Cowden v. Williams

• Decision Date: 19 September 1927
• Docket Number: Civil. 2535
• Parties: J. S. COWDEN and SEVENTEEN OTHERS, Appellants, v. PERRY M. WILLIAMS, as Receiver of the CENTRAL BANK OF PHOENIX, an Insolvent Banking Corporation and THE BANK OF PHOENIX, an Insolvent Banking Corporation, Appellees
• Court: Arizona Supreme Court

259 P. 670

32 Ariz. 407

J. S. COWDEN and SEVENTEEN OTHERS, Appellants, v. PERRY M. WILLIAMS, as Receiver of the CENTRAL BANK OF PHOENIX, an Insolvent Banking Corporation and THE BANK OF PHOENIX, an Insolvent Banking Corporation, Appellees

Civil. No. 2535

Supreme Court of Arizona

September 19, 1927

APPEAL from a judgment of the Superior Court of the County of Maricopa. Gerald Jones, Judge. Affirmed.

Messrs Hayes, Stanford, Laney & Allee and Mr. A. W. Lennard, for Appellants.

Mr. J Early Craig and Mr. J. H. Moeur, for Appellees.

OPINION

LOCKWOOD, J.

This is an action against certain stockholders of the former Central Bank of Phoenix, hereinafter called the bank, based on section 11, article 14, of the Constitution of Arizona and section 23 of chapter 31, Session Laws of 1922, commonly known as the state Banking Code, to recover the double liability referred to in those sections. Originally there were some eighteen separate suits filed, one against each stockholder, but by consent of counsel they were consolidated in the lower court, and are heard here as one appeal.

All but one of the facts necessary for a determination of this appeal are undisputed, and we state them briefly as follows: The Central Bank of Phoenix was a banking corporation, organized under the laws of the state of Arizona. On March 19th, 1921, it suspended business, but on July 1st of the same year resumed operations under the name of the Bank of Phoenix, and continued to conduct a general banking business until February 27th, 1922, when it again and finally closed its doors. The next day the state superintendent of banks took control of the bank, and shortly after the Attorney General commenced an action, alleging, among other things, that it was conducting business in an unsafe manner and was or might become insolvent, asking that a receiver be appointed and the bank put into involuntary liquidation. A confession of the allegations of the complaint was filed, and the court, on March 24th ordered that the affairs of the bank be liquidated, and appointed Andrew Baumert, Jr., as receiver, with general powers to do all necessary things for that purpose. He qualified as receiver and acted as such till March 19th, 1923, when Perry Williams was appointed to succeed him. December 29th, 1922, Baumert filed a report showing the nominal assets as exceeding the liabilities some $150,000, as of the date of the closing of the bank, and of about the same amount as of the date of the report. On December 5th, 1923, Williams filed a report, showing that the actual value of all assets then on hand was some million dollars less than the liabilities. On February 23d, 1924, the court entered an order approving the report last mentioned, finding that the bank was insolvent to an extent greater than $100,000 in excess of its assets, and ordering the receiver to proceed against the stockholders on the constitutional and statutory provisions referred to above. Suits were filed in accordance with such order on November 29th, 1924.

At the hearing of the suits on the merits in the superior court both receivers testified. Williams stated that at least as early as June, 1923, he was satisfied that, short of "a thousand to one shot, as you might say, . . . we had as security several lots of land, and, if oil were discovered on one of these, it might pay out the liabilities of the bank," the institution was insolvent to the extent of at least $500,000. Baumert testified, in substance, that within ten days after accepting the receivership he knew the bank was insolvent. No testimony was offered contradicting these statements, and it may therefore be taken that more than a year before these suits were brought both receivers knew that short of a miracle the bank was hopelessly insolvent.

The trial court rendered judgment in favor of the receiver, and from this judgment the defendants have appealed. There are three assignments of error which raise two questions of law. The first is that section 23, chapter 31, Session Laws of 1922, is unconstitutional. The second is that the suits were barred by the statute of limitations. In order that we may determine the first question, it is necessary that we examine the constitutional and statutory provisions on which the suits are based. They read as follows:

"Section 11. The shareholders or stockholders of every banking or insurance corporation or association shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such corporation or association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares or stock." Article 14, Constitution of Arizona.

"Section 23. Liability of Stockholders. The stockholders of every banking corporation or association shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements, of such corporation or association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares or stock, and in case of the dissolution or liquidation of any bank under the provisions of this act or under the laws heretofore in force, the constitutional and statutory liability of the stockholders must be enforced for the benefit of the creditors of such bank by the superintendent of banks or by any receiver heretofore appointed under the provisions of section 294, title IV, Revised Statutes of Arizona, 1913, Civil Code, by an action in the superior court in the nature of a creditors' suit or by any other available action." Laws of 1922, chapter 31.

The argument of appellants on this point can be summarized thus: The right given by the Constitution to recover from the stockholders is a property right, vested in the individual creditors of the bank. Any statute placing the right to sue in the receiver deprives them of their property without due process of law, and impairs the obligation of a contract. They cite a number of cases in support of this proposition, the principal one being Golden v. Cervenka, 278 Ill. 409, 116 N.E. 273, wherein the court says:

"The creditors' rights in this case being constitutional, cannot be restricted by terms imposed by the Legislature. If the receiver can enforce this liability against the stockholders, then the decree must be binding on the creditors and payment to the receiver will discharge the stockholders. The stockholders cannot be compelled to pay, unless their payment discharges the liability. Therefore the statute provides for the collection by a stranger of the individual debt due the creditor and the discharge of the debtor without the creditors' consent. . . . The receiver acquires title, through the corporation, to corporate assets only, and as to such assets he represents the creditors but not in relation to their individual property. The creditors have a right to pursue and control their own remedies in regard to their own individual property, and did begin suit for the enforcement of the stockholders' liability. It is an unauthorized interference with the rights of the creditors to authorize the collection of the indebtedness due to them individually by a stranger, and with the rights of the stockholders to compel them to pay to a stranger when the Legislature has no authority to make the receipt of the stranger a discharge of the debt. Section 11 is invalid in so far as it authorizes the enforcement of the liability of stockholders to creditors by the receiver."

See, also, Williams v. Carter, 171 Cal. 658, 154 P. 472; Barth v. Pock, 51 Mont. 418, 155 P. 282; Alsop v. Conway (C.C.A.), 188 F. 568.

The decided weight of authority, however, adopts a contrary view, the ground for which is well stated in Henley v. Myers, 215 U.S. 373, 54 L.Ed. 240, 30 S.Ct. 148, in which it is held, discussing the right of a receiver to bring a suit in equity in the place of individual actions by creditors:

"In becoming stockholders the defendants did not acquire a vested right in any particular mode of procedure adopted for the purpose of enforcing their liability as stockholders. It is a well-established doctrine that mere methods of procedure in actions on contract that do not affect the substantial rights of parties are always within the control of the state."

See, also, Pittsburgh Steel Co. v. Baltimore E. Co., 226 U.S. 455, 57 L.Ed. 297, 33 S.Ct. 167; Bernheimer v. Converse, 206 U.S. 516, 51 L.Ed. 1163, 27 S.Ct. 755.

Nor does the fact that the original right was given by the Constitution instead of the statute make a difference. In Lynch v. Jacobsen, 55 Utah 129, 184 P. 929, a very similar situation to that involved in the case at bar was in issue, and the court said, after reviewing the cases:

"It is too well settled to admit of controversy . . . that, where certain rights are granted or certain liabilities are imposed by state Constitutions, all that is intended thereby, unless otherwise expressed in the instrument itself, is that the Legislature is bound by the constitutional provision as written. . . . If, therefore, the Constitution is silent respecting the remedy . . . the Legislature possesses full power to provide such a remedy. . . . In imposing the stockholders' additional liability the framers of our Constitution did not in the slightest degree limit the right of the Legislature to provide a remedy for its enforcement. That matter, like other remedies, was left entirely to the judgment of the Legislature."

In this opinion the case of Golden v. Cervenka, supra, was discussed and distinguished on the ground that the Illinois Constitution expressly fixed the remedy as well as the right. We are...