Cosmopolitan Trust Co. v. Cohen

• Decision Date: 01 March 1923
• Citation: Cosmopolitan Trust Co. v. Cohen, 244 Mass. 128, 138 N.E. 711 (Mass. 1923)
• Parties: COSMOPOLITAN TRUST CO. v. COHEN.
• Court: Supreme Judicial Court of Massachusetts

244 Mass. 128

138 N.E. 711

COSMOPOLITAN TRUST CO.

v.COHEN.

Supreme Judicial Court of Massachusetts, Suffolk.

March 1, 1923.

Report from Superior Court, Suffolk County; George A. Sanderson, Judge.

Action by Joseph C. Allen, Commissioner of Banks, in the name of the Cosmopolitan Trust Company, against Frank Cohen to enforce defendant's statutory liability as stockholder in such Trust Company. Reported from the superior court after a demurrer to the amended declaration was sustained in part. Demurrer overruled in part, and sustained in part.

Defendant filed a motion to dismiss the action, on the ground that the commissioner had no constitutional authority or legal right to institute or prosecute it, a plea in abatement on the same ground, and a demurrer on grounds stated in the opinion. The motion was denied, the plea overruled, and certaingroundsof the demurrer sustained. The case was reported on the ground that the issues of law raised by the demurrer so affected the merits of the controversy that the matter ought to be determined before further proceedings. Defendant appealed from the order denying the motion to dismiss and overruling the plea in abatement, but attempted to reserve ‘such rights and advantages as he may have under the order of this court sustaining his demurrer.’

Robert W. Nason and Thomas W. Proctor, both of Boston, for plaintiff.

Martin Witte, of Boston, for defendant.

RUGG, C. J.

This is an action of contract by the commissioner of banks, in possession of the Cosmopolitan Trust Company under G. L. c. 167, § 24, to recover an amount equivalent to the par value of the stock owned by the defendant in the trust company under G. L. c. 172, § 24, whereby stockholders in a trust company are made personally liable for the payment of its contracts, debts and engagements. The declaration alleges that the commissioner has determined that it is necessary to enforce to the full amount the individual liability of all stockholders in the trust company in order to pay its debts; that assessment has been made accordingly, and the defendant notified; that demand has been made of him for the amount due from him and payment refused.

The defendant demurred on the grounds: (1) That the declaration sets out no legal cause of action; (2) that the commissioner has no constitutional or legal right to bring the action; (3) that the trust company has no such right to bring the action; (4) that stockholders' liability cannot be enforced by proceedings at law; (5) that the declaration does not allege that a judgment has been recovered against the trust company and that it has neglected for 30 days after demand on execution to pay the amount due thereon, and that it has failed to exhibit to the officer property to be seized on such execution; and (6) that the commissioner has no lawful authority to determine the necessity for the enforcement of stockholders' liability.

The defendant also filed a ‘motion to dismiss,’ which was denied, and ‘plea in abatement,’ which was overruled, and the enforcement of stockholders' liability. of these special pleadings was an interlocutory matter, the decision of which did not render the case ripe for final judgment, and therefore neither come before us at this time by appeal. Weil v. Boston Elevated Railway, 216 Mass. 545, 104 N. E. 343. The points raised thereby are not included in the report. Hence they cannot be considered at this time. Eastman Marble Co. v. Vermont Marble Co., 236 Mass. 138, 151,122 N. E. 177. It is not necessary to decide whether they present any question differing in substance from those presented by the demurrer.

An order was entered sustaining the demurrer on grounds (1), (4) and (5). This was equivalent to overruling the other causes assigned in the demurrer. The judge, being of opinion that ‘the issues of law raised by the demurrer so affect the merits of the controversy that the matter ought to be determined before further proceedings are had,’ reported ‘the case for the consideration and determination of’ this court. G. L. c. 231, § 111.

The report is of all the issues of law raised by the demurrer. It is not confined to those on which it was sustained. All causes set forth in the demurrer are presented on this form of report and will be decided. The attempted reservation by the defendant for future consideration of the causes which were not sustained is ineffectual.

Certain points have been settled respecting the power of the commissioner and the liability of stockholders under the statutes. It was decided in Cosmopolitan Trust Co. v. Mitchell, 242 Mass. 95, 136 N. E. 403, that St. 1910, c. 399, now G. L. c. 167, §§ 1 and 22 to 36, as to the powers conferred upon the commissioner of banks to take possession of the property and business of a delinquent trust company and to liquidate its affairs was constitutional. It was decided in Commissioner of Banks v. Prudential Trust Co., 242 Mass. 781, 136 N. E. 410, that the power to determine whether to enforce the liability of the stockholders and the power to decide finally the amount of such liability to be enforced, up to the full limit established 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. It further was decided in the latter case that the statute as thus construed and interpreted violated no constitutional right of the stockholders.

[5] Those questions are no longer open to discussion. They are the basis of the present decision. The principles declared in these two recent adjudications demonstrate without discussion that causes (2), (3) and (6) assigned in the demurrer cannot be sustained.

The precise points now presented relate to the form of procedure for the enforcement of the stockholders' liability.

The liability of stockholders for debts of a corporation is wholly the creature of statute. No such liability existed at common law. The statute which creates the liability may also prescribe the remedy for its enforcement. Spear v. Grant, 16 Mass. 9;Norton v. Hodges, 100 Mass. 241;Old Dominion Copper Mining & Smelting Co. v. Bigelow, 203 Mass. 159, 192, 89 N. E. 193,40 L. R. A. (N. S.) 314;Pollard v. Bailey, 20 Wall. 520, 526, 22 L. Ed. 376. Therefore it is necessary to resort to the terms of the statute to determine the nature and extent of the liability of stockholders in trust companies and the means for its enforcement.

[8][9] The first general provision of law imposing liability for debts, contracts and engagements of trust companies upon their stockholders was St. 1888, c. 413, § 14. In substance and effect that was the same as G. L. c. 172, § 24, which is in these words:

‘The stockholders of such corporation shall be personally liable, equally and ratably and not one for another, for all contracts, debts and engagements of the corporation, to the amount of their stock there in at the par value thereof, in addition to the amount invested in such shares. Sections forty-six, forty-seven and forty-nine to fifty-four, inclusive, of chapter one hundred and fifty-eight shall apply to and regulate the enforcement of such liability, and receivers of insolvent trust companies may, with the approval of the supreme judicial court, enforce such liability.’

The statute was in substantially that form when St. 1910, c. 399, was enacted, which embodied in many respects a new legislative policy concerning the...