Chisholm v. Gilmer

• Decision Date: 06 January 1936
• Docket Number: No. 3970.,3970.
• Citation: 81 F.2d 120
• Parties: CHISHOLM et al. v. GILMER.
• Court: U.S. Court of Appeals — Fourth Circuit

81 F.2d 120 (1936)

CHISHOLM et al. v. GILMER.^*

No. 3970.

Circuit Court of Appeals, Fourth Circuit.

January 6, 1936.

H. W. Walsh, of Charlottesville, Va., and M. J. Fulton, of Richmond, Va., for appellants.

Murray M. McGuire, of Richmond, Va., and George Gilmer, of Charlottesville, Va. (Gilmer & Graves, of Charlottesville, Va., and McGuire, Riely & Eggleston, of Richmond, Va., on the brief), for appellee.

Before PARKER and NORTHCOTT, Circuit Judges, and CHESNUT, District Judge.

PARKER, Circuit Judge.

This is an appeal in an action instituted to enforce the statutory liability of stockholders of a national bank against whom an assessment had been made as provided by statute. The action was instituted by the bank's receiver, by notice of motion for judgment under the Virginia practice, against one L. P. Chisholm and ten other persons, who were alleged to have subscribed, in the name of a trustee, to 230 shares of stock of the bank as joint adventurers and to have been the real owners of 220 of the shares, which were held in the name of the trustee, at the time of the bank's failure. The action was dismissed against five of the defendants because of their having received discharges in bankruptcy. It was continued as to one whose administrator interposed a defense of insanity. And it was tried against Chisholm and four others, who first pleaded in abatement that no writ had issued against them and that the action could not be prosecuted on notice of motion for judgment under the Virginia statute without service of process, and afterwards excepted to the order ruling them into trial, after the cause had been continued as to one of the defendants.

At the conclusion of the evidence, both sides moved for a directed verdict, and the trial judge directed verdict for plaintiff for the sum of $22,000 with interest from the date of the stock assessment. From judgment on this verdict, Chisholm and the other four defendants against whom judgment was rendered bring this appeal, contending (1) that the action could not be instituted by notice of motion without service of process by the marshal and that the plea in abatement should have been sustained; (2) that there was error in trying the case on the joint liability after it had been continued as to one of the defendants; and (3) that, on the facts, there was no joint liability on the part of the defendants for the stock assessment, and that it was therefore erroneous to deny their motion for directed verdict and to direct verdict against them.

The procedural questions can be briefly disposed of. It has been recently decided by this court, after full consideration, that notice of motion for judgment under the Virginia practice is a proper method of procedure for enforcing the statutory liability of a stockholder of an insolvent national bank, and that, on such notice of motion, it is not necessary that writ or other process be served by the marshal to bring defendants into court. Eley v. Gamble (C.C.A.4th) 75 F.(2d) 171. And we think it equally clear that under the Virginia practice it was proper to proceed against appellants notwithstanding the continuance as to one of the defendants. It is true that the liability of defendants was joint; but the action was one for the recovery of money, and section 6047 of the Code of 1930 provides:

"§ 6047. Against whom of those liable, judgment may be given on motion. — A person entitled to obtain judgment for money on motion, may, as to any, or the personal representatives of any person liable for such money, move severally against each, or jointly against all, or jointly against any intermediate number; and when notice of his motion is not served on all of those to whom it is directed, judgment may nevertheless be given against so many of those liable as shall appear to have been served with the notice, but the judgment against such personal representative shall, in all cases, be several. Such motions may be made from time to time until there is judgment against every person liable, or his personal representative."

And it is well settled that the liability of the stockholder is contractual, being based upon his original stock subscription. Richmond v. Irons, 121 U.S. 27, 55, 7 S.Ct. 788, 30 L.Ed. 864; Matteson v. Dent, 176 U.S. 521, 525, 20 S.Ct. 419, 421, 44 L.Ed. 571. As said by Chief Justice White in the case last cited, "The obligation of a subscriber to stock to contribute to the amount of his subscription for the purpose of the payment of debts is contractual, and arises from the subscription to the stock." This being true, there can be no doubt of the right of plaintiff to proceed to judgment against a part of the defendants jointly liable for the subscription under section 6265 of the Code of 1930, without proceeding against the others. The pertinent portion of that statute is as follows:

"Upon all contracts hereafter made by more than one person, whether joint only or joint and several, an action or motion may be maintained and judgment rendered against all liable thereon, or any one or any intermediate number, and if, in an action on any contract heretofore or hereafter made, more than one person be sued and process be served on only a part of them, the plaintiff may dismiss or proceed to judgment as to any so served, and either discontinue as to the others, or from time to time as the process is served, proceed to judgment against them until judgment be obtained against all."

Coming to the merits of the case, we note that at the conclusion of the testimony both sides moved for a directed verdict. It is well settled that this amounts to a waiver of jury trial and a consent that the trial judge decide the issues and direct a verdict accordingly; and, in such case, upon exception to an adverse finding and direction, the only question is whether the verdict as directed is supported by substantial testimony. In other words, the verdict must stand unless the party against whom it has been directed was entitled to have it directed in his favor. Williams v. Vreeland, 250 U.S. 295, 39 S.Ct. 438, 63 L.Ed. 989, 3 A.L.R. 1038; Sena v. American Turquoise Co., 220 U.S. 497, 501, 31 S.Ct. 488, 55 L.Ed. 559; Beuttell v. Magone, 157 U.S. 154, 15 S.Ct. 566, 39 L.Ed. 654; Barringer v. Dinkler Hotels Co. (C.C.A.4th) 61 F.(2d) 82, 83; Swift & Co. v. Columbia Ry., Gas & Electric Co. (C.C.A.4th) 17 F.(2d) 46, 49, 51 A.L.R. 983; Lawton v. Carpenter (C.C.A.4th) 195 F. 362. The only question left for our determination, therefore, is whether, upon the evidence, defendants were entitled to a directed verdict. We agree with the judge below that they were not.

The eleven defendants against whom the suit was brought constituted the board of directors of the First National Bank of Louisa, Va. They owned 75 per cent. of the capital stock of that bank, which was only $50,000, and they owed the bank $47,371 on their own notes and were liable to it on loans to others to the extent of $48,971. It was thought that the deposits of the bank, amounting to six or seven hundred thousand dollars, were out of proportion to the capitalization and that it would be advantageous to increase the capital stock by 50 per cent. and sell the new stock as widely as possible among the citizens of the county where the bank was located. Increase of capital stock was accordingly authorized and the price of the new shares was fixed at $150. Notice of the right to subscribe was given stockholders, but only a very few shares were sold in this way and none to the directors themselves.

In order to float the stock and distribute it in the county without depressing the price of $150 per share, the directors agreed to purchase the stock and hold it until it could be resold and to resell it if possible among the people of the county. The directors thereupon subscribed for 230 shares of the stock in the name of J. P. Donnally, one of their number, as trustee, and raised the money to meet their subscription by borrowing from another bank and executing their joint note for the amount. The stock was issued to and held by Donnally as trustee. He collected the dividends thereon and applied them toward paying the interest on the note, the additional amounts necessary for that purpose being put up by the directors. Ten shares of the stock thus purchased were sold, and the proceeds thereof were applied on the note.

Several of the defendants took the stand and testified that each was to own one-eleventh of the stock purchased; but it is clear that, while each had a one-eleventh interest in the enterprise, the stock was purchased as a result of the joint action of all, that it was paid for with the proceeds of a note that they executed jointly, that it was held in trust for their joint use and benefit, that they shared in the losses sustained as a result of the purchase, that the dividends received were applied for their joint benefit, that each had an equal voice in the management of the enterprise, and that they would have shared equally in profits, if profits had been realized.

It is true that defendants did not expect to realize any direct profit from the resale of the stock, but the purchase...