled Laws Utah 1907, in the precise language as it is copied into the Revised Statutes of 1898. In the Revised Statutes of 1898, in section 390, it was also provided:
“The secretary of state, upon becoming satisfied that any bank has become insolvent, or that its capital has become and is permitted to remain impaired, or that it has violated any provision of law, may, through the attorney general, apply to the district court, or a judge thereof, for the appointment of a receiver to take charge of and wind up the business of such bank.”
That section was. also carried forward into Compiled Laws Utah 1907.
It will be observed that nothing was said, either in the section as found in the Revised Statutes of 1898 or in Compiled Laws Utah, 1907, respecting the receiver’s right to enforce the stockholders ’ additional liability.
The law remained in that condition until March, 1911, at which time the Legislature passed chapter 25, Laws Utah 1911, in which section 382 aforesaid is again copied in the
“The receiver, if any he appointed, shall,-under the direction of the court, take possession of the books, records and assets of every description of such bank, collect all debts, dues and claims belonging to it, sell or compound all bad or doubtful assets, and sell all the real and personal property of such bank, on such terms as the court shall direct, and may, if necessary to pay the debts of such bank, enforce all individual liabilities of the stockholders, and shall make a report to the bank commissioner of all his acts and proceedings.” (Italics ours.)
The italicized portion is in the language of the federal act authorizing the Comptroller of the Currency to proceed to recover the stockholders’ additional liability. The same language is also used in many of the laws of the different states to which reference is made in the cases hereinafter cited.
"We remark that neither in the constitutional provision nor in anything that is said in the Revised Statutes of Utah of 1898, nor in Compiled Laws Utah 1907, nor in the act of 1911, is there any intimation whatever with respect to what the nature of the proceedings shall be. Indeed, until chapter 25, supra, was passed in 1911 nothing had been said in either the Constitution or 'the statutes as to who should enforce the stockholders’ additional liability. In chapter 25 it is, however, expressly provided that the receiver may do so
Before proceeding to a consideration of the various contentions urged on behalf of the defendant, we here insert certain propositions which, in our judgment, are supported by the great weight of the more recent decisions emanating from both state and federal courts. Those propositions may, for convenience, be stated thus:
(a) A provision like the one in our Constitution is self-executing. Willis v. Mabon, 48 Minn. 140, 50 N. W. 1110, 16 L. R. A. 281, 31 Am. St. Rep. 626 and cases there cited; Fletcher Ency. Corps, section 4143. To
(b) Where the Constitution or statute merely imposes or fixes the liability without providing how it shall be enforced, the bank’s creditors may enforce it in an ordinary
(c) In case the Constitution or the statute fixing the liability fails to determine by whom the liability may be enforced for the benefit of the creditors, the Legislature
(d) Under a constitutional provision like ours, when authorized by statute as in section 34, chapter 25, Laws Utah 1911, the receiver who is appointed to take charge
(e) Unless the statute (as is the case in Iowa) provides a different rule, the order or judgment of the court declaring the bank insolvent and adjudging that it is
(f) The method of procedure to enforce the liability may be changed by the Legislature if such change does not enlarge or affect the liability of -the stockholder in case
(g) Under constitutional and statutory provisions like ours it is not essential that all of the bank’s assets be first exhausted before proceeding to enforce the stockholders’
We remark that in referring to the foregoing cases we do not wish to be understood as having exhausted the number that might be cited in support of any one of the propositions. In that connection we also desire to state that there are also decisions to the contrary upon nearly all of the foregoing propositions. In our judgment, however, the foregoing propositions are sustained by the great weight of modern authority.
Recurring, now, to our constitutional provision by which the stockholders’ additional liability is imposed. It will be observed that the liability is couched in the most general terms. The liability that the Constitution imposes is a gen
“Admitting that it would be a convenient and desirable remedy for the receiver of a corporation to collect for the creditors their dues from the stockholders, the relief is to be sought at the hands of the Legislature and not the court.”
The Utah eases, therefore, do not support the contention of defendant’s counsel that the right to sue the stockholders to recover the additional liability is exclusively
Counsel have, however, cited and specially rely upon the case of Golden v. Cervenka, 278 Ill. 409, 116 N. E. 273, in which the Supreme Court of Illinois held that the right to sue is exclusively vested in the bank’s creditors. That decision, however, is based upon former decisions of the same court, and seems to be based upon the wording of Illinois Constitution, art. 11, section 6, which provides that the stockholders “shall be individually responsible and liable to its creditors”; that is, the bank’s creditors. It is there held that the right to enforce the liability is a personal right vested in the creditors by the express terms of the Constitution. As already pointed out, however, our Constitution merely provides that the stockholders shall be liable for the ‘ ‘ debts and liabilities” of the bank. That does not mean or imply that a stockholder may be sued to enforce that liability by any creditor at any time the bank fails or refuses to pay the creditor’s demand.
While the right to sue is held to be in the bank’s creditors in California, it was so held by virtue of a special statute, which provides that—
“Any creditor of tbe corporation may institute joint or several actions against any of its stockholders, for tbe proportion of bis claim payable by each.” Cal. Civ. Code, section 322.
It is, however, asserted that the funds derived from the stockholders’ additional liability are no part of the assets of the bank and hence the general receiver of the bank is not authorized to receive or to administer them. It is cheerfully conceded that the stockholders’ additional liability is not an asset of the defunct bank in the sense that that term is generally used and applied. The liability is, however, imposed as an additional security for the payment of the bank’s debts and liabilities. The funds derived from the stockholders’ additional liability must, therefore, be applied to the payment of the bank’s debts/ That, however, may also be said with regard to the general assets of the bank. A perusal of that portion of section 34 of chapter 25 which we have quoted makes it quite clear to our minds that the receiver is not empowered to proceed to enforce the stockholders ’ additional liability mei’ely by virtue of his office as receiver, but that he is specially authorized to do that if it is necessary to do( so to pay the bank’s debts and liabilities. If the general assets of the bank are sufficient to pay those debts, no authority is conferred on any one to enforce the; additional liability, and none is necessary. It manifestly was the intention of the Legislature that the person who is appointed the general receiver of the bank, in case the general assets are insufficient to pay its debts, is by virtue of the act specially authorized to proceed to enforce the stockholders’ additional liability for the purpose of paying the debts of the bank. He thus becomes the special agent or trustee for that purpose precisely as by 'virtue of his receivership he becomes the arm of the court to collect and to administer the bank’s general assets under its orders and
The contention made by counsel that the right of enforcement of the stockholders’ additional liability is exclusively vested in the bank’s creditors would necessarily lead to this: That each creditor may exercise his choice regarding the stockholder he will sue. The creditor could thus compromise with a particular stockholder, or particular stockholders, for a consideration entirely outside of the constitutional liability, and thus one favored stockholder might be required to páy only a small percentage of his total liability to pay the bank’s debts while other stockholders might be required to pay one hundred per cent, of' their liability. Counsel, however, suggest that every creditor has the legal right to either sue or not sue as he may see fit; that he has the legal right to claim all or only a part of the debt owing to him by the bank, and that he may dispose of his claim as he may choose. No one disputes these propositions, and no one can successfully contend
We think it is manifest that under our Constitution the bank’s creditors must establish their claims against the bank in the proceeding pointed out by the law, and that the bank must be given an opportunity to interpose any defense it may have, and that it is only after the bank’s debts have thus been established that the stockholders’ additional liability may be enforced. If each creditor may sue at any time in any court any stockholder he may elect of whom the court may obtain jurisdiction the ultimate result must be anything but logical, economical, or speedy. We think the state has an interest in these matters, and that by virtue of that interest, when not limited by the Constitution, it may provide a special remedy to enforce the stockholders’ additional liability if that be found necessary to pay the bank’s debts.
We are also of the opinion that the remedy provided in section 34 of chapter 25, supra, is adequate, economical, and speedy, and in no way contravenes anything that is said or implied in our Constitution. In case no remedy is provided by the Constitution and that instrument merely creates a general liability, the great weight of authority is to the effect that the Legislature may not only provide a remedy, but may change the remedy from time to time. Such is the effect of the conclusion of the Supreme Court of the United States. In
“It may he regarded as settled that upon acquiring stock the stockholder incurred an obligation arising from the- constitutional provision, contractual in its nature, and, as such, capable of being enforced in the courts, not only of that state, but of another state and of the United States, Whitman, etc., v. Bank, 176 U. S. 559 (20 Sup. Ct. 477, 44 L. Ed. 587), although the obligation is not entirely contractual and springs primarily from the law creating the obligation. Christopher v. Norvell, 201 U. S. 216 (26 Sup. Ct. 502, 50 L. Ed. 732, 5 Ann. Cas. 740.)
“Is there anything in the obligation of this contract which is impaired by subsequent legislation as to the remedy enacting new means of making the liability more effectual? The obligation of this contract binds the stockholder to pay to the creditors of the corporation an amount sufficient to pay the debts of the corporation which its assets will not pa,y, up to an amount equal to the stock held by each shareholder. That is his contract, and the duty which the statute imposes, and that is his obligation. Any statute which took away the benefit of such contract or obligation would be void as to the creditor, and any attempt to increase the obligation beyond that incurred by the stockholder would fall within the prohibition of the Constitution. But there was nothing in the laws of Minnesota undertaking to make effectual the constitutional provision to which we have referred, preventing the Legislature from giving additional remedies to make the obligation of the stockholder effectual, so long as his original undertaking was not enlarged. There is a broad distinction between laws impairing the obligation of contracts and those which simply undertake to give a more efficient remedy to enforce a contract already made.
“This principle was stated by Mr. Chief Justice Marshall in Sturges v. Crowninshield, 4 Wheat. 122 (4 L. Ed. 529), as follows:
“ ‘The distinction between the obligation of a contract and a remedy given by the Legislature to enforce that obligation exists in the nature of things, and, without impairing the obligation of the- contract, the remedy may certainly be modified as the wisdom of the nation may direct.’ ”
There are numerous other eases, emanating from both state and federal- courts, announcing the same doctrine, many of which are cited in support of some of the several propositions we have hereinbefore stated.
It is, however, further contended that section 34 of
It is also contended that section 34 of chapter 25 is invalid for the reason that the subject-matter thereof is not expressed in the title of the act, and that it is not clearly
Nor does section 34 constitute a separate and distinct subject within the constitutional provision. It is also well settled, as pointed out in Marioneaux v. Cutler, supra,
In any event, however, the title to chapter 25 is not so clearly defective as to authorize us to declare the act invalid for the reason stated.
It is also vigorously urged that the complaint is insufficient because it contains no allegation that it is necessary to enforce the stockholders’ additional liability. The allegation of the complaint in that regard is that the bank is “hopelessly insolvent, and its assets were and are insufficient to pay its debts and liabilities, and in order to pay the same it is necessary to collect the full and entire amount of the statutory stockholders’ liability,” etc. That allegation is supplemented by a
In the case of Howarth v. Lombard, supra, in referring to the effect to be given to the order or judgment in which the necessity of enforcing the stockholders’ additional liability is determined, it is said:
“The ascertainment is like a common case oí a judgment against a corporation which is binding on stockholders. The members of such corporations, as well as the corporations themselves, are within the jurisdiction of the local court so far as is necessary for the determination of the rights and liabilities of the corporation and its members among themselves. In reference to this kind of liability such decisions and orders are binding on stock*147 holders who are not before the court otherwise than by virtue of their membership in the corporation. Elderkin v. Peterson, 8 Wash. 674 (36 Pac. 1089); Hawkins v. Glenn, 131 U. S. 319 (9 Sup. Ct. 739, 33 L. Ed. 184); Great Western Telegraph Co. v. Purdy, 162 U. S. 329, 336 (16 Sup. Ct. 810, 40 L. Ed. 986); Glenn v. Liggett, 135 U. S. 533 (10 Sup. Ct. 867, 34 L. Ed. 262); Sanger v. Upton, 91 U. S. 56, 58 (23 L. Ed. 220); Marson v. Deither, 49 Minn. 423 (52 N. W. 38); Lewis v. Glenn, 84 Va. 947, 979 (6 S. E. 866); Hamilton v. Glenn, 85 Va. 901 (9 S. E. 129); Glenn v. Williams, 60 Md. 93, 116.”
In Sanger v. Upton, supra, the Supreme Court of the United States, in referring to the question, held that in contemplation of law every stockholder is “before the court in all proceedings touching the corporation,” and thus he must be deemed to have been before the court in the proceedings wherein the liability of the bank is ascertained and fixed and in which the indebtedness of the bank is determined. Any other conclusion would necessarily lead to interminable litigation. If, however, the stockholders are “before the court” in such a proceeding and are bound thereby, it would seem that they should likewise have the right to directly attack the order or judgment for fraud or collusion, étc., and have it set aside. See 2 Black, Judgments, section 583. The attack must, however, be made directly and at the proper time and in the proper manner, and not collaterally by each stockholder when he is sued to recover the additional liability. If the right to assail the order or judgment directly for fraud, etc., is given to the stockholders they are deprived of no legal rights. Moreover, such an attack would be regular, orderly, and expeditious, while to permit each stockholder to assail such an order or judgment in the action in which his additional liability is sought to be enforced might lead to most incongruous results. Of course, any stockholder may set up any facts which show he is not liable.
In this connection it is also important to keep in mind that it is not necessary to exhaust and apply all of the general assets of the bank before proceeding to the enforcement of the stockholders’ additional liability, in case it is made to appear that the funds to be derived from that liability are necessary to pay the bank’s indebtedness. In referring to that subject
“There is no requirement to await a collection and application of the debts and property of the bank before bringing this suit against the stockholders. In many cases it would require a considerable period of time to collect the debts and dispose of all the personal and real estate belonging to a bank, even though it might be perfectly manifest that when this is done there would still be a large deficit due to the depositors. If the bank or its liquidators were required to await until the debts had been collected and the assets converted into cash, many of the stockholders might escape liability by becoming insolvent or moving out of the jurisdiction of the court. When the stockholders pay this liability into the bank and it is applied to the satisfaction of the depositors’ claims, and after the debts of the bank are paid, if there were any funds left the stockholder would naturally secure this remainder as a stockholder of the bank; and, of course, a stockholder who had paid the liability would first be, repaid before any stockholder who had not paid such liability would be entitled to any dividend from the proceeds of the bank. We therefore think that the suit can be maintained whenever it is reasonably apparent that the assets of the bank will not pay the depositors.”
Other court? have expressed the same thought in different language. A moment’s reflection should convince that the reasons are practical, sound, and salutary. Why, in case a bank is hopelessly insolvent and cannot pay its debts, should its creditors be obliged to wait the slow process of converting all of the general assets of the bank into cash before calling upon the stockholders’ additional liability to pay the debts which they are obligated to pay Í If such a course be pursued it must often result in sacrificing valuable assets by too hastily converting them into cash. It is for the best interests of all stockholders that the assets of the bank be converted into cash at the best price obtainable therefor, and as nearly for their actual value as the conditions and circumstances will permit. It is not possible to do that if all of the assets are converted into money within a short or limited time. Again, any amount of money that is left after the debts are paid must by the receiver be distributed among the stockholders. Those who have paid their additional liability must, as a mat
We remark that we perhaps have dwelt upon certain phases of the case longer than seems necessary. In view, however, that there are a large number of other actions pending in different courts and before different judges, we have deemed it best to state our reasons fully and in detail, to avoid, if possible, further delays and unnecessary litigation.
The judgment of the district court of Juab county is therefore reversed, and the cause is remanded to that court, with directions to overrule both the general and special demurrers, to permit the defendant to answer the complaint, and to set up such legal defenses as he may have, and to proceed with the ease in accordance with the views herein expressed. Defendant to pay costs of this appeal.