Allen v. Cosmopolitan Trust Co.

• Decision Date: 04 January 1924
• Citation: 247 Mass. 334,142 N.E. 100
• Parties: ALLEN, Commissioner of Banks, v. COSMOPOLITAN TRUST CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

247 Mass. 334

142 N.E. 100

ALLEN, Commissioner of Banks,

v.COSMOPOLITAN TRUST CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Jan. 4, 1924.

Report from Supreme Judicial Court, Suffolk County.

Suit in equity by Joseph C. Allen, Commissioner of Banks of the Commonwealth of Massachusetts, in possession of the property and business of the Cosmopolitan Trust Company, against the corporation and its stockholders, to enforce individual liability of the stockholders. On report. Order overruling demurrers affirmed.D. L. Smith and R. W. Nason, both of Boston, for plaintiff.

M. M. Horblit, of Boston, for certain defendants.

Philip N. Jones and F. D. Healy, both of Boston, for certain defendants.

J. A. Boyer, of Boston, for certain defendants.

RUGG, C. J.

This is a suit in equity by the commissioner of banks, in possession under authority of the statutes on and since September 25, 1920, of the property and business of the Cosmopolitan Trust Company, against that corporation and numerous persons alleged to be holders of stock therein. The allegations of the bill are in brief that judgment was obtained against the Trust Company on July 5, 1921, for a large sum, that execution issued therein on which demand of payment was made on the Trust Company, that it neglected for 30 days thereafter to pay the amount due thereon or to exhibit real or personal property subject to be taken on execution sufficient to satisfy the same, and that the execution was returned unsatisfied on May 23, 1922; that the commissioner of banks on October 31, 1921, determined that it was necessary to enforce the individual liability of the stockholders of the Trust Company under G. L. c. 172, § 24, to the full amount, in order to pay the liabilities of the Trust Company, and that such necessity still exists. Then follows an allegation that on September 25, 1920, and also on the date of the beginning of the action in which the judgment was obtained, the persons set forth in a schedule were stockholders in the Trust Company and owners of the number of shares of stock set against their respective names. The prayers are for an assessment and order for payment against the shareholders, and for general relief.

Demurrers have been filed by several of the defendants. Without stating in detail their grounds, they will appear as they are discussed.

1. The commissioner of banks may bring this suit in his own name, joining the Trust Company as a defendant. The relevant words of G. L. c. 167, § 24, are, ‘He may * * * enforce the individual liability of the stockholders.’ These words import that he may perform that duty in any appropriate way, one of which is suit in his own name. Commissioner of Banks v. Cosmopolitan Trust Co., 240 Mass. 254, 133 N. E. 630;Commissioner of Banks v. Prudential Trust Co., 242 Mass. 78, 136 N. E. 410. This has been the practice under the federal National Bank Act, which our statute follows. U. S. Rev. St. § 5234 (U. S. Comp. St. § 9827); Kennedy v. Gibson, 8 Wall. 498, 19 L. Ed. 476;Studebaker v. Perry, 184 U. S. 258, 22 Sup. Ct. 463, 46 L. Ed. 528;Christopher v. Norvell, 201 U. S. 216, 26 Sup. Ct. 502, 50 L. Ed. 732, 5 Ann. Cas. 740.

[2] 2. It is not necessary that the commissioner of banks in bringing this suit allege that it is brought ‘in behalf of himself and all other creditors.’ G. L. c. 158, § 49. That averment is inapplicable in the circumstances here disclosed. The commissioner is not a creditor himself but acts in behalf of the creditors entitled to share in the proceeds of the suit. The allegations are adapted to his duties and the liabilities which he may enforce. The distribution of the amounts recovered must be in accordance with the statutes.

[3] 3. The bill is not defective because not alleging that it is brought against ‘all persons who were stockholders * * * at the time of the commencement of the suit in which such judgment was recovered.’ See G. L. c. 158, § 49. Manifestly suit need not be brought against stockholders who have already paid without suit. The commissioner of banks is enforcing liability under the power conferred by G. L. c. 167, § 24, and not as a creditor. The allegations are sufficient in this particular. There is no defect of parties.

[4] 4. The bill sets forth sufficient facts to warrant the enforcement of stockholders' liability. The allegation in this particular is that the commissioner of banks has determined that ‘it is necessary to enforce the individual liability of the stockholders as described in the first sentence of section 24 of chapter 172 of the General Laws’ to the full amount ‘in order to pay the liabilities of said Trust Company.’ Fairly construed, this allegation means that he has determined to enforce the kind of liability established by the statute for the purposes authorized by the statute, and for no other purposes. The liability of stockholders is limited by G. L. c. 172, § 24, to which reference is expressly made in the allegation of the bill, to ‘contracts, debts and engagements of the corporation.’ Manifestly these words do not comprehend every kind of liability. Savage v. Shaw, 195 Mass. 571, 81 N. E. 303,122 Am. St. Rep. 272,12 Ann. Cas. 806. While the word ‘liabilities' in some connections includes other forms of legal responsibility than ‘contracts, debts and engagements,’ it is plain that the pleader in the case at bar has in fact narrowed his averment to the particular kind of obligations for which stockholders may be liable under the words of said section 24. The express reference to that section in the allegation of the bill shows that the word ‘liabilities' is there used as including only ‘contracts, debts and engagements.’

[5] The liability of stockholders for all ‘contracts, debts and engagements' of the Trust Company under G. L. c. 172, § 24, is not restricted further by the words of G. L. c. 167, § 24, whereby the commissioner of banks in possession of a trust company is empowered to enforce the stockholders' liability ‘if necessary to pay the debts of any such trust company.’ In other connections the word ‘debts' has a more constricted significance. Kilbourne Co. v. Standard Stamp Affixer Co., 216 Mass. 118, 103 N. E. 469. But it is used in G. L. c. 167, § 24, as a generic word to include every kind of liability of stockholders established under G. L. c. 172, § 24; Lothrop v. Reed, 13 Allen, 294, 296.

[6][7][8][9] 5. It is not essential that the bill set out with excessive accuracy of detail every preliminary step taken or conclusion reached by the plaintiff before deciding to bring suit to enforce stockholders' liability. While an allegation that the Trust Company was insolvent and that its assets were insufficient to pay its obligations would not have been out of place, it was by no means essential. A determination that it is necessary to enforce the individual liability of stockholders under G. L. c. 172, § 24, imports inevitably a previous ascertainment of the fact that other assets of the Trust Company are insufficient to meet its contracts, debts and engagements as and when they ought to be met. The existence of that fact is an irresistible inference from the other facts alleged and need not be set out. The ground of equitable remedy sufficiently appears without the further specific averment of insolvency of the Trust Company. The bill in this respect conforms to G. L. c. 214, § 12, by stating briefly the ‘material facts and circumstances relied on’ and by omitting superfluous matters. The liability of the stockholders is established by the determination of the commissioner of banks that it ought to be enforced. Allegation of that fact is sufficient as matter of pleading. Commissioner of Banks v. Prudential Trust Co., 242 Mass. 78, 136 N. E. 410. It was held in that case that the power to determine whether to enforce the liability of stockholders and the power to decide finally the amount of such liability to be enforced, up to the full limit permitted by the statute, are referred to the judgment and discretion of the commissioner and cannot be controverted by the stockholders in any litigation that may ensue. The question of the necessity of enforcing the liability of stockholders and the extent to which that liability shall be enforced are not open further to judicial inquiry in a proceeding to enforce that liability. That proposition is supported by a large number of decisions of the Supreme Court of the United States interpreting the similar provisions of the National Bank Act, on which our statute was framed. Those decisions there were reviewed, beginning with Kennedy v. Gibson, 8 Wall. 498, 19 L. Ed. 476, and ending with Christopher v. Norvell, 201 U. S. 216, 26 Sup. Ct. 502, 50 L. Ed. 732, 5 Ann. Cas. 740. It was supported, also, by the persuasive authority of numerous state decisions there collected construing statutes similar to our own. That proposition was reaffirmed in Cosmopolitan Trust Co. v. Cohen, 244 Mass. 128, 138 N. E. 711. This ground need not be gone over again. It is not open to further discussion. Decisions of a contrary tenor by federal district or circuit judges in Bowden v. Morris, 1 Hughes, 378, Fed. Cas. No. 1,715, and Moss v. Whitzel (C. C.) 108 Fed. 579, can have no weight under these conditions. The allegations of the bill are sufficient in this respect.

[10] 6. The allegation that the determination of the necessity to enforce the liability of stockholders under the statute was made by the commissioner of banks on a date prior to the return unsatisfied of the execution issued on the judgment against the Trust Company, and the further allegation ‘that it is necessary so to enforce the said individual liability of said stockholders,’ sufficiently state the material facts essential to the liability of stockholders under the statute. The liability of the stockholders cannot be enforced unless and until and a judgment has been recovered against the corporation and it has neglected for 30 days...