Austin v. Strong

• Decision Date: 25 January 1928
• Docket Number: (No. 860-4949.)<SMALL><SUP>*</SUP></SMALL&gt
• Citation: 1 S.W.2d 872
• Parties: AUSTIN, Commissioner of Banking, v. STRONG.
• Court: Texas Supreme Court

1 S.W.2d 872

AUSTIN, Commissioner of Banking, v. STRONG.

(No. 860-4949.)^*

Commission of Appeals of Texas, Section B.

January 25, 1928.

Certified Questions from Court of Civil Appeals of Fifth Supreme Judicial District.

Action by Mrs. Lou Strong against Charles O. Austin, Commissioner of Banking. Judgment for plaintiff was reformed and affirmed on appeal, and before rehearing the Court of Civil Appeals certified questions to the Supreme Court. Questions answered.

L. L. James, of Greenville, for appellant.

Clark, Harrell & Starnes, of Greenville, and C. C. McKinney, of Cooper, for appellee.

LEDDY, J.

Certified questions from the Court of Civil Appeals for the Fifth Supreme Judicial District. The certificate is as follows:

"Mrs. Lou Strong, the appellee, brought this suit in the district court of Delta county against Charles O. Austin, banking commissioner of Texas, to recover $726.86, the amount she had on deposit in the Security State Bank of Cooper at the time the banking commissioner took charge of its affairs for the purpose of liquidation.

"The facts are undisputed, and, as found, both by the trial court and this court, are as follows:

"The Security State Bank of Cooper, a state banking corporation, was organized in May, 1921, and at that time T. A. Strong, deceased husband of appellee, became the owner of five shares of its stock of the par value of $100 per share. This stock was owned by Mr. Strong at the time of his death in April, 1924, and constituted a part of the community estate of himself and wife. He died intestate; there was no administration of his estate and no necessity therefor; he left no child, children, or their descendants; and appellee, the survivor of the community, is the sole and only person under the law to whom the community estate would go. On January 1, 1925, the Security State Bank closed its doors on account of insolvency, and its affairs were taken over by Charles O. Austin, banking commissioner, for the purpose of liquidation, and at that time appellee had on deposit in the bank the sum of $726.86, entitled to protection from the bank guaranty fund.

"On February 4, 1925, the commissioner of banking levied on each owner of stock in the bank a 100 per cent. assessment for the benefit of its creditors, and at this time the stock in question was on the records of the bank in the name of T. A. Strong, deceased, although the commissioner treated appellee as the owner of the stock and insisted that she was liable for the assessment.

"Mr. Strong left no estate subject to the payment of debts; the stock in question was of no actual value at that time nor at the time the bank was closed. Appellee did not regard the stock of any value at the time of her husband's death, and would not at that time have purchased stock in the bank, nor would she have accepted the same, under the circumstances, as a gift, and has continuously renounced any ownership or title to said stock. Within due time after the bank was closed, appellee presented to appellant a claim, properly verified, for the amount of her deposit in the bank, to wit, $726.86, for allowance as an unsecured, noninterest-bearing claim against the bank guaranty fund. The commissioner refused to allow the claim on the ground that appellee owed the $500 assessment on the stock and that he had the right to have the deposit applied first to its payment. In answer to the suit filed by appellee, appellant alleged the facts substantially as detailed herein, and insisted, in the nature of a plea of set-off, that he, as commissioner, was only liable to appellee for that portion of deposit over and above the amount of her liability on the assessment.

"The trial court's conclusion of law was to the effect that, appellee, under the facts, was not a stockholder in the bank within the meaning of the banking laws of the state, and that she was not liable for the assessment, and accordingly rendered judgment for appellee against appellant for the full amount of the deposit, with interest and costs, established the same as a valid claim against the guaranty fund, and denied appellant's plea of set-off. On this appeal but one question was presented for our consideration — that is, as to the correctness of the legal conclusion of the trial judge and the judgment based thereon.

"On original submission, this court sustained the contention of appellant, holding that, under the facts, appellee was, as survivor of the community, owner of the five shares of stock in question, and was personally liable for the payment of the assessment, and therefore was entitled to recover from the commissioner of banking only that portion of the deposit over and above her liability as stockholder, and accordingly we reformed and affirmed the judgment. The opinion of this court, disposing of the questions raised, will be transmitted with other papers accompanying this certificate, from which we apprehend the honorable Supreme Court will have no difficulty in ascertaining the precise questions ruled upon.

"We have the motion of appellee for rehearing under consideration, and, pending action thereon, we have deemed it advisable to present to the honorable Supreme Court for adjudication the issues of law that arose from these facts — that is, first, Was appellee the owner of the five shares of stock in the Security State Bank of Cooper at the time the commissioner of banking levied the assessment? Second, Was she personally liable for the payment of the assessment? And, third, If liable, was appellant entitled to plead her liability in set-off to her action against him for the recovery of the deposit?"

The claim sought to be enforced by the commissioner of banking is founded upon article 535, R. S. 1925, which provides, that:

"If default shall be made in the payment of any debt or liability contracted by a bank, savings bank or bank and trust company, each stockholder of such corporation, as long as he owns shares therein, and for 12 months after the date of a transfer thereof, shall be personally liable for all debts of such corporation existing at the date of such transfer, or at the date of such default, to an amount double the par value of such shares."

Appellee's liability for the assessment on the bank stock, owned by her husband at the time of his death, is dependent upon whether she was a stockholder in the bank, within the meaning of such provision of the statute. A proper consideration of this question involves an ascertainment of the basis of the relation of stockholders in state banks. A careful examination of the authorities discloses a practically universal holding that such relation is one created solely by contract, either express or implied. The established rule is well stated in Corpus Juris, vol. 14, p. 507, § 752, as follows:

"The relation of stockholder to the corporation whose stock they hold is that of contract, and the rights, duties, and liabilities of both parties grow out of the contract, express or implied, in a subscription for or purchase of stock, construed by the provisions of the charter of articles of incorporation; and therefore, to make one a stockholder, with the rights and subject to the liabilities which arise out of that relation, a contract, express or implied, between him and the corporation must be established."

Michie on Banks and Banking, vol. 1, p. 163, states the rule to be:

"Bank stockholder's individual liability is contractual in its nature. It is based upon the contract of subscription, the implied terms of that contract being the declaration of the statute that a certain contingent liability should follow the subscription."

In Ruling Case Law, vol. 7, § 277, a similar doctrine is announced in the use of this language:

"The relation of stockholders to the corporation whose stock they hold is that of contract, and all the rights and duties of both parties grow out of the contract, express or implied, in the subscription for stock."

The leading text-writers, in discussing this subject, recognize the doctrine as above stated to be well settled. Morawetz on Corp. § 870; Thompson on Corp. §§ 3056, 4790; Cook on Stock and Stockholders, § 223.

In Chavous v. Gornto, 89 Fla. 12, 102 So. 754, in discussing this question, it was remarked:

"The doctrine is settled that the liability of stockholders in a banking company for its obligations is primarily contractual, and any acquisition of the stock implies assent of the owner to the statutory conditions under which the corporation is organized."

In Allen v. McFerson, 77 Colo. 186, 235 P. 346, the Supreme Court of Colorado, in discussing the basis of such liability, said:

"A stockholder of a bank assumes a contractual liability when he becomes a stockholder. The terms of his contract are largely statutory."

The Constitution of Illinois creates a liability against stockholders in banking corporations similar to that in this state. In discussing the nature of this liability, the Supreme Court of that state, in the case of Golden v. Cervenka, 278 Ill. 409, 116 N. E. 273, said:

"The liability of the stockholders to the creditors, though created by the Constitution, is based upon contract. A person who becomes a stockholder assumes a primary liability to the creditors of the corporation to an amount equal to his stock. He offers to become liable individually to the amount provided by the Constitution, and is bound by contract to all persons contracting with the corporation."

In Cochran v. Wiechers, 119 N. Y. 399, 23 N. E. 803, 7 L. R. A. 553, a similar rule is recognized by this declaration:

"Upon becoming the owner of the stock, he voluntarily assumes the obligations imposed by the statute, and the creditors of the corporation who trust it may be said to do so upon the faith of the statute, which is part of the contract. The statutory obligation is inherent in and forms a part of every contract" by which the stock of the corporation is acquired.

In Foote v....