Bush v. Lien

• Decision Date: 30 December 1930
• Docket Number: 7111.
• Parties: BUSH v. LIEN et al.
• Court: South Dakota Supreme Court

234 N.W. 29

57 S.D. 501

BUSH v. LIEN et al.

No. 7111.

Supreme Court of South Dakota

December 30, 1930

Appeal from Circuit Court, Day County; Robert D. Gardner, Judge.

Action by C. C. Bush against C. H. Lien and others. From a judgment for plaintiff and an order denying a motion for new trial defendants appeal.

Affirmed.

Waddel & Dougherty, of Webster, for appellants.

L. H Woodworth, of Webster, and Dana Babcock, of Sisseton, for respondent.

BURCH J.

Plaintiff is a deposit creditor of the State Bank of Waubay. Defendants are stockholders of the bank. On the 8th day of October 1926, the bank suspended business and went into the hands of the superintendent of banks for liquidation. Plaintiff thereafter requested the superintendent of banks to commence action against stockholders to enforce the stockholders' liability imposed by article 18, § 3, of our state Constitution and section 8993, R. C. 1919. The request was denied, and this action was commenced by plaintiff to enforce such liability in his favor. Defendants demurred to his complaint, the demurrer was overruled, and defendants appealed to this court. On that appeal the trial court was sustained in Bush v. Lien et al., 228 N.W. 372. When the case was again on the calendar of the circuit court, defendants answered pleading a reorganization of the bank under the provisions of chapter 104, Laws of 1925, and a release of stockholders' liability under the reorganization agreement. The reorganization agreement was executed by deposit creditors representing more than 80 per cent. of the amount of deposits of said bank; was approved by the superintendent of banks and the circuit court. Thereupon the bank was reinstated as a solvent corporation. The reorganization proceedings were in all respects legal and valid and in accordance with the provisions of said chapter 104. Plaintiff became a creditor after chapter 104 was enacted, but he was not one of the consenting creditors. At all times he objected to the reorganization of the bank under the plan adopted and to a release of the then existing stockholders' liability imposed by the Constitution. Throughout this case, when we speak of the stockholders' liability, we mean the liability imposed by article 18, § 3, of the Constitution. On the trial of the case at bar the trial court found in favor of plaintiff, and defendants appeal.

The vital question now presented is, Did the reorganization of the bank release the stockholders' liability to plaintiff a nonconsenting deposit creditor? The constitutionality of chapter 104 was challenged when the circuit court approved the reorganization plan, and on appeal to this court the reorganization of this bank under the plan adopted was sustained in a per curiam opinion. See In re State Bank of Waubay, Respondent, v. Bush, Appellant, (S. D.) 225 N.W. 307. The per curiam opinion above mentioned was based on the holdings of this court in Farmers' & Merchants' Bank v. Tomlinson et al. (S. D.) 225 N.W. 305, and Smith v. Texley et al. (S. D.) 225 N.W. 307. In those cases we held a reorganization of a bank under chapter 104 binding on all resident deposit creditors who became such after the passage of the act whether consenting thereto or not, on the ground that the chapter is an insolvency law and enters into, and forms a part of, the contract between the bank and the depositor. Respondent, while conceding that his rights and remedies against the bank are the same as those of consenting creditors, relies on the rule that the discharge of the corporation in bankruptcy or insolvency proceedings does not affect the statutory liability of its stockholders for a debt owed by the corporation. In cases where the stockholders' liability is primary and direct, we think this rule is unquestionably sound. It would seem almost elementary that, where a creditor has a direct and primary claim against two, the bankruptcy of one will not discharge the other. That this is the rule see Way v. Barney, 116 Minn. 285, 133 N.W. 801, Ann. Cas. 1913A, 719, 38 L. R. A. (N. S.) 648 and note; Willis v. Mabon, 48 Minn. 140, 50 N.W. 1110, 16 L. R. A. 281, 31 Am. St. Rep. 626; Elsbree v. Burt, 24 R. I. 322, 53 A. 60. In a well-written and carefully considered opinion, we recently held that the stockholders' liability is direct and primary, and, being a liability created by the Constitution, it cannot be diminished by legislative action. Smith v. Olson, 50 S.D. 81, 208 N.W. 585.

The discharge or change in the amount and time of payment of respondent's claim against the insolvent bank did not release the stockholders' liability, and he may enforce his claim as it originally existed against the stockholders unless under the reorganization agreement the stockholders' liability was actually liquidated. No one claims that the stockholders' liability was liquidated in cash nor to have been in any manner liquidated or settled, except under and by virtue of the terms of the reorganization agreement adopted during the time the bank was in the hands of the superintendent...