Davis v. Johnson
| Decision Date | 30 December 1918 |
| Docket Number | 1915 |
| Citation | 170 N.W. 520,41 N.D. 85 |
| Court | North Dakota Supreme Court |
From a judgment of the District Court of Sheridan County, Honorable W. L. Nuessle, Judge, defendant appeals.
Affirmed.
Geo Thom, Jr., for appellant.
The receiver of an insolvent corporation, a bank, has no title or interest in the matter of the statutory liability of the stockholders of such bank, and he cannot maintain an action against a stockholder to recover on such liability.
This right only exists in the creditors of the bank. Comp. Laws 1913, §§ 7995-7998.
And the court may compel all the creditors to come in as parties and present and prove their claims. Comp. Laws 1913, § 7321; 7 R. C. L. art. 373; McLoughlin v. O'Neill (Wyo.) 51 P. 243; 34 Cyc. note 13 and cases cited; 31 L.R.A.(N.S.) 365, note and authorities.
A trustee in bankruptcy of a corporation cannot enforce the statutory liability of a stockholder, since it is not a corporation asset and does not pass to the trustee, but remains subject to the demands of the creditors, if the corporate assets are insufficient to discharge their claims. Walsh v. Skanklin, 125 Ky. 715, 102 S.W. 295; Zang v. Wyant, 25 Colo. 551; Lane v Morris, 8 Ga. 468; Wincock v. Turpin, 96 Ill 135; Hammond v. Cline, 170 Ind. 452; Woodworth v. Bowles, 61 Kan. 569; Childs v. Cleaves, 95 Me. 498; Colton v. Mayer, 90 Md. 711; Hancock Nat. Bank v. Ellis, 166 Mass. 414; Palmer v. Bank of Zumbrota, 65 Minn. 90; Millisack v. Moore, 76 Mo.App. 528; Holcomb v. Tierney, 79 Neb. 660; Hirschfield v. Fitzgerald, 157 N.Y. 166; Finney v. Guy (Wis.) 82 N.W. 595; Wright v. McCormack, 17 Ohio St. 86; Ball v. Anderson, 196 Pa. 86; Steinke v. Loofbourow, 17 Utah 252; Murtey v Allen, 71 Vt. 377; Hale v. Allinson, 188 U.S. 56; note in 31 L.R.A.(N.S.) 365.
When the statute provides a method of procedure, that method is exclusive. Sess. Laws 1915, House Bill 344; Finney v. Guy (Wis.) 82 N.W. 595.
The defendant was entitled to notice of the determination of the stockholders' statutory liability, and the court erred in holding to the contrary. No notice of the hearing before the court or of the order making the assessment was given defendant. Comp. Laws 1913, §§ 7995, 7998, 8000; 34 Cyc. 396.
Harry E. Dickinson, for respondent.
The statutory liability of stockholders of a corporation is no different in principle from the liability of the stockholder for his unpaid stock subscription; that both are trust funds for the payment of the corporate debts and should be collected and administered in the same manner. That the method provided by statute and relating to creditor's suits is not exclusive. This rule is sometimes known as the Washington rule and has been followed by many states. 31 L.R.A.(N.S.) 365, 368 note; Wilson v. Book (Wash.) 43 P. 939; Watterson v. Masterson (Wash.) 46 P. 1041; Shuey v. Adair (Wash.) 64 P. 536; Howarth v. Lombard, 175 Mass. 570; Smathers v. Bank, 135 N.C. 410; Barton Bank v. Atkins, 72 Vt. 33; Howarth v. Elwanger, 86 F. 54; Conway v. Savings Bank, 165 F. 822; State v. Union Stock Yards Bank (Iowa) 70 N.W. 752; Elson v. Wright (Iowa) 112 N.W. 105; Farmers Loan & T. Co. v. Funk, 49 Neb. 353, 63 N.W. 520.
Wherever this liability is regarded and treated as a trust fund, this doctrine and method prevail. State v. Union Stock Yards Bank, 70 N.W. 752; Farmers L. & T. Co. v. Funk, 68 N.W. 520.
Such liability is not one direct to the creditors, but constitutes a trust fund for the debts of the bank which the receiver is authorized to collect and distribute. Elson v. Wright (Iowa) 112 N.W. 105; Wilson v. Book, 43 P. 939.
Courts now refuse to follow the old rule of exclusive liability to creditors, and have adopted new rules more in consonance with principle and convenience of procedure, and now the receiver may proceed either in equity or by separate suits at law. Shuey v. Adair (Wash.) 54 P. 536; Comp. Laws 1913, § 7995, et seq.; John Miller Co. v. Harvey Mercantile Co. 165 N.W. 558.
The action or proceeding which is authorized by our Code is similar to a creditor's bill. Its object and purpose is single, and that is to collect into a common fund the assets of the corporation. John Miller Co. v. Harvey Merc. Co. (N.D.) 165 N.W. 558; 7 C. J. 511 (85); State v. Merchants Bank, 70 N.W. 803; People v. Bank, 74 N.Y.S. 806.
Where a corporation has suspended business by reason of insolvency, and a receiver or trustee has been appointed by a court of equity, the court will, in accordance with the usual course of practice in chancery cases, take and state an account of the assets and liabilities of the corporation and of what is due from its shareholders in the aggregate, as well as of what is due from each individually, and on this basis make an interlocutory decree, ordering an assessment upon the shareholders to raise the money to liquidate its debts and to pay the attendant costs. Such decree is conclusive upon all shareholders, whether or not they were made parties or served with process. The theory is that the corporation is still, in a sense, their agent and that they are parties by representation. 10 Cyc. 735 (3); 33 L.R.A.(N.S.) 910, note and cases cited; Shaefe v. Lorimer, 79 F. 921; 7 C. J. 515; Uleland v. Haugen, 73 N.W. 169; Elson v. Wright, 112 N.W. 105.
This is an action brought by the plaintiff as receiver of the Farmers & Merchants State Bank of Denhoff, an insolvent banking corporation, against the defendant as a stockholder in said bank, to enforce the liability created by § 5168, Compiled Laws 1913, which provides that the shareholders of every banking association organized under the laws of this state The action was tried to the court without a jury and resulted in a judgment in favor of the plaintiff. Defendant appeals from the judgment.
The material facts are not in controversy, and may be summarized as follows: The defendant Johnson was the owner of ten shares of the capital stock of the Farmers & Merchants State Bank of Denhoff. On January 22d, 1913, he made a deal with one Hosick whereby the stock was assigned to Hosick, and it was on the same day transferred to Hosick on the books of the bank. It is conceded that Hosick at the time of the transfer was, and ever since has been, insolvent. On April 28th, 1913, the state examiner declared the bank to be insolvent and closed it and took charge of its assets. An action was subsequently commenced by the attorney general under the provisions of article 3, of chapter 27 of Code of Civil Procedure, to dissolve the corporation, sequestrate its property, and distribute its assets among those lawfully entitled thereto. The plaintiff was duly appointed receiver in such action, and thereafter duly qualified and entered upon the discharge of his duties as such receiver. The receiver caused notice to the creditors of the said insolvent bank to be duly published, notifying all of the creditors to present their claims against the corporation for allowance by the court, and thereafter, in June, 1916, plaintiff presented a verified application to the district court, showing the assets and the claims filed and approved against the bank, and averring that there would be a deficiency requiring the enforcement of the full amount of the additional stockholders' liability, provided by § 5168, Compiled Laws 1913. The court entered an order assessing each and every stockholder of the bank, shown by the records and books of the bank to be such stockholders on April 29th 1913, 100 per cent of the amount of stock held by such stockholders.
As already stated, it is conceded that Hosick, the transferee of the defendant's stock, is insolvent. It is also conceded that he has removed and is a resident of Canada, and that any assessment made on the Hosick stock would eventually have to be paid by the defendant, Johnson. It also appears that both Hosick and Johnson were notified of the assessment and demand made for the payment of the amount thereof.
The action was commenced in October, 1915. But the case was tried upon the issues framed by an amended complaint served in August, 1916, and an answer thereto served in September, 1916. On this appeal defendant contends that the judgment is erroneous and should be reversed for the reasons: (1) That the receiver of an insolvent bank has no interest in or right to enforce the statutory liability imposed upon stockholders by § 5168, Compiled Laws 1913, but that such liability is enforceable only in an action brought by a creditor or creditors; and (2) that the assessment made by the court in the case at bar is void for want of notice to the defendant. We will consider these propositions in the order stated.
1. Whether the receiver of an insolvent corporation may, in the absence of express statutory authority, enforce a statutory added liability of holders of corporate stock, is a question upon which the authorities have differed. The question is an interesting one, but in our opinion it is not involved in this case. For in this state the legislature has expressly provided that the receiver of an insolvent bank shall "enforce the individual liability of...
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