Elson v. Wright
| Decision Date | 04 June 1907 |
| Citation | 112 N.W. 105,134 Iowa 634 |
| Parties | C. W. ELSON, Receiver of the Bank of Lineville, v. GEORGE A. WRIGHT, Administrator of the Estate of F. S. Wasson, Deceased, Appellant |
| Court | Iowa Supreme Court |
Appeal from Wayne District Court.-- HON.H. M. TOWNER, Judge.
ACTION by plaintiff as receiver of a bank to recover an assessment of 50 per cent. on stock belonging to the estate of which defendant is administrator; the liability sought to be enforced being the double liability of stockholders in banks as provided by statute. Judgment for plaintiff on a directed verdict, from which defendant appeals.
Reversed.
Miles & Steele, for appellant.
Freeland & Carter and R. L. Parrish, for appellee.
The Bank of Lineville was incorporated in 1879, under the general banking laws of this State, in accordance with which its charter was to expire in twenty years. At the expiration of this period no steps were taken to reincorporate, but the bank continued to do business as a corporation under its original charter until in June, 1904, when under proceedings properly instituted, to which the bank and many of its stockholders became parties either by service of notice or by voluntary appearance, the plaintiff was appointed receiver. In October following the plaintiff applied to the court for an assessment of 50 per cent. on the capital stock of the bank under the double liability statute for the purpose of paying its debts and this assessment was ordered and made. Defendant's intestate had died in 1901, owning thirty-two shares of capital stock of the bank, of the par value of $ 100 each and these shares of stock still belonged to the estate at the time the assessment on stockholders was made; but, so far as appears by this record, neither the defendant administrator nor any other person representing the estate had been notified of the proceedings under which the assessment was made. The contention for appellant is that the assessment on the stock belonging to the estate was invalid, first, because of want of notice to the proper representative of the estate of the proceeding for such assessment; and, second, because the bank had ceased to be a corporation by reason of the expiration of its charter, and no assessment on its stockholders as such could be lawfully made.
I. The double liability of stockholders in banks is provided for in section 9 of article 8 of the State Constitution, but the method of enforcing such liability is left to be determined by statute. There are similar constitutional provisions in other States, and the statutes with reference to the enforcement of the liability have been various. In the absence of any specific provision, the liability of the stockholder under a constitutional or statutory regulation making him liable for the debts of the corporation has sometimes been treated as an individual liability to the creditors to be enforced by a bill in equity brought by one creditor in behalf of all, against one stockholder or any number of them, with the right of the stockholder held liable in such a proceeding to have contribution against other stockholders similarly liable. Erickson v. Nesmith, 46 N.H. 371; Wright v. McCormack, 17 Ohio St. 86; Umsted v. Buskirk, 17 Ohio St. 113; Palmer v. Woods, 149 Ill. 146 (35 N.E. 1122). And under this general theory it was early held in New York cases that an unsatisfied judgment against the corporation was not even prima facie evidence of the liability of the stockholder. 2 Morawetz, Corporations (2d Ed.), section 887. But this view has not been assented to in other jurisdictions, and the validity of a judgment as showing the liability of the corporation as the basis of an action against a stockholder to enforce his individual liability has been held conclusive. 2 Morawetz, Corporations (2d Ed.), section 886. The individual liability of the stockholder under double liability provisions has been treated as analogous to his liability for unpaid assessments; and it is pointed out that, although there is a distinction between these two classes of liability, the one being by way of security to the creditor for the debts of the corporation, and the other a direct liability to the corporation itself, yet as to the methods of enforcement there is no reason for any substantial difference. The indebtedness of the corporation must be established in either case, and can only be established by an action against the corporation itself. When such indebtedness has been established, and the inability of the corporation to satisfy it has been determined, then as to either class of stockholders' liabilities the receiver, representing the creditors as well as the corporation, may proceed against the stockholder, in the case of unpaid subscriptions, for the purpose of collecting a fund due to the corporation which ought to be paid over to satisfy the creditors, and in the case of the stockholders' double liability to collect a trust fund out of which the debts of the corporation are to be satisfied. In either case, in the very nature of things, the enforcement of the stockholders' liability must be predicated upon the ascertainment of the debts of the corporation and the proportionate amount to be levied on each stockholder to satisfy such indebtedness; and it is not necessary that the stockholder be individually a party to the receivership proceedings in which the indebtedness of the corporation is determined, and the amount of assessment to be collected is fixed. Howarth v. Angle, 162 N.Y. 179 (56 N.E. 489, 47 L. R. A. 725); Howarth v. Lombard, 175 Mass. 570 (56 N.E. 888, 49 L. R. A. 301); King v. Cochran, 76 Vt. 141 (56 A. 667, 104 Am. St. Rep. 922). In the New York case just cited it is said:
There is no substantial difference between the liability for an unpaid balance on a stock subscription, which is an express contract to take the stock and pay for it, and the liability for the unpaid deficiency of assets assumed by the act of becoming a member of the corporation through the purchase of stock, from which a contract is implied to perform the statutory conditions upon which stock may be owned. The fact that the former is the promise of a principal and the latter that of a surety does not affect the question. The express promise runs to the corporation, and may be enforced by it, while the implied promise runs to the creditors, and may, according to the common law of the State where it was made, be enforced for the benefit of creditors by a receiver of the corporation appointed to wind up its affairs. The latter promise is not a part of the capital stock of the bank, but is a substitute, required by statute, for the personal liability of a partner at common law, and has the same object, which is the protection of creditors.
In the Massachusetts case the court says:
There is as much reason for holding the proceedings of the court binding upon absent stockholders in this part of the administration of the affairs of the corporation as in the collection of unpaid subscriptions. The primary fund and the secondary fund are both to be administered under the order of the court. The court, in making assessments for unpaid subscriptions, does not act merely as the representative of the directors, who might have made such an assessment, but by virtue of its general power to do all that is proper in settling the affairs of the corporation. These assessments are, in principle, like the assessments made by the court upon the members of insolvent mutual fire insurance companies under the laws of this commonwealth, which are binding upon the members to whom no actual notice is given.
And in the Vermont case, with reference to the enforcement against a stockholder in that State of an assessment made by a court in Washington, this language is used:
It is argued that the defendant is not bound by the proceedings in which the individual liability of the stockholders was determined in the State of Washington, because not a party to those proceedings, and that he can be made liable here only in a court where an accounting of the assets and indebtedness of the bank can be had. This calls for an inquiry to the effect to be given to the account taken and assessment made by the Washington court having jurisdiction of that matter. If these proceedings are an adjudication conclusive upon the defendant, the amount of his liability is ascertained, and a suit at law is the appropriate remedy. In Hawkins v. Glenn, 131 U.S. 319 (9 S.Ct. 739, 33 L.Ed. 184), an assessment ordered by a court which had jurisdiction of the corporation was held binding upon stockholders residing in another State, although not made parties as individuals. It is said in that opinion that a stockholder is so far an integral part of the corporation that, in the view of the law, he is privy to the proceedings touching the body of which he is a member; that a decree against the corporation in respect to corporate matters, such as the making of an assessment in the discharge of a duty resting upon the corporation, necessarily binds its members in the absence of fraud; and that this is involved in the contract created in becoming a stockholder. It is true that the assessment sued upon in the case cited was on a subscription for stock, but we see no ground upon which the two liabilities can be distinguished, as regards the question under consideration; and other courts have held the same.
To the same effect, see Glenn v. Liggett, 135 U.S. 533 (10 S.Ct. 867, 34 L.Ed. 262); Whitmore v. Oxford National Bank, 176 U.S. 559 (20 S.Ct. 477, 44 L.Ed. 587); Irons v. Manufacturers' National Bank, (D. C.) 21 F. 197; Wilson v. Book, 13 Wash. 676 (43 P. 939). These cases all hold that the double liability of the stockholders under...
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