Burnett v. West Madison State Bank

• Decision Date: 12 February 1941
• Docket Number: No. 25833.,25833.
• Citation: 375 Ill. 402,31 N.E.2d 776
• Parties: BURNETT v. WEST MADISON STATE BANK et al.
• Court: Illinois Supreme Court

375 Ill. 402

31 N.E.2d 776

BURNETT

v.WEST MADISON STATE BANK et al.

No. 25833.

Supreme Court of Illinois.

Dec. 12, 1940.

As Modified on Denial of Rehearing Feb. 12, 1941.

Suit by Frank P. Burnett, on behalf of himself and other creditors, against the West Madison State Bank and others, to enforce superadded constitutional liability of stockholders. From a judgment of the Appellate Court, 305 Ill.App. 113, 26 N.E.2d 881, reversing a decree against defendant John F. Novak, plaintiff appeals.

Judgment of Appellate Court reversed, and decree of circuit court affirmed.

SHAW and WILSON, JJ., dissenting.Appeal from Second Division, Appellate Court, First District, on Appeal from Circuit Court, Cook County; Michael Feinberg, Judge.

Louis David Friedman, Fred Albert, and Sol R. Friedman, all of Chicago (I. S. Friedman and John C. De Wolfe, both of Chicago, of counsel), for appellant.

Howard D. Moses, Le Forgee, Samuels & Miller, of Decatur, and Campbell, Clithero & Fischer, of Chicago (Delbert A. Clithero, of Chicago, Thomas W. Samuels, of Decatur, of counsel), for appellee.

MURPHY, Justice.

November 12, 1929, the West Madison State Bank and the Garfield State Bank were consolidated and a certificate of organization was issued to the latter bank as successor to the two banks. It was alleged in plaintiff's complaint that the West Madison State Bank never transacted any business as a banking institution subsequent to the consolidation, and that at the time it ceased to transact business its liabilities exceeded its assets by $600,000. The Garfield State Bank was closed by the Auditor June 11, 1931, without having paid all the indebtedness of the West Madison State Bank. A receiver was appointed for the Garfield State Bank and the liquidation of the assets was started.

In August, 1937, appellant, Frank P. Burnett, a depositor of the West Madison State Bank and a creditor at the time of the consolidation, filed a complaint in the circuit court of Cook county to enforce the superadded liabilities of the stockholders of the West Madison State Bank. The suit was prosecuted as a representative action. Appellee Novak, a stockholder of the bank, owning five shares from February 10, 1925, to February 9, 1928, moved to strike the amended complaint and dismiss the suit on the grounds (1) that it appeared from the face of the pleading plaintiff's cause of action was barred by the five-year statute of limitations, and (2) that by the consolidation proceeding the Garfield State Bank had assumed the liabilities of the West Madison State Bank and, by operation of law, the stockholderswere thereby discharged from the constitutional liability. The motion was overruled and, after appellee elected to stand on his motion, a decree pro confesso was taken and judgment was entered against appellee for $500, the par value of the five shares of stock registered in his name. On appeal the Appellate Court held the action barred by the five-year statute of limitations (Ill.Rev.Stat.1939, chap. 83, par. 16), reversed the judgment and remanded the cause to the trial court, with directions to sustain the motion to strike and dismiss the suit as to appellee. The Appellate Court issued a certificate of importance and the case is here for further review.

Both parties concede that an action brought to enforce the liability imposed by section 6 of article 11 of the constitution, Smith-Hurd Stats., against stockholders of a State bank may, by lapse of time, he barred by statutory limitation, but there is sharp disagreement as to which section of the statute of limitations operates as a bar. Appellant's position is that such an action is founded on the transaction which makes the one or ones bringing the action creditors of the bank, and if it is in writing, or the indebtedness which forms the basis of the action is evidenced by writing, then the action can be barred only by section 16 of the statute of limitations, which provides in part: ‘Actions on * * * written contracts, or other evidences of indebtedness in writing, shall be commenced within ten years next after the cause of action accrued.’ Appellee contends the action is based upon an obligation imposed by the constitution, that it comes into existence by operation of law, is distinct from the transaction between the creditor and the bank, and may be barred by section 15 of the act which provides in part: ‘Actions on unwritten contracts, expressed or implied, * * * and all civil actions not otherwise provided for, shall be commenced within five years next after the cause of action accrued.’ The Appellate Court adopted the view that plaintiff's cause of action came within the classification of the statute of ‘all civil actions not otherwise provided for.'

No point is made as to the date of the accrual of the action,-that is, whether it accrued the date the West Madison State Bank ceased business, November 12, 1929, or whether it accrued the date of the closing of the Garfield State Bank, June 11, 1931, for more than five years elapsed between either of said dates and the commencement of the suit in August, 1937.

In the many cases that have come to this court involving stockholders' constitutional liabilities certain principles defining the character of such liability have been stated so often and they are so well established as rules of law that the mere statement of the ones material here is sufficient. The constitutional liability of the stockholder to the creditor is based upon contract and a person who becomes a stockholder assumes a primary liability to the creditor of the corporation to an amount equal to his stock. It is a several and individual liability on the part of each stockholder to each creditor. Golden v. Cervenka, 278 Ill. 409, 116 N.E. 273;Sanders v. Merchants' State Bank, 349 Ill. 547, 182 N.E. 897, 903.

Both sections 15 and 16 prescribe the limitation of time beyond which no action can be maintained if the Statute of Limitations is interposed as a defense. Either section operates as a bar to the action and leaves the debt itself unpaid, but no legal remedy available to enforce payment.

Appellee's contention, that a cause of action to enforce a stockholder's constitutional liability is not based upon the transaction between the creditor and the bank but is separate and distinct therefrom and arises by implication of law from the constitutional provision, requires a consideration of one of the essential elements of such a cause of action. The pertinent part of the constitutional provision is: ‘Every stockholder in a banking corporation or institution shall be individually responsible and liable to its creditors,’ etc. The liability thus imposed upon the stockholder is for the sole benefit of the creditors of the bank, and the one bringing an action to enforce such liability has the burden of proving he is a creditor of the bank. To be a creditor presupposes the establishment of the relationship of debtor and creditor between the bank and the individual. Such relationship must necessarily arise from a transaction, a series of transactions of an occurrence, of some character which leaves the bank, indebted to the one or ones seeking to enforce the liability. The constitutional liability is not imposed for the benefit of any particular class or group of creditors of the bank but includes all creditors of the bank. It is obvious that such relationship may arise in innumerable ways but whatever the origin of the relationship may be, when challenged, it is incumbent upon the creditor to prove the transaction or occurrence from which the relationship of debtor and creditor arises. The...