Federal Deposit Ins. Corp., v. Ensteness
| Decision Date | 27 May 1942 |
| Docket Number | 8450 |
| Citation | 4 N.W.2d 209,68 S.D. 467 |
| Court | South Dakota Supreme Court |
| Parties | FEDERAL DEPOSIT INSURANCE CORP. OF WASHINGTON, D.C., Receiver of Farmers & Merchants Bank, Revillo, SD, Appellant, v. L.E. ENSTENESS, Respondent |
The Federal Deposit Insurance Corporation of Washington, D. C., receiver of the Farmers and Merchants Bank of Revillo, South Dakota, brought action in December, 1939, against the defendant, L. E. Ensteness, on his refusal and failure to pay the assessment levied on five shares of the capital stock in said bank. The bank had qualified and become a member of the Federal Deposit Insurance Corporation prior to July 1, 1933, and continued to be such member up to the time that it became of unsound financial condition, April 21, 1936, at which date it suspended business and its assets were taken over by the Department of Banking and Finance of the State of South Dakota by and through its superintendent of banks for the purpose of liquidation.
By proceedings in the Circuit Court the plaintiff herein was appointed receiver of the bank and thereupon took over the assets of the bank for such purposes. It would appear that the assets of the bank were insufficient to pay and retire all of the liabilities of the bank. Notice was given to the defendant apprising him of the insufficiency of the funds to pay the liabilities and a demand that he pay the full amount of his stockholder’s liability.
The defendant sought to escape the liability upon the theory that at the date of the closing of the bank, stockholders of national banking corporations were exempt from liability by federal law and that before the enforcement of the defendant’s individual liability the liability of state banks bad been repealed by the provision of the amendment of Section 3, Article XVIII, SD Constitution adopted at the November 1936 election making the state and federal laws the same as to such liability.
The action was submitted upon stipulated facts to the trial court. The facts having been stipulated both parties moved the court for findings, conclusions and judgment. Findings, conclusions and a judgment were entered in favor of the defendant and against the plaintiff. The plaintiff has appealed.
The appellant predicates error in the court’s adopting making and entering a portion of finding 8, to the effect that at the commencement of the action in December, 1939, there was no statute or constitutional provision which imposed any liability upon the respondent as a stockholder of the Farmers and Merchants Bank. The appellant argues that the respondent as a stockholder in the bank was liable to the creditors thereof and that the liability being contractual in its nature could not be affected by the adoption of an amendment to the constitutional provision after the bank’s suspension. The proposed amendment to the constitution, Chapter 140 of the 24th Session of the SD Legislature, 1935, provided that an amendment should be submitted to a vote of the qualified electors of the State of South Dakota, at the general election to be held in November, 1936. Section 3 thereof reads as follows:
“The shareholders or stock. holders of any banking corporation shall be held individually responsible and liable for all contracts, debts and engagements of such corporation 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 such individual liability shall continue for one year after any transfer or sale of stock by any stockholder or stockholders, Provided that if the shareholders and stockholders of any national banking corporation shall be exempt from liability by federal law then and in that event the liability upon shareholders and stockholders of state banking corporations herein imposed shall not be operative in the event that such Estate] banking corporation has membership in the Federal Deposit Insurance Corporation.”
The foregoing section was adopted at the November 1936 general election and became a part of our constitution and replaced the then existing section 3 of Article XVIII which read: “The shareholders or stockholders of any banking corporation shall be held individually responsible and liable for all contracts, debts and engagements of such corporation 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 such individual liability shall continue for one year after any transfer or sale of stock by any stockholder or stockholders.”
The respondent insists that upon the adoption of the new constitutional provision that the old provision became inoperative and void and that in effect the repealed section of the constitution must be considered as a provision which had never existed. We do not believe that contention is supported by logic nor by the authorities.
We now proceed to treat the respondent’s liability in the light of our own decisions construing a stockholder’s liability at the time the respondent acquired the stock. This court in a recent decision, Hopkins et al. v. Glendenning, 68 SD 208, 299 NW 905, held that the liability of the stockholders under our constitutional provision existed in the favor of and for the benefit of creditors.
In Luikart v. Heelan et al., 136 Neb. 492, 286 NW 780, 782, the court held and we quote:
“We must uphold the rights and obligations to just the same effect in the case at bar as though there had not been any repeal of the constitutional provision for a double liability. 13 Am. Jur. 584, sec. 573; 12 C. J. 1062; Coombes v. Getz, 285 US 434, 52 SCt 435, 76 LEd 866; In re Westchester Title & Trust Co., 170 Misc. 860, 10 N.Y. S.2d 190; Henry v. Alexander, 186 S. C. 17, 194 S. E. 649.
“This court has recently had this same question before it, and on June 2, 1939, released the opinion in Department of Banking v. Foe , 286 NW 264, 265 [123 ALR 8941, in which we held:
'The repeal of a constitutional provision, imposing double liability on corporate stockholders of an insolvent bank, not containing a saving clause, does not affect the obligation of such stockholders as to liabilities incurred by the banking institution prior to such repeal.’ “
See Haberlach v. Tillamook County Bank et al., 134 Or. 279, 293 P. 927, 72 ALR 1245, and annotation at page 1252 and especially note at page 1259; Luikart v. Higgins et al., 130 Neb. 395, 264 NW 903; White v. Idsardi, 253 App. Div. 96, 300 NYS 1239; Simons et al. v. Groesbeck, 268 Mich. 495, 256 NW 496; Babka Plastering Company et al. v. City State Bank of Chicago et al., 264 Ill. App. 142; Chavous v. Gornto, 89 Fla. 12, 102 So. 754; United States et al. v. Freeman et al., D. C., 21 FSuPp. 593; Allen v. McFerson, 77 Colo. 186, 235 P. 346; White, Sup’t of Banks of State of New York, v. Adler et al., 255 App. Div. 580, 8 N. Y. S.2d 513; Ochiltree v. Iowa Railroad Contracting Company, 21 Wall. 249, 22 LEd 546; Whitman v. National Bank of Oxford, 176 US 559, 20 SCt 477, 44 LEd 587; Dodge v. Woolsey, 18 How. 331, 15 LEd 401; Coombes v. Getz, 285 US 434, 52 SCt 435, 76 LEd 866; Fitzpatrick’s Guardian v. First National Bank of Whitesburg’s Receiver, 256 Ky. 93, 75 SW2d 754; Pritchard v. Norton, 106 US 124, 1 SCt 102, 27 LEd 104; 7 Am. Jur. Banks, See. 74; 9 CJS, Banks and Banking, § 78, p. 151; In re Westchester Title & Trust Company, 170 Misc. 860, 10 N.Y. S.2d 190, 193; Commissioner of Banks v. Cosmopolitan Trust Company et al., 253 Mass. 205, 148 N. E. 609, 41 ALR 658.
The holding of the trial court to the effect that at the time the action was commenced there was no statute nor constitutional provision which imposed any liability upon the respondent under the facts in the case is vital and will be considered, first, upon the theory that the bank stockholder’s liability is self-executing, Smith v. Olson, 50 SD 81, 208 NW 585, Hirning v. Oppold, 48 SD 70, 201 NW 721, second, that it is a primary liability of the bank stockholder under the constitution when the liability was contracted. This court in Smith v. Olson, supra, held that this primary liability of a bank stockholder under our constitution could not be varied or diminished by the legislature. There can be no question as to the stockholder’s liability under the existing law before the amendment to the constitution was made effective. Can it be that this change could destroy a creditor’s right to recover from the respondent? The respondent would have us believe that there is a way out; that the people substituted insurance of the deposits for the old remedy of stockholder’s double liability. That we do not believe wag the purpose of the amendment and in our opinion could not destroy vested rights. The respondent urges that State ex rel. Sharpe v. Smith, 58 SD 22, 234 NW 764, 778, favors their contention. In that opinion, this court recognized that vested rights could not be destroyed. Our court in that case was dealing with facts different than the facts in the instant case and therefore cannot be construed favorable to the respondent’s contention if one will give consideration to the following extracts which pertinent to the facts before us and we quote:
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